SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /_X__/
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Pre-Effective Amendment No. __ /____/
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Post-Effective Amendment No. ___ /____/
(Check appropriate box or boxes)
JOHN HANCOCK INVESTMENT TRUST
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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, LLC
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.
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. 2-10156 and 811-0560).
It is proposed that this filing will become effective on September 28, 2003
pursuant to Rule 488 under the Securities Act of 1933.
IMPORTANT INFORMATION
Dear Fellow Shareholder:
I am writing to ask for your vote on an important matter that will affect your
investment in John Hancock Large Cap Spectrum Fund and/or John Hancock Dividend
Performers Fund. The enclosed proxy statement contains information about
proposals to approve the reorganizations of each of these funds into another
John Hancock fund, John Hancock Sovereign Investors Fund. If the reorganization
of your Fund is approved, shareholders of your Fund will become shareholders of
Sovereign Investors Fund upon the closing of the reorganizations and will
receive shares of Sovereign Investors Fund in proportion to the value of your
shares in Large Cap Spectrum Fund and/or Dividend Performers Fund. Each
reorganization is a separate proposal and will not be affected by the result of
the other reorganization.
Why are the reorganizations being proposed?
The reorganizations are intended to consolidate each of these equity funds that
focus on large capitalization issuers into one fund pursing a core, large cap
strategy. The surviving fund, Sovereign Investors Fund, is an established large
capitalization equity fund. Sovereign Investors Fund holds similar securities to
Large Cap Spectrum Fund and Dividend Performers Fund and follows an investment
approach that is slightly different than Large Cap Spectrum Fund's investment
approach and substantially similar to Dividend Performers Fund's investment
approach. Sovereign Investors Fund also has a long-term track record and a
substantially larger asset size than either Large Cap Spectrum or Dividend
Performers Fund.
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 combination of these
funds resulting from the reorganization 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 in the long
term than each fund would achieve separately.
Impact on Fund Expenses
It is important to note that your fund expenses will not increase as a result of
either reorganization. In fact, expenses of the Sovereign Investors Fund after
the reorganization are expected to be lower than both Large Cap Spectrum Fund's
and Dividend Performers Fund's operating expenses before and after fee
reductions.
Your Vote Matters
After careful consideration, your fund's trustees have unanimously approved the
reorganization of each of John Hancock Large Cap Spectrum Fund and John Hancock
Dividend Performers Fund into John Hancock Sovereign Investors Fund. The
enclosed proxy statement contains further explanation and important details of
the reorganizations, which I strongly encourage you to read before voting. If
approved by the shareholders, the reorganizations are scheduled to take place at
the close of business on December 5, 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 Ford Goldfarb
Chairman and Chief Executive Officer
JOHN HANCOCK Dividend Performers Fund
(a series of John Hancock Institutional Series Trust)
JOHN HANCOCK LARGE CAP SPECTRUM FUND
(a series of John Hancock Equity Trust)
(each a "fund")
101 Huntington Avenue
Boston, MA 02199
Notice of Joint Special Meeting of Shareholders
Scheduled for December 3, 2003
This is the formal agenda for each 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 each fund:
A joint shareholder meeting for the funds will be held at 101 Huntington Avenue,
Boston, Massachusetts on Wednesday, December 3, 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 Large Cap Spectrum Fund ("your fund" or "Large Cap Spectrum Fund") and
John Hancock Sovereign Investors Fund ("Sovereign Investors Fund"). Under this
agreement, your fund would transfer all of its assets to Sovereign Investors
Fund in exchange for Class A, B and C shares of Sovereign Investors Fund. These
shares would be distributed proportionately to you and the other shareholders of
Large Cap Spectrum Fund. Sovereign Investors Fund would also assume Large Cap
Spectrum Fund's liabilities. Large Cap Spectrum Fund's board of trustees
recommends that you vote FOR this proposal.
2. A proposal to approve an Agreement and Plan of Reorganization between John
Hancock Dividend Performers Fund ("your fund" or "Dividend Performers Fund") and
John Hancock Sovereign Investors Fund ("Sovereign Investors Fund"). Under this
agreement, your fund would transfer all of its assets to Sovereign Investors
Fund in exchange for Class I shares of Sovereign Investors Fund. These shares
would be distributed proportionately to you and the other shareholders of
Dividend Performers Fund. Sovereign Investors Fund would also assume Dividend
Performers Fund's liabilities. Dividend Performers Fund's board of trustees
recommends that you vote FOR this proposal.
3. Any other business that may properly come before the meeting.
Shareholders of record as of the close of business on October 6, 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
October 8, 2003
PROXY STATEMENT of
John Hancock Dividend Performers Fund
a series of John Hancock Institutional Series Trust
("Dividend Performers Fund," an "Acquired Fund," or "your fund")
John Hancock Large Cap Spectrum Fund
a series of John Hancock Equity Trust
("Large Cap Spectrum Fund," an "Acquired Fund" or "your fund")
PROSPECTUS for
John Hancock Sovereign Investors Fund
a series of John Hancock Investment Trust
(the "Acquiring Fund" or "Sovereign Investors Fund")
The address of each Acquired Fund and the Acquiring Fund is 101 Huntington
Avenue, Boston, Massachusetts 02199.
* * * * * *
This proxy statement and prospectus contains the information shareholders should
know before voting on the proposed reorganizations. Please read it carefully and
retain it for future reference.
Acquired Fund Acquiring Fund Shareholders Entitled to Vote
Proposal 1 Large Cap Sovereign Large Cap Spectrum Fund
Spectrum Fund Investors Fund shareholders
Proposal 2 Dividend Sovereign Dividend Performers Fund
Performers Fund Investors Fund shareholders
How Each Reorganization Will Work
o Each 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, Class B and Class C shares to Large Cap
Spectrum Fund in amounts equal to the value of its net assets attributable to
its Class A, Class B and Class C shares, respectively. These shares will be
distributed to each shareholder of Large Cap Spectrum Fund in proportion to
their holdings of the respective Class of shares on the reorganization date.
o The Acquiring Fund will issue Class I shares to Dividend Performers Fund in an
amount equal to the value of Dividend Performers Fund's net assets. These shares
will be distributed to Dividend Performers Fund's shareholders in proportion to
their holdings on the reorganization date.
o Each 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 Reorganizations
The reorganizations are intended to consolidate each of these equity funds that
focus on large capitalization issuers into one fund pursuing a large cap, core
strategy. The Acquiring Fund is an established large capitalization equity fund.
Sovereign Investors Fund holds similar securities but follows a slightly
different investment approach than either Acquired Fund. The Acquiring Fund also
has a long-term track record and a larger asset size than either Acquired Fund.
1
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 combination of these
funds resulting from the reorganization 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 in the long
term than each fund would achieve separately.
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.
Where to Get More Information
Large Cap Spectrum Fund
Shareholders:
Class A, B, and C prospectus In the same envelope as this proxy
of Sovereign Investors Fund dated statement and prospectus. These
March 1, 2003 as revised documents are incorporated by reference
October 1, 2003. into (and therefore legally part of)
this proxy statement and prospectus.
Dividend Performers Fund
Shareholders:
Class I prospectus of Sovereign
Investors Fund dated March 1, 2003
as revised October 1, 2003.
The annual report to
shareholders dated December 31,
2002 and the semiannual report
to shareholders dated June 30,
2003 of Sovereign Investors
Fund.
Prospectus of Dividend
Performers Fund, dated July 1,
2003.
Prospectus of Large Cap Spectrum
Fund, dated March 1, 2003 as
revised October 1, 2003.
The annual report to On file with the Securities and
shareholders dated February 28, Exchange Commission ("SEC") or
2003 of Dividend Performers Fund. available at no charge by calling our
toll-free number: 1-800-225-5291.
The annual report to Incorporated by reference into (and
shareholders dated October 31, therefore legally part of) this proxy
2002 and semi-annual report to statement and prospectus.
shareholders dated April 30,
2003 of Large Cap Spectrum Fund.
A combined statements of
additional information dated
October 8, 2003. They contain
additional information about the
Acquired Funds and the Acquiring
Fund.
To ask questions about this Call our toll-free telephone number:
proxy statement and prospectus. 1-800-225-5291
The date of this proxy statement and prospectus is October 8, 2003.
2
TABLE OF CONTENTS
Page
INTRODUCTION
PROPOSAL 1-- LARGE CAP SPECTRUM FUND
Summary
Comparison of Investment Risks
Comparison of Investment Performance
Proposal to Approve the Agreement and Plan of
Reorganization
PROPOSAL 2-- DIVIDEND PERFORMERS FUND
Summary
Comparison of Investment Risks
Comparison of Investment Performance
Proposal to Approve the Agreement and Plan of
Reorganization
PAST PERFORMANCE OF EACH FUND
FURTHER INFORMATION ON EACH REORGANIZATION
CAPITALIZATION
ADDITIONAL INFORMATION ABOUT THE FUNDS' BUSINESSES
BOARDS' EVALUATION AND RECOMMENDATION
VOTING RIGHTS AND REQUIRED VOTE
INFORMATION CONCERNING THE MEETING
OWNERSHIP OF SHARES OF THE FUNDS
EXPERTS
AVAILABLE INFORMATION
EXHIBIT A-- Form of Agreement and Plan of Reorganization
3
INTRODUCTION
This proxy statement and prospectus is being used by the Acquired Funds' boards
of trustees to solicit proxies to be voted at a special meeting of each Acquired
Fund's shareholders. This meeting will be held at 101 Huntington Avenue, Boston,
Massachusetts on Wednesday, December 3, 2003 at 9:00 A.M., Eastern Time. The
purpose of the meeting is to consider proposals to approve Agreements and Plans
of Reorganization (each an "Agreement") providing for the reorganization of the
Acquired Funds into the Acquiring Fund (each, a "Reorganization"). This proxy
statement and prospectus is being mailed to your fund's shareholders on or about
October 8, 2003.
For each proposal, this proxy statement and prospectus includes information that
is specific to that proposal, including a comparison summary. You should read
the entire proxy statement carefully, including Exhibit A and the enclosed
prospectus and annual and semiannual reports of Sovereign Investors Fund,
because they contain details that are not in the summary.
Who is Eligible to Vote?
Shareholders of record on October 6, 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
Agreements. If any other business comes before the meeting, your shares will be
voted at the discretion of the persons named as proxies.
4
PROPOSAL 1
Approval of Agreement and Plan of Reorganization Between
Large Cap Spectrum Fund and Sovereign Investors Fund
A proposal to approve an Agreement and Plan of Reorganization between Large Cap
Spectrum Fund and Sovereign Investors Fund. Under this Agreement, Large Cap
Spectrum Fund would transfer all of its assets to Sovereign Investors Fund in
exchange for Class A, B and C shares of Sovereign Investors Fund. These shares
would be distributed proportionately to the shareholders of Large Cap Spectrum
Fund. Sovereign Investors Fund would also assume Large Cap Spectrum Fund's
liabilities. Large Cap Spectrum Fund's board of trustees recommends that
shareholders vote FOR this proposal.
SUMMARY
Comparison of Large Cap Spectrum Fund to Sovereign Investors Fund
COMPARISON OF FUNDS AND INVESTMENT OBJECTIVES, STRATEGIES AND POLICIES
Large Cap Spectrum Fund Sovereign Investors Fund
Business A non-diversified series of A diversified series of
John Hancock Equity Trust, John Hancock Investment
an open-end investment Trust, an open-end
management company organized investment management
as a Massachusetts business company organized as a
trust. Massachusetts business
trust.
Net assets as $17.5 million $1,252.0 million
of June 30,
2003
Investment Investment Adviser: Investment Adviser:
adviser, John Hancock Advisers, LLC John Hancock Advisers, LLC
subadviser and -Responsible for the core
portfolio portion of the fund and Portfolio managers:
managers supervising the subadvisers John F. Snyder, III
for the growth and value -Joined fund team in 1983
portions of the fund -Joined Adviser in 1991
-Began business career in
Subadviser: 1971
Alliance Capital Management
L.P. Barry H. Evans, CFA
-Responsible for growth -Joined fund team in 1996
portion of fund -Joined Adviser in 1986
-Provides investment -Began business career in
advisory services to 1986
individual and institutional
investors Peter M. Schofield, CFA
-Supervised by the Adviser -Joined fund team in 1996
-Founded in 1971 -Joined Adviser in 1996
-Began business career in
Bernstein Investment 1984
Research & Management Unit
-Responsible for value
portion of fund
-Unit of Alliance Capital
Management L.P.
-Supervised by the Adviser
Portfolio managers:
U.S.-based team including
members of the Adviser and
each subadviser responsible
for day-to-day investment
management
Investment The fund seeks long-term The fund seeks long-term
objective growth of capital. growth of capital and
income without assuming
This objective is undue market risks.
non-fundamental and can be
changed without shareholder This objective is
approval. fundamental and can only be
changed with shareholder
approval.
Primary The fund normally invests at The fund normally invests
investments least 80% of its assets in at least 80% of its stock
stocks of investments in a
large-capitalization diversified portfolio of
companies (companies in the companies with market
capitalization range of the capitalizations within the
Standard & Poor's 500 index, range of the Standard &
which was $______ million to Poor's 500 Index, which was
$_____ billion on August 31, $______ million to $______
2003). billion as of August 31,
2003.
5
COMPARISON OF FUNDS AND INVESTMENT OBJECTIVES, STRATEGIES AND POLICIES
Large Cap Spectrum Fund Sovereign Investors Fund
At least 65% of the fund's
stock investments are
"dividend performers"
(companies whose dividend
payments have increased
steadily for ten years).
Historically, these
companies have tended to
have large or medium
capitalizations.
The fund may invest in
bonds of any maturity, with
up to 5% of assets in junk
bonds rated as low as C and
their unrated equivalents.
Under normal circumstances,
the fund may not invest
more than 10% of assets in
cash or cash equivalents.
Investment The fund's assets are In managing the portfolio,
Strategies managed according to three the managers use
separate investment fundamental financial
strategies: growth, core analysis to identify
and value. The fund's individual companies with
assets are allocated to high-quality income
reflect an optimal statements, substantial
combination as determined by cash reserves and
the Adviser's: (1) identifiable catalysts for
assessment of three growth, which may be new
strategies' historical risk, products or benefits from
return and correlation, and industry-wide growth. The
(2) long-term strategic view managers generally visit
of the relative companies to evaluate the
attractiveness of the three strength and consistency of
strategies. their management strategy.
Finally, the managers look
Growth strategy. In for stocks that are
managing the growth portion reasonably priced relative
of the portfolio, the to their earnings and
managers seek to identify industry.
companies with above-average
earnings growth prospects
that are not fully reflected
in current market
valuations. They emphasize
stock selection, relying
heavily upon the fundamental
analysis and research of
their internal research
staff. They favor companies
with strong management,
superior industry positions
and excellent balance sheets.
Core strategy. In managing
the core portion of the
portfolio, the managers look
for companies that are
undervalued and/or offer the
potential for above-average
earnings growth. The
managers employ a
combination of proprietary
financial models and
bottom-up, fundamental
financial research to
identify companies that are
selling at what appear to be
substantial discounts to
their long-term intrinsic
value. These companies often
have identifiable catalysts
for growth, such as new
products, business
reorganizations or mergers.
Value strategy. The
managers of the value
portion of the fund look for
companies that they believe
are undervalued. They employ
a fundamental value
approach, focusing on the
relationship between a
security's current price and
its intrinsic economic
value, as measured by
earnings power and dividend
paying capability.
Foreign The fund may invest up to The fund typically invests
Securities 20% of assets in foreign in U.S. companies but may
securities. invest in
dollar-denominated or
traded foreign securities.
Diversification The fund is non-diversified The fund is diversified,
and may invest up to 10% of which means that, with
assets in securities of respect to 75% of total
individual companies. assets, the fund cannot
invest (i) more than 5% of
total assets in securities
of a single issuer or (ii)
in securities representing
more than 10% of the
outstanding voting
securities of an issuer.
In addition, the fund may
not invest more than 5% of
its assets in any one
security.
Active Trading Each fund may trade securities actively.
6
COMPARISON OF FUNDS AND INVESTMENT OBJECTIVES, STRATEGIES AND POLICIES
Large Cap Spectrum Fund Sovereign Investors Fund
Derivatives The fund may make limited The fund may make limited
use of certain derivatives use of certain derivatives
(investments whose value is (investments whose value is
based on indexes, securities based on indexes).
or currencies).
Temporary In abnormal circumstances, For temporary defensive
defensive the fund purposes, the fund may
positions may temporarily invest more invest some or all of its
than 20% assets in investment grade
of its assets in short-term securities.
investment-grade short-term
securities, cash and cash
equivalents.
In deciding whether to approve the Reorganization, you should consider the
similarities and differences between your fund and Sovereign Investors Fund. In
particular, you should consider whether the amount and character of investment
risk involved in the authorized investments of Sovereign Investors Fund is
commensurate with the amount of risk involved in the authorized investments of
your fund. Both funds seek growth of capital. Sovereign Investors Fund also
seeks income, whereas your fund's investment objective does not include an
income component. Although both funds invest in companies that are considered
large-cap within the same capitalization range, they have different investment
strategies. Your fund's assets are allocated among and managed according to
three separate investment strategies: growth, core and value. Sovereign
Investors Fund is managed as a single investment portfolio with an emphasis on
investments in "dividend performers", companies whose dividend payments have
increased steadily for ten years, have identifiable catalysts for growth and are
reasonably priced relative to their earnings and industry. If the Reorganization
between your fund and Sovereign Investors Fund takes place, you will continue to
hold shares of a fund that invests in large-cap stocks, but the investment
strategy will be focused upon dividend growth rather than a blend of growth,
core and value strategies. In addition, Sovereign Investors Fund has no stated
limit on investments in fixed income securities, although this has not been a
principal investment strategy of the fund historically.
COMPARISON OF CLASSES OF SHARES
Class A The Class A shares of both funds have the same
sales characteristics and fee structure.
charges and o Class A shares are offered with front-end sales charges
12b-1 fees 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 The Class B shares of both funds have the same
sales characteristics and fee structure.
charges o Class B shares are offered without a front-end sales
and 12b-1 charge, but are subject to a contingent deferred sales
fees 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 The Class C shares of both funds have the same
sales characteristics and fee structure.
charges and o Class C shares are offered with a front-end sales charge
12b-1 fees 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
7
COMPARISON OF CLASSES OF SHARES
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.
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.
COMPARISON OF BUYING, SELLING AND EXCHANGING SHARES
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 October 6, 2003, investors will not be allowed to
open new accounts in Large Cap Spectrum Fund but can add
to existing accounts.
Minimum initial Class A, Class B and Class C Shares: $1,000 for
investment non-retirement accounts and $250 for retirement accounts
and group investments.
Exchanging Shareholders may exchange their shares at net asset
shares value with no sales charge for shares of the same class
of any other John Hancock fund.
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 following expense tables show the expenses for Sovereign Investors Fund for
the twelve month period ended June 30, 2003. Future expenses for all share
classes may be greater or less. The tables also show the hypothetical ("pro
forma") expenses of Sovereign Investors Fund assuming the reorganization with
Large Cap Spectrum Fund occurred on June 30, 2002. The expenses shown in the
tables are based on fees and expenses incurred during the twelve month period
ended June 30, 2003.
As described in Proposal 2, the board of trustees of another John Hancock fund,
John Hancock Dividend Performers Fund, has recommended that Dividend Performers
Fund also reorganize into Sovereign Investors Fund. The Reorganization of Large
Cap Spectrum Fund with Sovereign Investors Fund, however, does not depend upon
whether the Reorganization involving Dividend Performers Fund occurs.
8
Sovereign
Investors
Fund
(Pro Forma
for the 12
months
ended 6/30/03)
(Assuming
Large Cap Sovereign reorganization
Spectrum Investors with Large Cap
Fund Fund Spectrum Fund)
Shareholder transaction expenses Class A Class A Class A
Maximum sales charge (load) imposed 5.00% 5.00% 5.00%
on purchases (as a % of purchase
price)
Maximum sales charge imposed on none none None
reinvested dividends
Maximum deferred sales charge none none none
(load) as 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 0.85% 0.58% 0.58%
Distribution and service (12b-1) fee 0.30% 0.30% 0.30%
Other expenses 1.34% 0.34% 0.35%
Total fund operating expenses 2.49% 1.22% 1.23%
Expense reimbursement (0.99%)(3) n/a n/a
Net fund operating expenses 1.50% 1.22% 1.23%
- ----------
(1) Except for investments of $1 million or more.
(2) Does not include wire redemption fee (currently $4.00).
(3) At least until February 28, 2004.
9
Sovereign
Investors
Fund
(Pro Forma
for the
12 months
ended
6/30/03)
(Assuming
reorganization
with
Large Cap Sovereign Large Cap
Spectrum Investors Spectrum
Fund Fund Fund)
Shareholder transaction expenses Class B Class B Class B
Maximum sales charge (load) imposed on none none none
purchases (as a % of purchase price)
Maximum sales charge imposed on none none none
reinvested dividends
Maximum deferred sales charge (load) 5.00% 5.00% 5.00%
as a % of purchase or sale price,
whichever is less
Redemption fee(1) 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 0.85% 0.58% 0.58%
Distribution and service (12b-1) fee 1.00% 1.00% 1.00%
Other expenses 1.34% 0.34% 0.35%
Total fund operating expenses 3.19% 1.92% 1.93%
Expense reduction (0.99%)(2) n/a n/a
Net fund operating expenses 2.20% 1.92% 1.93%
- ----------
(1) Does not include wire redemption fee (currently $4.00).
(2) At least until February 28, 2004.
10
Sovereign
Investors
Fund
(Pro Forma
for the 12
months
ended
6/30/03)
(Assuming
reorganization
with Large
Large Cap Sovereign Cap
Spectrum Investors Spectrum
Fund Fund Fund)
Shareholder transaction expenses Class C Class C Class C
Maximum sales charge (load) imposed on 1.00% 1.00% 1.00%
purchases (as a % of purchase price)
Maximum sales charge imposed on none none none
reinvested dividends
Maximum deferred sales charge (load) 1.00% 1.00% 1.00%
as a % of purchase or sale price,
whichever is less
Redemption fee (1) 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 0.85% 0.58% 0.58%
Distribution and service (12b-1) fee 1.00% 1.00% 1.00%
Other expenses 1.34% 0.34% 0.35%
Total fund operating expenses 3.19% 1.92% 1.93%
Expense reduction (0.99%)(2) n/a n/a
Net fund operating expenses 2.20% 1.92% 1.93%
- ----------
(1) Does not include wire redemption fee (currently $4.00).
(2) At least until February 28, 2004.
11
Examples
The hypothetical examples below show what your expenses would be if you invested
$10,000 over different time periods for your fund and Sovereign Investors Fund,
based on fees and expenses incurred during the twelve month period ended June
30, 2003. Pro forma expenses are included assuming a reorganization with your
fund and Sovereign Investors Fund. Each example assumes that you reinvested all
dividends and that the average annual return was 5%. For Large Cap Spectrum
Fund, the example assumes the expense limitation is in place through February
2004. The pro forma examples are for comparison purposes only and are not a
representation of Sovereign Investors Fund's actual expenses or returns, either
past or future.
Sovereign
Investors Fund
(Pro Forma)
(Assuming
reorganization
Large Cap Spectrum Sovereign Investors with Large Cap
Class A Fund Fund Spectrum Fund)
Year 1 $716 $618 $619
Year 3 $1,214 $868 $871
Year 5 $1,738 $1,137 $1,142
Year 10 $3,167 $1,903 $1,914
Class B-- assuming redemption at end of period
Year 1 $797 $695 $696
Year 3 $1,260 $903 $906
Year 5 $1,847 $1,237 $1,242
Year 10 $3,316 $2,061 $2,072
Class B-- assuming no redemption
Year 1 $297 $195 $196
Year 3 $960 $603 $606
Year 5 $1,647 $1,037 $1,042
Year 10 $3,316 $2,061 $2,072
Class C-- assuming redemption at end of period
Year 1 $493 $392 $393
Year 3 $1,050 $697 $700
Year 5 $1,731 $1,126 $1,131
Year 10 $3,542 $2,321 $2,331
Class C-- assuming no redemption
Year 1 $394 $293 $294
Year 3 $1,050 $697 $700
Year 5 $1,731 $1,126 $1,131
Year 10 $3,542 $2,321 $2,331
12
Advisory Fees
Each fund pays monthly advisory fees equal to the following annual percentage of
its average daily net assets:
Large Cap Spectrum Fund
Fee Rate (all asset levels) 0.85%
Sovereign Investors Fund
Fund Asset Breakpoints Fee Rate
First $750 million 0.60%
Next $750 million to $1.5 billion 0.55%
Next $1.5 billion to $2.5 billion 0.50%
Amount over $2.5 billion 0.45%
Your fund's subadviser is Alliance Capital Management, L.P. ("Alliance").
Alliance is responsible for providing investment advice to the fund with respect
to the fund's growth investment strategies, subject to the review of the
Trustees and overall supervision of the Adviser. Bernstein Investment Research &
Management Unit ("Bernstein," and together with Alliance, the "Subadvisers") is
responsible for the value investment strategies portion of the fund, subject to
the review of the Trustees and overall supervision of the Adviser. Alliance and
Bernstein receive their compensation directly from the Adviser, not the fund.
For the first year, beginning on the date the fund commenced operations, the
Adviser paid the Subadvisers a subadvisory fee at an annual rate of 0.500% of
the average net assets. Thereafter, the fee is calculated at the following
annual rates: 0.900% on the first $20 million of average net assets managed by
the Subadvisers; 0.750% on the next $20 million of average net assets managed by
the Subadvisers; 0.600% on the next $20 million of average net assets managed by
the Subadvisers; 0.400% on the next $40 million of average net assets managed by
the Subadvisers; and 0.300% on the next average net assets in excess of $100
million managed by the Subadvisers.
Summary of Expense Comparison
The pro forma expenses of Sovereign Investors Fund are lower than your fund's
expenses, both before and after your fund's expense reimbursement, for all share
classes. In addition, Sovereign Investors Fund's pro forma management fee rate
is lower than your fund's management fee rate of at all asset levels and both
funds have the same 12b-1 fee rate for each share class. Sovereign Investors
Fund's pro forma other expenses are also lower than your fund's 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.
Large Cap Spectrum Fund Sovereign Investors Fund
Stock The value of securities in the fund may go down in response
market risk 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.
Large Large capitalization stocks as a group could fall out of
capitalization favor with the market, causing the fund to underperform
stocks investments that focus on small or medium capitalization
stocks.
Dividend Not applicable. The stocks of "dividend
Performers performers" (companies whose
dividend payments have
increased steadily for ten
years), which generally are
large or medium
capitalization stocks, as a
group could fall out of favor
13
with the market, causing the
fund to underperform
investments that focus on
smaller or non-dividend
paying stocks.
Management The fund's management strategy may fail to produce the
risk intended results. The fund could underperform its peers or
lose money if the investment strategy (or the asset
allocation strategy in the case of Large Cap Spectrum Fund),
does not perform as expected.
Foreign Foreign investments are more Foreign investments, even if
securities risky than domestic the U.S. dollar denominated
risk investments. Investments in or traded, may be more risky
foreign securities may be than domestic investments.
affected by fluctuations in Investments in foreign
currency exchange rates, securities may be affected by
incomplete or inaccurate incomplete or inaccurate
financial information on financial information on
companies, social instability companies, social instability
and political actions ranging and political actions ranging
from tax code changes to from tax code changes to
governmental collapse. governmental collapse.
Derivatives Certain derivative instruments can produce disproportionate
risk 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.
Bond risk Not applicable. Any bonds held by the fund
could be downgraded in credit
rating or go into default.
Bond prices generally fall
when interest rates rise and
longer maturity will increase
volatility. Junk bond prices
can fall on bad news about
the economy, an industry or a
company.
Issuer If the fund invests heavily Not applicable because the
concentration in a single issuer, its fund is limited to 5% in any
risk performance could suffer one issuer.
significantly from adverse
events affecting that issuer.
Active Active trading could increase the fund's transaction costs
trading (thus lowering performance) and increase your taxable
distributions.
COMPARISON OF FUND PERFORMANCE
Past performance records of each fund through June 30, 2003, including (1)
calendar year total returns (without sales charges) and (2) average annual total
returns (including imposition of sales charges) are set forth under "Past
Performance of Each Fund" on page __ of this proxy statement and prospectus.
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
December 5, 2003, but may occur on any later date before December 31, 2003.
Large Cap Spectrum Fund will transfer all of its assets to Sovereign Investors
Fund and Sovereign Investors Fund will assume all of Large Cap Spectrum Fund's
liabilities. This will result in the addition of Large Cap Spectrum Fund's
assets to Sovereign Investors Fund's portfolio. The net asset value of both
funds will be computed as of 4:00 P.M., Eastern Time, on the Reorganization
date.
o Sovereign Investors Fund will issue to Large Cap Spectrum Fund Class A shares
in an amount equal to the net assets attributable to Large Cap Spectrum Fund's
Class A shares. As part of the liquidation of Large Cap Spectrum Fund, these
shares will immediately be distributed to Class A shareholders of record of
Large Cap Spectrum Fund in proportion to their holdings on the Reorganization
date. As a result, Class A shareholders of Large Cap Spectrum Fund will end up
as Class A shareholders of Sovereign Investors Fund.
14
o Sovereign Investors Fund will issue to Large Cap Spectrum Fund Class B shares
in an amount equal to the net assets attributable to Large Cap Spectrum Fund's
Class B shares. As part of the liquidation of Large Cap Spectrum Fund, these
shares will immediately be distributed to Class B shareholders of record of
Large Cap Spectrum Fund in proportion to their holdings on the Reorganization
date. As a result, Class B shareholders of Large Cap Spectrum Fund will end up
as Class B shareholders of Sovereign Investors Fund.
o Sovereign Investors Fund will issue to Large Cap Spectrum Fund Class C shares
in an amount equal to the net assets attributable to Large Cap Spectrum Fund's
Class C shares. As part of the liquidation of Large Cap Spectrum Fund, these
shares will immediately be distributed to Class C shareholders of record of
Large Cap Spectrum Fund in proportion to their holdings on the Reorganization
date. As a result, Class C shareholders of Large Cap Spectrum Fund will end up
as Class C shareholders of Sovereign Investors Fund.
o After the shares are issued, the existence of Large Cap Spectrum Fund will be
terminated.
Reasons for the Proposed Reorganization
The board of trustees of Large Cap Spectrum Fund believes that the proposed
Reorganization will be advantageous to the shareholders of Large Cap Spectrum
Fund for several reasons. The board of trustees considered the following
matters, among others, in approving the proposal.
First, although your fund and Sovereign Investors Fund both focus on large cap
stocks and pursue similar investment strategies, Sovereign Investors Fund has
performed better than your fund for the brief period during which your fund has
been in operation. In addition to having a favorable long-term record, Sovereign
Investors Fund offers an investment focus, like your fund, on large cap equity
securities.
Second, the reorganization should reduce the per share expenses incurred by
Large Cap Spectrum Fund Shareholders. The management fee of Sovereign Investors
Fund is lower at all asset levels than the management fee of your fund. In
addition, the historical total expenses of Sovereign Investors Fund for each
class of shares are lower than your fund's historical expenses, even with the
benefit of expense limitation by the Adviser. The expense limitation is in
effect only until February 28, 2004 and may be discontinued at any time
thereafter. If the Adviser were to discontinue limiting your fund, the expenses
of your fund will be substantially higher than the expenses of Sovereign
Investors Fund.
Third, the combined fund may be better positioned to attract assets than your
fund. Sovereign Investors Fund's greater asset size may allow it, relative to
your fund, to (i) obtain better net prices on securities trades, (ii) achieve
greater diversification of portfolio holdings and (iii) reduce per share
expenses as fixed expenses are shared over a larger asset base.
Fourth, a combined fund offers economies of scale that may lead to further
reductions in 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 Sovereign Investors Fund's expense ratio over time
because of economies of scale if the funds are combined.
The board of trustees of Sovereign Investors Fund considered that the
Reorganization presents an excellent opportunity for Sovereign Investors 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 Sovereign Investors
Fund and its shareholders.
The boards of both funds also considered that the Adviser will benefit from the
Reorganization. After the Reorganization, the Adviser would be the sole
investment adviser with respect to all of the assets of Sovereign Investors
Fund, including all of the assets of Large Cap Spectrum Fund acquired in the
Reorganization. The Adviser would no longer be obligated to pay a subadviser
with respect to any portion of those assets. In addition, Advisers would no
longer be required to reimburse fund expenses of the Acquired Fund if the
Reorganization were to occur and the Acquiring Fund is not subject to any
expense reimbursement arrangements.
The boards of both funds also considered other benefits that the Adviser and the
funds' distributor may receive from the Reorganization. For example, the Adviser
might achieve cost savings from managing one
15
larger fund compared to managing more than one fund following similar investment
policies. The boards believe, however, that these savings will not amount to a
significant economic benefit to the Adviser or distributor.
Unreimbursed Distribution and Shareholder Service Expenses
The boards of trustees of Large Cap Spectrum Fund and Sovereign Investors Fund
have determined that, if the Reorganization occurs, unreimbursed distribution
and shareholder service expenses incurred under Large Cap Spectrum Fund's Rule
12b-1 Plans will be reimbursable expenses under Sovereign Investors Fund's Rule
12b-1 Plans. However, the maximum amounts payable annually under Sovereign
Investors 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 Large Cap Spectrum Fund and Sovereign
Investors 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 Sovereign Investors Fund are not included in the table because this class
does not have a Rule 12b-1 Plan.
Rule 12b-1 Payments and Unreimbursed Expenses
Aggregate
Dollar Amount
of 12b-1 Fees Unreimbursed Unreimbursed
Paid (for the Rule 12b-1 Expenses as %
12 months ended Expenditures of Each Class'
June 30, (as of June 30, Average Net
Name of Fund 2003) 2003) Assets
Large Cap Spectrum Fund $17,556 (A) $5,175 (A) 0.01% (A)
$79,559 (B) $(27,407)(B) (0.34)% (B)
$52,072 (C) $132,111 (C) 2.54% (C)
Sovereign Investors Fund $2,761,953 (A) $12,272 (A) 0.00% (A)
$3,348,782 (B) $12,521,250 (B) 3.74% (B)
$232,343 (C) $351,125 (C) 1.51% (C)
Pro Forma (Sovereign Investors Fund): $2,779,509 (A) $17,447 (A) 0.00% (A)
Assuming reorganization $3,428,341 (B) $12,493,843 (B) 3.64% (B)
with Large Cap Spectrum Fund $284,415 (C) $483,246 (C) 1.70% (C)
If the Reorganization had taken place on June 30, 2002, the pro forma combined
unreimbursed expenses of Sovereign Investors Fund's Class A and Class C shares
would have been higher than if no Reorganization had occurred. Nevertheless,
Sovereign Investors Fund's assumption of Large Cap Spectrum Fund's unreimbursed
Rule 12b-1 expenses will have no immediate effect upon the payments made under
Sovereign Investors 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.
John Hancock Funds, LLC may recover unreimbursed distribution and shareholder
service expenses for Class B and Class C shares in future years. However, if
Sovereign Investors 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
16
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.
17
PROPOSAL 2
Approval of Agreement and Plan of Reorganization Between
Dividend Performers Fund and Sovereign Investors Fund
A proposal to approve an Agreement and Plan of Reorganization between Dividend
Performers Fund and Sovereign Investors Fund. Under this Agreement, Dividend
Performers Fund would transfer all of its assets to Sovereign Investors Fund in
exchange for Class I shares of Sovereign Investors Fund. These shares would be
distributed proportionately to the shareholders of Dividend Performers Fund.
Sovereign Investors Fund would also assume Dividend Performers Fund's
liabilities. Dividend Performers Fund's board of trustees recommends that
shareholders vote FOR this proposal.
SUMMARY
Comparison of Dividend Performers Fund to Sovereign Investors Fund
COMPARISON OF FUNDS AND INVESTMENT OBJECTIVES, STRATEGIES AND POLICIES
Dividend Performers Fund Sovereign Investors Fund
Business A diversified series of John A diversified series of John
Hancock Institutional Series Hancock Investment Trust, an
Trust, an open-end investment open-end investment
management company organized as management company organized
a Massachusetts business trust. as a Massachusetts business
trust.
Net $3.2 million $1,252.0 million
assets as
of
June 30,
2003
Investment Investment Adviser: Investment Adviser:
adviser John Hancock Advisers, LLC John Hancock Advisers, LLC
and
portfolio Portfolio managers: Portfolio managers:
managers John F. Snyder, III John F. Snyder, III
-Joined fund team in 1995 -Joined fund team in 1983
-Joined adviser in 1991 -Joined adviser in 1991
-Began business career in 1971 -Began business career in 1971
Peter M. Schofield, CFA Barry H. Evans, CFA
-Joined fund team in 1996 -Joined fund team in 1996
-Joined adviser in 1996 -Joined adviser in 1986
-Began business career in 1984 -Began business career in 1986
Peter M. Schofield, CFA
-Joined fund team in 1996
-Joined adviser in 1996
-Began business career in
1984
Investment The fund seeks long-term growth The fund seeks long-term
objective of capital with income as a growth of capital and income
secondary objective. without assuming undue market
risks.
This objective is
non-fundamental and can be This objective is fundamental
changed without shareholder and can only be changed with
approval. shareholder approval.
Primary The fund normally invests at The fund normally invests at
investments least 80% of its assets in a least 80% of its stock
diversified portfolio of U.S. investments in a diversified
stocks with market portfolio of companies with
capitalizations within the market capitalizations within
range of the Standard & Poor's the range of the Standard &
500 Index, which was $______ Poor's 500 Index, which was
million to $______ billion as $______ million to $______
of August 31, 2003. billion as of August 31, 2003.
The managers normally invest at At least 65% of the fund's
least 80% of assets in stock investments are
"dividend performers." These "dividend performers"
are dividend-paying companies (companies whose dividend
that have typically increased payments have increased
their dividend payments over steadily for ten years).
time, or which the managers Historically, these companies
believe demonstrate the have tended to have large or
potential to increase their medium capitalizations.
dividend payments.
The fund may invest in bonds
The fund does not normally of any maturity, with up to
invest in debt securities. 5% of assets in junk bonds
rated as low as C and
18
COMPARISON OF FUNDS AND INVESTMENT OBJECTIVES, STRATEGIES AND POLICIES
Dividend Performers Fund Sovereign Investors Fund
their unrated equivalents.
Under normal circumstances, the
fund may not invest more than Under normal circumstances,
10% of assets in cash or cash the fund may not invest more
equivalents. than 10% of assets in cash or
cash equivalents.
Investment In managing the funds' portfolio, the managers use fundamental
Strategy financial analysis to identify individual companies with
high-quality income statements, substantial cash reserves and
identifiable catalysts for growth, which may be new products
or benefits from industry-wide growth. The managers generally
visit companies to evaluate the strength and consistency of
their management strategy. Finally, the managers look for
stocks that are reasonably priced relative to their earnings
and industry.
Foreign Each fund typically invests in U.S. companies but may invest
Securities in dollar-denominated or traded foreign securities.
Active Each fund may trade securities actively.
Trading
Derivatives Each fund may make limited use of certain derivatives
(investments whose value is based on indexes).
Diversification Each fund is diversified, which means that, with respect to
75% of total assets, the fund cannot invest (i) more than 5%
of total assets in securities of a single issuer or (ii) in
securities representing more than 10% of the outstanding
voting securities of an issuer. In addition, each fund may
not invest more than 5% of its assets in any one security.
Temporary In abnormal circumstances, the In abnormal circumstances, the
defensive fund may temporarily invest fund may temporarily invest
positions extensively in U.S. government extensively in
securities with maturities of investment-grade short-term
up to three years and more securities, cash and cash
than 10% of its assets in cash equivalents.
and cash equivalents.
In deciding whether to approve the Reorganization, you should consider the
similarities and differences between Dividend Performers Fund and Sovereign
Investors Fund. In particular, you should consider whether the amount and
character of investment risk involved in the authorized investments of Sovereign
Investors Fund is commensurate with the amount of risk involved in the
authorized investments of Dividend Performers Fund. As described above, the
funds are managed using substantially similar investment strategy and policies.
It should be noted, however, that the definition of "dividend performers" used
by Dividend Performers Fund is broader than the definition used by Sovereign
Investors Fund. In addition, Sovereign Investors Fund may invest to a greater
extent in fixed income securities.
COMPARISON OF CLASSES OF SHARES
Sales Dividend Performers Fund offers only one class of shares which
charges has no sales charge or Rule 12b-1 fee. Class I shares of the
and 12b-1 Acquiring Fund also have no sales charge or Rule 12b-1 fee.
fees With regard to characteristics other than sales charges and
Rule 12b-1 fees, the Acquired Fund share and the Acquiring
Fund Class I share have substantially identical
characteristics.
COMPARISON OF BUYING, SELLING AND EXCHANGING SHARES
Buying Investors may buy shares at their public offering price
shares through a financial representative or the funds' transfer
agent, John Hancock Signature Services, Inc. After October
6, 2003, investors will not be allowed to open new accounts
in Dividend Performers Fund but can add to existing
accounts.
Minimum $10,000. No minimum investment for retirement plans with at
initial least 350 eligible employees.
investment
Exchanging Shareholders may exchange their shares for Class I shares of
shares other John Hancock funds, or for shares of any John Hancock
institutional fund.
Selling Shareholders may sell their shares by submitting a proper
shares written or telephone request to John
19
COMPARISON OF BUYING, SELLING AND EXCHANGING SHARES
Hancock Signature Services, Inc.
Net asset All purchases, exchanges and sales are made at a price based
value 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 following expense tables show expenses of each fund for the twelve month
period ended June 30, 2003. Future expenses for all classes may be greater or
less. The tables also show the hypothetical ("pro forma") expenses of Class I
shares of Sovereign Investors Fund assuming the reorganization with Dividend
Performers Fund occurred on June 30, 2002. The expenses shown in the tables are
based on fees and expenses incurred during the twelve month period ended June
30, 2003. Class I shares of Sovereign Investors Fund are not yet operational,
and therefore expenses are estimated based on those of other classes. Both
funds' expenses were adjusted to reflect a subsequent contractual change in
institutional class transfer agent fees. Sovereign Investors Fund's actual
expenses after the Reorganization may be greater or less than those shown.
As described in Proposal 1, the board of trustees of another John Hancock fund,
John Hancock Large Cap Spectrum Fund, has recommended that Large Cap Spectrum
Fund also reorganize into Sovereign Investors Fund. The Reorganization of
Dividend Performers Fund with Sovereign Investors Fund, however, does not depend
upon whether the Reorganization involving Large Cap Spectrum Fund occurs.
Sovereign
Investors
Fund Class I
(Pro Forma
for the 12
months
ended 6/30/03)
(Assuming
Sovereign reorganization
Dividend Investors with Dividend
Performers Fund - Performers
Fund Class I Fund)
Shareholder transaction expenses
Maximum sales charge (load) none none none
imposed on purchases (as a % of
purchase price)
Maximum sales charge imposed on none none none
reinvested dividends
Maximum deferred sales charge none none none
(load) as a % of purchase or sale
price, whichever is less
Redemption fee none none none
Exchange fee none none none
Annual fund operating expenses
(as a % of average net assets)
Management fee 0.60% 0.58% 0.58%
Distribution and service (12b-1) none none none
fee
Other expenses 1.51% 0.13% 0.13%
Total fund operating expenses 2.11% 0.71% 0.71%
Expense reduction (1.11%)(1) n/a n/a
Net fund operating expenses 1.00% 0.71% 0.71%
- ----------
(1) Until at least June 30, 2004.
20
Examples
The hypothetical examples below show what your expenses would be if you invested
$10,000 over different time periods for your fund and Sovereign Investors Fund,
based on fees and expenses incurred during the twelve month period ended June
30, 2003. The pro forma example assumes a reorganization with Sovereign
Investors Fund. Each example assumes that you reinvested all dividends and that
the average annual return was 5%. The pro forma example is for comparison
purposes only and is not a representation of Sovereign Investors Fund's actual
expenses or returns, either past or future.
Sovereign
Investors Fund
Class I
(PRO FORMA)
Sovereign (Assuming
Dividend sInvestors reorganization with
Performer Fund - Dividend
Fund Class I Performers Fund)
Year 1 $149 $73 $73
Year 3 $598 $227 $227
Year 5 $1,074 $395 $395
Year 10 $2,390 $883 $883
Advisory Fees
Each fund pays monthly advisory fees equal to the following annual percentage of
its average daily net assets.
Fund Asset Breakpoints Fee Rate
Dividend Performers Fund
First $500 million 0.60%
Amount over $500 million 0.55%
Sovereign Investors Fund
First $750 million 0.60%
Next $750 million to $1.5 billion 0.55%
Next $1.5 billion to $2.5 billion 0.50%
Amount over $2.5 billion 0.45%
Each fund's investment adviser is John Hancock Advisers, LLC (the "Adviser"), an
indirect, wholly-owned subsidiary of John Hancock Financial Services, Inc. The
Adviser is responsible for providing investment advice to the funds, subject to
the review of the Trustees.
Summary of Expense Comparison
The pro forma expenses of Sovereign Investors Fund's Class I shares are lower
than your fund's gross and net expenses. In addition, Sovereign Investors Fund's
pro forma management fee rate is the same or lower than your fund's management
fee rate at all asset levels except that for assets between $500 million and
$750 million, where your fund's management fee value is 0.05% lower. Sovereign
Investors Fund's pro forma other expenses are also lower than your fund's other
expenses.
21
COMPARISON OF INVESTMENT RISKS
The funds are exposed to various risks that could cause shareholders to lose
money on their investments in the funds. Because the funds have substantially
similar investment objectives, policies and strategies, they are subject to the
similar risks, as set forth below.
Stock The value of securities in the fund may go down in response
market risk 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.
Large Large capitalization stocks as a group could fall out of
capitalization favor with the market, causing the fund to underperform
stocks investments that focus on small or medium capitalization
stocks.
Dividend The stocks of "dividend performers" (as defined for each
Performers fund under "Summary"), which generally are large or medium
capitalization stocks, as a group could fall out of favor
with the market, causing the fund to underperform
investments that focus on smaller or non-dividend paying
stocks.
Management The fund's management strategy may fail to produce the
risk intended results. The fund could underperform its peers or
lose money if the investment strategy, including industry or
security selection, does not perform as expected.
Derivatives Certain derivative instruments can produce disproportionate
risk 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.
Bond risk Not applicable. Any bonds held by the fund
could be downgraded in credit
rating or go into default.
Bond prices generally fall
when interest rates rise and
longer maturity will increase
volatility. Junk bond prices
can fall on bad news about
the economy, an industry or a
company.
Foreign Foreign investments are more risky than domestic
securities investments. Investments in foreign securities may be
risk 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.
Active Active trading could increase the fund's transaction costs
trading (thus lowering performance) and increase your taxable
distributions.
COMPARISON OF FUND PERFORMANCE
Past performance records of each fund through June 30, 2003, including (1)
calendar year total returns (without sales charges) and (2) average annual total
returns (including imposition of sales charges) are set forth under "Past
Performance of Each Fund" on page 23 of this proxy statement and prospectus.
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
December 5, 2003, but may occur on any later date before December 31, 2003.
Dividend Performers Fund will transfer all of its assets to Sovereign Investors
Fund and Sovereign Investors Fund will assume all of Dividend Performers Fund's
liabilities. This will result in the addition of Dividend Performers Fund's
assets to Sovereign Investors Fund's portfolio. The net asset value of both
funds will be computed as of 4:00 P.M., Eastern Time, on the Reorganization
date.
22
o Sovereign Investors Fund will issue Class I shares to Dividend Performers Fund
in an amount equal to the net assets of Dividend Performers Fund. As part of the
liquidation of Dividend Performers Fund, these shares will immediately be
distributed shareholders of record of Dividend Performers Fund in proportion to
their holdings on the Reorganization date. As a result, shareholders of Dividend
Performers Fund will end up as Class I shareholders of Sovereign Investors Fund.
o After the shares are issued, the existence of Dividend Performers Fund will be
terminated.
Reasons for the Proposed Reorganization
The board of trustees of Dividend Performers Fund believes that the proposed
Reorganization will be advantageous to the shareholders of Dividend Performers
Fund for several reasons. The board of trustees considered the following
matters, among others, in approving the proposal.
First, the funds have similar investment objectives, policies and strategies.
Second, the reorganization should reduce the per share expenses incurred by
Dividend Performers Fund Shareholders both before and after expense reductions
currently in place. The management fee of Sovereign Investors Fund is lower at
nearly all asset levels than the management fee of your fund. In addition, the
estimated other expenses of Sovereign Investors Fund for Class I shares are
substantially lower than your fund's other expenses, resulting in lower overall
expenses.
Third, by combining the funds into a single fund pursuing a core large
capitalization strategy, the combined fund may be better positioned to attract
additional assets than Dividend Performers Fund. Sovereign Investors Fund's
greater asset size may allow it, relative Dividend Performers Fund, to (i)
obtain better net prices on securities trades, (ii) achieve greater
diversification of portfolio holdings and (iii) reduce per share expenses as
fixed expenses are shared over a larger asset base.
Fourth, a combined fund offers economies of scale that may lead to further
reductions in 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 Sovereign Investors Fund's expense ratio over time
because of economies of scale if the funds are combined.
The board of trustees of Sovereign Investors Fund considered that the
Reorganization presents an excellent opportunity for Sovereign Investors 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 Sovereign Investors
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 from managing one larger fund compared to managing more
than one fund following similar investment policies. In addition, the Adviser
would no longer be required to reimburse fund expenses of the Acquired Fund if
the Reorganization were to occur, and the Acquiring Fund is not subject to any
expense reimbursement arrangements. 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, Sovereign Investors
Fund's pro forma management fees and annual operating expenses would be lower
than your fund's management fees and gross and net operating expenses. A full
comparison of advisory fee rates and expense ratios is included above.
23
PAST PERFORMANCE OF EACH FUND
Set forth below is past performance information for each fund, which indicates
some of the risks of investing in each fund.
The bar charts under "Calendar Year Total Returns" show how each fund's total
return (not including any deduction for sales charges) has varied from year to
year for each full calendar year. The tables under "Average Annual Total
Returns" shows average annual total return for each fund over time, for each
class of shares (including deductions for sales charges) compared with a
broad-based securities market index. Class A performance is shown both before
and after taxes for Sovereign Investors Fund and Large Cap Spectrum Fund and for
shares of Dividend Performers Fund. In addition, because Sovereign Investors
Fund does not currently have any outstanding Class I shares, the tables show
performance of Sovereign Investors Fund's Class A shares not including any
reduction for sales charges. Past performance before and after taxes does not
indicate future results.
Calendar Year Total Returns*
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Sovereign Investors Fund 5.71 -1.85 29.15 17.57 29.14 15.62 5.91 4.08 -6.06 -18.68
Dividend Performers Fund 18.56 34.33 17.95 13.38 0.62 -9.86 -24.66
*Returns for Sovereign Investors Fund are Class A shares without sales charges.
Calendar year returns are not available for Large Cap Spectrum Fund because it
commenced operations in February 2002.
Year-To-Date and Quarterly Returns
Sovereign Investors Fund's year-to-date return as of June 30, 2003 for Class A
shares was 6.73%. During the period shown in the bar chart, the fund's highest
quarterly return was 15.56% for the quarter ended December 31, 1998 and the
lowest quarterly return was -13.87% for the quarter ended September 30, 2002.
Dividend Performers Fund's year-to-date return as of as of June 30, 2003 was
8.28%. During the period shown in the bar chart, the fund's highest quarterly
return was 20.75% for the quarter ended December 31, 1998 and the lowest
quarterly return was -17.51% for the quarter ended September 30, 2002.
Large Cap Spectrum Fund's year-to-date return for Class A shares as of June 30,
2003 was 10.16%.
24
Average Annual Total Returns as of June 30, 2003
10 Years
1 Year 5 Years (or life of
Class/Fund*)
Sovereign Investors Fund
Class A - Before Taxes (7.57)% (1.88)% 7.11%
Class A - After Taxes on (8.15)% (3.39)% 5.35%
Distributions (1)
Class A - After Taxes on (4.87)% (2.07)% 5.41%
Distributions and
Sale of Fund Shares (1)
Class B (8.14)% (1.86)% 6.98%*
Class C (5.29)% (1.75)% (1.88)%*
Sovereign Investors Fund
Class A - Before Taxes and Sales (2.68)% (0.87)% 7.67%
Load (2)
Large Cap Spectrum Fund
Class A - Before Taxes (9.35)% n/a (16.70)%*
Class A - After Taxes on (9.35)% n/a (16.70)%*
Distribution
Class A - After Taxes on (6.08)% n/a (14.12)%*
Distributions and
Sale of Fund Shares
Class B (9.97)% n/a (16.63)%*
Class C (7.14)% n/a (14.69)%*
Dividend Performers Fund
Before Taxes (4.18)% (2.40)% 7.68%*
After Taxes on Distributions (1) (4.55)% (5.25)% 5.13%*
After Taxes on Distributions and (2.75)% (2.52)% 6.00%*
Sale of Fund Shares (1)
S&P 500 Index (3) 0.25% (1.61)% 10.04%*
- ----------
(1) After-tax returns 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 your situation and may
differ from those shown. Furthermore, the after-tax returns shown are not
relevant to investors who hold their shares through tax-deferred
arrangements such as 401(k) plans or IRAs.
(2) "Class A - Before Sales Load" reflects the performance of Class A shares
not including any deduction for sales charges. Class I shares, which will
be issued in the reorganization with Dividend Performers Fund, will not be
subject to any sales charges. Nevertheless, performance of Class I shares
would differ to the extent of Rule 12b-1 fees and other differences in
class expenses.
(3) The S&P 500 Index is the Standard & Poor's Composite Index of 500 Stocks,
which is a commonly recognized unmanaged price index of 500 widely held
common stocks. Unlike the fund's returns, index returns do not reflect any
fees, expenses or taxes.
* Inception dates for each class/fund that have fewer than 10 calendar years
performance are as follows: Sovereign Investors Fund: Class B- January 3,
1994; Class C- May 1, 1998; Large Cap Spectrum: Class A, B and C shares -
February 25, 2002; Dividend Performers Fund: March 30, 1995. The
corresponding S&P 500 Index returns for periods since these dates were as
follows: Since January 3, 1994, [__]%; since May 1, 1998, [__]%; since
February 25, 2002, [__]%; and since March 30, 1995, [__]%.
25
FURTHER INFORMATION ON EACH REORGANIZATION
Tax Status of Each Reorganization
Each 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 and will not take place unless the funds receive a
satisfactory opinion from Hale and Dorr LLP, substantially to the effect that
the Reorganization 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 that you surrender in
the exchange, provided that the shares of the Acquired Fund were held by you 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 each 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.
Additional Terms of each Agreement and Plan of Reorganization
Certain terms of each Agreement and Plan of Reorganization are described above.
The following is a summary of certain additional terms of each Agreement and
Plan of Reorganization. This summary and any other description of the terms of
the Agreement and Plan of Reorganization contained in this proxy statement and
prospectus are qualified in their entirety by Exhibit A, which is the Form of
Agreement and Plan of Reorganization in its entirety, that is proposed for each
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(s) or deliver to your fund(s) a lost certificate
affidavit, in the form and accompanied by the surety bonds that your fund(s) 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
Sovereign Investors Fund shares. Shareholders may not redeem or transfer
Sovereign Investors Fund shares received in the Reorganization until they have
surrendered their fund share certificates or delivered an Affidavit. Sovereign
Investors Fund will not issue share certificates in the Reorganization.
26
Conditions to Closing each Reorganization. The obligation of each 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 Funds'
performance of all of its obligations under the Agreement, the receipt of
certain documents and financial statements from each respective Acquired Fund
and the receipt of all consents, orders and permits necessary to consummate the
Reorganization (see Agreement, paragraph 7).
The obligations of each respective 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
Funds' 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 each respective Acquired Fund
or the Acquiring Fund may terminate the Agreement (even if the shareholders of
an 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. Whether or not a Reorganization occurs, each
fund will pay its own expenses in connection with the Reorganization, including
the costs of printing, mailing, legal fees, audit fees and solicitation
expenses. The estimated expenses associated with each Reorganization of each
Acquired Fund are as follows: $15,900 for Dividend Performers Fund, and $43,500
for Large Cap Spectrum Fund.
CAPITALIZATION
With respect to each Proposal, the following tables set forth the capitalization
of each fund as of June 30, 2003 and the pro forma combined capitalization of
both funds as if each Reorganization had occurred on that date. If a
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 June 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 each respective
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.
If the Reorganization of your fund(s) had taken place on June 30, 2003:
Large Cap Spectrum Sovereign Investors Pro Pro
Proposal 1 Fund Fund Forma(1) Forma(2)
Net Assets (millions) $17.5 $1,252.0 $1,269.5 $1,272.7
Net Asset Value Per Share
Class A $8.24 $16.78 $16.78 $16.78
Class B $8.16 $16.76 $16.76 $16.76
Class C $8.16 $16.78 $16.78 $16.78
Class I N/A N/A N/A $16.78
Shares Outstanding
Class A 661,739 54,924,905 55,249,830 55,249,830
Class B 878,591 18,344,119 18,772,068 18,772,068
Class C 601,663 1,384,964 1,677,690 1,677,690
Class I -0- -0- -0- 191,644
27
(1) Assuming the Reorganization of Dividend Performers Fund into Sovereign
Investors Fund does not occur. If the Reorganization of your fund only had taken
place on June 30, 2003, approximately 0.491, 0.487 and 0.487 Sovereign Investors
Fund Class A, B and C shares would have been issued for each share of Large Cap
Spectrum Fund Class A, B and C shares, respectively.
(2) Assuming the Reorganization of Dividend Performers Fund into Sovereign
Investors Fund occurs.
Dividend Performers Sovereign Investors Pro Pro
Proposal 2 Fund Fund Forma(1) Forma(2)
Net Assets (millions) $3.2 $1,252.0 $1,255.2 $1,272.7
Net Asset Value Per Share
Class A N/A $16.78 $16.78 $16.78
Class B N/A $16.76 $16.76 $16.76
Class C N/A $16.78 $16.78 $16.78
Class I $6.58 N/A $16.78 $16.78
Shares Outstanding
Class A -0- 54,924,905 54,924,905 55,249,830
Class B -0- 18,344,119 18,344,119 18,772,068
Class C -0- 1,384,964 1,384,964 1,677,644
Class I 488,353 -0- 191,644 191,644
(1) Assuming the Reorganization of Large Cap Spectrum Fund into Sovereign
Investors Fund does not occur. If the reorganization of your fund only had taken
place on June 30, 2003, and the opening NAV of Sovereign Investors Fund Class I
shares was based on the Class A NAV, approximately 0.392 Sovereign Investors
Fund Class I shares would have been issued for each share of Dividend Performers
Fund.
(2) Assuming the Reorganization of Large Cap Spectrum Fund into Sovereign
Investors Fund occurs.
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 management Portfolio Managers / Subadviser
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 of Your Account: Selling Shares, How Sales Charges are
shares Calculated, Transaction Policies
Dividends, Dividends and Account Policies
distributions and taxes
28
BOARDS' EVALUATION AND RECOMMENDATION
For the reasons described above, the board of trustees of each Acquired Fund,
including the trustees who are not "interested persons" of either fund in each
respective Reorganization or the Adviser ("independent trustees"), approved the
Reorganizations. In particular, the trustees determined that each Reorganization
is in the best interests of each respective Acquired Fund and that the interests
of Acquired Fund shareholders would not be diluted as a result of either
Reorganization. Similarly, the board of trustees of Sovereign Investors Fund,
including the independent trustees, approved each Reorganization. They also
determined that each Reorganization is in the best interests of Sovereign
Investors Fund and that the interests of Sovereign Investors Fund's shareholders
would not be diluted as a result of either Reorganization.
The trustees of each Acquired Fund recommend that
shareholders of the Acquired Funds vote FOR each proposal to
approve an Agreement and Plan of Reorganization.
VOTING RIGHTS AND REQUIRED VOTE
Each Acquired Fund share is entitled to one vote. Approval of each proposal
described above requires the affirmative vote of a majority of the shares of
each Acquired Fund outstanding and entitled to vote on each respective 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 Shares "present" in person will be voted in
"present" in person at the meeting. Shares present by
person or by proxy proxy will be voted in accordance with
are counted instructions.
toward a quorum.
Proxy with no Voting Considered Voted "for" a proposal.
Instruction (other "present" at
than meeting.
Broker Non-Vote)
Broker Non-Vote Considered Not voted. Same effect as a vote "against" a
"present" at proposal.
meeting.
Vote to Abstain Considered Not voted. Same effect as a vote "against" a
"present" at proposal.
meeting.
If the required approval of shareholders is not obtained with respect to a
proposal, the Acquired Fund subject to the proposal 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.
29
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 each
Acquired Fund at a cost of approximately $_______ per fund.]
Revoking Proxies
Each 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 Funds' 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.
Outstanding Shares and Quorum
As of October 6, 2003 (the "record date"), the number of shares of beneficial
interest of each Acquired Fund's outstanding were as follows:
FUND SHARES OUTSTANDING
Large Cap Spectrum Fund
Class A _______
Class B _______
Class C _______
Dividend Performers Fund _______
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 each Acquired Fund
that are entitled to vote will be considered a quorum for the transaction of
business.
Other Business
Each Acquired Fund's board of trustees knows of no business to be presented for
consideration at the meeting other than the proposals. 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 an Acquired 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.
30
Telephone Voting
In addition to soliciting proxies by mail, by fax or in person, your fund(s) may
also arrange to have votes recorded by telephone by officers and employees of
your fund(s) 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.
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 meting. 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
The funds are not required, and do 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 of their respective funds 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.
OWNERSHIP OF SHARES OF THE FUNDS
To the knowledge of each fund, as of October 6, 2003, the following persons
owned of record or beneficially 5% or more of the outstanding shares of a class
of each fund, respectively:
31
Large Cap Spectrum Fund
Names and Addresses of Owners of Class A Class B Class C
More Than 5% of Shares
[John Hancock Advisers, LLC ___% ___% ___%
101 Huntington Avenue
Boston, MA. 02199-7603]
[ ] ___% ___% ___%
[ ] ___% ___% ___%
Sovereign Investors Fund
Names and Addresses of Owners of Class A Class B Class C Class I*
More Than 5% of Shares
[ ] ___% ___% ___% ___
[ ] ___% ___% ___% ___
[ ] ___% ___% ___% ___
[ ] ___% ___% ___% ___
*No Class I shares were outstanding on October 6, 2003.
Dividend Performers Fund
Names and Addresses of Owners of
More Than 5% of Shares
[ ] ___%
[ ] ___%
As of October 6, 2003, the trustees and officers of each fund owned in the
aggregate less than 1% of the outstanding shares of their respective funds.
EXPERTS
The financial highlights and financial statements of (i) Sovereign Investors
Fund, for the periods ended December 31, 2002 and June 30, 2003, (ii) Large Cap
Spectrum Fund, for the periods ended October 31, 2002 and April 30, 2003 and
(iii) Dividend Performers Fund for the period ended February 28, 2003 are
incorporated by reference into this proxy statement and prospectus. The
financial statements for each fund's most recent fiscal year (but not for
semi-annual periods) and financial highlights have been independently audited by
the following independent auditors: PricewaterhouseCoopers LLP for the Large Cap
Spectrum Fund; Ernst & Young for Sovereign Investors Fund; and Deloitte & Touche
LLP for Dividend Performers Fund, 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.
AVAILABLE INFORMATION
Each fund is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended and the Investment Company Act of 1940, as
amended 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,
32
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.
33
EXHIBIT A
FORM OF 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, a
Massachusetts business trust (the "Trust"), on behalf of its series, John
Hancock Sovereign Investors Fund (the "Acquiring Fund") and John Hancock
__________ Trust, a Massachusetts business trust (the "Trust II") on behalf of
its series, John Hancock _______________ 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, Class B, 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 [December 5], 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.
34
1.3 The Acquiring Fund and the Acquired Fund will each bear its own
expenses in connection with the transactions contemplated by this
Agreement, whether or not the transactions contemplated hereby are
consummated
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 value[s] of the [Class A, Class B and Class C]
Acquiring Fund Shares and the net value[s] 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. Eastern Time) on
the Closing Date. The net asset value[s] 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 value[s] 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
35
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 [December 5], 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 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:
36
(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 [non-]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 _______, 200__
[and the unaudited statement of assets and liabilities of the
Acquired Fund as of _______, 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 _______,
200__ and [and _______, 200__ 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;
(g) Since _______, 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;
37
(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 _______, 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
(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
38
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 shares] prospectus of the
Acquiring Fund dated _______, 2003 (the "Acquiring Fund Prospectus")
and statement of additional information for [Class A, Class B, Class
C shares of] the Acquiring Fund, dated _______, 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 _______, 200__
[and the unaudited statement of assets and liabilities of the
Acquiring Fund as of _______, 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
_______, 200__ and [and _______, 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
Acquiring Fund as of the respective dates thereof not disclosed
therein;
(h) Since _______, 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;
39
(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
40
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.
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
41
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.
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 Each of the Acquired Fund and the Acquiring Fund 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
42
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.
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.
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
43
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.
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 he 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.
44
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 on behalf of
JOHN HANCOCK SOVEREIGN INVESTORS FUND
By:________________________________________
Maureen R. Ford
Chairman, President and Chief Executive Officer
[ ] TRUST on behalf of
[ ] FUND
By:________________________________________
Susan S. Newton
Senior Vice President and Secretary
45
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
1-800-554-6713 TDD
1-800-597-1897 EASI-Line
www.jhfunds.com
46
VOTE THIS PROXY CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE YOUR FUND
THE EXPENSE OF ADDITIONAL MAILINGS
JOHN HANCOCK LARGE CAP SPECTRUM FUND
SPECIAL MEETING OF SHAREHOLDERS -DECEMBER 3, 2003
PROXY SOLICITATION BY THE BOARD OF TRUSTEES
The undersigned, revoking previous proxies, hereby appoint(s) Maureen Ford
Goldfarb, 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 Large Cap
Spectrum Fund ("Large Cap Spectrum Fund") which the undersigned is (are)
entitled to vote at the Special Meeting of Shareholders (the "Meeting") of Large
Cap Spectrum Fund to be held at 101 Huntington Avenue, Boston, Massachusetts, on
December 3, 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 October 8, 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
Large Cap Spectrum Fund ("Large Cap Spectrum Fund") and John Hancock
Sovereign Investors Fund ("Sovereign Investors Fund"). Under this
Agreement, Large Cap Spectrum Fund would transfer all of its assets to
Sovereign Investors Fund in exchange for shares of Sovereign Investors
Fund. These shares will be distributed proportionately to you and the
other shareholders of Sovereign Investors Fund. Sovereign Investors
Fund will also assume Large Cap Spectrum Fund's liabilities.
FOR |_| AGAINST |_| ABSTAIN |_|
PLEASE DO NOT FORGET TO SIGN THE REVERSE SIDE OF THIS CARD.
VOTE THIS PROXY CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE YOUR FUND
THE EXPENSE OF ADDITIONAL MAILINGS
JOHN HANCOCK DIVIDEND PERFORMERS FUND
SPECIAL MEETING OF SHAREHOLDERS -DECEMBER 3, 2003
PROXY SOLICITATION BY THE BOARD OF TRUSTEES
The undersigned, revoking previous proxies, hereby appoint(s) Maureen Ford
Goldfarb, 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 Dividend
Performers Fund ("Dividend Performers Fund") which the undersigned is (are)
entitled to vote at the Special Meeting of Shareholders (the "Meeting") of
Dividend Performers Fund to be held at 101 Huntington Avenue, Boston,
Massachusetts, on December 3, 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 October 8, 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
Dividend Performers Fund ("Dividend Performers Fund") and John Hancock
Sovereign Investors Fund ("Sovereign Investors Fund"). Under this
Agreement, Dividend Performers Fund would transfer all of its assets to
Sovereign Investors Fund in exchange for Class I shares of Sovereign
Investors Fund. These shares will be distributed proportionately to you
and the other shareholders of Dividend Performers Fund. Sovereign
Investors Fund will also assume Dividend Performers Fund's liabilities.
FOR |_| AGAINST |_| ABSTAIN |_|
PLEASE DO NOT FORGET TO SIGN THE REVERSE SIDE OF THIS CARD.
---------------
Shareholder Login PROXY DIRECT TM
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Back to Home Contact Us Security
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You can now submit your voting instructions online. To do so, please enter your
Proxy Control Number in the area below. Your Internet Voting Control Number is
located on your voting instruction card and is identified as Control Number or
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.
- --------------------------------------------------------------------------------
Enter Control Number here: [ ] [ ] [ ] [ ] Continue
- --------------------------------------------------------------------------------
Your browser must support JavaScript 1.1 or higher and be able to accept cookies
in order to continue. Click on HELP button at the top for more information and
navigation tips. If you are unable to vote yor proxy using this service
because of technical difficulties, you should refer to your Proxy Package for
other voting options.
VeriSign
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Site
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C 2001 PROXY DIRECT TM - Service of ALAMO Direct Mail Svcs, Inc. All rights
reserved.
John Hancock 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
- --------------------------------------------------------------------------------
List of Your Holdings Voting instructions
- --------------------------------------------------------------------------------
John Hancock Large Cap Spectrum Fund as recommended by the Board
- --------------------------------------------------------------------------------
Click on arrow to modify voting instructions
- --------------------------------------------
Help me... Cancel Vote Now!
- ---------- ------ ---------
If you need help navigating You can quit Internet Once you have
the site or experience problems voting at any time. However, completed
during your online session, your voting instructions set selection of your
this page may provide you with up during this session will voting
answers be disregarded instructions and
are ready to
submit them for
processing, click
the Vote Now!
button
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John Hancock Funds Proxy PROXY DIRECT TM
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Back to Home Contact Us Security
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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 Large Cap Spectrum 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
Large Cap Spectrum Fund ("Large Cap
Spectrum Fund") and John Hancock Sovereign
Investors Fund ("Sovereign Investors Fund").
Under this Agreement, your fund would transfer
all of its assets to Sovereign Investors Fund in
exchange for shares of Sovereign Investors
Fund. These shares would be distributed
proportionately to you and the other
shareholders of Large Cap Spectrum
Fund. Sovereign Investors Fund would also
assume Large Cap Spectrum Fund's
liabilities.
- --------------------------------------------------------------------------------
Any other business that may properly come before the meeting.
