As filed with the Securities and Exchange Commission on March 18, 2005
File No. 811-4932
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ___
Post-Effective Amendment No. ___
(Check appropriate box or boxes)
JOHN HANCOCK WORLD FUND
-----------------------
(Exact Name of Registrant as Specified in Charter)
(617) 375-1702
--------------
(Area Code and Telephone Number)
101 Huntington Avenue, Boston, Massachusetts 02199-7603
-------------------------------------------------------
(Address of Principal Executive Offices: Number, Street, City, State, Zip Code)
Susan S. Newton, Esq.
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, MA 02199
----------------
(Name and address of agent for service)
Title of Securities Being Registered: Shares of beneficial interest of John
Hancock World Fund.
Approximate Date of Proposed Public Offering: As soon as practicable after the
effectiveness of the registration statement.
No filing fee is required because an indefinite number of shares has previously
been registered pursuant to Rule 24f-2 under the Investment Company Act of 1940,
as amended. This Registration Statement relates to shares previously registered
on Form N-1A (File Nos. 33-10722 and 811-4932).
It is proposed that this filing will become effective on April 17, 2005.
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 Biotechnology Fund. The enclosed proxy statement
contains information about a proposal to approve the reorganization of John
Hancock Biotechnology Fund into another John Hancock fund, John Hancock Health
Sciences Fund. If the reorganization of your fund is approved, shareholders of
your fund will become shareholders of Health Sciences Fund upon the closing of
the reorganization and will receive shares of Health Sciences Fund in proportion
to the value of your shares in Biotechnology Fund.
WHY IS THE REORGANIZATION BEING PROPOSED?
The reorganization is intended to consolidate your fund with a similar sector
fund also managed by John Hancock Advisers. Like your fund, Health Sciences Fund
invests in biotechnology companies. However, Health Sciences Fund has a broader
investment approach than your fund and also invests in other health sciences
companies in addition to biotechnology companies. This investment approach has
historically been less volatile than your fund's narrower investment approach.
Health Sciences Fund also has a very competitive longer-term track record while
your fund has a shorter performance record. As a result, Health Sciences Fund
has been able to attract a significantly larger amount of investment than your
fund.
By combining the two funds, it is hoped that you will benefit in two important
ways. First, you will be invested in a fund that has the a substantially similar
investment objective and management style as your current fund, a very
competitive track record and lower historical volatility. Second, you will
become a shareholder in a much larger fund and obtain the benefits of a lower
expense ratio.
IMPACT ON FUND EXPENSES
It is important to note that your fund expenses will not increase as a result of
the reorganization. In fact, the expenses of Health Sciences Fund after the
reorganization are expected to be lower than those of Biotechnology Fund's
operating expenses. Health Sciences Fund's current management fee and total
operating expenses for the most recent fiscal year are lower than your fund's
management fees and operating expenses both before and after fee reductions.
YOUR VOTE MATTERS
After careful consideration, your fund's trustees have unanimously approved the
reorganization of John Hancock Biotechnology Fund into John Hancock Health
Sciences Fund. THE ENCLOSED PROXY STATEMENT CONTAINS FURTHER EXPLANATION AND
IMPORTANT DETAILS OF THE REORGANIZATION, WHICH I STRONGLY ENCOURAGE YOU TO READ
BEFORE VOTING. IF APPROVED BY THE SHAREHOLDERS, THE REORGANIZATION IS SCHEDULED
TO TAKE PLACE AT THE CLOSE OF BUSINESS ON JUNE 10, 2005.
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 the phone number on your proxy card; 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,
James A. Shepherdson
Chief Executive Officer
JOHN HANCOCK BIOTECHNOLOGY FUND
(A SERIES OF JOHN HANCOCK WORLD FUND)
(THE "FUND")
101 Huntington Avenue
Boston, MA 02199
NOTICE OF JOINT SPECIAL MEETING OF SHAREHOLDERS
SCHEDULED FOR JUNE 8, 2005
This is the formal agenda for the 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 the fund:
A shareholder meeting for the fund will be held at 101 Huntington Avenue,
Boston, Massachusetts on Wednesday, June 8, 2005, 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 Biotechnology Fund ("your fund" or "Biotechnology Fund") and John
Hancock Health Sciences Fund ("Health Sciences Fund"). Under this agreement,
your fund would transfer all of its assets to Health Sciences Fund in exchange
for Class A, Class B and Class C shares of Health Sciences Fund. These shares
would be distributed proportionately to you and the other shareholders of
Biotechnology Fund. Health Sciences Fund would also assume Biotechnology Fund's
liabilities. YOUR FUND'S BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE FOR THIS
PROPOSAL.
2. Any other business that may properly come before the meeting.
Shareholders of record as of the close of business on April 6, 2005, 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
April 18, 2005
PROXY STATEMENT OF
JOHN HANCOCK BIOTECHNOLOGY FUND
A SERIES OF JOHN HANCOCK WORLD FUND
("BIOTECHNOLOGY FUND," THE "ACQUIRED FUND" OR "YOUR FUND")
PROSPECTUS FOR
JOHN HANCOCK HEALTH SCIENCES FUND
A SERIES OF JOHN HANCOCK WORLD FUND
("HEALTH SCIENCES FUND" OR THE "ACQUIRING FUND")
The address of both the 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 Biotechnology Fund Health Sciences Fund Biotechnology Fund shareholders
HOW THE REORGANIZATION WILL WORK
- - The Acquired Fund will transfer all of its assets to the Acquiring Fund. The
Acquiring Fund will assume the Acquired Fund's liabilities.
- - The Acquiring Fund will issue Class A, Class B and Class C shares to
Biotechnology 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 Biotechnology Fund in proportion to their
holdings of the respective class of shares on the reorganization date.
- - The Acquired Fund will be terminated and fund shareholders will become
shareholders of the Acquiring Fund.
- - The reorganization is intended to result in no income, gain or loss for
federal income tax purposes to the Acquiring Fund, the Acquired Fund or the
shareholders of the Acquired Fund.
RATIONALE FOR THE REORGANIZATION
The reorganization is intended to consolidate your fund with a similar sector
fund managed by John Hancock Advisers. Like your fund, Health Sciences Fund
invests in biotechnology companies. However, Health Sciences Fund has a broader
investment approach than your fund and invests in health sciences companies,
which include biotechnology companies as well as other types of health-care
companies. Historically, this investment approach has proven to be more
successful and less volatile than your fund's narrower investment approach. As a
result, Health Sciences Fund has been able to attract a significantly larger
amount of investment than your fund. Health Sciences Fund also has a longer-term
track record that is superior to your fund's shorter performance record.
Reflecting its larger asset size, the expenses of the Health Sciences Fund after
the reorganization are expected to be lower than those of Biotechnology Fund's
operating expenses both before and after fee reductions. Health Sciences Fund's
current management fee and total operating expenses for the most recent fiscal
year are lower than your fund's management fees and operating expenses both
before and after fee reductions. 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
1
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
The prospectus of Health Sciences Fund
dated March 1, 2005.
In the same envelope as this proxy
The annual report to shareholders of statement and prospectus. These
Health Sciences Fund dated October 31, documents are incorporated by reference
2004. into (and therefore legally part of)
this proxy statement and prospectus.
A statement of additional information
dated April 18, 2005. It contains
additional information about the
Acquired Fund and the Acquiring Fund.
On file with the Securities and Exchange
Commission ("SEC") or available at no
The annual report to shareholders of charge by calling our toll-free number:
Biotechnology Fund dated October 31, 1-800-225-5291. Incorporated by
2004. reference into (and therefore legally
part of) this proxy statement and
prospectus.
To ask questions about this proxy Call our toll-free telephone number:
statement and prospectus. 1-800-225-5291
The date of this proxy statement and prospectus is April 18, 2005.
2
TABLE OF CONTENTS
PAGE
INTRODUCTION [ ]
PROPOSAL 1 -- BIOTECHNOLOGY 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 THE 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 A-1
3
INTRODUCTION
This proxy statement and prospectus is being used by your fund's board of
trustees to solicit proxies to be voted at a special meeting of your fund's
shareholders. This meeting will be held at 101 Huntington Avenue, Boston,
Massachusetts on Wednesday, June 8, 2005, at 9:00 A.M., Eastern Time. The
purpose of the meeting is to consider the proposal to approve the Agreement and
Plan of Reorganization (the "Agreement") providing for the reorganization of
your fund into Health Sciences Fund (the "Reorganization"). This proxy statement
and prospectus is being mailed to your fund's shareholders on or about April 18,
2005.
The proxy statement and prospectus includes information that is specific to this
proposal, including a comparison summary. You should read the entire proxy
statement carefully, including Exhibit A and the enclosed prospectus and annual
report of Health Sciences Fund, because they contain details that are not in the
summary.
WHO IS ELIGIBLE TO VOTE?
Shareholders of record on April 6, 2005, are entitled to attend and vote at the
meeting or any adjourned meeting. Each share is entitled to one vote. Shares
represented by properly executed proxies, unless revoked before or at the
meeting, will be voted according to shareholders' instructions. If you sign a
proxy but do not fill in a vote, your shares will be voted to approve the
Agreement. 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
BIOTECHNOLOGY FUND AND HEALTH SCIENCES FUND
A proposal to approve an Agreement and Plan of Reorganization between
Biotechnology Fund and Health Sciences Fund. Under this Agreement, Biotechnology
Fund would transfer all of its assets to Health Sciences Fund in exchange for
Class A, Class B and Class C shares of Health Sciences Fund. These shares would
be distributed proportionately to the shareholders of Biotechnology Fund. Health
Sciences Fund would also assume Biotechnology Fund's liabilities. Biotechnology
Fund's board of trustees recommends that shareholders vote FOR this proposal.
SUMMARY
COMPARISON OF BIOTECHNOLOGY FUND TO HEALTH SCIENCES FUND
COMPARISON OF FUNDS AND INVESTMENT OBJECTIVES, STRATEGIES AND POLICIES
BIOTECHNOLOGY FUND HEALTH SCIENCES FUND
------------------ --------------------
Business Each fund is a non-diversified series of John Hancock World Fund, an open-end investment
management company organized as a Massachusetts business trust.
Net assets as of $20,770,058 $271,900,171
October 31, 2004
Investment adviser and Investment Adviser:
portfolio manager John Hancock Advisers, LLC
Portfolio Manager:
Linda I. Miller
-Joined Adviser in 1995
-Began business career in 1980
Investment objective The fund seeks long-term capital appreciation. The fund seeks long-term growth of capital.
This objective is non-fundamental and can be changed without shareholder approval.
Primary investments The fund normally invests at least 80% of its The fund normally invests at least 80% of its
assets in securities of U.S. and foreign assets in stocks of U.S. and foreign health
biotechnology companies. These companies are sciences companies. These companies derive
principally engaged in the research, more than half of their revenues from health
development or manufacture of various sciences related activities or commit more
biotechnological products, services and than half of their assets to these activities.
processes. Biotechnology companies typically
employ genetic engineering to develop new
drugs and products in areas such as health
care, pharmaceuticals, medical surgery,
biochemistry and agriculture.
Investment strategies In managing the portfolio, the management team for each fund uses fundamental financial analysis
to identify individual companies of any size that appear most attractive in terms of growth
potential. The team generally assesses the senior management of companies through interviews and
company visits.
5
COMPARISON OF FUNDS AND INVESTMENT OBJECTIVES, STRATEGIES AND POLICIES
BIOTECHNOLOGY FUND HEALTH SCIENCES FUND
------------------ --------------------
In managing the portfolio, the manager studies
economic trends to allocate assets among the
following major categories:
- pharmaceuticals and biotechnology
- medical devices and analytical equipment
- health-care services
The manager also uses broad economic analysis
to identify promising industries within these
categories.
Foreign securities Each fund may invest directly in securities of foreign issuers as well as in the form of
sponsored and unsponsored American Depositary Receipts (ADRs), European Depositary Receipts
(EDRs) or other securities convertible into securities of foreign issuers.
Diversification Because each fund is non-diversified, it may invest more than 5% of assets in securities of
individual companies.
Active trading Each fund may trade securities actively.
Derivatives Each fund may make use of certain derivatives (investments whose value is based on indices,
securities or currencies).
Restricted securities Each fund may invest in certain higher-risk securities that are not publicly offered or traded,
called restricted securities.
Temporary defensive In abnormal circumstances, each fund may temporarily invest more than 20% of its assets in
positions 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 Health Sciences Fund. In
particular, you should consider whether the amount and character of investment
risk involved in the authorized investments of Health Sciences Fund is
commensurate with the amount of risk involved in the authorized investments of
your fund.