- --------------------------------------------------------------------------------
Voting Instructions
-------------------
i Answers have been marked according to the Board's
recommendations. Please change responses as appropriate
before submission.
[ ] Cancel [ ] Continue
- --------------------------------------------------------------------------------
Back to Home Contact Us Security C 2000 PROXY DIRECT TM
- --------------------------------------------------------------------------------
John Hancock Funds Proxy PROXY DIRECT TM
- --------------------------------------------------------------------------------
Back to Home Contact Us Security
- --------------------------------------------------------------------------------
John Hancock
------------------
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, December 3, 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 Large Cap Spectrum Fund
- --------------------------------------------------------------------------------
1 Approve an Agreement and Plan of Reorganization Voted For
If you wish to vote another card, please click here.
- --------------------------------------------------------------------------------
Back to Home Contact Us Security C 2000 PROXY DIRECT TM
- --------------------------------------------------------------------------------
---------------
Shareholder Login PROXY DIRECT TM
- --------------------------------------------------------------------------------
Back to Home Contact Us Security
- --------------------------------------------------------------------------------
You can now submit your voting instructions online. To do so, please enter your
Proxy Control Number in the area below. Your Internet Voting Control Number is
located on your voting instruction card and is identified as Control Number or
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.
- --------------------------------------------------------------------------------
Enter Control Number here: [ ] [ ] [ ] [ ] Continue
- --------------------------------------------------------------------------------
Your browser must support JavaScript 1.1 or higher and be able to accept cookies
in order to continue. Click on HELP button at the top for more information and
navigation tips. If you are unable to vote yor proxy using this service
because of technical difficulties, you should refer to your Proxy Package for
other voting options.
VeriSign
Secure
Site
Click to verify
C 2001 PROXY DIRECT TM - Service of ALAMO Direct Mail Svcs, Inc. All rights
reserved.
John Hancock Funds Proxy PROXY DIRECT TM
- --------------------------------------------------------------------------------
Back to Home Contact Us Security
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
List of Your Holdings Voting instructions
- --------------------------------------------------------------------------------
John Hancock Dividend Performers Fund as recommended by the Board
- --------------------------------------------------------------------------------
Click on arrow to modify voting instructions
- --------------------------------------------
Help me... Cancel Vote Now!
- ---------- ------ ---------
If you need help navigating You can quit Internet Once you have
the site or experience problems voting at any time. However, completed
during your online session, your voting instructions set selection of your
this page may provide you with up during this session will voting
answers be disregarded instructions and
are ready to
submit them for
processing, click
the Vote Now!
button
- --------------------------------------------------------------------------------
Back to Home Contact Us Security C 2000 PROXY DIRECT TM
- --------------------------------------------------------------------------------
John Hancock Funds Proxy PROXY DIRECT TM
- --------------------------------------------------------------------------------
Back to Home Contact Us Security
- --------------------------------------------------------------------------------
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 Dividend Performers 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
Dividend Performers Fund ("Dividend
Performers Fund") and John Hancock Sovereign
Investors Fund ("Sovereign Investors Fund").
Under this Agreement, your fund would transfer
all of its assets to Sovereign Investors Fund in
exchange for shares of Sovereign Investors
Fund. These shares would be distributed
proportionately to you and the other
shareholders of Dividend Performers
Fund. Sovereign Investors Fund would also
assume Dividend Performers Fund's
liabilities.
- --------------------------------------------------------------------------------
Any other business that may properly come before the meeting.
- --------------------------------------------------------------------------------
Voting Instructions
-------------------
i Answers have been marked according to the Board's
recommendations. Please change responses as appropriate
before submission.
[ ] Cancel [ ] Continue
- --------------------------------------------------------------------------------
Back to Home Contact Us Security C 2000 PROXY DIRECT TM
- --------------------------------------------------------------------------------
John Hancock Funds Proxy PROXY DIRECT TM
- --------------------------------------------------------------------------------
Back to Home Contact Us Security
- --------------------------------------------------------------------------------
John Hancock
------------------
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, December 3, 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 Dividend Performers Fund
- --------------------------------------------------------------------------------
1 Approve an Agreement and Plan of Reorganization Voted For
If you wish to vote another card, please click here.
- --------------------------------------------------------------------------------
Back to Home Contact Us Security C 2000 PROXY DIRECT TM
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JOHN HANCOCK
- --------------------------------------------------------------------------------
Prospectus 3.1.03 Sovereign Investors Fund
as revised 10.1.03
290PN 3/03
Draft 8/20/03
[LOGO](R)
- ------------------
JOHN HANCOCK FUNDS
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved this fund or determined whether the information in this
prospectus is adequate and accurate. Anyone who indicates otherwise is
committing a federal crime.
Contents
- --------------------------------------------------------------------------------
A summary of the fund's Sovereign Investors Fund 4
goals, strategies, risks,
performance and expenses.
Policies and instructions for Your account
opening, maintaining and
closing an account. Choosing a share class 6
How sales charges are calculated 6
Sales charge reductions and waivers 7
Opening an account 8
Buying shares 9
Selling shares 10
Transaction policies 12
Dividends and account policies 12
Additional investor services 13
Further information on the Fund details
fund.
Business structure 14
Management biographies 15
Financial highlights 16
For more information back cover
3
Sovereign Investors Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long-term growth of capital and income without
assuming undue market risks. To pursue this goal, the fund normally invests at
least 80% of stocks in a diversified portfolio of companies with market
capitalizations within the range of the Standard & Poor's 500 Index. On July 31,
2003, that range was $284.9 million to $384.7 billion.
At least 65% of the fund's stock investments are "dividend performers" --
companies whose dividend payments have increased steadily for ten years. In
managing the portfolio, the managers use fundamental financial analysis to
identify individual companies with high-quality income statements, substantial
cash reserves and identifiable catalysts for growth, which may be new products
or benefits from industrywide growth. The managers generally visit companies to
evaluate the strength and consistency of their management strategy. Finally, the
managers look for stocks that are reasonably priced relative to their earnings
and industry. Historically, companies that meet these criteria have tended to
have large or medium capitalizations.
The fund may not invest more than 5% of assets in any one security. The fund may
invest in bonds of any maturity, with up to 5% of assets in junk bonds rated as
low as C and their unrated equivalents.
The fund typically invests in U.S. companies but may invest in
dollar-denominated foreign securities. It may also make limited use of certain
derivatives (investments whose value is based on indexes). Under normal
conditions, the fund may not invest more than 10% of assets in cash or cash
equivalents.
In abnormal market conditions, the fund may temporarily invest extensively in
investment-grade short-term securities. In these and other cases, the fund might
not achieve its goal.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable distributions.
================================================================================
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
2003 return as of 6-30-03: 6.73%
Best quarter: Q4 '98, 15.56%
Worst quarter: Q3 `02, -13.87%
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 aftertax 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)
Standard & Poor's 500 Index, an unmanaged index of 500 stocks.
- -------------------------------------------------------------------------------------
Class A calendar year total returns (without sales charges)
- -------------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
5.71% -1.85% 29.15% 17.57% 29.14% 15.62% 5.91% 4.08% -6.06% -18.68%
- ------------------------------------------------------------------------------------------------------
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 -22.76% -1.55% 6.53% -- --
Class A after tax on distributions -23.32% -3.07% 4.76% -- --
Class A after tax on distributions, with sale -13.85% -1.32% 4.97% -- --
Class B before tax (began 1-3-94) -23.26% -1.53% -- 6.52% --
Class C before tax (began 5-1-98) -20.86% -- -- -- -3.36%
- ------------------------------------------------------------------------------------------------------
Standard & Poor's 500 Index -22.10% -0.59% 9.34% 9.30% -3.75%
4
MAIN RISKS
[Clip Art] The value of your investment will fluctuate in response to stock and
bond market movements.
The fund's management strategy has a significant influence on fund performance.
Large- or medium-capitalization stocks as a group could fall out of favor with
the market, causing the fund to underperform funds that focus on
small-capitalization stocks. Medium-capitalization stocks tend to be more
volatile than stocks of larger companies. 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 Certain derivatives could produce disproportionate losses.
o In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price.
o Foreign investments carry additional risks, including inadequate or
inaccurate financial information and social or political instability.
o Any bonds held by the fund could be downgraded in credit rating or go into
default. Bond prices generally fall when interest rates rise and longer
maturity will increase volatility. Junk bond prices can fall on bad news
about the economy, an industry or a company.
Investments in the fund are not bank deposits and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency. You
could lose money by investing in this fund.
================================================================================
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 0.57% 0.57% 0.57%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.30% 0.30% 0.30%
Total fund operating expenses 1.17% 1.87% 1.87%
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 $613 $853 $1,111 $1,849
Class B with redemption $690 $888 $1,211 $2,008
Class B without redemption $190 $588 $1,011 $2,008
Class C with redemption $387 $682 $1,101 $2,268
Class C without redemption $288 $682 $1,101 $2,268
(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."
================================================================================
PORTFOLIO MANAGERS
John F. Snyder, III
Joined fund team in 1983
Barry H. Evans, CFA
Joined fund team in 1996
Peter M. Schofield, CFA
Joined fund team in 1996
See page 15 for the management biographies.
FUND CODES
Class A Ticker SOVIX
CUSIP 47803P302
Newspaper SvInvA
SEC number 811-0560
JH fund number 29
Class B Ticker SOVBX
CUSIP 47803P401
Newspaper SvInvB
SEC number 811-0560
JH fund number 129
Class C Ticker SOVCX
CUSIP 47803P609
Newspaper --
SEC number 811-0560
JH fund number 529
5
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 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.
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 - $499,000 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.
6 YOUR ACCOUNT
The CDSC is based on the lesser of the original purchase cost or the current
market value of the shares being sold, and is not charged on shares you acquired
by reinvesting your dividends. To keep your CDSC as low as possible, each time
you place a request to sell shares we will first sell any shares in your account
that are not subject to a CDSC.
Class B Shares are offered at their net asset value per share, without any
initial sales charge.
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
- --------------------------------------------------------------------------------
Years after purchase CDSC on shares being sold
1st year 5.00%
2nd year 4.00%
3rd 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
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 the 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 7
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.
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.
8 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, payable to investment amount payable to
"John Hancock Signature "John Hancock Signature
Services, Inc." Services, Inc."
o Deliver the check and your o Fill out the detachable
completed application to your investment slip from an
financial representative, or account statement. If no slip
mail them to Signature is available, include a note
Services (address below). specifying 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 to
representative or Signature process exchanges between
Services to request an funds.
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 wire the
application to your financial amount of your investment to:
representative, or mail it to First Signature Bank & Trust
Signature Services. Account # 900000260
o Obtain your account number by Routing # 211475000
calling your financial Specify the fund name, your share
representative or Signature class, your account number and
Services. the name(s) in which the account
o Instruct your bank to wire the is registered. Your bank may
amount of your investment to: charge a fee to wire funds.
First Signature Bank & Trust
Account # 900000260
Routing # 211475000
Specify the fund name, your
choice of share class, the new
account number and the name(s) in
which the account is registered.
Your bank may charge a fee to
wire funds.
By Internet
[Clip Art] See "By exchange" and "By wire." o Verify that your bank or
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 wire." o Verify that your bank or
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 9
- --------------------------------------------------------------------------------
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 instruction
o Sales of any amount. 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 to
o Sales of up to $100,000. initiate redemptions from your
funds.
By phone
[Clip Art] o Most accounts. o Call EASI-Line for automated
o Sales of up to $100,000. 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 sell any o To verify that the Internet or
amount. telephone redemption privilege
o Requests by Internet or phone is in place on an account, or
to sell up to $100,000. 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 prospectus
o Sales of any amount. 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."
10 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 or o Letter of instruction.
UGMA/UTMA accounts (custodial accounts o On the letter, the signatures and
for minors). titles 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 or o Corporate business/organization
association accounts. 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 accounts. o Letter of instruction.
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 rights o Letter of instruction signed by
of survivorship whose co-tenants are surviving tenant.
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 account instructions.
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 11
- --------------------------------------------------------------------------------
TRANSACTION POLICIES
Valuation of shares The net asset value (NAV) per share for each class of the
fund is determined each business day at the close of regular trading on the New
York Stock Exchange (typically 4 P.M. Eastern Time). The fund uses market prices
in valuing portfolio securities, but may use fair-value estimates if reliable
market prices are unavailable. The fund 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 fund may trade on U.S. holidays and weekends, even though
the fund's shares will not be priced on those days. This may change the 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 The 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, the 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, the 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. The fund may also refuse any exchange
order. The 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 fund nolonger issues share certificates. Shares are
electronically recorded. Any existing certifcated shares can only be sold by
returning the certificated 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 fund generally distributes most or all of its net earnings
annually in the form of dividends. The fund typically declares and pays any
income dividends quarterly. 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 of more than $10 mailed to you.
However, if the check is not deliverable or the combined dividend and
12 YOUR ACCOUNT
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 the fund's
long-term capital gains are taxable as capital gains; dividends from the fund's
income and short-term capital gains are generally taxable as ordinary income.
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.
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 13
Fund details
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
The diagram below shows the basic business structure used by the fund. The
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 management firm The fund is 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 June 30, 2003 managed approximately $27
billion in assets.
Management fee For the fiscal year ended December 31, 2002, the fund paid the
investment adviser a management fee at an annual rate of 0.57% of the fund's
average daily net assets.
------------------------------
Shareholders
------------------------------
Distribution and
shareholder services
------------------------------
Financial services firms and
their representatives
Advise current and prospective
shareholders on their fund
investments, often in the
context of an overall
financial plan.
------------------------------
------------------------------
Principal distributor
John Hancock Funds, LLC
Markets the fund 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.
------------------------------
------------------------------
Investment adviser
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, MA 02199-7603
Manages the fund's business
and investment activities.
------------------------------
------------------------------
Custodian
The Bank of New York
One Wall Street
New York, New York 10286
Holds the fund's assets,
settles all portfolio trades
and collects most of the
valuation data required for
calculating the fund's NAV.
------------------------------
Asset management
------------------------------
Trustees
Oversee the fund's activities.
------------------------------
14 FUND DETAILS
MANAGEMENT BIOGRAPHIES
Below is an alphabetical list of the portfolio managers for the John Hancock
Sovereign Investors Fund. It is a brief summary of their business careers over
the past five years.
Barry H. Evans, CFA
- ------------------------------------
Senior vice president
Joined John Hancock Advisers in 1986
Began business career in 1986
Peter M. Schofield, CFA
- ------------------------------------
Vice president
Joined John Hancock Advisers in 1996
Began business career in 1984
John F. Snyder, III
- ------------------------------------
Executive vice president
Joined John Hancock Advisers in 1991
Began business career in 1971
FUND DETAILS 15
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
These tables detail the performance of the fund's share classes, including total
return information showing how much an investment in the fund has increased or
decreased each year.
Sovereign Investors Fund
Figures audited by Ernst & Young LLP.
Unaudited
CLASS A SHARES PERIOD ENDED: 12-31-98 12-31-99 12-31-00 12-31-01(1) 12-31-02(1) 6-30-03(2)
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $22.41 $24.23 $24.51 $23.35 $19.88 $15.81
Net investment income(3) 0.31 0.30 0.33 0.32 0.24 0.09
Net realized and unrealized gain (loss) on investments 3.11 1.11 0.61 (1.77) (3.94) 0.97
Total from investment operations 3.42 1.41 0.94 (1.45) (3.70) 1.06
Less distributions
>From net investment income (0.31) (0.35) (0.33) (0.37) (0.25) (0.09)
>From net realized gain (1.29) (0.78) (1.77) (1.65) (0.12) __
(1.60) (1.13) (2.10) (2.02) (0.37) (0.09)
Net asset value, end of period $24.23 $24.51 $23.35 $19.88 $15.81 $16.78
Total return(4) (%) 15.62 5.91 4.10 (6.06) (18.68) 6.73(5)
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $1,884 $1,788 $1,446 $1,217 $908 $921
Ratio of expenses to average net assets (%) 1.03 1.05 1.08 1.10 1.17 1.24(6)
Ratio of net investment income to average net assets (%) 1.33 1.21 1.44 1.50 1.36 1.05(6)
Portfolio turnover (%) 51 64 46 76 85 31
Unaudited
CLASS B SHARES PERIOD ENDED: 12-31-98 12-31-99 12-31-00 12-31-01(1) 12-31-02 6-30-03(2)
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $22.38 $24.20 $24.48 $23.31 $19.86 $15.79
Net investment income(3) 0.14 0.13 0.17 0.17 0.12 0.03
Net realized and unrealized gain (loss) on investments 3.11 1.11 0.60 (1.76) (3.94) 0.97
Total from investment operations 3.25 1.24 0.77 (1.59) (3.82) 1.00
Less distributions
>From net investment income (0.14) (0.18) (0.17) (0.21) (0.13) (0.03)
>From net realized gain (1.29) (0.78) (1.77) (1.65) (0.12) __
(1.43) (0.96) (1.94) (1.86) (0.25) (0.03)
Net asset value, end of period $24.20 $24.48 $23.31 $19.86 $15.79 $16.76
Total return(4) (%) 14.79 5.20 3.32 (6.66) (19.29) 6.37(5)
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $790 $820 $663 $551 $328 $307
Ratio of expenses to average net assets (%) 1.79 1.73 1.78 1.80 1.87 1.94(6)
Ratio of net investment income to average net assets (%) 0.58 0.54 0.75 0.80 0.65 0.36(6)
Portfolio turnover (%) 51 64 46 76 85 31
16 FUND DETAILS
Unaudited
CLASS C SHARES PERIOD ENDED: 12-31-98(4) 12-31-99 12-31-00 12-31-01(1) 12-31-02(1) 6-30-03(2)
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $24.43 $24.22 $24.50 $23.33 $19.88 $15.81
Net investment income(2) 0.13 0.13 0.18 0.17 0.12 0.03
Net realized and unrealized gain (loss) on investments 1.07 1.10 0.59 (1.76) (3.94) 0.97
Total from investment operations 1.20 1.23 0.77 (1.59) (3.82) 1.00
Less distributions
>From net investment income (0.12) (0.17) (0.17) (0.21) (0.13) (0.03)
>From net realized gain (1.29) (0.78) (1.77) (1.65) (0.12) __
(1.41) (0.95) (1.94) (1.86) (0.25) (0.03)
Net asset value, end of period $24.22 $24.50 $23.33 $19.88 $15.81 $16.78
Total return(3) (%) 5.185 5.17 3.32 (6.66) (19.27) 6.36(5)
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $5 $11 $12 $17 $24 $23
Ratio of expenses to average net assets (%) 1.676 1.75 1.79 1.80 1.87 1.94(6)
Ratio of net investment income to average net assets (%) 0.846 0.51 0.76 0.82 0.67 0.34(6)
Portfolio turnover (%) 51 64 46 76 85 31
(1) As required, effective January 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment
Companies, as revised, relating to the amortization of premiums and
accretion of discounts on debt securities. The effect of this change on
per share amounts for the year ended December 31, 2001 was to decrease net
investment income per share by $0.01, decrease net realized and unrealized
losses per share by $0.01, and, had the Fund not made these changes to
amortization and accretion, the ratio of net investment income to average
net assets would have been 1.53%, 0.83% and 0.85% for Class A, Class B and
Class C shares, respectively. The effect of this change on per share
amounts for the year ended December 31, 2002 was to decrease net
investment income per share by $0.01, decrease net realized and unrealized
losses per share by $0.01, and, had the Fund not made these changes to
amortization and accretion, the ratio of net investment income to average
net assets would have been 1.43%, 0.72% and 0.74% for Class A, Class B and
Class C shares, respectively. Per share ratios and supplemental data for
periods prior to January 1, 2001 have not been restated to reflect this
change in presentation.
(2) Semiannual period from 1-1-03 through 6-30-03. Unaudited.
(3) Based on the average of the shares outstanding.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) Annualized.
(7) Class C shares began operations on 5-1-98.
FUND DETAILS 17
For more information
Two documents are available that offer further information on the John Hancock
Sovereign Investors Fund:
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 fund. 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 290PN 3/03
[LOGO](R)
John Hancock Funds, LLC
MEMBER NASD
101 Huntington Avenue
Boston, MA 02199-7603
www.jhfunds.com
JOHN HANCOCK
Prospectus 3.1.03 Sovereign Investors Fund
as revised 10.1.03
INSTITUTIONAL CLASS I
[LOGO](R)
- ------------------
JOHN HANCOCK FUNDS
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved this fund or determined whether the information in this
prospectus is adequate and accurate. Anyone who indicates otherwise is
committing a federal crime.
Contents
- --------------------------------------------------------------------------------
A summary of the fund's Sovereign Investors Fund 4
goals, strategies, risks,
performance and expenses.
Policies and instructions for Your account
opening, maintaining and
closing an account. Who can buy shares 6
Opening an account 6
Buying shares 7
Selling shares 8
Transaction policies 10
Dividends and account policies 10
Further information on the Fund details
fund.
Business structure 11
Management biographies 12
Financial highlights 13
For more information back cover
Sovereign Investors Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long-term growth of capital and income without
assuming undue market risks. To pursue this goal, the fund normally invests at
least 80% of stocks in a diversified portfolio of companies with market
capitalizations within the range of the Standard & Poor's 500 Index. On July
31, 2003, that range was $284.9 million to $384.7 billion.
At least 65% of the fund's stock investments are "dividend performers" --
companies whose dividend payments have increased steadily for ten years. In
managing the portfolio, the managers use fundamental financial analysis to
identify individual companies with high-quality income statements, substantial
cash reserves and identifiable catalysts for growth, which may be new products
or benefits from industrywide growth. The managers generally visit companies to
evaluate the strength and consistency of their management strategy. Finally, the
managers look for stocks that are reasonably priced relative to their earnings
and industry. Historically, companies that meet these criteria have tended to
have large or medium capitalizations.
The fund may not invest more than 5% of assets in any one security. The fund may
invest in bonds of any maturity, with up to 5% of assets in junk bonds rated as
low as C and their unrated equivalents.
The fund typically invests in U.S. companies but may invest in
dollar-denominated foreign securities. It may also make limited use of certain
derivatives (investments whose value is based on indexes).
Under normal conditions, the fund may not invest more than 10% of assets in cash
or cash equivalents.
In abnormal market conditions, the fund may temporarily invest extensively in
investment-grade short-term securities. In these and other cases, the fund might
not achieve its goal.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable distributions.
================================================================================
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. Since Class I shares have no operational history, the
year-by-year and average annual figures are for Class A shares, which are
offered in a separate prospectus. Annual returns should be substantially similar
since all classes invest in the same portfolio. Class I shares have no sales
charges and lower expenses than Class A shares. 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
2003 return as of 6-30-03: 6.73%
Best quarter: Q4 '98, 15.56%
Worst quarter: Q3 '02, -13.87%
After-tax returns
After-tax returns are shown for Class A shares. 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)
Standard & Poor's 500 Index, an unmanaged index of 500 stocks.
- --------------------------------------------------------------------------------
Class A calendar year total returns (without sales charges)
- --------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
5.71% -1.85% 29.15% 17.57% 29.14% 15.62% 5.91% 4.08% -6.06% -18.68%
- --------------------------------------------------------------------------------
Average annual total returns (including sales charge)
for periods ending 12-31-02
- --------------------------------------------------------------------------------
1 year 5 year 10 year
Class A before tax -22.76% -1.55% 6.53%
Class A after tax on distributions -23.32% -3.07% 4.76%
Class A after tax on distributions, with sale -13.85% -1.32% 4.97%
Class I before tax (no operational history) -- -- --
- --------------------------------------------------------------------------------
Standard & Poor's 500 Index -22.10% -0.59% 9.34%
4
MAIN RISKS
[Clip Art] The value of your investment will fluctuate in response to stock and
bond market movements.
The fund's management strategy has a significant influence on fund performance.
Large- or medium-capitalization stocks as a group could fall out of favor with
the market, causing the fund to underperform funds that focus on
small-capitalization stocks. Medium-capitalization stocks tend to be more
volatile than stocks of larger companies. 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 Certain derivatives could produce disproportionate losses.
o In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price.
o Foreign investments carry additional risks, including inadequate or
inaccurate financial information and social or political instability.
o Any bonds held by the fund could be downgraded in credit rating or go into
default. Bond prices generally fall when interest rates rise and longer
maturity will increase volatility. Junk bond prices can fall on bad news
about the economy, an industry or a company.
Investments in the fund are not bank deposits and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency. You
could lose money by investing in this fund.
================================================================================
YOUR EXPENSES
[Clip Art] Operating expenses are paid from the fund's assets, and therefore are
paid by shareholders indirectly. Because Class I is new, its expenses are based
on Class A expenses, adjusted to reflect any changes.
- --------------------------------------------------------------------------------
Annual operating expenses
- --------------------------------------------------------------------------------
Management fee 0.57%
Other expenses 0.18%
Total fund operating expenses 0.75%
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 I $77 $240 $417 $930
PORTFOLIO MANAGERS
John F. Snyder, III
Joined fund team in 1983
Barry H. Evans, CFA
Joined fund team in 1996
Peter M. Schofield, CFA
Joined fund team in 1996
See page 12 for the management biographies.
FUND CODES
Class I Ticker --
CUSIP 47803P880
Newspaper --
SEC number 811-0560
JH fund number 429
5
Your account
- --------------------------------------------------------------------------------
WHO CAN BUY SHARES
Class I shares are offered without any sales charge to certain types of
investors, as noted below:
o Retirement and other benefit plans and their participants
o Rollover assets for participants whose plans are invested in the fund
o Certain trusts, endowment funds and foundations
o Any state, county or city, or its instrumentality, department, authority
or agency
o Insurance companies, trust companies and bank trust departments buying
shares for their own account
o Investment companies not affiliated with the adviser
o Clients of service agents and broker-dealers who have entered into an
agreement with John Hancock Funds
o Investors who participate in fee-based, wrap and other investment platform
programs
o Any entity that is considered a corporation for tax purposes
o Fund trustees and other individuals who are affiliated with this fund or
other John Hancock funds
- --------------------------------------------------------------------------------
OPENING AN ACCOUNT
1 Read this prospectus carefully.
2 Determine if you are eligible, by referring to "Who can buy shares" on the
left.
3 Determine how much you want to invest. The minimum initial investment is
$10,000. There is no minimum investment for retirement plans with at least
350 eligible employees.
4 Complete the appropriate parts of the account application, carefully
following the instructions. 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. You must submit additional documentation
when opening trust, corporate or power of attorney accounts.
5 Make your initial investment using the table on the next page.
6 If you have questions or need more information, please contact your
financial representative or call Signature Services at 1-888-972-8696.
John Hancock Funds may pay significant compensation out of its own resources to
your financial representative.
Your broker or agent may charge you a fee to effect transactions in fund shares.
6 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, payable to investment amount payable to
"John Hancock Signature "John Hancock Signature
Services, Inc." Services, Inc."
o Deliver the check and your o Fill out the detachable
completed application to your investment slip from an
financial representative, or account statement. If no slip
mail them to Signature is available, include a note
Services (address below). specifying the fund name(s),
your share class, your
account number and the
name(s) in which the account
is registered.
o Deliver the check and
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 Call your financial
representative or Signature representative or Signature
Services to request an Services to request an
exchange. exchange.
o You may only exchange for o You may only exchange for
shares of other institutional shares of other institutional
funds, Class I shares or Money funds or Class I shares, Class
Market Fund Class A shares. I shares or Money Market Fund
Class A shares.
By wire
[Clip Art] o Deliver your completed o Instruct your bank to wire
application to your financial the amount of your
representative or mail it to investment to:
Signature Services. First Signature Bank &
Trust
o Obtain your account number by Account # 900022260
calling your financial Routing # 211475000
representative or Signature
Services. Specify the fund name(s), your
share class, your account number
o Instruct your bank to wire and the name(s) in which the
the amount of your account is registered. Your bank
investment to: may charge a fee to wire funds.
First Signature Bank &
Trust
Account # 900022260
Routing # 211475000
Specify the fund name(s), the
share class, the new account
number and the name(s) in which
the account is registered. Your
bank may charge a fee to wire
funds.
By phone
[Clip Art] See "By exchange" and "By wire." o Verify that your bank or
credit union is a member of
the Automated Clearing House
(ACH) system.
o Complete the "To Purchase,
Exchange or Redeem Shares via
Telephone" and "Bank
Information" sections on your
account application.
o Call Signature Services to
verify that these features
are in place on your account.
o Call your financial
representative or Signature
Services with the fund
name(s), your share class,
your account number, the
name(s) in which the account
is registered and the amount
of your investment.
- --------------------------------------------
Address:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1001
Boston, MA 02217-1001
Phone Number: 1-888-972-8696
Or contact your financial representative for
instructions and assistance.
- --------------------------------------------
YOUR ACCOUNT 7
- --------------------------------------------------------------------------------
Selling shares
- --------------------------------------------------------------------------------
Designed for To sell some or all of your shares
By letter
[Clip Art] o Sales of any amount; however, o Write a letter of instruction
sales of $5 million or more indicating the fund name,
must be made by letter. your account number, your
share class, the name(s) in
o Certain requests will require which the account is
a Medallion signature registered and the dollar
guarantee. Please refer to value or number of shares you
"Selling shares in writing." 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 or wire will be sent
according to your letter of
instruction.
By phone
[Clip Art] o Sales of up to $5 million. o To place your request with a
representative at John
Hancock Funds, call Signature
Services between 8 a.m. and 4
p.m. Eastern Time on most
business days.
o Redemption proceeds of up to
$100,000 may be sent by wire
or by check. A check will be
mailed to the exact name(s)
and address on the account.
Redemption proceeds exceeding
$100,000 must be wired to
your designated bank account.
By wire or electronic funds transfer (EFT) o To verify that the telephone
redemption privilege is in
[Clip Art] o Requests by letter to sell place on an account, or to
any amount. request the forms to add it
to an existing account, call
o Requests by phone to sell up Signature Services.
to $5 million (accounts with
telephone redemption o Amounts of $5 million or more
privileges). will be wired on the next
business day.
o Amounts up to $100,000 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 Sales of any amount. o Obtain a current prospectus
for the fund into which you
are exchanging by calling
your financial representative
or Signature Services.
o You may only exchange for
shares of other institutional
funds, Class I shares or Money
Market Fund Class A shares.
o Call your financial
representative or Signature
Services to request an
exchange.
8 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, as shown in the table below, unless they were previously provided
to Signature Services and are still accurate. You may also need to include a
Medallion 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 and are requesting
payment by check
o you are selling more than $5 million worth of shares
You will need to obtain your Medallion 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 or o Letter of instruction.
UGMA/UTMA accounts (custodial accounts
for minors). o On the letter, the signatures of
all persons authorized to sign for
the account, exactly as the account
is registered.
o Medallion signature guarantee if
applicable (see above).
Owners of corporate, sole o Letter of instruction.
proprietorship, general partner or
association accounts. o Corporate 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 Medallion signature guarantee if
applicable (see above).
Owners or trustees of retirement plan, o Letter of instruction.
pension trust and trust 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 Medallion signature guarantee if
applicable (see above).
Joint tenancy shareholders with rights o Letter of instruction signed by
of survivorship whose co-tenants are surviving tenant.
deceased.
o Copy of death certificate.
o Medallion 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 Medallion signature guarantee if
applicable (see above).
Administrators, conservators, o Call 1-888-972-8696 for
guardians and other sellers or account instructions.
types not listed above.
- --------------------------------------------
Address:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1001
Boston, MA 02217-1001
Phone Number: 1-888-972-8696
Or contact your financial representative for
instructions and assistance.
- --------------------------------------------
YOUR ACCOUNT 9
- --------------------------------------------------------------------------------
TRANSACTION POLICIES
Valuation of shares The net asset value (NAV) per share for the fund is
determined each business day at the close of regular trading on the New York
Stock Exchange (typically 4 P.M. Eastern Time). The fund uses market prices in
valuing portfolio securities, but may use fair-value estimates if reliable
market prices are unavailable. The fund 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. The fund may trade foreign stock
or other portfolio securities on U.S. holidays and weekends, even though the
fund's 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. When you sell shares,
you receive the NAV.
Execution of requests The 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 sending your request in writing.
In unusual circumstances, the 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
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 Class I shares for shares of any institutional fund,
Class I shares or Money Market Fund Class A shares. The registration for both
accounts involved must be identical. Note: Once exchanged into Money Market Fund
Class A, shares may only be exchanged back to Class I or institutional fund
shares.
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. 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 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 and take other steps that it deems reasonable.
Certificated shares The fund no longer issues share certificates. Shares are
electronically recorded. Any existing certificated shares can only be sold by
returning the certificated 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, at least quarterly
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
Dividends The fund generally distributes most or all of its net earnings in the
form of dividends. Any capital gains are distributed annually. The fund declares
and pays any income dividends quarterly.
Dividend reinvestments Dividends will be reinvested automatically in additional
shares of the same fund on the dividend record date. Alternatively, you can
choose to have your dividends and capital gains sent directly to your bank
account or a check will be sent in the amount of
10 YOUR ACCOUNT
more than $10. 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 For investors who are not exempt from federal income
taxes, dividends you receive from a fund, whether reinvested or taken as cash,
are generally considered taxable. Dividends from a fund's 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.
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 if you are not exempt from federal income
taxes. 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.
Fund details
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
The 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 investment adviser The fund is managed by John Hancock Advisers, LLC, 101
Huntington Avenue, Boston, MA 02199-7603. Founded in 1968, John Hancock Advisers
is a wholly owned subsidiary of John Hancock Financial Services, Inc. and as of
June 30, 2003 managed approximately $27 billion in assets.
Management fees For the period ended December 31, 2002, the fund paid the
investment adviser management fees at a rate of 0.57% of average net assets.
YOUR ACCOUNT 11
- --------------------------------------------------------------------------------
MANAGEMENT BIOGRAPHIES
Below is an alphabetical list of the portfolio managers for the John Hancock
Sovereign Investors fund. It is a brief summary of their business careers over
the past five years.
Barry H. Evans, CFA
Senior vice president
Joined John Hancock Advisers in 1986
Began business career in 1986
Peter M. Schofield, CFA
Vice president
Joined John Hancock Advisers in 1996
Began business career in 1984
John F. Snyder, III
Executive vice president
Joined John Hancock Advisers in 1991
Began business career in 1971
12 FUND DETAILS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Since Class I shares have no operational history, financial highlights are
provided for the fund's Class A shares, which are offered in a separate
prospectus. This table details the performance of the fund's Class A shares,
including total return information showing how much an investment in the fund
has increased or decreased each year.
Sovereign Investors Fund
Figures audited by Ernst & Young LLP.
Unaudited
CLASS A SHARES PERIOD ENDED: 12-31-98 12-31-99 12-31-00 12-31-01(1) 12-31-02(1) 6-30-02(2)
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $22.41 $24.23 $24.51 $23.35 $19.88 $15.81
Net investment income(3) 0.31 0.30 0.33 0.32 0.24 0.09
Net realized and unrealized gain (loss) on investments 3.11 1.11 0.61 (1.77) (3.94) 0.97
Total from investment operations 3.42 1.41 0.94 (1.45) (3.70) 1.06
Less distributions
From net investment income (0.31) (0.35) (0.33) (0.37) (0.25) (0.09)
From net realized gain (1.29) (0.78) (1.77) (1.65) (0.12) __
(1.60) (1.13) (2.10) (2.02) (0.37) (0.09)
Net asset value, end of period $24.23 $24.51 $23.35 $19.88 $15.81 $16.78
Total return(4) (%) 15.62 5.91 4.10 (6.06) (18.68) 6.73(5)
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $1,884 $1,788 $1,446 $1,217 $908 $921
Ratio of expenses to average net assets (%) 1.03 1.05 1.08 1.10 1.17 1.24(6)
Ratio of net investment income to average net assets (%) 1.33 1.21 1.44 1.50 1.36 1.05(6)
Portfolio turnover (%) 51 64 46 76 85 31
(1) As required, effective January 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment
Companies, as revised, relating to the amortization of premiums and
accretion of discounts on debt securities. The effect of this change on
per share amounts for the year ended December 31, 2001 was to decrease net
investment income per share by $0.01, decrease net realized and unrealized
losses per share by $0.01, and, had the Fund not made these changes to
amortization and accretion, the ratio of net investment income to average
net assets would have been 1.53% for Class A shares. The effect of this
change on per share amounts for the year ended December 31, 2002 was to
decrease net investment income per share by $0.01, decrease net realized
and unrealized losses per share by $0.01, and, had the Fund not made these
changes to amortization and accretion, the ratio of net investment income
to average net assets would have been 1.43% for Class A shares. Per share
ratios and supplemental data for periods prior to January 1, 2001 have not
been restated to reflect this change in presentation.
(2) Semiannual period from 1-1-03 through 6-30-03. Unaudited.
(3) Based on the average of the shares outstanding.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) Annualized.
FUND DETAILS 13
For more information
Two documents are available that offer further information on John Hancock
Sovereign Investors Fund:
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 fund. 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.
(C)2003 JOHN HANCOCK FUNDS, LLC 29IPN 3/03
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 1001
Boston, MA 02217-1001
By phone: 1-888-972-8696
By EASI-Line: 1-800-597-1897
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
[LOGO[(R) PRSRT STD
John Hancock Funds, LLC U.S. POSTAGE
MEMBER NASD PAID
101 Huntington Avenue BOSTON, MA
Boston, MA 02199-7603 PERMIT NO. 11
www.jhfunds.com
John Hancock
Sovereign
Investors
Fund
ANNUAL
REPORT
12.31.02
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 12
Trustees & officers
page 26
For your information
page 29
Dear Fellow Shareholders,
Investors were probably never happier to close out a year than they were
in 2002, since it was the third consecutive year that the stock market
declined -- something that hadn't occurred in 60 years. Driving the fall
were fears of war, a weak economy, disappointing profits, rising oil
prices and a string of corporate scandals. All market sectors and
investment styles suffered. As a result, the broad Standard & Poor's 500
Index fell by 22.09% for the year, while the Dow Jones Industrial
Average lost 15.04% and the technology laden Nasdaq Composite Index lost
31.53%.
Despite a fourth-quarter rally, only 3.8% of U.S. stock mutual funds
made money last year, and the average U.S. stock fund lost 22.42%,
according to Lipper, Inc. Bond funds provided the only bright spot,
producing mostly positive results, with the average long-term bond fund
rising 7.9%. It was the third year in which bonds outperformed stocks
and gained ground, confirming yet again the importance of having a
portfolio well-diversified among stocks, bonds and cash.
In fact, the disparity between stock and bond results over the last
three years means that many investors' portfolios may have shifted
substantially in their mix between stocks and bonds. We recommend
working with your investment professional to rebalance your assets
according to your long-term goals.
After three down years, no one can predict when the bear market cycle
will turn. Currently, uncertainties abound, as the good news seen in
signs of improving economic and corporate data, and efforts by
Washington to stimulate the economy, are offset by the possibility of
war and other geopolitical risks.
While all these factors are beyond our control, investors can take
charge of how they maneuver through the inevitable bull and bear market
cycles. We've said it before, but it bears repeating: the key is to keep
a long-term perspective and work with your investment professional to
develop and maintain a properly diversified portfolio. We believe this
offers the best protection in the tough times and the best means to
reach your long-term goals.
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 without
assuming undue
market risks by
investing in a
diversified portfo-
lio of companies
with market capi-
talizations within
the range of the
Standard & Poor's
500 Index.
Over the last twelve months
* An anemic economic recovery, lackluster earnings and high-profile
corporate scandals drove stock prices down.
* Our relatively large stake in large-capitalization stocks held back
performance.
* We began to see some compelling values that meet our stringent
investment standards.
[Bar chart with heading "John Hancock Sovereign Investors Fund." Under
the heading is a note that reads "Fund performance for the year ended
December 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 -18.68% total
return for Class A. The second bar represents the -19.29% total return
for Class B. The third bar represents the -19.27% 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
4.1% Bank of America
3.4% Exxon Mobil
3.4% Johnson & Johnson
2.9% Citigroup
2.7% General Electric
2.6% Philip Morris Cos.
2.5% American International Group
2.5% International Business Machines
2.3% AFLAC
2.1% Avon Products
As a percentage of net assets on December 31, 2002.
MANAGERS'
REPORT
BY JOHN F. SNYDER, III, PETER M. SCHOFIELD, CFA, AND BARRY H. EVANS,
CFA, PORTFOLIO MANAGERS
John Hancock
Sovereign Investors Fund
An anemic economic recovery, lackluster earnings and high-
profile corporate scandals drove stock prices down throughout the year.
There were few safe havens as the downturn hit virtually every sector of
the market. With the Dow Jones Industrial Average down 15.04% and the
Standard & Poor's 500 Index down 22.09%, stocks posted their third
consecutive year of negative returns -- something that hasn't happened
in 60 years.
PERFORMANCE REVIEW
In this difficult market environment, John Hancock Sovereign Investors
Fund's Class A, Class B and Class C shares returned -18.68%, -19.29%
and -19.27%, respectively, at net asset value. By comparison, the
average equity-income fund returned -16.33%, according to Lipper, Inc.1
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.
"An anemic economic
recovery, lackluster
earnings and high-
profile corporate
scandals drove stock
prices down..."
LARGE CAPS SUFFER; CONSUMERS STRONG
The Fund's relative underperformance can be explained by its heavier
emphasis on large-capitalization stocks. Many of our large-cap names
were spared during the market's decline in 2001. As the end of a market
downturn gets closer, however, there's often indiscriminate selling.
That's what happened this year as many large-cap names fell in the last
stages of the market's capitulation. What's more, in the wake of
corporate scandals, many large-cap companies with complex balance sheets
suffered as investors began to question their accounting practices.
[Photos of John Snyder, Peter Schofield, and Barry Evans flush right
next to first paragraph.]
Citigroup and IBM were among the large-cap holdings that disappointed
us. A combination of legal problems, difficulties overseas and the weak
U.S. stock market took its toll on Citigroup. We believe, however, that
the company's fundamentals are very strong, especially compared with its
competitors. Furthermore, we believe the problems that plagued the stock
this year will be alleviated in 2003.
IBM has suffered from a lack of capital spending. In our opinion,
management has done a great job refocusing the business through
strategic divestitures and acquisitions. As a result, they've been able
to gain market share in an extremely challenging business environment.
Once the economy improves, IBM should be well positioned to benefit from
a pick-up in capital spending.
"...our consumer staple
stocks continued to
perform strongly..."
On the flip side, our consumer staple stocks continued to perform
strongly throughout the year. In particular, Procter & Gamble and Avon
have been among the few companies that have met or exceeded their
earnings projections. At P&G, new management has successfully
streamlined the company's product line and in turn, gained market share.
The story was similar for Avon as new management grew sales --
especially in international markets -- with several successful new
products.
NEW OPPORTUNITIES
In this challenging market environment, we've maintained our focus on
our long-term investment strategy. The vast majority of the Fund's
holdings remain in "dividend performers" -- those companies that have
raised their dividends for at least 10 consecutive years. Our dividend
performers' investment philosophy keeps us squarely focused on
high-quality companies with reasonable valuations, steady earnings
growth, strong cash flow and market leadership.
[Table at top left-hand side of page entitled "Top five industry
groups." The first listing is Medical 10%, the second is Banks 10%, the
third Oil & gas 9%, the fourth Computers 8%, and the fifth Insurance
7%.]
Given the stock market's prolonged downturn, we've begun to see some
compelling values that meet our strict investment standards. The decline
has allowed us to add several new stocks to the portfolio that we've
long admired, but haven't been able to purchase because of their high
valuations. Omnicom -- one of the world's leading advertising agencies
- -- was hit hard as investors worried that advertising spending would dry
up in a slowing economy. With a solid balance sheet and strong client
base throughout the world, we believe that Omnicom will be one of the
biggest beneficiaries of an increase in advertising that will
undoubtedly accompany a stronger economy.
[Pie chart at middle of page with heading "Portfolio diversification As
a percentage of net assets on 12-31-02." The chart is divided into four
sections (from top to left): Common stocks 90%, Corporate bonds 5%,
Short-term investments & other 4% and Preferred stocks 1%.]
State Street Corp. is another new addition. Like Omnicom, we've followed
the company closely, but the stock has been too expensive until this
year. Being one of the largest financial processors in the world, the
market's downturn has taken a toll on State Street's revenues. That's
because when stock market activity declines, so do processing needs.
We've taken advantage of the company's recent drop to add the stock to
the portfolio. Looking ahead, we believe the company will bounce back
once the stock market turns around. What's more, as mutual fund
companies increasingly outsource their processing business, State Street
is likely to gain market share.
[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 IBM
followed by a down arrow with the phrase "Lack of capital spending." The
second listing is Citigroup followed by a down arrow with the phrase
"Legal issues; weak stock market." The third listing is Avon followed by
an up arrow with the phrase "Successful new products."]
OUTLOOK
This year ended with a stock market rally that left many investors
wondering whether the downturn was finally over. Investors remain
skeptical, however, remembering all too well the 2001 year-end rally,
which quickly faded in 2002. As we look ahead, we are optimistic that
stock prices will move higher this year. After three straight years of
losses, it would be unlikely for stocks to decline four years in a row.
That's happened only once -- from 1929-1932 during the Depression -- and
the situation is far different today.
"Although the economic
recovery will gain momen-
tum in 2003, we don't expect
to see a sharp rebound."
Although the economic recovery will gain momentum in 2003, we don't
expect to see a sharp rebound. Since low interest rates have allowed the
consumer to continue spending during this recession, there's not a
significant amount of pent-up demand. In addition, excess capacity in
the industrial sector will continue to limit pricing power and keep
pressure on corporate earnings. As a result, it will be critical to own
high quality companies with strong balance sheets, steady earnings
growth and the ability to leverage the gradual upturn in the economy.
This commentary reflects the views of the portfolio managers through the
end of the Fund's period discussed in this report. Of course, the
managers' views are subject to change as market and other conditions
warrant.
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
December 31, 2002
The index used for
comparison is the
Standard & Poor's
500 Index, an unman-
aged index that
includes 500 widely
traded common stocks.
It is not possible to
invest in an index.
Class A Class B Class C Index
Inception date 5-1-36 1-3-94 5-1-98 --
Average annual returns with maximum sales charge (POP)
One year -22.76% -23.26% -20.86% -22.09%
Five years -1.55% -1.53% -- -0.58%
Ten years 6.53% -- -- 9.34%
Since inception -- 6.52% -3.36% --
Cumulative total returns with maximum sales charge (POP)
One year -22.76% -23.26% -20.86% -22.09%
Five years -7.51% -7.41% -- -2.87%
Ten years 88.16% -- -- 144.21%
Since inception -- 76.41% -14.75% --
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 Standard & Poor's 500 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 $24,421
as of December 31, 2002. The second line represents the value of the
hypothetical $10,000 investment made in the John Hancock Sovereign
Investors Fund, before sales charge, and is equal to $19,809 as of
December 31, 2002. The third line represents the value of the same
hypothetical investment made in the John Hancock Sovereign Investors
Fund, after sales charge, and is equal to $18,816 as of December 31,
2002.
Class B 1 Class C 1
Period beginning 1-3-94 5-1-98
Without sales charge $17,641 $8,612
With maximum sales charge -- $8,526
Index $22,190 $8,439
Assuming all distributions were reinvested for the period indicated, the
table above shows the value of a $10,000 investment in the Fund's Class
B and Class C shares, respectively, as of December 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
December 31, 2002
This schedule is divided into five main categories: common stocks,
preferred stocks, corporate bonds, U.S. government and agencies
obligations, and short-term investments. The common and preferred stocks
and corporate bonds are further broken down by industry group.
Short-term investments, which represent the Fund's cash position, are
listed last.
SHARES ISSUER VALUE
COMMON STOCKS 90.21% $1,136,452,353
(Cost $958,824,640)
Advertising 1.54% $19,380,000
300,000 Omnicom Group, Inc. 19,380,000
Banks 10.23% 128,906,000
750,000 Bank of America Corp. 52,177,500
800,000 Bank of New York Co., Inc. (The) 19,168,000
600,000 Mellon Financial Corp. 15,666,000
250,000 State Street Corp. 9,750,000
300,000 U.S. Bancorp 6,366,000
550,000 Wells Fargo & Co. 25,778,500
Beverages 1.09% 13,721,500
325,000 PepsiCo, Inc. 13,721,500
Chemicals 3.61% 45,453,536
500,000 Air Products & Chemicals, Inc. 21,375,000
416,800 Praxair, Inc. 24,078,536
Computers 8.05% 101,435,000
280,000 Automatic Data Processing, Inc. 10,990,000
1,500,000 Cisco Systems, Inc.* 19,650,000
1,250,000 Hewlett-Packard Co. 21,700,000
400,000 International Business Machines Corp. 31,000,000
350,000 Microsoft Corp.* 18,095,000
Cosmetics & Personal Care 2.97% 37,421,000
500,000 Avon Products, Inc. 26,935,000
200,000 Colgate-Palmolive Co. 10,486,000
Diversified Operations 6.21% 78,208,000
200,000 3M Co. 24,660,000
1,400,000 General Electric Co. 34,090,000
300,000 Illinois Tool Works, Inc. 19,458,000
Electronics 1.19% 14,974,206
294,478 Emerson Electric Co. 14,974,206
Finance 6.54% 82,401,831
200,000 American Express Co. 7,070,000
1,052,941 Citigroup, Inc. 37,052,994
648,309 MBNA Corp. 12,330,837
650,000 Morgan Stanley Dean Witter & Co. 25,948,000
Food 1.32% 16,644,132
427,540 Kraft Foods, Inc. (Class A) 16,644,132
Insurance 7.31% 92,131,010
960,000 AFLAC, Inc. 28,915,200
550,000 American International Group, Inc. 31,817,500
350,000 Hartford Financial Services Group, Inc. (The) 15,900,500
1,057,871 Travelers Property Casualty Corp. (Class A)* 15,497,810
Media 1.32% 16,675,396
275,900 McGraw-Hill Cos., Inc. (The) 16,675,396
Medical 10.23% 128,919,920
450,000 Abbott Laboratories 18,000,000
400,000 Baxter International, Inc. 11,200,000
350,000 Cardinal Health, Inc. 20,716,500
802,000 Johnson & Johnson 43,075,420
300,000 Medtronic, Inc. 13,680,000
150,000 Merck & Co., Inc. 8,491,500
450,000 Pfizer, Inc. 13,756,500
Mortgage Banking 4.15% 52,304,500
400,000 Fannie Mae 25,732,000
450,000 Freddie Mac 26,572,500
Office 1.37% 17,184,858
281,350 Avery Dennison Corp. 17,184,858
Oil & Gas 8.61% 108,474,249
300,000 Anadarko Petroleum Corp. 14,370,000
600,000 BP Plc, American Depositary Receipts (ADR) (United Kingdom) 24,390,000
400,000 ChevronTexaco Corp. 26,592,000
1,234,180 Exxon Mobil Corp. 43,122,249
Retail 4.43% 55,776,028
100,000 Family Dollar Stores, Inc. 3,121,000
500,000 Lowe's Cos., Inc. 18,750,000
433,200 SYSCO Corp. 12,905,028
700,000 Target Corp. 21,000,000
Soap & Cleaning Preparations 1.71% 21,485,000
250,000 Procter & Gamble Co. (The) 21,485,000
Telecommunications 3.45% 43,483,823
300,000 Nokia Corp., ADR (Finland) 4,650,000
789,241 SBC Communications, Inc. 21,396,323
450,000 Verizon Communications, Inc. 17,437,500
Tobacco 2.57% 32,424,000
800,000 Philip Morris Cos., Inc. 32,424,000
Utilities 2.31% 29,048,364
150,000 ALLTEL Corp. 7,650,000
300,000 BellSouth Corp. 7,761,000
490,200 Questar Corp. 13,637,364
PREFERRED STOCKS 0.55% $6,930,000
(Cost $6,000,000)
Oil & Gas 0.55% 6,930,000
60,000 Lasmo America Ltd., 8.15% (R) 6,930,000
INTEREST CREDIT PAR VALUE
ISSUER, DESCRIPTION, MATURITY DATE RATE RATING** (000s OMITTED) VALUE
CORPORATE BONDS 5.40% $68,095,453
(Cost $66,953,530)
Energy 0.47% 5,883,875
CalEnergy Co., Inc.,
Sr Bond 09-15-28 8.480 BBB- 5,000 5,883,875
Finance 1.18% 14,950,187
Guaranteed Trade Trust,
Gtd Note Ser 94-A 06-26-06 7.390 AAA 5,821 6,430,811
Household Finance Corp.,
Note 01-24-06 6.500 A- 8,000 8,519,376
Media 1.32% 16,648,036
Continental Cablevision, Inc.,
Deb 08-01-13 9.500 BBB 6,500 7,526,571
Rogers Cablesystems Ltd.,
Sr Note Ser B (Canada) 03-15-05 10.000 BBB- 4,000 4,120,000
TCI Communications, Inc.,
Sr Note 01-15-03 8.250 BBB 5,000 5,001,465
Telecommunications 0.21% 2,621,780
GTE North, Inc.,
Deb Ser A 01-01-21 9.600 A+ 2,500 2,621,780
Utilities 2.22% 27,991,575
Appalachian Power Co.,
Sr Note Ser E 06-15-05 4.800 BBB+ 2,000 2,008,194
BVPS II Funding Corp.,
Collateralized Lease Bond 06-01-17 8.680 BBB- 6,494 6,928,384
Midland Funding Corp. II,
Deb Ser A 07-23-05 11.750 BB- 10,535 10,745,700
New Valley Generation II,
Pass Thru Ctf 05-01-20 5.572 AAA 2,805 2,997,482
Tennessee Valley Authority,
Note 07-15-43 7.250 AAA 5,000 5,311,815
U.S. GOVERNMENT AND AGENCIES OBLIGATIONS 0.06% $718,089
(Cost $661,291)
Government -- U.S. Agencies 0.06% $718,089
Government National Mortgage Assn.,
30 Yr SF Pass Thru Ctf 08-15-24 8.000 AAA 657 718,089
INTEREST PAR VALUE
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
SHORT-TERM INVESTMENTS 21.29% $268,256,041
(Cost $268,256,041)
Joint Repurchase Agreement 3.31%
Investment in a joint repurchase agreement
transaction with UBS Warburg, Inc. -- Dated
12-31-02, due 01-02-03 (Secured by
U.S. Treasury Bond 8.500% due 02-15-20,
U.S. Treasury Notes 4.625% due 02-28-02 and
5.375% due 06-30-03, U.S. Treasury Inflation
Indexed Notes 3.500% due 01-15-11 and 3.000%
due 07-15-12) 1.150% 41,714 41,714,000
SHARES
Cash Equivalents 17.98%
AIM Cash Investment Trust*** 226,542,041 226,542,041
TOTAL INVESTMENTS 117.51% $1,480,451,936
OTHER ASSETS AND LIABILITIES, NET (17.51%) ($220,601,260)
TOTAL NET ASSETS 100.00% $1,259,850,676
* Non-income producing security.
** Credit ratings by Moody's Investors Service or John Hancock Advisers, LLC where Standard & Poor's
ratings are not available.
*** Represents investment of securities lending collateral.
(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 $6,930,000 or 0.55% of
net assets as of December 31, 2002.
Parenthetical disclosure of a foreign country in the security
description represents country of a foreign issuer;
however, security is U.S. dollar-denominated.
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.
ASSETS AND
LIABILITIES
December 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 $1,300,695,502,
including $222,300,392 of securities loaned) $1,480,451,936
Cash 135
Receivable for investments sold 5,162,087
Receivable for shares sold 91,044
Dividends and interest receivable 3,894,624
Other assets 396,259
Total assets 1,489,996,085
LIABILITIES
Payable for investments purchased 773,553
Payable for securities on loan 226,542,041
Payable to affiliates 2,292,306
Other payables and accrued expenses 537,509
Total liabilities 230,145,409
NET ASSETS
Capital paid-in 1,171,784,757
Accumulated net realized loss on investments (91,514,737)
Net unrealized appreciation of investments 179,756,434
Distributions in excess of net investment income (175,778)
Net assets $1,259,850,676
NET ASSET VALUE PER SHARE
Based on net asset values and shares outstanding
Class A ($907,528,038 [DIV] 57,392,158 shares) $15.81
Class B ($328,054,601 [DIV] 20,769,889 shares) $15.79
Class C ($24,268,037 [DIV] 1,534,567 shares) $15.81
MAXIMUM OFFERING PRICE PER SHARE
Class A 1 ($15.81 [DIV] 95%) $16.64
Class C ($15.81 [DIV] 99%) $15.97
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
December 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 $38,000) $27,838,180
Interest (including securities lending income of $389,993
and net of foreign withholding taxes of $16,667) 10,416,350
Total investment income 38,254,530
EXPENSES
Investment management fee 8,703,622
Class A distribution and service fee 3,187,797
Class B distribution and service fee 4,309,103
Class C distribution and service fee 222,151
Transfer agent fee 3,328,892
Accounting and legal services fee 439,523
Custodian fee 228,413
Miscellaneous 92,043
Registration and filing fee 90,783
Trustees' fee 85,037
Printing 82,263
Auditing fee 40,600
Interest expense 24,249
Legal fee 22,557
Total expenses 20,857,033
Less expense reductions (1,850)
Net expenses 20,855,183
Net investment income 17,399,347
REALIZED AND UNREALIZED LOSS
Net realized loss on investments (90,047,264)
Change in net unrealized appreciation (depreciation)
of investments (253,306,863)
Net realized and unrealized loss (343,354,127)
Decrease in net assets from operations ($325,954,780)
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,
distributions
paid to share-
holders, if any,
and any increase
or decrease in
money share-
holders invested
in the Fund.
YEAR YEAR
ENDED ENDED
12-31-01 12-31-02
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment income $24,267,904 $17,399,347
Net realized gain (loss) 87,473,939 (90,047,264)
Change in net unrealized
appreciation (depreciation) (242,845,053) (253,306,863)
Decrease in net assets resulting
from operations (131,103,210) (325,954,780)
Distributions to shareholders
From net investment income
Class A (21,483,276) (15,200,803)
Class B (5,690,116) (3,050,052)
Class C (148,909) (177,688)
From net realized gain
Class A (93,517,970) (6,861,940)
Class B (42,463,282) (2,512,670)
Class C (1,288,670) (183,073)
(164,592,223) (27,986,226)
From Fund share transactions (116,803,512) (170,742,889)
NET ASSETS
Beginning of period 2,197,033,516 1,784,534,571
End of period 1 $1,784,534,571 $1,259,850,676
1 Includes distributions in excess of net investment income of $235,249 and
$175,778, 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 12-31-98 12-31-99 12-31-00 12-31-01 1 12-31-02 1
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $22.41 $24.23 $24.51 $23.35 $19.88
Net investment income 2 0.31 0.30 0.33 0.32 0.24
Net realized and unrealized
gain (loss) on investments 3.11 1.11 0.61 (1.77) (3.94)
Total from investment
operations 3.42 1.41 0.94 (1.45) (3.70)
Less distributions
From net investment income (0.31) (0.35) (0.33) (0.37) (0.25)
From net realized gain (1.29) (0.78) (1.77) (1.65) (0.12)
(1.60) (1.13) (2.10) (2.02) (0.37)
Net asset value,
end of period $24.23 $24.51 $23.35 $19.88 $15.81
Total return 3 (%) 15.62 5.91 4.10 (6.06) (18.68)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $1,884 $1,788 $1,446 $1,217 $908
Ratio of expenses to
average net assets (%) 1.03 1.05 1.08 1.10 1.17
Ratio of net investment
income to average net assets (%) 1.33 1.21 1.44 1.50 1.36
Portfolio turnover (%) 51 64 46 76 85
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
CLASS B SHARES
PERIOD ENDED 12-31-98 12-31-99 12-31-00 12-31-01 1 12-31-02 1
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $22.38 $24.20 $24.48 $23.31 $19.86
Net investment income 2 0.14 0.13 0.17 0.17 0.12
Net realized and unrealized
gain (loss) on investments 3.11 1.11 0.60 (1.76) (3.94)
Total from investment
operations 3.25 1.24 0.77 (1.59) (3.82)
Less distributions
From net investment income (0.14) (0.18) (0.17) (0.21) (0.13)
From net realized gain (1.29) (0.78) (1.77) (1.65) (0.12)
(1.43) (0.96) (1.94) (1.86) (0.25)
Net asset value,
end of period $24.20 $24.48 $23.31 $19.86 $15.79
Total return 3 (%) 14.79 5.20 3.32 (6.66) (19.29)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $790 $820 $663 $551 $328
Ratio of expenses to
average net assets (%) 1.79 1.73 1.78 1.80 1.87
Ratio of net investment
income to average net assets (%) 0.58 0.54 0.75 0.80 0.65
Portfolio turnover (%) 51 64 46 76 85
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
CLASS C SHARES
PERIOD ENDED 12-31-98 4 12-31-99 12-31-00 12-31-01 1 12-31-02 1
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $24.43 $24.22 $24.50 $23.33 $19.88
Net investment income 2 0.13 0.13 0.18 0.17 0.12
Net realized and unrealized
gain (loss) on investments 1.07 1.10 0.59 (1.76) (3.94)
Total from investment
operations 1.20 1.23 0.77 (1.59) (3.82)
Less distributions
From net investment income (0.12) (0.17) (0.17) (0.21) (0.13)
From net realized gain (1.29) (0.78) (1.77) (1.65) (0.12)
(1.41) (0.95) (1.94) (1.86) (0.25)
Net asset value,
end of period $24.22 $24.50 $23.33 $19.88 $15.81
Total return 3 (%) 5.18 5 5.17 3.32 (6.66) (19.27)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $5 $11 $12 $17 $24
Ratio of expenses to
average net assets (%) 1.67 6 1.75 1.79 1.80 1.87
Ratio of net investment
income to average net assets (%) 0.84 6 0.51 0.76 0.82 0.67
Portfolio turnover (%) 51 64 46 76 85
1 As required, effective January 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment
Companies, as revised, relating to the amortization of premiums and
accretion of discounts on debt securities. The effect of this change on
per share amounts for the year ended December 31, 2001 was to decrease
net investment income per share by $0.01, decrease net realized and
unrealized losses per share by $0.01, and, had the Fund not made these
changes to amortization and accretion, the ratio of net investment
income to average net assets would have been 1.53%, 0.83% and 0.85% for
Class A, Class B and Class C shares, respectively. The effect of this
change on per share amounts for the year ended December 31, 2002 was to
decrease net investment income per share by $0.01, decrease net realized
and unrealized losses per share by $0.01, and, had the Fund not made
these changes to amortization and accretion, the ratio of net investment
income to average net assets would have been 1.43%, 0.72% and 0.74% for
Class A, Class B and Class C shares, respectively. Per share ratios and
supplemental data for periods prior to January 1, 2001 have not been
restated to reflect this change in presentation.
2 Based on the average of the shares outstanding.
3 Assumes dividend reinvestment and does not reflect the effect of sales
charges.
4 Class C shares began operations on 5-1-98.
5 Not annualized.
6 Annualized.
See notes to
financial statements.
NOTES TO
STATEMENTS
NOTE A
Accounting policies
John Hancock Sovereign Investors Fund (the "Fund") is a diversified
series of John Hancock Investment Trust, an open-end investment
management company registered under the Investment Company Act of 1940.
The investment objective of the Fund is to provide long-term growth of
capital and of income without assuming undue market risks.
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.
No Class I shares have been issued as of December 31, 2002. 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 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.
Investments in AIM Cash Investment Trust are valued at their net asset
value each business day.
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.
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.
Discount and premium on securities
The Fund accretes discount and amortizes premium from par value on
securities from either the date of issue or the date of purchase over the
life of the security.
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 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
December 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. On December 31,
2002, the Fund loaned securities having a market value of $222,300,392
collateralized by cash in the amount of $226,542,041. The cash collateral
was invested in a short-term instrument.
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 $89,791,390 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 December 31,
2010. Net capital losses of $1,091,684 that are attributable to security
transactions that occurred after October 31, 2002, are treated as
arising on January 1, 2003, the first day of the Fund's next taxable
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. During the year
ended December 31, 2002, the tax character of distributions paid was as
follows: ordinary income $18,428,543 and long-term capital gains
$9,557,683. 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 December 31, 2002, the components of
distributable earnings on a tax basis included $85,154 of undistributed
ordinary income.
Such distributions, 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)
0.60% of the first $750,000,000 of the Fund's average daily net asset
value, (b) 0.55% of the next $750,000,000, (c) 0.50% of the next
$1,000,000,000 and (d) 0.45% of the Fund's average daily net asset value
in excess of $2,500,000,000.
The Fund has an agreement with its custodian bank under which custody
fees are reduced by brokerage commissions offsets applied during the
period. Accordingly, the custody expense reduction amounted to $1,850,
and had no impact on the Fund's ratio of expenses to average net asset
for the year ended December 31, 2002.
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 December 31, 2002, JH Funds received net up-front sales
charges of $1,027,023 with regard to sales of Class A shares. Of this
amount, $157,106 was retained and used for printing prospectuses,
advertising, sales literature and other purposes, $556,528 was paid as
sales commissions to unrelated broker-dealers and $313,389 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 December
31, 2002, JH Funds received net up-front sales charges of $72,370 with
regard to sales of Class C shares. Of this amount, $67,186 was paid as
sales commissions to unrelated broker-dealers and $5,184 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 December 31, 2002,
CDSCs received by JH Funds amounted to $800,046 for Class B shares and
$11,779 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 approximately 0.03% 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 Compensation 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, reinvested 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 12-31-01 YEAR ENDED 12-31-02
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Sold 3,336,339 $72,751,800 7,115,380 $128,166,011
Distributions reinvested 5,388,568 106,277,304 1,218,520 20,462,624
Repurchased (9,435,947) (206,055,587) (12,150,506) (210,473,134)
Net decrease (711,040) ($27,026,483) (3,816,606) ($61,844,499)
CLASS B SHARES
Sold 2,832,080 $61,448,950 2,536,815 $45,690,969
Distributions reinvested 2,281,033 44,746,477 317,980 5,295,398
Repurchased (5,845,389) (127,066,605) (9,799,112) (171,997,634)
Net decrease (732,276) ($20,871,178) (6,944,317) ($121,011,267)
CLASS C SHARES
Sold 435,806 $9,546,015 1,365,472 $24,421,944
Distributions reinvested 62,843 1,232,554 20,572 339,309
Repurchased (161,626) (3,513,723) (708,865) (12,648,376)
Net increase 337,023 $7,264,846 677,179 $12,112,877
CLASS Y SHARES 1
Repurchased (3,261,479) ($76,170,697) -- --
Net decrease (3,261,479) ($76,170,697) -- --
NET DECREASE (4,367,772) ($116,803,512) (10,083,744) ($170,742,889)
1 Class Y shares were terminated 1-3-01.
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
December 31, 2002, aggregated $648,369,066 and $848,276,523,
respectively. Purchases and proceeds from maturities of obligations of
U.S. government aggregated $590,674,961 and $608,087,773, respectively,
during the year ended December 31, 2002.
The cost of investments owned on December 31, 2002, including short-term
investments, for federal income tax purposes was $1,302,027,269. Gross
unrealized appreciation and depreciation of investments aggregated
$246,615,341 and $68,190,674, respectively, resulting in net unrealized
appreciation of $178,424,667. The difference between book basis and tax
basis net unrealized appreciation of investments is attributable
primarily to the tax deferral of losses on wash sales and amortization
of premiums and accretion of discounts on debt securities.
NOTE E
Reclassification of accounts
During the year ended December 31, 2002, the Fund reclassified amounts
to reflect an increase in accumulated net realized loss on investments
of $866,056, a decrease in distributions in excess of net investment
income of $1,088,667 and a decrease in capital paid-in of $222,611. This
represents the amount necessary to report these balances on a tax basis,
excluding certain temporary differences, as of December 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 amortization of premium and
accretion of discount and to certain differences 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 income per share in the
financial highlights excludes these adjustments.
NOTE F
Change in accounting principle
Effective January 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies, as revised,
relating to the amortization of premiums and accretion of discounts on
debt securities. The cumulative effect of this accounting change had no
impact on the total net assets of the Fund, but resulted in a $424,665
reduction in the cost of investments and a corresponding increase in net
unrealized appreciation, based on securities held as of December 31,
2000.
The effect of this change for the year ended December 31, 2001 was to
decrease net investment income by $552,488, increase unrealized
appreciation of investments by $71,807 and increase net realized gain on
investments by $480,681.
The effect of this change for the year ended December 31, 2002 was to
decrease net investment income by $1,084,007, increase unrealized
appreciation on investments by $203,616 and decrease net realized loss
of investments by $880,391. The statement of changes in net assets and
the financial highlights for prior periods have not been restated to
reflect this change in presentation.
NOTE G
Change in Independent Auditor
Based on the recommendation of the Audit Committee of the Fund, the
Board of Trustees has determined not to retain Ernst & Young LLP as the
Fund's independent auditor and voted to appoint Deloitte & Touche LLP
for the fiscal year ended December 31, 2003. During the two most recent
fiscal years, Ernst & Young LLP's audit reports contained no adverse
opinion or disclaimer of opinion; nor were their reports qualified as to
uncertainty, audit scope, or accounting principles. Further, there were
no disagreements between the fund and Ernst & Young LLP on accounting
principles, financial statements disclosure or audit scope, which if not
resolved to the satisfaction of Ernst & Young LLP, would have caused
them to make reference to the disagreement in their report.
AUDITORS'
REPORT
Report of Ernst &
Young LLP,
Independent
Auditors
To the Board of Trustees and Shareholders of John Hancock Sovereign
Investors Fund of John Hancock Investment Trust,
We have audited the accompanying statement of assets and liabilities of
John Hancock Sovereign Investors Fund (a series of John Hancock
Investment Trust) (the "Fund"), including the schedule of investments,
as of December 31, 2002, and the related statement of operations for the
year then ended, the statement of changes in net assets for each of the
two years in the period then ended, and the financial highlights for
each of the five years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements and financial highlights are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as
of December 31, 2002, by correspondence with the custodian and brokers,
or by other appropriate auditing procedures where replies from brokers
were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of John Hancock Sovereign Investors Fund at December
31, 2002, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally
accepted in the United States of America.
/S/ ERNST & YOUNG LLP
Boston, Massachusetts
February 7, 2003
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 December 31, 2002.
The Fund has designated distributions to shareholders of $9,557,683 as a
capital gain dividend.
With respect to the ordinary dividends paid by the Fund for the fiscal
year ended December 31, 2002, 100% of the dividends qualify for the
corporate dividends-received deduction.