The funds have substantially similar investment objectives and are managed by
the same portfolio manager who employs similar investment strategies for each
fund. Although both funds invest in biotechnology companies, Health Sciences
Fund invests in a broader range of companies in the health-care sector. Both
funds may invest in companies of all capitalization ranges, and both funds may
invest a significant portion of their assets in smaller capitalization
developing-growth companies. Both funds are non-diversified, may invest in
foreign securities, may trade securities actively and may invest in derivatives.
If the Reorganization between your fund and Health Sciences Fund takes place,
you will continue to hold shares of a non-diversified fund that invests in U.S.
and foreign biotechnology companies. However, Health Sciences Fund invests in a
broader range of securities than your fund, which allows greater flexibility and
less volatility.
6
COMPARISON OF CLASSES OF SHARES
Class A sales The Class A shares of both funds have the same
charges and 12b-1 characteristics and fee structure.
fees
- Class A shares are offered with front-end sales charges
ranging from 2.00% to 5.00% of the fund's offering price,
depending on the amount invested.
- Class A shares are subject to a 12b-1 distribution fee
equal to 0.30% annually of average net assets.
- There is no front-end sales charge for investments of $1
million or more, but there is a contingent deferred sales
charge (CDSC) ranging from 0.25% to 1.00% on shares sold
within one year of purchase.
- Investors can combine multiple purchases of Class A
shares to take advantage of breakpoints in the sales charge
schedule.
- Sales charges are waived for the categories of investors
listed in the funds' prospectuses.
Class B sales The Class B shares of both funds have the same
charges and characteristics and fee structure.
12b-1 fees
- Class B shares are offered without a front-end sales
charge, but are subject to a 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 for more than six years.
- Class B shares are subject to 12b-1 distribution and
service fees equal to 1.00% annually of average net assets.
- CDSCs are waived for the categories of investors listed
in the funds' prospectus.
- Class B shares automatically convert to Class A shares
after eight years.
Class C sales The Class C shares of both funds have the same
charges and 12b-1 characteristics and fee structure.
fees
- Class C shares are offered without a front-end sales
charge, but are subject to a CDSC of 1.00% on shares sold
within one year of purchase.
- Class C shares are subject to 12b-1 distribution and
service fees equal to 1.00% annually of average net assets.
- 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 - 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.
Minimum initial Class A, Class B and Class C Shares: $1,000 for
investment non-retirement accounts, $500 for retirement accounts and
$250 for group investments. Investments also may be made on
a Monthly Automatic Accumulation Plan, which requires $25
to open an account followed by a monthly minimum investment
of $25 thereafter.
Exchanging shares Shareholders may exchange their shares at net asset value
(NAV) 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 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.
SUMMARY OF EXPENSE COMPARISON
As indicated in the tables below, the pro forma expenses of Health Sciences Fund
after the Reorganization are lower than your fund's expenses, both before and
after your fund's expense reimbursement, for all share classes. Your fund's
current expense limitation arrangement with John Hancock Advisers, LLC
7
(JHA) is in effect only until February 28, 2006. However, there can be no
assurance that the expense limitation will be extended beyond February 28, 2006
in the event that your fund's shareholders do not approve the Reorganization.
Health Sciences Fund does not currently have, and does not intend to have, an
expense limitation arrangement with JHA because it has achieved sufficient size
to bear all of its own expenses. Health Sciences Fund's current and pro forma
management fee rate is lower than your fund's management fee rate at all asset
levels, and both funds have the same 12b-1 fee rate for each share class. For
the most recent fiscal year ended October 31, 2004, Health Sciences Fund's total
and other expenses were also lower than your fund's expenses, both before and
after fee reductions.
THE FUNDS' EXPENSES
Shareholders of both funds pay various expenses, either directly or indirectly.
The following expense tables show the expenses for each fund for the
twelve-month period ended October 31, 2004. Future expenses for all share
classes may be greater or less. The tables also show the hypothetical ("pro
forma") expenses of Health Sciences Fund assuming the Reorganization with
Biotechnology Fund occurred on November 1, 2003.
HEALTH SCIENCES
FUND
(PRO FORMA
FOR THE 12 MONTHS
ENDED OCTOBER 31,
2004)
(ASSUMING
HEALTH REORGANIZATION
BIOTECHNOLOGY SCIENCES WITH BIOTECHNOLOGY
FUND FUND FUND)
------------- -------- ------------------
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS A CLASS A
- -------------------------------- ------------- -------- ------------------
Maximum sales charge (load) imposed on purchases (as a % of
purchase price) 5.00% 5.00% 5.00%
Maximum sales charge imposed on reinvested dividends none none none
Maximum deferred sales charge (load) as a % of purchase or
sale price, whichever is less (1) none none none
Redemption fee (2) none none none
Exchange fee none none none
ANNUAL FUND OPERATING EXPENSES
(AS A % OF AVERAGE NET ASSETS) CLASS A CLASS A CLASS A
- ------------------------------ ------- ------- -------
Management fee 0.90% 0.77% 0.76%
Distribution and service (12b-1) fee 0.30% 0.30% 0.30%
Other expenses 0.92% 0.50% 0.51%
Total fund operating expenses 2.12% 1.57% 1.57%
Expense reimbursement 0.52%(3) N/A N/A
Net fund operating expenses 1.60% 1.57% 1.57%
- -----------------
(1) Except for investments of $1 million or more.
(2) Does not include wire redemption fee (currently $4.00).
(3) The adviser has contractually agreed to limit Biotechnology Fund's Class A
operating expenses (excluding 12b-1 fees) to 1.60% of the fund's Class A average
daily net assets at least until February 28, 2006.
8
HEALTH SCIENCES
FUND
(PRO FORMA
FOR THE 12
MONTHS
ENDED OCTOBER
31, 2004)
(ASSUMING
REORGANIZATION
HEALTH WITH
BIOTECHNOLOGY SCIENCES BIOTECHNOLOGY
FUND FUND FUND)
------------- -------- --------------
SHAREHOLDER TRANSACTION EXPENSES CLASS B CLASS B CLASS B
- -------------------------------- ------------- -------- --------------
Maximum sales charge (load) imposed on purchases (as a %
of purchase price) none none none
Maximum sales charge imposed on reinvested dividends none none none
Maximum deferred sales charge (load) as a % of purchase
or sale price, whichever is less 5.00% 5.00% 5.00%
Redemption fee (1) none none none
Exchange fee none none none
ANNUAL FUND OPERATING EXPENSES
(AS A % OF AVERAGE NET ASSETS) CLASS B CLASS B CLASS B
- ------------------------------ ------- ------- -------
Management fee 0.90% 0.77% 0.76%
Distribution and service (12b-1) fee 1.00% 1.00% 1.00%
Other expenses 0.92% 0.50% 0.51%
Total fund operating expenses 2.82% 2.27% 2.27%
Expense reduction 0.52% (2) N/A N/A
Net fund operating expenses 2.30% 2.27% 2.27%
- -----------------
(1) Does not include wire redemption fee (currently $4.00).
(2) The adviser has contractually agreed to limit Biotechnology Fund's Class B
operating expenses (excluding 12b-1 fees) to 2.30% of the fund's Class B average
daily net assets at least until February 28, 2006.
9
HEALTH SCIENCES
FUND
(PRO FORMA
FOR THE 12
MONTHS
ENDED OCTOBER
31, 2004)
(ASSUMING
REORGANIZATION
HEALTH WITH
BIOTECHNOLOGY SCIENCES BIOTECHNOLOGY
FUND FUND FUND)
-------------- -------- ---------------
SHAREHOLDER TRANSACTION EXPENSES CLASS C CLASS C CLASS C
- -------------------------------- -------------- -------- ---------------
Maximum sales charge (load) imposed on purchases (as a %
of purchase price) none none none
Maximum sales charge imposed on reinvested dividends none none none
Maximum deferred sales charge (load) as a % of purchase
or sale price, whichever is less 1.00% 1.00% 1.00%
Redemption fee (1) none none none
Exchange fee none none none
ANNUAL FUND OPERATING EXPENSES
(AS A % OF AVERAGE NET ASSETS) CLASS C CLASS C CLASS C
- ------------------------------ ------- ------- -------
Management fee 0.90% 0.77% 0.76%
Distribution and service (12b-1) fee 1.00% 1.00% 1.00%
Other expenses 0.92% 0.50% 0.51%
Total fund operating expenses 2.82% 2.27% 2.27%
Expense reduction 0.52%(2) N/A N/A
Net fund operating expenses 2.30% 2.27% 2.27%
- -----------------
(1) Does not include wire redemption fee (currently $4.00).
(2) The adviser has contractually agreed to limit Biotechnology Fund's Class C
operating expenses (excluding 12b-1 fees) to 2.30% of the fund's Class C average
daily net assets at least until February 28, 2006.
EXAMPLES
The hypothetical examples below show what your expenses would be if you invested
$10,000 over different time periods for your fund and Health Sciences Fund,
based on fees and expenses incurred during the twelve-month period ended October
31, 2004. Pro forma expenses are included assuming a Reorganization with your
fund and Health Sciences Fund. Each example assumes that you reinvested all
distributions and that the average annual return was 5%. For Biotechnology Fund,
the example assumes the expense limitation is in place through February 28,
2006. The pro forma examples are for comparison purposes only and are not a
representation of Health Sciences Fund's actual expenses or returns, either past
or future.
10
HEALTH SCIENCES FUND
(PRO FORMA)
BIOTECHNOLOGY HEALTH SCIENCES (ASSUMING REORGANIZATION
FUND FUND WITH BIOTECHNOLOGY FUND)
---- ---- ------------------------
CLASS A
Year 1 $ 667 $ 652 $ 652
Year 3 $1,095 $ 971 $ 971
Year 5 $1,548 $1,312 $1,312
Year 10 $2,800 $2,274 $2,274
CLASS B -- ASSUMING REDEMPTION AT END OF PERIOD
Year 1 $ 746 $ 730 $ 730
Year 3 $1,137 $1,009 $1,009
Year 5 $1,655 $1,415 $1,415
Year 10 $2,952 $2,430 $2,430
CLASS B -- ASSUMING NO REDEMPTION
Year 1 $ 246 $ 230 $ 230
Year 3 $ 837 $ 709 $ 709
Year 5 $1,455 $1,215 $1,215
Year 10 $2,952 $2,430 $2,430
CLASS C -- ASSUMING REDEMPTION AT END OF PERIOD
Year 1 $ 346 $ 330 $ 330
Year 3 $ 837 $ 709 $ 709
Year 5 $1,455 $1,215 $1,215
Year 10 $3,119 $2,605 $2,605
CLASS C -- ASSUMING NO REDEMPTION
Year 1 $ 246 $ 230 $ 230
Year 3 $ 837 $ 709 $ 709
Year 5 $1,455 $1,215 $1,215
Year 10 $3,119 $2,605 $2,605
ADVISORY FEES
Each fund pays monthly advisory fees equal to the following annual percentage of
its average daily net assets:
BIOTECHNOLOGY FUND
FUND ASSET BREAKPOINTS FEE RATE
- ---------------------- --------
First $500,000,000 0.90%
Next $500,000,000 0.85%
Amount over $1,000,000,000 0.80%
11
HEALTH SCIENCES FUND
FUND ASSET BREAKPOINTS FEE RATE
- ---------------------- --------
First $200,000,000 0.80%
Amount over $200,000,000 0.70%
INVESTMENT ADVISER
John Hancock Advisers, LLC ("JHA" or the "Adviser") is the investment adviser to
each fund. JHA, located at 101 Huntington Avenue, Boston, Massachusetts
02199-7603, was organized in 1968 and had approximately $30 billion in assets
under management as of December 31, 2004 in its capacity as investment adviser
to the funds in the John Hancock group of funds, as well as retail and
institutional privately managed accounts.
JHA is an indirect, wholly owned subsidiary of John Hancock Financial Services,
Inc. ("JHFS") a financial services company with national headquarters at John
Hancock Place, Boston, Massachusetts. JHFS is wholly owned by Manulife Financial
Corporation ("Manulife"), a Canadian financial services company.
The board of trustees of each fund is responsible for overseeing the performance
of each fund's investment adviser and determining whether to approve and renew
each fund's investment management contract.
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.
BIOTECHNOLOGY FUND HEALTH SCIENCES FUND
------------------ --------------------
Stock market risk The value of securities in the fund may go down in response to overall stock market movements.
Markets tend to move in cycles, with periods of rising prices and periods of falling prices.
Stocks tend to go up and down in value more than bonds. If the fund concentrates in certain
sectors, its performance could be worse than that of the overall stock market.
Industry risk Because the fund focuses on a single industry, Because the fund focuses on a particular group
its performance depends in large part on the of industries, its performance depends in
performance of that industry. As a result, the large part on the performance of those
value of your investment may fluctuate more industries. As a result, the value of your
widely than it would in a fund that is investment may fluctuate more widely than it
diversified across sectors. would in a fund that is diversified across a
larger number of sectors.