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
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
James F. Carlin 2, Born: 1940 1992 30
Chairman and CEO, Alpha Analytical Laboratories (chemical analysis);
Part Owner and Treasurer, Lawrence Carlin Insurance Agency, Inc. (since
1995); Part Owner and Vice President, Mone Lawrence Carlin Insurance
Agency, Inc. (since 1996); Director/Treasurer, Rizzo Associates (until 2000);
Chairman and CEO, Carlin Consolidated, Inc. (management/investments);
Director/Partner, Proctor Carlin & Co., Inc. (until 1999); Trustee,
Massachusetts Health and Education Tax Exempt Trust; Director of the
following: Uno Restaurant Corp. (until 2001), Arbella Mutual (insurance)
(until 2000), HealthPlan Services, Inc. (until 1999), Flagship Healthcare,
Inc. (until 1999), Carlin Insurance Agency, Inc. (until 1999), Chairman,
Massachusetts Board of Higher Education (until 1999).
William H. Cunningham, Born: 1944 1994 30
Former Chancellor, University of Texas System and former President of the
University of Texas, Austin, Texas; Chairman, IBT Technologies (until 2001);
Director of the following: The University of Texas Investment Management
Company (until 2000), Hire.com (since 2000), STC Broadcasting, Inc. and
Sunrise Television Corp. (since 2001), Symtx, Inc. (since 2001), Adorno/Rogers
Technology, Inc. (since 2001), Pinnacle Foods Corporation (since 2001),
rateGenius (since 2001); LaQuinta Motor Inns, Inc. (hotel management
company) (until 1998), Jefferson-Pilot Corporation (diversified life insurance
company) (since 1985), New Century Equity Holdings (formerly Billing Concepts)
(until 2001), eCertain (until 2001), ClassMap.com (until 2001), Agile Ventures
(until 2001), LBJ Foundation (until 2000), Golfsmith International, Inc. (until
2000), Metamor Worldwide (until 2000); AskRed.com (until 2001), Southwest
Airlines and Introgen; Advisory Director, Q Investments; Advisory Director,
Chase Bank (formerly Texas Commerce Bank -- Austin), LIN Television (since
2002) and WilTel Communications (since 2002).
Ronald R. Dion, Born: 1946 1998 30
Chairman and Chief Executive Officer, R.M. Bradley & Co., Inc.; Director,
The New England Council and Massachusetts Roundtable; Trustee, North
Shore Medical Center; Director, BJ's Wholesale Club, Inc. and a corporator
of the Eastern Bank; Trustee, Emmanuel College.
Charles L. Ladner 2, Born: 1938 1979 30
Chairman and Trustee, Dunwoody Village, Inc. (continuing care retire-
ment community); Senior Vice President and Chief Financial Officer, UGI
Corporation (Public Utility Holding Company) (retired 1998); Vice President
and Director for AmeriGas, Inc. (retired 1998); Director of AmeriGas
Partners, L.P. (until 1997) (gas distribution); Director, EnergyNorth, Inc.
(until 1995); Director, Parks and History Association (since 2001).
Steven Pruchansky, Born: 1944 1991 30
Chairman and Chief Executive Officer, Mast Holdings, Inc. (since 2000);
Director and President, Mast Holdings, Inc. (until 2000); Managing
Director, JonJames, LLC (real estate) (since 2001); Director, First Signature
Bank & Trust Company (until 1991); Director, Mast Realty Trust (until
1994); President, Maxwell Building Corp. (until 1991).
Norman H. Smith, Born: 1933 1991 30
Lieutenant General, United States Marine Corps; Deputy Chief of Staff for
Manpower and Reserve Affairs, Headquarters Marine Corps; Commanding
General III Marine Expeditionary Force/3rd Marine Division (retired 1991).
John P. Toolan 2, Born: 1930 1991 30
Director, The Smith Barney Muni Bond Funds, The Smith Barney Tax-Free
Money Funds, Inc., Vantage Money Market Funds (mutual funds), The
Inefficient-Market Fund, Inc. (closed-end investment company) and Smith
Barney Trust Company of Florida; Chairman, Smith Barney Trust Company
(retired 1991); Director, Smith Barney, Inc., Mutual Management Company
and Smith Barney Advisers, Inc. (investment advisers) (retired 1991); Senior
Executive Vice President, Director and member of the Executive Committee,
Smith Barney, Harris Upham & Co., Incorporated (investment bankers) (until 1991).
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 ("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).
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, President and Chief Executive Officer, John Hancock Funds;
Chairman, Director and Chief Executive Officer, Sovereign Asset
Management Corporation ("SAMCorp."); Director, Independence
Investment LLC, Subsidiaries, 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 U.K. (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).
Susan S. Newton, Born: 1950 1991
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.
William H. King, Born: 1952 1992
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).
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.
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.
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
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
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116-5072
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
Sovereign Investors Fund.
2900A 12/02
2/03
John Hancock
Sovereign
Investors
Fund
SEMI
ANNUAL
REPORT
6.30.03
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 12
For your information
page 25
Dear Fellow Shareholders,
The stock market made a strong recovery in the first half of 2003.
Historically low interest rates, improving corporate earnings and
government stimulus in the form of tax cuts gave investors hope that the
economy would soon begin to strengthen. Most of the market's move up
occurred in the second quarter, and the breadth of the rally was
enormous. As a result, the major indexes were able to wipe out their
first-quarter losses and post solid gains for the first six months of
the year. With technology leading the way, the tech-heavy Nasdaq
Composite Index rose 21.51% through June, the Dow Jones Industrial
Average was up 9.02% and the Standard & Poor's 500 Index returned
11.75%. With falling interest rates, bonds also did well, continuing
their upward trend for a fourth consecutive year. High yield bonds led
the pack, returning 18.49% in the first half as measured by the Lehman
High Yield Index.
After the jarring stock-market losses of the last three years, it's a
welcome relief for investors to be reminded that the market is indeed
cyclical, and does move up -- not just down. And mutual fund investors
will finally like what they see in their second-quarter statements:
positive results. With the exception of bear funds, which bet on the
market going down, every fund category tracked by Morningstar, Inc. and
Lipper, Inc. posted double-digit gains in the quarter.
Whether this rally can be sustained depends in large part on whether the
economy actually does rebound, and by how much, and how corporate
earnings fare. It will also depend on how soon a lot of the investors
still sitting on the sidelines decide to get back into the stock market.
No matter what happens next, the dramatic reversal in the stock market's
fortunes, and other economic improvements, could be signals that it's
time for investors to review their portfolios with their investment
professionals to make sure they are well-positioned to meet their
long-term investment objectives.
Sincerely,
/S/ MAUREEN R. FORD
Maureen R. Ford,
Chairman and Chief Executive Officer
This commentary reflects the chairman's views as of June 30, 2003. They
are subject to change at any time.
YOUR FUND
AT A GLANCE
The Fund seeks
long-term growth
of capital without
assuming undue
market risks by
investing in a
diversified portfo-
lio of companies
with market capi-
talizations within
the range of the
Standard & Poor's
500 Index.
Over the last six months
* The stock market staged a strong rally in the second quarter of 2003,
with higher-risk stocks leading the way.
* The Fund outperformed in the first quarter, but lagged in the second
with its focus on high-quality, lower-risk companies.
* A dividend tax cut was enacted, potentially making dividend-paying
companies more attractive.
[Bar chart with heading "John Hancock Sovereign Investors Fund."Under
the heading is a note that reads "Fund performance for the six months
ended June 30, 2003." The chart is scaled in increments of 4% with 0% at
the bottom and 8% at the top. The first bar represents the 6.73% total
return for Class A. The second bar represents the 6.37% total return for
Class B. The third bar represents the 6.36% 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
3.3% Citigroup, Inc.
3.3% Exxon Mobil Corp.
2.9% Johnson & Johnson
2.9% General Electric Co.
2.8% Bank of America Corp.
2.6% International Business Machines Corp.
2.6% 3M Co.
2.5% Hewlett-Packard Co.
2.4% American International Group, Inc.
2.4% BP Plc
As a percentage of net assets on June 30, 2003.
MANAGERS'
REPORT
BY JOHN F. SNYDER III, PETER M. SCHOFIELD, CFA, AND BARRY H. EVANS, CFA,
PORTFOLIO MANAGERS
John Hancock
Sovereign Investors Fund
The first half of the year was made up of two distinct market
environments. Worries about the war with Iraq and the fragile U.S.
economy kept stocks under pressure throughout the first quarter of the
year. Against a backdrop of uncertainty, investors sought out the safety
and stability of higher-quality stocks.
The tables turned, however, in the second quarter as a quick resolution
to the war with Iraq, glimmers of an improving economy and a significant
tax cut sparked a strong rally in stocks. With hopes of an economic
turnaround running high, investors flocked to high-beta -- that is,
high-risk -- stocks that are likely to benefit from a stronger economy.
The second-quarter rally allowed stocks to show solid advances for the
six months ended June 30, 2003, with the broad Standard & Poor's 500
Index returning 11.75%.
PERFORMANCE REVIEW
For the six months ended June 30, 2003, John Hancock Sovereign Investors
Fund Class A, Class B and Class C shares returned 6.73%, 6.37% and
6.36%, respectively, at net asset value. The average equity-income fund
returned 9.56%, according to Lipper, Inc.1 Keep in mind, 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.
"The second-quarter rally
allowed stocks to show
solid advances for the
six months ended
June 30, 2003..."
In the first quarter of the year, the Fund outperformed its peers, as
investors fled to higher-quality stocks. But when higher-risk stocks took
the lead in the second-quarter rally, the Fund wasn't able to keep up with
its more aggressive peers. Large, high-quality stocks -- particularly
dividend performers -- lagged behind smaller, non-dividend-paying stocks,
not necessarily because of any fundamental issues, but more due to a
short-term shift in market sentiment.
[Photos of John Snyder, Peter Schofield and Barry Evans flush right
next to first paragraph.]
In addition, several of our financial holdings turned in disappointing
results and fears of asbestos litigation hurt our property and casualty
holdings, particularly American International Group (AIG). We're
maintaining our position here as we believe that AIG's strong, global
franchise should be able to withstand any fallout from the litigation.
Our government-sponsored enterprises, Fannie Mae and Freddie Mac, also
detracted from performance as accounting problems plagued the duo.
Despite the shift away from high-quality stocks, several of our large
holdings turned in strong results. Citigroup, for example, was one of
the Fund's top performers. This undervalued stock rose sharply as
investors began to anticipate a pickup in the capital markets. In the
consumer discretionary group, mass merchandiser Target and advertising
conglomerate Omnicom Group also moved up strongly, as investors looked
forward to an increase in consumer spending and a pickup in advertising
in the back half of the year.
"...we believe this new
tax law could make our
'dividend performers'
more enticing to investors..."
TAX CHANGES FAVOR "DIVIDEND PERFORMERS"
With the Bush administration's recent tax cut, one of the key changes
was the reduction of taxes on dividends. We believe the change is a
positive for investors and companies because it's easier now for
companies to increase their dividend payouts to shareholders. In fact,
one of our largest holdings, Bank of America, recently increased its
dividend by 25%. As long-time shareholders know, we have remained
consistently focused on our long-term strategy of investing primarily in
"dividend performers" -- those companies that have raised their
dividends for at least 10 consecutive years. Although non-dividend
stocks have led the market recently, we believe this new tax law could
make our "dividend performers" more enticing to investors over the
long-term.
[Table at top left-hand side of page entitled "Top five industry
groups." The first listing is Medical 13%, the second is Computers 9%,
the third Oil & gas 9%, the fourth Banks-United States 8%, and the fifth
Diversified operations 7%.]
NEW OPPORTUNITIES
As always, we've continued to look for new opportunities that meet our
strict investment criteria. In this period we established a new position
in United Technologies. We think this industrial conglomerate is
extremely well managed and, as a whole, it has held up well during the
economic downturn. Although its aerospace business did experience some
difficulties, we believe the worst is over. When the recovery does take
hold, we believe United Technologies will be well positioned to leverage
an economic upturn.
[Pie chart at middle of page with heading "Portfolio diversification As
a percentage of net assets on 6-30-03." The chart is divided into four
sections (from top to left): Common stocks 94%, Short-term investments &
other 4%, Preferred stocks 1%, and Corporate bonds 1%.]
Goldman Sachs was another new addition. As the capital markets turn
around, there's likely to be a pickup in stock and bond issuance, as
well as increased merger and acquisition activity. As one of the leading
investment banks in the world, Goldman Sachs is poised to be one of the
beneficiaries of a recovery in the financial markets.
[Table at top of page entitled "SCORECARD."The header for the left
column is "INVESTMENT" and the header for the right column is "PERIOD'S
PERFORMANCE...AND WHAT'S BEHIND THE NUMBERS." The first listing is
Citigroup followed by an up arrow with the phrase "Rebound in the
financial market." The second listing is Omnicom followed by an up arrow
with the phrase "Pickup in advertising spending." The third listing is
Johnson & Johnson followed by a down arrow with the phrase
"Pharmaceuticals out of favor."]
WHAT'S AHEAD
As we look to the back half of the year, we remain cautiously
optimistic. Economic indicators suggest that the economy has finally
stabilized. Although fears of a double-dip recession have subsided,
consumers and corporations are still nervous. The recent run-up has left
many wondering, once again, whether a recovery will finally materialize
in the second half of the year. The problem is that hopes of a recovery
have been dashed several times before in this bear market. As a result,
investors remain skeptical and that's likely to keep stocks choppy.
"The key will be whether
earnings can meet Wall
Street's expectations."
The longer-term picture, we believe, is brighter. President Bush has
pumped a tremendous amount of fiscal stimulus into the economy in an
attempt to jump-start its recovery. Interest rates remain at 40-year
lows and inflation is well contained, providing a positive backdrop for
stocks. As for corporate earnings, we're likely to continue to see
improvement in the quarters ahead. The key will be whether earnings can
meet Wall Street's expectations. Finally, there's a significant amount
of money sitting on the sidelines. Once investors regain their
confidence, this money could flow back into stocks.
This commentary reflects the views of the portfolio managers through the
end of the Fund's period discussed in this report. The managers'
statements reflect their own opinions. As such, they are in no way
guarantees of future events, and are not intended to be used as
investment advice or a recommendation regarding any specific security.
They are also subject to change at any time as market and other
conditions warrant.
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
June 30, 2003
The index used for
comparison is the
Standard & Poor's
500 Index, an
unmanaged index
that includes 500
widely traded
common stocks.
It is not possible to
invest directly in
an index.
Class A Class B Class C Index
Inception date 5-1-36 1-3-94 5-1-98 --
Average annual returns with maximum sales charge (POP)
One year -7.57% -8.14% -5.29% 0.25%
Five years -1.88% -1.86% -1.75% -1.61%
Ten years 7.11% -- -- 10.04%
Since inception -- 6.86% -1.88% --
Cumulative total returns with maximum sales charge (POP)
Six months 1.40% 1.37% 4.31% 11.75%
One year -7.57% -8.14% -5.29% 0.25%
Five years -9.07% -8.97% -8.43% -7.79%
Ten years 98.84% -- -- 160.37%
Since inception -- 87.66% -9.32% --
SEC 30-day yield as of June 30, 2003
0.71% 0.05% 0.05% --
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 one year or less 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 Standard & Poor's 500 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 $26,037
as of June 30, 2003. The second line represents the value of the
hypothetical $10,000 investment made in the John Hancock Sovereign
Investors Fund, before sales charge, and is equal to $20,930 as of June
30, 2003. The third line represents the value of the same hypothetical
investment made in the John Hancock Sovereign Investors Fund, after
sales charge, and is equal to $19,884 as of June 30, 2003.
Class B 1 Class C 1
Period beginning 1-3-94 5-1-98
Without sales charge $18,766 $9,160
With maximum sales charge -- $9,068
Index $24,854 $9,351
Assuming all distributions were reinvested for the period indicated, the
table above shows the value of a $10,000 investment in the Fund's Class
B and Class C shares, respectively, as of June 30, 2003. 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
June 30, 2003
(unaudited)
This schedule is divided into four main categories: common stocks,
preferred stocks, corporate bonds and short-term investments. The common
and preferred stocks and corporate bonds are further broken down by
industry group. Short-term investments, which represent the Fund's cash
position, are listed last.
SHARES ISSUER VALUE
COMMON STOCKS 94.23% $1,179,802,342
(Cost $963,407,822)
Advertising 2.00% 25,095,000
350,000 Omnicom Group, Inc. 25,095,000
Aerospace 1.70% 21,249,000
300,000 United Technologies Corp. 21,249,000
Banks -- United States 8.48% 106,201,000
450,000 Bank of America Corp. 35,563,500
750,000 Bank of New York Co., Inc. (The) 21,562,500
200,000 State Street Corp. 7,880,000
550,000 U.S. Bancorp 13,475,000
550,000 Wells Fargo & Co. 27,720,000
Beverages 2.80% 35,060,500
300,000 Coca-Cola Co. (The) 13,923,000
475,000 PepsiCo, Inc. 21,137,500
Broker Services 1.34% 16,750,000
200,000 Goldman Sachs Group, Inc. (The) 16,750,000
Chemicals 2.00% 25,049,680
416,800 Praxair, Inc. 25,049,680
Computers 8.84% 110,688,500
1,500,000 Cisco Systems, Inc.* 25,035,000
1,450,000 Hewlett-Packard Co. 30,885,000
400,000 International Business Machines Corp. 33,000,000
850,000 Microsoft Corp. 21,768,500
Cosmetics & Personal Care 3.16% 39,580,000
450,000 Avon Products, Inc. 27,990,000
200,000 Colgate-Palmolive Co. 11,590,000
Diversified Operations 7.02% 87,850,000
250,000 3M Co. 32,245,000
1,250,000 General Electric Co. 35,850,000
300,000 Illinois Tool Works, Inc. 19,755,000
Electronics 2.21% 27,689,426
94,478 Emerson Electric Co. 4,827,826
200,000 Grainger (W.W.), Inc. 9,352,000
650,000 Intel Corp. 13,509,600
Finance 6.03% 75,564,634
952,941 Citigroup, Inc. 40,785,875
848,309 MBNA Corp. 17,678,759
400,000 Morgan Stanley Dean Witter & Co. 17,100,000
Food 0.43% 5,400,000
100,000 Unilever NV (NY Reg Shares) (Netherlands) 5,400,000
Insurance 6.56% 82,162,849
547,600 AFLAC, Inc. 16,838,700
550,000 American International Group, Inc. 30,349,000
250,000 Hartford Financial Services Group, Inc. (The) 12,590,000
1,407,871 Travelers Property Casualty Corp. (Class A) 22,385,149
Media 1.22% 15,281,000
350,000 Viacom, Inc. (Class B)* 15,281,000
Medical 13.13% 164,393,400
650,000 Abbott Laboratories 28,444,000
450,000 Cardinal Health, Inc. 28,935,000
702,000 Johnson & Johnson 36,293,400
300,000 Medtronic, Inc. 14,391,000
150,000 Merck & Co., Inc. 9,082,500
850,000 Pfizer, Inc. 29,027,500
400,000 Wyeth 18,220,000
Mortgage Banking 3.17% 39,668,500
400,000 Fannie Mae 26,976,000
250,000 Freddie Mac 12,692,500
Office 1.53% 19,143,770
381,350 Avery Dennison Corp. 19,143,770
Oil & Gas 7.93% 99,309,904
250,000 Anadarko Petroleum Corp. 11,117,500
700,000 BP Plc, American Depositary Receipts (ADR) (United Kingdom) 29,414,000
250,000 ChevronTexaco Corp. 18,050,000
1,134,180 Exxon Mobil Corp. 40,728,404
Retail 5.44% 68,066,078
100,000 Family Dollar Stores, Inc. 3,815,000
400,000 Lowe's Cos., Inc. 17,180,000
283,200 SYSCO Corp. 8,507,328
700,000 Target Corp. 26,488,000
225,000 Wal-Mart Stores, Inc. 12,075,750
Soap & Cleaning Preparations 2.14% 26,754,000
300,000 Procter & Gamble Co. (The) 26,754,000
Telecommunications 3.79% 47,446,107
700,000 Nokia Corp., ADR (Finland) 11,501,000
789,241 SBC Communications, Inc. 20,165,107
400,000 Verizon Communications, Inc. 15,780,000
Tobacco 2.00% 24,992,000
550,000 Altria Group, Inc. 24,992,000
Utilities 1.31% 16,406,994
490,200 Questar Corp. 16,406,994
PREFERRED STOCKS 0.58% 7,200,000
(Cost $6,000,000)
Oil & Gas 0.58%
60,000 Lasmo America Ltd., 8.15% (R) 7,200,000
INTEREST CREDIT PAR VALUE
ISSUER, DESCRIPTION, MATURITY DATE RATE RATING** (000s OMITTED) VALUE
CORPORATE BONDS 0.59% $7,393,624
(Cost $7,388,294)
Utilities 0.59%
Tennessee Valley Authority,
Note 07-15-43 7.250% AAA $7,000 7,393,624
SHORT-TERM INVESTMENTS 4.04% $50,532,000
(Cost $50,532,000)
Joint Repurchase Agreement 4.04%
Investment in a joint repurchase agreement
transaction with UBS Warburg, Inc. -- Dated
06-30-03, due 07-01-03 (Secured by U.S.
Treasury Bonds, 5.250% thru 7.875%
due 02-15-21 thru 11-15-28) 1.100% 50,532 50,532,000
TOTAL INVESTMENTS 99.44% $1,244,927,966
OTHER ASSETS AND LIABILITIES, NET 0.56% $7,070,812
TOTAL NET ASSETS 100.0% $1,251,998,778
Notes to Schedule of Investments
* Non-income-producing security.
** Credit ratings by Moody's Investors Service or John Hancock Advisers, LLC,
where Standard & Poor's ratings are not available.
(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 $7,200,000 or 0.58% of
net assets as of June 30, 2003.
Parenthetical disclosure of a foreign country in the security
description represents country of a foreign issuer.
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.
ASSETS AND
LIABILITIES
June 30, 2003
(unaudited)
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 $1,027,328,116) $1,244,927,966
Cash 437
Receivable for investments sold 10,205,913
Receivable for shares sold 166,431
Dividends and interest receivable 1,588,762
Other assets 342,758
Total assets 1,257,232,267
LIABILITIES
Payable for investments purchased 2,323,205
Payable for shares repurchased 501,681
Payable to affiliates
Management fee 1,825,317
Distribution and service fee 83,595
Other 85,496
Other payables and accrued expenses 414,195
Total liabilities 5,233,489
NET ASSETS
Capital paid-in 1,092,637,725
Accumulated net realized loss on investments (57,651,652)
Net unrealized appreciation of investments 217,599,850
Distributions in excess of net investment income (587,145)
Net assets $1,251,998,778
NET ASSET VALUE PER SHARE
Based on net asset values and shares outstanding
Class A ($921,401,067 [DIV] 54,924,905 shares) $16.78
Class B ($307,362,904 [DIV] 18,344,119 shares) $16.76
Class C ($23,234,807 [DIV] 1,384,964 shares) $16.78
MAXIMUM OFFERING PRICE PER SHARE
Class A 1 ($16.78 [DIV] 95%) $17.66
Class C ($16.78 [DIV] 99%) $16.95
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 period ended
June 30, 2003
(unaudited) 1
This Statement
of Operations
summarizes the
Fund's investment
income earned
and expenses
incurred in operat-
ing the Fund.
It also shows net
gains (losses) for
the period stated.
INVESTMENT INCOME
Dividends (net of foreign withholding taxes of $100,991) $11,630,951
Interest (including securities lending income of $171,768) 2,328,820
Total investment income 13,959,771
EXPENSES
Investment management fee 3,525,052
Class A distribution and service fee 1,324,594
Class B distribution and service fee 1,540,648
Class C distribution and service fee 115,117
Transfer agent fee 1,765,863
Accounting and legal services fee 157,588
Custodian fee 84,598
Trustees' fee 40,042
Printing 36,626
Registration and filing fee 35,211
Miscellaneous 34,414
Auditing fee 19,718
Legal fee 8,082
Interest expense 3,858
Net expenses 8,691,411
Net investment income 5,268,360
REALIZED AND UNREALIZED GAIN
Net realized gain on investments 33,863,085
Change in net unrealized appreciation (depreciation)
of investments 37,843,416
Net realized and unrealized gain 71,706,501
Increase in net assets from operations $76,974,861
1 Semiannual period from 1-1-03 through 6-30-03.
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,
distributions, if
any, paid to
shareholders
and any increase
or decrease in
money share
holders invested
in the Fund.
YEAR PERIOD
ENDED ENDED
12-31-02 6-30-03 1
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment income $17,399,347 $5,268,360
Net realized gain (loss) (90,047,264) 33,863,085
Change in net unrealized
appreciation (depreciation) (253,306,863) 37,843,416
Increase (decrease) in net assets
resulting from operations (325,954,780) 76,974,861
Distributions to shareholders
From net investment income
Class A (15,200,803) (4,973,558)
Class B (3,050,052) (657,965)
Class C (177,688) (48,204)
From net realized gain
Class A (6,861,940) --
Class B (2,512,670) --
Class C (183,073) --
(27,986,226) (5,679,727)
From Fund share transactions (170,742,889) (79,147,032)
NET ASSETS
Beginning of period 1,784,534,571 1,259,850,676
End of period 2 $1,259,850,676 $1,251,998,778
1 Semiannual period from 1-1-03 through 6-30-03. Unaudited.
2 Includes distributions in excess of net investment income of $175,778
and $587,145, 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 12-31-98 12-31-99 12-31-00 12-31-01 1 12-31-02 6-30-03 2
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $22.41 $24.23 $24.51 $23.35 $19.88 $15.81
Net investment income 3 0.31 0.30 0.33 0.32 0.24 0.09
Net realized and unrealized
gain (loss) on investments 3.11 1.11 0.61 (1.77) (3.94) 0.97
Total from
investment operations 3.42 1.41 0.94 (1.45) (3.70) 1.06
Less distributions
From net investment income (0.31) (0.35) (0.33) (0.37) (0.25) (0.09)
From net realized gain (1.29) (0.78) (1.77) (1.65) (0.12) --
(1.60) (1.13) (2.10) (2.02) (0.37) (0.09)
Net asset value,
end of period $24.23 $24.51 $23.35 $19.88 $15.81 $16.78
Total return 4 (%) 15.62 5.91 4.10 (6.06) (18.68) 6.73 5
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $1,884 $1,788 $1,446 $1,217 $908 $921
Ratio of expenses
to average net assets (%) 1.03 1.05 1.08 1.10 1.17 1.24 6
Ratio of net investment income
to average net assets (%) 1.33 1.21 1.44 1.50 1.36 1.05 6
Portfolio turnover (%) 51 64 46 76 85 31
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
CLASS B SHARES
PERIOD ENDED 12-31-98 12-31-99 12-31-00 12-31-01 1 12-31-02 6-30-03 2
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $22.38 $24.20 $24.48 $23.31 $19.86 $15.79
Net investment income 3 0.14 0.13 0.17 0.17 0.12 0.03
Net realized and unrealized
gain (loss) on investments 3.11 1.11 0.60 (1.76) (3.94) 0.97
Total from
investment operations 3.25 1.24 0.77 (1.59) (3.82) 1.00
Less distributions
From net investment income (0.14) (0.18) (0.17) (0.21) (0.13) (0.03)
From net realized gain (1.29) (0.78) (1.77) (1.65) (0.12) --
(1.43) (0.96) (1.94) (1.86) (0.25) (0.03)
Net asset value,
end of period $24.20 $24.48 $23.31 $19.86 $15.79 $16.76
Total return 4 (%) 14.79 5.20 3.32 (6.66) (19.29) 6.37 5
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $790 $820 $663 $551 $328 $307
Ratio of expenses
to average net assets (%) 1.79 1.73 1.78 1.80 1.87 1.94 6
Ratio of net investment income
to average net assets (%) 0.58 0.54 0.75 0.80 0.65 0.36 6
Portfolio turnover (%) 51 64 46 76 85 31
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
CLASS C SHARES
PERIOD ENDED 12-31-98 7 12-31-99 12-31-00 12-31-01 1 12-31-02 6-30-03 2
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $24.43 $24.22 $24.50 $23.33 $19.88 $15.81
Net investment income 3 0.13 0.13 0.18 0.17 0.12 0.03
Net realized and unrealized
gain (loss) on investments 1.07 1.10 0.59 (1.76) (3.94) 0.97
Total from
investment operations 1.20 1.23 0.77 (1.59) (3.82) 1.00
Less distributions
From net investment income (0.12) (0.17) (0.17) (0.21) (0.13) (0.03)
From net realized gain (1.29) (0.78) (1.77) (1.65) (0.12) --
(1.41) (0.95) (1.94) (1.86) (0.25) (0.03)
Net asset value,
end of period $24.22 $24.50 $23.33 $19.88 $15.81 $16.78
Total return 4 (%) 5.185 5.17 3.32 (6.66) (19.27) 6.36 5
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $5 $11 $12 $17 $24 $23
Ratio of expenses
to average net assets (%) 1.67 6 1.75 1.79 1.80 1.87 1.94 6
Ratio of net investment income
to average net assets (%) 0.84 6 0.51 0.76 0.82 0.67 0.34 6
Portfolio turnover (%) 51 64 46 76 85 31
1 As required, effective January 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment
Companies, as revised, relating to the amortization of premiums and
accretion of discounts on debt securities. The effect of this change on
per share amounts for the year ended December 31, 2001, was to decrease
net investment income per share by $0.01, decrease net realized and
unrealized losses per share by $0.01, and, had the Fund not made these
changes to amortization and accretion, the ratio of net investment
income to average net assets would have been 1.53%, 0.83% and 0.85% for
Class A, Class B and Class C shares, respectively. Per share ratios and
supplemental data for periods prior to January 1, 2001, have not been
restated to reflect this change in presentation.
2 Semiannual period from 1-1-03 through 6-30-03. Unaudited.
3 Based on the average of the shares outstanding.
4 Assumes dividend reinvestment and does not reflect the effect of sales
charges.
5 Not annualized.
6 Annualized.
7 Class C shares began operations on 5-1-98.
See notes to
financial statements.
NOTES TO
STATEMENTS
Unaudited
NOTE A
Accounting policies
John Hancock Sovereign Investors Fund (the "Fund") is a diversified
series of John Hancock Investment Trust, an open-end management
investment company registered under the Investment Company Act of 1940.
The investment objective of the Fund is to provide long-term growth of
capital and of income without assuming undue market risks.
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.
No Class I shares have been issued as of June 30, 2003. 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 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.
Investments in AIM Cash Investment Trust are valued at their net asset
value each business day.
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.
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.
Discount and premium on securities
The Fund accretes discount and amortizes premium from par value on
securities from either the date of issue or the date of purchase over
the life of the security.
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. Distri
bution 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 permits
borrowings of up to $250 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 period
ended June 30, 2003.
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 June 30, 2003.
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 $89,791,390 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 loss carryforward expires on December 31, 2010.
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.
Such distributions, on a tax basis, are determined in conformity with
income tax regulations, which may differ from accounting prin ci ples
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)
0.60% of the first $750,000,000 of the Fund's average daily net asset
value, (b) 0.55% of the next $750,000,000, (c) 0.50% of the next
$1,000,000,000 and (d) 0.45% of the Fund's average daily net asset value
in excess of $2,500,000,000.
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 de fined 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 period ended June 30, 2003, JH Funds received net up-front sales
charges of $338,220 with regard to sales of Class A shares. Of this
amount, $47,087 was retained and used for printing prospectuses,
advertising, sales literature and other purposes, $195,997 was paid as
sales commissions to unrelated broker-dealers and $95,136 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 Inves tors. During the period ended June
30, 2003, JH Funds received net up-front sales charges of $32,029 with
regard to sales of Class C shares. Of this amount, $30,521 was paid as
sales commissions to unrelated broker-dealers and $1,508 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 period ended June 30, 2003, CDSCs
received by JH Funds amounted to $275,189 for Class B shares and $325
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 at an annual rate of 0.05% of the Fund's
average daily net asset value, plus a fee based on the number of
shareholder accounts and reimbursement for certain out-of-pocket
expenses, aggregated and allocated to each class on the basis of its
relative net asset value.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the
period was at an annual rate of approximately 0.03% 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 Compensation 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 investments 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, reinvested 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 12-31-02 YEAR ENDED 6-31-03 1
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Sold 7,115,380 $128,166,011 2,328,937 $37,289,386
Distributions reinvested 1,218,520 20,462,624 286,775 4,621,893
Repurchased (12,150,506) (210,473,134) (5,082,965) (80,450,367)
Net decrease (3,816,606) ($61,844,499) (2,467,253) ($38,539,088)
CLASS B SHARES
Sold 2,536,815 $45,690,969 1,028,665 $16,432,053
Distributions reinvested 317,980 5,295,398 39,765 629,290
Repurchased (9,799,112) (171,997,634) (3,494,200) (55,333,280)
Net decrease (6,944,317) ($121,011,267) (2,425,770) ($38,271,937)
CLASS C SHARES
Sold 1,365,472 $24,421,944 736,564 $11,608,371
Distributions reinvested 20,572 339,309 2,851 45,182
Repurchased (708,865) (12,648,376) (889,018) (13,989,560)
Net increase (decrease) 677,179 $12,112,877 (149,603) ($2,336,007)
NET DECREASE (10,083,744) ($170,742,889) (5,042,626) ($79,147,032)
1 Semiannual period from 1-1-03 through 6-30-03. Unaudited.
NOTE D
Investment transactions
Purchases and proceeds from sales or maturities of securities other than
short-term securities and obligations of the U.S. government, during the
period ended June 30, 2003, aggregated $326,895,520 and $416,040,741,
respectively. Purchases and proceeds from sales or maturities of
obligations of U.S. government aggregated $31,657,813 and $31,756,055,
respectively, during the period ended June 30, 2003.
The cost of investments owned on June 30, 2003, including short-term
investments, for federal income tax purposes was $1,027,441,697. Gross
unrealized appreciation and depreciation of investments aggregated
$245,137,177 and $27,650,908, respectively, resulting in net unrealized
appreciation of $217,486,269. The difference between book basis and tax
basis net unrealized appreciation of investments is attributable
primarily to the amortization of premiums and accretion of discounts on
debt securities.
OUR FAMILY
OF FUNDS
- -------------------------------------------------------
Equity Balanced Fund
Classic Value Fund
Core Equity Fund
Focused Equity Fund
Growth Trends Fund
International 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
- --------------------------------------------------------
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
For more complete information on any John Hancock Fund
and a prospectus, which includes charges and expenses,
call your financial professional, or John Hancock Funds at
1-800-225-5291. Please read the prospectus carefully before
investing or sending money.
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FOR YOUR
INFORMATION
TRUSTEES
James F. Carlin
William H. Cunningham
John M. DeCiccio
Ronald R. Dion
Maureen R. Ford
Charles L. Ladner*
Steven R. Pruchansky
Lt. Gen. Norman H. Smith, USMC (Ret.)
John P. Toolan*
*Members of the Audit Committee
OFFICERS
Maureen R. Ford
Chairman, President
and Chief Executive Officer
William L. Braman
Executive Vice President
and Chief Investment Officer
Richard A. Brown
Senior Vice President
and Chief Financial Officer
Susan S. Newton
Senior Vice President
and Secretary
William H. King
Vice President and Treasurer
Thomas H. Connors
Vice President and
Compliance Officer
INVESTMENT ADVISER
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, Massachusetts 02199-7603
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
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
The Fund's voting policies and procedures are available without charge,
upon request:
By phone 1-800-225-5291
On the Fund's Web site www.jhfunds.com/proxy
On the SEC's Web site http://www.sec.gov
[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
Sovereign Investors Fund.
290SA 6/03
8/03
Part B
Statement of Additional Information
JOHN HANCOCK SOVEREIGN INVESTORS FUND
(the "Acquiring Fund", and a series of John Hancock Investment Trust)
JOHN HANCOCK LARGE CAP SPECTRUM FUND (the
"Acquired Fund", and a series of John Hancock Equity Trust)
101 Huntington Avenue
Boston, MA 02199
1-800-225-5291
October 8, 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 October 8, 2003. This Statement of
Additional Information provides additional information about John Hancock
Sovereign Investors Fund and the Fund that it is acquiring, John Hancock Large
Cap Spectrum 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
Note Regarding Pro Forma Financial Information 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 August 5, 2003, of the
Acquiring Fund including audited financial statements as of December 31,
2002 and unaudited financial statements dated June 30, 2003.
B - Statement of Additional Information, dated March 1, 2003 and revised
July 15, 2003, of the Acquired Fund including audited financial
statements as of October 31, 2002 and unaudited financial statements
dated April 30, 2003.
2
INTRODUCTION
This Statement of Additional Information ("SAI") is intended to supplement the
information provided in a proxy statement and prospectus dated October 8, 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 December 3, 2003. This Statement of Additional
Information incorporates by reference the Statement of Additional Information of
the Acquiring Fund, dated August 5, 2003, and the Statement of Additional
Information of the Acquired Fund, dated March 1, 2003, as revised July 15, 2003.
The SAI for the Acquiring Fund and the SAI for the Acquired Fund are included
with this Statement of Additional Information.
NOTE REGARDING PRO FORMA FINANCIAL INFORMATION
In accordance with Item 14(a)(2) of Form N-14, pro forma financial statements
were not prepared for the proposed reorganization of the Acquired Fund into the
Acquiring Fund, since the net asset value of the Acquired Fund did not exceed
ten percent of the net asset value of the Acquiring Fund on
August 15, 2003.
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,
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.
3
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", "Eligible
Investors for Class R Shares", "Special Redemptions", "Additional Services and
Programs", and "Purchase and Redemptions through Third Parties" in the Acquiring
Fund SAI attached hereto as Exhibit A.
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 December 31, 2002 and
unaudited financial statements at June 30, 2003 are attached to the Acquiring
Fund SAI, which is attached hereto as Exhibit A.
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,
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.
4
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.
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 are attached to the Acquired
Fund SAI, which is attached hereto as Exhibit B.
5
Part B
Statement of Additional Information
JOHN HANCOCK SOVEREIGN INVESTORS FUND
(the "Acquiring Fund", and a series of John Hancock Investment Trust)
JOHN HANCOCK DIVIDEND PERFORMERS FUND
(the "Acquired Fund", and a series of John Hancock Institutional Series Trust)
101 Huntington Avenue
Boston, MA 02199
1-800-225-5291
October 8, 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 October 8, 2003. This Statement of
Additional Information provides additional information about John Hancock
Sovereign Investors Fund and the Fund that it is acquiring, John Hancock
Dividend Performers 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
Note Regarding Pro Forma Financial Information 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 4
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 - Class I Statement of Additional Information, dated March 1, 2003, of the
Acquiring Fund including audited financial statements as of December 31,
2002 and unaudited financial statements as of June 30, 2003.
B - Statement of Additional Information, dated July 1, 2003, of the
Acquired Fund including audited financial statements as of February 28,
2003.
2
INTRODUCTION
This Statement of Additional Information ("SAI") is intended to supplement the
information provided in a proxy statement and prospectus dated October 8, 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 December 3, 2003. This Statement of Additional
Information incorporates by reference the Class I Statement of Additional
Information of the Acquiring Fund, dated March 1, 2003, and the Statement of
Additional Information of the Acquired Fund, dated July 1, 2003. The SAI for the
Acquiring Fund and the SAI for the Acquired Fund are included with this
Statement of Additional Information.
NOTE REGARDING PRO FORMA FINANCIAL INFORMATION
In accordance with Item 14(a)(2) of Form N-14, pro forma financial statements
were not prepared for the proposed reorganization of the Acquired Fund into the
Acquiring Fund, since the net asset value of the Acquired Fund did not exceed
ten percent of the net asset value of the Acquiring Fund on
August 15, 2003.
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,
custodian, transfer agent and independent accounts, 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.
3
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.
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 December 31, 2002 and
unaudited financial statements at June 30, 2003 are attached to the Acquiring
Fund SAI, which is attached hereto as Exhibit A.
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 Acquired 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,
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 annual financial statements of the Acquired Fund at February 28, 2003
are attached to the Acquired Fund SAI, which is attached hereto as Exhibit B.
5
JOHN HANCOCK SOVEREIGN INVESTORS FUND
Class A, Class B, Class C and Class R Shares
Statement of Additional Information
August 5, 2003
This Statement of Additional Information provides information about John Hancock
Sovereign Investors Fund (the "Fund") in addition to the information that is
contained in the Fund's current Prospectus dated March 1, 2003 for Class A, B
and C shares and in the Fund's current Prospectus dated August 5, 2003 for Class
R shares (the "Prospectuses"). The Fund is a diversified series of John Hancock
Investment Trust (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, Massachusetts 02217-1000
1-(800)-225-5291
TABLE OF CONTENTS
Page
Organization of the Fund.................................................. 2
Investment Objective and Policies......................................... 2
Investment Restrictions................................................... 8
Those Responsible for Management.......................................... 11
Investment Advisory and Other Services.................................... 18
Distribution Contracts.................................................... 21
Sales Compensation........................................................ 23
Net Asset Value........................................................... 25
Initial Sales Charge on Class A Shares.................................... 25
Deferred Sales Charge on Class B and Class C Shares....................... 28
Eligible Investors for Class R Shares..................................... 32
Special Redemptions....................................................... 32
Additional Services and Programs.......................................... 32
Purchase and Redemptions through Third Parties............................ 34
Description of the Fund's Shares.......................................... 34
Tax Status................................................................ 35
Calculation of Performance................................................ 40
Brokerage Allocation...................................................... 42
Transfer Agent Services................................................... 45
Custody of Portfolio...................................................... 45
Independent Auditors...................................................... 46
Appendix A- Description of Investment Risk................................ A-1
Appendix B-Description of Bond Ratings.................................... B-1
Appendix C-Proxy Voting Summary........................................... C-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.
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
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 provide long-term growth of capital and of
income without assuming undue market risks. At times, however, because of market
conditions, the Fund may invest primarily for current income. The Fund will make
investments in different types and classes of securities in accordance with the
Trustees' and the Adviser's appraisal of economic and market conditions. The
Fund's portfolio securities are selected mainly for their investment character
based upon generally accepted elements of intrinsic value, including industry
position, management, financial strength, earning power, marketability and
prospects for future growth. The distribution or mix of various types of
investments is based on general market conditions, the level of interest rates,
business and economic conditions, and the availability of investments in the
equity and fixed income markets. The amount of the Fund's assets that may be
invested in either equity or fixed income securities is not restricted and is
based upon management's judgment of what might best achieve the Fund's
investment objectives. The Fund normally invest at least 80% of stocks in a
diversified portfolio of companies with market capitalizations within the range
of the Standard & Poor's 500 Stock Index. The securities held by the Fund are
under continuous study by the Adviser. They are selected because they are
considered by the management to contribute to the possible achievement of the
Fund's objective. They are held or disposed of in accordance with the results of
a continuing examination of their merit.
The Fund currently uses a strategy of investing at least 65% of stock
investments in companies which have a record of having increased their dividend
payout in each of the preceding ten or more years. This dividend performers
strategy can be changed at any time.
By investing primarily in these companies, the portfolio management team focuses
on investments with characteristics such as: a strong management team that has
demonstrated leadership through changing market cycles; financial soundness as
evidenced by consistently rising dividends and profits, strong cash flows, high
return on equity and a balance sheet showing little debt; and strong brand
recognition and market acceptance, backed by proven products and a
well-established, often global, distribution network.
Subject to the Fund's policy of investing primarily in common stocks, the Fund
may invest without limit in investment grade debt securities or investment grade
preferred stocks (equivalent to the top four bond rating categories of an
NRSRO). For temporary defensive purposes, the Fund may invest some or all of its
assets in investment grade short-term securities.
2
The investment policy of the Fund is to purchase and hold securities for capital
appreciation and investment income, although there may be a limited number of
short- term transactions incidental to the pursuit of its investment objective.
The Fund may make portfolio purchases and sales to the extent that in its
Board's opinion, relying on the Adviser or independently, such transactions are
in the interest of shareholders.
The Fund endeavors to achieve its objective by utilizing experienced management
and generally investing in securities of seasoned companies in sound financial
condition. The Fund has not purchased securities of real estate investment
trusts and has no present intention of doing so in the future.
The Fund may not invest more than 5% of its total assets at time of purchase in
any one security (other than U.S. Government Securities). Under normal
conditions the Fund may not invest more than 10% of total assets in cash and/or
cash equivalents (except cash segregated in relation to futures, forward and
option contracts).
Diversification. The Fund's investments are diversified in a broad list of
issues, representing many different industries. Although diversification does
not eliminate market risk, it may tend to reduce it. At the same time, holdings
of a large number of shares in any one company are avoided. Thus, during periods
when general economic and political conditions are subject to rapid changes, it
may be appropriate to effect rapid changes in the Fund's investments. This can
be more readily accomplished by limiting the amount of any one investment.
As is common to all securities investments, the stock of this managed
diversified Fund is subject to fluctuation in value; its portfolio will not
necessarily prove a defense in periods of declining prices or lead the advance
in rising markets. The Fund's management will endeavor to reduce the risks
encountered in the use of any single investment by investing the assets of the
Fund in a widely diversified group of securities. Diversification, however, will
not necessarily reduce inherent market risks. Securities are selected mainly for
their investment character, based upon generally accepted elements of intrinsic
value including industry position, management, financial strength, earning
power, ready marketability and prospects for future growth.
Concentration. The Fund's policy is not to concentrate its investments in any
one industry, but investments of up to 25% of its total assets at market value
may be made in a single industry. This limitation may not be changed without the
affirmative vote of a majority of the Fund's outstanding voting securities, as
defined in the Investment Company Act of 1940, as amended (the "Investment
Company Act").
Ratings as Investment Criteria. In general, the ratings of Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's Ratings Group ("S&P") represent
the opinions of these agencies as to the quality of the securities which they
rate. It should be emphasized however, that ratings are relative and subjective
and are not absolute standards of quality. These ratings will be used by the
Funds as initial criteria for the selection of portfolio securities. Among the
factors which will be considered are the long-term ability of the issuer to pay
principal and interest and general economic trends. Appendix B contains further
information concerning the rating of Moody's and S&P and their significance.
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither of these events will require the sale of the securities by the
Fund.
Lower Rated High-Yield "High Risk" Debt Obligations. The Fund may invest up to
5% of its net assets in debt securities rated as low as C by Moody's or S&P and
unrated securities deemed of equivalent quality by the Adviser. These securities
are speculative to a high degree and often have very poor prospects of attaining
real investment standing. Lower rated securities are generally referred to as
junk bonds. See the Appendix attached to this Statement of Additional
Information which describes the characteristics of the securities in the various
rating categories.
3
Securities rated lower than Baa by Moody's or BBB by Standard & Poor's are
sometimes referred to as junk bonds. See the Appendix attached to this Statement
of Additional Information which describes the characteristics of the securities
in the various ratings categories. The Fund is not obligated to dispose of
securities whose issuers subsequently are in default or which are downgraded
below the above-stated ratings. The credit ratings of Moody's and Standard &
Poor's in a timely fashion to reflect subsequent economic events. The credit
ratings of securities do not reflect an evaluation of market risk. Debt
obligations rated in the lower ratings categories, or which are unrated, involve
greater volatility of price and risk of loss of principal and income. In
addition, lower ratings reflect a greater possibility of an adverse change in
financial condition affecting the issuer's ability to make payments of interest
and principal. The market price and liquidity of lower rated fixed income
securities generally respond more to short-term corporate and market
developments than do those of higher rated securities, because these
developments are perceived to have a more direct relationship to the ability of
an issuer of lower rated securities to meet its ongoing debt obligations. The
Adviser seeks to minimize these risks through diversification, investment
analysis and attention to current developments in interest rates and economic
conditions.
Reduced volume and liquidity in the high yield high risk bond market, or the
reduced availability of market quotations, will make it more difficult to
dispose of the bonds and to value accurately the Fund's assets. The reduced
availability of reliable, objective data may increase the Fund's reliance on
management's judgment in valuing high yield high risk bonds. In addition, the
Fund's investments in high yield high risk securities may be susceptible to
adverse publicity and investor perceptions, whether or not justified by
fundamental factors. The Fund's investment, and consequently its net asset
value, will be subject to the market fluctuations and risk inherent in all
securities. Increasing rate note securities are typically refinanced by the
issuers within a short period of time.
The market value of debt securities which carry no equity participation usually
reflects yields generally available on securities of similar quality and type.
When such yields decline, the market value of a portfolio already invested at
higher yields can be expected to rise if such securities are protected against
early call. In general, in selecting securities for its portfolio, the Fund
intends to seek protection against early call. Similarly, when such yields
increase, the market value of a portfolio already invested at lower yields can
be expected to decline. The Fund's portfolio may include debt securities which
sell at substantial discounts from par. These securities are low coupon bonds
which, during periods of high interest rates, because of their lower acquisition
cost tend to sell on a yield basis approximating current interest rates.
Options and Futures. The Fund may not invest in futures contracts or sell call
or put options. The Fund has authority to purchase put and call options.
Options on Securities Indices. The Fund may purchase call and put options 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 purchase put
and call options for any non-speculative purpose. These include using options 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.
Purchasing Options. The Fund would normally purchase index call options in
anticipation of an increase, or index 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.
4
The purchase of an index call option would entitle the Fund, in return for the
premium paid, to receive a cash payment reflecting any increase in the index
above a specified level upon exercising the option during the option period. The
Fund would ordinarily realize a gain on the purchase of a call option if the
amount of this cash payment exceeded the premium paid and transaction costs;
otherwise the Fund would realized either no gain or a loss on the purchase of
the call option.
The purchase of an index put option would entitle the Fund, in exchange for the
premium paid, to receive a cash payment reflecting any decrease in the index
below a specified level upon exercising the option 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. The Fund would ordinarily
realize a gain if, during the option period, the level of the index 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 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 an options exchange will exist for any particular
exchange-traded option or at any particular time. 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. 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 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
markets.
5
Government Securities. Certain U.S. Government securities, including U.S.
Treasury bills notes and bonds, and Government National Mortgage Association
certificates ("Ginnie Maes"), are supported by the full faith and credit of the
United States. Certain other U.S. Government securities issued or guaranteed by
Federal agencies or government sponsored enterprises, are not supported by the
full faith and credit of the United States, but may be supported by the right of
the issuer to borrow from the U.S. Treasury. These securities include
obligations of the Federal Home Loan Mortgage Corporation ("Freddie Macs"), and
obligations supported by the credit of the instrumentality, such as Federal
National Mortgage Association Bonds ("Fannie Maes"). No assurance can be given
that the U.S. Government will provide financial support to such Federal
agencies, authorities, instrumentalities and government sponsored enterprises in
the future.
Ginnie Maes, Freddie Macs, Fannie Maes and Sallie 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.
Mortgage-backed securities have stated maturities of up to thirty years when
they are issued depending upon the length of the mortgages underlying the
securities. In practice, however, unscheduled or early payments of principal and
interest on the underlying mortgages may make the securities' effective maturity
shorter than this and the prevailing interest rates may be higher or lower than
the current yield of the Fund's portfolio at the time such payments are received
by the Fund for reinvestment. Mortgage-backed securities may have less potential
for capital appreciation than comparable fixed-income securities due to the
likelihood of increased prepayments of mortgages as interest rates decline. If
the Fund buys mortgage-backed securities at a premium, mortgage foreclosures and
prepayments of principal by mortgagors (which may be made at any time without
penalty) may result in some loss of the Fund's principal investment to the
extent of the premium paid.
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 adopt guidelines and delegated to the
Adviser the daily function of determining, the monitoring and liquidity of
restricted securities. The Trustees, however, will retain sufficient oversight
and be ultimately responsible for the determinations. The Trustees will
carefully monitor the Fund's investments in these securities, focusing on such
important factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing the
level of illiquidity in the Fund if qualified institutional buyers become for a
time uninterested in purchasing these restricted securities. The Fund does not
intend to invest more than 5% of its net assets in Rule 144A 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 the Fund enters into repurchase agreements.
6
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 underlining 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 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 any accrued interest
thereon) under such agreements. In addition, the Fund may not borrow money
except in connection with the sale or resale of its shares. The Fund will not
enter into reverse repurchase agreements and other borrowings exceeding in the
aggregate 33 1/3% of the market value of its total assets. The Fund will enter
into reverse repurchase agreements only with 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 firms involved.
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. 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-Sales. The Fund may not engage in short sales.
7
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 beeen 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 higher
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:
(1) The Fund may not, with respect to 75% of its total assets,
purchase any security (other than securities issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities and repurchase agreements collateralized by
such securities) if, as a result: (a) more than 5% of its
total assets would be invested in the securities of any one
issuer, or (b) the Fund would own more than 10% of the voting
securities of any one issuer. [see nonfundamental investment
restriction]
(2) The Fund may not issue senior securities, except as permitted
by paragraphs (3) and (7) below. For purposes of this
restriction, the issuance of shares of common stock in
multiple classes, the purchase or sale of options, futures
contracts and options on futures contracts, forward
commitments, and repurchase agreements entered into in
accordance with the Fund's investment policies, and the
pledge, mortgage or hypothecation of the Fund's assets are not
deemed to be senior securities.
8
(3) The Fund may not borrow money except in connection with the
sale or resale of its shares.
(4) The Fund may not act as an underwriter, except to the extent
that, in connection with the disposition of portfolio
investments, the Fund may be deemed to be an underwriter for
purposes of the Securities Act of 1933.
(5) The Fund may not purchase or sell real estate, or any interest
therein, including real estate mortgage loans, except that the
Fund may: (i) hold and sell real estate acquired as the result
of its ownership of securities, or (ii) invest in securities
of corporate or governmental entities secured by real estate
or marketable interests therein or securities issued by
companies (other that real estate limited partnerships) that
invest in real estate or interests therein.
(6) The Fund may not make loans, except that the Fund (1) may lend
portfolio securities in accordance with the Fund's investment
policies in an amount up to 33 1/3% of the Fund's total assets
taken at market value, (2) enter into repurchase agreements,
and (3) purchase all or a portion of an issue of debt
securities, bank loan participation interests, bank
certificates of deposit, bankers' acceptances, debentures or
other securities, whether or not the purchase is made upon the
original issuance of the securities.
(7) The Fund may not purchase or sell commodities or commodity
contracts; except that the Fund may purchase and sell options
on securities, securities indices, currency and other
financial instruments, futures contracts on securities,
securities indices, currency and other financial instruments
and options on such futures contracts, forward commitments,
interest rate swaps, caps and floors, securities index put or
call warrants and repurchase agreements entered into in
accordance with the Fund's investment policies.
(8) The Fund may not purchase securities of an issuer conducting
its principal activity in any particular industry if
immediately after such purchase the value of the Fund's
investments in all issuers in this industry would exceed 25%
of its total assets taken at market value.
Non-fundamental Investment Restrictions. The following restrictions are
designated as non-fundamental and may be changed by the Trustees without
shareholder approval.
The Fund may not:
(a) Participate on a joint-and-several basis in any securities
trading account. The "bunching" of orders for the sale or
purchase of marketable portfolio securities with other
accounts under the management of any investment adviser to the
Fund in order to save commissions or to average prices among
the accounts, and the participation of the Fund as a part of a
group bidding for the purchase of tax exempt bonds shall not
be deemed to result in participation in a securities trading
account.
(b) Purchase securities on margin or make short sales.
(c) 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
9
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.
(d) Invest for the purpose of exercising control over or
management of any company.
(e) Invest more than 15% of its net assets in illiquid securities.
(f) Write put or call options.
(g) No officer or Trustee of the Fund may take a short position in
the shares of the Fund, withhold orders or buy shares in
anticipation of orders.
(h) The Fund may not invest more than 5% of its total assets at
time of purchase in any one securitiy (other than US
Government 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 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. dollars, Canadian dollars, euros,
sterling, or yen; (2) traded on a major exchange; and (3) held physically
outside of Russia.
10
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").
- ----------------------------- ------------- ------------- ------------------------------------------------ ------------------
Number of John
Position(s) Trustee/ Hancock 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
- ----------------------------- ------------- ------------- ------------------------------------------------ ------------------
James F. Carlin Trustee 1992 Chairman and CEO, Alpha Analytical 31
Born: 1940 Laboratories (chemical analysis); Part Owner
and Treasurer, Lawrence Carlin Insurance
Agency, Inc. (since 1995); Part Owner and Vice
President, Mone Lawrence Carlin Insurance
Agency, Inc. (since 1996); Director/Treasurer,
Rizzo Associates (until 2000); Chairman and
CEO, Carlin Consolidated, Inc.
(management/investments); Director/Partner,
Proctor Carlin & Co., Inc. (until 1999);
Trustee, Massachusetts Health and Education
Tax Exempt Trust; Director of the following:
Uno Restaurant Corp. (until 2001), Arbella
Mutual (insurance) (until 2000), HealthPlan
Services, Inc. (until 1999), Flagship
Healthcare, Inc. (until 1999), Carlin
Insurance Agency, Inc. (until 1999), Chairman,
Massachusetts Board of Higher Education (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.
11
- ----------------------------- ------------- ------------- ------------------------------------------------ ------------------
Number of John
Position(s) Trustee/ Hancock 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 H. Cunningham Trustee 1994 Former Chancellor, University of Texas System 31
Born: 1944 and former President of the University of
Texas, Austin, Texas; Chairman and CEO, IBT
Technologies (until 2001); Director of the
following: The University of Texas
Investment Management Company (until 2000),
Hire.com (since 2000), STC Broadcasting, Inc.
and Sunrise Television Corp. (until 2001),
Symtx, Inc. (since 2001), Adorno/Rogers
Technology, Inc. (since 2001), Pinnacle
Foods Corporation (since 2001),
rateGenius (since 2001), LaQuinta Motor
Inns, Inc. (hotel management company)
(until 1998), Jefferson-Pilot
Corporation (diversified life
insurance company), New Century Equity
Holdings (formerly Billing Concepts)
(until 2001), eCertain (until 2001),
ClassMap.com (until 2001), Agile Ventures
(until 2001), LBJ Foundation (until
2000), Golfsmith International, Inc.
(until 2000), Metamor Worldwide (until
2000), AskRed.com (until 2001),
Southwest Airlines and Introgen; Advisory
Director, Q Investments; Advisory
Director, Chase Bank (formerly Texas
Commerce Bank - Austin), LIN
Television (since 2002) , WilTel
Communications (since 2002).
- ----------------------------- ------------- ------------- ------------------------------------------------ ------------------
Ronald R. Dion Trustee 1998 Chairman and Chief Executive Officer, R.M. 31
Born: 1946 Bradley & Co., Inc.; Director, The New England
Council and Massachusetts Roundtable; Trustee,
North Shore Medical Center; Director, BJ's
Wholesale Club, Inc. and a corporator of the
Eastern Bank; Trustee, Emmanuel College.
- ----------------------------- ------------- ------------- ------------------------------------------------ ------------------
(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.
12
- ----------------------------- ------------- ------------- ------------------------------------------------ ------------------
Number of John
Position(s) Trustee/ Hancock 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
- ----------------------------- ------------- ------------- ------------------------------------------------ ------------------
- ----------------------------- ------------- ------------- ------------------------------------------------ ------------------
Charles L. Ladner Trustee 1994 Chairman and Trustee, Dunwoody Village, Inc. 31
Born: 1938 (continuing care retirement community); Senior
Vice President and Chief Financial Officer,
UGI Corporation (Public Utility Holding
Company) (retired 1998); Vice President and
Director for AmeriGas, Inc. (retired 1998);
Director of AmeriGas Partners, L.P. (until
1997)(gas distribution); Director,
EnergyNorth, Inc. (until 1995); Director,
Parks and History Association (since 2001).
- ----------------------------- ------------- ------------- ------------------------------------------------ ------------------
Steven Pruchansky Trustee 1991 Chairman and Chief Executive Officer, Mast 31
Born: 1944 Holdings, Inc. (since 2000); Director and
President, Mast Holdings, Inc. (until 2000);
Managing Director, JonJames, LLC (real
estate)(since 2001); Director, First Signature
Bank & Trust Company (until 1991); Director,
Mast Realty Trust (until 1994); President,
Maxwell Building Corp. (until 1991).
- ----------------------------- ------------- ------------- ------------------------------------------------ ------------------
Norman H. Smith Trustee 1991 Lieutenant General, United States Marine 31
Born: 1933 Corps; Deputy Chief of Staff for Manpower and
Reserve Affairs, Headquarters Marine
Corps; Commanding General III Marine
Expeditionary Force/3rd Marine
Division (retired 1991).
- ----------------------------- ------------- ------------- ------------------------------------------------ ------------------
(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.
13
- ----------------------------- ------------- ------------- ------------------------------------------------ ------------------
Number of John
Position(s) Trustee/ Hancock 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
- ---------------------------- ------------- -------------- ------------------------------------------------ ------------------
- ---------------------------- ------------- -------------- ------------------------------------------------ ------------------
John P. Toolan Trustee 1991 Director, The Smith Barney Muni Bond Funds, 31
Born: 1930 The Smith Barney Tax-Free Money Funds, Inc.,
Vantage Money Market Funds (mutual funds), The
Inefficient-Market Fund, Inc. (closed-end
investment company) and Smith Barney Trust
Company of Florida; Chairman, Smith Barney
Trust Company (retired 1991); Director, Smith
Barney, Inc., Mutual Management Company and
Smith Barney Advisers, Inc. (investment
advisers) (retired 1991); Senior Executive
Vice President, Director and member of the
Executive Committee, Smith Barney, Harris
Upham & Co., Incorporated (investment bankers)
(until 1991).
- ---------------------------- ------------- -------------- ------------------------------------------------ ------------------
Interested Trustees
- ---------------------------- ------------- -------------- ------------------------------------------------ ------------------
John M. DeCiccio (3) Trustee 2001 Executive Vice President and Chief Investment 52
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,
Insurance Agency, Inc. (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.
14
- ----------------------------- ------------- ------------- ------------------------------------------------ ------------------
Number of John
Position(s) Trustee/ Hancock 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
- ---------------------------- -------------- ------------- ------------------------------------------------ ------------------
- ---------------------------- -------------- ------------- ------------------------------------------------ ------------------
Maureen R. Ford (3) Trustee, 2000 Executive Vice President, John Hancock 52
Born: 1955 Chairman, Financial Services, Inc., John Hancock Life
President Insurance Company; Chairman, President,
and Chief Director, President and Chief Executive
Executive Officer, the Adviser and The Berkeley Group;
Officer Chairman, 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 John Hancock Signature Services, Inc.
("Signature Services"); Senior Vice President,
MassMutual Insurance Co. (until 1999).
- ---------------------------- -------------- ------------- ------------------------------------------------ ------------------
Principal Officers who are
not Trustees
- ---------------------------- -------------- ------------- ------------------------------------------------ ------------------
William L. Braman Executive 2000 Executive Vice President and Chief Investment N/A
Born: 1953 Vice Officer, the Adviser and each of the John
President Hancock funds; Director, SAMCorp., Executive
and Chief Vice President and Chief Investment Officer,
Investment Baring Asset Management, London U.K. (until
Officer 2000).
- ---------------------------- -------------- ------------- ------------------------------------------------ ------------------
Richard A. Brown Senior Vice 2000 Senior Vice President, Chief Financial Officer N/A
Born: 1949 President and Treasurer, the Adviser, John Hancock
and Chief Funds, and The Berkeley Group; Second Vice
Financial President and Senior Associate Controller,
Officer 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 funds;
and Vice President, John Hancock Funds.
Compliance
Officer
- ---------------------------- -------------- ------------- ------------------------------------------------ ------------------
(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.
15
- ----------------------------- ------------- ------------- ------------------------------------------------ ------------------
Number of John
Position(s) Trustee/ Hancock 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 H. King Vice 1992 Vice President and Assistant Treasurer, the N/A
Born: 1952 President Adviser; Vice President and Treasurer of each
and of the John Hancock funds; Assistant Treasurer
Treasurer of each of the John Hancock funds (until 2001).
- ---------------------------- ------------- -------------- ------------------------------------------------ ------------------
Susan S. Newton Senior Vice 1991 Senior Vice President, Secretary and Chief N/A
Born: 1950 President, Legal Officer, SAMCorp., the Adviser and each
Secretary of the John Hancock funds, John Hancock Funds
and Chief and The Berkeley Group; Vice President,
Legal Signature Services (until 2000), Director,
Officer 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.
The Fund's Board of Trustees currently has four standing Committees: the Audit
Committee, the Administration Committee, the Contracts/Operations Committee and
the Investment Performance Committee. Each Committee is comprised of Independent
Trustees. The Audit Committee members are Messrs. Ladner, Moore, Toolan and Ms.
Peterson. 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
December 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 three
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 al Trustees on the selection and
election of officers of the Fund and reviews Trustee compensation, evaluates
Trustee performance and considers committee membership rotations as well as
relevant corporate governance issues. The Administration Committee held four
meetings during the fiscal year ended December 31, 2002.
The Contracts/Operations Committee members are Messrs. Carlin, Smith and
Pruchansky. 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
December 31, 2002.
16
The Investment Performance Committee consists of Messrs. Dion and Cunningham.
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 December 31, 2002.
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.
- --------------------------------------------------------------------------------
Dollar Range of Aggregate Dollar Range of
Fund shares Owned holdings in John Hancock
Name of Trustee by Trustee funds overseen by Trustee
- --------------------------------------------------------------------------------
Independent Trustees
- --------------------------------------------------------------------------------
James F. Carlin $1-$10,000 $10,001-$50,000
- --------------------------------------------------------------------------------
William H. Cunningham None $10,001-$50,000
- --------------------------------------------------------------------------------
Ronald R. Dion $1-$10,000 Over $100,000
- --------------------------------------------------------------------------------
Charles L. Ladner $10,001-$50,000 Over $100,000
- --------------------------------------------------------------------------------
Steven R. Pruchansky $1-$10,000 Over $100,000
- --------------------------------------------------------------------------------
Norman H. Smith $50,001-$100,000 Over $100,000
- --------------------------------------------------------------------------------
John P. Toolan None $50,001-$100,000
- --------------------------------------------------------------------------------
Interested Trustees
- --------------------------------------------------------------------------------
John M. DeCiccio None Over $100,000
- --------------------------------------------------------------------------------
Maureen R. Ford $1-$10,000 Over $100,000
- --------------------------------------------------------------------------------
(1) This Fund does participate in the John Hancock Deferred Compensation Plan
for Independent Trustees (the "Plan"). Under the Plan, an Independent
Trustee may defer his fees by electing to have the Adviser invest his fees
in one of the funds in the John Hancock complex that participates in the
Plan. Under these circumstances, the Trustee is not the legal owner of the
underlying shares, but does participate in any positive or negative return
on those shares to the same extent as all other shareholders. With regard
to Trustees participating in the Plan, if a Trustee was 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 as follows: over $100,000 and over $100,000
for Mr. Cunningham, over $100,000 and over $100,000 for Mr. Dion,
$10,001-$50,000 and over $100,000 for Mr. Pruchansky, $50,001-$100,000 and
over $100,000 for Mr. Smith, over $100,000 and over $100,000 for Mr.
Toolan.
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, and/or affiliates are compensated by the Adviser and
receive no compensation from the Fund for their services.
17
Aggregate Total Compensation from
Compensation all Funds in John Hancock
Trustees From the Fund(1) Fund Complex to Trustees (2)
- -------- ---------------- ----------------------------
James F. Carlin $11,822 $ 75,000
William H. Cunningham* 11,838 75,100
Ronald R. Dion* 11,822 75,000
Charles L. Ladner 11,357 72,000
Steven R. Pruchansky* 11,373 72,100
Norman H. Smith* 12,290 78,000
John P. Toolan* 11,357 72,000
-------- ----------
Total $81,859 $519,200
(1) Compensation is for fiscal period ended December 31, 2002.
(2) Total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is for the calendar year ended December 31,
2002. As of that date, there were sixty-one funds in the John
Hancock Fund Complex, with each of these Independent Trustees
serving on thirty funds.
(*) As of December 31, 2002 the value of the aggregate accrued deferred
compensation from all Funds in the John Hancock fund complex for
Mr. Cunningham was $428,963, for Mr. Dion was $122,717, for Mr.
Pruchansky was $95,779, for Mr. Smith was $204,328 and for Mr.
Toolan was $517,774 under the John Hancock Deferred Compensation
Plan for Independent Trustees (the "Plan").
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 other funds for which the
Adviser serves as investment adviser.
As of July 18, 2003, officers and Trustees of the Trust as a group owned less
than 1% of the outstanding shares of the Fund. To the knowledge of the Trust,
only the following persons owned of record or beneficially 5% or more of any
class of the Fund's outstanding shares of the Fund:
Percentage of Total
Outstanding Shares of
Name and Address of Shareholder Class of Shares the Class of the Fund
- ------------------------------- --------------- ---------------------
Citigroup Global Markets Inc C 10.67%
333 West 34th Street
New York, New York 10001
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603,
was organized in 1968 and as of March 31, 2003 has approximately $26 billion in
assets under management in its capacity as investment adviser to the Fund and
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 $130 billion,
the Life Company is one of the ten largest life insurance companies in the
United States, and carries a high rating from Standard & Poor's and A.M. Best.
Founded in 1862, the Life Company has been serving clients for over 130 years.
18
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, prospectus, 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 of the daily
net assets of the Fund as follows:
Averagey Daily Net Assets Annual Rates
- ------------------------- ------------
$0 to $750 million 0.60%
Next $750 million to 1.5 billion 0.55%
Next $1.5 billion to 2.5. billion 0.50%
Amount over $2.5 billion and over 0.45%
From time to time, the Adviser may reduce its fee or make other arrangements to
limit the Fund's expenses to a specified percentage of average daily net assets.
The Adviser retains the right to re-impose 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 December 31, 2000, 2001 and 2002, the Fund paid the
Adviser fees of $12,377,727, $10,647,323 and $8,703,622, respectively.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser or 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 for the Fund or for other funds or clients for
which the Adviser 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 or 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 the Advisory Agreement, the Adviser is 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 Advisory Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Adviser in the performance of its duties or from reckless disregard of the
obligations and duties under the Advisory Agreement.
19
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 non-exclusive right to use the name "John Hancock" or any
similar name to any other corporation or entity, including but not limited to
any investment company of which the Life Company or any subsidiary or affiliate
thereof or any successor to the business of any subsidiary or affiliate thereof
shall be the investment adviser.
The Fund's Board of Trustees is responsible for overseeing the performance of
the Fund's investment adviser and determining whether to approve and renew the
Fund's 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. 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; (2) the investment performance of the Fund's assets managed by the
adviser; (3) the fair market value of the services provided by the adviser; (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 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.