Biotechnology/ Because the fund concentrates its investments Because the fund concentrates its investments
health sciences in the biotechnology industry, its performance in the health sciences industries, its
stock risk is closely tied to conditions in this performance is closely tied to conditions in
industry. The biotechnology industry is these industries. The types of products and
subject to intensive government regulation, services comprising the health sciences
including strict regulatory approval industries tend to become obsolete quickly
requirements for new drugs and products. In with the discovery of more effective medical
addition, biotechnology companies could be techniques. Additionally, the companies
hurt by intense competition, patent providing these services and products are
considerations and rapid technological change. subject to strict government regulation which
Many biotechnology companies are smaller could have an unfavorable impact on the price
companies that may have limited product lines and supply of their services and products.
and financial and managerial resources, making
them vulnerable to isolated business setbacks. Stocks of health sciences companies as a group
could fall out of favor with the market,
Stocks of biotechnology companies as a group causing the fund to underperform funds that
could fall out of favor with the market, focus on other types of stocks.
causing the fund to underperform funds that
focus on other types of stocks.
12
Smaller companies A significant portion of each fund's investments may be in smaller capitalization
risk developing-growth companies with relatively limited operating histories. Investing in these
companies involves greater risk and the possibility of greater portfolio price volatility.
Smaller capitalization companies have limited product lines, market and financial resources, or
they may be dependent on smaller or less experienced management groups.
Management risk Either fund's management strategy may fail to produce the intended results. Each fund could
underperform its peers or lose money, if the investment strategy does not perform as expected.
Foreign securities Foreign investments, even if U.S. dollar-denominated or traded, may be more risky than domestic
risk investments. Investments in foreign securities may be affected by potentially unfavorable
currency exchange rates, incomplete or inaccurate financial information on companies, social
instability and political actions ranging from tax code changes to governmental collapse.
Derivatives risk Certain derivative instruments can produce disproportionate gains or losses and are riskier than
direct investments. Also, in a down market derivatives could become harder to value or sell at a
fair price.
Issuer concentration If the fund invests heavily in a single issuer, its performance could suffer significantly from
risk adverse events affecting that issuer.
Active trading Active trading could increase the fund's transaction costs (thus lowering performance) and
increase your taxable distributions.
COMPARISON OF FUND PERFORMANCE
Past performance records of each fund through December 31, 2004, 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 the Reorganization." The Agreement provides for a
Reorganization on the following terms:
- - The Reorganization is scheduled to occur at 5:00 P.M., Eastern Time, on June
10, 2005, but may occur on any later date before September 30, 2005.
Biotechnology Fund will transfer all of its assets to Health Sciences Fund and
Health Sciences Fund will assume all of Biotechnology Fund's liabilities. This
will result in the addition of Biotechnology Fund's assets to Health Sciences
Fund's portfolio. The net asset value of both funds will be computed as of 4:00
P.M., Eastern Time, on the closing date of the Reorganization.
- - Health Sciences Fund will issue to Biotechnology Fund Class A shares in an
amount equal to the net assets attributable to Biotechnology Fund's Class A
shares. As part of the liquidation of Biotechnology Fund, these shares will
immediately be distributed to Class A shareholders of record of Biotechnology
Fund in proportion to their holdings on the closing date of the Reorganization.
As a result, Class A shareholders of Biotechnology Fund will end up as Class A
shareholders of Health Sciences Fund.
- - Health Sciences Fund will issue to Biotechnology Fund Class B shares in an
amount equal to the net assets attributable to Biotechnology Fund's Class B
shares. As part of the liquidation of Biotechnology Fund, these shares will
immediately be distributed to Class B shareholders of record of Biotechnology
Fund in proportion to their holdings on the closing date of the Reorganization.
As a result, Class B shareholders of Biotechnology Fund will end up as Class B
shareholders of Health Sciences Fund.
13
- - Health Sciences Fund will issue to Biotechnology Fund Class C shares in an
amount equal to the net assets attributable to Biotechnology Fund's Class C
shares. As part of the liquidation of Biotechnology Fund, these shares will
immediately be distributed to Class C shareholders of record of Biotechnology
Fund in proportion to their holdings on the closing date of the Reorganization.
As a result, Class C shareholders of Biotechnology Fund will end up as Class C
shareholders of Health Sciences Fund.
- - After the shares are issued, the existence of Biotechnology Fund will be
terminated.
REASONS FOR THE PROPOSED REORGANIZATION
The board of trustees of your fund believes that the proposed Reorganization
will be advantageous to the shareholders of your fund for several reasons. The
board of trustees considered the following matters, among others, in approving
the proposal.
First, although both your fund and Health Sciences Fund invest in biotechnology
stocks and pursue similar investment strategies, Health Sciences Fund has a
broader sector focus. Historically, this investment approach has proven to be
more successful and less volatile than your fund's narrower investment approach.
As a result, Health Sciences Fund has been able to attract a significantly
larger amount of investment than your fund.
Second, Health Sciences Fund has a longer-term track record that is superior to
your fund's shorter performance record.
Third, the Reorganization should reduce the per-share expenses incurred by your
fund's shareholders. The management fee of Health Sciences Fund is lower at all
asset levels than the management fee of your fund. In addition, the historical
total expenses of Health Sciences Fund for each class of shares are lower than
your fund's historical expenses, even with the benefit of your fund's expense
limitation by the Adviser. Your fund's expense limitation is in effect only
until February 28, 2006, 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 Health Sciences Fund.
Fourth, the combined fund may be better positioned to attract assets than your
fund. Health Sciences 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.
Fifth, 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 Health Sciences Fund's expense ratio over time because
of economies of scale, if the funds are combined.
The board of trustees of Health Sciences Fund considered that the Reorganization
presents an excellent opportunity for Health Sciences 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 Health Sciences 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 Health Sciences Fund,
including all of the assets of Biotechnology Fund acquired in the
Reorganization. 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.
However, the Adviser has agreed to extend your expense limitation until the
closing date of the Reorganization in the event your fund's shareholders approve
the Reorganization.
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 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.
14
UNREIMBURSED DISTRIBUTION AND SHAREHOLDER SERVICE EXPENSES
The boards of trustees of Biotechnology Fund and Health Sciences Fund have
determined that, if the Reorganization occurs, unreimbursed distribution and
shareholder service expenses incurred under Biotechnology Fund's Rule 12b-1
Plans will be reimbursable expenses under Health Sciences Fund's Rule 12b-1
Plans. However, the maximum amounts payable annually under Health Sciences
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 Biotechnology Fund and Health Sciences
Fund. The table shows both the dollar amount of these expenses and the
percentage of each class' average net assets that they represent.
RULE 12b-1 PAYMENTS AND UNREIMBURSED EXPENSES
AGGREGATE
DOLLAR AMOUNT UNREIMBURSED UNREIMBURSED
OF 12b-1 FEES RULE 12b-1 EXPENSES AS %
PAID (FOR THE EXPENDITURES OF EACH CLASS'
12 MONTHS ENDED (AS OF OCTOBER 31, AVERAGE NET
NAME OF FUND OCTOBER 31, 2004) 2004) ASSETS
- ---------------------------------- ------------------ ------------------ --------------
Biotechnology Fund $ 29,159 (A) $ 39,174 (A) 0.40% (A)
$ 97,259 (B) $219,402 (B) 2.26% (B)
$ 35,591 (C) $ 48,920 (C) 1.37% (C)
Health Sciences Fund $ 384,964 (A) $147,823 (A) 0.12% (A)
$1,550,706 (B) $479,185 (B) 0.31% (B)
$ 142,009 (C) $ 72,140 (C) 0.51% (C)
Pro Forma (Health Sciences Fund): $ 414,123 (A) $186,997 (A) 0.14% (A)
Assuming Reorganization $1,647,965 (B) $698,587 (B) 0.42% (B)
with Biotechnology Fund $ 177,600 (C) $121,060 (C) 0.68% (C)
If the Reorganization had taken place on October 31, 2004, the pro forma
combined unreimbursed expenses of Health Sciences Fund's Class A and Class C
shares would have been higher than if no Reorganization had occurred.
Nevertheless, Health Sciences Fund's assumption of Biotechnology Fund's
unreimbursed Rule 12b-1 expenses will have no immediate effect upon the payments
made under Health Sciences 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
Health Sciences Fund's board terminates either class' Rule 12b-1 Plan, that
class will not be obligated to reimburse these distribution and shareholder
service expenses. Accordingly, until they are paid or accrued, unreimbursed
distribution and shareholder service expenses do not and will not appear as an
expense or liability in the financial statements of either fund. In addition,
unreimbursed expenses are not reflected in a fund's net asset value or the
formula for calculating Rule 12b-1 payments. The staff of the SEC has not
approved or disapproved the treatment of the unreimbursed distribution and
shareholder service expenses described in this proxy statement.
15
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 Health Sciences Fund and Biotechnology Fund. In addition,
because Health Sciences Fund does not currently have any outstanding Class I
shares, the tables show performance of Health Sciences 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
[BAR CHART]
Biotechnology Fund Health Sciences Fund
1995 -- 39.88%
1996 -- 6.50%
1997 -- 29.73%
1998 -- 19.49%
1999 -- -0.64%
2000 -- 38.22%
2001 -- -11.85%
2002 -47.91% -19.81%
2003 50.19% 26.35%
2004 10.55% 11.70%
YEAR-TO-DATE AND QUARTERLY RETURNS
Biotechnology Fund's year-to-date return as of March 31, 2005 for Class A shares
was ____%. During the period shown in the bar chart, the fund's highest
quarterly return was 33.79% for the quarter ended June 30, 2003, and the lowest
quarterly return was -33.13% for the quarter ended June 30, 2002.
Health Sciences Fund's year-to-date return as of March 31, 2005 for Class A
shares was ____%. During the period shown in the bar chart, the fund's highest
quarterly return was 23.14% for the quarter ended June 30, 1997, and the lowest
quarterly return was -18.76% for the quarter ended March 31, 2001.
16
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 2004
10 YEARS
(OR LIFE OF
1 YEAR 5 YEARS CLASS/FUND*)
------ ------- -----------
BIOTECHNOLOGY FUND
Class A - Before Taxes 5.07% N/A -4.83%
Class A - After Taxes on Distributions (1) 5.07% N/A -4.84%
Class A - After Taxes on Distributions and 3.30% -4.07%
Sale of Fund Shares (1)
Class B - Before Taxes 4.84% N/A -4.97%*
Class C** - Before Taxes 8.84% N/A -4.21%*
S&P 500 INDEX (2) 10.88% N/A 1.02%*
NASDAQ BIOTECHNOLOGY INDEX (3) 6.13% N/A -5.31%*
HEALTH SCIENCES FUND
Class A - Before Taxes 6.11% 5.55% 11.63%*
Class A - After Taxes on Distribution 5.54% 5.04% 11.16%*
Class A - After Taxes on Distributions and 4.64% 4.60% 10.21%*
Sale of Fund Shares
Class B - Before Taxes 5.93% 5.57% 11.56%*
Class C** - Before Taxes 9.93% 5.89% 5.93%*
S&P 500 INDEX (2) 10.88% -2.30% 12.07%*
RUSSELL 3000 HEALTHCARE INDEX (4) 3.91% 3.39% 13.98%*
- ----------
(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) 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.
(3) The Nasdaq Biotechnology Index is an unmanaged index of the largest and most
actively traded Nasdaq biotechnology stocks. Unlike the fund's returns,
index returns do not reflect any fees, expenses or taxes.
(4) The Russell 3000 Healthcare Index is an unmanaged index of health-care
sector stocks in the Russell 3000 Index, which represents the 3,000 largest
U.S. companies based on total market capitalizations.
* Inception dates for each class/fund that have fewer than 10 calendar years
performance are as follows: Health Sciences Fund Class C shares- March 1,
1999; Biotechnology Fund Class A, Class B and Class C shares - March 1,
2001. The corresponding S&P 500 Index returns for periods since these dates
were as follows: Since March 1, 1999, 1.16%; since March 1, 2001, 1.02%. The
corresponding Nasdaq Biotechnology Index returns for periods since these
dates were as follows: Since March 1, 1999, 9.08%; since March 1, 2001,
-5.31%. The corresponding Russell 3000 Healthcare Index returns for periods
since these dates were as follows: Since March 1, 1999, 0.85%; since March
1, 2001, -1.45%. With respect to the Russell 3000 Healthcare Index,
performance for the ten-year period is provided since the Index's inception
on May 23, 1995.
** The average annual total returns for Class C shares have been adjusted to
reflect the elimination of the 1% front-end sales charge effective July 15,
2004.
17
FURTHER INFORMATION ON THE REORGANIZATION
TAX STATUS OF THE REORGANIZATION
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 and will not take place unless the funds receive a
satisfactory opinion from Wilmer Cutler Pickering 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 the Reorganization, for federal income tax
purposes:
- - 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;
- - 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;
- - 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;
- - 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;
- - 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;
- - 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
- - 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 opinion, counsel shall rely upon, among other things,
reasonable assumptions, as well as representations of the Acquired Fund and the
Acquiring Fund.
No tax ruling has been or will be received from the Internal Revenue Service
("IRS") in connection with the Reorganization. An opinion of counsel is not
binding on the IRS or a court, and no assurance can be given that the IRS would
not assert, or a court would not sustain, a contrary position.
You should consult your tax adviser for the particular tax consequences to you
of the transaction, including the applicability of any state, local or foreign
tax laws.
ADDITIONAL TERMS OF THE AGREEMENT AND PLAN OF REORGANIZATION
Certain terms of the Agreement and Plan of Reorganization are described above.
The following is a summary of certain additional terms of the 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 the
Reorganization.
Surrender of Share Certificates. If your shares are represented by one or more
share certificates before the closing date of the Reorganization, you must
either surrender the certificates to your fund(s) or deliver to your fund(s) a
lost certificate affidavit, in the form of and accompanied by the surety bonds
that your fund(s) may require (collectively, an "Affidavit"). On the closing
date of the Reorganization, 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 Health Sciences Fund shares. Shareholders may not redeem
or transfer Health Sciences Fund shares received in the Reorganization until
they have surrendered their fund share
18
certificates or delivered an Affidavit. Health Sciences Fund will not issue
share certificates in the Reorganization.
Conditions to Closing the Reorganization. The obligation of the Acquired Fund to
consummate the Reorganization is subject to the satisfaction of certain
conditions, including the performance by the Acquiring Fund of all its
obligations under the Agreement and the receipt of all consents, orders and
permits necessary to consummate the Reorganization (see Agreement, paragraph 6).
The obligation of the Acquiring Fund to consummate the Reorganization is subject
to the satisfaction of certain conditions, including the Acquired Fund's
performance of all of its obligations under the Agreement, the receipt of
certain documents and financial statements from the Acquired Fund and the
receipt of all consents, orders and permits necessary to consummate the
Reorganization (see Agreement, paragraph 7).
The obligations of the Acquired Fund and the Acquiring Fund are subject to
approval of the Agreement by the necessary vote of the outstanding shares of the
Acquired Fund, in accordance with the provisions of Acquired Fund's declaration
of trust and by-laws. The fund's obligations are also subject to the receipt of
a favorable opinion of Wilmer Cutler Pickering Hale and Dorr LLP as to the
federal income tax consequences of the Reorganization (see Agreement, paragraph
8).
Termination of Agreement. The board of trustees of the Acquired Fund or the
Acquiring Fund may terminate the Agreement (even if the shareholders of the
Acquired Fund have already approved it) at any time before the Reorganization
date, if that board believes that proceeding with the Reorganization would no
longer be advisable.
Expenses of the Reorganization. John Hancock Advisers, LLC will pay the
reorganization costs incurred in connection with entering into and carrying out
the provisions of the Agreement, whether or not the Reorganization occurs.
CAPITALIZATION
With respect to each Proposal, the following tables set forth the capitalization
of each fund as of October 31, 2004, and the pro forma combined capitalization
of both funds as if the Reorganization had occurred on that date. If the
Reorganization is consummated, the actual exchange ratios on the Reorganization
date may vary from the exchange ratios indicated. This is due to changes in the
market value of the portfolio securities of both funds between October 31, 2004,
and the Reorganization date, changes in the amount of undistributed net
investment income and net realized capital gains of both funds during that
period resulting from income and distributions, and changes in the accrued
liabilities of both funds during the same period. It is impossible to predict
how many shares of the Acquiring Fund will actually be received and distributed
by the Acquired Fund on the closing date of the Reorganization. The tables below
should not be relied upon to determine the amount of Acquiring Fund shares that
will actually be received and distributed.
BIOTECHNOLOGY HEALTH SCIENCES PRO
FUND FUND FORMA (1)
------------- --------------- -------------
NET ASSETS (millions) $ 20.8 $ 271.9 $ 292.7
NET ASSET VALUE PER SHARE
CLASS A $ 7.86 $ 43.22 $ 43.22
CLASS B $ 7.67 $ 39.81 $ 39.81
CLASS C $ 7.67 $ 39.81 $ 39.81
SHARES OUTSTANDING
CLASS A 1,046,686 2,895,273 3,085,624
CLASS B 1,147,551 3,354,889 3,575,927
CLASS C 488,240 332,110 426,145
19
(1) Assuming the Reorganization of Biotechnology Fund into Health Sciences Fund
occurs. If the Reorganization of your fund had taken place on October 31, 2004,
approximately 0.18, 0.19, and 0.19 Health Sciences Fund Class A, Class B, and
Class C shares would have been issued for each share of Biotechnology Fund Class
A, Class B, and Class C shares, respectively.
20
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
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 Calculated, Transaction
shares Policies
Dividends, Dividends and Account Policies
distributions and taxes
BOARD'S EVALUATION AND RECOMMENDATION
For the reasons described above, the board of trustees of Biotechnology Fund,
including the trustees who are not "interested persons" of Biotechnology Fund in
the Reorganization or the Adviser ("independent trustees"), approved the
Reorganization. In particular, the trustees determined that the Reorganization
is in the best interests of Biotechnology Fund and that the interests of
Biotechnology Fund's shareholders would not be diluted as a result of the
Reorganization. Similarly, the board of trustees of Health Sciences Fund,
including the independent trustees, approved the Reorganization. They also
determined that the Reorganization is in the best interests of Health Sciences
Fund and that the interests of Health Sciences Fund's shareholders would not be
diluted as a result of the Reorganization.
THE TRUSTEES OF YOUR FUND RECOMMEND THAT
SHAREHOLDERS OF YOUR FUND VOTE FOR THE PROPOSAL TO
APPROVE THE 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 the
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.
21
SHARES QUORUM VOTING
- ------ ------ ------
In General All shares "present" in Shares "present" in person will be voted in person at
person or by proxy are the meeting. Shares present by proxy will be voted in
counted towards a accordance with instructions.
quorum.
Proxy with no Voting Considered "present" at Voted "for" a proposal.
Instruction (other than meeting.
Broker Non-Vote)
Broker Non-Vote Considered "present" at Not voted. Same effect as a vote "against" a proposal.
meeting.
Vote to Abstain Considered "present" at Not voted. Same effect as a vote "against" a 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.
INFORMATION CONCERNING THE MEETING
SOLICITATION OF PROXIES
In addition to the mailing of these proxy materials, proxies may be solicited by
telephone, by fax or in person by the trustees, officers and employees of your
fund; by personnel of your fund's investment adviser, John Hancock Advisers, LLC
and its transfer agent, John Hancock Signature Services, Inc.; or by
broker-dealer firms. Signature Services, together with a third party
solicitation firm, has agreed to provide proxy solicitation services to the
Acquired Fund at a cost of approximately $10,000. The Adviser will pay the costs
of preparing, mailing and soliciting proxies, including payments to unaffiliated
solicitation firms.
REVOKING PROXIES
Each Acquired Fund shareholder signing and returning a proxy has the power to
revoke it at any time before it is exercised:
- - By filing a written notice of revocation with the Acquired Fund's transfer
agent, John Hancock Signature Services, Inc., 1 John Hancock Way, Suite 1000,
Boston, Massachusetts 02217-1000, or
- - By returning a duly executed proxy with a later date before the time of the
meeting, or
- - 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 April 6, 2005 (the "record date"), the number of shares of beneficial
interest of the Acquired Fund outstanding were as follows:
FUND SHARES OUTSTANDING
---- ------------------
Biotechnology Fund
Class A _______
Class B _______
Class C _______
22
Only shareholders of record on the record date are entitled to notice of and to
vote at the meeting. A majority of the outstanding shares of the Acquired Fund
that are entitled to vote will be considered a quorum for the transaction of
business.
OTHER BUSINESS
The Acquired Fund's board of trustees knows of no business to be presented for
consideration at the meeting other than the proposal. If other business is
properly brought before the meeting, proxies will be voted according to the best
judgment of the persons named as proxies.
ADJOURNMENTS
If a quorum is not present in person or by proxy at the time any session of the
meeting is called to order, the persons named as proxies may vote those proxies
that have been received to adjourn the meeting to a later date. If a quorum is
present but there are not sufficient votes in favor of a proposal, the persons
named as proxies may propose one or more adjournments of the meeting to permit
further solicitation of proxies concerning the proposal. Any adjournment will
require the affirmative vote of a majority of the 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.
TELEPHONE VOTING
In addition to soliciting proxies by mail, by fax or in person, your fund may
also arrange to have votes recorded by telephone by officers and employees of
your fund or by personnel of the Adviser or transfer agent or a third party
solicitation firm. The telephone voting procedure is designed to verify a
shareholder's identity, to allow a shareholder to authorize the voting of shares
in accordance with the shareholder's instructions and to confirm that the voting
instructions have been properly recorded. If these procedures were subject to a
successful legal challenge, these telephone votes would not be counted at the
meeting. Your fund has not obtained an opinion of counsel about telephone
voting, but is currently not aware of any challenge.
- - 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.
- - 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.
- - To ensure that the shareholder's instructions have been recorded correctly,
the shareholder will also receive a confirmation of the voting instructions by
mail.
- - A toll-free number will be available in case the voting information contained
in the confirmation is incorrect.
- - 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 meeting. Do not mail the proxy card if you are voting via the Internet. To
vote via the Internet, you will need the "control number" that appears on your
proxy card. These Internet voting procedures are designed to authenticate
shareholder identities, to allow shareholders to 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.
To vote via the Internet:
23
- - Read the proxy statement and have your proxy card(s) at hand.
- - Go to the Web site on the proxy card.
- - Enter the "control number" found on your proxy card.
- - Follow the instructions on the Web site. Please call us at 1-800-225-5291 if
you have any problems.
- - To ensure 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 April, 2005, the following persons owned
of record or beneficially 5% or more of the outstanding shares of a class of
each fund, respectively:
BIOTECHNOLOGY FUND
NAMES AND ADDRESSES OF OWNERS OF ---------------------------
MORE THAN 5% OF SHARES CLASS A CLASS B CLASS C
- -------------------------------- ------- ------ -------
[ ] ---% ---% ---%
[ ] ---% ---% ---%
[ ] ---% ---% ---%
HEALTH SCIENCES FUND
NAMES AND ADDRESSES OF OWNERS OF ---------------------------
MORE THAN 5% OF SHARES CLASS A CLASS B CLASS C
- -------------------------------- ------- ------ -------
[ ] ---% ---% ---%
[ ] ---% ---% ---%
[ ] ---% ---% ---%
[ ] ---% ---% ---%
As of April, 2005, 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) Health Sciences Fund,
for the periods ended October 31, 2004, and (ii) Biotechnology Fund, for the
periods ended October 31, 2004, 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 independent auditors PricewaterhouseCoopers LLP, as
stated in their reports appearing in the statement of additional information.
These financial statements and financial highlights have been included in
reliance on their reports given on their authority as experts in accounting and
auditing.
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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, 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.
25
for mailing your proxy card promptly!
27
Exhibit A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made
this [__]st day of [________], 2005, by and between John Hancock World Fund, a
Massachusetts business trust (the "Trust") on behalf of its series, John Hancock
Health Sciences Fund (the "Acquiring Fund") and John Hancock World Fund, a
Massachusetts business trust (as defined above, the "Trust"), on behalf of its
series, John Hancock Biotechnology 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)(1)(C) of the Internal Revenue Code of
1986, as amended (the "Code"). The reorganization will consist of: (1) the
transfer of all of the assets of the Acquired Fund to the Acquiring Fund in
exchange solely for (A) the issuance of Class A shares, Class B shares and Class
C shares of beneficial interest of the Acquiring Fund (the "Acquiring Fund
Shares") to the Acquired Fund and (B) the assumption by the Acquiring Fund of
all of the liabilities of the Acquired Fund, followed by (2) the distribution by
the Acquired Fund, on or promptly after the Closing Date hereinafter referred
to, of the Acquiring Fund Shares to the shareholders of the Acquired Fund in
liquidation and termination of the Acquired Fund as provided herein, all upon
the terms and conditions set forth in this Agreement.