In evaluating the Advisory Agreement, the Independent Trustees reviewed
materials furnished by Adviser, including information regarding the Adviser, its
respective affiliates and their personnel, operations and financial condition.
The Independent Trustees also reviewed, among other things:
o The investment performance of the Fund. The Board determined that
the performance results of the Fund and the Adviser's responsive
actions were reasonable, as compared with relevant performance
standards, including the performance results of comparable equity
income funds derived from data provided by Lipper Inc. and
appropriate market indexes.
o The fee charged by the Adviser for investment advisory and
administrative services, as well as other compensation received by
affiliates of the Adviser and the total operating expenses of the
Fund. The Independent Trustees determined that these fees and
expenses were reasonable based on the average advisory fees and
operating expenses for comparable funds. The Independent Trustees
also took into account the nature of the advisory fee arrangement,
which includes breakpoints that will adjust the fee downward as
the size of the Fund's portfolio increases.
o The Adviser's investment staff and portfolio management process,
the historical quality of services provided by the Adviser, and
the overall performance of the Fund's portfolio on both a
short-term and long-term basis.
The Independent Trustees determined that the terms of the Fund's Advisory
Agreement are fair and reasonable and that the contract is in the Fund's best
interest. The Independent Trustees believe that the advisory contract will
enable the Fund to enjoy high quality investment advisory services at a cost
they deem appropriate, reasonable and in the best interests of the Fund and its
shareholders. In making such determinations, the Independent Trustees met
independently from the Interested Trustees of the Fund and any officers of the
Adviser or its affiliates. The Independent Trustees also relied upon the
assistance of counsel o the Independent Trustees and counsel to the Fund.
20
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 December 31, 2000, 2001 and 2002,
the Fund paid the Adviser $422,449, $387,253 and $439,523, respectively, for the
services under this Agreement.
Proxy Voting. The Fund's Trustees have delegated to the Adviser the authority to
vote proxies on behalf of the Fund. The Trustees have approved the proxy voting
guidelines of the Adviser and will review the guidelines and suggest changes as
they deem advisable. A summary of the Adviser's proxy voting guidelines is
attached to this statement of additional information as Appendix C.
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) and
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 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 C shares, at the time of
sale. In the case of Class B, Class C or Class R 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 period ended December 31, 2000, 2001 and 2002 were $1,019,674, $1,204,448
and $1,027,023, respectively. Of such amounts $162,633, $127,182 and $157,106,
were retained by John Hancock Funds in 2000, 2001 and 2002, respectively. Total
underwriting commissions for sales of the Fund's Class C shares for the fiscal
period ended December 31, 2000, 2001 and 2002 were $60,615, $86,609 and $72,370,
respectively. The remainder of the underwriting commissions were reallowed to
dealers.
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, 1.00% for Class B and Class C
shares and 0.50% for Class R shares of the Fund's average daily net assets
attributable to the respective class of shares. 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
21
personal and account maintenance services to shareholders. In the event that
John Hancock Funds is not fully reimbursed for payments or expenses it incurs
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. Unreimbursed expenses under the Class R Plan will
be carried forward to subsequent fiscal years. The Fund does not treat
unreimbursed expenses under the Class B, Class C and Class R Plans as a
liability of the Fund because the Trustees may terminate Class B, Class C and/or
Class R Plans at any time. For the fiscal year ended December 31, 2002, an
aggregate of $12,422,931 of Distribution Expenses or 2.88% 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 December 31, 2002, an aggregate of
$93,055 of Distribution Expenses or 0.42% 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 Fund has also adopted a separate Class R shares Service Plan ("the Service
Plan"). The Service Plan authorizes the Fund to pay securities dealers, plan
administrators or other service organizations who agree to provide certain
services to retirement plans or plan participants holding shares of the Fund a
service fee of up to 0.25% of the Fund's average daily net assets attributable
to Class R shares held by such plan participants. These services may include (a)
acting, directly or through an agent, as the shareholder and nominee for all
plan participants; (b) maintaining account records for each plan participant
that beneficially owns Class R shares; (c) processing orders to purchase, redeem
and exchange Class R shares on behalf of plan participants, and handling the
transmission of funds representing the purchase price or redemption proceeds;
(d) addressing plan participant questions regarding their accounts and the Fund;
and (e) other services related to servicing such retirement plans.
The Plans were approved by a majority of the voting securities of the Fund. 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 provides the Fund
with a written report of the amounts expended under the Plans and the purpose
for which the 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
by the Independent Trustees. The Plans provide that they may be terminated
without penalty (a) by a 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 the 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, Class C and Class R 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
22
class, as may be approved from time to time by vote of a majority of the
Trustees. From time to time the Fund may participate in joint distribution
activities with other Funds and the costs of those activities will be borne by
each Fund in proportion to the relative net asset value of the participating
Funds.
During the fiscal year ended December 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 Carrying
Prospectus to Compensation to Expenses of John or Other Finance
Shares Advertising New Shareholders Selling Brokers Hancock Funds Charges
- ------ ----------- ---------------- --------------- ------------- -------
Class A $235,899 $11,388 $2,302,789 $637,721 --
Class B 391,827 18,423 2,903,027 987,921 $7,906
Class C 22,482 1,201 134,874 63,594 --
Class R -- -- -- -- --
Class R shares did not exist during the fiscal year ended December 31, 2002.
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 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.
23
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% (2)
Next $1 - $5M above that -- 0.25% 0.25% 0.50%
Next $1 or more above that -- 0.00% 0.25% 0.25%
Broker receives Broker receives
maximum 12b-1 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
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 -- 0.75% 0.25% 1.00%
All other amounts 1.00% 1.75% 0.25% 2.00%
Broker receives Broker receives
maximum 12b-1 service fee Total broker
reallowance (% of net compensation (1)
Class R investments (% of offering price) Investment) (3) (% of offering price)
- ------------------- --------------------- --------------- ---------------------
All amounts -- 0% 0.50% 0.50%
(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) Group investments may be eligible for 1% on asset levels of $5 million and
higher.
(3) After first year broker receives 12b-1 fees quarterly in arrears.
24
(4) Includes new investments aggregated with investments since the last annual
reset. John Hancock Funds may take recent redemptions into account in
determining if an investment qualifies as a new investment.
CDSC revenues collected by John Hancock Funds may be used to pay brokers
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 are generally valued at last
sale price on the day of valuation or in the case of securities traded on
NASDAQ, the NASDAQ official closing price. 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 a 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.
25
The sales charges applicable to purchases of Class A and Class C shares of the
Fund are described in the Fund's 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 cumulate 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 a 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, sub-adviser or Selling
Brokers; employees or sales representatives of any of the
foregoing; retired officers, employees or Trustees 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 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 Certain retirement plans participating in Merrill Lynch
servicing programs offered in Class A shares, including
transferee recording arrangements, Merrill Lynch Connect
Arrangements and third party administrator recordkeeping
arrangements. 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 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:
26
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.
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, Raymond James
Financial Services or Raymond James & Associates omnibus account.
However, a CDSC may apply if the shares are sold within 12 months
of purchase.
o Certain retirement plans participating in Merrill Lynch servicing
programs offered in Class C shares, including transferee recording
arrangements, Merrill Lynch Connect Arrangements and third party
administrator recordkeeping arrangements. See your Merrill Lynch
Financial Consultant for further information. Merrill Lynch
retirement plans are waived from CDSC.
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.
27
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 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 LOI of 48 months. Such
an investment (including accumulations and combinations but not including
reinvested dividends) must aggregate $50,000 or more invested during the
specified period from the date of the LOI or from a date within ninety (90) days
prior thereto, upon written request to 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 been 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 such 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 R 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 R 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 that 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 Class A, Class B and Class C 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,
including all shares derived from reinvestment of dividends or capital gains
distributions.
28
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 purchase 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.
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 regarded as a share
exempt from 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:
oProceeds 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)
----------
oAmount 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 Signature Services 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 enables 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 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.
29
* 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 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.)
* Certain retirement plans participating in Merrill Lynch servicing
programs offered in Class A, Class B, Class C and Class R shares,
including transferee recording arrangements, Merrill Lynch Connect
Arrangements and third party administrator recordkeeping arrangements.
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 in the
Internal Revenue Code of 1986, as amended (the "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.
30
- ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
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 and Waived Waived Waived Waived for Life 12% of account
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.
31
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.
ELIGIBLE INVESTORS FOR CLASS R SHARES
Class R shares are available only to 401(k) plans, 457 plans, employer-sponsored
403(b) plans, profit sharing and money purchase pension plans, defined benefit
plans and non-qualified deferred compensation plans (eligible retirement plans).
Class R shares are also available for Rollover IRA accounts for participants
whose plans are invested in Class R shares funds. Class R shares are not
generally available to retail non-retirement accounts, traditional and Roth
IRAs, Coverdell Educational Savings Accounts, SEPs, SAR-SEPs SIMPLE IRAs and
individual 403(b) plans.
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 FOR CLASSES A, B AND C SHARES
Exchange Privilege. The Fund permits exchanges of shares of any class for shares
of the same class in any other John Hancock fund offering that same class.
Investors may exchange Class R shares for Class R shares of other John Hancock
funds or Class A shares of John Hancock Money Market Fund. If an investor
exchanges Class R shares for Class A shares of Money Market Fund, any future
exchanges out of the Money Market Fund Class A must be to another Class R fund.
Exchanges between funds with shares that are not subject to a CDSC are based on
their respective net asset values. No sales charge or transactions 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.
32
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 as
a Systematic Withdrawal Plan is in effect. The Fund reserves the right to modify
or discontinue the Systematic Withdrawal Plan of any shareholder on 30 days'
prior written notice to such shareholder, or to discontinue the availability of
such plan in the future. The shareholder may terminate the plan at any time by
giving proper notice to Signature Services.
Monthly Automatic Accumulation Program (MAAP). The program is explained in the
Class A, Class B and Class C 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 and Reinvestment Privilege. If Signature Services is notified
prior to reinvestment, a shareholder who has redeemed shares of the Fund may,
within 120 days after the date of redemption, reinvest without payment of a
sales charge any part of the redemption proceeds in shares of the same class of
the Fund or another John Hancock fund, subject to the minimum investment limit
in any fund. The proceeds from the redemption of Class A shares may be
reinvested at net asset value without paying a sales charge in Class A shares of
any John Hancock funds. If a CDSC was paid upon a redemption, a shareholder may
reinvest the proceeds from such redemption at net asset value in additional
shares of the class from which the redemption was made. 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.
33
A redemption or exchange of 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 shares
will be treated for tax purposes as described below under the caption "TAX
STATUS."
Retirement plans participating in Merrill Lynch's servicing programs:
- ---------------------------------------------------------------------
Class A, C and R shares are available at net asset value for Merrill Lynch
retirement plans, including transferee recording arrangements, Merrill Lynch
Connect Arrangements and third party administrator recordkeeping arrangements.
See your Merrill Lynch Financial Consultant for further information.
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 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 four other series. The Trustees have also authorized the issuance of
four classes of shares of the Fund, designated as Class A, Class B, Class C,
Class I and Class R.
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
Class A, Class B and Class C 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 and Class R shares and Class R shares
34
will pay higher distribution and service fees than Class A shares(iii) each
class of shares will bear any other class expenses properly allocable to such
class of shares, subject to the conditions the Internal Revenue Service imposes
with respect to the 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 a request for 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 Declaration of Trust contains an express disclaimer
of shareholder liability for acts, obligations and 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 Funds. 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.
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
35
complying with the applicable provisions of the Code regarding the sources of
its income, the timing of its distributions and the diversification of its
assets, the Fund will not be subject to Federal income tax on taxable income
(including net realized capital gains) 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 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 those gains and losses included in
computing 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.
The amount of net realized capital gains, if any, in any given year will result
from sales of securities made with a view to the maintenance of a portfolio
believed by the Fund's management to be most likely to attain the Fund's
objective. Such sales, and any resulting gains or losses, may therefore vary
considerably from year to year. At the time of an investor's purchase of shares
of the Fund, a portion of the purchase price is often attributable to realized
or unrealized appreciation in the Fund's portfolio. Consequently, subsequent
distributions on these 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.
If the Fund invests in stock (including an option to acquire stock 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 such
companies or gain from the sale of stock in such companies, even if all income
or gain actually received by the Fund is timely distributed to its shareholders.
These investments could also result in the treatment of associated capital gains
as ordinary income. 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.
The Fund may limit and/or manage its holdings in passive foreign investment
companies or make an available election to minimize its tax liability or
maximize its return from these investments.
36
The Fund may be subject to foreign taxes on its income from investments in
certain foreign securities, if any. Some tax conventions between certain
countries and the U.S. may reduce or eliminate such taxes. Because more than 50%
of the Fund's assets at the close of any taxable year will generally not consist
of stocks or securities of foreign corporations, the Fund will generally be
unable to pass such taxes through to shareholders, who will therefore generally
not be entitled to any foreign tax credit or deduction with respect to their
investment in the Fund. The Fund will deduct the foreign taxes it pays in
determining the amount it has available for distribution to shareholders.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
foreign currencies, or payable or receivables denominated in 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.
Certain of these transactions may cause the Fund to recognize gains or losses
from marking to market even though its positions have not been sold or
terminated and affect the character as long-term or short-term and timing of
some capital gains and losses realized by the Fund. Additionally, certain of the
Fund's losses on its transactions involving options and any offsetting or
successor portfolio positions may be deferred rather than being taking 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 in order to minimize any potential
adverse tax consequences.
Upon a redemption 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 and will be long-term or short-term, depending upon the
shareholder's tax holding period for the shares and subject to the special rules
described below. A sales charge paid in purchasing 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 reinvestment. 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 the 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
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
37
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 share of these taxes.
For Federal income tax purposes, the Fund is permitted to carry forward a net
capital loss in any year to offset net capital gains, if any, during the eight
years following the year of the loss. To the extent subsequent net capital gains
are offset by such losses, they would not result in Federal income tax liability
to the Fund and as noted above would not be distributed as such to shareholders.
The Fund has a $89,791,390 capital loss carryforward available, to the extent
provided by regulations, to offset future net realized capital gains. The entire
carryforward expires on December 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 the stock of such corporations held by the Fund, for U.S. Federal
income tax purposes, for at least 46 days (91 days in the case of certain
preferred stock) during a prescribed period extending before and after each
dividend and distributed and properly designated by the Fund may be treated a
qualifying dividends. Corporate shareholders must meet the minimum holding
period requirement stated above (46 or 91 days) with respect to their shares of
the Fund 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 the excess (if any) of a corporate shareholder's adjusted current
earnings over its alternative minimum taxable income, which may increase its
alternative minimum tax liability, 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, for the
purpose of computing its gain or loss on redemption or other disposition of the
shares.
If the Fund should have dividend income that qualifies as Qualified Dividend
Income, as provided in the Jobs and Growth Tax Relief Reconciliation Act of
2003, the maximum amount allowable will be designated by the Fund. This amount
will be reflected on Form 1099-DIV for the current calendar year.
The Fund is required to accrue income on any debt securities that have more than
a de minimus amount of original issue discount (or debt securities acquired at a
market discount, if the Fund elects to include market discount in income
currently) prior to the receipt of the corresponding cash payments. The mark to
market rules applicable to certain options and futures contracts may also
require the Fund to recognize gain within a concurrent receipt of cash. However,
the Fund must distribute to shareholders for each taxable year substantially all
of its net income and net capital gains, including such income or liability for
any federal income or excise tax. Therefore, the Fund may have to dispose of its
portfolio securities under disadvantageous circumstances to generate cash, or
may have to leverage itself by borrowing the cash, to satisfy these distribution
requirements.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent (if any) the Fund's distributions
are derived from interest on (or, in the case of intangible taxes, the value of
its assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. The Fund will not seek to satisfy any
threshold or reporting requirements that may apply in particular taxing
jurisdictions, although the Fund may in its sole discretion provide relevant
information to shareholders.
38
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 the 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.
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.
Investments in debt obligations that are at risk of or in default may present
special tax issues for the Fund. Tax rules are not entirely clear about issues
such as when the Fund may cease to accrue interest, original issue discount, or
market discount; when and to what extent deductions may be taken for bad debts
or worthless securities; how payments received on obligations in default should
be allocated between principal and income; and whether exchanges of debt
obligations in a workout context are taxable. These and other issues will be
addressed by the Fund, in the event it invests in such securities, in order to
reduce the risk of distributing insufficient income to preserve its status as a
regulated investment company and seek to avoid becoming subject to Federal
income or excise tax.
The foregoing discussion relates solely to U.S. Federal income tax laws
applicable to the 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 shares of the
Fund may also be subject to state and local taxes. The foregoing discussion
related to U.S. investors that are not exempt from U.S. Federal income tax.
Different tax consequences will apply to plan participants, tax-exempt investors
and investors that are subject to tax deferral. You should consult your tax
adviser for specific advice. Under the Code, a tax-exempt investor in the Fund
will not generally recognize unrelated business taxable income from its
investment in the Fund unless the tax-exempt investor incurred indebtedness to
acquire or continue to hold Fund shares and such indebtedness remains unpaid.
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 non-resident alien withholding tax at the rate of
30% (or a lower rate under an applicable tax treaty) on amounts treated as
39
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 not be required to pay Massachusetts
income taxes.
CALCULATION OF PERFORMANCE
For the 30-day period ended December 31, 2002, the annualized yields on Class A,
Class B and Class C shares were 1.20%, 0.56% and 0.55%, respectively.
As of December 31, 2002, the average annual total returns before taxes of Class
A shares of the Fund for the one, five and ten year periods were -22.76%, -1.55%
and 6.53%, respectively.
As of December 31, 2002, the average annual total returns before taxes for the
Fund's Class B shares for the one, five and since the commencement of operations
on January 3, 1994 were -23.26%, -1.53% and 6.52%, respectively.
As of December 31, 2002, the average annual total returns before taxes for the
Fund's Class C shares for the one year period and since the commencement of
operations on May 1, 1998 were -20.86% and -3.36%, respectively.
Because Class R shares are new, there is no performance to report. Class B
performance is currently disclosed in the Fund's prospectus for Class R shares.
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:
P(1+T)n = 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.
40
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:
P(1+T)n = ATVD
Where:
P= a hypothetical initial payment of $1,000.
T= average annual total return (after taxes on distributions)
n= number of years
ATVD= ending value of a hypothetical $1,000 payment made at the
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 the commencement of
operations, that would equate the initial amount invested to the ending
redeemable value according to the following formula:
P(1+T)n = ATVDR
Where:
P= a hypothetical initial payment of $1,000.
T= average annual total return (after taxes on distributions and
redemption)
n= number of years
ATVDR= ending value of a hypothetical $1,000 payment made at
the 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 applied at the end of the period. 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.
In the case of a tax-exempt obligation issued without original issue discount
and having a current market discount, the coupon rate of interest is used in
lieu of the yield to maturity. Where, in the case of a tax-exempt obligation
with original issue discount, the discount based on the current market value
exceeds the then-remaining portion of original issue discount (market discount),
the yield to maturity is the imputed rate based on the original issue discount
calculation. Where, in the case of a tax-exempt obligation with original issue
discount, the discount based on the current market value is less than the
then-remaining portion of original issue discount (market premium), the yield to
maturity is based on the market value.
41
The Fund may advertise yield, where appropriate. The Fund's yield is computed by
dividing net investment income per share determined for a 30-day period by the
maximum offering price per share (which includes the full sales charge) on the
last day of the period, according to the following standard formula:
6
Yield = 2 ( [ ( a - b ) + 1 ] - 1 )
-------
cd
Where:
a = dividends and interest earned during the period.
b = net expenses accrued during the period.
c = the average daily number of fund shares outstanding during
the period that would be entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period (NAV where applicable).
From time to time, in reports and promotional literature, the Fund's yield and
total return will be compared to indices of mutual funds and bank deposit
vehicles such as Lipper Analytical Services, Inc.'s "Lipper -- Fixed Income Fund
Performance Analysis," a monthly publication which tracks net assets, total
return, and yield on fixed income mutual funds in the United States. Ibottson
and Associates, CDA Weisenberger and F.C. Towers are also used for comparison
purposes, as well 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, MORNINGSTAR, 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 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.
42
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 may consider sales of
shares of the Fund as a factor in the selection of broker-dealers to execute the
Fund's portfolio transactions. To the extent consistent with the foregoing, the
Fund will be governed in the selection of brokers and dealers, and the
negotiation of brokerage commission rates and dealer spreads, by the reliability
and quality of the services, including primarily the availability and value of
research information and, to a lesser extent, statistical assistance furnished
to the Adviser of the Fund.
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 December 31,
2002, the Fund paid $201,275 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 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 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 since the
broker-dealers used by the Adviser tend to follow a broader universe of
securities and other matters than the Adviser's staff can follow. In addition,
the research provides the Adviser with a diverse perspective on financial
markets. Research services provided to the Adviser by broker-dealers are
available for the benefit of all accounts managed or advised by the Adviser or
by its affiliates. Some broker-dealers may indicate that the provision of
43
research services is dependent upon the generation of certain specified levels
of commissions and underwriting concessions by the Adviser'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 believes that the research services are beneficial in supplementing
the Adviser's research and analysis and that they improve the quality of the
Adviser'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. 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. However, to the extent that the Adviser would have
purchased research services had they not been provided by broker-dealers, the
expenses to the Adviser 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,
and conversely, brokerage commissions and spreads paid by other advisory clients
of the Adviser may result in research information and statistical assistance
beneficial to the Fund. The Fund will make no commitment to allocate portfolio
transactions upon any prescribed basis.
While the Adviser will be primarily responsible for its allocation of the Fund's
brokerage business, the policies and practices of the Adviser 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 Deember 31, 2000, 2001 and 2002, the
Fund paid negotiated brokerage commissions of $2,192,992, $1,808,600 and
$1,586,271, respectively.
The Adviser 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 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 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 ("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, or the
Affiliated Broker. Because the Adviser 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.
44
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.
Other investment advisory clients advised by the Adviser may also invest in the
same securities as the Fund. When these clients buy or sell the same securities
at substantially the same time, the Adviser may average the transactions as to
price and allocate the amount of available investments in a manner which the
Adviser believes to be equitable to each client, including the Fund. 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
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 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, $18.50 for each Class B shareholder account, $17.50 for
each Class C shareholder account and $20.00 for each Class R shareholder
account. The Fund also pays Signature Services monthly a fee which is based on
an annual rate of 0.05% of average daily net assets attributable to Class A,
Class B, Class C and R shares. For Class A, B, C and R shares, the Fund also
pays certain out-of pocket expenses. Expenses for Class A, B, C and R shares 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.
45
INDEPENDENT AUDITORS
The independent auditors of the Fund are Deloitte & Touche LLP, 200 Berkeley
Street, Boston, Massachusetts 02116. Deloitte & Touche LLP will audit and render
an opinion on the Fund's annual financial statements and review the Fund's
annual Federal income tax returns.
Until December 31, 2002, the independent auditors of the Fund were Ernst & Young
LLP, 200 Clarendon Street, Boston, Massachusetts 02116. The financial statements
of the Fund, incorporated by reference in the Prospectus and this Statement of
Additional Information, have been audited by Ernst & Young LLP for the periods
indicated in their report with respect to those financial statements and are
included in reliance upon the authority of Ernst & Young, LLP as experts in
accounting and auditing.
46
APPENDIX-A
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's principal 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 Objectives 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 total 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, financial
futures and options; securities and index options, currency contracts).
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. Borrowing; reverse repurchase agreements, repurchase
agreements, securities lending, non-investment-grade debt securities, financial
futures and options; securities and index options).
Currency risk The risk that fluctuations in the exchange rates between the U.S.
dollar and foreign currencies may negatively affect an investment. (e.g. Foreign
securities, financial futures and options; securities and index options,
currency contracts).
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.
Information risk The risk that key information about a security or market is
inaccurate or unavailable. (e.g. non-investment-grade debt securities, foreign
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.
Non investment-grade debt securities, financial futures and options; securities
and index options).
Leverage risk Associated with securities or practices (such as borrowing) that
multiply small index or market movements into large changes in value. (e.g.
Borrowing; reverse repurchase agreements, short-sales, when-issued securities
and forward commitments; financial futures and options; securities and index
options, currency contracts).
A-1
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. (e.g. short sales,
non-investment-grade debt securities; restricted and illiquid securities,
financial futures and options; securities and index options, currency
contracts).
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. 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, non-investment-grade securities,
foreign securities, financial futures and options; securities and index options,
restricted and illiquid securities).
Natural event risk The risk of losses attributable to natural disasters, crop
failures and similar events. (e.g. Foreign securities).
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,
financial futures and options; securities and index options, currency
contracts).
Political risk The risk of losses directly attributable to government or
political actions of any sort. (e.g. Foreign securities)
Prepayment risk The risk that unanticipated prepayments may occur during periods
of falling interest rates, reducing the value of mortgage-backed 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).
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.
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.
B-1
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.
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.
B-2
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
APPENDIX C
John Hancock Advisers, LLC
Sovereign Asset Management Corporation
Proxy Voting Summary
We believe in placing our clients' interests first. Before we invest in a
particular stock or bond, our team of portfolio managers and research analysts
look closely at the company by examining its earnings history, its management
team and its place in the market. Once we invest, we monitor all our clients'
holdings, to ensure that they maintain their potential to produce results for
investors.
As part of our active investment management strategy, we keep a close eye on
each company we invest in. Routinely, companies issue proxies by which they ask
investors like us to vote for or against a change, such as a new management
team, a new business procedure or an acquisition. We base our decisions on how
to vote these proxies with the goal of maximizing the value of our clients'
investments.
Currently, John Hancock Advisers, LLC ("JHA") and Sovereign Asset Management
Corporation ("Sovereign") manage open-end funds, closed-end funds and portfolios
for institutions and high-net-worth investors. Occasionally, we utilize the
expertise of an outside asset manager by means of a subadvisory agreement. In
all cases, JHA or Sovereign makes the final decision as to how to vote our
clients' proxies. There is one exception, however, and that pertains to our
international accounts. The investment management team for international
investments votes the proxies for the accounts they manage. Unless voting is
specifically retained by the named fiduciary of the client, JHA and Sovereign
will vote proxies for ERISA clients.
In order to ensure a consistent, balanced approach across all our investment
teams, we have established a proxy oversight group comprised of associates from
our investment, operations and legal teams. The group has developed a set of
policies and procedures that detail the standards for how JHA and Sovereign vote
proxies. The guidelines of JHA have been approved and adopted by each fund
client's board of trustees who have voted to delegate proxy voting authority to
their investment adviser, JHA. JHA and Sovereign's other clients have granted us
the authority to vote proxies in our advisory contracts or comparable documents.
JHA and Sovereign have hired a third party proxy voting service which has been
instructed to vote all proxies in accordance with our established guidelines
except as otherwise instructed.
In evaluating proxy issues, our proxy oversight group may consider information
from many sources, including the portfolio manager, management of a company
presenting a proposal, shareholder groups, and independent proxy research
services. Proxies for securities on loan through securities lending programs
will generally not be voted, however a decision may be made to recall a security
for voting purposes if the issue is material.
Below are the guidelines we adhere to when voting proxies. Please keep in mind
that these are purely guidelines. Our actual votes will be driven by the
particular circumstances of each proxy. From time to time votes may ultimately
be cast on a case-by-case basis, taking into consideration relevant facts and
circumstances at the time of the vote. Decisions on these matters (case-by-case,
abstention, recall) will normally be made by a portfolio manager under the
supervision of the chief investment officer and the proxy oversight group. We
may abstain from voting a proxy if we conclude that the effect on our clients'
economic interests or the value of the portfolio holding is indeterminable or
insignificant.
C-1
Proxy Voting Guidelines
Board of Directors
We believe good corporate governance evolves from an independent board.
We support the election of uncontested director nominees, but will withhold our
vote for any nominee attending less than 75% of the board and committee meetings
during the previous fiscal year. Contested elections will be considered on a
case by case basis by the proxy oversight group, taking into account the
nominee's qualifications. We will support management's ability to set the size
of the board of directors and to fill vacancies without shareholder approval but
will not support a board that has fewer than 3 directors or allows for the
removal of a director without cause.
We will support declassification of a board and block efforts to adopt a
classified board structure. This structure typically divides the board into
classes with each class serving a staggered term.
In addition, we support proposals for board indemnification and limitation of
director liability, as long as they are consistent with corporate law and
shareholders' interests. We believe that this is necessary to attract qualified
board members.
Selection of Auditors
We believe an independent audit committee can best determine an auditor's
qualifications.
We will vote for management proposals to ratify the board's selection of
auditors, and for proposals to increase the independence of audit committees.
Capitalization
We will vote for a proposal to increase or decrease authorized common or
preferred stock and the issuance of common stock, but will vote against a
proposal to issue or convert preferred or multiple classes of stock if the board
has unlimited rights to set the terms and conditions of the shares, or if the
shares have voting rights inferior or superior to those of other shareholders.
In addition, we will support a management proposal to: create or restore
preemptive rights; approve a stock repurchase program; approve a stock split or
reverse stock split; and, approve the issuance or exercise of stock warrants
Acquisitions, mergers and corporate restructuring
Proposals to merge with or acquire another company will be voted on a
case-by-case basis, as will proposals for recapitalization, restructuring,
leveraged buyout, sale of assets, bankruptcy or liquidation. We will vote
against a reincorporation proposal if it would reduce shareholder rights. We
will vote against a management proposal to ratify or adopt a poison pill or to
establish a supermajority voting provision to approve a merger or other business
combination. We would however support a management proposal to opt out of a
state takeover statutory provision, to spin-off certain operations or divisions
and to establish a fair price provision.
C-2
Corporate Structure and Shareholder Rights
In general, we support proposals that foster good corporate governance
procedures and that provide shareholders with voting power equal to their equity
interest in the company.
To preserve shareholder rights, we will vote against a management proposal to
restrict shareholders' right to: call a special meeting and to eliminate a
shareholders' right to act by written consent. In addition, we will not support
a management proposal to adopt a supermajority vote requirement to change
certain by-law or charter provisions or a non-technical amendment to by-laws or
a charter that reduces shareholder rights.
Equity-based compensation
Equity-based compensation is designed to attract, retain and motivate talented
executives and independent directors, but should not be so significant as to
materially dilute shareholders' interests.
We will vote against the adoption or amendment of a stock option plan if the:
o plan dilution is more than 10% of outstanding common stock,
o plan allows for non-qualified options to be priced at less than 85% of
the fair market value on the
grant date,
o company allows or has allowed the re-pricing or replacement of
underwater options in the past fiscal year (or the exchange of
underwater options).
With respect to the adoption or amendment of employee stock purchase plans or a
stock award plan, we will vote against management if:
o the plan allows stock to be purchased at less than 85% of fair market value;
o this plan dilutes outstanding common equity greater than 10%
o all stock purchase plans, including the proposed plan, exceed 15% of
outstanding common equity.
Other Business
For routine business matters which are the subject of many proxy related
questions, we will vote with management proposals to:
o change the company name;
o approve other business;
o adjourn meetings;
o make technical amendments to the by-laws or charters;
o approve financial statements;
o approve an employment agreement or contract.
Shareholder Proposals
Shareholders are permitted per SEC regulations to submit proposals for inclusion
in a company's proxy statement. We will generally vote against shareholder
proposals and in accordance with the recommendation of management except as
follows where we will vote for proposals:
C-3
o calling for shareholder ratification of auditors;
o calling for auditors to attend annual meetings;
o seeking to increase board independence;
o requiring minimum stock ownership by directors;
o seeking to create a nominating committee or to increase the independence of
the nominating committee;
o seeking to increase the independence of the audit committee.
Corporate and social policy issues
We believe that "ordinary business matters" are primarily the responsibility of
management and should be approved solely by the corporation's board of
directors.
Proposals in this category, initiated primarily by shareholders, typically
request that the company disclose or amend certain business practices. We
generally vote against business practice proposals and abstain on social policy
issues, though we may make exceptions in certain instances where we believe a
proposal has substantial economic implications.
C-4
John Hancock Advisers, LLC
Sovereign Asset Management Corporation
Proxy Voting Procedures
The role of the proxy voting service
John Hancock Advisers, LLC ("JHA") and Sovereign Asset Management Corporation
("Sovereign") have hired a proxy voting service to assist with the voting of
client proxies. The proxy service coordinates with client custodians to ensure
that proxies are received for securities held in client accounts and acted on in
a timely manner. The proxy service votes all proxies received in accordance with
the proxy voting guidelines established and adopted by JHA and Sovereign. When
it is unclear how to apply a particular proxy voting guideline or when a
particular proposal is not covered by the guidelines, the proxy voting service
will contact the proxy oversight group coordinator for a resolution.
The role of the proxy oversight group and coordinator
The coordinator will interact directly with the proxy voting service to resolve
any issues the proxy voting service brings to the attention of JHA or Sovereign.
When a question arises regarding how a proxy should be voted the coordinator
contacts the firm's investment professionals and the proxy oversight group for a
resolution. In addition the coordinator ensures that the proxy voting service
receives responses in a timely manner. Also, the coordinator is responsible for
identifying whether, when a voting issue arises, there is a potential conflict
of interest situation and then escalating the issue to the firm's Executive
Committee. For securities out on loan as part of a securities lending program,
if a decision is made to vote a proxy, the coordinator will manage the
return/recall of the securities so the proxy can be voted.
The role of mutual fund trustees
The boards of trustees of our mutual fund clients have reviewed and adopted the
proxy voting guidelines of the funds' investment adviser, JHA. The trustees will
periodically review the proxy voting guidelines and suggest changes they deem
advisable.
Conflicts of interest
Conflicts of interest are resolved in the best interest of clients.
With respect to potential conflicts of interest, proxies will be voted in
accordance with JHA's or Sovereign's predetermined policies. If application of
the predetermined policy is unclear or does not address a particular proposal, a
special internal review by the JHA Executive Committee or Sovereign Executive
Committee will determine the vote. After voting, a report will be made to the
client (in the case of an investment company, to the fund's board of trustees),
if requested. An example of a conflict of interest created with respect to a
proxy solicitation is when JHA or Sovereign must vote the proxies of companies
that they provide investment advice to or are currently seeking to provide
investment advice to, such as to pension plans.
C-5
FINANCIAL STATEMENTS
The financial statements listed below are included in the Fund's 2002 Annual
Report to Shareholders for the year ended December 31, 2002; (filed
electronically on February 24, 2003, accession number 0000928816-03-000128) and
are included in and incorporated by reference into Part B of the Registration
Statement for John Hancock Sovereign Investors Fund (file nos. 811-0560 and
2-10156).
John Hancock Investment Trust
John Hancock Sovereign Investors Fund
Statement of Assets and Liabilities as of December 31, 2002.
Statement of Operations for the year ended December 31, 2002.
Statement of Changes in Net Assets for each of the two years in the period
ended December 31, 2002.
Notes to Financial Statements.
Financial Highlights for each of the five years in the period ended
December 31, 2002.
Schedule of Investments as of December 31, 2002.
Report of Independent Auditors.
F-1
JOHN HANCOCK SOVEREIGN INVESTORS FUND
Class I Shares
Statement of Additional Information
March 1, 2003
This Statement of Additional Information provides information about John Hancock
Sovereign Investors Fund (the "Fund") in addition to the information in the
Fund's current Prospectus for Class I shares (the "Prospectus"). The Fund is a
diversified series of John Hancock Investment Trust (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 1001
Boston, Massachusetts 02217-1001
1-(888)-972-8696
TABLE OF CONTENTS
Page
Organization of the Fund 2
Investment Objective and Policies 2
Investment Restrictions 8
Those Responsible for Management 11
Investment Advisory and Other Services 18
Distribution Contracts 21
Sales Compensation 21
Net Asset Value 21
Special Redemptions 22
Additional Services and Programs 22
Purchase and Redemptions through Third Parties 23
Description of the Fund's Shares 23
Tax Status 24
Calculation of Performance 28
Brokerage Allocation 31
Transfer Agent Services 33
Custody of Portfolio 34
Independent Auditors 34
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.
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
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 provide long-term growth of capital and of
income without assuming undue market risks. At times, however, because of market
conditions, the Fund may invest primarily for current income. The Fund will make
investments in different types and classes of securities in accordance with the
Trustees' and the Adviser's appraisal of economic and market conditions. The
Fund's portfolio securities are selected mainly for their investment character
based upon generally accepted elements of intrinsic value, including industry
position, management, financial strength, earning power, marketability and
prospects for future growth. The distribution or mix of various types of
investments is based on general market conditions, the level of interest rates,
business and economic conditions, and the availability of investments in the
equity and fixed income markets. The amount of the Fund's assets that may be
invested in either equity or fixed income securities is not restricted and is
based upon management's judgment of what might best achieve the Fund's
investment objectives. The Fund normally invest at least 80% of stocks in a
diversified portfolio of companies with market capitalizations within the range
of the Standard & Poor's 500 Stock Index. The securities held by the Fund are
under continuous study by the Adviser. They are selected because they are
considered by the management to contribute to the possible achievement of the
Fund's objective. They are held or disposed of in accordance with the results of
a continuing examination of their merit.
The Fund currently uses a strategy of investing at least 65% of stock
investments in companies which have a record of having increased their dividend
payout in each of the preceding ten or more years. This dividend performers
strategy can be changed at any time.
By investing primarily in these companies, the portfolio management team focuses
on investments with characteristics such as: a strong management team that has
demonstrated leadership through changing market cycles; financial soundness as
evidenced by consistently rising dividends and profits, strong cash flows, high
return on equity and a balance sheet showing little debt; and strong brand
recognition and market acceptance, backed by proven products and a
well-established, often global, distribution network.
Subject to the Fund's policy of investing primarily in common stocks, the Fund
may invest without limit in investment grade debt securities or investment grade
preferred stocks (equivalent to the top four bond rating categories of an
NRSRO). For temporary defensive purposes, the Fund may invest some or all of its
assets in investment grade short-term securities.
2
The investment policy of the Fund is to purchase and hold securities for capital
appreciation and investment income, although there may be a limited number of
short- term transactions incidental to the pursuit of its investment objective.
The Fund may make portfolio purchases and sales to the extent that in its
Board's opinion, relying on the Adviser or independently, such transactions are
in the interest of shareholders.
The Fund endeavors to achieve its objective by utilizing experienced management
and generally investing in securities of seasoned companies in sound financial
condition. The Fund has not purchased securities of real estate investment
trusts and has no present intention of doing so in the future.
The Fund may not invest more than 5% of its total assets at time of purchase in
any one security (other than U.S. Government Securities). Under normal
conditions the Fund may not invest more than 10% of total assets in cash and/or
cash equivalents (except cash segregated in relation to futures, forward and
option contracts).
Diversification. The Fund's investments are diversified in a broad list of
issues, representing many different industries. Although diversification does
not eliminate market risk, it may tend to reduce it. At the same time, holdings
of a large number of shares in any one company are avoided. Thus, during periods
when general economic and political conditions are subject to rapid changes, it
may be appropriate to effect rapid changes in the Fund's investments. This can
be more readily accomplished by limiting the amount of any one investment.
As is common to all securities investments, the stock of this managed
diversified Fund is subject to fluctuation in value; its portfolio will not
necessarily prove a defense in periods of declining prices or lead the advance
in rising markets. The Fund's management will endeavor to reduce the risks
encountered in the use of any single investment by investing the assets of the
Fund in a widely diversified group of securities. Diversification, however, will
not necessarily reduce inherent market risks. Securities are selected mainly for
their investment character, based upon generally accepted elements of intrinsic
value including industry position, management, financial strength, earning
power, ready marketability and prospects for future growth.
Concentration. The Fund's policy is not to concentrate its investments in any
one industry, but investments of up to 25% of its total assets at market value
may be made in a single industry. This limitation may not be changed without the
affirmative vote of a majority of the Fund's outstanding voting securities, as
defined in the Investment Company Act of 1940, as amended (the "Investment
Company Act").
Ratings as Investment Criteria. In general, the ratings of Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's Ratings Group ("S&P") represent
the opinions of these agencies as to the quality of the securities which they
rate. It should be emphasized however, that ratings are relative and subjective
and are not absolute standards of quality. These ratings will be used by the
Funds as initial criteria for the selection of portfolio securities. Among the
factors which will be considered are the long-term ability of the issuer to pay
principal and interest and general economic trends. Appendix B contains further
information concerning the rating of Moody's and S&P and their significance.
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither of these events will require the sale of the securities by the
Fund.
Lower Rated High-Yield "High Risk" Debt Obligations. The Fund may invest up to
5% of its net assets in debt securities rated as low as C by Moody's or S&P and
unrated securities deemed of equivalent quality by the Adviser. These securities
are speculative to a high degree and often have very poor prospects of attaining
real investment standing. Lower rated securities are generally referred to as
junk
3
bonds. See the Appendix attached to this Statement of Additional Information
which describes the characteristics of the securities in the various rating
categories.
Securities rated lower than Baa by Moody's or BBB by Standard & Poor's are
sometimes referred to as junk bonds. See the Appendix attached to this Statement
of Additional Information which describes the characteristics of the securities
in the various ratings categories. The Fund is not obligated to dispose of
securities whose issuers subsequently are in default or which are downgraded
below the above-stated ratings. The credit ratings of Moody's and Standard &
Poor's in a timely fashion to reflect subsequent economic events. The credit
ratings of securities do not reflect an evaluation of market risk. Debt
obligations rated in the lower ratings categories, or which are unrated, involve
greater volatility of price and risk of loss of principal and income. In
addition, lower ratings reflect a greater possibility of an adverse change in
financial condition affecting the issuer's ability to make payments of interest
and principal. The market price and liquidity of lower rated fixed income
securities generally respond more to short-term corporate and market
developments than do those of higher rated securities, because these
developments are perceived to have a more direct relationship to the ability of
an issuer of lower rated securities to meet its ongoing debt obligations. The
Adviser seeks to minimize these risks through diversification, investment
analysis and attention to current developments in interest rates and economic
conditions.
Reduced volume and liquidity in the high yield high risk bond market, or the
reduced availability of market quotations, will make it more difficult to
dispose of the bonds and to value accurately the Fund's assets. The reduced
availability of reliable, objective data may increase the Fund's reliance on
management's judgment in valuing high yield high risk bonds. In addition, the
Fund's investments in high yield high risk securities may be susceptible to
adverse publicity and investor perceptions, whether or not justified by
fundamental factors. The Fund's investment, and consequently its net asset
value, will be subject to the market fluctuations and risk inherent in all
securities. Increasing rate note securities are typically refinanced by the
issuers within a short period of time.
The market value of debt securities which carry no equity participation usually
reflects yields generally available on securities of similar quality and type.
When such yields decline, the market value of a portfolio already invested at
higher yields can be expected to rise if such securities are protected against
early call. In general, in selecting securities for its portfolio, the Fund
intends to seek protection against early call. Similarly, when such yields
increase, the market value of a portfolio already invested at lower yields can
be expected to decline. The Fund's portfolio may include debt securities which
sell at substantial discounts from par. These securities are low coupon bonds
which, during periods of high interest rates, because of their lower acquisition
cost tend to sell on a yield basis approximating current interest rates.
Options and Futures. The Fund may not invest in futures contracts or sell call
or put options. The Fund has authority to purchase put and call options.
Options on Securities Indices. The Fund may purchase call and put options 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 purchase put
and call options for any non-speculative purpose. These include using options 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.
Purchasing Options. The Fund would normally purchase index call options in
anticipation of an increase, or index 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.
4
The purchase of an index call option would entitle the Fund, in return for the
premium paid, to receive a cash payment reflecting any increase in the index
above a specified level upon exercising the option during the option period. The
Fund would ordinarily realize a gain on the purchase of a call option if the
amount of this cash payment exceeded the premium paid and transaction costs;
otherwise the Fund would realized either no gain or a loss on the purchase of
the call option.
The purchase of an index put option would entitle the Fund, in exchange for the
premium paid, to receive a cash payment reflecting any decrease in the index
below a specified level upon exercising the option 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. The Fund would ordinarily
realize a gain if, during the option period, the level of the index 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 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 an options exchange will exist for any particular
exchange-traded option or at any particular time. 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. 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 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
5
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 markets.
Government Securities. Certain U.S. Government securities, including U.S.
Treasury bills notes and bonds, and Government National Mortgage Association
certificates ("Ginnie Maes"), are supported by the full faith and credit of the
United States. Certain other U.S. Government securities issued or guaranteed by
Federal agencies or government sponsored enterprises, are not supported by the
full faith and credit of the United States, but may be supported by the right of
the issuer to borrow from the U.S. Treasury. These securities include
obligations of the Federal Home Loan Mortgage Corporation ("Freddie Macs"), and
obligations supported by the credit of the instrumentality, such as Federal
National Mortgage Association Bonds ("Fannie Maes"). No assurance can be given
that the U.S. Government will provide financial support to such Federal
agencies, authorities, instrumentalities and government sponsored enterprises in
the future.
Ginnie Maes, Freddie Macs, Fannie Maes and Sallie 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.
Mortgage-backed securities have stated maturities of up to thirty years when
they are issued depending upon the length of the mortgages underlying the
securities. In practice, however, unscheduled or early payments of principal and
interest on the underlying mortgages may make the securities' effective maturity
shorter than this and the prevailing interest rates may be higher or lower than
the current yield of the Fund's portfolio at the time such payments are received
by the Fund for reinvestment. Mortgage-backed securities may have less potential
for capital appreciation than comparable fixed-income securities due to the
likelihood of increased prepayments of mortgages as interest rates decline. If
the Fund buys mortgage-backed securities at a premium, mortgage foreclosures and
prepayments of principal by mortgagors (which may be made at any time without
penalty) may result in some loss of the Fund's principal investment to the
extent of the premium paid.
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 determines, 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 adopt guidelines and delegate to the
Advisers the daily function of determining, the monitoring and liquidity of
restricted securities. The Trustees, however, will retain sufficient oversight
and be ultimately responsible for the determinations. The Trustees will
carefully monitor the Fund's investments in these securities, focusing on such
important factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing the
level of illiquidity in the Fund if qualified institutional buyers become for a
time uninterested in purchasing these restricted securities. The Fund does not
intend to invest more than 5% of its net assets in Rule 144A 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
6
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 underlining 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 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 any accrued interest
thereon) under such agreements. In addition, the Fund may not borrow money
except in connection with the sale or resale of its shares. The Fund will not
enter into reverse repurchase agreements and other borrowings exceeding in the
aggregate 33 1/3% of the market value of its total assets. The Fund will enter
into reverse repurchase agreements only with 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 firms involved.
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. 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-Sales. The Fund may not engage in short sales.
7
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 beeen 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 higher
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:
(1) The Fund may not, with respect to 75% of its total assets, purchase
any security (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and repurchase
agreements collateralized by such securities) if, as a result: (a)
more than 5% of its total assets would be invested in the securities
of any one issuer, or (b) the Fund would own more than 10% of the
voting securities of any one issuer. [see nonfundamental investment
restriction]
(2) The Fund may not issue senior securities, except as permitted by
paragraphs (3) and (7) below. For purposes of this restriction, the
issuance of shares of common stock in multiple classes, the purchase
or sale of options, futures contracts and options on futures
contracts, forward commitments, and repurchase agreements entered
into in accordance with the
8
Fund's investment policies, and the pledge, mortgage or
hypothecation of the Fund's assets are not deemed to be senior
securities.
(3) The Fund may not borrow money except in connection with the sale or
resale of its shares.
(4) The Fund may not act as an underwriter, except to the extent that,
in connection with the disposition of portfolio investments, the
Fund may be deemed to be an underwriter for purposes of the
Securities Act of 1933.
(5) The Fund may not purchase or sell real estate, or any interest
therein, including real estate mortgage loans, except that the Fund
may: (i) hold and sell real estate acquired as the result of its
ownership of securities, or (ii) invest in securities of corporate
or governmental entities secured by real estate or marketable
interests therein or securities issued by companies (other that real
estate limited partnerships) that invest in real estate or interests
therein.
(6) The Fund may not make loans, except that the Fund (1) may lend
portfolio securities in accordance with the Fund's investment
policies in an amount up to 33 1/3% of the Fund's total assets taken
at market value, (2) enter into repurchase agreements, and (3)
purchase all or a portion of an issue of debt securities, bank loan
participation interests, bank certificates of deposit, bankers'
acceptances, debentures or other securities, whether or not the
purchase is made upon the original issuance of the securities.
(7) The Fund may not purchase or sell commodities or commodity
contracts; except that the Fund may purchase and sell options on
securities, securities indices, currency and other financial
instruments, futures contracts on securities, securities indices,
currency and other financial instruments and options on such futures
contracts, forward commitments, interest rate swaps, caps and
floors, securities index put or call warrants and repurchase
agreements entered into in accordance with the Fund's investment
policies.
(8) The Fund may not purchase securities of an issuer conducting its
principal activity in any particular industry if immediately after
such purchase the value of the Fund's investments in all issuers in
this industry would exceed 25% of its total assets taken at market
value.
Non-fundamental Investment Restrictions. The following restrictions are
designated as non-fundamental and may be changed by the Trustees without
shareholder approval.
The Fund may not:
(a) Participate on a joint-and-several basis in any securities trading
account. The "bunching" of orders for the sale or purchase of
marketable portfolio securities with other accounts under the
management of any investment adviser to the Fund in order to save
commissions or to average prices among the accounts, and the
participation of the Fund as a part of a group bidding for the
purchase of tax exempt bonds shall not be deemed to result in
participation in a securities trading account.
(b) Purchase securities on margin or make short sales.
(c) 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
9
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.
(d) Invest for the purpose of exercising control over or management of
any company.
(e) Invest more than 15% of its net assets in illiquid securities.
(f) Write put or call options.
(g) No officer or Trustee of the Fund may take a short position in the
shares of the Fund, withhold orders or buy shares in anticipation of
orders.
(h) The Fund may not invest more than 5% of its total assets at time of
purchase in any one securitiy (other than US Government 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 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. dollars, Canadian dollars, euros,
sterling, or yen; (2) traded on a major exchange; and (3) held physically
outside of Russia.
10
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").
- -----------------------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------------
James F. Carlin Trustee 1992 Chairman and CEO, Alpha Analytical 30
Born: 1940 Laboratories (chemical analysis); Part Owner
and Treasurer, Lawrence Carlin Insurance
Agency, Inc. (since 1995); Part Owner and
Vice President, Mone Lawrence Carlin
Insurance Agency, Inc. (since 1996);
Director/Treasurer, Rizzo Associates (until
2000); Chairman and CEO, Carlin
Consolidated, Inc. (management/investments);
Director/Partner, Proctor Carlin & Co., Inc.
(until 1999); Trustee, Massachusetts Health
and Education Tax Exempt Trust; Director of
the following: Uno Restaurant Corp. (until
2001), Arbella Mutual (insurance) (until
2000), HealthPlan Services, Inc. (until
1999), Flagship Healthcare, Inc. (until
1999), Carlin Insurance Agency, Inc. (until
1999), Chairman, Massachusetts Board of
Higher Education (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.
11
- -----------------------------------------------------------------------------------------------------------------------
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 H. Cunningham Trustee 1994 Former Chancellor, University of Texas System 30
Born: 1944 and former President of the University of
Texas, Austin, Texas; Chairman and CEO, IBT
Technologies (until 2001); Director of the
following: The University of Texas Investment
Management Company (until 2000), Hire.com
(since 2000), STC Broadcasting, Inc. and
Sunrise Television Corp. (until 2001), Symtx,
Inc. (since 2001), Adorno/Rogers Technology,
Inc. (since 2001), Pinnacle Foods Corporation
(since 2001), rateGenius (since 2001),
LaQuinta Motor Inns, Inc. (hotel management
company) (until 1998), Jefferson-Pilot
Corporation (diversified life insurance
company), New Century Equity Holdings
(formerly Billing Concepts) (until 2001),
eCertain (until 2001), ClassMap.com (until
2001), Agile Ventures (until 2001), LBJ
Foundation (until 2000), Golfsmith
International, Inc. (until 2000), Metamor
Worldwide (until 2000), AskRed.com (until
2001), Southwest Airlines and Introgen;
Advisory Director, Q Investments; Advisory
Director, Chase Bank (formerly Texas Commerce
Bank - Austin), LIN Television (since 2002) ,
WilTel Communications (since 2002).
- -----------------------------------------------------------------------------------------------------------------------
Ronald R. Dion Trustee 1998 Chairman and Chief Executive Officer, R.M. 30
Born: 1946 Bradley & Co., Inc.; Director, The New England
Council and Massachusetts Roundtable; Trustee,
North Shore Medical Center; Director, BJ's
Wholesale Club, Inc. and a corporator of the
Eastern Bank; Trustee, Emmanuel College.
- -----------------------------------------------------------------------------------------------------------------------
(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.
12
- -----------------------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Charles L. Ladner Trustee 1994 Chairman and Trustee, Dunwoody Village, Inc. 30
Born: 1938 (continuing care retirement community);
Senior Vice President and Chief Financial
Officer, UGI Corporation (Public Utility
Holding Company) (retired 1998); Vice
President and Director for AmeriGas, Inc.
(retired 1998); Director of AmeriGas
Partners, L.P. (until 1997)(gas
distribution); Director, EnergyNorth, Inc.
(until 1995); Director, Parks and History
Association (since 2001).
- -----------------------------------------------------------------------------------------------------------------------
Steven Pruchansky Trustee 1991 Chairman and Chief Executive Officer, Mast 30
Born: 1944 Holdings, Inc. (since 2000); Director and
President, Mast Holdings, Inc. (until 2000);
Managing Director, JonJames, LLC (real
estate)(since 2001); Director, First
Signature Bank & Trust Company (until 1991);
Director, Mast Realty Trust (until 1994);
President, Maxwell Building Corp. (until
1991).
- -----------------------------------------------------------------------------------------------------------------------
Norman H. Smith Trustee 1991 Lieutenant General, United States Marine 30
Born: 1933 Corps; Deputy Chief of Staff for Manpower
and Reserve Affairs, Headquarters Marine
Corps; Commanding General III Marine
Expeditionary Force/3rd Marine Division
(retired 1991).
- -----------------------------------------------------------------------------------------------------------------------
(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.
13
- -----------------------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
John P. Toolan Trustee 1991 Director, The Smith Barney Muni Bond Funds, The 30
Born: 1930 Smith Barney Tax-Free Money Funds, Inc.,
Vantage Money Market Funds (mutual funds), The
Inefficient-Market Fund, Inc. (closed-end
investment company) and Smith Barney Trust
Company of Florida; Chairman, Smith Barney
Trust Company (retired 1991); Director, Smith
Barney, Inc., Mutual Management Company and
Smith Barney Advisers, Inc. (investment
advisers) (retired 1991); Senior Executive Vice
President, Director and member of the Executive
Committee, Smith Barney, Harris Upham & Co.,
Incorporated (investment bankers) (until 1991).
- -----------------------------------------------------------------------------------------------------------------------
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, Insurance Agency, Inc.
(until 1999) and John Hancock Signature
Services, Inc.("Signature Services") (until
1997).
- -----------------------------------------------------------------------------------------------------------------------
(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.
14
- -----------------------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
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, Inc.; Senior Vice
President, MassMutual Insurance Co. (until
1999).
- -----------------------------------------------------------------------------------------------------------------------
Principal Officers who
are not Trustees
- -----------------------------------------------------------------------------------------------------------------------
William L. Braman Executive 2000 Executive Vice President and Chief Investment N/A
Born: 1953 Vice Officer, the Adviser and each of the John
President Hancock funds; Director, SAMCorp., Executive
and Chief Vice President and Chief Investment Officer,
Investment Baring Asset Management, London U.K. (until
Officer 2000).
- -----------------------------------------------------------------------------------------------------------------------
Richard A. Brown Senior Vice 2000 Senior Vice President, Chief Financial Officer N/A
Born: 1949 President and Treasurer, the Adviser, John Hancock Funds,
and Chief and The Berkeley Group; Second Vice President
Financial and Senior Associate Controller, Corporate Tax
Officer 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 funds;
and Vice President, John Hancock Funds.
Compliance
Officer
- -----------------------------------------------------------------------------------------------------------------------
(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.
15
- -----------------------------------------------------------------------------------------------------------------------
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 H. King Vice 1992 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 1991 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.
The Fund's Board of Trustees currently has four standing Committees: the Audit
Committee, the Administration Committee, the Contracts/Operations Committee and
the Investment Performance Committee. Each Committee is comprised of Independent
Trustees. The Audit Committee members are Messrs. Ladner, Moore, Toolan and Ms.
Peterson. 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
December 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 al Trustees on the selection and
election of officers of the Fund and reviews Trustee compensation, evaluates
Trustee performance and considers committee membership rotations as well as
relevant corporate governance issues. The Administration Committee held four
meetings during the fiscal year ended December 31, 2002.
The Contracts/Operations Committee members are Messrs. Carlin and Pruchansky.
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
December 31, 2002.
16
The Investment Performance Committee consists of Messrs. Dion and Cunningham.
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 December 31, 2002.
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.
- -------------------------------------------------------------------------------------------------------------
Aggregate Dollar Range of
Dollar Range of Fund shares Owned holdings in John Hancock funds
Name of Trustee by Trustee (1) overseen by Trustee (1)
- -------------------------------------------------------------------------------------------------------------
Independent Trustees
- -------------------------------------------------------------------------------------------------------------
James F. Carlin $1-$10,000 $10,001-$50,000
- -------------------------------------------------------------------------------------------------------------
William H. Cunningham None $10,001-$50,000
- -------------------------------------------------------------------------------------------------------------
Ronald R. Dion $1-$10,000 Over $100,000
- -------------------------------------------------------------------------------------------------------------
Charles L. Ladner $10,001-$50,000 Over $100,000
- -------------------------------------------------------------------------------------------------------------
Steven R. Pruchansky $1-$10,000 Over $100,000
- -------------------------------------------------------------------------------------------------------------
Norman H. Smith $50,001-$100,000 Over $100,000
- -------------------------------------------------------------------------------------------------------------
John P. Toolan None $50,001-$100,000
- -------------------------------------------------------------------------------------------------------------
Interested Trustees
- -------------------------------------------------------------------------------------------------------------
John M. DeCiccio None Over $100,000
- -------------------------------------------------------------------------------------------------------------
Maureen R. Ford $1-$10,000 Over $100,000
- -------------------------------------------------------------------------------------------------------------
(1) This Fund does participate in the John Hancock Deferred
Compensation Plan for Independent Trustees (the "Plan"). Under the
Plan, an Independent Trustee may defer his fees by electing to have
the Adviser invest his fees in one of the funds in the John Hancock
complex that participates in the Plan. Under these circumstances, the
Trustee is not the legal owner of the underlying shares, but does
participate in any positive or negative return on those shares to the
same extent as all other shareholders. With regard to Trustees
participating in the Plan, if a Trustee was 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 as follows: over $100,000
and over $100,000 for Mr. Cunningham, over $100,000 and over $100,000
for Mr. Dion, $10,001-$50,000 and over $100,000 for Mr. Pruchansky,
$50,001-$100,000 and over $100,000 for Mr. Smith, over $100,000 and
over $100,000 for Mr. Toolan.
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, and/or affiliates are compensated by the Adviser and
receive no compensation from the Fund for their services.
17
Aggregate Total Compensation from all
Compensation Funds in John Hancock Fund
Trustees From the Fund(1) Complex to Trustees (2)
- -------- ---------------- -----------------------
James F. Carlin $11,822 $ 75,000
William H. Cunningham* 11,838 75,100
Ronald R. Dion* 11,822 75,000
Charles L. Ladner 11,357 72,000
Steven R. Pruchansky* 11,373 72,100
Norman H. Smith* 12,290 78,000
John P. Toolan* 11,357 72,000
------- --------
Total $81,859 $519,200
(1) Compensation is for fiscal period ended December 31, 2002.
(2) Total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is for the calendar year ended December 31,
2002. As of that date, there were sixty-one funds in the John
Hancock Fund Complex, with each of these Independent Trustees
serving on thirty funds.
(*) As of December 31, 2002 the value of the aggregate accrued deferred
compensation from all Funds in the John Hancock fund complex for Mr.
Cunningham was $428,963, for Mr. Dion was $122,717, for Mr.
Pruchansky was $95,779, for Mr. Smith was $204,328 and for Mr.
Toolan was $517,774 under the John Hancock Deferred Compensation
Plan for Independent Trustees (the "Plan").
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 other funds for which the
Adviser serves as investment adviser.
The officers and Trustees of the Fund as a group beneficially owned less than 1%
of the outstanding shares of the Fund and no shareholders of record beneficially
owned 5% or more of the outstanding Class I shares of the Fund.
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
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 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.
18
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, prospectus, 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 of the daily
net assets of the Fund as follows:
Average Daily Net Assets Annual Rates
- ------------------------ ------------
$0 to $750 million 0.60%
Next $750 million to 1.5 billion 0.55%
Next $1.5 billion to 2.5. billion 0.50%
Amount over $2.5 billion and over 0.45%
From time to time, the Adviser may reduce its fee or make other arrangements to
limit the Fund's expenses to a specified percentage of average daily net assets.
The Adviser retains the right to re-impose 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 December 31, 2000, 2001 and 2002, the Fund paid the
Adviser fees of $12,377,727, $10,647,323 and $8,703,622, respectively.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser or affiliates provide investment advice.
Because of different investment objectives or other factors, a particular
security may be bought for one or more funds or clients when one or more are
selling the same security. If opportunities for purchase or sale of securities
by the Adviser for the Fund or for other funds or clients for which the Adviser
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 or
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 the Advisory Agreement, the Adviser is 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 Advisory Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Adviser in the performance of its duties or from reckless disregard of the
obligations and duties under the Advisory 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 non-exclusive
19
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 determining whether to approve and renew the
Fund's 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. 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; (2) the investment performance of the Fund's assets managed by the
adviser; (3) the fair market value of the services provided by the adviser; (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 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 were as follows:
o The Board determined that the performance results of the Fund and the
Adviser's responsive actions were reasonable, as compared with relevant
performance standards, including the performance results of comparable
equity income 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'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
agreement with the Adviser.
The continuation of the Advisory Agreement and Distribution Agreement (discussed
below) was approved by all of the Trustees. The 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. Both Agreements may be terminated on 60 days
written notice by either party or by a 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
20
Fund with certain tax, accounting and legal services. For the fiscal years ended
December 31, 2000, 2001 and 2002, the Fund paid the Adviser $422,449, $387,253
and $439,523, respectively for the 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) and
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 Fund. Shares of the Fund are also sold by selected broker-dealers
(the "Selling Brokers") which 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 Funds
which are continually offered at net asset value next determined.
SALES COMPENSATION
As part of its business strategy, John Hancock Funds may 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.
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.
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.
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.
21
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 a Fund's NAV is not calculated.
Consequently, the Fund's portfolio securities may trade and the NAV of the
Fund's redeemable securities may be significantly affected on days when a
shareholder has no access to the Fund.
SPECIAL REDEMPTIONS
Although 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.
Investors may exchange between institutional funds and Class I shares.
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".
22
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 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 four other series. 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. Class A, Class B and Class C shares are discussed in a separate
Statement of Additional Information.
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
Class A, Class B and Class C shares have certain exclusive voting rights on
matters relating to their respective distribution plans. The different classes
of the Fund may bear different expenses relating to the cost of holding
shareholder meetings necessitated by the exclusive voting rights of any class of
shares.
Dividends paid by the Fund, if any, with respect to each class of shares will be
calculated in the same manner, at the same time and on the same day and will be
in the same amount, except for differences resulting from the facts that (i) the
distribution and service fees relating to Class A, Class B and Class C 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 class expenses properly allocable to that class of
shares, subject to the conditions the Internal Revenue Service imposes with
respect to the 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 a request for a special meeting of shareholders.
However, at
23
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 Declaration of Trust contains an express disclaimer
of shareholder liability for acts, obligations and 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 Funds. 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.
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 taxable income
(including net realized capital gains) 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 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
24
net long-term capital gain over net short-term capital loss, and investment
company taxable income is all taxable income and capital gains, other than those
gains and losses included in computing net capital gain, after reduction by
deductible expenses.). 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.
The amount of net realized capital gains, if any, in any given year will result
from sales of securities made with a view to the maintenance of a portfolio
believed by the Fund's management to be most likely to attain the Fund's
objective. Such sales, and any resulting gains or losses, may therefore vary
considerably from year to year. At the time of an investor's purchase of shares
of the Fund, a portion of the purchase price is often attributable to realized
or unrealized appreciation in the Fund's portfolio. Consequently, subsequent
distributions on these 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.
If the Fund invests in stock (including an option to acquire stock 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 such
companies or gain from the sale of stock in such companies, even if all income
or gain actually received by the Fund is timely distributed to its shareholders.
These investments could also result in the treatment of associated capital gains
as ordinary income. 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.
The Fund may limit and/or manage its holdings in passive foreign investment
companies or make an available election to minimize its tax liability or
maximize its return from these investments.
The Fund may be subject to foreign taxes on its income from investments in
certain foreign securities, if any. Some tax conventions between certain
countries and the U.S. may reduce or eliminate such taxes. Because more than 50%
of the Fund's assets at the close of any taxable year will generally not consist
of stocks or securities of foreign corporations, the Fund will generally be
unable to pass such taxes through to shareholders, who will therefore generally
not be entitled to any foreign tax credit or deduction with respect to their
investment in the Fund. The Fund will deduct the foreign taxes it pays in
determining the amount it has available for distribution to shareholders.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
foreign currencies, or payable or receivables denominated in 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.
25
Certain of these transactions may cause the Fund to recognize gains or losses
from marking to market even though its positions have not been sold or
terminated and affect the character as long-term or short-term and timing of
some capital gains and losses realized by the Fund. Additionally, certain of the
Fund's losses on its transactions involving options and any offsetting or
successor portfolio positions may be deferred rather than being taking 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 in order to minimize any potential
adverse tax consequences.
Upon a redemption 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 and will be long-term or short-term, depending upon the
shareholder's tax holding period for the shares and subject to the special rules
described below. A sales charge paid in purchasing 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 reinvestment. 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 the 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
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 share of these taxes.
For Federal income tax purposes, the Fund is permitted to carry forward a net
capital loss in any year to offset net capital gains, if any, during the eight
years following the year of the loss. To the extent subsequent net capital gains
are offset by such losses, they would not result in Federal income tax liability
to the Fund and as noted above would not be distributed as such to shareholders.
The Fund has a $89,791,390 capital loss carryforward available, to the extent
provided by regulations, to offset future net realized capital gains. The
entire carryforward expires on December 31, 2010.
26
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 the stock of such corporations held by the Fund, for U.S. Federal
income tax purposes, for at least 46 days (91 days in the case of certain
preferred stock) during a prescribed period extending before and after each
dividend and distributed and properly designated by the Fund may be treated a
qualifying dividends. Corporate shareholders must meet the minimum holding
period requirement stated above (46 or 91 days) with respect to their shares of
the Fund 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 the excess (if any) of a corporate shareholder's adjusted current
earnings over its alternative minimum taxable income, which may increase its
alternative minimum tax liability, 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, for the
purpose of computing its gain or loss on redemption or other disposition of the
shares.
The Fund is required to accrue income on any debt securities that have more than
a de minimus amount of original issue discount (or debt securities acquired at a
market discount, if the Fund elects to include market discount in income
currently) prior to the receipt of the corresponding cash payments. The mark to
market rules applicable to certain options and futures contracts may also
require the Fund to recognize gain within a concurrent receipt of cash. However,
the Fund must distribute to shareholders for each taxable year substantially all
of its net income and net capital gains, including such income or liability for
any federal income or excise tax. Therefore, the Fund may have to dispose of its
portfolio securities under disadvantageous circumstances to generate cash, or
may have to leverage itself by borrowing the cash, to satisfy these distribution
requirements.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent (if any) the Fund's distributions
are derived from interest on (or, in the case of intangible taxes, the value of
its assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. The Fund will not seek to satisfy any
threshold or reporting requirements that may apply in particular taxing
jurisdictions, although 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 the 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.
27
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.
Investments in debt obligations that are at risk of or in default may present
special tax issues for the Fund. Tax rules are not entirely clear about issues
such as when the Fund may cease to accrue interest, original issue discount, or
market discount; when and to what extent deductions may be taken for bad debts
or worthless securities; how payments received on obligations in default should
be allocated between principal and income; and whether exchanges of debt
obligations in a workout context are taxable. These and other issues will be
addressed by the Fund, in the event it invests in such securities, in order to
reduce the risk of distributing insufficient income to preserve its status as a
regulated investment company and seek to avoid becoming subject to Federal
income or excise tax.
The foregoing discussion relates solely to U.S. Federal income tax laws
applicable to the 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 shares of the
Fund may also be subject to state and local taxes. The foregoing discussion
related to U.S. investors that are not exempt from U.S. Federal income tax.
Different tax consequences will apply to plan participants, tax-exempt investors
and investors that are subject to tax deferral. You should consult your tax
adviser for specific advice. Under the Code, a tax-exempt investor in the Fund
will not generally recognize unrelated business taxable income from its
investment in the Fund unless the tax-exempt investor incurred indebtedness to
acquire or continue to hold Fund shares and such indebtedness remains unpaid.
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 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 not be required to pay Massachusetts
income taxes.
CALCULATION OF PERFORMANCE
Because Class I shares are new, there is no performance to report. Class A
performance is currently disclosed in the Fund's prospectus for Class I shares.
As of December 31, 2002, the average annual total returns before taxes of the
Class A shares of the Fund for the one, five and ten year periods were -22.76%,
- -1.55% and 6.53%, respectively.
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
28
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
or 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 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 = ending value of a hypothetical $1,000 payment made at
D the 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 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 = ending value of a hypothetical $1,000 payment made at
DR the beginning of the 1-year, 5-year or 10-year
periods (or fractional portion), after taxes on fund
distributions and redemption.
29
Because each class has its own sales charge and fee structure, the classes have
different performance results. In the case of each class shares, these
calculations assume the maximum sales charge is included in the initial
investment or the CDSC applied at the end of the period. 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
into account. Excluding the Fund's sales charge on Class A shares from a total
return calculation produces a higher total return figure.
The Fund may advertise yield, where appropriate. The Fund's yield is computed by
dividing net investment income per share determined for a 30-day period by the
maximum offering price per share (which includes the full sales charge) on the
last day of the period, according to the following standard formula:
a - b 6
Yield = 2([(-----)+1] -1)
cd
Where:
a = dividends and interest earned during the period.
b = net expenses accrued during the period.
c = the average daily number of fund shares outstanding during the period that
would be entitled to receive dividends.
d = the maximum offering price per share on the last day of the period (NAV
where applicable).