In consideration of the premises of the covenants and agreements hereinafter set
forth, the parties hereto covenant and agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR ASSUMPTION OF
LIABILITIES AND ISSUANCE OF ACQUIRING FUND SHARES; LIQUIDATION OF THE ACQUIRED
FUND
1.1 The Acquired Fund will transfer all of its assets (consisting, without
limitation, of portfolio securities and instruments, dividends and
interest receivables, cash and other assets), as set forth in the
statement of assets and liabilities referred to in Paragraph 7.2 hereof
(the "Statement of Assets and Liabilities"), to the Acquiring Fund free
and clear of all liens and encumbrances, except as otherwise provided
herein, in exchange for (i) the assumption by the Acquiring Fund of the
known and unknown liabilities of the Acquired Fund, including the
liabilities set forth in the Statement of Assets and Liabilities (the
"Acquired Fund Liabilities"), which shall be assigned and transferred
to the Acquiring Fund by the Acquired Fund and assumed by the Acquiring
Fund, and (ii) delivery by the Acquiring Fund to the Acquired Fund, for
distribution pro rata by the Acquired Fund to its shareholders in
proportion to their respective ownership of Class A, Class B and Class
C shares of beneficial interest of the Acquired Fund, as of the close
of business on June 10, 2005 (the "Closing Date"), of a number of the
Acquiring Fund Shares having an aggregate net asset value equal, in the
case of each class of Acquiring Fund Shares, to the value of the
assets, less such liabilities (herein referred to as the "net value of
the assets") attributable to the applicable class, assumed, assigned
and delivered, all determined as provided in Paragraph 2.1 hereof and
as of a date and time as specified therein. Such transactions shall
take place at the Closing, as defined in Paragraph 3.1 hereof. All
computations shall be provided by The Bank of New York (the
"Custodian"), as custodian and pricing agent for the Acquiring Fund and
the Acquired Fund.
1.2 The Acquired Fund has provided the Acquiring Fund with a list of the
current securities holdings of the Acquired Fund as of the date of
execution of this Agreement. The Acquired Fund reserves the right to
sell any of these securities (except to the extent sales may be limited
by representations made in connection with issuance of the tax opinion
provided for in paragraph 8.6 hereof) but will not, without the prior
approval of the Acquiring Fund, acquire any additional securities other
than securities of the type in which the Acquiring Fund is permitted to
invest.
1.3 John Hancock Advisers, LLC, the investment adviser to the Acquiring
Fund and the Acquired Fund, will bear the expenses allocable to each
fund in connection with the transactions contemplated by this
Agreement, 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
1
the account of the Acquired Fund on the books of the Acquiring Fund,
to open accounts on the share records of the Acquiring Fund in the
names of the Acquired Fund shareholders and representing the
respective pro rata number and class of Acquiring Fund Shares due such
shareholders. Acquired Fund shareholders who own Class A shares of the
Acquired Fund will receive Class A Acquiring Fund Shares. Acquired
Fund shareholders who own Class B shares of the Acquired Fund will
receive Class B Acquiring Fund Shares. Acquired Fund shareholders who
own Class C shares of the Acquired Fund will receive Class C Acquiring
Fund Shares. The Acquiring Fund shall not issue certificates
representing Acquiring Fund Shares in connection with such exchange.
1.5 The Acquired Fund shareholders holding certificates representing their
ownership of shares of beneficial interest of the Acquired Fund shall
surrender such certificates or deliver an affidavit with respect to
lost certificates in such form and accompanied by such surety bonds as
the Acquired Fund may require (collectively, an "Affidavit"), to John
Hancock Signature Services, Inc. prior to the Closing Date. Any
Acquired Fund share certificate which remains outstanding on the
Closing Date shall be deemed to be canceled, shall no longer evidence
ownership of shares of beneficial interest of the Acquired Fund and
shall evidence ownership of Acquiring Fund Shares. Unless and until any
such certificate shall be so surrendered or an Affidavit relating
thereto shall be delivered, dividends and other distributions payable
by the Acquiring Fund subsequent to the Liquidation Date with respect
to Acquiring Fund Shares shall be paid to the holder of such
certificate(s), but such shareholders may not redeem or transfer
Acquiring Fund Shares received in the reorganization. The Acquiring
Fund will not issue share certificates in the reorganization.
1.6 Any transfer taxes payable upon issuance of Acquiring Fund Shares in a
name other than the registered holder of the Acquired Fund shares on
the books of the Acquired Fund as of that time shall, as a condition of
such issuance and transfer, be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.
1.7 The existence of the Acquired Fund shall be terminated as promptly as
practicable following the Liquidation Date.
1.8 Any reporting responsibility of the Acquired Fund, including, but not
limited to, the responsibility for filing of regulatory reports, tax
returns, or other documents with the Securities and Exchange Commission
(the "Commission"), any state securities commissions, and any federal,
state or local tax authorities or any other relevant regulatory
authority, is and shall remain the responsibility of the Acquired Fund.
2. VALUATION
2.1 The net asset values of the Class A, Class B and Class C Acquiring Fund
Shares and the net values of the assets and liabilities of the Acquired
Fund attributable to its Class A, Class B and Class C shares to be
transferred shall, in each case, be determined as of the close of
business (4:00 p.m. Boston time) on the Closing Date. The net asset
values of the Class A, Class B and Class C Acquiring Fund Shares shall
be computed by the Custodian in the manner set forth in the Acquiring
Fund's Declaration of Trust as amended and restated (the
"Declaration"), or By-Laws and the Acquiring Fund's then-current
prospectus and statement of additional information and shall be
computed in each case to not fewer than four decimal places. The net
value of the assets of the Acquired Fund attributable to its Class A,
Class B and Class C shares to be transferred shall be computed by the
Custodian by calculating the value of the assets of each class
transferred by the Acquired Fund and by subtracting therefrom the
amount of the liabilities of each class assigned and transferred to and
assumed by the Acquiring Fund on the Closing Date, said assets and
liabilities to be valued in the manner set forth in the Acquired Fund's
then current prospectus and statement of additional information and
shall be computed in each case to not fewer than four decimal places.
2.2 The number of shares of each class of Acquiring Fund Shares to be
issued (including fractional shares, if any) in exchange for the
Acquired Fund's assets shall be determined by dividing the value of the
Acquired Fund's assets attributable to that 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.
2
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be June 10, 2005 or such other date on or before
September 30, 2005 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, 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 August 31, 2005, 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 on behalf of the Acquired Fund represents, warrants and
covenants to the Acquiring 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, subject to
approval by the shareholders of the Acquired Fund, to carry out the
transactions contemplated by this Agreement. Neither the Trust 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 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 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;
(c) The Trust 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's Declaration of
Trust, as amended and restated (as defined above, the "Declaration") or
By-Laws or of any agreement, indenture,
3
instrument, contract, lease or other undertaking to which the Trust 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 or the Acquired Fund or any of
the Acquired 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 Acquired Fund is a party to or subject to the
provisions of any order, decree or judgment of any court or governmental
body which materially and adversely affects the Acquired Fund's business
or its ability to consummate the transactions herein contemplated;
(e) The Acquired Fund has no material contracts or other commitments
(other than this Agreement or agreements for the purchase of securities
entered into in the ordinary course of business and consistent with its
obligations under this Agreement) which will not be terminated without
liability to the Acquired Fund at or prior to the Closing Date;
(f) The audited statement of assets and liabilities, including the
schedule of investments, of the Acquired Fund as of October 31, 2004 and
the related statement of operations (copies of which have been furnished
to the Acquiring Fund), present fairly in all material respects the
financial condition of the Acquired Fund as of October 31, 2004 and 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 October 31, 2004, 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 for the favorable tax treatment as a
regulated investment company for each taxable year of its operation and
the Acquired Fund will qualify as such as of the Closing Date with
respect to its taxable year ending on the Closing Date;
(j) The authorized capital of the Acquired Fund consists of an unlimited
number of shares of beneficial interest, no par value. All issued and
outstanding shares of beneficial interest of the Acquired Fund are, and
at the Closing Date will be, duly and validly issued and outstanding,
fully paid and nonassessable by the Trust. 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, 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
4
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 [March 1, 2005], (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 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 non-diversified series of the Trust;
(c) The Class A, Class B, and Class C prospectus of the Acquiring Fund
dated March 1, 2005 (the "Acquiring Fund Prospectus") and statement of
additional information for Class A, Class B and Class C shares of the
Acquiring Fund, dated March 1, 2005, 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
5
By-Laws or of any agreement, indenture, instrument, contract, lease or
other undertaking to which the Trust or the Acquiring Fund is a party
or by which the Trust or the Acquiring Fund is bound;
(f) Except as otherwise disclosed in writing and accepted by the Acquired
Fund, no material litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or threatened against the Trust or the Acquiring Fund or any of
the Acquiring Fund's properties or assets. The Trust knows of no facts
which might form the basis for the institution of such proceedings, and
neither the Trust nor the Acquiring Fund is a party to or subject to the
provisions of any order, decree or judgment of any court or governmental
body which materially and adversely affects the Acquiring Fund's business
or its ability to consummate the transactions herein contemplated;
(g) The audited statement of assets and liabilities, including the
schedule of investments, of the Acquiring Fund as of October 31, 2004 and
the related statement of operations for each such period (copies of which
have been furnished to the Acquired Fund), present fairly in all material
respects the financial condition of the Acquiring Fund as of October 31,
2004, 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 October 31, 2004, 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 for the
favorable tax treatment as a regulated investment company for each
taxable year of its operation and the Acquiring Fund will continue to
qualify as such as of the Closing Date and thereafter;
(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, 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
6
will include customary dividends and distributions and any other
distributions necessary or desirable to avoid federal income or excise
taxes.
5.2 The Trust on behalf of the Acquired Fund 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, 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, on behalf of the Acquired Fund, shall furnish to the Trust,
on behalf of the Acquiring Fund, on the Closing Date the Statement of
Assets and Liabilities of the Acquired Fund as of the Closing Date,
which statement shall be prepared in accordance with generally accepted
accounting principles consistently applied and shall be certified by
the Acquired Fund's Treasurer or Assistant Treasurer. As promptly as
practicable but in any case within 60 days after the Closing Date, the
Acquired Fund shall furnish to the Acquiring Fund, in such form as is
reasonably satisfactory to the Trust, a statement of the earnings and
profits of the Acquired Fund for federal income tax purposes and of any
capital loss carryovers and other items that will be carried over to
the Acquiring Fund as a result of Section 381 of the Code, and which
statement will be certified by the President of the Acquired Fund.
5.7 The Trust on behalf of the Acquiring Fund will prepare and file with
the Commission the Registration Statement in compliance with the 1933
Act and the 1940 Act in connection with the issuance of the Acquiring
Fund Shares as contemplated herein.
5.8 The Trust 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. The parties hereby adopt this Agreement as a "plan
of reorganization" within the meaning of Section 1.368-2(g) and
1.368-3(a) of the income tax regulations promulgated under the Code.
Unless otherwise required pursuant to a "determination" within the
meaning of Section 1313(a) of the Code or otherwise, the parties hereto
shall treat and report the transactions contemplated hereby as a
reorganization within the meaning of Section 368(a)(1)(C) of the Code,
and shall not take any position inconsistent with such treatment.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST ON BEHALF OF THE ACQUIRED
FUND
The obligations of the Trust 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;
7
6.2 The Trust on behalf of the Acquiring Fund shall have delivered to the
Trust 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 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 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
Wilmer Cutler Pickering 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 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 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 on behalf of the Acquired Fund shall have delivered to the
Trust on behalf of the Acquiring Fund the Statement of Assets and
Liabilities of the Acquired Fund, together with a list of its portfolio
securities showing the federal income tax bases and holding periods of
such securities, as of the Closing Date, certified by the Treasurer or
Assistant Treasurer of the Acquired Fund;
7.3 The Trust 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 [or voluntary] 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
Wilmer Cutler Pickering 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, ON BEHALF OF THE
ACQUIRED FUND, AND THE TRUST, ON BEHALF OF THE ACQUIRING FUND
The obligations hereunder of the Trust, 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 '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
8
Trust, on behalf of the Acquiring Fund, and the Trust, on behalf of
the Acquired Fund, to permit consummation, in all material respects,
of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit would
not involve a risk of a material adverse effect on the assets or
properties of the Acquiring Fund or the Acquired Fund, provided that
either party hereto may waive any such conditions for itself;
8.4 The Registration Statement shall have become effective under the 1933
Act and the 1940 Act and no stop orders suspending the effectiveness
thereof shall have been issued and, to the best knowledge of the
parties hereto, no investigation or proceeding for that purpose shall
have been instituted or be pending, threatened or contemplated under
the 1933 Act or the 1940 Act;
8.5 The Acquired Fund shall have distributed to its shareholders, in a
distribution or distributions qualifying for the deduction for
dividends paid under Section 561 of the Code, all of its investment
company taxable income (as defined in Section 852(b)(2) of the Code
determined without regard to Section 852(b)(2)(D) of the Code) for its
taxable year ending on the Closing Date, all of the excess of (i) its
interest income excludable from gross income under Section 103(a) of
the Code over (ii) its deductions disallowed under Sections 265 and
171(a)(2) of the Code for its taxable year ending on the Closing Date,
and all of its net capital gain (as such term is used in Sections
852(b)(3)(A) and (C) of the Code), after reduction by any available
capital loss carryforward, for its taxable year ending on the Closing
Date; and
8.6 The parties shall have received an opinion of Wilmer Cutler Pickering
Hale and Dorr LLP, satisfactory to the Trust, on behalf of the Acquired
Fund, and the Trust, on behalf of the Acquiring Fund, substantially to
the effect that for federal income tax purposes the acquisition by the
Acquiring Fund of all of the assets of the Acquired Fund solely in
exchange for the issuance of Acquiring Fund Shares to the Acquired Fund
and the assumption of all of the Acquired Fund Liabilities by the
Acquiring Fund, followed by the distribution by the Acquired Fund, in
liquidation of the Acquired Fund, of Acquiring Fund Shares to the
shareholders of the Acquired Fund in exchange for their shares of
beneficial interest of the Acquired Fund and the termination of the
Acquired Fund, will constitute a "reorganization" within the meaning of
Section 368(a) of the Code. Notwithstanding anything herein to the
contrary, neither the Trust, on behalf of the Acquiring Fund, nor the
Trust, on behalf of the Acquired Fund, may waive the conditions set
forth in this Paragraph 8.6.