From time to time, in reports and promotional literature, the Fund's yield/total
return will be compared to indices of mutual funds and bank deposit vehicles
such as Lipper Analytical Services, Inc.'s "Lipper -- Growth and Income Fund
Performance Analysis," a monthly publication which tracks mutual fund net
assets, total return, and yield. Comparisons may also be made to bank
certificates of deposit ("CDs"), which differ from mutual funds, such as the
Fund, in several ways. The interest rate established by the sponsoring bank is
fixed for the term of a CD, there are penalties for early withdrawal from CDs,
and the principal on a CD is insured.
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, BARRON'S and IBBOTSON
ASSOCIATES will also be utilized as well as the Russell and Wilshire indices.
The Fund may also cite Morningstar Mutual Values, an independent mutual fund
information service which ranks mutual funds. 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
30
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; 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 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 may consider sales of
shares of the Fund as a factor in the selection of broker-dealers to execute the
Fund's portfolio transactions. To the extent consistent with the foregoing, the
Fund will be governed in the selection of brokers and dealers, and the
negotiation of brokerage commission rates and dealer spreads, by the reliability
and quality of the services, including primarily the availability and value of
research information and, to a lesser extent, statistical assistance furnished
to the Adviser of the Fund.
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 December 31,
2002, the Fund paid $201,275 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 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
31
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 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 since the
broker-dealers used by the Adviser tend to follow a broader universe of
securities and other matters than the Adviser's staff can follow. In addition,
the research provides the Adviser with a diverse perspective on financial
markets. Research services provided to the Adviser by broker-dealers are
available for the benefit of all accounts managed or advised by the Adviser 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 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 believes that the research services are beneficial in supplementing
the Adviser's research and analysis and that they improve the quality of the
Adviser'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. 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. However, to the extent that the Adviser would have
purchased research services had they not been provided by broker-dealers, the
expenses to the Adviser 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,
and conversely, brokerage commissions and spreads paid by other advisory clients
of the Adviser may result in research information and statistical assistance
beneficial to the Fund. The Fund will make no commitment to allocate portfolio
transactions upon any prescribed basis.
While the Adviser will be primarily responsible for its allocation of the Fund's
brokerage business, the policies and practices of the Adviser 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 Deember 31, 2000, 2001 and 2002, the
Fund paid negotiated brokerage commissions of $2,192,992, $1,808,600 and
$1,586,271, respectively.
The Adviser 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 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 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
32
("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, or the
Affiliated Broker. Because the Adviser 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.
Other investment advisory clients advised by the Adviser may also invest in the
same securities as the Fund. When these clients buy or sell the same securities
at substantially the same time, the Adviser may average the transactions as to
price and allocate the amount of available investments in a manner which the
Adviser believes to be equitable to each client, including the Fund. 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
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 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., John Hancock Way, Suite 1001, Boston, MA
02217-1001, a wholly-owned indirect subsidiary of the Life Company is the
transfer and dividend paying agent for each Fund. The Fund pays Signature
Services monthly a fee which is based on an annual rate of 0.05% of its average
daily net assets attributable to Class I shares plus certain out-of-pocket
expenses.
33
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 Deloitte & Touche LLP, 200 Berkeley
Street, Boston, Massachusetts 02116. Deloitte & Touche LLP audits and renders
opinions on the Fund's annual financial statements and reviews the Fund's annual
Federal income tax returns.
Until December 31, 2002, the independent auditors of the Fund were Ernst & Young
LLP, 200 Clarendon Street, Boston, Massachusetts 02116. The financial statements
of the Fund, incorporated by reference in the Prospectus and this Statement of
Additional Information, have been audited by Ernst & Young LLP for the periods
indicated in their report with respect to those financial statements and are
included in reliance upon the authority of Ernst & Young, LLP as experts in
accounting and auditing.
34
APPENDIX-A
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's principal 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 Objectives 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 total 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, financial
futures and options; securities and index options, currency contracts).
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. Borrowing; reverse repurchase agreements, repurchase
agreements, securities lending, non-investment-grade debt securities, financial
futures and options; securities and index options).
Currency risk The risk that fluctuations in the exchange rates between the U.S.
dollar and foreign currencies may negatively affect an investment. (e.g. Foreign
securities, financial futures and options; securities and index options,
currency contracts).
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.
Information risk The risk that key information about a security or market is
inaccurate or unavailable. (e.g. non-investment-grade debt securities, foreign
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.
Non investment-grade debt securities, financial futures and options; securities
and index options).
Leverage risk Associated with securities or practices (such as borrowing) that
multiply small index or market movements into large changes in value. (e.g.
Borrowing; reverse repurchase agreements, short-sales, when-issued securities
and forward commitments; financial futures and options; securities and index
options, currency contracts).
A-1
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. (e.g. short sales,
non-investment-grade debt securities; restricted and illiquid securities,
financial futures and options; securities and index options, currency
contracts).
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. 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, non-investment-grade securities,
foreign securities, financial futures and options; securities and index options,
restricted and illiquid securities).
Natural event risk The risk of losses attributable to natural disasters, crop
failures and similar events. (e.g. Foreign securities).
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,
financial futures and options; securities and index options, currency
contracts).
Political risk The risk of losses directly attributable to government or
political actions of any sort. (e.g. Foreign securities)
Prepayment risk The risk that unanticipated prepayments may occur during periods
of falling interest rates, reducing the value of mortgage-backed 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).
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.
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
B-2
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 December 31, 2002; (filed
electronically on February 24, 2003, accession number 0000928816-03-000128) and
are included in and incorporated by reference into Part B of the Registration
Statement for John Hancock Sovereign Investors Fund (file nos. 811-00560 and
2-10156).
John Hancock Investment Trust
John Hancock Sovereign Investors Fund
Statement of Assets and Liabilities as of December 31, 2002.
Statement of Operations for the year ended December 31, 2002.
Statement of Changes in Net Assets for each of the two years in the period
ended December 31, 2002.
Notes to Financial Statements.
Financial Highlights for each of the five years in the period ended
December 31, 2002.
Schedule of Investments as of December 31, 2002.
Report of Independent Auditors.
F-1
JOHN HANCOCK
- --------------------------------------------------------------------------------
Prospectus 3.1.03 Large Cap Spectrum Fund
as revised 10.1.03
670PN 9/03
Draft 8/20/03
[LOGO](R)
- ------------------
JOHN HANCOCK FUNDS
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved this fund or determined whether the information in this
prospectus is adequate and accurate. Anyone who indicates otherwise is
committing a federal crime.
Contents
- --------------------------------------------------------------------------------
A summary of the fund's Large Cap Spectrum Fund 4
goals, strategies, risks,
performance and expenses.
Policies and instructions for Your account
opening, maintaining and
closing an account. Choosing a share class 6
How sales charges are calculated 6
Sales charge reductions and waivers 7
Opening an account 8
Buying shares 9
Selling shares 10
Transaction policies 12
Dividends and account policies 12
Additional investor services 13
Further information on the Fund details
fund.
Business structure 14
Financial highlights 15
For more information back cover
3
Large Cap Spectrum 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
large-capitalization companies (companies in the capitalization range of the
Standard & Poor's 500 Index, which was $284.90 million to $384.70 billion on
July 31, 2003). The fund is non-diversified and may invest up to 10% of assets
in securities of individual companies.
The fund's assets will be managed according to three separate investment
strategies -- growth, core and value. The fund's assets will be allocated to
reflect an optimal combination as determined by the adviser's: (1) assessment of
the three strategies' historical risk, return and correlation; and (2) long-term
strategic view of the relative attractiveness of the three strategies.
In managing the growth portion of the portfolio, the managers seek to identify
companies with above-average earnings growth prospects that are not fully
reflected in current market valuations. They emphasize stock selection, relying
heavily upon the fundamental analysis and research of their internal research
staff. They favor companies with strong management, superior industry positions
and excellent balance sheets.
In managing the core portion of the portfolio, the managers look for companies
that are undervalued and/or offer the potential for above-average earnings
growth. The managers employ a combination of proprietary financial models and
bottom-up, fundamental financial research to identify companies that are selling
at what appear to be substantial discounts to their longterm intrinsic value.
These companies often have identifiable catalysts for growth, such as new
products, business reorganizations or mergers.
The managers of the value portion of the fund look for companies that they
believe are undervalued. They employ a fundamental value approach, focusing on
the relationship between a security's current price and its intrinsic economic
value, as measured by earnings power and dividend paying capability.
The fund may invest up to 20% of assets in foreign securities. The fund may also
make limited use of 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 shortterm securities, cash and cash equivalents. In
these and other cases, the fund might not achieve its goal.
================================================================================
PAST PERFORMANCE
[Clip Art] This section normally shows how the fund's total return has varied
from year to year, along with a broad-based market index for reference. Because
the fund has existed for less than a full calendar year, there is no past
performance to report.
4
MAIN RISKS
[Clip Art] The value of your investment will fluctuate in response to stock
market movements.
The fund's management strategy has a significant influence on fund performance.
Large-capitalization stocks as a group could fall out of favor with the market,
causing the fund to underperform investments that focus on small- or
medium-capitalization stocks. In addition, if the managers' securities selection
strategies or the adviser's asset allocation strategy 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 Certain derivatives could produce disproportionate losses.
o In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price.
o Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political instability.
o If the fund invests heavily in a single issuer, its performance could
suffer significantly from adverse events affecting that issuer.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable distributions.
Investments in the fund are not bank deposits and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency. You
could lose money by investing in this fund.
================================================================================
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 0.85% 0.85% 0.85%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 1.25% 1.25% 1.25%
Total fund operating expenses 2.40% 3.10% 3.10%
Expense reimbursement (at least until 2-28-04) 0.90% 0.90% 0.90%
Net annual operating expenses 1.50% 2.20% 2.20%
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 $645 $1,129 1,639 3,034
Class B with redemption $723 $1,173 1,747 3,185
Class B without redemption $223 $873 1,547 3,185
Class C with redemption $420 $964 1,632 3,415
Class C without redemption $321 $964 1,632 3,415
(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."
================================================================================
ADVISER
John Hancock Advisers, LLC
Team responsible for core portion of the fund
SUBADVISER
Alliance Capital Management, L.P.
Team responsible for growth portion of the fund
Founded in 1971
Supervised by the adviser
Bernstein Investment Research &
Management Unit
A unit of Alliance Capital Management, L.P.
Team responsible for value portion of the fund
Supervised by the adviser
FUND CODES
Class A Ticker JLSAX
CUSIP 41014V406
Newspaper --
SEC number 811-4079
JH fund number 67
Class B Ticker JLSBX
CUSIP 41014V505
Newspaper --
SEC number 811-4079
JH fund number 167
Class C Ticker JLSCX
CUSIP 41014V604
Newspaper --
SEC number 811-4079
JH fund number 567
5
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 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.
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 - $499,000 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.
6 YOUR ACCOUNT
The CDSC is based on the lesser of the original purchase cost or the current
market value of the shares being sold, and is not charged on shares you acquired
by reinvesting your dividends. To keep your CDSC as low as possible, each time
you place a request to sell shares we will first sell any shares in your account
that are not subject to a CDSC.
Class B Shares are offered at their net asset value per share, without any
initial sales charge.
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
- --------------------------------------------------------------------------------
Years after purchase CDSC on shares being sold
1st year 5.00%
2nd year 4.00%
3rd 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
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 the 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 7
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.
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.
8 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, payable to investment amount payable to
"John Hancock Signature "John Hancock Signature
Services, Inc." Services, Inc."
o Deliver the check and your o Fill out the detachable
completed application to your investment slip from an
financial representative, or account statement. If no slip
mail them to Signature is available, include a note
Services (address below). specifying 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 to
representative or Signature process exchanges between
Services to request an funds.
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 wire the
application to your financial amount of your investment to:
representative, or mail it to First Signature Bank & Trust
Signature Services. Account # 900000260
o Obtain your account number by Routing # 211475000
calling your financial Specify the fund name, your share
representative or Signature class, your account number and
Services. the name(s) in which the account
o Instruct your bank to wire the is registered. Your bank may
amount of your investment to: charge a fee to wire funds.
First Signature Bank & Trust
Account # 900000260
Routing # 211475000
Specify the fund name, your
choice of share class, the new
account number and the name(s) in
which the account is registered.
Your bank may charge a fee to
wire funds.
By Internet
[Clip Art] See "By exchange" and "By wire." o Verify that your bank or
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 wire." o Verify that your bank or
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.
To open or add to an account using the Monthly Automatic Accumulation Program,
see "Additional investor services."
- --------------------------------------------------------------------------------
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 9
- --------------------------------------------------------------------------------
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 instruction or
o Sales of any amount. 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 to
o Sales of up to $100,000. initiate redemptions from your
funds.
By phone
[Clip Art] o Most accounts. o Call EASI-Line for automated
o Sales of up to $100,000. 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 sell o To verify that the Internet or
any amount. telephone redemption privilege
o Requests by Internet or is in place on an account, or to
phone to sell up to $100,000. 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 prospectus for
o Sales of any amount. 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."
10 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 or o Letter of instruction.
UGMA/UTMA accounts (custodial accounts o On the letter, the signatures and
for minors). titles 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 or o Corporate business/organization
association accounts. 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 accounts. o Letter of instruction.
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 rights o Letter of instruction signed by
of survivorship whose co-tenants are surviving tenant.
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 account instructions.
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 11
- --------------------------------------------------------------------------------
TRANSACTION POLICIES
Valuation of shares The net asset value (NAV) per share for each class of the
fund is determined each business day at the close of regular trading on the New
York Stock Exchange (typically 4 P.M. Eastern Time). The fund uses market prices
in valuing portfolio securities, but may use fair-value estimates if reliable
market prices are unavailable. The fund 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 fund may trade on U.S. holidays and weekends, even though
the fund's shares will not be priced on those days. This may change the 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 The 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, the 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, the 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. The fund may also refuse any exchange
order. The 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 fund does not issue share certificates. Shares are
electronically recorded.
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 fund generally distributes most or all of its net earnings
annually in the form of dividends. The fund declares and pays 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 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
12 YOUR ACCOUNT
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 the fund's
long-term capital gains are taxable as capital gains; dividends from the fund's
income and short-term capital gains are generally taxable as ordinary income.
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.
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 13
Fund details
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
The diagram below shows the basic business structure used by the fund. The
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 have the power to change the fund's investment goal without
shareholder approval.
The trustees of the 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.
The management firm The fund is 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 June 30, 2003, managed approximately $27
billion in assets.
Subadvisers Alliance Capital Management L.P. ("Alliance") subadvises Large Cap
Spectrum Fund with respect to the fund's growth and value investment strategies.
Alliance was founded in 1971 and provides investment advisory services to
individual and institutional investors. As of December 31, 2002, Alliance had
total assets under management in excess of $387 billion.
Management fee For the fiscal year ended December 31, 2002, the fund paid the
investment adviser a management fee at an annual rate of 0.00% of the fund's
average daily net assets, after expense reimbursement.
-----------------------------------
Shareholders
-----------------------------------
-----------------------------------
Distribution and Financial services firms and their
shareholder services representatives
Advise current and prospective
shareholders on their fund
investments, often in the context
of an overall financial plan.
-----------------------------------
-----------------------------------
Principal distributor
John Hancock Funds, LLC
Markets the fund and distributes
shares through selling brokers,
financial planners and other
financial representatives.
-----------------------------------
-----------------------------------
Transfer agent
John Hancock Signature Services,
Inc.
Handles shareholder services,
including recordkeeping and
statements, distribution of
dividends and processing of buy and
sell requests.
-----------------------------------
-----------------------------------
Subadviser Asset
management
Alliance Capital Management, L.P.
1345 Avenue of the Americas
New York, NY 10105
Provides portfolio management to
the fund.
-----------------------------------
-----------------------------------
Investment adviser
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, MA 02199-7603
Manages the fund's business and
investment activities.
-----------------------------------
-----------------------------------
Custodian
The Bank of New York
One Wall Street
New York, New York 10286
Holds the fund's assets, settles
all portfolio trades and collects
most of the valuation data required
for calculating the fund's NAV.
-----------------------------------
-----------------------------------
Trustees
Oversee the fund's activities.
-----------------------------------
14 FUND DETAILS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
These tables detail the performance of the fund's share classes, including total
return information showing how much an investment in the fund has increased or
decreased each year.
Figures audited by PricewaterhouseCoopers LLP.
Unaudited
---------
CLASS A SHARES PERIOD ENDED: 10-31-02(1) 4-30-03(2)
- ---------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.00 $7.67
Net investment loss(3) --(4) 0.01
Net realized and unrealized loss on investments (2.33) 0.16
Total from investment operations (2.33) 0.17
Net asset value, end of period $7.67 $7.84
Total return(5),(6)(%) (23.30)(7) 2.22(7)
- ---------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------
Net assets, end of period(in millions) $6 $5
Ratio of expenses to average net assets(%) 1.50(8) 1.50(8)
Ratio of adjusted expenses to average net assets(9)(%) 2.40(8) 2.32(8)
Ratio of net investment loss to average net assets(%) --(8) 0.24(8)
Portfolio turnover(%) 70 40
CLASS B SHARES PERIOD ENDED: 10-31-02(1) 4-30-03(2)
- ---------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.00 $7.64
Net investment loss(3) (0.04) (0.02)
Net realized and unrealized loss on investments (2.32) 0.16
Total from investment operations (2.36) 0.14
Net asset value, end of period $7.64 $7.78
Total return(5),(6)(%) (23.60)(7) 1.83(7)
- ---------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------
Net assets, end of period(in millions) $8 $7
Ratio of expenses to average net assets(%) 2.20(8) 2.20(8)
Ratio of adjusted expenses to average net assets(9)(%) 3.10(8) 3.02(8)
Ratio of net investment loss to average net assets(%) (0.69)(8) (0.45)(8)
Portfolio turnover(%) 70 40
CLASS C SHARES PERIOD ENDED: 10-31-02(1) 4-30-03(2)
- ---------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.00 $7.64
Net investment loss(3) (0.04) (0.02)
Net realized and unrealized loss on investments (2.32) 0.16
Total from investment operations (2.36) 0.14
Net asset value, end of period $7.64 $7.78
Total return(5),(6)(%) (23.60)(7) 1.83(7)
- ---------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------
Net assets, end of period(in millions) $6 $5
Ratio of expenses to average net assets(%) 2.20(8) 2.20(8)
Ratio of adjusted expenses to average net assets(9)(%) 3.10(8) 3.02(8)
Ratio of net investment loss to average net assets(%) (0.69)(8) (0.46)(8)
Portfolio turnover(%) 70 40
(1) Class A, Class B and Class C shares began operations on 2-25-02.
(2) Semiannual period from 11-1-02 through 4-30-03. Unaudited.
(3) Based on the average of the shares outstanding.
(4) Less than $0.01 per share.
(5) Assumes dividend reinvestment and does not reflect the effect of sales
charges
(6) Total returns would have been lower had certain expenses not been reduced
during the periods shown.
(7) Not annualized.
(8) Annualized.
(9) Does not take into consideration expense reductions during the periods
shown.
================================================================================
The following returns are not audited and are not part of the audited financial
highlights presented above:
Without the expense reductions, returns for Class A, Class B and Class C for the
period ended October 31, 2002, would have been (23.91%), (24.21%) and (24.21%),
respectively.
FUND DETAILS 15
For more information
Two documents are available that offer further information on the John Hancock
Large Cap Spectrum Fund:
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 fund. 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 670PN 9/03
[LOGO](R)
John Hancock Funds, LLC
MEMBER NASD
101 Huntington Avenue
Boston, MA 02199-7603
www.jhfunds.com
Sign up for electronic delivery at www.jhancock.com/funds/edelivery
JOHN HANCOCK
Prospectus 7.1.03 Institutional funds
Dividend Performers Fund
Independence Diversified Core Equity Fund II
[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 Dividend Performers Fund 4
of goals, strategies, risks,
performance and expenses. Independence Diversified Core
Equity Fund II 6
Policies and instructions for Your account
opening, maintaining and
closing an account in any Who can buy shares 8
institutional fund. Opening an account 8
Buying shares 9
Selling shares 10
Transaction policies 12
Dividends and account policies 12
Further information on the Fund Details
institutional funds.
Business structure 13
Financial highlights 14
For more information back cover
Overview
- --------------------------------------------------------------------------------
JOHN HANCOCK INSTITUTIONAL FUNDS
These funds offer clearly defined investment strategies, each focusing on a
particular market segment and following a disciplined investment process.
Blended together or selected individually, these funds are designed to meet the
needs of investors seeking risk-managed investment strategies from seasoned
professional portfolio managers.
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 institutional 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 March 31, 2003 managed approximately
$26 billion in assets.
FUND INFORMATION KEY
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 annual expenses.
3
Dividend Performers Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long-term growth of capital with income as a secondary
objective. To pursue this goal, the fund normally invests at least 80% of its
assets in a diversified portfolio of U.S. stocks with market capitalizations
within the range of the Standard & Poor's 500 Index. On May 31, 2003, that range
was $387 million to $285.6 billion.
The managers normally invest at least 80% of assets in "dividend performers."
These are dividend-paying companies that have typically increased their dividend
payments over time, or which the managers believe demonstrate the potential to
increase their dividend payments.
In managing the portfolio, the managers use fundamental financial analysis to
identify individual companies with high-quality income statements, substantial
cash reserves and identifiable catalysts for growth, which may be new products
or benefits from industry-wide growth. The managers generally visit companies to
evaluate the strength and consistency of their management strategy. Finally, the
managers look for stocks that are reasonably priced relative to their earnings
and industry. Historically, companies that meet these criteria have tended to
have large market capitalizations.
The fund may not invest more than 5% of assets, at time of purchase, in any one
security. The fund typically invests in U.S. companies but may invest in
American Depositary Receipts. It may also make limited use of certain
derivatives (investments whose value is based on indexes).
Under normal conditions, the fund may not invest more than 10% of assets in cash
or cash equivalents.
In abnormal conditions, the fund may temporarily invest in U.S. government
securities with maturities of up to three years and more than 10% of assets in
cash or cash equivalents. 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. All figures assume dividend reinvestment. Past performance
before and after taxes does not indicate future results.
Total returns
2003 total return as of 3-31-03: -3.16%
Best quarter: Q4 '98, 20.75%
Worst quarter: Q3 '02, -17.51%
After-tax returns
After-tax returns 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)
Standard & Poor's 500 Index, an unmanaged index of 500 stocks.
[The following was represented as a bar chart in the printed material.]
- --------------------------------------------------------------------------------
Calendar year total returns
- --------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001 2002
18.56% 34.33% 17.95% 13.38% -0.62% -9.86% -24.66%
- --------------------------------------------------------------------------------
Average annual total returns for periods ending 12-31-02
- --------------------------------------------------------------------------------
1 year 5 year Life of
Fund
Fund before tax (began 3-30-95) -24.66% -2.03% 7.08%
Fund after tax on distributions -24.95% -4.90% 4.42%
Fund after tax on distributions, with sale -15.13% -1.20% 5.91%
- --------------------------------------------------------------------------------
Standard & Poor's 500 Index -22.10% -0.59% 9.28%
4
MAIN RISKS
[Clip Art] The value of your investment will fluctuate in response to movements
in the stock market.
The fund's investment strategy will influence performance significantly.
Large-capitalization stocks could fall out of favor, causing the fund to
underperform funds that focus on small- or medium-capitalization stocks.
Similarly, if individual securities do not perform as the management team
expects, the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o Certain derivatives could produce disproportionate losses.
o Foreign investments carry additional risks, including inadequate or
inaccurate financial information and social or political
instability.
o In a down market, higher-risk securities and derivatives could
become harder to value or to sell at a fair price.
================================================================================
YOUR EXPENSES
[Clip Art] Operating expenses are paid from the fund's assets, and therefore are
paid by shareholders indirectly.
- --------------------------------------------------------------------------------
Annual operating expenses
- --------------------------------------------------------------------------------
Management fee 0.60%
Other expenses 1.40%
Total fund operating expenses 2.00%
Expense reimbursement (at least until 6-30-04) 1.00%
Net annual operating expenses 1.00%
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, that the average
annual return was 5% and that your shares were redeemed at the end of the time
frames. 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
- --------------------------------------------------------------------------------
$102 $531 $985 $2,247
================================================================================
PORTFOLIO MANAGERS
John F. Snyder, III
- --------------------------------------------------------------------------------
Executive vice president
Joined fund team in 1995
Joined John Hancock Advisers in 1991
Began business career in 1971
Peter M. Schofield, CFA
- --------------------------------------------------------------------------------
Vice president
Joined fund team in 1996
Joined John Hancock Advisers in 1996
Began business career in 1984
FUND CODES
Ticker JHDPX
CUSIP 410132104
Newspaper DivPerf
JH fund number 442
5
Independence Diversified Core Equity Fund II
GOAL AND STRATEGY
[Clip Art] The fund seeks above-average total return, consisting of capital
appreciation and income. To pursue this goal, the fund normally invests at least
80% of its assets in a diversified portfolio of equity securities which are
primarily stocks of large-capitalization companies (companies in the
capitalization range of the S&P 500 Index, which was $387 million to $285.6
billion on May 31, 2003). The portfolio's risk profile is substantially similar
to that of the S&P 500 Index.
The managers select from a menu of stocks of approximately 600 companies that
evolves over time. Approximately 70% to 80% of these companies also are included
in the S&P 500 Index. The sub-adviser's investment research team is organized by
industry and tracks these companies to develop earnings estimates and five-year
projections for growth. A series of proprietary computer models use this
in-house research to rank the stocks according to their combination of:
o value, meaning they appear to be underpriced
o improving fundamentals, meaning they show potential for strong
growth
This process, together with a risk/return analysis against the S&P 500 Index,
results in a portfolio of approximately 75 to 125 of the stocks from the top 60%
of the menu. The fund generally sells stocks that fall into the bottom 20% of
the menu.
In normal circumstances, the fund is almost entirely invested in stocks. The
fund may, however, invest in certain other types of equity securities, including
dollar-denominated foreign securities.
In abnormal circumstances, 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.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable distributions.
================================================================================
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. All figures assume dividend reinvestment. Past performance
before and after taxes does not indicate future results.
Total returns
2003 total return as of 3-31-03: -2.91%
Best quarter: Q4 '98, 25.14%
Worst quarter: Q3 '02, -18.31%
After-tax returns
After-tax returns 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)
Standard & Poor's 500 Index, an unmanaged index of 500 stocks.
[The following was represented as a bar chart in the printed material.]
- --------------------------------------------------------------------------------
Calendar year total returns
- --------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001 2002
20.08% 29.49% 30.15% 11.59% -6.88% -9.05% -23.36%
- --------------------------------------------------------------------------------
Average annual total returns for periods ending 12-31-02
- --------------------------------------------------------------------------------
1 year 5 year Life of
Fund
Fund before tax (began 3-10-95) -23.36% -1.17% 8.15%
Fund after tax on distributions -23.67% -4.84% 4.84%
Fund after tax on distributions, with sale -14.26% -0.38% 6.90%
- --------------------------------------------------------------------------------
Standard & Poor's 500 Index -22.10% -0.59% 9.58%
6
MAIN RISKS
[Clip Art] The value of your investment will fluctuate in response to stock
market movements.
Large-capitalization stocks as a group could fall out of favor with the market,
causing the fund to underperform funds that focus on small- or
medium-capitalization stocks.
The fund's management strategy will influence performance significantly. If the
investment research team's earnings estimates or projections turn out to be
inaccurate, or if the proprietary computer models 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, those risks
could increase volatility or reduce performance:
o Foreign investments carry additional risks, including potentially
inadequate or inaccurate financial information and social or
political instability.
================================================================================
YOUR EXPENSES
[Clip Art] Operating expenses are paid from the fund's assets, and therefore are
paid by shareholders indirectly.
- --------------------------------------------------------------------------------
Annual operating expenses
- --------------------------------------------------------------------------------
Management fee 0.50%
Other expenses 0.18%
Total fund operating expenses 0.68%
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, that the average annual return was 5% and that your shares were
redeemed at the end of the time frame. 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
- --------------------------------------------------------------------------------
$69 $218 $379 $847
================================================================================
SUBADVISER
Independence Investment LLC
Team responsible for day-to-day investment management
A subsidiary of John Hancock Financial Services, Inc.
Founded in 1982
Supervised by the adviser
FUND CODES
Class I Ticker COREX
CUSIP 410132708
Newspaper IndpCorII
JH fund number 425
7
Your account
- --------------------------------------------------------------------------------
WHO CAN BUY SHARES
John Hancock institutional funds are offered without any sales charge to certain
types of investors, as noted below:
o Retirement and other benefit plans and their participants
o Rollover assets for participants whose plans are invested in the
fund
o Certain trusts, endowment funds and foundations
o Any state, county or city, or its instrumentality, department,
authority or agency
o Insurance companies, trust companies and bank trust departments
buying shares for their own account
o Investment companies not affiliated with the adviser
o Clients of service agents and broker-dealers who have entered into
an agreement with John Hancock Funds, LLC
o Investors who participate in fee-based, wrap and other investment
platform programs
o Any entity that is considered a corporation for tax purposes
o Fund trustees and other individuals who are affiliated with these or
other John Hancock funds
- --------------------------------------------------------------------------------
OPENING AN ACCOUNT
1 Read this prospectus carefully.
2 Determine if you are eligible, by referring to "Who can buy shares" on the
left.
3 Determine how much you want to invest. The minimum initial investment is
$10,000. There is no minimum investment for retirement plans with at least
350 eligible employees.
4 Complete the appropriate parts of the account application, carefully
following the instructions. 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. You must submit additional documentation
when opening trust, corporate or power of attorney accounts.
5 Make your initial investment using the table on the next page.
6 If you have questions or need more information, please contact your
financial representative or call Signature Services at 1-888-972-8696.
John Hancock Funds may pay significant compensation out of its own resources to
your financial representative.
Your broker/dealer or agent may charge you a fee to effect transactions in fund
shares.
8 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, payable investment amount payable
to "John Hancock Signature to "John Hancock Signature
Services, Inc." Services, Inc."
o Deliver the check and your o Fill out the detachable
completed application to investment slip from an
your financial account statement. If no
representative, or mail slip is available, include
them to Signature Services a note specifying the fund
(address below). name(s), your share class,
your account number and the
name(s) in which the
account is registered.
o Deliver the check and
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 Call your financial
representative or Signature representative or Signature
Services to request an Services to request an
exchange. exchange.
o You may only exchange for o You may only exchange for
shares of other shares of other
institutional funds or institutional funds or
Class I shares or Money Class I shares or Money
Market Fund-Class A shares. Market Fund-Class A shares.
By wire
[Clip Art] o Deliver your completed o Instruct your bank to wire
application to your the amount of your
financial representative or investment to:
mail it to Signature
Services. First Signature Bank & Trust
Account # 900022260
o Obtain your account number Routing # 211475000
by calling your financial
representative or Signature Specify the fund name(s), your
Services. share class, your account
number and the name(s) in
o Instruct your bank to wire which the account is
the amount of your registered. Your bank may
investment to: charge a fee to wire funds.
First Signature Bank & Trust
Account # 900022260
Routing # 211475000
Specify the fund name(s), the
share class, the new account
number and the name(s) in
which the account is
registered. Your bank may
charge a fee to wire funds.
By phone
[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 "To Purchase,
Exchange or Redeem Shares
via Telephone" and "Bank
Information" sections on
your account application.
o Call Signature Services to
verify that these features
are in place on your
account.
o Call your financial
representative or Signature
Services with the fund
name(s), your share class,
your account number, the
name(s) in which the
account is registered and
the amount of your
investment.
- ---------------------------------------
Address:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1001
Boston, MA 02217-1001
Phone Number: 1-888-972-8696
Or contact your financial
representative for
instructions and assistance.
- ---------------------------------------
YOUR ACCOUNT 9
- --------------------------------------------------------------------------------
Selling shares
- --------------------------------------------------------------------------------
Designed for To sell some or all of your shares
By letter
[Clip Art] o Sales of any amount; o Write a letter of
however, sales of $5 instruction indicating the
million or more must be fund name, your account
made by letter. number, your share class,
the name(s) in which the
o Certain requests will account is registered and
require a Medallion the dollar value or number
signature guarantee. Please of shares you wish to sell.
refer to "Selling shares in
writing". 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 or wire will be
sent according to your
letter of instruction.
By phone
[Clip Art] o Sales of up to $5 million. o To place your request with
a representative at John
Hancock Funds, call
Signature Services between
8 A.M. and 4 P.M. Eastern
Time on most business days.
o Redemption proceeds of up
to $100,000 may be sent by
wire or by check. A check
will be mailed to the exact
name(s) and address on the
account. Redemption
proceeds exceeding $100,000
must be wired to your
designated bank account.
By wire or electronic funds transfer (EFT)
[Clip Art] o Requests by letter to sell o To verify that the
any amount. telephone redemption
privilege is in place on an
o Requests by phone to sell account, or to request the
up to $5 million (accounts forms to add it to an
with telephone redemption existing account, call
privileges). Signature Services.
o Amounts of $5 million or
more will be wired on the
next business day.
o Amounts up to $100,000 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 Sales of any amount. o Obtain a current prospectus
for the fund into which you
are exchanging by calling
your financial
representative or Signature
Services.
o You may only exchange for
shares of other
institutional funds or
Class I shares or Money
Market Fund-Class A shares.
o Call your financial
representative or Signature
Services to request an
exchange.
10 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, as shown in the table below, unless they were previously provided
to Signature Services and are still accurate. You may also need to include a
Medallion 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 and are requesting
payment by check
o you are selling more than $5 million worth of shares
You will need to obtain your Medallion 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 or o Letter of instruction.
UGMA/UTMA accounts (custodial accounts
for minors). o On the letter, the signatures of
all persons authorized to sign for
the account, exactly as the account
is registered.
o Medallion signature guarantee if
applicable (see above).
Owners of corporate, sole o Letter of instruction.
proprietorship, general partner or
association accounts. o Corporate 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 Medallion signature guarantee if
applicable (see above).
Owners or trustees of retirement plan, o Letter of instruction.
pension trust and trust 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 Medallion signature guarantee if
applicable (see above).
Joint tenancy shareholders with rights o Letter of instruction signed by
of survivorship whose co-tenants are surviving tenant.
deceased.
o Copy of death certificate.
o Medallion 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 Medallion signature guarantee if
applicable (see above).
Administrators, conservators, guardians o Call 1-888-972-8696 for
and other sellers or account types not instructions.
listed above.
- -----------------------------------------
Address:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1001
Boston, MA 02217-1001
Phone Number: 1-888-972-8696
Or contact your financial representative
for instructions and assistance.
- -----------------------------------------
YOUR ACCOUNT 11
- --------------------------------------------------------------------------------
TRANSACTION POLICIES
Valuation of shares The net asset value (NAV) per share for each fund is
determined each business day at the close of regular trading on the New York
Stock Exchange (typically 4 P.M. Eastern Time). 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. The funds may trade foreign stock
or other portfolio securities 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. When you sell shares,
you receive the NAV.
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 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 institutional fund and Class I shares for shares of
any other institutional fund, Class I shares or Money Market Fund-Class A
shares. The registration for both accounts involved must be identical. Note:
once exchanged into Money Market Fund Class A, shares may only be exchanged back
into Class I or institutional fund shares.
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. The funds reserve the right to require that
previously exchanged shares and reinvested dividends be in a fund for 90 days
before a shareholder is permitted a new exchange. 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 certificated 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 a 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, at least quarterly
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
Dividends The funds declare and pay any income dividends quarterly. Capital
gains, if any, are typically distributed annually.
Dividend reinvestments Dividends will be reinvested automatically in additional
shares of the same fund on the dividend record date. Alternatively, you can
choose to have your dividends and capital gains sent directly to your bank
account or a check will be sent in the amount of more than $10. However, if the
check is not deliverable or the combined dividend and capital gains amount is
$10 or less, your
12 YOUR ACCOUNT
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 For investors who are not exempt from federal income
taxes, dividends you receive from a fund, whether reinvested or taken as cash,
are generally considered taxable. Dividends from a fund's 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.
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 if you are not exempt from federal income
taxes. 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.
Fund Details
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
The funds' board of trustees oversees each fund's business activities and
retains the services of the various firms that carry out the fund's operations.
The trustees have the power to change the funds' respective investment goals
without shareholder approval.
The trustees of each fund have the power to change the focus of a fund's 80%
investment policy without shareholder approval. A fund will provide written
notice to shareholders at least 60 days prior to a change in its 80% investment
policy.
The investment adviser John Hancock Advisers, LLC, 101 Huntington Avenue,
Boston, MA 02199-7603.
The subadviser Independence Investment LLC, 53 State Street, Boston, MA 02109,
is the subadviser to Independence Diversified Core Equity Fund II. Founded in
1982, Independence Investment is a wholly owned subsidiary of John Hancock
Financial Services, Inc. and manages approximately $18.4 billion in assets as of
March 31, 2003.
Management fees The management fees paid to the investment adviser by the John
Hancock institutional funds last fiscal year are as follows:
- --------------------------------------------------------------------------------
Fund % of net assets
- --------------------------------------------------------------------------------
Dividend Performers Fund 0.00%*
Independence Diversified Core Equity Fund II 0.50%
*after expense reimbursement
YOUR ACCOUNT 13
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
These tables detail the performance of each fund's share, including total return
information showing how much an investment in the fund has increased or
decreased each year.
Dividend Performers Fund
Figures audited by Deloitte & Touche LLP.
PERIOD ENDED: 2-28-99 2-29-00 2-28-01 2-28-02 2-28-03
- ------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $14.92 $14.46 $13.51 $11.14 $7.89
Net investment income(1) 0.15 0.11 0.10 0.08 0.06
Net realized and unrealized gain (loss) on investments 1.04 0.60 0.45 (0.77) (2.03)
Total from investment operations 1.19 0.71 0.55 (0.69) (1.97)
Less distributions
From net investment income (0.15) (0.11) (0.11) (0.10) (0.06)
From net realized gain (1.50) (1.55) (2.81) (2.46) --
(1.65) (1.66) (2.92) (2.56) (0.06)
Net asset value, end of period $14.46 $13.51 $11.14 $7.89 $5.86
Total return(2),(3)(%) 7.97 4.17 2.94 (6.93) (25.00)
- ------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $18 $15 $6 $5 $3
Ratio of expenses to average net assets (%) 0.70 0.70 0.70 0.70 0.70
Ratio of adjusted expenses to average net assets(4) (%) 0.95 1.05 1.08 1.91 2.14
Ratio of net investment income to average net assets (%) 0.95 0.71 0.73 0.84 0.92
Portfolio turnover (%) 64 46 58 51 53
(1) Based on the average of the shares outstanding.
(2) Assumes dividend reinvestment.
(3) Total returns would have been lower had certain expenses not been reduced
during the periods shown.
(4) Does not take into consideration expense reductions during the periods
shown.
================================================================================
The following returns are not audited and are not part of the audited financial
highlights presented above:
Without the expense reductions, returns for the fund for the years ended
February 28, 1999, February 29, 2000, February 28, 2001, 2002 and 2003 would
have been 7.72%, 3.82%, 2.56%, (8.14%) and (26.44%), respectively.
14 FUND DETAILS
Independence Diversified Core Equity Fund II
Figures audited by Deloitte & Touche LLP.
COMMON SHARES PERIOD ENDED: 2-28-99 2-29-00 2-28-01 2-28-02 2-28-03
- ----------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $15.34 $15.69 $14.23 $8.91 $6.50
Net investment income(1) 0.12 0.09 0.09 0.05 0.04
Net realized and unrealized gain (loss) on investments 2.76 0.34 (0.29) (0.75) (1.55)
Total from investment operations 2.88 0.43 (0.20) (0.70) (1.51)
Less distributions
From net investment income (0.14) (0.09) (0.10) (0.06) (0.04)
From net realized gain (2.39) (1.80) (5.02) (1.65) (0.03)
(2.53) (1.89) (5.12) (1.71) (0.07)
Net asset value, end of period $15.69 $14.23 $8.91 $6.50 $4.92
Total return(2) (%) 18.98 1.99 (2.68) (8.46)(3) (23.29)
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $552 $426 $147 $87 $61
Ratio of expenses to average net assets (%) 0.63 0.64 0.67 0.70 0.74
Ratio of adjusted expenses to average net assets(4) (%) -- -- -- 0.70 --
Ratio of net investment income to average net assets (%) 0.76 0.57 0.61 0.64 0.77
Portfolio turnover (%) 55 69 56 52 72
(1) Based on the average of the shares outstanding.
(2) Assumes dividend reinvestment.
(3) Total return would have been lower had certain expenses not been reduced
during the period shown.
(4) Does not take into consideration expense reductions during the period
shown.
================================================================================
The following return is not audited and is not part of the audited financial
highlights presented above:
Without the expense reductions, the effect on the return for the fund for the
year ended February 28, 2002 would have been less than 0.01%.
FUND DETAILS 15
For more information
Two documents are available that offer further information on John Hancock
institutional 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 1001
Boston, MA 02217-1001
By phone: 1-888-972-8696
By EASI-Line: 1-800-597-1897
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 K00PN 7/03
[LOGO](R) -------------
John Hancock Funds, LLC PRSRT STD
MEMBER NASD U.S. POSTAGE
101 Huntington Avenue P A I D
Boston, MA 02199-7603 BOSTON, MA
PERMIT NO. 11
www.jhfunds.com
JOHN HANCOCK LARGE CAP SPECTRUM FUND
Class A, Class B and Class C Shares
Statement of Additional Information
March 1, 2003 as revised July 15, 2003
This Statement of Additional Information provides information about John Hancock
Large Cap Spectrum Fund (the "Fund") in addition to the information that is
contained in the Fund's current Prospectus (the "Prospectus"). The Fund is a
non-diversified series of John Hancock Equity Trust (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, Massachusetts 02217-1000
1-800-225-5291
TABLE OF CONTENTS
Page
----
Organization of the Fund ................................................. 2
Investment Objective and Policies ........................................ 2
Investment Restrictions................................................... 18
Those Responsible for Management.......................................... 20
Investment Advisory and Other Services.................................... 27
Distribution Contracts.................................................... 30
Sales Compensation........................................................ 32
Net Asset Value........................................................... 34
Initial Sales Charge on Class A Shares.................................... 34
Deferred Sales Charge on Class B and Class C Shares....................... 37
Special Redemptions....................................................... 41
Additional Services and Programs.......................................... 41
Purchase and Redemptions through Third Parties............................ 43
Description of the Fund's Shares.......................................... 43
Tax Status................................................................ 44
Calculation of Performance................................................ 49
Brokerage Allocation...................................................... 51
Transfer Agent Services................................................... 55
Custody of Portfolio...................................................... 55
Independent Auditors...................................................... 55
Further Details........................................................... 55
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 on July 23, 1984 as a Massachusetts business trust under the laws of
The Commonwealth of Massachusetts. Prior to August 28, 2000, the Trust was named
John Hancock Special Equities Fund.
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 Sub-Adviser is Alliance Capital Management L.P. ("Alliance") (the
"Sub-Adviser"). Alliance is responsible for providing investment advice to the
Fund with respect to the Fund's growth and value investment strategies, 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
non-fundamental and may be changed by the Trustees without shareholder approval.
There is no assurance that the Fund will achieve its investment objective.
The Fund seeks long-term growth of capital. To pursue this goal, under normal
circumstances, the Fund invests at least 80% of its Assets in common and
preferred stocks of large capitalization companies-companies in the
capitalization range of the Standard & Poor's 500 Index. The Fund is classified
as non-diversified and may invest up to 10% of total assets, at time of
purchase, in securities of individual companies. The Fund's assets will be
managed according to three separate investment strategies each focused on a
different style of management - growth, core and value.
The Fund may invest up to 20% of total assets in foreign securities. The Fund
may also invest up to 5% of net assets in junk bonds rated as low as CC/Ca and
their unrated equivalents. The Fund may make limited use of certain derivatives
(investments whose value is based on indexes, securities or currencies). Under
abnormal circumstances, such as situations where the Fund experiences unusually
large cash inflows or anticipates unusually large redemptions, and in adverse
market, economic, political, or other conditions, the Fund may temporarily
invest more than 20% of its Assets in investment-grade short-term securities,
cash, and cash equivalents. In these and other cases, the Fund might not achieve
its goal.
With respect to the Fund's policy of investing at least 80% of its Assets in
large capitalization companies, "Assets" is defined as net assets plus the
amount of any borrowings for investment purposes. Also, with respect to this 80%
investment policy, the Fund will notify shareholders at least 60 days prior to
any change in this policy.
The Subadviser's investment strategy for the growth portion of the portfolio
emphasizes stock selection and investment in the securities of a limited number
of issuers. The manager's rely heavily upon the fundamental analysis and
research of their firm's large internal research staff, which generally follows
a primary research universe of more than 500 companies that have
2
strong management, superior industry positions, excellent balance sheets and
superior earnings growth prospects. The managers typically select stocks of
25-35 companies that, in their opinion, are attractive based on some or all of
these factors. An emphasis is placed on identifying companies whose
substantially above average prospective earnings growth are not fully reflected
in current market valuations.
In managing the growth portion of the portfolio, the managers seek to utilize
market volatility judiciously (assuming no change in company fundamentals),
strive to capitalize on apparently unwarranted price fluctuations, both to
purchase or increase positions on weakness and to sell or reduce overpriced
holdings. The growth portion of the portfolio normally remains nearly fully
invested and the managers do not take significant cash positions for market
timing purposes. During market declines, while adding to positions in favored
stocks, the managers become somewhat more aggressive, gradually reducing the
number of stocks represented in the growth portion of the portfolio. Conversely,
in rising markets, while reducing or eliminating fully valued positions, the
managers become somewhat more conservative, gradually increasing the number of
companies represented in this portion of the portfolio. Through this "buying
into declines" and "selling into strength," the managers seek to gain positive
returns in good markets while providing some measure of protection in poor
markets.
In managing the core portion of the portfolio, the managers employ a combination
of proprietary financial models and bottom-up, fundamental financial research to
identify companies that are selling at what appear to be substantial discounts
to their long-term intrinsic and "franchise" values. These companies often have
identifiable catalysts for growth, such as new products, business
reorganizations or mergers. The management team emphasizes a relative
value-oriented approach to individual stock selection (i.e. those stocks which
are inexpensively priced relative to others within the same industry or economic
sector, exhibiting what the Fund's management team believes to be sound company
management and the prospect of improved business fundamentals).
The Subadviser's investment strategy for the value portion of the portfolio
emphasizes investment in companies that they determine to be undervalued, using
a fundamental value approach. This approach to equity investing generally
defines value by reference to the relationship between a security's current
price and its intrinsic economic value, as measured by earnings power and
divided paying capability. The manager's rely heavily on the fundamental
research and analysis of their firm's large internal research staff in making
investment decisions for this portion of the Fund's portfolio, typically
selecting 35-50 stocks from the Russell 1000 Value Index. These investment
decisions are the result of the multi-step process described below.
The fundamental value approach seeks to identify, in the first instance, a
universe of securities that are considered to be undervalued because they are
attractively priced relative to their future earnings power and dividend paying
capability. With respect to the value portion of the Fund's portfolio, the
Subadviser's research staff of company and industry analysts follows a research
universe of approximately 700 companies with large capitalizations. This
universe covers approximately 90% of the capitalization of the Russell 1000
Value Index. The research staff identifies and quantifies the critical variables
that influence a business's performance and analyzes the results in order to
forecast each company's long-term prospects. A company's financial performance
is typically projected over a full economic cycle, including a trough and a
peak, within the context of forecasts for real economic growth, inflation and
interest rate changes.
A committee composed of senior investment professionals (the "Research Review
Committee") reviews all analyst research performed for the value portion of the
Fund's portfolio. The Subadviser's Research Review Committee makes sure that the
analysts have appropriately
3
considered the key issues facing each company. In addition, it checks to see
that forecasts of a company's future are compatible with history. Finally, the
Research Review Committee ensures that all forecasts use consistent analytic
frameworks and economic assumptions.
For each company in the research universe, the Subadviser relates the present
value of the company's future cash flow, as forecast by the Subadviser's
analysts, to the current price of the company's stock. Using a dividend discount
model and solving for the internal rate of return, the managers of the value
portion of the portfolio thus derive an expected rate of return. The senior
investment professionals involved in the fundamental value approach then factor
into this analysis the risk attributes of each company for purposes of
re-ranking the companies. By evaluating overall sector concentration,
capitalization distribution, leverage, degree of undervaluation and other
factors, the Subadviser ranks each security on a risk adjusted basis, in an
effort to minimize the overall volatility for the value portion of the
portfolio. The managers of the value portion of the portfolio simply do not
invest in the highest ranked securities. Rather, they consider aggregate
portfolio characteristics and risk diversification when deciding how much of
each security to purchase for the portfolio. The Subadviser may take more risk
when unusually large value distortions create opportunities for added returns,
and less risk when opportunities are limited.
Asset Allocation: The Fund's assets will be allocated among the three investment
styles (growth, core, and value) to reflect an optimal combination as determined
by the adviser's: (1) assessment of the three strategies' historical risk,
historical return and correlation; and (2) long-term strategic view of the
relative attractiveness of the three strategies. Initial asset allocation will
be weighted 50% core, 25% growth and 25% value, which represents the Fund's
neutral weighting. Thereafter the Fund's target allocations among the three
strategies may shift substantially depending on the Adviser's assessment of the
Fund's optimal asset combination. Target allocations will be set and calculated
at least annually. Due to changes in market values, new cash and assets will be
allocated as needed in order to attempt to maintain target allocations. The
Adviser reserves the right to rebalance the Fund and/or change the allocation at
any time. In some instances, the effect of a reallocation of assets may be to
shift assets from a better performing strategy to a portion of the portfolio
with a relatively lower return.
Reallocations may result in additional costs since sales of securities may
result in higher portfolio turnover. Also, because each investment adviser
selects securities independently, it is possible that a security held by one
portfolio segment may also be held by another portfolio segment. In addition,
the different portfolio segments may simultaneously favor the same industry. The
Adviser will monitor the overall portfolio to ensure that any such overlaps do
not create an unintended industry concentration. In addition, if one investment
adviser buys a security as another adviser sells it, the net position of the
Fund in the security may be approximately the same as it would have been with a
single portfolio and no such sale and purchase had occurred, but the Fund will
have incurred additional costs.
Non-Diversification: The Fund has elected "non-diversified" status under the
Investment Company Act of 1940 and may invest more than 5% of total assets in
securities of a single company. However, the Fund intends to comply with the
diversification standards applicable to regulated investment companies under
Subchapter M of the Internal Revenue Code of 1986, as amended. In order to meet
these standards, among other requirements, at the close of each quarter of its
taxable year (a) at least 50% of the value of the Fund's total assets must be
represented by one or more of the following: (i) cash and cash items, including
receivables; (ii) U.S. Government securities; (iii) securities of other
regulated investment companies; and (iv) securities (other than those in items
(ii) and (iii) above) of any one or more issuers as to which the Fund's
investment in an issuer does not exceed 5% of the value of the Fund's total
assets (valued at time of purchase); and (b) not more than 25% of its total
assets (valued at time of
4
purchase) may be invested in the securities of any one issuer (other than U.S.
Government securities or securities of other regulated investment companies).
The Fund's ability to invest heavily in securities of individual issuers may
increase the volatility of the Fund's investment performance. Changes in the
market value of a single issuer could cause greater fluctuations in share price
than would occur in a comparable "diversified" fund.
Common stocks. Common stocks are shares of a corporation or other entity that
entitle the holder to a pro rata share of the profits of the corporation, if
any, without preference over any other shareholder or class of shareholders,
including holders of such entity's preferred stock and other senior equity.
Ownership of common stock usually carries with it the right to vote and,
frequently, an exclusive right to do so. Common stocks have the potential to
outperform fixed-income securities over the long term. Common stocks provide the
most potential for growth, yet are the more volatile of the two asset classes.
Preferred stocks. The Fund may invest in preferred stocks. Preferred stock
generally has a preference to dividends and, upon liquidation, over an issuer's
common stock but ranks junior to debt securities in an issuer's capital
structure. Preferred stock generally pays dividends in cash (or additional
shares of preferred stock) at a defined rate but, unlike interest payments on
debt securities, preferred stock dividends are payable only if declared by the
issuer's board of directors. Dividends on preferred stock may be cumulative,
meaning that, in the event the issuer fails to make one or more dividend
payments on the preferred stock, no dividends may be paid on the issuer's common
stock until all unpaid preferred stock dividends have been paid. Preferred stock
also may be subject to optional or mandatory redemption provisions.
Convertible securities. The Fund may invest in convertible securities which may
include corporate notes or preferred stock. Investments in convertible
securities are not subject to the rating criteria with respect to
non-convertible debt obligations. As with all debt securities, the market value
of convertible securities tends to decline as interest rates increase and,
conversely, to increase as interest rates decline. The market value of
convertible securities can also be heavily dependent upon the changing value of
the equity securities into which such securities are convertible, depending on
whether the market price of the underlying security exceeds the conversion
price. Convertible securities generally rank senior to common stocks in an
issuer's capital structure and consequently entail less risk than the issuer's
common stock. However, the extent to which such risk is reduced depends upon the
degree to which the convertible security sells above its value as a fixed-income
security.
Government Securities. The Fund may invest in government securities. Certain
U.S. Government securities, including U.S. Treasury bills, notes and bonds, and
Government National Mortgage Association certificates ("GNMA"), are supported by
the full faith and credit of the United States. Certain other U.S. Government
securities, issued or guaranteed by Federal agencies or government sponsored
enterprises, are not supported by the full faith and credit of the United
States, but may be supported by the right of the issuer to borrow from the U.S.
Treasury. These securities include obligations of the Federal Home Loan Mortgage
Corporation ("FHLMC"), and obligations supported by the credit of the
instrumentality, such as Federal National Mortgage Association Bonds ("FNMA").
No assurance can be given that the U.S. Government will provide financial
support to such Federal agencies, authorities, instrumentalities and government
sponsored enterprises in the future.
Debt securities. The Fund may invest in debt obligations. Debt securities of
corporate and governmental issuers in which the Fund may invest are subject to
the risk of an issuer's inability to meet principal and interest payments on the
obligations (credit risk) and may also be subject to price volatility due to
such factors as interest rate sensitivity, market perception of the
5
creditworthiness of the issuer and general market liquidity (market risk).
Lower Rated High Yield / "High Risk" Debt Obligations. The Fund may invest up to
5% of its net assets in high yielding, fixed income instruments below investment
grade (e.g., rated below Baa by Moody's Investors Service, Inc. ("Moody's") or
below BBB by Standard & Poor's Ratings Group ("S&P")). The Fund may invest in
high yielding fixed income instruments rated as low as Ca by Moody's or CC by
S&P.
Ratings are based largely on the historical financial condition of the issuer.
Consequently, the rating assigned to any particular security is not necessarily
a reflection of the issuer's current financial condition, which may be better or
worse than the rating would indicate. See Appendix A to this Statement of
Additional Information which describes the characteristics of corporate bonds in
the various ratings categories. The Fund may invest in comparable quality
unrated securities which, in the opinion of the Adviser or Subadviser, offer
comparable yields and risks to those securities which are rated.
Debt obligations rated in the lower ratings categories, or which are unrated,
involve greater volatility of price and risk of loss of principal and income. In
addition, lower ratings reflect a greater possibility of an adverse change in
financial condition affecting the ability of the issuer to make payments of
interest and principal. The high yield fixed income market is relatively new and
its growth occurred during a period of economic expansion. The market has not
yet been fully tested by an economic recession.
The market price and liquidity of lower rated fixed income securities generally
respond to short term corporate and market developments to a greater extent than
do the price and liquidity of higher rated securities because such developments
are perceived to have a more direct relationship to the ability of an issuer of
such lower rated securities to meet its ongoing debt obligations.
Reduced volume and liquidity in the high yield bond market or the reduced
availability of market quotations will make it more difficult to dispose of the
bonds and to value accurately the Fund's assets. The reduced availability of
reliable, objective data may increase the Fund's reliance on management's
judgment in valuing high yield bonds. In addition, the Fund's investments in
high yield securities may be susceptible to adverse publicity and investor
perceptions, whether or not justified by fundamental factors. A Fund's
investments, and consequently its net asset value, will be subject to the market
fluctuations and risks inherent in all securities.
Short-Term Bank and Corporate Obligations. The Fund may invest in
depository-type obligations of banks and savings and loan associations and other
high quality money market instruments consisting of short-term obligations of
the U.S. Government or its agencies and commercial paper rated at least P-1 by
Moody's or A-1 by Standard & Poor's. Commercial paper represents short-term
unsecured promissory notes issued in bearer form by banks or bank holding
companies, corporations and finance companies. Depository-type obligations in
which the Fund may invest include certificates of deposit, bankers' acceptances
and fixed time deposits. Certificates of deposit are negotiable certificates
issued against funds deposited in a commercial bank for a definite period of
time and earning a specified return.
Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn
by an importer or exporter to pay for specific merchandise, which are "accepted"
by a bank, meaning, in effect, that the bank unconditionally agrees to pay the
face value of the instrument at maturity. Fixed time deposits are bank
obligations payable at a stated maturity date and bearing interest at a fixed
rate. Fixed time deposits may be withdrawn on demand by the investor, but may be
subject to early withdrawal penalties which vary depending upon market
conditions and the remaining maturity
6
of the obligation. There are no contractual restrictions on the right to
transfer a beneficial interest in a fixed time deposit to a third party,
although there is no market for such deposits. Bank notes and bankers'
acceptances rank junior to domestic deposit liabilities of the bank and pari
passu with other senior, unsecured obligations of the bank. Bank notes are not
insured by the Federal Deposit Insurance Corporation or any other insurer.
Deposit notes are insured by the Federal Deposit Insurance Corporation only to
the extent of $100,000 per depositor per bank.
Ratings as Investment Criteria. In general, the ratings of Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's Ratings Group ("S&P") represent
the opinions of these agencies as to the quality of the securities which they
rate. It should be emphasized, however, that 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 long-term ability of the issuer to pay
principal and interest and general economic trends. Appendix B contains further
information concerning the rating of Moody's and S&P and their significance.
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither of these events will require the sale of the securities by the
Fund.
Investments in Foreign Securities. The Fund may invest up to 20% of total assets
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") and Global
Depository Receipts ("GDRs"). The Fund's foreign securities may include, but are
not limited to, common stocks, convertible preferred stocks, preferred stocks
and warrants 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 which evidence a similar ownership
arrangement. Issuers of unsponsored ADRs are not contractually obligated to
disclose material information, including financial information, in the United
States. Generally, ADRs are designed for use in the United States securities
markets and EDRs are designed for use in European securities markets.
An investment in foreign securities including ADRs may be affected by changes in
currency rates and in exchange control regulations. Issuers of unsponsored ADRs
are not contractually obligated to disclose material information including
financial information, in the United States and, therefore, there may not be a
correlation between such information and the market value of the unsponsored
ADR. Foreign companies may not be subject to accounting standards or government
supervision comparable to U.S. companies, and there is often less publicly
available information about their operations. Foreign companies may also be
affected by political or financial instability abroad. These risk considerations
may be intensified in the case of investments in ADRs of foreign companies that
are located in emerging market countries. ADRs of companies located in these
countries may have limited marketability and may be subject to more abrupt or
erratic price movements.
Foreign Currency Transactions. The Fund may engage in foreign currency
transactions. 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
hedge against fluctuations in currency exchange rates affecting a particular
transaction or portfolio position. 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
7
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. The Fund will not engage in speculative forward
foreign currency exchange transactions.
If the Fund purchases a forward contract, the Fund will segregate cash or liquid
securities in a separate account 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 to the
amount of the Fund's commitment in forward 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.
8
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
less established markets and economies. Political, legal and economic structure
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.
Repurchase Agreements. In a repurchase agreement the Fund buys a security for a
relatively short period (usually not more than 7 days) subject to the obligation
to sell it back to the issuer at a fixed time and price plus accrued interest.
The Fund will enter into repurchase agreements only with member banks of the
Federal Reserve System and with "primary dealers" in U.S. Government securities.
The Adviser will continuously monitor the creditworthiness of the parties with
whom the Fund enters into repurchase agreements.
The Fund has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, the Fund could experience delays in
liquidating the underlying securities during the period in which the Fund seeks
to enforce its rights thereto, possible subnormal levels of income decline in
value of the underlying securities or lack of access to income during this
period and the expense of enforcing its rights.
Reverse Repurchase Agreements and Other Borrowings. 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 any accrued interest thereon) under such agreements.
9
The Fund will not enter into reverse repurchase agreements and other borrowings
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 total return. 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
Advisers 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 determines, 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 delegate to
the Advisers the daily function of determining the monitoring and liquidity of
restricted securities. The Trustees, however, will retain sufficient oversight
and be ultimately responsible for the determinations. The Trustees will
carefully monitor the Fund's investments in these securities, focusing on such
important factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing the
level of illiquidity in the Fund if qualified institutional buyers become for a
time uninterested in purchasing these restricted securities.
Mortgage-Backed Securities. The Fund may invest a portion of its assets in
mortgage-backed securities. Ginnie Maes, Freddie Macs and Fannie Maes are
mortgage-backed securities which provide monthly payments that are, in effect, a
"pass- through" of the monthly interest and principal payments (including any
pre-payments) made by the individual borrowers on the pooled mortgage loans.
Collateralized Mortgage Obligations ("CMOs"), in which the Fund may also invest,
are securities issued by a U.S. Government instrumentality that are
collateralized by a portfolio of mortgages or mortgage-backed securities. During
periods of declining interest rates, principal and interest on mortgage-backed
securities may be prepaid at faster-than-expected rates. The proceeds of these
prepayments typically can only be invested in lower-yielding securities.
Therefore, mortgage-backed securities may be less effective at maintaining
yields during periods of declining interest rates than traditional debt
securities of similar maturity. U.S. Government agencies and instrumentalities
include, but are not limited to, Federal Farm Credit Banks, Federal Home Loan
Banks, the Federal Home Loan Mortgage Corporation, the Student Loan Marketing
Association, and the Federal National Mortgage Association. Some obligations
issued by an agency or instrumentality may be supported by the full faith and
credit of the U.S. Treasury.
A real estate mortgage investment conduit, or REMIC, is a private entity formed
for the purpose of holding a fixed pool of mortgages secured by an interest in
real property, and of issuing multiple classes of interests therein to investors
such as the Fund. The Fund may consider REMIC securities as possible investments
when the mortgage collateral is insured, guaranteed or otherwise backed by the
U.S. Government or one or more of its agencies or instrumentalities. The Fund
will not invest in "residual" interests in REMIC's because of certain tax
disadvantages for regulated investment companies that own such interests.
Risks of Mortgage-Backed Securities. Different types of mortgage-backed
securities are subject to different combinations of prepayment, extension,
interest rate and/or other market risks. Conventional mortgage pass-through
securities and sequential pay CMOs are subject to all of these risks, but are
typically not leveraged. PACs, TACs and other senior classes of sequential and
parallel pay CMOs involve less exposure to prepayment, extension and interest
rate risk than other mortgage-backed securities, provided that prepayment rates
remain within expected prepayment ranges or "collars."
10
The value of mortgage-backed securities may also change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage-backed securities market as a whole.
Non-government mortgage-backed securities may offer higher yields than those
issued by government entities, but also may be subject to greater price changes
than government issues.
Asset-Backed Securities. The Fund may invest a portion of its assets in
asset-backed securities. Asset-backed securities are often subject to more rapid
repayment than their stated maturity date would indicate as a result of the
pass-through of prepayments of principal on the underlying loans. During periods
of declining interest rates, prepayment of loans underlying asset-backed
securities can be expected to accelerate. Accordingly, the Fund's ability to
maintain positions in these securities will be affected by reductions in the
principal amount of such securities resulting from prepayments, and its ability
to reinvest the returns of principal at comparable yields is subject to
generally prevailing interest rates at that time.
Credit card receivables are generally unsecured and the debtors on such
receivables are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set-off
certain amounts owed on the credit cards, thereby reducing the balance due.
Automobile receivables generally are secured, but by automobiles rather than
residential real property. Most issuers of automobile receivables permit the
loan services to retain possession of the underlying obligations. If the service
were to sell these obligations to another party, there is a risk that the
purchaser would acquire an interest superior to that of the holders of the
asset-backed securities. In addition, because of the large number of vehicles
involved in a typical issuance and technical requirements under state laws, the
trustee for the holders of the automobile receivables may not have a proper
security interest in the underlying automobiles. Therefore, there is the
possibility that, in some cases, recoveries on repossessed collateral may not be
available to support payments on these securities.
Swaps, Caps, Floors and Collars. As one way of managing its exposure to
different types of investments, the Fund may enter into interest rate swaps,
currency swaps, and other types of swap agreements such as caps, collars and
floors. In a typical interest rate swap, one party agrees to make regular
payments equal to a floating interest rate times a "notional principal amount,"
in return for payments equal to a fixed rate times the same amount, for a
specified period of time. If a swap agreement provides for payment in different
currencies, the parties might agree to exchange the notional principal amount as
well. Swaps may also depend on other prices or rates, such as the value of an
index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by the
other party. For example, the buyer of an interest rate cap obtains the right to
receive payments to the extent that a specified interest rate exceeds an
agreed-upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an
agreed-upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Swap agreements will tend to shift the Fund's investment exposure from one type
of investment to another. For example, if the Fund agreed to exchange payments
in dollars for payments in a foreign currency, the swap agreement would tend to
decrease the Fund's exposure to U.S. interest rates and increase its exposure to
foreign currency and interest rates. Caps and floors have an effect similar to
buying or writing options. Depending on how they are used, swap agreements may
increase or decrease the overall volatility of a Fund's investments and its
share price and yield.
11
Swap agreements are sophisticated hedging instruments that typically involve a
small investment of cash relative to the magnitude of risks assumed. As a
result, swaps can be highly volatile and may have a considerable impact on the
Fund's performance. Swap agreements are subject to risks related to the
counterpart's ability to perform, and may decline in value if the counterpart's
credit worthiness deteriorates. The Fund may also suffer losses if it is unable
to terminate outstanding swap agreements or reduce its exposure through
offsetting transactions. The Fund will maintain in a segregated account with its
custodian, cash or liquid, high grade debt securities equal to the net amount,
if any, of the excess of the Fund's obligations over its entitlement with
respect to swap, cap, collar or floor transactions.
Pay-In-Kind, Delayed and Zero Coupon Bonds. The Fund may invest in pay-in-kind,
delayed and zero coupon bonds. These are securities issued at a discount from
their face value because interest payments are typically postponed until
maturity. The amount of the discount rate varies depending on factors including
the time remaining until maturity, prevailing interest rates, the security's
liquidity and the issuer's credit quality. These securities also may take the
form of debt securities that have been stripped of their interest payments. A
portion of the discount with respect to stripped tax-exempt securities or their
coupons may be taxable. The market prices in pay-in-kind, delayed and zero
coupon bonds generally are more volatile than the market prices of interest-
bearing securities and are likely to respond to a grater degree to changes in
interest rates than interest-bearing securities having similar maturities and
credit quality. The Fund's investments in pay-in-kind, delayed and zero coupon
bonds may require the Fund to sell certain of its portfolio securities to
generate sufficient cash to satisfy certain income distribution requirements.
See "Tax Status."
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
12
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 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.
13
Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options). If trading were discontinued, the
secondary market on that exchange (or in that class or series of options) would
cease to exist. However, outstanding options on that exchange that had been
issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
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 a Fund are traded on U.S. or
foreign exchanges or boards of trade that are licensed, regulated or approved by
the Commodity Futures Trading Commission ("CFTC").
Futures Contracts. A futures contract may generally be described as an agreement
between two parties to buy and sell particular financial instruments or
currencies for an agreed price during a designated month (or to deliver the
final cash settlement price, in the case of a contract relating to an index or
otherwise not calling for physical delivery at the end of trading in the
contract).
Positions taken in the futures markets are not normally held to maturity but are
instead liquidated through offsetting transactions which may result in a profit
or a loss. While futures contracts on securities or currency will usually be
liquidated in this manner, the Fund may instead make, or take, delivery of the
underlying securities or currency whenever it appears economically advantageous
to do so. A clearing corporation associated with the exchange on which futures
contracts are traded guarantees that, if still open, the sale or purchase will
be performed on the settlement date.
Hedging and Other Strategies. Hedging is an attempt to establish with more
certainty than would otherwise be possible the effective price or rate of return
on portfolio securities or securities that a Fund proposes to acquire or the
exchange rate of currencies in which the portfolio securities are quoted or
denominated. When securities prices are falling, a Fund can seek to offset a
decline in the value of its current portfolio securities through the sale of
futures contracts. When securities prices are rising, a Fund, through the
purchase of futures contracts, can attempt to secure better rates or prices than
might later be available in the market when it effects anticipated purchases. A
Fund may seek to offset anticipated changes in the value of a currency in which
its portfolio
14
securities, or securities that it intends to purchase, are quoted or denominated
by purchasing and selling futures contracts on such currencies.
A Fund may, for example, take a "short" position in the futures market by
selling futures contracts in an attempt to hedge against an anticipated decline
in market prices or foreign currency rates that would adversely affect the value
of the Fund's portfolio securities. Such futures contracts may include contracts
for the future delivery of securities held by a Fund or securities with
characteristics similar to those of the Fund's portfolio securities. Similarly,
a Fund may sell futures contracts on any currencies in which its portfolio
securities are quoted or denominated or in one currency to hedge against
fluctuations in the value of securities denominated in a different currency if
there is an established historical pattern of correlation between the two
currencies.
If, in the opinion of the Adviser, there is a sufficient degree of correlation
between price trends for the Fund's portfolio securities and futures contracts
based on other financial instruments, securities indices or other indices, the
Fund may also enter into such futures contracts as part of its hedging strategy.
Although under some circumstances prices of securities in the Fund's portfolio
may be more or less volatile than prices of such futures contracts, the Adviser
will attempt to estimate the extent of this volatility difference based on
historical patterns and compensate for any differential by having the Fund enter
into a greater or lesser number of futures contracts or by attempting to achieve
only a partial hedge against price changes affecting the Fund's portfolio
securities.
When a short hedging position is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the value
of the futures position. On the other hand, any unanticipated appreciation in
the value of the Fund's portfolio securities would be substantially offset by a
decline in the value of the futures position.
On other occasions, a Fund may take a "long" position by purchasing futures
contracts. This would be done, for example, when the Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency rates then available in the applicable market to
be less favorable than prices that are currently available. Subject to the
limitations imposed on the funds, as described above, a Fund may also purchase
futures contracts as a substitute for transactions in securities or foreign
currency, to alter the investment characteristics of or currency exposure
associated with portfolio securities or to gain or increase its exposure to a
particular securities market or currency.
Options on Futures Contracts. The purchase of put and call options on futures
contracts will give a 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, a 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 a Fund's assets. By writing a call
option, a Fund becomes obligated, in exchange for the premium (upon exercise of
the option) to sell a futures contract if the option is exercised, which may
have a value higher than the exercise price. Conversely, the writing of a put
option on a futures contract generates a premium which may partially offset an
increase in the price of securities that the Fund intends to purchase. However,
a Fund becomes obligated (upon exercise of the option) to purchase a futures
contract if the option is exercised, which may have a value lower than the
exercise price. The loss incurred by each Fund in writing options on futures is
potentially unlimited and may exceed the amount of the premium received.
15
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option of the same series. There
is no guarantee that such closing transactions can be effected. A Fund's ability
to establish and close out positions on such options will be subject to the
development and maintenance of a liquid market.
Other Considerations. 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 purposes may include using futures and options
on futures as substitute for the purchase or sale of securities or currencies to
increase or reduce exposure to particular markets. To the extent that a Fund is
using futures and related options for hedging purposes, futures contracts will
be sold to protect against a decline in the price of securities (or the currency
in which they are quoted or denominated) that the Fund owns or futures contracts
will be purchased to protect the Fund against an increase in the price of
securities or the currency in which they are quoted or denominated) it intends
to purchase. 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.
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating a Fund to purchase securities or currencies, require the Fund to
establish a segregated account consisting of cash or liquid securities in an
amount equal to the underlying value of such contracts and options.
While transactions in futures contracts and options on futures may reduce
certain risks, these transactions themselves entail certain other risks. For
example, unanticipated changes in interest rates, securities prices or currency
exchange rates may result in a poorer overall performance for a Fund than if it
had not entered into any futures contracts or options transactions.
Perfect correlation between a Fund's futures positions and portfolio positions
will be impossible to achieve. 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
16
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 loaned 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 in excess of 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
Restriction. 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 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 equal, of any type or maturity, 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.
17
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
higher 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:
1. Issue senior securities, except as permitted by the Fund's fundamental
investment restrictions on borrowing, lending and investing in commodities,
and as otherwise permitted under the 1940 Act. For purposes of this
restriction, the issuance of shares of beneficial interest in multiple
classes or series, the deferral of trustees' fees, the purchase or sale of
options, futures contracts and options on futures contracts, forward
commitments, forward foreign exchange contracts and repurchase agreements
entered into in accordance with the Fund's investment policies are not
deemed to be senior securities.
2. Borrow money, except: (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; and (v) as otherwise permitted under the 1940 Act. For purposes of
this investment restriction, the deferral of trustees' fees and
transactions in short sales, futures contracts, options on futures
contracts, securities or indices and forward commitment transactions shall
not constitute borrowing.
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, sell or invest in real estate, but subject to its other
investment policies and restrictions may invest in securities of companies
that deal in real estate or are engaged in the real estate business. These
companies include real estate investment trusts and securities secured by
real estate or interests in real estate. The fund may hold and sell real
estate acquired through default, liquidation or other distributions of an
interest in real estate as a result of the fund's ownership of securities.
18
5. Invest in commodities or commodity futures contracts, other than financial
derivative contracts. Financial derivatives include forward currency
contracts; financial futures contracts and options on financial futures
contracts; options and warrants on securities, currencies and financial
indices; swaps, caps, floors, collars and swaptions; and repurchase
agreements entered into in accordance with the fund's investment policies.
6. Make loans, except that the fund may (i) 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, (ii) enter into repurchase agreements,
and (iii) purchase all or a portion of an issue of publicly distributed
debt securities, bank loan participation interests, bank certificates of
deposit, bankers' acceptances, debentures or other securities, whether or
not the purchase is made upon the original issuance of the securities.
7. Purchase the securities of issuers conducting their principal activity in
the same industry if, immediately after such purchase, the value of its
investments in such industry would exceed 25% of its total assets taken at
market value at the time of such investment. This limitation does not apply
to investments in obligations of the U.S. Government or any of its
agencies, instrumentalities or authorities.
Non-Fundamental Investment Restrictions. The following investment restrictions
are designated as non-fundamental and may be changed by the Trustees without
shareholder approval.
1. 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 of 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.
2. Invest in the securities of an issuer for the purpose of exercising control
or management.
3. Purchase securities on margin, except that the Fund may obtain such
short-term credits as may be necessary for the clearance of securities
transactions.
4. Invest more than 15% of its net assets in securities which are illiquid.
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.
19
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. dollars, 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").
20
- -------------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------------
Independent Trustees
- -------------------------------------------------------------------------------------------------------------------
Dennis S. Aronowitz Trustee 2001 Professor of Law, Emeritus, Boston 31
Born: 1931 University School of Law (as of 1996);
Director, Brookline Bancorp.
- -------------------------------------------------------------------------------------------------------------------
Richard P. Chapman, Jr. Trustee 2001 Chairman, President and Chief Executive 31
Born: 1935 Officer, Brookline Bancorp. (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 2001 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 2001 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.
21
- ---------------------------------------------------------------------------------------------------------------------------
Number of John
Position(s) Trustee/ Principal Occupation(s) and other Hancock Funds
Name, Address (1) Held with Officer Directorships Overseen by
And Age Fund since(2) During Past 5 Years Trustee
- ---------------------------------------------------------------------------------------------------------------------------
William F. Glavin Trustee 2001 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 2001 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 2001 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 2001 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.
22
- ------------------------------------------------------------------------------------------------------------------------------
Number of John
Position(s) Trustee/ Principal Occupation(s) and other Hancock Funds
Name, Address (1) Held with Officer Directorships Overseen by
And Age Fund since(2) 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, 2001 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.
23
- -------------------------------------------------------------------------------------------------------------------
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 2001 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 2001 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 2001 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 2001 Vice President and Assistant Treasurer, N/A
Born: 1952 President the Adviser; Vice President and Treasurer
and of each of the John Hancock funds; Assistant
Treasurer Treasurer of each of the John Hancock funds
(until 2001).
- -------------------------------------------------------------------------------------------------------------------
Susan S. Newton Senior Vice 2001 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.
24
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.
Glavin, Moore and Ms. McGill Peterson. 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. Farrell 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, 2001.
The Investment Performance Committee consists of Messrs. Aronowitz, Chapman and
Cosgrove. 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.
25
- -----------------------------------------------------------------------------------------------------------
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 None $50,001-$100,000
- -----------------------------------------------------------------------------------------------------------
Richard P. Chapman, Jr. None Over $100,000
- -----------------------------------------------------------------------------------------------------------
William J. Cosgrove None 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 None Over $100,000
- -----------------------------------------------------------------------------------------------------------
Interested Trustees
- -----------------------------------------------------------------------------------------------------------
John M. DeCiccio None Over $100,000
- -----------------------------------------------------------------------------------------------------------
Maureen R. Ford $1-$10,000 Over $100,000
- -----------------------------------------------------------------------------------------------------------
(1) This Fund does not participate in the John Hancock Deferred Compensation
Plan for Independent Trustees (the "Plan"). Under the Plan, an Independent
Trustee may defer his fees by electing to have the Adviser invest his fees
in one of the funds in the John Hancock complex that participates in the
Plan. Under these circumstances, the Trustee is not the legal owner of the
underlying shares, but does participate in any positive or negative return
on those shares to the same extent as all other shareholders. With regard
to Trustees participating in the Plan, if a Trustee was 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 as follows: 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 Mr. 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.
Total Compensation From the
Aggregate Compensation Fund and John Hancock Fund
from the Fund (1) Complex to Trustees (2)
---------------------- ---------------------------
Independent Trustees
- --------------------
Dennis J. Aronowitz $ 18 $ 72,000
Richard P. Chapman* 26 78,100
William J. Cosgrove* 21 75,100
Richard A. Farrell 21 75,000
Gail D. Fosler+ 18 72,000
William F. Glavin* 21 75,000
Dr. John A. Moore* 18 72,000
Patti McGill Peterson 18 72,000
John Pratt 18 72,100
---- --------
Total $179 $663,300
(1) Compensation is for the current fiscal year ending October 31, 2002.
26
(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 the 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 or
Trustees of one or more of the other funds for which the Adviser serves as
investment adviser.
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603,
was organized in 1968 and as of March 31, 2003 had approximately $26 billion in
assets under management in its capacity as investment adviser to the Fund and
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 $130 billion,
the Life Company is one of the ten largest life insurance companies in the
United States, and carries a high rating from Standard & Poor's and A. M. Best.
Founded in 1862, the Life Company has been serving clients for over 130 years.
The Fund has entered into an investment management contract with the Adviser
(the "Advisory Agreement"). Pursuant to the Advisory Agreement, the Adviser, in
conjunction with the Sub-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.
Alliance Capital Management L.P. ("Alliance") serves as Subadviser to the Fund
with respect to the Fund's growth and value investment strategies. Alliance, a
Delaware limited partnership, is a leading international investment adviser with
principal offices at 1345 Avenue of the Americas, New York, NY 10105. Alliance
Capital Management Corporation ("ACMC") is the general partner of Alliance and
an indirect wholly-owned subsidiary of AXA Financial, Inc. ("AXA Financial"). As
of June 30, 2001 December 31, 2002, Alliance Capital Management Holding L.P.
("Alliance Holding") owned approximately 29.9% 30.7% of the outstanding units of
limited partnership interest in Alliance ("Alliance Units"). ACMC is the general
partner of Alliance Holding, whose equity interest are traded on the New York
Stock Exchange in the form of units ("Alliance Holding Units"). As of June 30,
2001 December 31, 2002, AXA Financial, together with certain of its wholly-owned
subsidiaries, including ACMC, beneficially owned 2.1% 1.9% of the outstanding
Alliance Holding Units and 51.8% 55.7% of the outstanding Alliance Units. AXA
Financial, a Delaware corporation, is a wholly-owned subsidiary of AXA, a French
company.
The Adviser has entered into a Sub-Advisory Agreement with the Sub-Adviser under
which the Sub-Adviser, subject to the review of the Trustees and the overall
supervision of the Adviser, is responsible for managing the investment
operations of the growth and value portion of the Fund
27
and the composition of these portions of the Fund's portfolio and furnishing the
Fund with advice and recommendations with respect to investments, investment
policies and the purchase and sale of securities.
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
memberships; insurance premiums; and any extraordinary expenses.
As compensation for its services under the Advisory Agreement, the Fund pays the
Adviser a fee monthly based on an annual rate of 0.85% of the average of the
daily net assets of the Fund.
From time to time, the Adviser may reduce its fee or make other arrangements to
limit the Fund's expenses to a specified percentage of average daily net assets.
The Adviser retains the right to reimpose a fee and recover any other payments
to the extent that, at the end of any fiscal year, the Fund's annual expenses
fall below this limit. The Adviser has agreed to limit the Fund's expenses
(excluding 12b-1 fees) to 1.20% of the Fund's average daily net assets. The
Adviser reserves the right to terminate this limitation in the future.
For the period from the commencement of operations of the Fund on February 25,
2002, to October 31, 2002, advisory fees payable to the Fund's adviser amounted
to $124,294, prior to the expense reduction by the Adviser. After the expense
reduction, the fund paid no advisory fee for the period ended October 31, 2002.
As provided in the Sub-Advisory Agreement, the Adviser (not the Fund) pays
Alliance a monthly subadvisory fee. For the first year, beginning on the date
the Fund commences operations, the Adviser will pay the Sub-Adviser a
subadvisory fee at an annual rate of 0.500% of the average net assets in the
Fund managed by the Sub-Adviser. Thereafter, the fee shall be calculated at the
following annual rates:
0.900% on the first $20 million of average net assets managed by the
Sub-Adviser;
0.750% on the next $20 million of average net assets managed by the
Sub-Adviser;
0.600% on the next $20 million of average net assets managed by the
Sub-Adviser;
0.400% on the next $40 million of average net assets managed by the
Sub-Adviser;
0.300% on the next average net assets in excess of $100 million managed by
the Sub-Adviser.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser, the Sub-Adviser or their respective
affiliates provide investment advice. Because of different investment objectives
or other factors, a particular security may be bought for one or more funds or
clients when one or more are selling the same security. If opportunities for
purchase or sale of securities by the Adviser or Sub-Adviser for the Fund or for
other funds or clients for which the Adviser or Sub-Adviser renders investment
advice arise for consideration at or about the same time, transactions in such
securities will be made, insofar as feasible, for the
28
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, the
Sub-Adviser or their respective affiliates may increase the demand for
securities being purchased or the supply of securities being sold, there may be
an adverse effect on price.
Pursuant to the Advisory Agreement and Sub-Advisory Agreement, the Adviser and
Sub-Advisers 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 their
respective Agreements relates, except a loss resulting from willful misfeasance,
bad faith or gross negligence on the part of the Adviser or Sub-Adviser in the
performance of their duties or from their reckless disregard of the 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 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 Sub-adviser 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 Sub-Adviser. 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
Sub-adviser; (2) the investment performance of the Fund; (3) the fair market
value of the services provided by the Adviser and Sub-Adviser; (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 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.
In approving the Fund's Advisory Agreement and Sub-Advisory Agreement, the Board
considered and evaluated various factors, including the terms and conditions of
the Agreements, including the nature, extent and quality of the services to be
provided to the Fund by the Adviser and Sub-Adviser and the structure and rates
of the investment advisory fees to be charged for those services. On the basis
of its review, the Board of Trustees found that the terms of the Investment
Advisory Agreement and Sub-Advisory Agreement were fair and reasonable and in
the best interest of the Fund's shareholders.
The Advisory Agreement, Sub-Advisory Agreement and Distribution Agreement
(discussed below) will continue in effect from year to year, provided that its
continuance is approved annually both by (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
29
"interested persons" of any such parties. These agreements may be terminated on
60 days written notice by any party or by a vote of a majority of the
outstanding voting securities of the Fund and will terminate automatically if it
is assigned. The Sub-Advisory Agreement will terminate automatically upon the
termination of the Advisory Agreement.
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 period from the commencement of operations of the
Fund on February 25, 2002 to October 31, 2002, the Fund paid the Adviser $3,084
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 of the Fund are also sold by selected
broker-dealers (the "Selling Brokers") which 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 which 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
period from the commencement of operations of the Fund on February 25, 2002, to
October 31, 2002 were $85,567. The underwriting commissions for sales of the
Fund's Class C shares for the period from the commencement of operations of the
Fund on February 25, 2002, to October 31, 2002 were $62,085. 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 shares 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 fees 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 the 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 it incurs 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
30
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 with no additional liability for these expenses to the shareholders and the
Fund. For the fiscal year ended October 31, 2002, an aggregate amount of
$280,404 of distribution expenses, or 3.08% 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 12b-1 fees in prior
periods. For the fiscal year ended October 31, 2002, an aggregate of $162,076 of
distribution expenses, or 2.96% 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 12b-1 fess in prior periods.
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.
Pursuant to the Plans, at least quarterly, John Hancock Funds provides 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 its
continuance is approved at least annually by a majority of both the Trustees and
the Independent Trustees. The Plans provide that they may be terminated without
penalty, (a) by a 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 the 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 the
formula based upon gross sales dollars and/or average daily net assets of each
such class, as may be approved from time to time by vote of a majority of the
Trustees. From time to time, the Fund may participate in joint distribution
activities with other Funds and the costs of those activities will be borne by
each Fund in proportion to the relative net asset value of the participating
Fund.
31
During 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
Prospectuses to Expenses of Compensation Interest, Carrying
New John Hancock to Selling or Other Finance
Shares Advertising Shareholders Funds Brokers Charges
------ ----------- --------------- ------------ ------------ ------------------
Class A $ 7,062 $ 362 $1,926 $ 4,834 $ 0
Class B $34,285 $1,758 $1,020 $20,524 $4,185
Class C $20,705 $1,142 $ 758 $14,566 $ 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.
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 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 and 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.
32
Broker receives
Sales charge paid Broker receives 12b-1 service fee Total broker
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 shares of
$1 million or more (4)
- ----------------------
First $1M - $4,999,999 -- 0.75% 0.25% 1.00% (2)
Next $1 - $5M above that -- 0.25% 0.25% 0.50%
Next $1 or more above that -- 0.00% 0.25% 0.25%
Broker receives
Broker receives 12b-1 service fee Total broker
maximum 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 12b-1 service fee Total broker
maximum 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 -- 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) Group investments may be eligible for 1% on asset levels of $5 million and
higher.
(3) After first year broker receives 12b-1 fees quarterly in arrears.
(4) Includes new investments aggregated with investments since the last annual
reset. John Hancock Funds may take recent redemptions into account in
determining if an investment qualifies as a new investment.
CDSC revenues collected by John Hancock Funds may be used to pay brokers
commissions when there is no initial sales charge.
33
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 are generally valued at last
sale price on the day of valuation or in the case of securities traded on
NASDAQ, the NASDAQ official closing price. 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 a determination of the Fund's NAV. If quotations
are not readily available, or the value has been materially affected by the
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 of 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.
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
34
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, grandparents, grandchildren, mother, father, sister,
brother, mother-in-law, father-in-law, daughter-in-law, son-in-law, niece,
nephew 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 Certain retirement plans participating in Merrill Lynch servicing programs
offered in Class A shares, including transferee recording arrangements,
Merrill Lynch Connect Arrangements and third party administrator
recordkeeping arrangements. 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%
Class C shares may be offered without a front-end sales charge to:
35
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, Raymond James Financial
Services or Raymond James & Associates omnibus account. However, a CDSC may
apply if the shares are sold within 12 months of purchase.
o Certain retirement plans participating in Merrill Lynch servicing programs
offered in Class C shares, including transferee recording arrangements,
Merrill Lynch Connect Arrangements and third party administrator
recordkeeping arrangements. See your Merrill Lynch Financial Consultant for
further information. Merrill Lynch retirement plans are waived from CDSC.
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.
36
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 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 such sales charge as may be due. By
signing the LOI, the investor authorizes Signature Services to act as his
attorney-in-fact to redeem any escrowed Class A shares and adjust the sales
charge, if necessary. A LOI does not constitute 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 that 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 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.
37
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.)
* Redemptions made under the Reinstatement Privilege, as described in "Sales
Charge Reductions and Waivers" of the Prospectus.
38
* Redemption 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, this waiver does not apply to periodic
withdrawal plan redemptions of Class A shares that are subject to a CDSC.)
* Certain retirement plans participating in Merrill Lynch servicing programs
offered in Class A, Class B and Class C shares, including transferee
recording arrangements, Merrill Lynch Connect Arrangements and third party
administrator recordkeeping arrangements. See your Merrill Lynch Financial
Consultant for further information.
* Redemptions of Class A shares made after one year from the inception date
of a retirement plan at John Hancock.
* Redemption of Class A shares by retirement plans that invested through the
PruArray Program sponsored by Prudential Securities.
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 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 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.
39
- --------------------------------------------------------------------------------------------------------------
Type of 401 (a) Plan 403 (b) 457 IRA, IRA Non-
Distribution (401 (k), MPP, Rollover retirement
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 annuity annuity annuity annuity value annually
Class C 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 Funds 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.
40
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 shareholders 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 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
41
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 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:
- ---------------------------------------------------------------------
Certain retirement plans participating in Merrill Lynch servicing programs
offered in Class A and Class C shares, including transferee recording
arrangements, Merrill Lynch Connect Arrangements and third party administrator
recordkeeping arrangements. See your Merrill Lynch Financial Consultant for
further information.
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).
42
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 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 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
class expenses properly allocable to that class of shares, subject to the
conditions the Internal Revenue Service imposes with respect to the
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,
43
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 Fund. 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 for 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.
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 distributions requirements.
44
Distribution 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 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.
The Fund may be subject to withholding and other taxes imposed by foreign
countries with respect to their investments in foreign securities. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes. Because more than 50% of the Fund's assets at the close of any taxable
year will not consist of stocks or securities of foreign corporations, the Fund
will be unable to pass such taxes through to shareholders (as additional income)
along with a corresponding entitlement to a foreign tax credit or deduction. The
Fund will deduct the foreign taxes it pays in determining the amount it has
available for distribution to shareholders.
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 asset in investments producing such passive income ("passive foreign
investment companies"), the Fund could be subject to Federal income tax and
additional interest charges on "excess distributions" received from such
companies or gain from the sale of stock in such companies, even if all income
or gain actually received by the Fund is timely distributed to its shareholders.
The Fund would not be able to pass through to its shareholders any credit or
deduction for such a tax. 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 holdings in passive foreign investment companies or
make an available election to minimize its tax liability or maximize its return
for 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 currencies, or payables or receivables
denominated in 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 from 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.
45
Certain options, futures, and forward foreign currency contracts undertaken by
the Fund could 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 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 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 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) that in a transaction 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
46
excess was retained and not exhausted by the carry forward of prior years'
capital losses, it would be subject to Federal income tax in the hands of the
Fund. Upon proper designation 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 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. Presently, there are no realized capital loss carryforwards
available to offset future net realized capital gains.
Investment in debt obligations that are at risk of or in default present special
tax issues for the Fund. Tax rules are not entirely clear about issues such as
when the Fund may cease to accrue interest, original issue discount, or market
discount, when and to what extent deductions may be taken for bad debts or
worthless securities, how payments received on obligations in default should be
allocated between principal and income, and whether exchanges of debt
obligations in a workout context are taxable. These and other issues will be
addressed by the Fund, in the event it acquires or holds any such obligations,
in order to reduce the risk of distributing insufficient income to preserve its
status as a regulated investment company and seeks to avoid becoming subject to
Federal income or excise tax.
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 the stock of such corporations held by the Fund, for U.S. Federal
income tax purposes, for at least 46 days (91 days in the case of certain
preferred stock) 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 the
excess (if any) of a corporate shareholder's adjusted current earnings over its
alternative minimum taxable income, which may increase its alternative minimum
tax liability. Additionally, any corporate shareholder should consult its tax
adviser regarding the possibility that its basis in its shares may be reduced,
for Federal income tax purposes, by reason of "extraordinary dividends" received
with respect to the shares, and, to the extend such basis would be reduced below
zero, that current recognition of income would be required.
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
47
taxable year substantially all of its net income and net capital gains,
including such income or gain, to qualify as a regulated investment company and
avoid liability for any federal income or excise tax. Therefore, the Fund may
have to dispose of its portfolio securities under disadvantageous circumstances
to generate cash, or may 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 it may in its sole discretion provide relevant
information to shareholders.
The Fund will be required to report to the Internal Revenue Service (the "IRS")
all taxable distributions to shareholders, as well as gross proceeds from the
redemption or exchange of Fund shares, except in the case of certain exempt
recipients, i.e., corporations and certain other investors distributions to
which are exempt from the information reporting provisions of the Code. Under
the backup withholding provisions of Code Section 3406 and applicable Treasury
regulations, all such reportable distributions and proceeds may be subject to
backup withholding of federal income tax 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.
Different tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions and certain
prohibited transactions, is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
The foregoing discussion relates solely to Federal income tax law as applicable
to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under 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 shares of the Fund may
also be subject to state and local taxes. Shareholders should consult their own
tax advisers as to the Federal, state or local tax consequences of ownership of
shares of, and receipt of distributions from, the Fund in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their
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, W-8BEN
or other authorized withholding certificate is on file and to backup withholding
on certain other
48
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 cumulative total return before taxes of Class A
shares of the Fund since the commencement of operations on February 25, 2002 was
- -27.16%.
As of October 31, 2002, the cumulative togtal return before taxes of Class B
shares of the Fund since the commencement of operations on February 25, 2002,
was -27.42%.
As of October 31, 2002, the cumulative total return before taxes of Class C
shares of the Fund since the commencement of operations on February 25, 2002,
was -25.11%.
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 or 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 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 period since the commencement of operations, that would
equate the initial amount invested to the ending redeemable value according to
the following formula:
49
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 period since 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 = 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. 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 or Class
C shares or the CDSC on Class B or Class C shares into account. Excluding the
Fund's sales charge on Class A and Class C shares and the CDSC on Class B or
Class C shares from a total return calculation produces a higher total return
figure.
The Fund may advertise yield, where appropriate. The Fund's yield is computed by
dividing net investment income per share determined for a 30-day period by the
maximum offering price per share (which includes the full sales charge) on the
last day of the period, according to the following standard formula:
50
6
Yield = 2 ([a-b) +1] - 1)
---
cd
Where:
a = dividends and interest earned during the period.
b = net expenses accrued during the period.
c = the average daily number of fund shares outstanding during the
period that would be entitled to receive dividends.
d = the maximum offering price per share on the last day of the period
(NAV where applicable).
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 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.
The Fund may also utilize research and analysis from sources such as Zephyr and
Strategic Insight.
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
51
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 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 $32,580 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
52
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 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 Subadviser's will be primarily responsible for the
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 year ended
October 31, 2002, the Fund paid negotiated commission of $108,806.
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
53
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, 2001 and 2002, the Fund did not execute portfolio
transactions with Signator.
Alliance Capital Management L.P. has several affiliates engaged in the brokerage
business throughout the United States and abroad (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.
With respect to the portion of the Fund managed by the Adviser, 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 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 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.
The Sub-Adviser has also adopted procedures for partial-allocations. Accounts
under the supervision of the Sub-Adviser are generally divided into two
categories: 1) those with equity equal to or greater than $5 million (including
relationships with combined equity equal to or greater than $5 million), and 2)
those with equity less than $5 million. Accounts or account relationships
falling into the first category will receive the appropriate partial allocation
rounded to the nearest 100 shares if the result of the partial allocation is
1,000 shares or more. In any account or account relationship in this category
where, as a result of the partial allocation, the account or account
relationship would receive less than 1,000 shares, those accounts or account
relationships are then chosen on a random basis to receive, if selected, the
lesser of 1,000 shares or the number of shares remaining to be filled.
Transactions for accounts or account relationships with equity of less than $5
million will be allocated on an all-or-nothing basis by random selection. This
category of accounts and account relationships will receive roughly the
percentage of the execution to which it is entitled as a whole (e.g., if this
group represents 30% of the entire order, then approximately 30% of the shares
executed will be allocated to the group). However, if there are shares remaining
that would result in a partial allocation to an account with equity of less than
$5 million, these shares will be allocated, if possible, to accounts with equity
greater than $5 million if there are partials that have not been completed. To
the extent there are
54
none, these shares will be allocated to one account with equity of less than $5
million, resulting in a partial allocation. While a defined relationship of
accounts will generally be treated as a single trading entity from the
standpoint of allocation, account-specific factors, such as differences in risk
tolerance, tax considerations or permitted investment techniques, may make
treatment of the relationship as an entity inappropriate.
Other investment advisory clients advised by the Adviser may also invest in the
same securities as the Fund. When these clients buy or sell the same securities
at substantially the same time, the Adviser may average the transactions as to
price and allocate the amount of available investments in a manner which the
Adviser believes to be equitable to each client, including the Fund. 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.
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 which 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, 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.
FURTHER DETAILS
The Large Cap Growth Team
- -------------------------
Alliance Capital Management, L.P. manages the Fund's large capitalization growth
stocks utilizing its Large Cap Growth Strategy. Alliance is a leading growth
manager for the institutional investment market - pension funds, banks,
insurance companies, foundations and endowments. Alfred Harrison, CFA, Vice
Chairman of the Board with 41 years of investment experience, and Stephanie
Simon, CFA, Senior Vice President with 15 years of investment experience, direct
the strategy.
55
The Large Cap Core Team
- -----------------------
John Hancock Advisers, LLC manages the large capitalization core portion of the
Fund. Paul Berlinguet, Vice President and Portfolio Manager with 17 years of
investment experience, Robert Junkin, CPA, Vice President and Portfolio Manager
with 15 years of investment experience, Robert Uek, CFA, Vice President and
Portfolio Manager with 13 years of investment experience, Thomas Norton, CFA,
Vice President and Portfolio Manager with 17 years of investment experience and
Roger Hamilton, Vice President and Portfolio Manager with 23 years of investment
experience, direct the strategy.
The Large Cap Value Team
- ------------------------
Alliance Capital's Bernstein Investment Research and Management Unit manages the
large capitalization value portion of the Fund utilizing its Strategic Value
Strategy. Bernstein combined with Alliance Capital Management in 2000 and is a
leading value manager serving institutions, wealthy individuals and families.
Lewis A. Sanders, CFA, Vice Chairman and Chief Investment Officer with 36 years
of investment experience, and Marilyn G. Fedak, CFA, Chief Investment Officer -
U.S. Value Equities and Executive Vice President with 31 years of investment
experience, direct the strategy.
Asset Allocation
- ----------------
John Hancock Advisers, LLC, aims to capture the best performance of the combined
portfolio each year. William L. Braman, Executive Vice President and Chief
Investment Officer with 26 years of investment experience, directs the asset
allocation team.
56
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). Incomplete correlation can result
in unanticipated risks. (e.g., short sales, financial futures and options;
securities and index options, currency contracts).
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., borrowing; reverse repurchase agreements, repurchase
agreements, securities lending, non-investment-grade securities, financial
futures and options; securities and index options).
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., foreign
equities, financial futures and options; securities and index options, currency
contracts).
Information risk The risk that key information about a security or market is
inaccurate or unavailable. (e.g., non-investment-grade securities, foreign
equities).
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.,
non-investment-grade securities, financial futures and options; securities and
index options).
Leverage risk Associated with securities or practices (such as borrowing) that
multiply small index or market movements into large changes in value. (e.g.,
borrowing; reverse repurchase agreements, when-issued securities and forward
commitments).
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
A-1
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. (e.g., short sales, financial futures and options
securities and index options; currency contracts).
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. (e.g., short sales, financial futures
and options securities and index options; currency contracts).
o 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., non-investment-grand securities,
short sales, restricted and illiquid securities, financial futures and
options securities and index options; currency contracts).
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 the price originally paid for it, or 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, non-investment-grade securities,
foreign equities, financial futures and options; securities and index options
restricted and illiquid securities).
Natural event risk The risk of losses attributable to natural disasters, crop
failures and similar events. (e.g., foreign equities).
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;
financial futures and options; securities and index options, currency
contracts).
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 equities).
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 securities,
restricted and illiquid securities).
A-2
APPENDIX B
Description of Bond Ratings
The ratings of Moody's Investors Service, Inc. and Standard & Poor's Ratings
Group represent their opinions as to the quality of various debt instruments
they undertake to rate. It should be emphasized that ratings are not absolute
standards of quality. Consequently, debt instruments with the same maturity,
coupon and rating may have different yields while debt instruments of the same
maturity and coupon with different ratings may have the same yield.
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuations of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment at some time in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack the characteristics of 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.
B-1
STANDARD & POOR'S RATINGS GROUP
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B: Debt rated BB, and B 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 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.
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
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 (0000928816-02-000990) and
are included in and incorporated by reference into Part B of the Registration
Statement for John Hancock Growth Trends Fund (file nos. 811-4079 and 2-92548).
John Hancock Equity Trust
John Hancock Large Cap Spectrum Fund
Statement of Assets and Liabilities as of October 31, 2002
Statement of Operations for October 31, 2002
Statement of Changes in Net Assets October 31, 2002
Financial Highlights.
Schedule of Investments as of October 31, 2002
Notes to Financial Statements.
Report of Independent Auditors.
F-1
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
Statement of Additional Information
July 1, 2003
John Hancock Dividend Performers Fund
John Hancock Independence Diversified Core Equity Fund II
(each, a "Fund" and collectively, the "Funds")
This Statement of Additional Information provides information about the John
Hancock Dividend Performers Fund ("Dividend Performers Fund") and John Hancock
Independence Diversified Core Equity Fund II ("Diversified Core Equity Fund II")
in addition to the information that is contained in the current Prospectus.
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Funds' Prospectuses, copies of which can be obtained
free of charge by writing or telephoning:
John Hancock Signature Services, Inc.
John Hancock Way, Suite 1001
Boston, Massachusetts 02217-1001
1-888-972-8696
TABLE OF CONTENTS
Page
Organization of the Funds 2
Investment Objectives and Policies 2
Investment Restrictions 13
Those Responsible for Management 16
Investment Advisory and Other Services 24
Distribution Contract 28
Sales Compensation 28
Net Asset Value 29
Additional Services and Programs 29
Purchases and Redemptions Through Third Parties 30
Special Redemptions 30
Description of the Funds' Shares 30
Tax Status 31
Calculation of Performance 36
Brokerage Allocation 38
Transfer Agent Services 41
Custody of Portfolio 41
Independent Auditors 41
Appendix A--Description of Securities Ratings A-1
Financial Statements F-1
ORGANIZATION OF THE FUNDS
Each Fund is a series of John Hancock Institutional Series Trust (the "Trust")
an open-end investment management company organized as a Massachusetts business
trust on October 31, 1994 under the laws of the Commonwealth of Massachusetts.
The investment adviser of each Fund is John Hancock Advisers, LLC (prior to
February 1, 2002, John Hancock Advisers, Inc.) (the "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 investment sub-adviser of the Independence Diversified Core Equity Fund II
is Independence Investment LLC ("Independence") (formerly Independence
Investment Associates, Inc.). Independence is sometimes referred to herein as
the "Sub-Adviser." The Sub-Adviser is responsible for providing investment
advice to the Diversified Core Equity Fund II, subject to the review of the
Trustees and overall supervision of the Adviser. Independence is an affiliate of
the Life Company.
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of each Fund's investment
objective and policies as discussed in the Prospectus. There is no assurance
that either Fund will achieve its investment objective.
Each Fund has adopted certain investment restrictions that are detailed under
"Investment Restrictions" in this Statement of Additional Information where they
are classified as fundamental or nonfundamental. Those restrictions designated
as fundamental may not be changed without shareholder approval. Each Fund's
investment objective, investment policies and nonfundamental restrictions,
however, may be changed by a vote of the Trustees without shareholder approval.
If there is a change in a Fund's investment objective, shareholders should
consider whether the Fund remains an appropriate investment in light of their
then current financial position and needs.
For a further description of each Fund's investment objectives, policies and
restrictions see "Goal and Strategy" and "Main Risks" in the Prospectus and
"Investment Restrictions" in this Statement of Additional Information. Effective
October 1, 1999, existing shares of Diversified Core Equity Fund II were
designated as "Class I" shares. See Appendix A to this Statement of Additional
Information for a description of the quality categories of corporate bonds in
which certain of the Funds may invest.
With respect to Dividend Performers Fund's investment policy of investing at
least 80% of its Assets in "dividend performers", "Assets" means net asset plus
the amount of any borrowings for investment purposes. Also, with respect to this
80% investment policy, the Fund will notify shareholders at least 60 days prior
to any change in this policy.
With respect to the Diversified Core Equity Fund II's investment policy of
investing at least 80% of its Assets in equity securities, "Assets" is defined
as net assets plus the amount of any borrowings for investment purposes. Also,
with respect to this 80% investment policy, the Fund will notify shareholders at
least 60 days prior to any change in this policy.
Common stocks. Dividend Performers Fund and the Diversified Core Equity Fund II
may invest in common stocks. Common stocks are shares of a corporation or other
entity that entitle the holder to a pro rata share of the profits of the
corporation, if any, without preference over any other shareholder or class of
shareholders, including holders of such entity's preferred stock and other
senior equity. Ownership of common stock usually carries with it the right to
vote and, frequently, an exclusive right to do so. Common stocks have the
potential to outperform fixed-income securities over the long term. Common
stocks provide the most potential for growth, yet are the more volatile of the
two asset classes.
2
Debt securities. Under normal conditions, Dividend Performers Fund will not
invest in any debt securities. However, in abnormal conditions, Dividend
Performers Fund may temporarily invest in U.S. Government securities and U.S.
Government agency securities with maturities of up to three years, and may also
invest more than 10% of total assets in cash and/or cash equivalents (including
U.S. Government securities maturing in 90 days or less.) Debt securities of
corporate and governmental issuers in which the Funds may invest are subject to
the risk of an issuer's inability to meet principal and interest payments on the
obligations (credit risk) and may also be subject to price volatility due to
such factors as interest rate sensitivity, market perception of the
creditworthiness of the issuer and general market liquidity (market risk).
Preferred stocks. Dividend Performers Fund and the Diversified Core Equity Fund
II may invest in preferred stocks. Preferred stock generally has a preference to
dividends and, upon liquidation, over an issuer's common stock but ranks junior
to debt securities in an issuer's capital structure. Preferred stock generally
pays dividends in cash (or additional shares of preferred stock) at a defined
rate but, unlike interest payments on debt securities, preferred stock dividends
are payable only if declared by the issuer's board of directors. Dividends on
preferred stock may be cumulative, meaning that, in the event the issuer fails
to make one or more dividend payments on the preferred stock, no dividends may
be paid on the issuer's common stock until all unpaid preferred stock dividends
have been paid. Preferred stock also may be subject to optional or mandatory
redemption provisions.
Convertible securities. Dividend Performers Fund may invest in convertible
preferred stocks. Investments in convertible securities are not subject to the
rating criteria with respect to non-convertible debt obligations. As with all
debt securities, the market value of convertible securities tends to decline as
interest rates increase and, conversely, to increase as interest rates decline.
The market value of convertible securities can also be heavily dependent upon
the changing value of the equity securities into which such securities are
convertible, depending on whether the market price of the underlying security
exceeds the conversion price. Convertible securities generally rank senior to
common stocks in an issuer's capital structure and consequently entail less risk
than the issuer's common stock. However, the extent to which such risk is
reduced depends upon the degree to which the convertible security sells above
its value as a fixed-income security.
Investments in Foreign Securities and Emerging Countries. Each of the Funds may
invest in U.S. dollar denominated securities of foreign issuers and in American
Depositary Receipts.
ADRs (sponsored and unsponsored) are receipts, typically issued by U.S. banks,
which evidence ownership of underlying securities issued by a foreign
corporation. ADR's are publicly traded on a U.S. stock exchange or in the
over-the-counter market. An investment in foreign securities including ADRs may
be affected by changes in currency rates and in exchange control regulations.
Issuers of unsponsored ADRs are not contractually obligated to disclose material
information including financial information, in the United States and,
therefore, there may not be a correlation between such information and the
market value of the unsponsored ADR. Foreign companies may not be subject to
accounting standards or government supervision comparable to U.S. companies, and
there is often less publicly available information about their operations.
Foreign companies may also be affected by political or financial inability
abroad. These risk considerations may be intensified in the case of investments
in ADRs of foreign companies that are located in emerging market countries. ADRs
of companies located in these countries may have limited marketability and may
be subject to more abrupt or erratic price movements.
Repurchase Agreements. Each Fund may enter into repurchase agreements. In a
repurchase agreement the Fund buys a security for a relatively short period
(usually not more than 7 days) subject to the obligation to sell it back to the
issuer at a fixed time and price plus accrued interest. The Fund will enter into
3
repurchase agreements only with member banks of the Federal Reserve System and
with "primary dealers" in U.S. Government securities. The Adviser will
continuously monitor the creditworthiness of the parties with whom the Fund
enters into repurchase agreements.
Each Fund has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, 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 and Other Borrowings. Each Fund may also enter
into reverse repurchase agreements which involve the sale of U.S. Government
securities held in its portfolio to a bank with an agreement that a Fund will
buy back the securities at a fixed future date at a fixed price plus an agreed
amount of "interest" which may be reflected in the repurchase price. Reverse
repurchase agreements are considered to be borrowings by a Fund. Reverse
repurchase agreements involve the risk that the market value of securities
purchased by each Fund with proceeds of the transaction may decline below the
repurchase price of the securities sold by a Fund which it is obligated to
repurchase. Each Fund will also continue to be subject to the risk of a decline
in the market value of the securities sold under the agreements because it will
reacquire those securities upon effecting its repurchase. To minimize various
risks associated with reverse repurchase agreements, a Fund will establish a
separate account consisting of liquid securities, of any type or maturity, in an
amount at least equal to the repurchase prices of the securities (plus any
accrued interest thereon) under such agreements.
In addition, a Fund will not enter into reverse repurchase agreements or other
borrowings except from banks temporarily for extraordinary or emergency purposes
(not for leveraging) in amounts not to exceed 33 1/3% of a Fund's total assets
(including the amount borrowed) taken at market value. Each Fund will not use
leverage to attempt to increase income. Each Fund will 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. Each Fund may purchase securities that are not registered
("restricted securities") under the Securities Act of 1933 ("1933 Act"),
including commercial paper issued in reliance on Section 4(2) of the 1933 Act
and securities offered and sold to "qualified institutional buyers" under Rule
144A under the 1933 Act. Each Fund will not invest more than 15% of its net
assets in illiquid investments. If the Trustees determine, based upon a
continuing review of the trading markets for specific Section 4(2) paper or Rule
144A securities, that they are liquid, they will not be subject to the 15% limit
on illiquid investments. The Trustees may adopt guidelines and delegate to the
Adviser the daily function of determining the monitoring and liquidity of
restricted securities. The Trustees, however, will retain sufficient oversight
and be ultimately responsible for the determinations. The Trustees will
carefully monitor the Fund's investments in these securities, focusing on such
important factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing the
level of illiquidity in the Fund if qualified institutional buyers become for a
time uninterested in purchasing these restricted securities.
Options on Securities Indices. Dividend Performers Fund may purchase and write
(sell) call and put options 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. Dividend Performers Fund may write covered put and call options and
purchase put and call options for any non-speculative purpose. These include
using options 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.
4
Writing Covered Options. A call option on a securities index written by a Fund
obligates the Fund to make a cash payment reflecting any increase in the index
above a specified level to the holder of the option if the option is exercised
at any time before the expiration date. A put option on a securities index
written by a Fund obligates the Fund to make a cash payment reflecting any
decrease in the index below a specified level from the option holder if the
option is exercised at any time before the expiration date. Options on
securities indices do not involve the actual purchase or sale of securities. In
addition, securities index options are designed to reflect price fluctuations in
a group of securities or segment of the securities market rather than price
fluctuations in a single security. Writing covered call options may deprive a
Fund of the opportunity to profit from an increase in the market price of the
securities in its portfolio. Writing covered put options may deprive a Fund of
the opportunity to profit from a decrease in the market price of the securities
to be acquired for its portfolio.
All call and put options written by Dividend Performers 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 Fund may also cover call options on a securities index by
owning securities whose price changes are expected to be similar to those of the
underlying index.
Dividend Performers 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. A Fund would normally purchase index call options in
anticipation of an increase, or index put options in anticipation of a decrease
("protective puts"), in the market value of securities of the type in which it
may invest. A Fund may also sell call and put options to close out its purchased
options.
The purchase of an index call option would entitle a Fund, in return for the
premium paid, to receive a cash payment reflecting any increase in the index
above a specified level upon exercising the option during the option period. A
Fund would ordinarily realize a gain on the purchase of a call option if the
amount of this cash payment exceeded 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 an index put option would entitle a Fund, in exchange for the
premium paid, to receive a cash payment reflecting any decrease in the index
below a specified level upon exercising the option 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. A Fund would ordinarily
realize a gain if, during the option period, the level of the index 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.
Dividend Performers 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
5
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 a
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 a Fund is unable
to effect a closing purchase transaction with respect to covered options it has
written, the Fund will not be able to 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.
Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options). If trading were discontinued, the
secondary market on that exchange (or in that class or series of options) would
cease to exist. However, outstanding options on that exchange that had been
issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
Dividend Performers 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 markets.
Futures Contracts and Options on Futures Contracts. Dividend Performers Fund may
purchase and sell various kinds of futures contracts on securities indices, and
purchase and write call and put options on these futures contracts, for any
non-speculative purpose. Dividend Performers 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 Dividend Performers 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. An index futures contract may generally be described as an
agreement between two parties to deliver a final cash settlement price based on
an increase or decrease in the level of the index above or below a specified
level. Unlike some futures contracts, index futures do not involve the physical
delivery of securities 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. A clearing corporation associated with the exchange on which futures
contracts are traded guarantees that, if still open, the contract will be
performed on the settlement date.
6
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
securities prices are falling, a Fund can seek to offset a decline in the value
of its current portfolio securities through the sale of futures contracts. When
securities prices are rising, a Fund, through the purchase of futures contracts,
can attempt to secure better rates or prices than might later be available in
the market when it effects anticipated purchases.
Dividend Performers 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 that would adversely affect the value of
the Fund's portfolio securities. Such futures contracts may be based on indices
that include securities held by the Fund or securities with characteristics
similar to those of the Fund's portfolio securities. 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 a Fund's portfolio securities would be substantially offset by a
decline in the value of the futures position.
On other occasions, a Fund may take a "long" position by purchasing index
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 rates then available in the applicable market to be less
favorable than prices that are currently available. Dividend Performers Fund may
also purchase index futures contracts as a substitute for transactions in
securities. For example, a Fund may engage in these substitution transactions in
order to remain fully invested in the stock market while maintaining a
sufficient cash position to meet the Fund's liquidity needs.
Options on Futures Contracts. Dividend Performers Fund may purchase and write
options on index futures for the same purposes as its transactions in index
futures contracts. The purchase of put and call options on index futures
contracts will give a 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, a 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 an index futures contract generates a premium
which may partially offset a decline in the value of a Fund's assets. By writing
a call option, a Fund becomes obligated, in exchange for the premium (upon
exercise of the option) to sell a futures contract if the option is exercised,
which may have a value higher than the exercise price. Conversely, the writing
of a put option on an index futures contract generates a premium which may
partially offset an increase in the price of securities that a Fund intends to
purchase. However, a Fund becomes obligated (upon exercise of the option) to
purchase a futures contract if the option is exercised, which may have a value
lower than the exercise price. The loss incurred by a Fund in writing options on
index futures is potentially unlimited and may exceed the amount of the premium
received.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option of the same series. There
is no guarantee that such closing transactions can be effected. A Fund's ability
to establish and close out positions on such options will be subject to the
development and maintenance of a liquid market.
7
Other Considerations. Dividend Performers Fund will engage in index futures and
related options transactions for bona fide hedging or other non-speculative
purposes. To the extent that a Fund is using futures and related options for
hedging purposes, futures contracts will be sold to protect against a decline in
the price of securities 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. A Fund will determine that the price fluctuations in the
futures contracts and options on futures used for hedging purposes are
substantially related to price fluctuations in securities held by the Fund or
securities or instruments which it expects to purchase. As evidence of its
hedging intent, Dividend Performers Fund expects that on 75% or more of the
occasions on which it takes a long index 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.
To the extent that a Fund engages in nonhedging transactions in futures
contracts and options on futures, the aggregate initial margin and premiums
required to establish these nonhedging positions will not exceed 5% of the net
asset value of the Fund's portfolio, after taking into account unrealized
profits and losses on any such positions and excluding the amount by which such
options were in-the-money at the time of purchase. Dividend Performers 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 index futures contracts and options on index futures involve
brokerage costs, require margin deposits and, in the case of contracts and
options that are economically equivalent to the purchase of securities, require
a 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 index futures contracts and options on futures may reduce
certain risks, these transactions themselves entail certain other risks. For
example, unanticipated changes in securities prices may result in a poorer
overall performance for a Fund than if it had not entered into any futures
contracts or options transactions.
Perfect correlation between a Fund's index 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 a Fund from closing out positions and limiting its losses.
Forward Commitment and When-Issued Securities. Each Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. A Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, a Fund
8
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time. When a Fund engages in forward commitment and
when-issued transactions, it relies on the seller to consummate the transaction.
The failure of the issuer or seller to consummate the transaction may result in
the Funds losing the opportunity to obtain a price and yield considered to be
advantageous. The purchase of securities on a when-issued and forward commitment
basis also involves a risk of loss if the value of the security to be purchased
declines prior to the settlement date.
On the date a Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in separate
account cash or liquid securities, of any type or maturity, equal in value to
the Fund's commitment. These assets will be valued daily at market, and
additional cash or securities will be segregated in a separate account to the
extent that the total value of the assets in the account declines below the
amount of the when-issued commitments. Alternatively, a Fund may enter into
offsetting contracts for the forward sale of other securities that it owns.
Warrants. Dividend Performers Fund may invest in warrants. Warrants entitle the
holder to buy equity securities at a specific price for a specific period of
time. Warrants tend to be more volatile than their underlying securities. Also,
the value of the warrant does not necessarily change with the value of the
underlying securities and a warrant ceases to have value if it is not exercised
prior to the expiration date.
Government Securities. Each Fund may invest in government securities. However,
under normal conditions, Dividend Performers Fund and will not invest in any
debt securities, with the exception of cash equivalents (which include U.S.
Government securities maturing in 90 days or less). In abnormal conditions,
Dividend Performers Fund may temporarily invest in U.S. Government securities
and U.S. Government agency securities with maturities of up to three years, and
may also invest more than 10% of total assets in cash and/or cash equivalents.
Certain U.S. Government securities, including U.S. Treasury bills, notes and
bonds, and Government National Mortgage Association certificates ("GNMA"), are
supported by the full faith and credit of the United States. Certain other U.S.
Government securities, issued or guaranteed by Federal agencies or government
sponsored enterprises, are not supported by the full faith and credit of the
United States, but may be supported by the right of the issuer to borrow from
the U.S. Treasury. These securities include obligations of the Federal Home Loan
Mortgage Corporation ("FHLMC"), and obligations supported by the credit of the
instrumentality, such as Federal National Mortgage Association Bonds ("FNMA").
No assurance can be given that the U.S. Government will provide financial
support to such Federal agencies, authorities, instrumentalities and government
sponsored enterprises in the future.
Mortgage-Backed Securities. The Diversified Core Equity Fund II may invest in
mortgage pass-through certificates and multiple-class pass-through securities,
such as real estate mortgage investment conduits ("REMIC") pass-through
certificates, collateralized mortgage obligations ("CMOs") and stripped
mortgage-backed securities ("SMBS"), and other types of "Mortgage-Backed
securities" that may be available in the future.
Guaranteed Mortgage Pass-Through Securities. Guaranteed mortgage pass-through
securities represent participation interests in pools of residential mortgage
loans and are issued by U.S. Governmental or private lenders and guaranteed by
the U.S. Government or one of its agencies or instrumentalities, including but
not limited to the GNMA, the FNMA and the FHLMC. GNMA certificates are
guaranteed by the full faith and credit of the U.S. Government for timely
payment of principal and interest on the certificates. FNMA certificates are
guaranteed by FNMA, a federally chartered and privately owned corporation, for
full and timely payment of principal and interest on the certificates. FHLMC
certificates are guaranteed by FHLMC, a corporate instrumentality of the U.S.
Government, for timely payment of interest and the ultimate collection of all
principal of the related mortgage loans.
Multiple-Class Pass-Through Securities and Collateralized Mortgage Obligations.
CMOs and REMIC pass-through or participation certificates may be issued by,
among others, U.S. Government agencies and instrumentalities as well as private
lenders. CMOs and REMIC certificates are issued in multiple classes and the
principal of and interest on the mortgage assets may be allocated among the
9
several classes of CMOs or REMIC certificates in various ways. Each class of
CMOs or REMIC certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Generally, interest is paid or accrues on all
classes of CMOs or REMIC certificates on a monthly basis.
Typically, CMOs are collateralized by GNMA, FNMA or FHLMC certificates but also
may be collateralized by other mortgage assets such as whole loans or private
mortgage pass-through securities. Debt service on CMOs is provided from payments
of principal and interest on collateral of mortgaged assets and any reinvestment
income thereon.
A REMIC is a CMO that qualifies for special tax treatment under the Code and
invests in certain mortgages primarily secured by interests in real property and
other permitted investments. Investors may purchase "regular" and "residual"
interest shares of beneficial interest in REMIC trusts although the Funds do not
intend to invest in residual interests.
Stripped Mortgage-Backed Securities. SMBS are derivative multiple-class
mortgage-backed securities. SMBS are usually structured with two classes that
receive different proportions of interest and principal distributions on a pool
of mortgage assets. A typical SMBS will have one class receiving some of the
interest and most of the principal, while the other class will receive most of
the interest and the remaining principal. In the most extreme case, one class
will receive all of the interest (the "interest only" class) while the other
class will receive all of the principal (the "principal only" class). The yields
and market risk of interest only and principal only SMBS, respectively, may be
more volatile than those of other fixed income securities. The staff of the SEC
considers privately issued SMBS to be illiquid.
Structured or Hybrid Notes. Diversified Core Equity Fund II may invest in
"structured" or "hybrid" notes. The distinguishing feature of a structured or
hybrid note is that the amount of interest and/or principal payable on the note
is based on the performance of a benchmark asset or market other than
fixed-income securities or interest rates. Examples of these benchmarks include
stock prices, currency exchange rates and physical commodity prices. Investing
in a structured note allows a Fund to gain exposure to the benchmark market
while fixing the maximum loss that the Fund may experience in the event that
market does not perform as expected. Depending on the terms of the note, a Fund
may forego all or part of the interest and principal that would be payable on a
comparable conventional note; a Fund's loss cannot exceed this foregone interest
and/or principal. An investment in structured or hybrid notes involves risks
similar to those associated with a direct investment in the benchmark asset.
Risk Factors Associated with Mortgage-Backed Securities. Investing in
Mortgage-Backed Securities involves certain risks, including the failure of a
counter-party to meet its commitments, adverse interest rate changes and the
effects of prepayments on mortgage cash flows. In addition, investing in the
lowest tranche of CMOs and REMIC certificates involves risks similar to those
associated with investing in equity securities. Further, the yield
characteristics of Mortgage-Backed Securities differ from those of traditional
fixed income securities. The major differences typically include more frequent
interest and principal payments (usually monthly), the adjustability of interest
rates, and the possibility that prepayments of principal may be made
substantially earlier than their final distribution dates.
Prepayment rates are influenced by changes in current interest rates and a
variety of economic, geographic, social and other factors and cannot be
predicted with certainty. Both adjustable rate mortgage loans and fixed rate
mortgage loans may be subject to a greater rate of principal prepayments in a
declining interest rate environment and to a lesser rate of principal
prepayments in an increasing interest rate environment. Under certain interest
rate and prepayment rate scenarios, a Fund may fail to recoup fully its
10
investment in Mortgage-Backed Securities notwithstanding any direct or indirect
governmental, agency or other guarantee. When a Fund reinvests amounts
representing payments and unscheduled prepayments of principal, it may receive a
rate of interest that is lower than the rate on existing adjustable rate
mortgage pass-through securities. Thus, Mortgage-Backed Securities, and
adjustable rate mortgage pass-through securities in particular, may be less
effective than other types of U.S. Government securities as a means of "locking
in" interest rates.
Conversely, in a rising interest rate environment, a declining prepayment rate
will extend the average life of many Mortgage-Backed Securities. This
possibility is often referred to as extension risk. Extending the average life
of a Mortgage-Backed Security increases the risk of depreciation due to future
increases in market interest rates.
Risk Associated With Specific Types of Derivative Debt Securities. Different
types of derivative debt securities are subject to different combinations of
prepayment, extension and/or interest rate risk. Conventional mortgage
pass-through securities and sequential pay CMOs are subject to all of these
risks, but are typically not leveraged. Thus, the magnitude of exposure may be
less than for more leveraged Mortgage-Backed Securities.
The risk of early prepayments is the primary risk associated with interest only
debt securities ("IOs"), super floaters, other leveraged floating rate
instruments and Mortgage-Backed Securities purchased at a premium to their par
value. In some instances, early prepayments may result in a complete loss of
investment in certain of these securities. The primary risks associated with
certain other derivative debt securities are the potential extension of average
life and/or depreciation due to rising interest rates.
These securities include floating rate securities based on the Cost of Funds
Index ("COFI floaters"), other "lagging rate" floating rate securities, floating
rate securities that are subject to a maximum interest rate ("capped floaters"),
Mortgage-Backed Securities purchased at a discount, leveraged inverse floating
rate securities ("inverse floaters"), principal only debt securities ("POs"),
certain residual or support tranches of CMOs and index amortizing notes. Index
amortizing notes are not Mortgage-Backed Securities, but are subject to
extension risk resulting from the issuer's failure to exercise its option to
call or redeem the notes before their stated maturity date. Leveraged inverse
IOs combine several elements of the Mortgage-Backed Securities described above
and thus present an especially intense combination of prepayment, extension and
interest rate risks.
Planned amortization class ("PAC") and target amortization class ("TAC") CMO
bonds involve less exposure to prepayment, extension and interest rate risk than
other Mortgage-Backed Securities, provided that prepayment rates remain within
expected prepayment ranges or "collars." To the extent that prepayment rates
remain within these prepayment ranges, the residual or support tranches of PAC
and TAC CMOs assume the extra prepayment, extension and interest rate risk
associated with the underlying mortgage assets.
Other types of floating rate derivative debt securities present more complex
types of interest rate risks. For example, range floaters are subject to the
risk that the coupon will be reduced to below market rates if a designated
interest rate floats outside of a specified interest rate band or collar. Dual
index or yield curve floaters are subject to depreciation in the event of an
unfavorable change in the spread between two designated interest rates. X-reset
floaters have a coupon that remains fixed for more than one accrual period.
Thus, the type of risk involved in these securities depends on the terms of each
individual X-reset floater.
Ratings as Investment Criteria. In general, the ratings of Moody's and S&P
represent the opinions of these agencies as to the quality of the securities
which they rate. It should be emphasized however, that ratings are relative and
subjective and are not absolute standards of quality. These ratings will be used
by the Funds as initial criteria for the selection of portfolio securities.
Among the factors which will be considered are the long-term ability of the
issuer to pay principal and interest and general economic trends. Appendix A
11
contains further information concerning the rating of Moody's and S&P and their
significance. Subsequent to its purchase by the Fund, an issue of securities may
cease to be rated or its rating may be reduced below the minimum required for
purchase by the Fund. Neither of these events will require the sale of the
securities by the Fund, but the Adviser will consider the event in its
determination of whether the Fund should continue to hold the securities.
Ratings are based largely on the historical financial condition of the issuer.
Consequently, the rating assigned to any particular security is not necessarily
a reflection of the issuer's current financial condition, which may be
better or worse than the rating would indicate. See Appendix A to this Statement
of Additional Information which describes the characteristics of corporate bonds
in the various ratings categories. The Funds may invest in comparable quality
unrated securities which, in the opinion of the Adviser or Subadviser, offer
comparable yields and risks to those securities which are rated.
Debt obligations rated in the lower ratings categories, or which are unrated,
involve greater volatility of price and risk of loss of principal and income. In
addition, lower ratings reflect a greater possibility of an adverse change in
financial condition affecting the ability of the issuer to make payments of
interest and principal.
Lending of Securities. The Funds 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
Funds may reinvest any cash collateral in short-term securities and money market
funds. When a 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. Each Fund can
lend portfolio securities having a total value of 33 1/3% of its total assets.
Short-Term Trading. Short-term trading means the purchase and subsequent sale of
security after it has been held for a relatively brief period of time. The Funds
may engage in short-term trading in response to stock market conditions, changes
in interest rates or other economic trends and developments, or take advantage
of yield disparities between various fixed income securities in order to realize
capital gains or improve income. Short-term turnover (100% or greater) involves
correspondingly greater brokerage expenses. Each Fund's portfolio turnover rate
is set forth in the table under the caption "Financial Highlights" in the
prospectus.
12
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. Each Fund has adopted the following
investment restrictions which may not be changed without the approval of a
majority of the applicable Fund's outstanding voting securities which, as used
in the Prospectus and this Statement of Additional Information means the
approval by the lesser of (1) the holders of 67% or more of a Fund's shares
represented at a meeting if more than 50% of a Fund's outstanding shares are
present in person or by proxy or (2) more than 50% of the outstanding shares.
A Fund may not:
1. Issue senior securities, except as permitted by paragraphs 3, 6 and 7
below. For purposes of this restriction, the issuance of shares of
beneficial interest in multiple classes or series, the deferral of
trustees' fees, the purchase or sale of options, futures contracts,
forward commitments and repurchase agreements entered into in
accordance with the Fund's investment policies or within the meaning of
paragraph 6 below, are not deemed to be senior securities.
2. Purchase securities on margin or make short sales [see non-fundamental
investment restriction (d)], or unless, by virtue of its ownership of
other securities, the Fund has the right to obtain securities
equivalent in kind and amount to the securities sold and, if the right
is conditional, the sale is made upon the same conditions, except (i)
in connection with arbitrage transactions, (ii) for hedging the Fund's
exposure to an actual or anticipated market decline in the value of its
securities, (iii) to profit from an anticipated decline in the value of
a security, and (iv) obtaining such short-term credits as may be
necessary for the clearance of purchases and sales of securities.
3. Borrow money, except for the following extraordinary or emergency
purposes: (i) from banks for temporary or short-term purposes or for
the clearance of transactions in amounts not to exceed 33 1/3% of the
value of the Fund's total assets (including the amount borrowed) taken
at market value; (ii) in connection with the redemption of Fund shares
or to finance failed settlements of portfolio trades without
immediately liquidating portfolio securities or other assets and (iii)
in order to fulfill commitments or plans to purchase additional
securities pending the anticipated sale of other portfolio securities
or assets. A Fund may not borrow money for the purpose of leveraging
the Funds' assets. For purposes of this investment restriction, the
deferral of Trustees' fees and transactions in short sales, futures
contracts, options on futures contracts, securities or indices and
forward commitment transactions shall not constitute borrowing.
4. Act as an underwriter, except to the extent that in connection with the
disposition of portfolio securities, the Fund may be deemed to be an
underwriter for purpose of the 1933 Act.
5. Purchase or sell real estate except that the Fund may (i) acquire or
lease office space for its own use, (ii) invest in securities of
issuers that invest in real estate or interests therein, (iii) invest
in securities that are secured by real estate or interests therein,
(iv) purchase and sell mortgage-related securities and (v) hold and
sell real estate acquired by the Fund as a result of the ownership of
securities.
6. Invest in commodities, except the Fund may purchase and sell options on
securities, securities indices and currency, futures contracts on
securities, securities indices and currency and options on such
futures, forward foreign currency exchange contracts, forward
commitments, securities index put or call warrants and repurchase
agreements entered into in accordance with the Fund's investment
policies [see non-fundamental investment restriction (f)].
13
7. Make loans, except that the Fund (1) may lend portfolio securities in
accordance with the Fund's investment policies up to 33 1/3% of the
Fund's total assets taken at market value, (2) enter into repurchase
agreements, and (3) purchase all or a portion of an issue of debt
securities, bank loan participation interests, bank certificates of
deposit, bankers' acceptances, debentures or other securities, whether
or not the purchase is made upon the original issuance of the
securities.
8. Purchase the securities of issuers conducting their principal activity
in the same industry if, immediately after such purchase, the value of
its investments in such industry would exceed 25% of its total assets
taken at market value at the time of such investment. This limitation
does not apply to investments in obligations of the U.S. Government or
any of its agencies, instrumentalities or authorities.
9. For each Fund with respect to 75% of total assets [see non-fundamental
investment restriction (e)], purchase securities of an issuer (other
than the U.S. Government, its agencies, instrumentalities or
authorities), if:
(a) such purchase would cause more than 5% of the Fund's total
assets taken at market value to be invested in the securities
of such issuer; or
(b) such purchase would at the time result in more than 10% of
the outstanding voting securities of such issuer being held by
the Fund.
Non-Fundamental Investment Restrictions. The following investment restrictions
are designated as non-fundamental and may be changed by the Trustees without
shareholder approval.
A Fund may not:
(a) 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.
(b) Invest more than 15% of the net assets of the Fund, taken at market
value, in illiquid securities.
(c) Invest for the purpose of exercising control over or management of any
company.
In addition:
(d) Dividend Performers Fund may not make short sales.
(e) Dividend Performers Fund may not invest more than 5% of total assets at
time of purchase in any one security (other than U.S. Government
securities).
(f) Dividend Performers Fund may only purchase or sell stock index options,
stock index futures, and stock index options on futures.
14
(g) Under normal conditions, Dividend Performers Fund may not invest more
than 10% of total assets in cash and/or cash equivalents (except cash
segregated in relation to futures, forward and option contracts).
(h) Under normal conditions Dividend Performers Fund will not invest in any
debt securities. However, in abnormal conditions, this Fund may
temporarily invest in U.S. Government Securities and U.S. Government
agency securities with maturities of up to three years, and may also
invest more than 10% of total assets in cash and/or cash equivalents
(including U.S. Government securities maturing in 90 days or less).
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, a 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.
15
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Funds is managed by the Trustees, who elect officers who are
responsible for the day-to-day operations of the Funds and who execute policies
formulated by the Trustees. Several of the officers and Trustees of the Funds
are also officers or Directors of the Funds' Adviser and/or the Subadviser, or
officers and/or directors of the Funds' principal distributor, John Hancock
Funds, LLC (prior to February 1, 2002, John Hancock Funds, Inc.) ("John Hancock
Funds").
- ---------------------------- ------------- ----------- ------------------------------------------------ ---------------
Number of
John Hancock
Position(s) Trustee/ Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Funds Since(2) Directorships During Past 5 Years Trustee
- ---------------------------- ------------- ----------- ------------------------------------------------ ---------------
Independent Trustees
- ---------------------------- ------------- ----------- ------------------------------------------------ ---------------
James F. Carlin Trustee *1995 Director/Treasurer, Alpha Analytical , Inc. 31
Born: 1940 1995 (Analytical laboratory); Part Owner and
Treasurer, Lawrence Carlin Insurance Agency,
Inc. (since 1995); Part Owner and Vice
President, Mone Lawrence Carlin Insurance
Agency, Inc. (since 1996); Director/Treasurer,
Rizzo Associates (until 2000); Chairman and
CEO, Carlin Consolidated, Inc.
(management/investments (since 1987);
Director/Partner, Proctor Carlin & Co., Inc.
(until 1999); Trustee, Massachusetts Health
and Education Tax Exempt Trust (since 1993);
Director of the following: Uno Restaurant
Corp. (until 2001), Arbella Mutual (insurance)
(until 2000), HealthPlan Services, Inc. (until
1999), Flagship Healthcare, Inc. (until 1999),
Carlin Insurance Agency, Inc. (until 1999),
Chairman, Massachusetts Board of Higher
Education (until 1999).
- ---------------------------- ------------- ----------- ------------------------------------------------ ---------------
*Dividend Performers Fund and Diversified Core Equity Fund II, respectively.
(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 Hancock
Position(s) Trustee/ Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Funds Since(2) Directorships During Past 5 Years Trustee
- ------------------------------- -------------- ----------- --------------------------------------------- ----------------
William H. Cunningham Trustee *1995 Former Chancellor, University of Texas 31
Born: 1944 1995 System and former President of the
University of Texas, Austin, Texas;
Chairman, IBT Technologies;
Director of the following: The
University of Texas Investment Management
Company (until 2000), Hire.com (since
2000), STC Broadcasting, Inc.
and Sunrise Television Corp.
(since 2000), Symtx, Inc. (since 2001),
Adorno/Rogers Technology, Inc.
(since 2001), Pinnacle Foods
Corporation (since 2000), rateGenius
(since 2000), LaQuinta Motor Inns,
Inc. (hotel management company)
(until 1998), Jefferson-Pilot
Corporation (diversified life
insurance company), New Century Equity
Holdings (formerly Billing Concepts)
(until 2001), eCertain (until
2001), ClassMap.com (until 2001), Agile
Ventures (until 2001), LBJ Foundation
(until 2000), Golfsmith
International, Inc. (until 2000), Metamor
Worldwide (until 2000), AskRed.com
(until 2001), Southwest Airlines
and Introgen; Advisory Director, Q
Investments; Advisory Director, Chase Bank
(formerly Texas Commerce Bank - Austin).
- ------------------------------- -------------- ----------- --------------------------------------------- ----------------
Ronald R. Dion Trustee *1998 Chairman and Chief Executive Officer, R.M. 31
Born: 1946 1998 Bradley & Co., Inc.; Director, The New
England Council and Massachusetts
Roundtable; Trustee, North Shore Medical
Center; Director, BJ's Wholesale Club, Inc.
and a corporator of the Eastern Bank;
Trustee, Emmanuel College.
- ------------------------------- -------------- ----------- --------------------------------------------- ----------------
*Dividend Performers Fund and Diversified Core Equity Fund II, respectively.
(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 Funds Since(2) Directorships During Past 5 Years Trustee
- ------------------------------- -------------- ----------- --------------------------------------------- ----------------
Charles L. Ladner Trustee *1995 Chairman and Trustee, Dunwoody Village, 31
Born: 1938 1995 Inc. (Retirement Services); Senior Vice
President and Chief Financial Officer,
UGI Corporation (Public Utility
Holding Company)(retired 1998); Vice
President and Director for
AmeriGas, Inc. (retired 1998);
Director of AmeriGas Partners, L.P. (until
1997)(gas distribution);
Director, Parks and History Association
(since 2001).
- ------------------------------- -------------- ----------- --------------------------------------------- ----------------
Steven Pruchansky Trustee *1995 Chairman and Chief Executive Officer, Mast 31
Born: 1944 1995 Holdings, Inc. (since 2000); Director and
President, Mast Holdings, Inc. (until
2000); Managing Director, JonJames, LLC
(real estate)(since 2001); Director, First
Signature Bank & Trust Company (until
1991); Director, Mast Realty Trust (until
1994); President, Maxwell Building Corp.
(until 1991).
- ------------------------------- -------------- ----------- --------------------------------------------- ----------------
Norman H. Smith Trustee *1995 Lieutenant General, United States Marine 31
Born: 1933 1995 Corps; Deputy Chief of Staff for Manpower
and Reserve Affairs, Headquarters Marine
Corps; Commanding General III Marine
Expeditionary Force/3rd Marine Division
(retired 1991).
- ------------------------------- -------------- ----------- --------------------------------------------- ----------------
*Dividend Performers Fund and Diversified Core Equity Fund II, respectively.
(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 Funds Since(2) Directorships During Past 5 Years Trustee
- ------------------------------- -------------- ----------- --------------------------------------------- ----------------
John P. Toolan Trustee *1995 Director, The Smith Barney Muni Bond Funds, 31
Born: 1930 1995 The Smith Barney Tax-Free Money Funds,
Inc., Vantage Money Market Funds (mutual
funds), The Inefficient-Market Fund, Inc.
(closed-end investment company); Chairman,
Smith Barney Trust Company of Florida;
Director, Smith Barney, Inc., Mutual
Management Company and Smith Barney
Advisers, Inc. (investment advisers)
(retired 1991); Senior Executive Vice
President, Director and member of the
Executive Committee, Smith Barney, Harris
Upham & Co., Incorporated (investment
bankers) (until 1991).
- ------------------------------- -------------- ----------- --------------------------------------------- ----------------
Interested Trustees
- ------------------------------- -------------- ----------- --------------------------------------------- ----------------
John M. DeCiccio (3) Trustee *2001 Executive Vice President and Chief 52
Born: 1948 2001 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, Insurance Agency, Inc. (until
1999.