9. BROKERAGE FEES AND EXPENSES
9.1 The Trust, on behalf of the Acquiring Fund, and the Trust, on behalf of
the Acquired Fund, represent and warrants that there are no brokers or
finders entitled to receive any payments in connection with the
transactions provided for herein.
9.2 John Hancock Advisers, LLC, the investment adviser to the Acquiring
Fund and the Acquired Fund, will bear the expenses allocable to each
fund in connection with transactions contemplated by this Agreement,
whether or not the transaction contemplat4ed hereby are consummated.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Trust, on behalf of the Acquiring Fund, and the Trust, 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, on behalf of the
Acquired Fund. In addition, either party may at its option terminate
this Agreement at or prior to the Closing Date:
9
(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, on behalf of the
Acquiring Fund, 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's Board of Trustees, on behalf of the
Acquired Fund, 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, or the Acquired
Fund, or the Trustees or officers of the Trust, 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. However, following
the meeting of shareholders of the Acquired Fund held pursuant to Paragraph 5.2
of this Agreement, no such amendment may have the effect of changing the
provisions regarding the method for determining the number of Acquiring Fund
Shares to be received by the Acquired Fund shareholders under this Agreement to
the detriment of such shareholders without their further approval; provided that
nothing contained in this Article 12 shall be construed to prohibit the parties
from amending this Agreement to change the Closing Date.
13. NOTICES
Any notice, report, statement or demand required or permitted by any provisions
of this Agreement shall be in writing and shall be given by prepaid telegraph,
telecopy or certified mail addressed to the Acquiring Fund or to the Acquired
Fund, each at 101 Huntington Avenue, Boston, Massachusetts 02199, Attention:
President, and, in either case, with copies to Wilmer Cutler Pickering 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 the Commonwealth of Massachusetts.
14.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment
or transfer hereof or of any rights or obligations hereunder shall be
made by any party without the prior written consent of the other party.
Nothing herein expressed or implied is intended or shall be construed
to confer upon or give any person, firm or corporation, other than the
parties hereto and their respective successors and assigns, any rights
or remedies under or by reason of this Agreement.
14.5 All persons dealing with the Trust must look solely to the property of
the Trust for the enforcement of any claims against the Trust. The
Trustees, officers, agents and shareholders of the Trust assume no
personal liability for obligations entered into on behalf of the Trust.
None of the other series of the Trust shall be responsible for any
obligations assumed by or on behalf of the Acquiring Fund or the
Acquired Fund under this Agreement.
10
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed as of the date first set forth above by its President or Vice President
and has caused its corporate seal to be affixed hereto.
JOHN HANCOCK WORLD FUND on behalf of
JOHN HANCOCK BIOTECHNOLOGY FUND
By:_______________________________________
/s/James A. Shepherdson
James A. Shepherdson
President and Chief Executive Officer
JOHN HANCOCK WORLD FUND, on behalf of
JOHN HANCOCK HEALTH SCIENCES FUND
By:_______________________________________
/s/Susan S. Newton
Susan S. Newton
Senior Vice President and Secretary
VOTE THIS PROXY CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE YOUR FUND
THE EXPENSE OF ADDITIONAL MAILINGS
JOHN HANCOCK BIOTECHNOLOGY FUND
SPECIAL MEETING OF SHAREHOLDERS -June 8, 2005
PROXY SOLICITATION BY THE BOARD OF TRUSTEES
The undersigned, revoking previous proxies, hereby appoint(s) James A.
Shepherdson, 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 Biotechnology Fund ("Biotechnology Fund") which the undersigned is (are)
entitled to vote at the Special Meeting of Shareholders (the "Meeting") of
Biotechnology Fund to be held at 101 Huntington Avenue, Boston, Massachusetts,
on June 8, 2005 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 April 18, 2005 is hereby acknowledged. If
not revoked, this proxy shall be voted for the proposal.
Date , 2005
-------------------------------
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
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
Biotechnology Fund ("Biotechnology Fund") and John Hancock Health
Sciences Fund ("Health Sciences Fund"). Under this Agreement,
Biotechnology Fund would transfer all of its assets to Health Sciences
Fund in exchange for shares of Health Sciences Fund. These shares will
be distributed proportionately to you and the other shareholders of
Biotechnology Fund. Health Sciences Fund will also assume Biotechnology
Fund's liabilities.
FOR |_| AGAINST |_| ABSTAIN |_|
PLEASE DO NOT FORGET TO SIGN THE REVERSE SIDE OF THIS CARD.
Part B
Statement of Additional Information
JOHN HANCOCK HEALTH SCIENCES FUND
(the "Acquiring Fund", and a series of John Hancock World Fund)
JOHN HANCOCK BIOTECHNOLOGY FUND
(the "Acquired Fund", and a series of John Hancock World Fund)
101 Huntington Avenue
Boston, MA 02199
1-800-225-5291
April 18, 2005
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 April 18, 2005. This Statement of
Additional Information provides additional information about John Hancock Health
Sciences Fund and the Fund that it is acquiring, John Hancock Biotechnology
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.
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 March 7, 2005.
Table Of Contents
Page
Introduction 3
Additional Information about the Acquiring Fund 3
General Information and History 3
Investment Objective and Policies 3
Management of the Acquiring Fund 3
Control Persons and Principal Holders of Shares 3
Investment Advisory and Other Services 3
Brokerage Allocation and Other Practices 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
4
Additional Information about the Acquired Fund
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 and Other Practices 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 March 1, 2005, of the
Acquiring Fund including audited financial statements as of October 31,
2004.
B - Statement of Additional Information, dated March 1, 2005, of the
Acquired Fund including audited financial statements as of October 31,
2004.
2
INTRODUCTION
This Statement of Additional Information ("SAI") is intended to supplement the
information provided in a proxy statement and prospectus dated April 18, 2005.
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 June 8, 2005. This Statement of Additional
Information incorporates by reference the Statement of Additional Information of
the Acquiring Fund, dated March 1, 2005, and the Statement of Additional
Information of the Acquired Fund, dated March 1, 2005. The SAI for the Acquiring
Fund and the SAI for the Acquired Fund are included with this Statement of
Additional Information.
Additional Information About the Acquiring Fund
-----------------------------------------------
General Information and History
- -------------------------------
For additional information about the Acquiring Fund generally and its history,
see "Organization of the Fund" in the Acquiring Fund SAI attached hereto as
Exhibit A.
Investment Objective and Policies
- ---------------------------------
For additional information about the Acquiring Fund's investment objective,
policies and restrictions, see "Investment Objective and Policies" and
"Investment Restrictions" in the Acquiring Fund SAI attached hereto as Exhibit
A.
Management of the Acquiring Fund
- --------------------------------
For additional information about the Acquiring Fund's Board of Trustees,
officers and management personnel, see "Those Responsible for Management" and
"Additional Information About the Fund's Portfolio Manager" 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 Registered Public accounting Firm" in
the Acquiring Fund SAI attached hereto as Exhibit A.
Brokerage Allocation and Other Practices
- ----------------------------------------
For additional information about the Acquiring Fund's brokerage allocation
practices, see "Brokerage Allocation" in the Acquiring Fund SAI attached hereto
as Exhibit A.
Capital Stock and Other Securities
- ----------------------------------
For additional information about the voting rights and other characteristics of
the Acquiring Fund's shares of beneficial interest, see "Description of the
Fund's Shares" in the Acquiring Fund SAI attached hereto as Exhibit A.
Purchase, Redemption and Pricing of Acquiring Fund Shares
- ---------------------------------------------------------
For additional information about the purchase, redemption and pricing of the
Acquiring Fund's shares, see "Net Asset Value", "Initial Sales Charge on Class A
shares", "Deferred Sales Charge on Class B and Class C shares "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 annual financial statements of the Acquiring Fund at October 31, 2004
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" and "Additional
Information About the Fund's Portfolio Manager" 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 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 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 Registered Public Accounting Firm" 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.
2
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", "Initial Sales Charge on Class A
shares", "Deferred Sales Charge on Class B and Class C shares", "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 October 31, 2004 are
attached to the Acquired Fund SAI, which is attached hereto as Exhibit B.
3
Supplement to the John Hancock Sector Funds Prospectus
dated March 1, 2005
John Hancock Technology Fund
On page 13, the "Subadviser" and "Portfolio Managers" sections have been deleted
and replaced with the following:
Portfolio Manager
Anurag Pandit, CFA
Joined fund team in 2005
On page 24, the "Business Structure" section has been amended to delete all
references to American Fund Advisors, Inc. in their entirety.
On page 25, the Management Biographies for Barry J. Gordon, Marc H. Klee and
Alan J. Loewenstein have been deleted and the following Management Biography has
been added:
Anurag Pandit, CFA
Vice president
Joined John Hancock Advisers in 1996
Began business career in 1984
March 18, 2005
JOHN HANCOCK
Sector Funds
PROSPECTUS 3.1.2005
Financial Industries Fund
Health Sciences Fund
Real Estate Fund
Regional Bank Fund
Technology Fund
[JOHN HANCOCK FUNDS LOGO]
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
JOHN HANCOCK SECTOR FUNDS
FINANCIAL INDUSTRIES FUND 4
HEALTH SCIENCES FUND 6
REAL ESTATE FUND 8
REGIONAL BANK FUND 10
TECHNOLOGY FUND 12
YOUR ACCOUNT
CHOOSING A SHARE CLASS 14
HOW SALES CHARGES ARE CALCULATED 14
SALES CHARGE REDUCTIONS AND WAIVERS 15
OPENING AN ACCOUNT 16
BUYING SHARES 17
SELLING SHARES 18
TRANSACTION POLICIES 20
DIVIDENDS AND ACCOUNT POLICIES 22
ADDITIONAL INVESTOR SERVICES 23
FUND DETAILS
BUSINESS STRUCTURE 24
MANAGEMENT BIOGRAPHIES 25
FINANCIAL HIGHLIGHTS 26
FOR MORE INFORMATION BACK COVER
OVERVIEW
JOHN HANCOCK SECTOR FUNDS
These funds seek long-term growth by investing primarily in stocks of a single
sector or group of industries. Each fund has its own strategy and its own risk
profile.
WHO MAY WANT TO INVEST
THESE FUNDS MAY BE APPROPRIATE FOR INVESTORS WHO:
- - want to target a particular sector or group of industries
- - have longer time horizons
- - want to further diversify their portfolios
- - are seeking funds for the aggressive growth portion of an asset allocation
portfolio
- - are investing for retirement or other goals that are many years in the
future
SECTOR FUNDS MAY NOT BE APPROPRIATE IF YOU:
- - are investing with a shorter time horizon in mind
- - are uncomfortable with an investment whose value may vary substantially
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 sector 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., (a subsidiary of Manulife Financial Corporation) and
as of December 31, 2004, managed approximately $30 billion in assets.
FUND INFORMATION KEY
Concise fund-by-fund descriptions begin on the next page. Each description
provides the following information:
[GRAPHIC]
GOAL AND STRATEGY
The fund's particular investment goals and the strategies it intends to use in
pursuing those goals.
[GRAPHIC]
PAST PERFORMANCE
The fund's total return, measured year-by-year and over time.
[GRAPHIC]
MAIN RISKS
The major risk factors associated with the fund.
[GRAPHIC]
YOUR EXPENSES
The overall costs borne by an investor in the fund, including sales charges and
annual expenses.
3
FINANCIAL INDUSTRIES FUND
[GRAPHIC]
GOAL AND STRATEGY
The fund seeks capital appreciation. To pursue this goal, the fund normally
invests at least 80% of its assets in stocks of U.S. and foreign financial
services companies of any size. These companies include banks, thrifts, finance
companies, brokerage and advisory firms, real estate-related firms, insurance
companies and financial holding companies.
In managing the portfolio, the managers focus primarily on stock selection
rather than industry allocation.
In choosing individual stocks, the managers use fundamental financial analysis
to identify securities that appear comparatively undervalued. Given the
industry-wide trend toward consolidation, the managers also invest in companies
that appear to be positioned for a merger. The managers generally gather
firsthand information about companies from interviews and company visits.
The fund may invest in U.S. and foreign bonds, including up to 5% of net assets
in junk bonds (those rated below BBB/Baa and their unrated equivalents). It may
also invest up to 15% of net assets in investment-grade short-term securities.
The fund may make limited use of certain derivatives (investments whose value is
based on indexes, securities or currencies).
In abnormal circumstances, the fund may temporarily invest up to 80% of its
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.
[GRAPHIC]
PAST PERFORMANCE
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. The average annual total returns
for Class C have been adjusted to reflect the elimination of the front-end sales
charge effective July 15, 2004. All figures assume dividend reinvestment. Past
performance before and after taxes does not indicate future results.
CLASS A, TOTAL RETURNS
BEST QUARTER: Q3 '00, 22.94%
WORST QUARTER: Q3 '98, -20.12%
AFTER-TAX RETURNS
After-tax returns are shown for Class A shares only and would be different for
the other classes. They are calculated using the historical highest individual
federal marginal income-tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on the investor's tax situation and
may differ from those shown. The after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
INDEXES (reflect no fees or taxes)
STANDARD & POOR'S 500 INDEX, an unmanaged index that includes 500 widely traded
stocks.
STANDARD & POOR'S 500 FINANCIAL INDEX, an unmanaged index of financial sector
stocks in the Standard & Poor's 500 Index.
CLASS A CALENDAR YEAR TOTAL RETURNS (WITHOUT SALES CHARGES)
[BAR CHART]
1997 37.76%
1998 4.93%
1999 -1.07%
2000 30.39%
2001 -17.86%
2002 -16.40%
2003 26.43%
2004 9.75%
AVERAGE ANNUAL TOTAL RETURNS (INCLUDING SALES CHARGE) FOR PERIODS ENDING
12-31-04
LIFE OF LIFE OF LIFE OF
1 YEAR 5 YEAR CLASS A CLASS B CLASS C
Class A before tax (began 3-14-96) 4.25% 3.37% 10.28% -- --
Class A after tax on distributions 3.73% 3.18% 9.78% -- --
Class A after tax on distributions, with sale 3.11% 2.83% 8.82% -- --
Class B before tax (began 1-14-97) 3.95% 3.36% -- 6.51% --
Class C before tax (began 3-1-99) 7.95% 3.70% -- -- 3.21%
- --------------------------------------------------------------------------------------------------------
Standard & Poor's 500 Index 10.88% -2.30% 9.22% 7.51% 1.16%
Standard & Poor's 500 Financial Index 10.88% 7.26% 13.87% 11.37% 6.12%
4
[GRAPHIC]
MAIN RISKS
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. Because the fund focuses on a single sector of the economy, its
performance depends in large part on the performance of that sector. As a
result, the value of your investment may fluctuate more widely than it would in
a fund that is diversified across sectors.
For instance, when interest rates fall or economic conditions deteriorate, the
stocks of banks and financial services companies could suffer losses. Also,
rising interest rates can reduce profits by narrowing the difference between
these companies' borrowing and lending rates. In addition, securities of small
and medium-size companies are more volatile than those of larger companies.
Stocks of financial services companies as a group could fall out of favor with
the market, causing the fund to underperform funds that focus on other types of
stocks. In addition, if the managers' stock selection strategy does 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:
- - Certain derivatives could produce disproportionate losses.
- - In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price.
- - Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political instability.
- - Any bonds held by the fund could be downgraded in credit rating or go into
default. Bond prices generally fall when interest rates rise. This risk is
greater for longer maturity bonds. Junk bond prices can fall on bad news
about the economy, an industry or a company.
[GRAPHIC]
YOUR EXPENSES
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 front-end sales charge (load) on purchases as
a % of purchase price 5.00% none none
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 0.77% 0.77% 0.77%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.41% 0.41% 0.41%
Total fund operating expenses 1.48% 2.18% 2.18%
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 $643 $945 $1,268 $2,180
Class B with redemption $721 $982 $1,370 $2,336
Class B without redemption $221 $682 $1,170 $2,336
Class C with redemption $321 $682 $1,170 $2,513
Class C without redemption $221 $682 $1,170 $2,513
(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
JAMES K. SCHMIDT, CFA
Managed fund since it began in 1996 Primarily responsible for fund management
THOMAS M. FINUCANE
Rejoined fund team in 2004 Day-to-day purchase and sale decisions; analysis of
insurance, brokerage and asset management issuers
LISA A. WELCH
Joined fund team in 1998 Analysis of banking sector issuers
See page 25 for the management biographies.
FUND CODES
CLASS A Ticker FIDAX
CUSIP 409905502
Newspaper FinIndA
SEC number 811-3999
JH fund number 70
CLASS B Ticker FIDBX
CUSIP 409905601
Newspaper FinIndB
SEC number 811-3999
JH fund number 170
CLASS C Ticker FIDCX
CUSIP 409905874
Newspaper FinIndC
SEC number 811-3999
JH fund number 570
5
HEALTH SCIENCES FUND
[GRAPHIC]
GOAL AND STRATEGY
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 U.S. and foreign health
sciences companies. These companies derive more than half of their revenues from
health sciences related activities or commit more than half of their assets to
these activities. Because the fund is non-diversified, it may invest more than
5% of assets in securities of individual companies.
In managing the portfolio, the manager studies economic trends to allocate
assets among the following major categories:
- - pharmaceuticals and biotechnology
- - medical devices and analytical equipment
- - health-care services
The manager also uses broad economic analysis to identify promising industries
within these categories.
The management team then uses fundamental financial analysis to identify
individual companies of any size that appear most attractive in terms of
earnings stability, growth potential and valuation. The team generally assesses
the senior management of companies through interviews and company visits. The
fund may use certain derivatives (investments whose value is based on indexes,
securities or currencies).
In abnormal circumstances, the fund may temporarily invest more than 20% of its
assets in investment-grade short-term securities. In these and other cases,
the fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable distributions.
[GRAPHIC]
PAST PERFORMANCE
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. The average annual total returns
for Class C have been adjusted to reflect the elimination of the front-end sales
charge effective July 15, 2004. All figures assume dividend reinvestment. Past
performance before and after taxes does not indicate future results.
CLASS A, TOTAL RETURNS
BEST QUARTER: Q2 '97, 23.14%
WORST QUARTER: Q1 '01, -18.76%
AFTER-TAX RETURNS
After-tax returns are shown for Class A shares only and would be different for
the other classes. They are calculated using the historical highest individual
federal marginal income-tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on the investor's tax situation and
may differ from those shown. The after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
INDEXES (reflect no fees or taxes)
STANDARD & POOR'S 500 INDEX, an unmanaged index that includes 500 widely traded
stocks.
RUSSELL 3000 HEALTHCARE INDEX, an unmanaged index of healthcare sector stocks in
the Russell 3000 Index, which represents the 3,000 largest U.S. companies based
on total market capitalization.
CLASS A CALENDAR YEAR TOTAL RETURNS (WITHOUT SALES CHARGES)
[BAR CHART]
1995 39.88%
1996 6.50%
1997 29.73%
1998 19.49%
1999 -0.64%
2000 38.22%
2001 -11.85%
2002 -19.81%
2003 26.35%
2004 11.70%
AVERAGE ANNUAL TOTAL RETURNS (INCLUDING SALES CHARGE) FOR PERIODS ENDING
12-31-04
LIFE OF
1 YEAR 5 YEAR 10 YEAR CLASS C
Class A before tax 6.11% 5.55% 11.63% --
Class A after tax on distributions 5.54% 5.04% 11.16% --
Class A after tax on distributions, with sale 4.64% 4.60% 10.21% --
Class B before tax 5.93% 5.57% 11.56% --
Class C before tax (began 3-1-99) 9.93% 5.89% -- 5.93%
- ---------------------------------------------------------------------------------------------------
Standard & Poor's 500 Index 10.88% -2.30% 12.07% 1.16%
Russell 3000 Healthcare Index 3.91% 3.39% 13.98% 1.67%
6
[GRAPHIC]
MAIN RISKS
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. Because the fund focuses on a particular group of industries, its
performance depends in large part on the performance of those industries. As a
result, the value of your investment may fluctuate more widely than it would in
a fund that is diversified across sectors.
Stocks of health sciences companies as a group could fall out of favor with the
market, causing the fund to underperform funds that focus on other types of
stocks. In addition, if the manager's industry allocation or security selection
strategies do not perform as expected, the fund could underperform its peers or
lose money.
To the extent that the fund makes investments with additional risks, these risks
could increase volatility or reduce performance:
- - If the fund invests heavily in a single issuer, its performance could
suffer significantly from adverse events affecting that issuer.
- - Certain derivatives could produce disproportionate losses.
- - Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political instability.
- - Stocks of small- and medium-size companies can be more volatile than those
of large companies.
[GRAPHIC]
YOUR EXPENSES
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 front-end sales charge (load) on purchases
as a % of purchase price 5.00% none none
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 0.77% 0.77% 0.77%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.50% 0.50% 0.50%
Total fund operating expenses 1.57% 2.27% 2.27%
The hypothetical example below shows what your expenses would be if you invested
$10,000 over the time frames indicated, assuming you reinvested all
distributions and that the average annual return was 5%. The example is for
comparison only, and does not represent the fund's actual expenses and returns,
either past or future.
EXPENSES YEAR 1 YEAR 3 YEAR 5 YEAR 10
Class A $ 652 $ 971 $1,312 $2,274
Class B with redemption $ 730 $1,009 $1,415 $2,430
Class B without redemption $ 230 $ 709 $1,215 $2,430
Class C with redemption $ 330 $ 709 $1,215 $2,605
Class C without redemption $ 230 $ 709 $1,215 $2,605
(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 MANAGER
LINDA I. MILLER, CFA
Joined fund team in 1995
See page 25 for the management biographies.
FUND CODES
CLASS A Ticker JHGRX
CUSIP 410233308
Newspaper HthSciA
SEC number 811-4932
JH fund number 28
CLASS B Ticker JHRBX
CUSIP 410233704
Newspaper HthSciB
SEC number 811-4932
JH fund number 128
CLASS C Ticker JHRCX
CUSIP 410233852
Newspaper --
SEC number 811-4932
JH fund number 528
7
REAL ESTATE FUND
[GRAPHIC]
GOAL AND STRATEGY
The fund seeks long-term growth of capital. Income is a secondary goal. To
pursue these goals, the fund normally invests at least 80% of its assets in
securities of real estate companies of any size. These include U.S. and foreign
companies in the businesses of owning, managing or marketing real estate;
companies in related industries, such as financing or construction; and
companies in other businesses that have at least half their assets in real
estate holdings.
The fund generally focuses on real estate investment trusts (REITs), which hold
real estate and mortgages. The fund invests in companies that are considered
fundamentally undervalued due to changing economic conditions, regional economic
factors or industry consolidation.
The fund may invest up to 20% of assets in junk bonds rated as low as BB and
their unrated equivalents, and up to 15% of assets in foreign securities. The
fund may invest up to 20% of its assets in securities of issuers that are not
considered real estate companies.
At different times, the fund may emphasize different types of securities or
issuers, depending on the managers' outlook for interest rates, real estate
prices and other factors.
The fund may use certain derivatives (investments whose value is based on
indexes, securities or currencies), especially in managing its exposure to
interest rate risk. However, it does not intend to use them extensively.
In abnormal circumstances, the fund may temporarily invest more than 20% of its
assets in investment-grade short-term securities. In these and other cases, the
fund might not achieve its goal.
The fund has traded securities actively in the past, and may continue to do so,
which could increase its transaction costs (thus lowering performance) and
increase your taxable distributions.
[GRAPHIC]
PAST PERFORMANCE
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. The average annual total returns
for Class C have been adjusted to reflect the elimination of the front-end sales
charge effective July 15, 2004. All figures assume dividend reinvestment. Past
performance before and after taxes does not indicate future results.
CLASS A, TOTAL RETURNS
BEST QUARTER: Q4 '04, 15.21%
WORST QUARTER: Q3 '02, -12.49%
AFTER-TAX RETURNS
After-tax returns are shown for Class A shares only and would be different for
the other classes. They are calculated using the historical highest individual
federal marginal income-tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on the investor's tax situation and
may differ from those shown. The after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
INDEXES (reflect no fees or taxes)
STANDARD & POOR'S 500 INDEX, an unmanaged index that includes 500 widely traded
stocks.