- ------------------------------- -------------- ----------- --------------------------------------------- ----------------
*Dividend Performers Fund and Diversified Core Equity Fund II, respectively.
(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 Funds Since(2) Directorships During Past 5 Years Trustee
- ------------------------------ --------------- ----------- --------------------------------------------- ----------------
Maureen R. Ford (3) Trustee, *2000 Executive Vice President, John Hancock 52
Born: 1955 Chairman, 2000 Financial Services, Inc., John Hancock Life
President and Insurance Company; Chairman, Director,
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, Independence
Investment LLC, Independence Fixed Income
LLC and Signature Services, Inc.; Senior
Vice President, MassMutual Insurance Co.
(until 1999).
- ------------------------------ --------------- ----------- --------------------------------------------- ----------------
Principal Officers who are
not Trustees
- ------------------------------ --------------- ----------- --------------------------------------------- ----------------
William L. Braman Executive *2000 Executive Vice President and Chief N/A
Born: 1953 Vice 2000 Investment Officer, the Adviser and each of
President and the John Hancock funds; Director, SAMCorp.,
Chief Executive Vice President and Chief
Investment 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 and 2000 Officer and Treasurer, the Adviser, John
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 *1995 Vice President and Compliance Officer, the N/A
Born: 1959 President and 1995 Adviser and each of the John Hancock funds;
Compliance Vice President, John Hancock Funds.
Officer
- ------------------------------ --------------- ----------- --------------------------------------------- ----------------
*Dividend Performers Fund and Diversified Core Equity Fund II, respectively.
(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
- ---------------------------- ------------- ----------- ------------------------------------------------ ---------------
Number of
John Hancock
Position(s) Trustee/ Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Funds Since(2) Directorships During Past 5 Years Trustee
- --------------------------- -------------- ----------- -------------------------------------------------- ------------------
William H. King Vice *1995 Vice President and Assistant Treasurer, the N/A
Born: 1952 President 1995 Adviser; Vice President and Treasurer of each of
and Treasurer the John Hancock funds; Assistant Treasurer of
each of the John Hancock funds (until 2001).
- --------------------------- -------------- ----------- -------------------------------------------------- ------------------
Susan S. Newton Senior Vice *1995 Senior Vice President, Secretary and Chief Legal N/A
Born: 1950 President, 1995 Officer, SAMCorp., the Adviser and each of the
Secretary John Hancock funds, John Hancock Funds and The
and Chief Berkeley Group; Vice President, Signature
Legal Officer Services (until 2000), Director, Senior Vice
President and Secretary, NM Capital.
- --------------------------- -------------- ----------- -------------------------------------------------- ------------------
*Dividend Performers Fund and Diversified Core Equity Fund II, respectively.
(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.
The Funds' Board of Trustees currently has four standing Committees: the Audit
Committee, the Administration Committee, the Contracts/Operations Committee and
the Investment Performance Committee. Each Committee is comprised of Independent
Trustees. The Audit Committee members are Messrs. Ladner and Toolan. The Audit
Committee recommends to the full board auditors for the Funds, monitors and
oversees the audits of the Funds, 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 February 28, 2003.
The Administration Committee's members are all of the Independent Trustees of
the Funds. 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 Funds and reviews Trustee compensation, evaluates
Trustee performance and considers committee membership rotations as well as
relevant corporate governance issues. The Administration Committee held four
meetings during the fiscal year ended February 28, 2003.
The Contracts/Operations Committee members are Messrs. Carlin, Smith and
Pruchansky. The Contracts/Operations Committee oversees the initiation,
operation, and renewal of contracts between each 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
February 28, 2003.
The Investment Performance Committee consists of Messrs. Dion and Cunningham.
The Investment Performance Committee monitors and analyzes the performance of
the Funds generally, consults with the adviser as necessary if each 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 February 28, 2003.
21
The following table provides a dollar range indicating each Trustee's ownership
of equity securities of the Funds, as well as aggregate holdings of shares of
equity securities of all John Hancock Funds overseen by the Trustee, as of
December 31, 2002.
- --------------------------------------------------------------------------------
Dollar Range of Aggregate dollar range of
Fund Shares holdings in John Hancock funds
Name of Trustee Owned by Trustee overseen by Trustee (1)
- --------------------------------------------------------------------------------
Independent Trustees
- --------------------------------------------------------------------------------
James F. Carlin None $10,001-$50,000
- --------------------------------------------------------------------------------
William H. Cunningham None $10,001-$50,000
- --------------------------------------------------------------------------------
Ronald R. Dion None Over $100,000
- --------------------------------------------------------------------------------
Charles L. Ladner None Over $100,000
- --------------------------------------------------------------------------------
Steven R. Pruchansky None Over $100,000
- --------------------------------------------------------------------------------
Norman H. Smith None Over $100,000
- --------------------------------------------------------------------------------
John P. Toolan None $50,001-$100,000
- --------------------------------------------------------------------------------
Interested Trustees
- --------------------------------------------------------------------------------
John M. DeCiccio None Over $100,000
- --------------------------------------------------------------------------------
Maureen R. Ford None Over $100,000
- --------------------------------------------------------------------------------
(1) These Funds do not participate in the John Hancock Deferred Compensation
Plan for Independent Trustees (the "Plan"). Under the Plan, an Independent
Trustee may defer his fees by electing to have the Adviser invest his fees
in one of the funds in the John Hancock complex that participates in the
Plan. Under these circumstances, the Trustee is not the legal owner of the
underlying shares, but does participate in any positive or negative return
on those shares to the same extent as all other shareholders. With regard
to Trustees participating in the Plan, if a Trustee was 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 as follows: none and over $100,000 for Mr.
Cunningham, none and over $100,000 for Mr. Dion, none and over $100,000 for
Mr. Pruchansky, none and over $100,000 for Mr. Smith, none and over
$100,000 for Mr. Toolan.
The following table provides information regarding the compensation paid by the
Funds and 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 Funds are interested
persons of the Adviser, and/or affiliates are compensated by the Adviser and
receive no compensation from the Fund for their services.
Aggregate Total Compensation from
Compensation all Funds in John Hancock
Trustees From the Fund(1) Fund Complex to Trustees (2)
- -------- ---------------- ----------------------------
James F. Carlin $ 541 $ 75,000
William H. Cunningham* 542 75,100
Ronald R. Dion* 541 75,000
Charles L. Ladner 517 72,000
Steven R. Pruchansky* 518 72,100
Norman H. Smith* 565 78,000
John P. Toolan* 517 72,000
-------- ----------
Total $3,741 $519,200
(1) Compensation is for fiscal period ended February 28, 2003.
22
(2) Total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is for the calendar year ended December 31,
2002. As of that date, there were sixty-one funds in the John
Hancock Fund Complex, with each of these Independent Trustees
serving on thirty funds.
(*) As of December 31, 2002 the value of the aggregate accrued deferred
compensation from all Funds in the John Hancock fund complex for
Mr. Cunningham was $428,963, for Mr. Dion was $122,717, for Mr.
Pruchansky was $95,779, for Mr. Smith was $204,328 and for Mr.
Toolan was $517,774 under the John Hancock Deferred Compensation
Plan for Independent Trustees (the "Plan").
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 June 2, 2003, the officers and Trustees of the Fund as a group
beneficially owned less than 1% of the outstanding shares of each of the Funds.
As of that date, the following shareholders of record beneficially owned 5% or
more of the outstanding shares of each Fund.
Percentage of Total
Name and Address of Shareholder Funds Outstanding Shares
- ------------------------------- ----- ------------------
Northern Trust Diversified Core Equity Fund II 17.97%
FBO AM Castle and Co Pension Plan
P.O. Box 92956 Chicago IL 60675-2956
NABANK Diversified Core Equity Fund II 11.33%
Dave Dooling
P.O. Box 2180 Tulsa OK 74101-2180
Stetson & Co. Diversified Core Equity Fund II 10.86%
ABN AMRO Trust Services Co.
161 N Clark Street # 10RTR
Chicago IL 60601
Peter Kamin Diversified Core Equity Fund II 9.00%
Knowles Electronics Inc.
Pension Trust
1151 Maplewood Drive
Itasca IL 60143-2058
Wendel & Co. A/C 529160 Diversified Core Equity Fund II 7.28%
C/o The Bank of New York
Mutual Fund Reorg Dept
PO Box 1066 Wall St Station
New York NY 10268-1066
23
Jupiter and Co Diversified Core Equity Fund II 6.83%
C/o Investors Bank and Trust
PO Box 9130 FPG 90
Boston MA
Gaylord Brothers Diversified Core Equity Fund II 5.95%
PO Box 4901
Syracuse NY 13221
MCB Trust Services Custodian FB Diversified Core Equity Fund II 5.21%
The Investment Incentive Plan
700 17th St Ste 150
Denver CO 80202-3502
MCB Trust Services Custodian FB Dividend Performers 77.09%
The Investment Incentive Plan
700 17th St Ste 150
Denver CO 80202-3502
The Chase Manhattan Bank Dividend Performers 20.74%
FBO ZAPCO
450 West 33rd Street 15th Floor
New York NY 10001
Shareholders of a Fund having beneficial ownership of more than 25% of the
shares of a Fund may be deemed for purposes of the Investment Company Act of
1940, as amended, to control that Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603,
was organized in 1968 and as of March 31, 2003 has approximately $26 billion in
assets under management in its capacity as investment adviser to the Funds and
the other funds and publicly traded investment companies 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 $130 billion, the Life Company is one of the ten
largest life insurance companies in the United States, and carries a high rating
from Standard & Poor's and A.M. Best. Founded in 1862, the Life Company has been
serving clients for over 130 years.
Each Fund has entered into an investment management contract (the "Advisory
Agreements") with the Adviser which was approved by the Funds' shareholders.
Pursuant to the Advisory Agreement, the Adviser will: (a) furnish continuously
an investment program for the Fund and determine, subject to the overall
supervision and review of the Trustees, which investments should be purchased,
held, sold or exchanged, and (b) provide supervision over all aspects of the
Fund's operations except those which are delegated to a custodian, transfer
agent or other agent.
With respect to the Diversified Core Equity Fund II, the Adviser has entered
into a Sub-Advisory Agreement with Independence Investment LLC. ("Independence"
and the "Sub-Adviser) (formerly Independence Investment Associates, Inc.).
Independence, located at 53 State Street, Boston, Massachusetts 02109, and
organized in 1982, is a wholly owned indirect subsidiary of John Hancock
Subsidiaries, Inc.
24
Under the Sub-Advisory Agreement, the Sub-Adviser, subject to the review of the
Trustees and the over-all supervision of the Adviser, is responsible for
managing the investment operations of the Diversified Core Equity Fund II and
the composition of the Fund's portfolio and furnishing the Fund with advice and
recommendations with respect to investments, investment policies and the
purchase and sale of securities.
Each 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 or redeeming shares;
brokerage and other expenses connected with the execution of portfolio
securities transactions; expenses pursuant to the Fund's plan of distribution;
fees and expenses of custodians including those for keeping books and accounts,
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 Agreements, each Fund pays
the Adviser monthly a fee based on a stated percentage of the average daily net
assets of each Fund.
Funds Rate
- ----- ----
Dividend Performers Fund .60% of average daily net assets up to $500 million
.55% of such assets in excess of $500 million
Diversified Core Equity Fund II .50% of the average daily net assets up
to $1 billion
.45% of such assets in excess of $1 billion
Under the Sub-Advisory Agreement, the Adviser (not the Fund) pays a portion of
its fee to the Sub-Adviser. Sub-Advisory fees are paid at the following rates:
Diversified Core Equity Fund II, 35% of the advisory fee payable on the Fund's
average daily net assets. Prior to July 1, 2003, the Sub-Advisory fee paid by
the Adviser to the Sub-Adviser was equal to 75% of the advisory fee payable on
the fund's average daily net assets. Prior to June 7, 2002, the Sub-Advisory fee
paid by the Adviser to the Sub-Adviser was equal to 80% of the advisory fee
payable on the Fund's average daily net assets.
For the period ended February 28, 2001, the Adviser received $29,197 and
$1,707,364 in investment management fees after expense limitation from Dividend
Performers Fund and Diversified Core Equity Fund II, respectively.
For the period ended February 28, 2002, the Adviser waived the entire investment
management fee for Dividend Performers Fund. For the period ended February 28,
2002, the Adviser received $588,262 after expense limitation from Diversified
Core Equity Fund II.
For the period ended February 28, 2003, the Adviser waived the entire investment
management fee for Dividend Performers Fund. For the period ended February 28,
2003, the Adviser received $353,818 from Diversified Core Equity Fund II.
From time to time, the Adviser may reduce its fee or make other arrangements to
limit the Fund's expenses to a specified percentage of average daily net assets.
The Adviser retains the right to reimpose a fee and recover any other payments
to the extent that, at the end of any fiscal year, the Fund's annual expenses
fall below this limit. The Adviser has agreed to limit Dividend Performers
Fund's expenses to 1.00% of average daily net assets. This limitation may be
terminated in the future. (Prior to July 1, 2003, the Adviser had agreed to
limit Dividend Performers Fund's expenses to 0.70 of average daily net assets.)
25
Securities held by the Funds may also be held by other funds or investment
advisory clients for which the Adviser, the Sub-Adviser or its affiliates
provide investment advice. Because of different investment objectives or other
factors, a particular security may be bought for one or more funds or clients
when one or more are selling the same security. If opportunities for purchase or
sale of securities by the Adviser or Sub-Adviser for a Fund or for other funds
or clients for which the Adviser or Sub-Adviser 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, the Sub-Adviser 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 each Advisory Agreement, where applicable, Sub-Advisory Agreement,
the Adviser and Sub-Adviser are not liable for any error of judgment or mistake
of law or for any loss suffered by the Funds in connection with the matters to
which their respective Agreements relate, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Adviser or
Sub-Adviser in the performance of their duties or from their reckless disregard
of the obligations and duties under the applicable Agreement.
Under each Advisory Agreement, each Fund may use the name "John Hancock" or any
name derived from or similar to it only for as long as the Advisory Agreement or
any extension, renewal or amendment thereof remains in effect. If a Fund's
Advisory Agreement is no longer in effect, the Fund (to the extent that it
lawfully can) will cease to use such name or any other name indicating that it
is advised by or otherwise connected with the Adviser. In addition, the Adviser
or the Life Company may grant the non-exclusive right to use the name "John
Hancock" or any similar name to any other corporation or entity, including but
not limited to any investment company of which the Life Company or any
subsidiary or affiliate thereof or any successor to the business of any
subsidiary or affiliate thereof shall be the investment adviser.
Under the Sub-Advisory Agreement of the Diversified Core Equity Fund II, the
Diversified Core Equity Fund II may use the name "Independence" or any name
derived from or similar to it only for as long as the Sub-Advisory Agreement is
effect. When the Sub-Advisory Agreement is no longer in effect, the Fund (to the
extent that it lawfully can) will cease to use any name indicating that it is
advised by or otherwise connected with Independence. In addition, Independence
or the Life Company may grant the non-exclusive right to use the name
"Independence" or any similar name to any other corporation or entity, including
but not limited to any investment company of which Independence or any
subsidiary or affiliate thereof or any successor to the business of any
subsidiary or affiliate thereof shall be the investment adviser.
Board Review of Investment Advisory Agreements Each Fund's Board of Trustees is
responsible for overseeing the performance of the Fund's investment adviser (and
Sub-adviser with respect to the Diversified Core Equity Fund II) and determining
whether to approve and renew the Fund's Advisory Agreement (and Sub-advisory
Agreement for the Diversified Core Equity Fund II). 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 Sub-adviser. This information includes periodic performance analysis
and status reports from the Adviser and quarterly Portfolio and Investment
Performance Reports. Each 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
26
Board considers whether to renew an investment advisory contract or sub-advisory
contract, the Board takes into account numerous factors, including: (1) the
nature, extent and quality of the services provided by the Adviser and
Sub-adviser; (2) the investment performance of the Fund's assets managed by the
Adviser or Sub-adviser; (3) the fair market value of the services provided by
the Adviser or Sub-adviser; (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
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.
Dividend Performers Fund: The primary factors underlying the Board's decision to
renew the Dividend Performers Fund's Advisory Agreement were as follows:
o The Board determined that the performance results of the Fund and the
Adviser's responsive actions were reasonable, as compared with relevant
performance standards, including the performance results of comparable
institutional large-cap 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'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 agreement with the
Adviser.
Diversified Core Equity Fund II The primary factors underlying the Board's
decision to renew the Diversified Core Equity Fund II 's Advisory Agreement and
Sub-Advisory Agreement were as follows:
o The Board determined that the performance results of the Fund and the
Adviser's and Sub-Adviser's responsive actions were reasonable, as compared
with relevant performance standards, including the performance results of
comparable institutional large-cap 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's and Sub-Adviser'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 agreement with the Adviser and Sub-Adviser.
Each Advisory Agreement, the Sub-Advisory Agreement and the Distribution
Agreement (discussed below) will continue in effect from year to year if
approved by either the vote of the Funds' shareholders or the Trustees,
including a vote of a majority of the Trustees who are not parties to the
agreement or "interested persons" of any such party, cast at a meeting called
for such purposes. 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.
27
Accounting and Legal Services Agreement. The Trust, on behalf of the Funds, is a
party to an Accounting and Legal Services Agreement with the Adviser. Pursuant
to this Agreement, the Adviser provides the Fund with certain tax, accounting
and legal services.
For the fiscal years ended February 29, 2001, February 28, 2002 and February 28,
2003, the Funds paid the Adviser the following for services under this
Agreement: Diversified Core Equity Fund II $64,547, $24,308, $20,591, Dividend
Performers Fund $2,436, $1,107 and $1,126.
Personnel of the Adviser and its affiliates may trade securities for their
personal accounts. The Funds 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 Funds have adopted a code of ethics which
restricts the trading activity of those personnel.
DISTRIBUTION CONTRACT
Each Fund has a Distribution Agreement with John Hancock Funds. Under the
Agreement, John Hancock Funds is obligated to use its best efforts to sell
shares of each Fund. Shares of the Fund are also sold by selected broker-dealers
(the "Selling Brokers") which 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 Funds
which are continually offered at net asset value next determined.
SALES COMPENSATION
As part of its business strategy, John Hancock Funds may pay compensation to
financial services firms that sell the Fund's shares. These firms typically pass
along a portion of this compensation to your financial representative.
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 Funds. This
payment may not exceed 0.15% of the amount invested.
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.
28
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of a Fund's shares, the
following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished by a
principal market maker or a pricing service, both of which generally utilize
electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices.
Equity securities traded on a principal exchange are generally valued at last
sale price on the day of valuation or, in the case of securities traded on
NASDAQ, the NASDAQ official closing price. Securities in the aforementioned
category for which no sales are reported and other securities traded
over-the-counter are generally valued at the last available bid price.
Short-term debt investments which have a remaining maturity of 60 days or less
are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
Foreign securities are valued on the basis of quotations from the primary market
in which they are traded. Any assets or liabilities expressed in terms of
foreign currencies are translated into U.S. dollars by the custodian bank based
on London currency exchange quotations as of 5:00 p.m., London time (12:00 noon,
New York time) on the date of any determination of the Fund's NAV. If quotations
are not readily available, or the value has been materially affected by events
occurring after the closing of a foreign market, assets are valued by a method
that the Trustees believe accurately reflects fair value.
The NAV for each Fund is determined each business day at the close of regular
trading on the New York Stock Exchange (typically 4 p.m. Eastern Time) by
dividing the net assets by the number of its shares outstanding. On any day an
international market is closed and the New York Stock Exchange is open, any
foreign securities will be valued at the prior day's close with the current
day's exchange rate. Trading of foreign securities may take place on Saturdays
and U.S. business holidays on which the Fund's NAV is not calculated.
Consequently, the Fund's portfolio securities may trade and the NAV of the
Fund's redeemable securities may be significantly affected on days when a
shareholder has no access to the Fund.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. Each 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. If an
investor exchanges institutional fund and Class I shares for Class A shares of
Money Market Fund, any future exchanges out of the Money Market Fund Class A
must be to another Class I or institutional fund.
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.
29
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".
PURCHASES AND REDEMPTIONS THROUGH THIRD PARTIES
Shares of the Funds 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 Funds. A 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 Funds for
their clients charge an annual fee on the average net assets held in such
accounts for accounting, servicing and/or distribution services they provide
with respect to the underlying Fund shares. John Hancock Funds, LLC (the Fund's
principal distributor), is responsible for paying these fees.
SPECIAL REDEMPTIONS
Although the Funds would not normally do so, each Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion, the shareholder will incur a brokerage
charge. Any such securities would be valued for the purposes of making such
payment at the same value as used in determining net asset value. Each Fund has,
however, elected to be governed by Rule 18f-1 under the Investment Company Act.
Under that rule, each Fund must redeem its shares for cash except to the extent
that the redemption payments to any shareholder during any 90-day period would
exceed the lesser of $250,000 or 1% of the Fund's net asset value at the
beginning of that period.
DESCRIPTION OF THE FUNDS' SHARES
The Trustees of the Trust are responsible for the management and supervision of
the Funds. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest of the Funds,
without par value. Under the Declaration of Trust, the Trustees have the
authority to create and classify shares of beneficial interest in separate
series, without further action by shareholders. As of the date of this Statement
of Additional Information, the Trustees have authorized shares of three series.
Additional series may be added in the future. The Declaration of Trust also
authorizes the Trustees to classify and reclassify the shares of the Funds, or
any other series of the Trust, into one or more classes. Effective October 1,
1999, existing shares of Diversified Core Equity Fund II were designated "Class
I" shares.
Each share of a Fund represents an equal proportionate interest in the assets
belonging to that Fund. When issued, shares are fully paid and nonassessable. In
the event of liquidation of a Fund, shareholders are entitled to share pro rata
in the net assets of the Fund available for distribution to such shareholders.
Shares of the Trust are freely transferable and have no preemptive, subscription
or conversion rights.
In accordance with the provisions of the Declaration of Trust, the Trustees have
initially determined that shares entitle their holders to one vote per share on
any matter on which such shares are entitled to vote. The Trustees may determine
in the future, without the vote or consent of shareholders, that each dollar of
net asset value (number of shares owned times net asset value per share) will be
entitled to one vote on any matter on which such shares are entitled to vote.
30
Unless otherwise required by the Investment Company Act or the Declaration of
Trust, the Funds have no intention of holding annual meetings of shareholders.
Each Fund's shareholders may remove a Trustee by the affirmative vote of at
least two-thirds of the Trust's outstanding shares and the Trustees shall
promptly call a meeting for such purpose when requested to do so in writing by
the record holders of not less than 10% of the outstanding shares of the Trust.
Shareholders may, under certain circumstances, communicate with other
shareholders in connection with requesting a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
were elected by the shareholders, the Trustees will call a special meeting of
shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the trust. However, the Trust's Declaration of Trust contains an express
disclaimer of shareholder liability for acts, obligations or affairs of the
Trust. The Declaration of Trust also provides for indemnification out of the
Trust's assets for all losses and expenses of any shareholder held personally
liable by reason of being or having been a shareholder. The Declaration of Trust
also provides that no series of the Trust shall be liable for the liabilities of
any other series. Liability is therefore limited to circumstances in which a
Fund itself would be unable to meet its obligations, and the possibility of this
occurrence is remote.
A Fund reserves the right to reject any application which conflicts with a
Fund's internal policies or the policies of any regulatory authority. John
Hancock Funds does not accept starter, credit card or third party checks. All
checks returned by the post office as undeliverable will be reinvested in the
fund or funds from which a redemption was made or dividend paid. Information
provided on the account application may be used by a Fund to verify the accuracy
of the information or for background or financial history purposes. A joint
account will be administered as a joint tenancy with right of survivorship,
unless the joint owners notify Signature Services of a different intent. A
shareholder's account is governed by the laws of The Commonwealth of
Massachusetts. 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
Each Fund is treated as a separate entity for accounting and tax purposes, has
qualified as a "regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code") and intends to continue to qualify
for each taxable year. As such and by complying with the applicable provisions
of the Code regarding the sources of its income, the timing of its
distributions, and the diversification of its assets, a Fund will not be subject
to Federal income tax on its taxable income (including net realized capital
gains) which is distributed to shareholders in accordance with the timing
requirements of the Code.
Each Fund will be subject to a 4% nondeductible Federal excise tax on certain
amounts not distributed (and not treated as having been distributed) on a timely
basis in accordance with annual minimum distribution requirements. Each Fund
intends, under normal circumstances, to seek to avoid or minimize liability for
such tax by satisfying such distribution requirements.
31
Distributions from each Fund's current or accumulated earnings and profits
("E&P") will be taxable under the Code for investors who are subject to tax. If
these distributions are paid from a Fund's "investment company taxable income,"
they will be taxable as ordinary income; and if they are paid from the Fund's
"net capital gain," they will be taxable as 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 those gains and losses included in computing 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 a Fund in connection with certain
transactions involving foreign currency-denominated debt securities, certain
foreign currency options and futures, foreign currency forward contracts,
foreign currencies, or payables or receivables denominated in a foreign currency
are subject to Section 988 of the Code, which generally causes such gains and
losses to be treated as ordinary income and losses and may affect the amount,
timing and character of distributions to shareholders. Transactions in foreign
currencies that are not directly related to a Fund's investment in stock or
securities, including speculative currency positions, could under future
Treasury regulations produce income not among the types of "qualifying income"
from which the Fund must derive at least 90% of its annual gross income for each
taxable year. If the net foreign exchange loss for a year treated as ordinary
loss under Section 988 were to exceed a Fund's investment company taxable income
computed without regard to such loss, the resulting overall ordinary loss for
such year would not be deductible by a Fund or its shareholders in future years.
If a Fund invests (either directly or through depository receipts such as ADRs,
GDRs or EDRs) in stock (including an option to acquire stock such as 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 Funds would not be able to pass through to their respective
shareholders any credit or deduction for such a tax. An election may be
available to ameliorate these adverse tax consequences, but could require the
Funds to recognize taxable income or gain without the concurrent receipt of
cash. These investments could also result in the treatment of associated capital
gains as ordinary income. Each Fund may limit and/or manage its investments in
passive foreign investment companies to minimize its tax liability or maximize
its return from these investments.
The amount of a Fund's net realized capital gains, if any, in any given year
will vary depending upon the current investment strategy of the Adviser and
Subadviser and whether the Adviser and the Subadviser believes it to be in the
best interest of the Funds to dispose of portfolio securities and/or engage in
options, futures or forward transactions that will generate capital gains. At
the time of an investor's purchase of Fund shares, a portion of the purchase
price is often attributable to realized or unrealized appreciation in a Fund's
32
portfolio or undistributed taxable income of a Fund. Consequently, subsequent
distributions on those shares from such appreciation or income may be taxable to
such investor even if the net asset value of the investor's shares is, as a
result of the distributions, reduced below the investor's cost for such shares,
and the distributions in reality represent a return of a portion of the purchase
price.
Upon a redemption or other disposition of shares of a Fund (including by
exercise of the exchange privilege), in a transaction that is treated as a sale
for tax purposes, a shareholder may realize a taxable gain or loss depending
upon the amount of the proceeds and the 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. Any loss realized on a redemption or exchange
may be disallowed to the extent the shares disposed of are replaced with other
shares of the same Fund within a period of 61 days beginning 30 days before and
ending 30 days after the shares are disposed of, such as pursuant to the
automatic dividend reinvestments. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss.
Also, 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.
The Funds reserve the right to retain and reinvest all or any portion of the
excess, as computed for Federal income tax purposes, of net long-term capital
gain over net short-term capital loss in any year. Although each Fund's present
intention is to distribute all net capital gains, if any, the Fund will not in
any event distribute net capital gains realized in any year to the extent that a
capital loss is carried forward from prior years against such gain. To the
extent such excess was retained and not exhausted by the carryforward of prior
years' capital losses, it would be subject to Federal income tax in the hands of
the Fund. Upon proper designation of this amount by the Fund, each shareholder
would be treated for Federal income tax purposes as if such Fund had distributed
to him on the last day of its taxable year his pro rata share of such excess,
and he had paid his pro rata share of the taxes paid by such Fund and reinvested
the remainder in the Fund. Accordingly, each shareholder would (a) include his
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 a refund of, his pro rata
share of the taxes paid by the Fund, and (c) be entitled to increase the
adjusted tax basis for his Fund shares by the difference between his pro rata
share of such excess and his pro rata share of such taxes.
For Federal income tax purposes, each Fund is permitted to carry forward a net
realized capital loss in any year to offset net capital gains of that Fund, if
any, during the eight years following the year of the loss. To the extent
subsequent net capital gains are offset by such losses, they would not result in
Federal income tax liability to a Fund and, as noted above, would not be
distributed as such to shareholders. The John Hancock Independence Diversified
Core Equity Fund II has a $1,722,374 capital loss carryforward available, to the
extent provided by regulations, to offset future net realized capital gains. The
entire Fund's carryforward expires on February 28, 2011. The John Hancock
Dividend Performers Fund has a $ 549,979 capital loss carryforward available, to
the extent provided by regulations, to offset future net realized capital gains.
The entire Fund's carryforward expires on February 28, 2011.
For purposes of dividends received deduction available to corporations,
dividends received by a Fund, if any, from U.S. domestic corporations in respect
of any share of stock held by the Fund, for U.S. Federal income tax purposes,
for at least 46 days (91 days in the case of certain preferred stock) during a
prescribed period extending before and after such dividend and distributed 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 applicable Fund for each dividend in order
to qualify for the deduction and, if they have any debt that is deemed under the
Code directly attributable to such shares, may be denied a portion of the
33
dividends-received deduction. The entire qualifying dividend, including the
otherwise deductible amount, will be included in determining alternative minimum
tax liability, if any. Additionally, any corporate shareholder should consult
its tax adviser regarding the possibility that its tax basis in its shares may
be reduced, for Federal income tax purposes, by reason of "extraordinary
dividends" received with respect to the shares and, to the extent such basis
would be reduced below zero, that current recognition of income would be
required.
Each Fund that invests in securities of foreign issuers may be subject to
withholding and other taxes imposed by foreign countries with respect to its
investments in foreign securities. Some tax conventions between certain
countries and the United States may reduce or eliminate such taxes. With respect
to each Fund, because more than 50% of the Fund's total assets at the close of
any taxable year will not consist of stock or securities of foreign
corporations, the Funds will not be able to pass such taxes through to their
shareholders, who in consequence will not include any portion of such taxes in
their incomes and will not be entitled to tax credits or deductions with respect
to such taxes. However, such Funds will be entitled to deduct such taxes in
determining the amounts they must distribute in order to avoid Federal income
tax.
Each Fund that invests in zero coupon securities or certain PIK or increasing
rate securities and any other securities with original issue discount (or with
market discount if the Fund elects to include market discount in income
currently) accrues income on such securities prior to the receipt of the
corresponding cash payments. The mark to market or constructive sale rules
applicable to certain options, futures, forwards, short sales or other
transactions, may also require the Fund to recognize income or gain without a
concurrent receipt of cash. Additionally, some countries restrict repatriation
which may make it difficult or impossible for the Fund to obtain cash
corresponding to its earnings or assets in those countries. Each Fund must
distribute, at least annually, all or substantially all of its net income and
net capital gains, including such accrued income or gain, to shareholders to
qualify as a regulated investment company under the Code and avoid Federal
income and excise taxes. Therefore, a Fund may have to dispose of its portfolio
securities under disadvantageous circumstances to generate cash, or may have to
borrow cash, to satisfy these distribution requirements.
The Federal income tax rules applicable to certain structured or hybrid
securities, currency swaps, interest rate swaps, caps, floors and collars, and
possibly other investments or transactions are or may be unclear in certain
respects, and each Fund will account for these investments or transactions in a
manner intended to preserve its qualification as a regulated investment company
and avoid material tax liability.
Different tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions, and certain
prohibited transactions is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
With respect to each Fund that may enter into foreign currency positions,
forwards, futures and options transactions, limitations imposed by the Code on
regulated investment companies may restrict the Funds' ability to enter into
options, futures, foreign currency positions, and forward foreign currency
contracts.
Certain options, futures and forward foreign currency contracts undertaken by a
Fund may cause the Fund to recognize gains or losses from marking to market even
though its positions have not been sold or terminated and affect their character
as long-term or short-term (or in the case of certain foreign currency
contracts, as ordinary income or loss) and timing of some capital gains and
losses realized by the Fund. Additionally, the Fund may be required to recognize
gain, but not loss, if an option, futures contract, short sale or other
transaction is treated as a constructive sale of an appreciated financial
position in the Fund's portfolio. Also, certain of a Fund's losses on its
transactions involving options, futures or forward contracts and/or offsetting
34
or successor portfolio positions may be deferred rather than being taken into
account currently in calculating the Fund's taxable income or gains. Certain of
such transactions may also cause the Fund to dispose of investments sooner than
would otherwise have occurred. These transactions may therefore affect the
amount, timing and character of the Funds' distributions to shareholders. A Fund
will also take into account the special tax rules (including consideration of
available elections) applicable to options, futures and forward contracts in
order to minimize any potential adverse tax consequence.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent (if any) a 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 Funds will not seek to satisfy
any threshold or reporting requirements that may apply in particular taxing
jurisdictions, although a Fund may in its sole discretion provide relevant
information to shareholders.
Each Fund will be required to report to the Internal Revenue Service (the "IRS")
all 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 a 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 Funds 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.
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 distributions from, the Funds in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their
investment in the Funds is effectively connected will be subject to U.S. Federal
income tax treatment that is different from that described above. These
investors may be subject to a non-resident alien withholding tax at the rate of
30% (or a lower rate under an applicable tax treaty) on amounts treated as
ordinary dividends from a Fund and unless an effective IRS Form W-8, Form
W-8BEN, or other authorized withholding certificate is on file to back up
withholding on certain other payments from the Fund. Non U.S. investors should
consult their tax advisers regarding such treatment and the application of
foreign taxes to an investment in the Funds.
The Funds are not subject to Massachusetts corporate excise or franchise taxes.
The Funds anticipate that, provided that the Funds qualify as regulated
investment companies under the Code, they will also not be required to pay any
Massachusetts income tax.
35
CALCULATION OF PERFORMANCE
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:
P(1+T)n = 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 average annual total return for the 1 year and 5 year periods and for the
life of each Fund for the period ended February 28, 2003 is as follows:
One Year Ended Five Years Ended Commencement of Operations
February 28, 2003 February 28, 2003 to February 28, 2003
----------------- ----------------- --------------------
Dividend Performers Fund -25.00% -4.17% 6.37% (a)
Diversified Core Equity Fund II
-23.29% -3.68% 7.44% (b)
(a) Commencement of operations, March 30, 1995. (b) Commencement of
operations, March 10, 1995.
Each Fund discloses average annual total returns after taxes 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:
36
P(1+T)n = ATVD
Where:
P= a hypothetical initial payment of $1,000.
T= average annual total return (after taxes on distributions)
n= number of years
ATVD= ending value of a hypothetical $1,000 payment made at
the 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 the commencement of
operations, that would equate the initial amount invested to the ending
redeemable value according to the following formula:
P(1+T)n = ATVDR
Where:
P= a hypothetical initial payment of $1,000.
T= average annual total return (after taxes on distributions and
redemption).
n= number of years.
ATVDR= ending value of a hypothetical $1,000 payment made at
the beginning of the 1-year, 5-year or 10-year periods
(or fractional portion), after taxes on fund
distributions and redemption.
This calculation assumes that all dividends and distributions are reinvested at
net asset value on the reinvestment dates during the period.
In addition to average annual total returns, the Funds may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Cumulative total returns may be quoted as a percentage or
as a dollar amount, and may be calculated for a single investment, a series of
investments, and/or a series of redemptions, over any time period.
The Funds may advertise yield, where appropriate. A Fund's yield is computed by
dividing its net investment income per share determined for a 30-day period by
the maximum offering price per share on the last day of the period, according to
the following standard formula:
6
Yield = 2 ( [ ( a - b ) + 1 ] - 1 )
-------
cd
Where:
a = dividends and interest earned during the period.
b = net expenses accrued during the period.
c = the average daily number of fund shares outstanding during
the period that would be entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period (NAV).
From time to time, in reports and promotional literature, a Fund's total return
will be ranked or compared to indices of mutual funds and bank deposit vehicles.
Such indices may include Lipper Analytical Services, Inc.'s "Lipper-Mutual
Performance Analysis," a monthly publication which tracks net assets and total
return on equity mutual funds in the United States, as well as those published
by Frank Russell, Callan Associates, Wilshire Associates and SEI.
37
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,
Pensions & Investments and Institutional Investor may also be utilized. The
Funds' promotional and sales literature may make reference to a Fund's "beta".
Beta is a reflection of the market related risk of the Fund by showing how
responsive the Fund is to the market.
The performance of the Funds is not fixed or guaranteed. Performance quotations
should not be considered to be representations of performance of any Fund for
any period in the future. The performance of a Fund is a function of many
factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease a
Fund's performance.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by the Adviser'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 may consider sales of
shares of the Fund as a factor in the selection of broker-dealers to execute the
Fund's portfolio transactions. To the extent consistent with the foregoing, the
Fund will be governed in the selection of brokers and dealers, and the
negotiation of brokerage commission rates and dealer spreads, by the reliability
and quality of the services, including primarily the availability and value of
research information and, to a lesser extent, statistical assistance furnished
to the Adviser of the Fund.
38
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 February 28,
2003, Dividend Performers Fund and Diversified Core Equity Fund II paid
commissions in the amount of $1,165 and $40,660, respectively to compensate
brokers for research services such as industry, economics and company reviews
and evaluations of securities.
Research services received from broker-dealers supplement the 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 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 since the
broker-dealers used by the Adviser tend to follow a broader universe of
securities and other matters than the Adviser's staff can follow. In addition,
the research provides the Adviser with a diverse perspective on financial
markets. Research services provided to the Adviser by broker-dealers are
available for the benefit of all accounts managed or advised by the Adviser 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 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 believes that the research services are beneficial in supplementing
the Adviser's research and analysis and that they improve the quality of the
Adviser'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. 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. However, to the extent that the Adviser would have
purchased research services had they not been provided by broker-dealers, the
expenses to the Adviser 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,
and conversely, brokerage commissions and spreads paid by other advisory clients
of the Adviser may result in research information and statistical assistance
beneficial to the Fund. The Fund will make no commitment to allocate portfolio
transactions upon any prescribed basis.
While the Adviser's officers, in connection with the Subadviser (if applicable),
will be primarily responsible for the allocation of the Funds' brokerage
business, the policies and practices of the Adviser in this regard must be
consistent with the foregoing and will, at all times, be subject to review by
the Trustees. For the fiscal years ended February 28, 2001, February 28, 2002
and February 28, 2003, the Funds paid negotiated brokerage commissions in the
amount as follows: Diversified Core Equity Fund II $472,531, $164,809, $148,090,
Dividend Performers Fund $24,294, $9,494 and $4,977, respectively.
39
The Adviser 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 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 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 ("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, or the
Affiliated Broker. Because the Adviser 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.
Other investment advisory clients advised by the Adviser may also invest in the
same securities as the Fund. When these clients buy or sell the same securities
at substantially the same time, the Adviser may average the transactions as to
price and allocate the amount of available investments in a manner which the
Adviser believes to be equitable to each client, including the Fund. 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
40
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 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., John Hancock Way, Suite 1001, Boston, MA
02217-1001, a wholly-owned indirect subsidiary of the Life Company is the
transfer and dividend paying agent for each Fund. Each Fund pays Signature
Services a fee of 0.05% of its average daily net assets.
CUSTODY OF PORTFOLIO
Portfolio securities of the Funds are held pursuant to a custodian agreement
between each 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 Funds are Deloitte & Touche LLP, 200 Berkeley
Street, Boston, Massachusetts 02116. Deloitte & Touche LLP audits and renders
opinions on the Funds' annual financial statements and reviews the Funds' annual
Federal income tax returns.
41
APPENDIX A
- ----------
Description of Securities Ratings1
Moody's Investors Service, Inc.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuations of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
The ratings described here are believed to be the most recent ratings available
at the date of this Statement of Additional Information for the securities
listed. Ratings are generally given to securities at the time of issuance. While
the rating agencies may from time to time revise these ratings, they undertake
no obligation to do so, and the ratings indicated do not necessarily represent
those which would be given to these securities on the date of a Fund's fiscal
year-end.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
- -------------------------------------------
1 The ratings described here are believed to be the most recent ratings
available at the date of this Statement of Additional Information for the
securities listed. Ratings are generally given to securities at the time of
issuance. While the rating agencies may from time to time revise these ratings,
they undertake no obligation to do so, and the ratings indicated do not
necessarily represent those which would be given to these securities on the date
of a Fund's fiscal year-end.
A-1
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Absence of Rating: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or
companies that are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or
issuer.
4. The issue was privately placed, in which case the rating is
not published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Note: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
Commercial Paper
Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
nine months.
Issuers rated Prime-1 or P-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-I or P-1
repayment ability will often be evidenced by the following characteristics:
_ Leading market positions in well established industries.
_ High rates of return on funds employed.
_ Conservative capitalization structures with moderate reliance
on debt and ample asset protection.
_ Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
_ Well established access to a range of financial markets and
assured sources of alternate liquidity.
Prime-2
Issuers (or supporting institutions) rated Prime-2 (P-2) have a strong ability
for repayment of senior short-term obligations. This will normally be evidenced
by many of the characteristics cited above, but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
A-2
Prime-3
Issuers (or supporting institutions) rated Prime-3 (P-3) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Standard & Poor's Ratings Group
Investment Grade
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differ from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Speculative Grade
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.
The B rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BB or BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal.
The CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.
A-3
CC: The rating CC is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus of minus sign to show relative standing within the major
rating categories.
Provisional Ratings: The letter "P" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the likelihood of,
or the risk of default upon failure of such completion. The investor should
exercise his own judgment with respect to such likelihood and risk.
L: The letter "L" indicates that the rating pertains to the principal amount of
those bonds to the extent that the underlying deposit collateral is insured by
the Federal Saving & Loan Insurance Corp. or the Federal Deposit Insurance Corp.
and interest is adequately collateralized. In the case of certificates of
deposit the letter "L" indicates that the deposit, combined with other deposits,
being held in the same right and capacity will be honored for principal and
accrued pre-default interest up to the federal insurance limits within 30 days
after closing of the insured institution or, in the event that the deposit is
assumed by a successor insured institution, upon maturity.
NR: NR indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that Standard & Poor's does not rate a
particular type of obligation as a matter of policy.
Commercial Paper
Standard & Poor's describes its three highest ratings for commercial paper as
follows:
A-1. This designation indicated that the degree of safety regarding timely
payment is very strong.
A-2. Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
A-3. Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
********
Notes: Bonds which are unrated expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative bonds. A Portfolio is dependent on the Investment
Adviser's judgment, analysis and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a rating
service may not reflect the effect of recent developments on the issuer's
ability to make interest and principal payments.
A-4
FINANCIAL STATEMENTS
The financial statements listed below are included in the Fund's 2003 Annual
Report to Shareholders for the year ended February 28, 2003; (filed
electronically on April 25, 2003, accession number 0001010521-03-000125) and are
included in and incorporated by reference into Part B of the Registration
Statement for John Hancock Institutional Series Trust (file nos. 33-86102 and
811-8852).
John Hancock Institutional Series Trust
John Hancock Dividend Performers Fund
John Hancock Independence Diversified Core Equity Fund II
Statement of Assets and Liabilities as of February 28, 2003 (audited).
Statement of Operations for the year ended February 28, 2003 (audited).
Statement of Changes in Net Asset for each of the two years in the period
ended February 28, 2003 (audited).
Financial Highlights for each of the 5 years in the period ended February
28, 2003 (audited).
Schedule of Investments as of February 28, 2003 (audited).
Notes to Financial Statements.
Report of Independent Auditors.
F-1
John Hancock
Large Cap
Spectrum
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 12
Trustees & officers
page 25
For your information
page 29
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 nor
mally investing
at least 80% of
its assets in
stocks of large-
capitalization
companies. The
Fund's assets will
be managed
according to
three separate
investment
strategies --
growth, core
and value.
Over the last eight months
* Stocks fell sharply amid weaker-than-expected economic growth, downward
earnings revisions, corporate scandals and fears of war.
* Large-cap stocks with their more complex balance sheets declined more
than small- and mid-cap stocks.
* The Fund's investments in telecommunications, technology and
pharmaceuticals hurt performance.
[Bar chart with heading "John Hancock Large Cap Spectrum 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 10% with -30% at
the bottom and 0% at the top. The first bar represents the -23.30% total
return for Class A. The second bar represents the -23.60% total return
for Class B. The third bar represents the -23.60% 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
4.9% Pfizer
4.5% Microsoft
3.9% Freddie Mac
3.1% American International Group
3.0% Viacom
2.8% General Electric
2.8% Citigroup
2.1% Intel
1.9% Bank of America
1.8% American Express
As a percentage of net assets on October 31, 2002.
John Hancock
Large Cap Spectrum Fund
MANAGERS'
REPORT
John Hancock Large Cap Spectrum Fund began operations on February 25, 2002,
in the midst of a turbulent market. As the year progressed, the slow pace
of the economic recovery, weak corporate spending and earnings
disappointments depressed stock prices. Accounting scandals, highlighted by
WorldCom's bankruptcy, and talk of war with Iraq further unsettled
investors. Large-cap stocks lagged small- and mid-cap names. The Standard &
Poor's 500 Index returned -19.28% from the Fund's inception through
October 31, 2002. The Russell 1000 Value Index returned -17.24% over the
same period, while the Russell 1000 Growth Index returned -23.16%.
PERFORMANCE AND STRATEGY REVIEW
During the same tumultuous time frame, the Fund's Class A, Class B, and
Class C shares returned -23.30%, -23.60% and -23.60%, respectively, at
net asset value. By comparison, the average large-cap core fund returned
- -19.51%, according to Lipper, Inc.1 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.
"...Fund began opera-
tions on February 25,
2002, in the midst of a
turbulent market."
The Fund maintained its focus on large-cap companies with market
capitalizations over $5 billion. We balance our investments across three
investment disciplines, with 50% of our assets allocated to a core
portfolio and 25% each invested in aggressive growth stocks and deep value
stocks. This consistent asset allocation strategy gives the Fund exposure
to whichever area is doing best, while also ensuring we have a stake in
out-of-favor sectors that may be tomorrow's leaders.
LARGE CAP CORE STRATEGY
by Paul J. Berlinguet, John Hancock Advisers
The core portfolio trailed the S&P 500 Index, due to weak stock selection
early on in technology, media and pharmaceuticals. Lackluster demand hurt
software companies like Parametric Technology and Wind River Systems. AOL
Time-Warner suffered when the expected synergies from the merger failed to
materialize, while Liberty Media declined as some of its core investments
in the media and cable areas turned in poor results. Finally, large-cap
pharmaceuticals, such as Bristol-Myers Squibb and Schering-Plough, tumbled
amid patent expiration, pipeline and manufacturing issues. We sold most of
them and focused on higher-quality stocks with predictable earnings that
were not tied to the economic recovery.
Our biggest investments were in the finance, consumer staples and consumer
discretionary sectors. In the finance area, our focus was on insurers like
American International Group (AIG) and Ambac Financial Group, which stand
to benefit from improved industry pricing. We also added stakes in Fifth
Third Bancorp, Wells Fargo and Bank of America, all of which have strong
ties to the consumer. We kept a sizable investment in Freddie Mac, a
government mortgage agency benefiting from low interest rates. But we sold
market-sensitive stocks, such as discount broker Charles Schwab, and
trimmed strong performers like Berkshire-Hathaway, Warren Buffet's holding
company.
"Valuations on large-cap
stocks are particularly
attractive..."
In the consumer discretionary area, we shifted toward more de fensive
companies with strong demand. Our purchases included Walt Disney, Wal-Mart
Stores and Bed, Bath & Beyond, all of which contributed positively toward
performance. We also maintained a sizable investment in Viacom, which
rallied as advertising spending began a comeback. On the staples side, we
sold CVS, which had been a top performer, and added stakes in names such as
Kraft Foods and Coca-Cola, which have predictable earnings.
[Table at top left-hand side of page entitled "Top five industry
groups." The first listing is Medical 14%, the second is Finance 9%, the
third Computers 8%, the fourth Retail 8%, and the fifth Banks--United
States 6%.]
LARGE CAP GROWTH AND VALUE STRATEGIES
by Seth Masters and Stephanie Simon, CFA, AllianceBernstein
Together, the growth and value strategies closely tracked the Russell 1000
Index, which returned -19.05% for the reporting period. Our investments in
telecom and technology were the biggest detractors from performance. On the
value side, WorldCom posted huge losses as it faced bankruptcy. We
significantly reduced our holdings, but still held onto Qwest
Communications, which stands to benefit from its mix of local service and
related businesses. On the growth side, Intel was a poor performer as
corporate spending on technology remained weak. Our investment in
pharmaceuticals, such as Pfizer and Schering-Plough, also challenged our
performance as concerns about generic competition and the lack of new
blockbuster drugs mounted.
Financials were a sizable stake in both the value and growth portfolios. On
the growth side, we maintained a large investment in Citigroup, a global
financial services company whose stock price weakened under headline
pressure. On the value side, consumer-oriented banks, such as Bank of
America, Washington Mutual and Bank One, rallied nicely, generating profits
for the Fund. Select health-care names in the growth portfolio, such as
UnitedHealth Group and Cardinal Health, also contributed positively to
results, as did certain retailers such as Lowe's.
[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
Liberty Media followed by a down arrow with the phrase "Weak performance
among media and cable holdings." The second listing is Pfizer followed
by a down arrow with the phrase "Concerns about generic competition,
lack of new drugs." The third listing is Bank of America followed by an
up arrow with the phrase "Low interest rates, improved margins, low loan
defaults."]
We took advantage of market volatility to improve the quality of our
holdings. On the growth side, we focused on stable companies with strong
balance sheets and the ability to generate cash amid the weak economy,
including both Microsoft and Dell Computer. We also targeted economically
sensitive or cyclical stocks, selecting high-quality companies (such as
AIG) that have been unfairly punished by investors. On the value side, we
augmented our stake in hybrid electric power utilities with minimal
exposure to energy trading. Our focus was on companies with financial
strength, such as American Electric Power and Entergy, which have the
resources to weather further volatility.
"Together, the growth
and value strategies closely
tracked the Russell 1000
Index..."
OPPORTUNITY AHEAD
We expect economic growth to pick up in 2003, barring a steep drop in
investor confidence or slowdown in the housing market. The market's recent
volatility and sharp decline have created new opportunities for investors.
Valuations on large-cap stocks are particularly attractive, suggesting they
should do well in a rebound. We believe the Fund is well-positioned with
exposure to companies that may benefit from new developments, such as
improved capital spending, emerging wireless trends and rising insurance
prices, as well as defensive investments that should help stabilize the
portfolio if volatility continues.
This commentary reflects the views of the portfolio managers through the
end of the Fund's period discussed in this report. Of course, the managers'
views are subject to change as market and other conditions warrant.
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
Standard & Poor's
500 Index, an unman-
aged index that
includes 500 widely
traded common stocks.
It is not possible to
invest in an index.
Class A Class B Class C Index
Inception date 2-25-02 2-25-02 2-25-02 --
Average annual returns with maximum sales charge (POP)
Since inception 1 -27.16% -27.42% -25.11% -19.11%
Cumulative total returns with maximum sales charge (POP)
Since inception -27.16% -27.42% -25.11% -19.11%
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.
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 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 Standard & Poor's 500 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 $8,089
as of October 31, 2002. The second line represents the value of the
hypothetical $10,000 investment made in the John Hancock Large Cap
Spectrum Fund, before sales charge, and is equal to $7,670 as of October
31, 2002. The second line represents the value of the same hypothetical
investment made in the John Hancock Large Cap Spectrum Fund, after sales
charge, and is equal to $7,284 as of October 31, 2002.
Class B Class C
Period beginning 2-25-02 2-25-02
Without sales charge $7,640 $7,640
With maximum sales charge $7,258 $7,488
Index $8,089 $8,089
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.
FINANCIAL STATEMENTS
FUND'S
INVESTMENTS
Securities owned
by the Fund on
October 31, 2002
This schedule is divided into two main categories: common stocks and
short-term investments. Stocks are further broken down by industry group.
Short-term investments, which represent the Fund's cash position, are
listed last.
SHARES ISSUER VALUE
COMMON STOCKS 94.92% $18,823,195
(Cost $21,192,801)
Advertising 0.47% $92,208
1,600 Omnicom Group, Inc. 92,208
Automobile / Trucks 1.35% 267,690
5,500 Genuine Parts Co. 162,470
1,400 Lear Corp.* 51,170
1,000 Magna International, Inc. (Class A) (Canada) 54,050
Banks -- United States 6.31% 1,250,216
5,500 Bank of America Corp. 383,900
2,700 Bank One Corp. 104,139
3,100 Fifth Third Bancorp 196,850
4,800 FleetBoston Financial Corp. 112,272
3,000 National City Corp. 81,390
4,300 Wachovia Corp. 149,597
4,400 Wells Fargo & Co. 222,068
Beverages 1.79% 355,884
1,900 Anheuser-Busch Cos., Inc. 100,244
5,500 Coca-Cola Co. (The) 255,640
Broker Services 1.87% 371,339
1,700 Bear Stearns Cos., Inc. (The) 103,785
2,100 Goldman Sachs Group, Inc. (The) 150,360
2,200 Lehman Brothers Holdings, Inc. 117,194
Building 0.42% 83,816
1,200 Centex Corp. 54,576
1,500 Georgia-Pacific Corp. 18,300
400 Sherwin-Williams Co. (The) 10,940
Chemicals 1.97% 390,681
8,600 Dow Chemical Co. (The) 223,514
2,400 Eastman Chemical Co. 87,216
1,700 PPG Industries, Inc. 79,951
Computers 8.13% 1,611,675
7,900 Dell Computer Corp.* 226,019
19,400 Hewlett-Packard Co. 306,520
1,000 International Business Machines Corp. 78,940
16,800 Microsoft Corp.* 898,296
10,000 Oracle Corp.* 101,900
Cosmetics & Personal Care 1.74% 345,180
8,000 Gillette Co. (The) 239,040
1,200 Procter & Gamble Co. (The) 106,140
Diversified Operations 3.80% 753,485
1,500 3M Co. 190,410
22,300 General Electric Co. 563,075
Electronics 2.63% 521,335
3,700 Avnet, Inc.* 34,410
23,900 Intel Corp. 413,470
11,500 Solectron Corp.* 25,875
3,000 Texas Instruments, Inc. 47,580
Finance 9.31% 1,846,171
10,000 American Express Co. 363,700
14,800 Citigroup, Inc. 546,860
2,500 Golden West Financial Corp. 172,650
4,400 J.P. Morgan Chase & Co. 91,300
15,750 MBNA Corp. 319,883
3,250 Morgan Stanley Dean Witter & Co. 126,490
6,300 Washington Mutual, Inc. 225,288
Food 2.04% 403,940
4,000 Kellogg Co. 127,440
7,000 Kraft Foods, Inc. (Class A) 276,500
Household 0.82% 162,100
5,000 Newell Rubbermaid, Inc. 162,100
Insurance 6.06% 1,201,624
1,450 Aetna, Inc. 58,435
4,500 Ambac Financial Group, Inc. 278,100
9,700 American International Group, Inc. 606,735
1,900 Chubb Corp. (The) 107,179
11,324 Travelers Property Casualty Corp. (Class A)* 151,175
Leisure 1.05% 209,010
3,000 Eastman Kodak Co. 98,850
6,000 Mattel, Inc. 110,160
Machinery 0.25% 50,384
1,600 Cooper Industries, Ltd. (Class A) 50,384
Media 4.45% 882,336
8,400 Comcast Corp. (Class A)* 193,284
6,000 Disney (Walt) Co. (The) 100,200
13,200 Viacom, Inc. (Class B)* 588,852
Medical 14.45% 2,864,603
1,500 Anthem, Inc.* 94,500
2,000 Bard (C.R.), Inc. 111,860
2,700 Cardinal Health, Inc. 186,867
5,400 Johnson & Johnson 317,250
4,500 Medtronic, Inc. 201,600
5,800 Merck & Co., Inc. 314,592
30,300 Pfizer, Inc. 962,631
6,100 Schering-Plough Corp. 130,235
2,600 St. Jude Medical, Inc. * 92,586
4,350 Tenet Healthcare Corp.* 125,062
3,600 UnitedHealth Group, Inc. 327,420
Mortgage Banking 4.60% 912,971
2,050 Fannie Mae 137,063
12,600 Freddie Mac 775,908
Office 0.78% 155,600
2,500 Avery Dennison Corp. 155,600
Oil & Gas 3.92% 777,639
1,300 ChevronTexaco Corp. 87,919
4,600 ConocoPhillips 223,100
8,200 Exxon Mobil Corp. 276,012
5,200 Occidental Petroleum Corp. 148,356
1,200 Valero Energy Corp. 42,252
Paper & Paper Products 0.65% 129,890
6,200 MeadWestvaco Corp. 129,890
Retail 7.71% 1,527,931
4,000 Bed Bath & Beyond, Inc.* 141,840
4,995 Kohl's Corp.* 291,958
7,900 Lowe's Cos., Inc. 329,667
1,600 Sears, Roebuck & Co. 42,016
3,000 Sysco Corp. 95,040
3,100 Target Corp. 93,372
6,700 Walgreen Co. 226,125
5,750 Wal-Mart Stores, Inc. 307,913
Telecommunications 3.42% 678,610
9,500 Corning, Inc.* 17,765
8,100 Nokia Corp., American Depositary Receipt (Finland) 134,622
40,600 Nortel Networks Corp. (Canada)* 49,938
30,225 Qwest Communications International, Inc.* 102,463
5,300 SBC Communications, Inc. 135,998
11,300 Tellabs, Inc.* 86,784
4,000 Verizon Communications, Inc. 151,040
Tobacco 1.33% 262,837
6,450 Philip Morris Cos., Inc. 262,837
Transport 2.01% 398,800
6,000 Burlington Northern Santa Fe Corp. 154,380
12,100 Norfolk Southern Corp. 244,420
Utilities 1.59% 315,240
5,400 American Electric Power Co., Inc. 138,456
2,200 Cinergy Corp. 68,442
1,800 Constellation Energy Group, Inc. 46,044
1,800 PPL Corp. 62,298
INTEREST PAR VALUE
ISSUER, DESCRIPTION, MATURITY DATE RATE (000s OMITTED) VALUE
SHORT-TERM INVESTMENTS 5.52% $1,094,000
(Cost $1,094,000)
Joint Repurchase Agreement 5.52%
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% $1,094 1,094,000
TOTAL INVESTMENTS 100.44% $19,917,195
OTHER ASSETS AND LIABILITIES, NET (0.44%) ($86,119)
TOTAL NET ASSETS 100.00% $19,831,076
* Non-income producing security.
Parenthetical disclosure of a foreign country in the security
description represents country of a foreign issuer.
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.
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 $22,286,801) $19,917,195
Cash 1,602
Receivable for investments sold 30,378
Receivable for shares sold 690
Dividends and interest receivable 19,121
Receivable from affiliates 10,180
Other assets 20
Total assets 19,979,186
LIABILITIES
Payable for investments purchased 97,349
Payable for shares repurchased 9,772
Other payables and accrued expenses 40,989
Total liabilities 148,110
NET ASSETS
Capital paid-in 26,303,538
Accumulated net realized loss on investments (4,102,856)
Net unrealized depreciation of investments (2,369,606)
Net assets $19,831,076
NET ASSET VALUE PER SHARE
Based on net asset values and shares outstanding
Class A ($6,039,508 [DIV] 787,232 shares) $7.67
Class B ($8,266,986 [DIV] 1,082,493 shares) $7.64
Class C ($5,524,582 [DIV] 723,288 shares) $7.64
MAXIMUM OFFERING PRICE PER SHARE
Class A 1 ($7.67 [DIV] 95%) $8.07
Class C ($7.64 [DIV] 99%) $7.72
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 period ended
October 31, 2002 1
This Statement
of Operations
summarizes the
Fund's investment
income earned
and expenses
incurred in oper-
ating the Fund.
It also shows net
gains (losses) for
the period stated.
INVESTMENT INCOME
Dividends (net of foreign withholding taxes of $591) $199,215
Interest 21,284
Total investment income 220,499
EXPENSES
Investment management fee 124,294
Class A distribution and service fee 14,185
Class B distribution and service fee 61,773
Class C distribution and service fee 37,171
Registration and filing fee 58,385
Transfer agent fee 54,732
Custodian fee 26,703
Auditing fee 20,000
Printing 16,164
Accounting and legal services fee 3,084
Miscellaneous 2,744
Interest expense 420
Legal fee 215
Trustees' fee 200
Total expenses 420,070
Less expense reductions (131,467)
Net expenses 288,603
Net investment loss (68,104)
REALIZED AND UNREALIZED LOSS
Net realized loss on investments (4,102,856)
Change in net unrealized depreciation
of investments (2,369,606)
Net realized and unrealized loss (6,472,462)
Decrease in net assets from operations ($6,540,566)
1 Inception period from 2-25-02 through 10-31-02.
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 incep-
tion of the Fund.
The difference
reflects earnings
less expenses,
any investment
gains and losses,
distributions
paid to share-
holders, if any,
and any increase
or decrease in
money share-
holders invested
in the Fund.
PERIOD
ENDED
10-31-02 1
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment loss ($68,104)
Net realized loss (4,102,856)
Change in net unrealized depreciation (2,369,606)
Decrease in net assets resulting from operations (6,540,566)
From Fund share transactions 26,371,642
NET ASSETS
Beginning of period --
End of period $19,831,076
1 Inception period from 2-25-02 through 10-31-02.
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 during the period.
PERIOD ENDED 10-31-02 1
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.00
Net investment loss 2 -- 3
Net realized and unrealized loss on investments (2.33)
Total from investment operations (2.33)
Net asset value, end of period $7.67
Total return 4,5 (%) (23.30) 6
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $6
Ratio of expenses to average net assets (%) 1.50 7
Ratio of adjusted expenses to average net assets 8 (%) 2.40 7
Ratio of net investment loss to average net assets (%) -- 7
Portfolio turnover (%) 70
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
CLASS B SHARES
PERIOD ENDED 10-31-02 1
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.00
Net investment loss 2 (0.04)
Net realized and unrealized loss on investments (2.32)
Total from investment operations (2.36)
Net asset value, end of period $7.64
Total return 4,5 (%) (23.60) 6
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $8
Ratio of expenses to average net assets (%) 2.20 7
Ratio of adjusted expenses to average net assets 8 (%) 3.10 7
Ratio of net investment loss to average net assets (%) (0.69) 7
Portfolio turnover (%) 70
FINANCIAL
HIGHLIGHTS
CLASS C SHARES
PERIOD ENDED 10-31-02 1
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.00
Net investment loss 2 (0.04)
Net realized and unrealized loss on investments (2.32)
Total from investment operations (2.36)
Net asset value, end of period $7.64
Total return 4,5 (%) (23.60) 6
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $6
Ratio of expenses to average net assets (%) 2.20 7
Ratio of adjusted expenses to average net assets 8 (%) 3.10 7
Ratio of net investment loss to average net assets (%) (0.69) 7
Portfolio turnover (%) 70
1 Class A, Class B, and Class C shares began operations on 2-25-02.
2 Based on the average of the shares outstanding.
3 Less than $0.01 per share.
4 Assumes dividend reinvestment and does not reflect the effect
of sales charges.
5 Total return would have been lower had certain expenses not
been reduced during the period shown.
6 Not annualized.
7 Annualized.
8 Does not take into consideration expense reductions during
the period shown.
See notes to
financial statements.
NOTES TO
STATEMENTS
NOTE A
Accounting policies
John Hancock Large Cap Spectrum Fund (the "Fund") is a non-diversified
series of John Hancock Equity Trust, 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 Fund's
assets will be allocated among three investment styles: growth, core and
value.
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 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.
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.
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.
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 as of October 31, 2002.
Securities lending
The Fund may lend securities to certain qualified brokers who pay the Fund
negotiated lender fees. 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.
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 $4,063,884 of capital loss
carryforward available, to the extent provided by regulations, to offset
future net realized capital gains. To the extent such carryforward is used
by the Fund, no capital gain distributions will be made. The entire
carryforward expires October 31, 2010.
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 at an annual rate of 0.85% of the Fund's average daily net
asset value. The Adviser has a subadvisory agreement with Alliance Capital
Management L.P. The Fund is not responsible for payment of the subadvisory
fees.
The Adviser has agreed to limit the Fund's expenses, excluding the
distribution and service fees, to 1.20% of the Fund's average daily net
assets, at least until February 28, 2003. Accordingly, the expense
reduction amounted to $131,467 for the period 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
period ended October 31, 2002, JH Funds received net up-front sales charges
of $85,567 with regard to sales of Class A shares. Of this amount, $84,415
was paid as sales commissions to unrelated broker-dealers and $1,152 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 period ended October 31,
2002, JH Funds received net up-front sales charges of $62,085 with regard
to sales of Class C shares. Of this amount, $61,509 was paid as sales
commissions to unrelated broker-dealers and $576 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 period ended October 31, 2002, CDSCs received by JH
Funds amounted to $24,230 for Class B shares and $2,149 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 period
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
Compensation 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 period, along with the corresponding dollar value. The Fund has
an unlimited number of shares authorized with no par value.
PERIOD ENDED 10-31-02 1
SHARES AMOUNT
CLASS A SHARES
Sold 1,065,563 $10,469,656
Repurchased (278,331) (2,309,288)
Net increase 787,232 $8,160,368
CLASS B SHARES
Sold 1,455,953 $14,180,950
Repurchased (373,460) (3,099,618)
Net increase 1,082,493 $11,081,332
CLASS C SHARES
Sold 885,678 $8,455,714
Repurchased (162,390) (1,325,772)
Net increase 723,288 $7,129,942
NET INCREASE 2,593,013 $26,371,642
1 Inception period from 2-25-02 through 10-31-02.
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 period ended
October 31, 2002, aggregated $37,442,363 and $12,126,706, respectively.
The cost of investments owned on October 31, 2002, including short-term
investments, for federal income tax purposes was $22,325,772. Gross
unrealized appreciation and depreciation of investments aggregated $262,593
and $2,671,170, respectively, resulting in net unrealized depreciation of
$2,408,577. 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 period ended October 31, 2002, the Fund reclassified amounts to
reflect a decrease in accumulated net investment loss of $68,104 and a
decrease in capital paid-in of $68,104. 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 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 Large Cap Spectrum 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 Large Cap Spectrum Fund (a series of John Hancock Equity
Trust) (the "Fund") at October 31, 2002, and the results of its operations,
the changes in its net assets and the financial highlights for the period
from February 25, 2002 (commencement of operations) through October 31,
2002, 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 audit. We conducted
our audit 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 audit, which included confirmation of securities owned at October 31,
2002 by correspondence with the custodian and brokers, provides 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 paid, if any, 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 corporate
dividends-received deduction.
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 2001 31
Professor of Law, Emeritus, Boston University School of Law
(as of 1996); Director, Brookline Bancorp.
Richard P. Chapman, Jr., Born: 1935 2001 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 2001 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 2001 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 2001 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 2001 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 2001 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 2001 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 2001 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 2001 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 2001
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 2001
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 2001
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 2001
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 2001
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
FOR YOUR
INFORMATION
INVESTMENT ADVISER
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, Massachusetts 02199-7603
INVESTMENT SUBADVISER
Alliance Capital Management, L.P.
1345 Avenue of the Americas
New York, New York 10105
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
Large Cap Spectrum Fund.
6700A 10/02
12/02
John Hancock
Dividend
PERFORMERS
FUND
ANNUAL
REPORT
2.28.03
Sign up for electronic delivery at
www.jhancock.com/funds/edelivery
[LOGO] John Hancock
- --------------------------------------------------------------------------------
[A photo of Maureen R. Ford, Chairman and Chief Executive Officer, flush left
next to first paragraph.]
- --------------------------------------------------------------------------------
Dear Fellow Shareholders,
After a robust start to 2003, the stock market quickly gave in to the continuing
pressures that plagued it throughout 2002. The threat of war with Iraq increased
and became a reality in mid- March. The uncertainty surrounding these and other
geopolitical issues became uppermost in investors' minds and caused the market
to continue the tumble that marked 2002. In the first two months of 2003, the
Dow Jones Industrial Average returned -4.98%, the Standard & Poor's 500 Index
lost 4.08% and the Nasdaq Composite Index was relatively flat, at 0.15%. Bonds
advanced in the same period as investors sought safety.
The market's results through February 2003 matched the trend of the last three
years, in which stocks lost ground every year as the economy stalled, corporate
spending and profits were lackluster and investor confidence plunged amid
corporate scandals. Bonds, on the other hand, outperformed stocks for a third
straight year and produced positive results in 2002, while 96% of U.S.
diversified stock mutual funds lost money. These results only confirm the
importance of having a portfolio well diversified among stocks, bonds and cash.
In fact, the disparity between stock and bond results over the last three years
means that many investors' portfolios may have shifted substantially in their
mix between stocks and bonds. We recommend working with your investment
professional to rebalance your assets according to your long-term goals.
After three down years - one of the longest declines in modern history - no one
can predict when the bear market cycle will turn. Currently, uncertainties
abound, with ongoing concerns about the economy and the risks of war.
While all these factors are beyond our control, investors can take charge
of how they maneuver through the inevitable bull and bear market cycles. We've
said it before, but it bears repeating: the key is to keep a long-term
perspective and work with your investment professional to develop and maintain a
properly diversified portfolio. We believe this offers the best protection in
the tough times and the best means to reach your long-term goals.
Sincerely,
/s/Maureen R. Ford
- ------------------
Maureen R. Ford,
Chairman and Chief Executive Officer
Over the last twelve months
[ ] Widespread nervousness continued to plague the stock market, which again
produced negative results.
[ ] The Fund's relative underperformance was due to its heavier emphasis on
large-capitalization stocks.
[ ] We began to see some compelling values that meet our strict investment
standards.
- --------------------------------------------------------------------------------
[Bar chart with heading "John Hancock Dividend Performers Fund." Under the
heading is a note that reads "Fund performance for the year ended February 28,
2003." The chart is scaled in increments of 10% with -30% at the bottom and 0%
at the top. The first bar represents the -25.00% total return for Class A. A
note below the chart reads "The total return for the Fund is at net asset value
with all distributions reinvested."]
- --------------------------------------------------------------------------------
Top 10 holdings
3.7% Standard & Poor's Depositary Receipts, Trust Series 1
3.1% General Electric
3.0% AFLAC
2.9% Microsoft
2.8% Pfizer
2.7% American International Group
2.6% Citigroup
2.6% ExxonMobil
2.5% Altria Group
2.5% Cisco Systems
As a percentage of net assets on February 28, 2003.
YOUR FUND
AT A GLANCE
The Fund seeks long-term growth of capital with income as a secondary objective
by investing primarily in "dividend performers" - dividend-paying companies that
have typically increased their dividend payments over time or that the managers
believe have the potential to increase their dividend payments.
1
BY JOHN F. SNYDER, III, AND PETER SCHOFIELD, CFA, PORTFOLIO MANAGERS
John Hancock Dividend Performers Fund
- ---------
MANAGERS'
REPORT
- ---------
Widespread nervousness continued to plague the stock market during the 12 months
ended February 28, 2003. Optimism about the economic turnaround faded when
economic reports painted a picture of a more anemic recovery. Accounting
scandals continued to unnerve investors as the focus shifted from corporations
such as Enron and WorldCom early in the year to Wall Street firms such as
Citigroup and CS First Boston later. Finally, the looming prospect of war with
Iraq further fueled investors' fears. The net result was another year of
negative returns. For the year ended February 28, 2003, the broad Standard &
Poor's 500 Index fell 22.67%.
PERFORMANCE REVIEW
For the same period, John Hancock Dividend Performers Fund returned -25.00% at
net asset value. By comparison, the average large-cap core fund returned
- -23.80%, according to Lipper, Inc. 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. See pages six
and seven for historical performance information.
"Widespread nervousness continued to plague the stock market..."
LARGE CAPITALIZATION AND TECHNOLOGY STOCKS SUFFER
The Fund's relative underperformance can be explained by its heavier emphasis on
large-capitalization stocks. Many of our large-cap names were spared during the
market's decline in 2001. As the end of a market downturn approaches, however,
there's often indiscriminate selling. That's what happened this year as many
large-cap names fell during what was believed to be the last stages of the
market's capitulation. What's more, in the wake of
2
- --------------------------------------------------------------------------------
[Photos' of John Snyder and Pete Schofield flush right next to first paragraph.]
- --------------------------------------------------------------------------------
corporate scandals, many large-cap companies with complex balance sheets
suffered as investors began to question their accounting practices. Because the
Fund tends to hold more large-cap names than its peers, its performance was
slightly below average. General Electric and American International Group (AIG)
were among the large-cap names that disappointed us most.
Technology stocks also detracted from performance. With the continued weak
economy, many corporations have drastically reduced their capital expenditures
on technology. Semicon- ductor maker Texas Instruments, which we sold, started
to see shortfalls in the third quarter of last year as their customers began to
curtail spending.
UTILITIES AND BASIC MATERIALS OUTPERFORM
Despite the broadly negative results, we had good performances from our utility
and basic materials stocks. In the utility sector, stock selection helped us
minimize the Fund's downside risk, including avoiding utilities with credit
problems such as El Paso and Williams. Our position in Questar also boosted
performance. This integrated utility climbed more than 28% during the year,
thanks to double-digit growth in its non-regulated businesses.
"Despite the broadly negative results, we had good performances from our utility
and basic materials stocks."
Our overweight position in basic materials also contributed to performance. In
particular, Praxair - which is a relatively new holding in the portfolio -
performed strongly. This industrial gas company has not only benefited from
improving pricing power and increasing revenues, but is also well insulated from
the rising energy prices that have hurt its peers.
3
- --------------------------------------------------------------------------------
[Table at top left-hand side of page entitled "Top five industry groups." The
first listing is Computers 12%, the second is Medical 11%, the third Insurance
10%, the fourth Finance 8% and the fifth Oil & gas 7%.]
- --------------------------------------------------------------------------------
NEW OPPORTUNITIES
Given the stock market's prolonged downturn, we've begun to see some compelling
values that meet our strict investment standards. The decline has allowed us to
add several new stocks to the portfolio that we've long admired, but haven't
bought because of their high valuations.
Coca-Cola is a perfect example. The stock's valuation has just recently come
down to a level where we feel comfortable buying it. What's more, under new
management, this world-class company has improved its relationship with its
bottlers, successfully expanded into water and other non-carbonated beverages
and continued to produce volume growth worldwide in an
- --------------------------------------------------------------------------------
[Pie chart at middle of page with heading "Portfolio diversification As a
percentage of net assets on 2-28-03." The chart is divided into two sections
(from top to left): Common stocks 91% and Short-term investments & other 9%.]
- --------------------------------------------------------------------------------
extremely challenging environment. Unilever is another new holding. After
struggling for the last few years, this consumer products powerhouse has
improved volume growth by rationalizing its product offerings and focusing on
its leading brands.
A LOOK AHEAD
With pervasive worries still overhanging the market, there are plenty of
challenges ahead for stocks. First and foremost are concerns about the war with
Iraq, which began shortly after the period ended. Second, investors are still
nervous about the
4
- --------------------------------------------------------------------------------
[Table at top of page entitled "SCORECARD". The header for the left column is
"INVESTMENT" and the header for the right column is "PERIOD'S PERFORMANCE...AND
WHAT'S BEHIND THE NUMBERS." The first listing is AIG followed by a down arrow
with the phrase "Worries about complex accounting." The second listing is Texas
Instruments followed by a down arrow with the phrase "Cuts in corporate capital
spending." The third listing is Praxair followed by an up arrow with the phrase
"Improving pricing power and revenues."]
- --------------------------------------------------------------------------------
anemic economic recovery. Over the last few years, the refinancing boom has put
the money in consumers' pockets to purchase automobiles and houses. That
spending has propped up the lackluster economy. With much of the refinancing
opportunities behind us, many are wondering whether consumers can maintain the
same level of spending, especially in the face of rising energy prices.
The good news is that interest rates are at 40-year lows and inflation remains
in check, which creates a positive backdrop for stocks. In addition, President
Bush's proposed tax relief plan should provide some level of economic stimulus.
What's more, if the proposed elimination of the dividend tax passes, that should
be a boon to our "dividend performers" stocks - those companies that have
consistently raised their dividends over time or have the potential to.
In this difficult environment, it will be critical to own high-quality companies
with strong balance sheets, steady earnings growth and the ability to leverage
the gradual upturn in the economy.
"In this difficult environment, it will be critical to own high-quality
companies..."
This commentary reflects the views of the portfolio managers through the end of
the Fund's period discussed in this report. Of course, the managers' views are
subject to change as market and other conditions warrant.
5
- -----------
A LOOK AT
PERFORMANCE
- -----------
For the period ended February 28, 2003
The index used for comparison is the Standard & Poor's 500 Index, an unmanaged
index that includes 500 widely traded common stocks.
It is not possible to invest directly in an index.
Fund Index
Inception date 3-30-95 -
- --------------------------------------------------------------------------------
Average annual returns
- --------------------------------------------------------------------------------
One year -25.00% -22.67%
Three years -10.43% -13.71%
Five years -4.17% -2.98%
Since inception 6.37% 8.55%
- --------------------------------------------------------------------------------
Cumulative total returns
- --------------------------------------------------------------------------------
One year -25.00% -22.67%
Three years -28.14% -35.76%
Five years -19.19% -14.04%
Since inception 63.09% 91.47%
Performance figures assume all distributions are reinvested. 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.
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.
6
This chart shows what happened to a hypothetical $10,000 investment in the Fund
for the period indicated. For comparison, we've shown the same investment in
the Standard & Poor's 500 Index.
- --------------------------------------------------------------------------------
Line chart with the heading "GROWTH OF $10,000." Within the chart are two lines.
The first line represents the Index and is equal to $19,147 as of February 28,
2003. The second line represents the value of the hypothetical $10,000
investment made in the John Hancock Dividend Performers Fund, and is equal to
$16,309 as of February 28, 2003.
- --------------------------------------------------------------------------------
Assuming all distributions were reinvested for the period indicated, the chart
above shows the value of a $10,000 investment in the Fund, as of February 28,
2003.
7
FINANCIAL STATEMENTS
- -----------
FUND'S
INVESTMENTS
- -----------
Securities owned by the Fund on February 28, 2003
This schedule is divided into two main categories: common stocks and short-term
investments. Common stocks are further broken down by industry group. Short-term
investments, which represent the Fund's cash position, are listed last.
SHARES ISSUER VALUE
- ----------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 91.35% $3,070,037
- ----------------------------------------------------------------------------------------------------------------------
(Cost $3,176,372)
Advertising 1.66% 55,629
1,050 Omnicom Group, Inc. 55,629
Banks - United States 2.79% 93,638
900 Bank of America Corp. 62,316
850 State Street Corp. 31,322
Beverages 2.06% 69,150
1,100 Coca-Cola Co. (The) 44,242
650 PepsiCo, Inc. 24,908
Building 0.98% 33,084
1,800 Masco Corp. 33,084
Business Services - Misc. 1.51% 50,712
1,250 Block, H & R, Inc. 50,712
Chemicals 3.11% 104,654
600 Air Products & Chemicals, Inc. 23,256
900 PPG Industries, Inc. 41,760
750 Praxair, Inc. 39,638
Computers 12.07% 405,678
6,080 Cisco Systems, Inc.* 84,998
1,900 Dell Computer Corp.* 51,224
1,000 First Data Corp. 34,650
4,000 Hewlett-Packard Co. 63,400
400 International Business Machines Corp. 31,180
See notes to
financial statements.
8
SHARES ISSUER VALUE
Computers (continued) $405,678
4,100 Microsoft Corp. 97,170
3,600 Oracle Corp.* 43,056
Cosmetics & Personal Care 4.22% 141,851
1,500 Avon Products, Inc. 78,000
780 Procter & Gamble Co. (The) 63,851
Diversified Operations 2.72% 91,499
450 3M Co. 56,417
450 Johnson Controls, Inc. 35,082
Electronics 3.11% 104,617
4,350 General Electric Co. 104,617
Finance 7.81% 262,482
500 Capital One Financial Corp. 15,485
2,666 Citigroup, Inc. 88,884
950 Morgan Stanley Dean Witter & Co. 35,008
1,450 SPDR Trust, Series 1 123,105
Food 2.55% 85,847
1,655 Kraft Foods, Inc. (Class A) 49,005
650 Unilever NV, American Depositary
Receipts (ADR) (Netherlands) 36,842
Insurance 9.85% 330,934
3,250 AFLAC, Inc. 101,562
1,820 American International Group, Inc. 89,708
1,000 Hartford Financial Services Group, Inc. (The) 36,130
900 Marsh & McLennan Cos., Inc. 36,630
4,275 Travelers Property Casualty Corp. (Class A) 66,904
Manufacturing 1.26% 42,263
650 Danaher Corp. 42,263
Media 1.88% 63,121
1,700 Viacom, Inc. (Class B)* 63,121
Medical 10.67% 358,590
1,700 Abbott Laboratories 60,554
700 Amgen, Inc.* 38,248
1,000 Cardinal Health, Inc. 57,290
1,300 Johnson & Johnson 68,185
870 Medtronic, Inc. 38,889
3,200 Pfizer, Inc. 95,424
Mortgage Banking 2.64% 88,590
700 Fannie Mae 44,870
800 Freddie Mac 43,720
Office 2.08% 69,902
650 Avery Dennison Corp. 37,310
1,050 Pitney Bowes, Inc. 32,592
Oil & Gas 6.52% 219,073
1,600 Anadarko Petroleum Corp. 73,728
1,500 BP Plc (ADR) (United Kingdom) 57,165
2,592 ExxonMobil Corp. 88,180
See notes to
financial statements.
9
SHARES ISSUER VALUE
Retail 4.30% $144,621
1,300 Lowe's Cos., Inc. 51,090
1,000 Target Corp. 28,650
1,350 Wal-Mart Stores, Inc. 64,881
Telecommunications 2.91% 97,700
2,000 Nokia Corp. (ADR) (Finland) 26,460
1,430 SBC Communications, Inc. 29,744
1,200 Verizon Communications, Inc. 41,496
Tobacco 2.53% 85,030
2,200 Altria Group, Inc. 85,030
Utilities 2.12% 71,372
600 Dominion Resources, Inc. 32,340
1,400 Questar Corp. 39,032
INTEREST PAR VALUE
ISSUER, DESCRIPTION, MATURITY DATE RATE (000s OMITTED) VALUE
- ----------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 9.11% $306,000
- ----------------------------------------------------------------------------------------------------------------------
(Cost $306,000)
Joint Repurchase Agreement 9.11%
Investment in a joint repurchase agreement transaction with
State Street Bank & Trust Co. - Dated 02-28-03 due
03-03-03 (Secured by U.S. Treasury Bonds 7.250%
due 05-15-16 and 7.125% due 02-15-23, U.S. Treasury Note
1.500% due 02-28-05, U.S. Treasury Inflation Indexed Bond
3.875% due 04-15-29, U.S. Treasury Inflation Indexed Notes
3.375% due 01-15-07 and 4.250% due 01-15-10) 1.31% $306 306,000
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS 100.46% $3,376,037
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES, NET (0.46%) ($15,476)
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS 100.00% $3,360,561
- ----------------------------------------------------------------------------------------------------------------------
* Non-income-producing security.
Parenthetical disclosure of a foreign country in the security description
represents country of a foreign issuer.
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.
10
FINANCIAL STATEMENTS
- -----------
ASSETS AND
LIABILITIES
- -----------
February 28, 2003
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 as well as the net asset value
per share.
- --------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------
Investments at value (cost $3,482,372) $3,376,037
Cash 190
Dividends and interest receivable 5,169
Receivable from affiliates 4,890
Other assets 1,890
Total assets 3,388,176
- --------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------
Other payables and accrued expenses 27,615
Total liabilities 27,615
- --------------------------------------------------------------------------------
NET ASSETS
- --------------------------------------------------------------------------------
Capital paid-in 4,084,284
Accumulated net realized loss on investments (622,207)
Net unrealized depreciation of investments (106,335)
Accumulated net investment income 4,819
Net assets $3,360,561
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
- --------------------------------------------------------------------------------
Based on 573,859 shares outstanding $5.86
See notes to
financial statements.
11
FINANCIAL STATEMENTS
- ----------
OPERATIONS
- ----------
For the year ended
February 28, 2003
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 $322) $58,712
Interest 3,960
Total investment income 62,672
- --------------------------------------------------------------------------------
EXPENSES
- --------------------------------------------------------------------------------
Investment management fee 23,270
Auditing fee 16,025
Custodian fee 14,271
Registration and filing fee 11,998
Printing 8,568
Transfer agent fee 7,413
Accounting and legal services fee 1,126
Trustees' fee 203
Miscellaneous 121
Legal fee 51
Total expenses 83,046
Less expense reductions (55,897)
Net expenses 27,149
Net investment income 35,523
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED LOSS
- --------------------------------------------------------------------------------
Net realized loss on investments (488,252)
Change in net unrealized appreciation
(depreciation) of investments (676,822)
Net realized and unrealized loss (1,165,074)
Decrease in net assets from operations ($1,129,551)
See notes to
financial statements.
12
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 difference reflects
earnings less expenses, any investment gains and losses, distributions, if any,
paid to shareholders and any increase or decrease in money shareholders invested
in the Fund.
YEAR YEAR
ENDED ENDED
2-28-02 2-28-03
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
- --------------------------------------------------------------------------------
From operations
Net investment income $45,380 $35,523
Net realized loss (30,504) (488,252)
Change in net unrealized
appreciation (depreciation) (452,843) (676,822)
Decrease in net assets resulting
from operations (437,967) (1,129,551)
Distributions to shareholders
From net investment income (50,241) (36,853)
From net realized gain (1,164,106) -
(1,214,347) (36,853)
From Fund share transactions 326,641 (349,669)
- --------------------------------------------------------------------------------
NET ASSETS
- --------------------------------------------------------------------------------
Beginning of period 6,202,307 4,876,634
End of period1 $4,876,634 $3,360,561
1 Includes accumulated net investment income of $6,135 and $4,819, respectively.
See notes to
financial statements.
13
COMMON 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 2-28-99 2-29-00 2-28-01 2-28-02 2-28-03
- ----------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $14.92 $14.46 $13.51 $11.14 $7.89
Net investment income 1 0.15 0.11 0.10 0.08 0.06
Net realized and unrealized
gain (loss) on investments 1.04 0.60 0.45 (0.77) (2.03)
Total from
investment operations 1.19 0.71 0.55 (0.69) (1.97)
Less distributions
From net investment income (0.15) (0.11) (0.11) (0.10) (0.06)
From net realized gain (1.50) (1.55) (2.81) (2.46) -
(1.65) (1.66) (2.92) (2.56) (0.06)
Net asset value,
end of period $14.46 $13.51 $11.14 $7.89 $5.86
Total return 2,3 (%) 7.97 4.17 2.94 (6.93) (25.00)
- ----------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------
Net assets, end of period
(in millions) $18 $15 $6 $5 $3
Ratio of expenses
to average net assets (%) 0.70 0.70 0.70 0.70 0.70
Ratio of adjusted expenses
to average net assets 4% 0.95 1.05 1.08 1.91 2.14
Ratio of net investment income
to average net assets (%) 0.95 0.71 0.73 0.84 0.92
Portfolio turnover (%) 64 46 58 51 53
1 Based on the average of the shares outstanding.
2 Assumes dividend reinvestment.
3 Total returns would have been lower had certain expenses not been reduced
during the periods shown.
4 Does not take into consideration expense reductions during the periods shown.
See notes to
financial statements.
14
- ----------
NOTES TO
STATEMENTS
- ----------
NOTE A
Accounting policies
John Hancock Dividend Performers Fund (the "Fund") is a separate portfolio of
John Hancock Institutional Series Trust (the "Trust"), an open-end management
investment company registered under the Investment Company Act of 1940. The
investment objective of the Fund is to seek long-term growth of capital.
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 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.
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.
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.
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.
15
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 permits borrowings of up to $250 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 February 28, 2003.
Securities lending
The Fund may lend securities to certain qualified brokers who pay the Fund
negotiated lender fees. 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 February 28, 2003.
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 $549,979 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
February 28, 2011. Net capital losses of $69,324 that are attributable to
security transactions incurred after October 31, 2002, are treated as arising on
March 1, 2003, the first day of the Fund's next taxable 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. During the year ended February 28,
2003, the tax character of distributions paid was as follows: ordinary income
$36,853. As of February 28, 2003, the components of distributable earnings on
a tax basis included $5,960 of undistributed ordinary income.
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.
16
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) 0.60% of the first
$500,000,000 of the Fund's average daily net asset value, and (b) 0.55% of the
Fund's average daily net asset value in excess of $500,000,000.
The Adviser has agreed to limit the Fund's expenses to 0.70% of the Fund's
average daily net assets, at least until June 30, 2003. Accordingly, the
expense reduction amounted to $55,897 for the year ended February 28, 2003. The
Adviser reserves the right to terminate this limitation in the future.
The Fund has a distribution agreement with John Hancock Funds, LLC ("JH Funds"),
a wholly owned subsidiary of the Adviser. For the year ended February 28, 2003,
all sales of shares of beneficial interest were sold at net asset value. The
Fund pays all expenses of printing prospectuses and other sales literature,
all fees and expenses in connection with qualification as a dealer in various
states, and all other expenses in connection with the sale and offering for sale
of the shares of the Funds that have not been herein specifically allocated to
the Trust.
The Fund has a transfer agent agreement with John Hancock Signature Services,
Inc., an indirect subsidiary of John Hancock Life Insurance Company ("JHLICo.").
The Fund pays a monthly transfer agent fee at an annual rate of 0.05% of the
average daily net asset value, plus 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 approximately 0.03% of the average daily 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.
17
NOTE C
Fund share transactions
This listing illustrates the number of Fund shares sold, reinvested 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 2-28-02 YEAR ENDED 2-28-03
SHARES AMOUNT SHARES AMOUNT
Shares sold 85,696 $902,545 77,742 $508,461
Distributions reinvested 148,181 1,214,347 5,598 36,853
Shares repurchased (172,441) (1,790,251) (127,521) (894,983)
Net increase (decrease) 61,436 $326,641 (44,181) ($349,669)
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
February 28, 2003, aggregated $1,929,697 and $2,378,287, respectively.
The cost of investments owned on February 28, 2003, including short-term
investments, for federal income tax purposes was $3,485,276. Gross unrealized
appreciation and depreciation of investments aggregated $261,975 and $371,214,
respectively, resulting in net unrealized depreciation of $109,239. 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 February 28, 2003, the Fund reclassified amounts to
reflect a decrease in accumulated net realized loss on investments of $39, an
increase in accumulated net investment income of $14 and a decrease in capital
paid-in of $53. This represents the amount necessary to report these balances on
a tax basis, excluding certain temporary differences, as of February 28, 2003.
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 treatment of deferred compensation 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. The
calculation of net investment income per share in the financial highlights
excludes these adjustments.
18
- ---------
AUDITORS'
REPORT
- ---------
Report of Deloitte & Touche LLP, Independent Auditors
To The Board of Trustees and Shareholders of
John Hancock Dividend Performers Fund
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of John Hancock Dividend Performers Fund (the
"Fund") as of February 28, 2003, the related statement of operations for the
year then ended, the statements of changes in net assets for the years ended
February 28, 2003 and 2002, and the financial highlights for each of the years
in the five-year period ended February 28, 2003. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned at February 28, 2003, by correspondence with the custodian and
broker; where replies were not received, we performed alternative auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Fund as of
February 28, 2003, the results of its operations, the changes in its net assets,
and its financial highlights for the respective stated periods in conformity
with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 4, 2003
19
- -----------
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 February 28, 2003.
With respect to the ordinary dividends paid by the Fund for the fiscal year
ended February 28, 2003, 100% of the dividends qualify for the corporate
dividends-received deduction.
Shareholders will be mailed a 2003 U.S. Treasury Department Form 1099-DIV in
January 2004. This will reflect the total of all distributions that are taxable
for the calendar year 2003.
20
- ----------
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
- ----------------------------------------------------------------------------------------------------
James F. Carlin, Born: 1940 1995 30
- ----------------------------------------------------------------------------------------------------
Director/Treasurer, Alpha Analytical Laboratories
(analytical laboratory); Part Owner and Treasurer, Lawrence
Carlin Insurance Agency, Inc. (since 1995); Part Owner and
Vice President, Mone Lawrence Carlin Insurance Agency, Inc.
(since 1996); Director/Treasurer, Rizzo Associates (until
2000); Chairman and CEO, Carlin Consolidated, Inc.
(management/investments) (since 1987); Director/Partner,
Proctor Carlin & Co., Inc. (until 1999); Trustee,
Massachusetts Health and Education Tax Exempt Trust (since
1993); Director of the following: Uno Restaurant Corp.
(until 2001), Arbella Mutual (insurance) (until 2000),
HealthPlan Services, Inc. (until 1999), Flagship Healthcare,
Inc. (until 1999), Carlin Insurance Agency, Inc. (until
1999), Chairman, Massachusetts Board of Higher Education
(until 1999).
- --------------------------------------------------------------------------------------------------
William H. Cunningham, Born: 1944 1995 30
- --------------------------------------------------------------------------------------------------
Former Chancellor, University of Texas System and former
President of the University of Texas, Austin, Texas;
Chairman and CEO, IBT Technologies (until 2001); Director of
the following: The University of Texas Investment Management
Company (until 2000), Hire.com (since 2000), STC
Broadcasting, Inc. and Sunrise Television Corp. (until
2001), Symtx, Inc. (since 2001), Adorno/ Rogers Technology,
Inc. (since 2001), Pinnacle Foods Corporation (since 2001),
rateGenius (since 2001), LaQuinta Motor Inns, Inc. (hotel
management company) (until 1998), Jefferson-Pilot
Corporation (diversified life insurance company) (since
1985), New Century Equity Holdings (formerly Billing
Concepts) (until 2001), eCertain (until 2001), ClassMap.com
(until 2001), Agile Ventures (until 2001), LBJ Foundation
(until 2000), Golfsmith International, Inc. (until 2000),
Metamor - Worldwide (until 2000); AskRed.com (until 2001),
Southwest Airlines (since 2000) and Introgen (since 2000);
Advisory Director, Q Investments (since 2000); Advisory
Director, Chase Bank (formerly Texas Commerce Bank - Austin)
(since 1988), LIN Television (since 2002) and WilTel
Communications (since 2002).
21
- --------------------------------------------------------------------------------------------------
Ronald R. Dion, Born: 1946 1998 30
- --------------------------------------------------------------------------------------------------
Chairman and Chief Executive Officer, R.M. Bradley & Co.,
Inc.; Director, The New England Council and Massachusetts
Roundtable; Trustee, North Shore Medical Center; Director,
BJ's Wholesale Club, Inc. and a corporator of the Eastern
Bank; Trustee, Emmanuel College.
- --------------------------------------------------------------------------------------------------
Charles L. Ladner2, Born: 1938 1995 30
- --------------------------------------------------------------------------------------------------
Chairman and Trustee, Dunwoody Village, Inc. (retirement
services); Senior Vice President and Chief Financial
Officer, UGI Corporation (Public Utility Holding Company)
(retired 1998); Vice President and Director for AmeriGas,
Inc. (retired 1998); Director of AmeriGas Partners, L.P.
(until 1997) (gas distribution); Director, EnergyNorth, Inc.
(until 1995); Director, Parks and History Association (since
2001).
- --------------------------------------------------------------------------------------------------
Steven Pruchansky, Born: 1944 1995 30
- --------------------------------------------------------------------------------------------------
Chairman and Chief Executive Officer, Mast Holdings, Inc.
(since 2000); Director and President, Mast Holdings, Inc.
(until 2000); Managing Director, JonJames, LLC (real estate)
(since 2001); Director, First Signature Bank & Trust Company
(until 1991); Director, Mast Realty Trust (until 1994);
President, Maxwell Building Corp. (until 1991).
- --------------------------------------------------------------------------------------------------
Norman H. Smith, Born: 1933 1995 30
- --------------------------------------------------------------------------------------------------
Lieutenant General, United States Marine Corps; Deputy Chief
of Staff for Manpower and Reserve Affairs, Headquarters
Marine Corps; Commanding General III Marine Expeditionary
Force/3rd Marine Division (retired 1991).
- --------------------------------------------------------------------------------------------------
John P. Toolan2, Born: 1930 1995 30
- --------------------------------------------------------------------------------------------------
Director, The Smith Barney Muni Bond Funds, The Smith Barney
Tax-Free Money Funds, Inc., Vantage Money Market Funds
(mutual funds), The Inefficient-Market Fund, Inc.
(closed-end investment company) and Smith Barney Trust
Company of Florida; Chairman, Smith Barney Trust Company
(retired 1991); Director, Smith Barney, Inc., Mutual
Management Company and Smith Barney Advisers, Inc.
(investment advisers) (retired 1991); Senior Executive Vice
President, Director and member of the Executive Committee,
Smith Barney, Harris Upham & Co., Incorporated (investment
bankers) (until 1991).
INTERESTED TRUSTEES3
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 ("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).
22
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
- --------------------------------------------------------------------------------------------------
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, President and
Chief Executive Officer, John Hancock Funds; Chairman,
Director and Chief Executive Officer, Sovereign Asset
Management Corporation ("SAMCorp."); Director, Independence
Investment LLC, Subsidiaries, 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 OTHER 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 U.K. (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 1995
- --------------------------------------------------------------------------------------------------
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 1995
- --------------------------------------------------------------------------------------------------
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 1995
- --------------------------------------------------------------------------------------------------
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.
23
- ----------
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 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
For more complete information on any John Hancock Fund and a prospectus, which
includes charges and expenses, call your financial professional, or John Hancock
Funds at 1-800-225-5291. Please read the prospectus carefully before investing
or sending money.
24
INVESTMENT ADVISER
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, LLC
101 Huntington Avenue
Boston, Massachusetts 02199-7603
CUSTODIAN -----------
The Bank of New York FOR YOUR
One Wall Street INFORMATION
New York, New York 10286 -----------
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1001
Boston, Massachusetts 02217-1001
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
INDEPENDENT AUDITORS
Deloitte & Touche LLP
200 Berkeley Street
Boston, Massachusetts 02116-5022
- --------------------------------------------------------------------------------
HOW TO
CONTACT US
On the Internet www.jhfunds.com
By regular mail John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1001
Boston, MA 02217-1001
By express mail John Hancock Signature Services, Inc.
Attn: Mutual Fund Image Operations
529 Main Street
Charlestown, MA 02129
Customer service representatives 1-888-972-8696
24-hour automated information 1-800-597-1897
TDD line 1-800-554-6713
- --------------------------------------------------------------------------------
25
[LOGO] John Hancock
1-800-972-8696
1-800-554-6713 (TDD)
1-800-597-1897 EASI-Line
www.jhfunds.com
- ----------------------------------
Now available: electronic delivery
www.jhancock.com/funds/edelivery
- ----------------------------------
4420A 2/03
4/03
This report is for the information of the shareholders of the John Hancock
Dividend Performers Fund.
John Hancock
Large Cap
Spectrum
Fund
SEMI
ANNUAL
REPORT
4.30.03
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 12
For your information
page 25
Dear Fellow Shareholders,
After a strong start to 2003, the stock market succumbed to the
pressures of a weak economy, rising oil prices, concerns about corporate
earnings and uncertainties about the war in Iraq. The tide turned in
April, when the war ended and first-quarter corporate earnings came in
better than expected. As a result, the major indexes all gained some
ground year to date through April 30, 2003, with the Dow Jones
Industrial Average returning 2.50%, the Standard & Poor's 500 Index
returning 4.82% and the tech-heavy Nasdaq Composite Index up 9.64%.
Bonds, which have outperformed stocks for the last three years,
continued their upward trend this year, as investors still sought their
relative safety.
After the jarring stock market losses of the last three years, it's a
relief for investors to be reminded that the market is indeed cyclical,
and does eventually move up -- not just down. But while the stock market
has been clawing its way back, the ride has been extremely volatile.
Uncertainty still abounds about the strength of the economy,
geopolitical issues, corporate governance problems, rising unemployment
and the sustainability of corporate earnings growth. And despite rallies
late last year and in April, many investors are still so bruised and
skeptical that they have remained on the sidelines. Even though the
statistics suggest we might be emerging from this long, difficult bear
market, we're not quite ready to call it history.
While no one can predict when this bear market cycle will turn,
investors can take charge of how they maneuver through such uncertain
times. First, take a look at how your portfolio is allocated among
stocks, bonds and cash to make sure it's in the proper balance. Work
with your investment professional, who knows your long-term goals and
can help keep you on the right track, rather than being lured by today's
stars, which could wind up tomorrow's laggards. And as always, keep a
long-term investment horizon. We believe this offers the best way for
you to survive the tough times and reach your investment objectives.
Sincerely,
/S/ MAUREEN R. FORD
Maureen R. Ford,
Chairman and Chief Executive Officer
This commentary reflects the chairman's views as of April 30, 2003. They
are subject to change at any time.
YOUR FUND
AT A GLANCE
The Fund seeks
long-term
growth of capital
by normally
investing at least
80% of its assets
in stocks of large-
capitalization
companies. The
Fund's assets
are managed
according to
three separate
investment
strategies --
growth, core
and value.
Over the last six months
* Stock prices rebounded following a period of prolonged pessimism
related to war and economic uncertainty.
* Large-cap, multinational stocks benefited from the weak U.S. dollar.
* The Fund's value strategy helped it post especially strong gains as
bargain stocks made strong comebacks.
[Bar chart with heading "John Hancock Large Cap Spectrum Fund." Under
the heading is a note that reads "Fund performance for the six months
ended April 30, 2003." The chart is scaled in increments of 1% with 0%
at the bottom and 3% at the top. The first bar represents the 2.22%
total return for Class A. The second bar represents the 1.83% total
return for Class B. The third bar represents the 1.83% 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
3.8% Microsoft Corp.
3.8% Pfizer, Inc.
3.5% General Electric Co.
3.4% Citigroup, Inc.
2.5% Wal-Mart Stores, Inc.
2.4% Freddie Mac
2.3% Bank of America Corp.
2.0% Viacom, Inc.
1.8% Goldman Sachs Group, Inc. (The)
1.8% American International Group, Inc.
As a percentage of net assets on April 30, 2003.
MANAGERS'
REPORT
John Hancock
Large Cap Spectrum Fund
Despite continued volatility, stocks closed up for the six months ended
April 30, 2003, with the Standard & Poor's 500 Index returning 4.47%.
After rallying late last year, stock prices trended down as the war with
Iraq, higher oil prices, the SARS virus and economic uncertainty
dominated headlines. Investors favored cheap stocks with less downside
risk. In April, however, stocks rebounded nicely, following success in
Iraq, a decline in oil prices and better-than-expected earnings reports.
Large, multinational stocks benefited from the weak U.S. dollar. The
Russell 1000 Value Index returned 5.25% for the six-month period,
slightly ahead of the Russell 1000 Growth Index's 4.28% return.
PERFORMANCE AND STRATEGY REVIEW
John Hancock Large Cap Spectrum Fund's Class A, Class B, and Class C
shares returned 2.22%, 1.83% and 1.83%, respectively, at net asset value
over the six-month period ended April 30, 2003. By comparison, the
average large-cap core fund returned 2.96%, according to Lipper, Inc.1
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 distributions. See pages six and seven for
historical performance information.
"The core portfolio
posted a modestly
positive return..."
In a volatile market, our strategy of allocating 50% of the Fund's
assets to a core portfolio and 25% each to growth and value stocks
helped the Fund maintain exposure to the best-performing asset classes.
LARGE CAP CORE STRATEGY by Paul J. Berlinguet, John Hancock Advisers
The core portfolio posted a modestly positive return, but lagged the S&P
500 due to stock selection in the financial, consumer staples and
technology sectors. In the financial area, we focused on banks with more
predictable earnings growth, which trailed more economically sensitive
brokers. State Street, which handles transactions and custodial services
for investment managers, was a particular disappointment as investors
worried about a recent acquisition. In the consumer staples sector,
Kraft Foods declined due to problems at parent company Altria, while
Coca-Cola suffered from slower sales growth. Our technology investments
focused on market leaders with strong balance sheets, such as Microsoft,
which lagged more aggressive names.
"Our focus on high-quality
growth stocks hampered
performance as low-
quality stocks rallied early..."
Positive returns came from the health-care sector, where we targeted
large-cap pharmaceuticals with cheap stock prices, such as Merck, as
well as more expensive equipment and service stocks with the potential
for faster growth. Our slightly above-average stake in consumer
discretionary stocks also did well, thanks to Wal-Mart Stores, which
continued to gain market share, and Comcast, a leading cable provider
benefiting from improved financial controls. Selected financials,
including Travelers Property Casualty and Citigroup, also helped returns
as their outlooks brightened.
LARGE CAP GROWTH STRATEGY by Stephanie Simon, CFA, AllianceBernstein
The portfolio, which is comprised of mainly high-quality growth stocks,
modestly underperformed the Russell 1000 Growth Index during an unusual
market rally of lower-quality stocks late in 2002. In the health-care
sector, Tenet Healthcare sank amid revelations of deceptive pricing
practices, causing us to sell. Cardinal Health, a drug distributor,
suffered amid revised growth prospects, while Pfizer, a large
pharmaceutical company, disappointed as investors worried about future
patent expirations. Our strongest performers were economically sensitive
consumer discretionary and industrial stocks, including Comcast and
General Electric.
[Table at top left-hand side of page entitled "Top five industry
groups." The first listing is medical 15%, the second is Retail 10%, the
third Computers 10%, the fourth Finance 8%, and the fifth Banks-United
States 8%.]
We kept an above-average stake in financials, where returns were mixed.
One of our largest and best investments was Citigroup. MBNA, the credit
card company, however, slid as investors reacted to deterioration in a
small segment of its business, even as prospects for its core business
strengthened. Freddie Mac, a government-backed mortgage lender, tumbled
amid concerns that it would suffer as the refinancing cycle ended.
American International Group, a large multi-line insurer, also declined
as weak financial markets hurt certain business units. We believe
prospects for all remain strong and even added to our investment in
MBNA. We kept a below-average stake in technology where we found little
evidence of recovery. We did, however, own Intel, which rallied on the
expectation that corporations would soon upgrade their personal
computers.
LARGE CAP VALUE STRATEGY by Marilyn Fedak, CFA, AllianceBernstein
The value portfolio, which focuses on identifying and selecting
bargains, nicely outpaced the Russell 1000 Value Index. Stock selection
was strong across most sectors. Within financials, we focused on
regional banks and savings and loans (S&Ls) that had tumbled on concerns
that the weak economy would increase loan losses. When earnings came in
better than expected, stocks like Washington Mutual, a leading S&L,
rallied nicely. Other top performers included Lehman Brothers and Morgan
Stanley, investment bankers that benefited from strong cost controls and
an improving market outlook.
[Table at top of page entitled "SCORECARD." The header for the left
column is "INVESTMENT" and the header for the right column is "PERIOD'S
PERFORMANCE...AND WHAT'S BEHIND THE NUMBERS." The first listing is
Nortel Networks followed by an up arrow with the phrase "Improved
balance sheet, lifting of pessimism." The second listing is Johnson &
Johnson followed by a sideways arrow with the phrase "Awaiting approval
of new drug-coated stents." The third listing is American International
Group followed by a down arrow with the phrase "Weak financial markets,
increased liability claims."]
Our above-average stake in the beaten-down technology sector also helped
performance, as many of these stocks rallied. Our strongest returns came
from telecommunications equipment companies, such as Nortel Networks and
Corning, that had strengthened their balance sheets. Other
telecom-related stocks, however, disappointed, including Tellabs, a well-
capitalized equipment company, and SBC Communications, a service
provider. Schering-Plough, a large pharmaceutical company, also faltered
amid concerns that its antihistamine products would lose market share.
"The value portfolio...nicely
outpaced the Russell 1000
Value Index."
MANAGERS' OUTLOOK
We believe the market outlook is improving now that the war with Iraq is
over. Oil prices have come down, lowering expenses for both consumers
and corporations. Although unemployment still hovers around 6%, wage and
income growth has continued, and inflation has remained benign.
Corporations have reaped strong productivity gains, while recent
economic data appears encouraging. In our view, investors' risk aversion
has made long-term expected returns for stocks very attractive compared
to bonds. We think these trends -- along with reasonable valuations and
a weakening U.S. dollar -- bode well for large-cap stocks.
This commentary reflects the views of the portfolio managers through the
end of the Fund's period discussed in this report. The managers'
statements reflect their own opinions. As such, they are in no way
guarantees of future events, and are not intended to be used as
investment advice or a recommendation regarding any specific security.
They are also subject to change at any time as market and other
conditions warrant.
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
April 30, 2003
The index used for
comparison is the
Standard & Poor's
500 Index, an unman-
aged index that
includes 500 widely
traded common stocks.
It is not possible to
invest in an index.
Class A Class B Class C Index
Inception date 2-25-02 2-25-02 2-25-02 --
Average annual returns with maximum sales charge (POP)
One year -21.21% -21.71% -19.26% -13.30%
Since inception -22.20% -21.99% -19.91% -13.49%
Cumulative total returns with maximum sales charge (POP)
Six months -2.85% -3.17% -0.21% 4.47%
One year -21.21% -21.71% -19.26% -13.30%
Since inception -25.55% -25.31% -22.97% -15.66%
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.
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.
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 Standard & Poor's 500 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 $8,434
as of April 30, 2003. The second line represents the value of the
hypothetical $10,000 investment made in the John Hancock Large Cap
Spectrum Fund, before sales charge, and is equal to $7,840 as of April
30, 2003. The third line represents the value of the same hypothetical
investment made in the John Hancock Large Cap Spectrum Fund, after sales
charge, and is equal to $7,445 as of April 30, 2003.
Class B Class C 1
Period beginning 2-25-02 2-25-02
Without sales charge $7,780 $7,780
With maximum sales charge $7,469 $7,702
Index $8,434 $8,434
Assuming all distributions were reinvested for the period indicated, the
table above shows the value of a $10,000 investment in the Fund's Class
B and Class C shares, respectively, as of April 30, 2003. 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
April 30, 2003
(unaudited)
This schedule is divided into two main categories: common stocks and
short-term investments. Stocks are further broken down by industry
group. Short-term investments, which represent the Fund's cash position,
are listed last.
SHARES ISSUER VALUE
COMMON STOCKS 98.88% $17,516,703
(Cost $18,498,264)
Advertising 0.70% 123,800
2,000 Omnicom Group, Inc. 123,800
Automobiles/Trucks 0.94% 167,033
1,400 Lear Corp.* 55,636
1,900 Magna International, Inc. (Class A) (Canada) 111,397
Banks -- United States 7.53% 1,333,194
5,500 Bank of America Corp. 407,275
4,800 FleetBoston Financial Corp. 127,296
3,000 J.P. Morgan Chase & Co. 88,050
3,000 National City Corp. 89,880
2,850 State Street Corp. 99,836
7,600 U.S. Bancorp 168,340
4,300 Wachovia Corp. 164,303
3,900 Wells Fargo & Co. 188,214
Beverages 1.65% 292,980
1,500 Anheuser-Busch Cos., Inc. 74,820
5,400 Coca-Cola Co. (The) 218,160
Broker Services 3.57% 632,769
4,300 Goldman Sachs Group, Inc. (The) 326,370
2,200 Lehman Brothers Holdings, Inc. 138,534
1,800 Merrill Lynch & Co., Inc. 73,890
2,100 Morgan Stanley 93,975
Building 0.13% 23,160
1,500 Georgia-Pacific Corp. 23,160
Chemicals 1.13% 199,971
3,600 Dow Chemical Co. (The) 117,504
1,700 PPG Industries, Inc. 82,467
Computers 9.62% 1,704,049
3,200 Affiliated Computer Services, Inc.* 152,640
10,600 Cisco Systems, Inc.* 159,424
6,100 Dell Computer Corp.* 176,351
1,500 Electronic Data Systems Corp. 27,225
17,800 Hewlett-Packard Co. 290,140
2,000 International Business Machines Corp. 169,800
1,800 Mercury Interactive Corp.* 61,092
26,100 Microsoft Corp. 667,377
Cosmetics & Personal Care 2.91% 515,449
1,000 Avon Products, Inc. 58,170
1,200 Colgate-Palmolive Co. 68,604
1,300 Estee Lauder Cos., Inc. (The) (Class A) 42,250
4,000 Gillette Co. (The) 121,800
2,500 Procter & Gamble Co. (The) 224,625
Diversified Operations 4.02% 712,568
700 3M Co. 88,228
21,200 General Electric Co. 624,340
Electronics 3.43% 607,591
6,000 Applied Materials, Inc.* 87,600
3,700 Avnet, Inc.* 47,175
15,100 Intel Corp. 277,840
1,200 KLA-Tencor Corp.* 49,200
11,500 Solectron Corp.* 36,685
5,900 Texas Instruments, Inc. 109,091
Finance 7.91% 1,400,390
2,500 American Express Co. 94,650
15,500 Citigroup, Inc. 608,375
2,000 Golden West Financial Corp. 150,840
15,750 MBNA Corp. 297,675
6,300 Washington Mutual, Inc. 248,850
Food 0.47% 83,430
2,700 Kraft Foods, Inc. (Class A) 83,430
Household 0.36% 63,551
2,085 Newell Rubbermaid, Inc. 63,551
Insurance 4.97% 880,710
5,400 American International Group, Inc. 312,930
1,900 Chubb Corp. (The) 100,491
4,800 CIGNA Corp. 251,040
13,324 Travelers Property Casualty Corp. (Class A) 216,249
Leisure 0.58% 102,178
4,700 Mattel, Inc. 102,178
Machinery 0.34% 59,360
1,600 Cooper Industries, Ltd. (Class A) 59,360
Media 6.42% 1,137,586
3,450 Clear Channel Communications, Inc.* 134,930
6,400 Comcast Corp. (Class A)* 204,224
8,400 Comcast Corp. (Special Class A)* 252,504
1,100 Gannett Co., Inc. 83,292
2,300 New York Times Co. (The) (Class A) 106,674
8,200 Viacom, Inc. (Class B)* 355,962
Medical 15.06% 2,667,402
4,450 Aetna, Inc. 221,610
1,500 Amgen, Inc.* 91,965
1,200 Bard (C.R.), Inc. 76,056
1,200 Barr Laboratories, Inc.* 66,720
1,500 Biovail Corp. (Canada)* 54,225
1,600 Cardinal Health, Inc. 88,448
2,500 Gilead Sciences, Inc.* 115,350
2,800 IDEC Pharmaceuticals Corp.* 91,700
4,400 Johnson & Johnson 247,984
4,594 Medtronic, Inc. 219,318
3,200 Merck & Co., Inc. 186,176
2,200 Novartis AG, American Depositary Receipt (ADR)
(Switzerland) 86,856
21,700 Pfizer, Inc. 667,275
6,100 Schering-Plough Corp. 110,410
1,100 St. Jude Medical, Inc. * 57,706
3,100 UnitedHealth Group, Inc. 285,603
Mortgage Banking 3.22% 571,070
2,050 Fannie Mae 148,400
7,300 Freddie Mac 422,670
Oil & Gas 3.99% 706,677
2,200 BJ Services Co.* 80,322
4,600 ConocoPhillips 231,380
7,000 Exxon Mobil Corp. 246,400
3,500 Occidental Petroleum Corp. 104,475
1,200 Valero Energy Corp. 44,100
Paper & Paper Products 0.69% 122,668
5,200 MeadWestvaco Corp. 122,668
Retail 10.45% 1,851,685
3,200 Bed Bath & Beyond, Inc.* 126,432
2,700 Gap, Inc. (The) 44,901
4,800 Genuine Parts Co. 153,456
4,995 Kohl's Corp.* 283,716
5,500 Lowe's Cos., Inc. 241,395
10,800 McDonald's Corp. 184,680
1,300 Safeway, Inc.* 21,606
2,600 Sears, Roebuck & Co. 73,684
1,300 Target Corp. 43,472
5,100 Walgreen Co. 157,386
7,850 Wal-Mart Stores, Inc. 520,957
Telecommunications 4.24% 751,715
5,500 Corning, Inc.* 29,810
13,100 Nokia Corp. (ADR) (Finland) 217,067
17,200 Nortel Networks Corp. (Canada)* 44,376
21,200 Qwest Communications International, Inc.* 79,924
6,900 SBC Communications, Inc. 161,184
11,300 Tellabs, Inc.* 69,834
4,000 Verizon Communications, Inc. 149,520
Tobacco 0.32% 56,906
1,850 Altria Group, Inc. 56,906
Transportation 2.40% 425,601
6,000 Burlington Northern Santa Fe Corp. 168,960
12,100 Norfolk Southern Corp. 256,641
Utilities 1.83% 323,210
5,400 American Electric Power Co., Inc. 142,452
1,100 Cinergy Corp. 37,554
1,800 Constellation Energy Group, Inc. 52,704
2,500 PPL Corp. 90,500
INTEREST PAR VALUE
ISSUER, DESCRIPTION, MATURITY DATE RATE (000s OMITTED) VALUE
SHORT-TERM INVESTMENTS 3.06% $542,000
(Cost $542,000)
Joint Repurchase Agreement 3.06%
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, U.S. Treasury Inflation
Indexed Notes 3.375% due 01-15-07 and 3.000%
due 07-15-12) 1.280% $542 542,000
TOTAL INVESTMENTS 101.94% $18,058,703
OTHER ASSETS AND LIABILITIES, NET (1.94%) ($343,783)
TOTAL NET ASSETS 100.00% $17,714,920
* Non-income-producing security.
Parenthetical disclosure of a foreign country in the security
description represents country of a foreign issuer.
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.
ASSETS AND
LIABILITIES
April 30, 2003
(unaudited)
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 $19,040,264) $18,058,703
Cash 1,745
Receivable for investments sold 161,812
Receivable for shares sold 982
Dividends and interest receivable 16,090
Other assets 20
Total assets 18,239,352
LIABILITIES
Payable for investments purchased 432,244
Payable for shares repurchased 45,420
Payable to affiliates 24,717
Other payables and accrued expenses 22,051
Total liabilities 524,432
NET ASSETS
Capital paid-in 23,950,399
Accumulated net realized loss on investments (5,231,588)
Net unrealized depreciation of investments (981,561)
Accumulated net investment loss (22,330)
Net assets $17,714,920
NET ASSET VALUE PER SHARE
Based on net asset values and shares outstanding
Class A ($5,466,638 [DIV] 697,414 shares) $7.84
Class B ($7,422,524 [DIV] 954,490 shares) $7.78
Class C ($4,825,758 [DIV] 620,513 shares) $7.78
MAXIMUM OFFERING PRICE PER SHARE
Class A 1 ($7.84 [DIV] 95%) $8.25
Class C ($7.78 [DIV] 99%) $7.86
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 period ended
April 30, 2003
(unaudited) 1
This Statement
of Operations
summarizes the
Fund's investment
income earned
and expenses
incurred in operat-
ing the Fund.
It also shows net
gains (losses) for
the period stated.
INVESTMENT INCOME
Dividends (net of foreign withholding taxes of $872) $153,964
Interest 4,368
Total investment income 158,332
EXPENSES
Investment management fee 77,289
Class A distribution and service fee 8,305
Class B distribution and service fee 38,321
Class C distribution and service fee 24,923
Transfer agent fee 49,984
Registration and filing fee 21,310
Custodian fee 13,858
Auditing fee 9,918
Printing 7,279
Accounting and legal services fee 2,431
Trustees' fee 873
Miscellaneous 685
Legal fees 120
Total expenses 255,296
Less expense reductions (74,634)
Net expenses 180,662
Net investment loss (22,330)
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized loss on investments (1,128,732)
Change in net unrealized appreciation (depreciation)
of investments 1,388,045
Net realized and unrealized gain 259,313
Increase in net assets from operations $236,983
1 Semiannual period from 11-1-02 through 4-30-03.
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,
distributions, if
any, paid to
shareholders and
any increase or
decrease in
money share-
holders invested
in the Fund.
PERIOD PERIOD
ENDED ENDED
10-31-02 1 4-30-03 2
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment loss ($68,104) ($22,330)
Net realized loss (4,102,856) (1,128,732)
Change in net unrealized appreciation
(depreciation) (2,369,606) 1,388,045
Increase (decrease) in net assets
resulting from operations (6,540,566) 236,983
From Fund share transactions 26,371,642 (2,353,139)
NET ASSETS
Beginning of period -- 19,831,076
End of period 3 $19,831,076 $17,714,920
1 Inception period 2-25-02 through 10-31-02.
2 Semiannual period from 11-1-02 through 4-30-03. Unaudited.
3 Includes accumulated net investment loss of none and $22,330, 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 10-31-02 1 4-30-03 2
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.00 $7.67
Net investment income 3 -- 4 0.01
Net realized and unrealized gain (loss) on investments (2.33) 0.16
Total from investment operations (2.33) 0.17
Net asset value, end of period $7.67 $7.84
Total return 5,6 (%) (23.30)7 2.22 7
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $6 $5
Ratio of expenses to average net assets (%) 1.50 8 1.50 8
Ratio of adjusted expenses to average net assets 9 (%) 2.40 8 2.32 8
Ratio of net investment income to average net assets (%) -- 8 0.24 8
Portfolio turnover (%) 70 40
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
CLASS B SHARES
PERIOD ENDED 10-31-02 1 4-30-03 2
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.00 $7.64
Net investment loss 3 (0.04) (0.02)
Net realized and unrealized gain (loss) on investments (2.32) 0.16
Total from investment operations (2.36) 0.14
Net asset value, end of period $7.64 $7.78
Total return 5,6 (%) (23.60)7 1.83 7
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $8 $7
Ratio of expenses to average net assets (%) 2.20 8 2.20 8
Ratio of adjusted expenses to average net assets 9 (%) 3.10 8 3.02 8
Ratio of net investment loss to average net assets (%) (0.69)8 (0.45)8
Portfolio turnover (%) 70 40
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
CLASS C SHARES
PERIOD ENDED 10-31-02 1 4-30-03 2
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.00 $7.64
Net investment loss 3 (0.04) (0.02)
Net realized and unrealized gain (loss) on investments (2.32) 0.16
Total from investment operations (2.36) 0.14
Net asset value, end of period $7.64 $7.78
Total return 5,6 (%) (23.60)7 1.83 7
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $6 $5
Ratio of expenses to average net assets (%) 2.20 8 2.20 8
Ratio of adjusted expenses to average net assets 9 (%) 3.10 8 3.02 8
Ratio of net investment loss to average net assets (%) (0.69)8 (0.46)8
Portfolio turnover (%) 70 40
1 Class A, Class B, and Class C shares began operations on 2-25-02.
2 Semiannual period from 11-1-02 through 4-30-03. Unaudited.
3 Based on the average of the shares outstanding.
4 Less than $0.01 per share.
5 Assumes dividend reinvestment and does not reflect the effect of sales charges.
6 Total returns would have been lower had certain expenses not been reduced during the periods shown.
7 Not annualized.
8 Annualized.
9 Does not take into consideration expense reductions during the periods shown.
See notes to
financial statements.
NOTES TO
STATEMENTS
(Unaudited)
NOTE A
Accounting policies
John Hancock Large Cap Spectrum Fund (the "Fund") is a non-diversified
series of John Hancock Equity Trust, an open-end management investment
company registered under the Investment Company Act of 1940. The
investment objective of the Fund is to achieve long-term growth of
capital. The Fund's assets will be allocated among three investment
styles: growth, core and value.
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 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.
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.
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.
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 permits borrowings of up to
$250 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 period ended April 30, 2003.
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 $4,063,884 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,
2010.
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.
Such distributions, 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 at an annual rate of 0.85% of the Fund's average
daily net asset value. The Adviser has a subadvisory agreement with
Alliance Capital Management LP. The Fund is not responsible for payment
of the subadvisory fees.
The Adviser has agreed to limit the Fund's expenses, excluding
distribution and service fees, to 1.20% of the Fund's average daily net
assets, at least until February 28, 2004. Accordingly, the expense
reduction amounted to $74,634 for the period ended April 30, 2003. 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 period ended April 30, 2003, JH Funds received net up-front sales
charges of $12,942 with regard to sales of Class A shares. Of this
amount, $1,876 was retained and used for printing prospectuses,
advertising, sales literature and other purposes, $9,179 was paid as
sales commissions to unrelated broker-dealers and $1,887 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 period ended April
30, 2003, JH Funds received net up-front sales charges of $3,802 with
regard to sales of Class C shares. Of this amount, $3,776 was paid as
sales commissions to unrelated broker-dealers and $26 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 period ended April 30, 2003,
CDSCs received by JH Funds amounted to $21,517 for Class B shares and
$2,525 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 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
period was at an annual rate of approximately 0.03% 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 Compensation 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 investments 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.
PERIOD ENDED 10-31-02 1 PERIOD ENDED 4-30-03 2
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Sold 1,065,563 $10,469,656 88,621 $676,568
Repurchased (278,331) (2,309,288) (178,439) (1,344,146)
Net increase (decrease) 787,232 $8,160,368 (89,818) ($667,578)
CLASS B SHARES
Sold 1,455,953 $14,180,950 95,719 $723,843
Repurchased (373,460) (3,099,618) (223,722) (1,656,506)
Net increase (decrease) 1,082,493 $11,081,332 (128,003) ($932,663)
CLASS C SHARES
Sold 885,678 $8,455,714 55,398 $425,246
Repurchased (162,390) (1,325,772) (158,173) (1,178,144)
Net increase (decrease) 723,288 $7,129,942 (102,775) ($752,898)
NET INCREASE (DECREASE) 2,593,013 $26,371,642 (320,596) ($2,353,139)
1 Inception period from 2-25-02 through 10-31-02.
2 Semiannual period from 11-1-02 through 4-30-03. Unaudited.
NOTE D
Investment transactions
Purchases and proceeds from sales or maturities of securities, other
than short-term securities and obligations of the U.S. government,
during the period ended April 30, 2003, aggregated $7,067,421 and
$8,633,226, respectively.
The cost of investments owned on April 30, 2003, including short-term
investments, for federal income tax purposes was $19,079,236. Gross
unrealized appreciation and depreciation of investments aggregated
$716,176 and $1,736,709, respectively, resulting in net unrealized
depreciation of $1,020,533. 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.
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 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
For more complete information on any John Hancock Fund
and a prospectus, which includes charges and expenses,
call your financial professional, or John Hancock Funds at
1-800-225-5291. Please read the prospectus carefully
before investing or sending money.
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FOR YOUR
INFORMATION
TRUSTEES
Dennis S. Aronowitz
Richard P. Chapman, Jr.
William J. Cosgrove
John M. DeCiccio
Richard A. Farrell
Maureen R. Ford
William F. Glavin*
Dr. John A. Moore*
Patti McGill Peterson*
John W. Pratt
*Members of the Audit Committee
OFFICERS
Maureen R. Ford
Chairman, President
and Chief Executive Officer
William L. Braman
Executive Vice President
and Chief Investment Officer
Richard A. Brown
Senior Vice President
and Chief Financial Officer
Susan S. Newton
Senior Vice President
and Secretary
William H. King
Vice President and Treasurer
Thomas H. Connors
Vice President and
Compliance Officer
INVESTMENT ADVISER
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, Massachusetts 02199-7603
SUBADVISER
Alliance Capital Management, L.P.
1345 Avenue of the Americas
New York, New York 10105
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
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
Large Cap Spectrum Fund.
670SA 4/03
6/03
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 (the "Registrant") on Form N-1A under
the Securities Act of 1933 and the Investment company Act of 1940 (File Nos.
2-10156 and 811-0560), 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. 94 (file
nos. 811-0560 and 2-10156 on February
28, 2003 accession no. 0001010521-03-000102)
("PEA 94")
1.1 Amendment to Amended and Restated Filed as Exhibit 99.a.1 to Registrant's
Declaration of Trust Registration Statement on Form N-1A and
incorporated herein by reference to
post-effective amendment no. 95 (file
nos. 811-0560 and 2-10156 on August
5, 2003 accession no. 0001010521-03-000256)
("PEA 95")
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. 77 (file
nos. 811-0560 and 2-10156 on December 20,
1997, accession no. 0001010521-96-000224)
("PEA 77")
2.1 Amendment to Amended and Restated Filed as Exhibit b.1 to PEA 94 and
By-Laws of Registrant incorporated herein by reference
3 Not applicable
4 Form of Agreement and Plan of Filed herewith as Exhibit B to the Proxy
reorganization Statement and Prospectus included as Part
A of this Registration Statement
5 Not applicable
6 Investment Management Contract Filed as Exhibit 99.d to Registrant's
between Large Cap Equity Fund and Registration Statement on Form N-1A and
John Hancock Advisers, LLC incorporated herein by reference to
post-effective amendment no. 73 (file
nos. 811-0560 and 2-10156 on May 10,
1995, accession
no. 0000950135-95-001122) ("PEA 73")
6.1 Investment Management Contract Filed as Exhibit 99.d.1 to Registrant's
between the John Hancock Sovereign Registration Statement on Form N-1A and
Investors Fund, John Hancock Balanced incorporated herein by reference to
Fund and John Hancock Advisers, LLC post-effective amendment no. 78 (file
nos. 811-0560 and 2-10156 on February 27,
1997, accession
no. 0001010521-97-000228) ("PEA 78")
6.2 Investment Management Contract Filed as Exhibit 99.d.2 to Registrant's
between the John Hancock Real Estate Registration Statement on Form N-1A and
Fund and John Hancock Advisers, LLC incorporated herein by reference to
post-effective amendment no. 84 (file
nos. 811-0560 and 2-10156 on April 27,
1999, accession
no. 0001010521-00-000194) ("PEA 84")
6.3 Investment Management Contract Filed as Exhibit 99.d.3 to Registrant's
between the John Hancock Fundamental Registration Statement on Form N-1A and
Value Fund and John Hancock Advisers, incorporated herein by reference to
LLC post-effective amendment no. 90 (file
nos. 811-0560 and 2-10156 on June 25,
2001, accession no. 0001010521-01-500061)
("PEA 90")
6.4 Investment Management Contract Filed as Exhibit 99.d.4 to Registrant's
between the John Hancock Strategic Registration Statement on Form N-1A and
Growth Fund and John Hancock incorporated herein by reference to
Advisers, LLC post-effective amendment no. 93 (file
nos. 811-0560 and 2-10156 on February 27,
2002, accession no. 0001010521-02-000112)
("PEA 93")
7 Distribution Agreement between the Filed as Exhibit 99.e to PEA 73 and
Registrant and John Hancock Funds, LLC incorporated herein by reference
7.1 Amendment to Distribution Agreement Filed as Exhibit 99.e.1 to PEA 78 and
between the Registrant and John incorporated herein by reference
Hancock Funds, LLC
7.2 Form of Soliciting Dealer Agreement Filed as Exhibit 99.e.2 to PEA 73 and
between John Hancock Funds LLC and incorporated herein by reference
Selected Dealers
7.3 Form of Financial Institution Sales Filed as Exhibit 99.e.3 to PEA 73 and
and Service agreement between John incorporated herein by reference
Hancock Funds, LLC and John Hancock
funds
7.4 Amendment to Distribution Agreement Filed as Exhibit 99.e.4 to PEA 84 and
between the John Hancock Real Estate incorporated herein by reference
Fund and John Hancock Funds, LLC
7.5 Amendment to Distribution Agreement Filed as Exhibit 99.e.5 to PEA 90 and
between the John Hancock Fundamental incorporated herein by reference
Value Fund and John Hancock Funds LLC
7.6 Amendment to Distribution Agreement Filed as Exhibit 99.e.6 to PEA 93 and
between the John Hancock Strategic incorporated herein by reference
Growth Fund and John Hancock Funds,
LLC
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. 92 (file
nos. 811-0560 and 2-10156 on December 27,
2001, accession
no. 0001010521-01-500301) ("PEA 92")
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 Funds, post-effective amendment no. 82 (file
LLC nos. 811-0560 and 2-10156 on July 15,
1998, accession
no. 0001010521-98-000292) ("PEA 82")
10.1 Amended & Restate Master Transfer Filed as Exhibit 99.h.1 to PEA 84 and
Agent Service Agreement between John incorporated herein by reference
Hancock Mutual Funds (including
Registrant) and John Hancock Funds,
LLC
10.2 Service Agreement between Charles Filed as Exhibit 99.h.2 to Registrant's
Schwab, John Hancock Funds, LLC and Registration Statement on Form N-1A and
John Hancock Large Cap Equity Fund incorporated herein by reference to
post-effective amendment no. 88 (file
nos. 811-0560 and 2-10156 on March 15,
2001, accession
no. 0001010521-01-000199) ("PEA 88")
10.3 Amendment to Amended & Restate Master Filed as Exhibit 99.h.3 to PEA 90 and
Transfer Agent Service Agreement incorporated herein by reference
between John Hancock Fundamental
Value Fund and John Hancock Funds, LLC
10.4 Amended & Restate Master Transfer Filed as Exhibit 99.h.4 to PEA 93 and
Agent Service Agreement between John incorporated herein by reference
Hancock Strategic Growth and John
Hancock Funds, LLC
11 Class A and Class B Distribution Filed as Exhibit 99.m to PEA 78 and
Plans between John Hancock Sovereign incorporated herein by reference.
Investors Fund and John Hancock
Funds, LLC
11.1 Class A and Class B Distribution Filed as Exhibit 99.m.1 to PEA 78 and
Plans between John Hancock Balanced incorporated herein by reference
Fund and John Hancock Funds, LLC
11.2 Class A and Class B Distribution Filed as Exhibit 99.m.2 to PEA 73 and
Plans between John Hancock Large Cap incorporated herein by reference
Equity Fund and John Hancock Funds,
LLC
11.3 Class C Distribution Plans between Filed as Exhibit 99.m.3 to PEA 82 and
John Hancock Large Cap Equity Fund, incorporated herein by reference
John Hancock Sovereign Investors and
John Hancock Funds, LLC
11.4 Class C Distribution Plans between Filed as Exhibit 99.m.4 to PEA 84 and
John Hancock Balanced Fund and John incorporated herein by reference
Hancock Funds, LLC
11.5 Class A, Class B and Class C Filed as Exhibit 99.m.5 to PEA 90 and
Distribution Plans between John incorporated herein by reference
Hancock Fundamental Value Fund and
John Hancock Funds, LLC
11.6 Class A, Class B and Class C Filed as Exhibit 99.m.6 to PEA 93 and
Distribution Plans between John incorporated herein by reference
Hancock Strategic Growth Fund and
John Hancock Funds, LLC
11.7 Class R Distribution Plans between Filed as Exhibit 99.m.7 to PEA 95
John Hancock Sovereign Investors Fund and incorporated herein by reference
and John Hancock Funds, LLC
11.8 Class R Service Plan between Filed as Exhibit 99.m.8 to PEA 95
John Hancock Sovereign Investors Fund and incorporated herein by reference
and John Hancock Funds, LLC
12 John Hancock Funds Class A, Class B Filed as Exhibit 99.o to PEA 93 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 PEA 88 and
Class C and Class I Amended and incorporated herein by reference
restated Multiple Class Plan pursuant
to Rule 18f-3
12.2 John Hancock Funds Class A, Class B, Filed as Exhibit 99.o.2 to PEA 95 and
Class C, Class I and Class R Amended incorporated herein by reference
and Restated Multiple Class Plan
pursuant to Rule 18f-3
13 Revised Code of Ethics John Hancock Filed as Exhibit 99.p to PEA 78 and
Funds, LLC incorporated herein by reference
14 Opinion as to legality of shares and Filed herewith as Exhibit 14
consent
15 Form of opinion as to tax matters and Filed herewith as Exhibit 15
consent
16 Not applicable
17 Consent of Ernst & Young LLP Filed herewith as Exhibit 17
regarding the audited financial
statements of John Hancock Sovereign
Investors Fund and Consent of
Deloitte & Touche LLP
regarding the audited financial
statements of John Hancock
Dividend Performers Fund and consent
of PricewaterhouseCoopers LLP
regarding the audited financial
statements of John Hancock Large Cap
Spectrum Fund
18 Not applicable
19 Powers of Attorney Filed as addendum to signature pages and
incorporated herein by reference
20 Prospectus of John Hancock Sovereign Filed herewith as Exhibit B to Part B of
Investors Fund dated March 1, 2003 this Registration Statement.
as revised October 1, 2003
20.1 Class I Prospectus of John Hancock Filed herewith as Exhibit B to Part B of
Sovereign Investors Fund dated March this Registration Statement.
1, 2003 as revised October 1, 2003
20.2 Prospectus of John Hancock Filed herewith as Exhibit B to Part B of
Dividend Performers Fund, dated this Registration Statement
July 1, 2003
20.3 Prospectus of John Hancock Large Filed herewith as Exhibit B to Part B of
Cap Spectrum Fund, dated March 1, this Registration Statement
2003 as revised October 1, 2003
21 Statement of Additional Filed herewith as Exhibit A and B
Information of John Hancock to Part B of this Registration
Institutional Series Trust dated Statement.
July 1, 2003
21.1 Class A, B, C and R Statement of Filed herewith as Exhibit A and B to Part
Additional Information of John B of this Registration Statement
Hancock Sovereign Investors Fund
dated August 5, 2003
21.2 Class I Statement of Additional Filed herewith as Exhibit A and B to Part
Information of Sovereign Investors B of this Registration Statement
Fund dated March 1, 2003
21.3 Class A, B and C Statement of Filed herewith as Exhibit A and B to Part
Additional Information of John B of this Registration Statement
Hancock Large Cap Spectrum Fund
dated March 1, 2003
ITEM 17. UNDERTAKINGS.
(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, as amended,
the Registrant has caused this Registration Statement on Form N-14 to be signed
on its behalf by the undersigned, duly authorized, in the City of Boston, and
The Commonwealth of Massachusetts on the 28th day of August, 2003.
JOHN HANCOCK INVESTMENT TRUST
By: *
-------------------------------------
Maureen Ford Goldfarb
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, the
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
*
- ----------------------- Trustee, Chairman, President and August 28, 2003
Maureen Ford Goldfarb Chief Executive Officer
*
- ----------------------- Senior Vice President and
Richard A. Brown Chief Financial Officer
/s/William H. King Vice President, Treasurer
- ----------------------- (Chief Accounting Officer)
William H. King
* Trustee
- ------------------------
James F. Carlin
* Trustee
- ------------------------
William H. Cunningham
* Trustee
- ------------------------
Ronald R. Dion
* Trustee
- ------------------------
John M. DeCiccio
* Trustee
- ------------------------
Charles L. Ladner
* Trustee
- ------------------------
Steven R. Pruchansky
* Trustee
- ------------------------
Norman H. Smith
* Trustee
- ------------------------
John P. Toolan
*By: /s/Susan S. Newton
------------------ August 28, 2003
Susan S. Newton
Attorney-in-Fact
Power of Attorney dated
June 23, 2001 and September 12, 2001.
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
-------------------
Richard A. Brown
Chief Financial Officer
Commonwealth of Massachusetts )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 L. Nager
-----------------
Notary Public
My Commission Expires: June 14, 2007
-------------
s:\general\prwattn\01June23.doc
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 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/Charles L. Ladner
- ------------------ --------------------
Maureen R. Ford, as Charles L. Ladner
Chairman and Chief
Executive Officer
/s/John M. DeCiccio /s/Steven R. Pruchansky
- ------------------- -----------------------
John M. DeCiccio, as Trustee Steven R. Pruchansky
/s/James F. Carlin /s/Norman H. Smith
- ------------------ ------------------
James F. Carlin Norman H. Smith
/s/William H. Cunningham /s/John P. Toolan
- ------------------------ -----------------
William H. Cunningham John P. Toolan
/s/Ronald R. Dion
- -----------------
Ronald R. Dion
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
EXHIBIT INDEX
The following exhibits are filed as part of this Registration Statement:
Exhibit No. Description
4 Form of Agreement and Plan of Reorganization between John Hancock Sovereign
Investors ("the Acquiring Fund") and John Hancock Large Cap Spectrum Fund
and John Hancock Dividend Performers Fund (each an "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 opinion as to tax matters and consents.
17 Consent of Ernst & Young LLP regarding the audited financial statements
and highlights of John Hancock Sovereign Investors Fund. Consent of
Deloitte & Touche LLP regarding the audited financial statements and
highlights of the John Hancock Dividend Performers Fund. Consent of
PricewaterhouseCoopers LLP regarding the audited financial statements and
highlights of the John Hancock Large Cap Spectrum Fund.