MORGAN STANLEY REIT INDEX, an unmanaged index consisting of the most actively
traded real estate investment trusts.
CLASS A CALENDAR YEAR TOTAL RETURNS (WITHOUT SALES CHARGES)
[BAR CHART]
1999 2.38%
2000 26.39%
2001 13.06%
2002 0.06%
2003 35.84%
2004 29.78%
AVERAGE ANNUAL TOTAL RETURNS (INCLUDING SALES CHARGE) FOR PERIODS ENDING
12-31-04
LIFE OF LIFE OF LIFE OF
1 YEAR 5 YEAR CLASS A CLASS B CLASS C
Class A before tax (began 9-30-98) 23.29% 19.07% 15.51% -- --
Class A after tax on distributions 21.64% 16.91% 12.93% -- --
Class A after tax on distributions, with sale 15.16% 15.31% 11.81% -- --
Class B before tax (began 3-1-00) 23.85% -- -- 20.53% --
Class C before tax (began 3-1-00) 27.85% -- -- -- 20.73%
- ------------------------------------------------------------------------------------------------------------------
Standard & Poor's 500 Index 10.88% -2.30% 4.38% -1.13% -1.13%
Morgan Stanley REIT Index 31.49% 21.67% 15.72% 22.87% 22.87%
8
[GRAPHIC]
MAIN RISKS
The value of your investment will fluctuate in response to movements in real
estate markets. Because the fund focuses on a single sector of the economy, its
performance depends in large part on the performance of that sector.
The value of your investment may fluctuate more widely than it would in a fund
that is diversified across sectors. Securities of smaller companies are more
volatile than those of larger companies.
Because they are securities, REIT shares can fall in value when securities
markets fall or when there is an economic downturn. There is also the risk that
a REIT's value could fall if it is mismanaged, faces high tenant default risk or
is in danger of failing to meet certain IRS standards.
If the managers' security selection strategies do not perform as expected, the
fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, these risks
could increase volatility or reduce performance:
- - Certain derivatives could produce disproportionate losses.
- - In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price.
- - Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political instability.
- - Any bonds held by the fund could be downgraded in credit quality or go
into default. In addition, bond prices generally fall when interest rates
rise; this risk is greater for longer maturity bonds. Junk bond prices can
fall on bad news about the economy, an industry or a company.
- - If interest rate movements cause the fund's mortgage-backed and callable
securities to be paid off substantially earlier or later than expected,
the fund's share price or yield could fall.
[GRAPHIC]
YOUR EXPENSES
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 front-end sales charge (load) on purchases
as a % of purchase price 5.00% none none
Maximum deferred sales charge (load)
as a % of purchase or sale price, whichever is less none(2) 5.00% 1.00%
ANNUAL OPERATING EXPENSES CLASS A CLASS B CLASS C
Management fee 0.80% 0.80% 0.80%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.60% 0.60% 0.60%
Total fund operating expenses 1.70% 2.40% 2.40%
Contractual expense reimbursement (at least until 2-28-06) 0.05% 0.05% 0.05%
Net annual operating expenses 1.65% 2.35% 2.35%
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 $ 659 $1,004 $1,372 $2,404
Class B with redemption $ 738 $1,004 $1,476 $2,559
Class B without redemption $ 238 $ 744 $1,276 $2,559
Class C with redemption $ 338 $ 744 $1,276 $2,733
Class C without redemption $ 238 $ 744 $1,276 $2,733
(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
JAMES K. SCHMIDT, CFA
Managed fund since it began in 1998 Primarily responsible for fund management
THOMAS M. FINUCANE
Rejoined fund team in 2004 Day-to-day purchase and sale decisions; analysis of
specific issuers
LISA A. WELCH
Joined fund team in 1998 Analysis of specific issuers
See page 25 for the management biographies.
FUND CODES
CLASS A Ticker JREAX
CUSIP 478032832
Newspaper ReEstA
SEC number 811-3392
JH fund number 05
CLASS B Ticker JREBX
CUSIP 478032824
Newspaper ReEstB
SEC number 811-3392
JH fund number 105
CLASS C Ticker JRECX
CUSIP 478032816
Newspaper --
SEC number 811-3392
JH fund number 505
9
REGIONAL BANK FUND
[GRAPHIC]
GOAL AND STRATEGY
The fund seeks long-term capital appreciation with moderate income as a
secondary objective. To pursue these goals, the fund normally invests at least
80% of its assets in stocks of regional banks and lending companies, including
commercial and industrial banks, savings and loan associations and bank holding
companies. Typically, these companies provide full-service banking and have
primarily domestic assets.
In managing the portfolio, the managers focus primarily on stock selection.
In choosing individual stocks, the managers use fundamental financial analysis
to identify securities that appear comparatively under-valued. The managers
look for low price/ earnings (P/E) ratios, high-quality assets and sound loan
review processes. Given the industry-wide trend toward consolidation, the
managers also invest in companies that appear to be positioned for a merger. The
fund's portfolio may be concentrated in geographic regions where consolidation
activity is high. The managers generally gather firsthand information about
companies from interviews and company visits.
The fund may also invest in other U.S. and foreign financial services companies,
such as lending companies and money center banks. The fund may invest up to 5%
of net assets in stocks of companies outside the financial services sector and
up to 5% of net assets in junk bonds (those rated below BBB/Baa and their
unrated equivalents).
The fund may make limited use of certain derivatives (investments whose value is
based on indexes, securities or currencies).
In abnormal circumstances, the fund may temporarily invest up to 80% of its
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.
[GRAPHIC]
PAST PERFORMANCE
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. The average annual total returns
for Class C have been adjusted to reflect the elimination of the front-end sales
charge effective July 15, 2004. All figures assume dividend reinvestment. Past
performance before and after taxes does not indicate future results.
CLASS A, TOTAL RETURNS
BEST QUARTER: Q3 '00, 20.57%
WORST QUARTER: Q3 '98, -16.37%
AFTER-TAX RETURNS
After-tax returns are shown for Class A shares only and would be different for
the other classes. They are calculated using the historical highest individual
federal marginal income-tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on the investor's tax situation and
may differ from those shown. The after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
INDEXES (reflect no fees or taxes)
STANDARD & POOR'S 500 INDEX, an unmanaged index that includes 500 widely traded
stocks.
STANDARD & POOR'S 500 FINANCIAL INDEX, an unmanaged index of financial stocks in
the Standard & Poor's 500 Index.
CLASS A CALENDAR YEAR TOTAL RETURNS (WITHOUT SALES CHARGES)
[BAR CHART]
1995 48.56%
1996 29.32%
1997 53.92%
1998 1.42%
1999 -15.86%
2000 21.85%
2001 2.28%
2002 -2.90%
2003 28.44%
2004 14.39%
AVERAGE ANNUAL TOTAL RETURNS (INCLUDING SALES CHARGE) FOR PERIODS ENDING
12-31-04
LIFE OF
1 YEAR 5 YEAR 10 YEAR CLASS C
Class A before tax 8.68% 11.05% 15.60% --
Class A after tax on distributions 6.74% 8.84% 13.70% --
Class A after tax on distributions, with sale 7.48% 8.67% 13.13% --
Class B before tax 8.59% 11.15% 15.56% --
Class C before tax (began 3-1-99) 12.59% 11.41% -- 6.89%
- ----------------------------------------------------------------------------------------------------
Standard & Poor's 500 Index 10.88% -2.30% 12.07% 1.16%
Standard & Poor's 500 Financial Index 10.88% 7.26% 17.65% 6.12%
10
[GRAPHIC]
MAIN RISKS
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. Because the fund focuses on a single sector of the economy, its
performance depends in large part on the performance of that sector.
For instance, when interest rates fall or economic conditions deteriorate,
regional bank stocks could suffer losses. Also, rising interest rates can reduce
profits by narrowing the difference between these companies' borrowing and
lending rates.
A decline in a region's economy could hurt the banks in that region. Regional
bank stocks as a group could fall out of favor with the market, causing the fund
to underperform funds that focus on other types of stocks.
In addition, if the managers' security selection strategies do not perform as
expected, the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, these risks
could increase volatility or reduce performance:
- - Certain derivatives could produce disproportionate losses.
- - In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price.
- - Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political instability.
- - Any bonds held by the fund could be downgraded in credit rating or go into
default. Bond prices generally fall when interest rates rise. This risk is
greater for longer maturity bonds. Junk bond prices can fall on bad news
about the economy, an industry or a company.
[GRAPHIC]
YOUR EXPENSES
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 front-end sales charge (load) on purchases
as a % of purchase price 5.00% none none
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 0.75% 0.75% 0.75%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.29% 0.29% 0.29%
Total fund operating expenses 1.34% 2.04% 2.04%
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 $ 630 $ 903 $1,197 $2,032
Class B with redemption $ 707 $ 940 $1,298 $2,189
Class B without redemption $ 207 $ 640 $1,098 $2,189
Class C with redemption $ 307 $ 640 $1,098 $2,369
Class C without redemption $ 207 $ 640 $1,098 $2,369
(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
JAMES K. SCHMIDT, CFA
Managed fund since it began in 1985 Primarily responsible for fund management
THOMAS M. FINUCANE
Rejoined fund team in 2004 Analysis of specific issuers
LISA A. WELCH
Joined fund team in 1998 Day-to-day purchase and sale decisions; analysis of
specific issuers
See page 25 for the management biographies.
FUND CODES
CLASS A Ticker FRBAX
CUSIP 409905106
Newspaper RgBkA
SEC number 811-3999
JH fund number 01
CLASS B Ticker FRBFX
CUSIP 409905205
Newspaper RgBkB
SEC number 811-3999
JH fund number 101
CLASS C Ticker FRBCX
CUSIP 409905866
Newspaper RgBkC
SEC number 811-3999
JH fund number 501
11
TECHNOLOGY FUND
[GRAPHIC]
GOAL AND STRATEGY
The fund seeks long-term growth of capital. To pursue this goal, the fund
normally invests at least 80% of its assets in companies that rely extensively
on technology in their product development or operations. These companies are in
fields such as: computer software, hardware and Internet services;
telecommunications; electronics; and data management and storage.
In managing the portfolio, the managers focus primarily on stock selection
rather than industry allocation. The managers invest in companies of any size
whose stocks appear to be trading below their true value, as determined by
fundamental financial analysis of their business models and balance sheets as
well as interviews with senior management. The fund focuses on companies that
are undergoing a business change that appears to signal accelerated growth or
higher earnings.
The fund may invest up to 10% of net assets in debt securities of any maturity,
including bonds rated as low as CC/Ca and their unrated equivalents. (Bonds
rated below BBB/Baa are considered junk bonds.)
It may also invest in certain higher-risk securities, including securities that
are not publicly offered or traded, called restricted securities.
The fund may use certain derivatives (investments whose value is based on
indexes, securities or currencies).
In abnormal circumstances, the fund may temporarily invest more than 20% of its
assets in investment-grade short-term securities. In these and other cases, the
fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable distributions.
[GRAPHIC]
PAST PERFORMANCE
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. The average annual total returns
for Class C have been adjusted to reflect the elimination of the front-end sales
charge effective July 15, 2004. All figures assume dividend reinvestment. Past
performance before and after taxes does not indicate future results.
CLASS A, TOTAL RETURNS
BEST QUARTER: Q4 '99, 60.48%
WORST QUARTER: Q3 '01, -45.78%
AFTER-TAX RETURNS
After-tax returns are shown for Class A shares only and would be different for
the other classes. They are calculated using the historical highest individual
federal marginal income-tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on the investor's tax situation and
may differ from those shown. The after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
INDEXES (reflect no fees or taxes)
STANDARD & POOR'S 500 INDEX, an unmanaged index that includes 500 widely traded
stocks.
RUSSELL 3000 TECHNOLOGY INDEX, an unmanaged index of technology sector stocks in
the Russell 3000 Index, which represents the 3,000 largest U.S. companies based
on total market capitalization.
CLASS A CALENDAR YEAR TOTAL RETURNS (WITHOUT SALES CHARGES)
[BAR CHART]
1995 46.53%
1996 12.52%
1997 6.68%
1998 49.15%
1999 132.38%
2000 -37.21%
2001 -43.06%
2002 -49.80%
2003 57.09%
2004 -5.67%
AVERAGE ANNUAL TOTAL RETURNS (INCLUDING SALES CHARGE) FOR PERIODS ENDING
12-31-04
LIFE OF
1 YEAR 5 YEAR 10 YEAR CLASS C
Class A before tax -10.29% -24.05% 4.41% --
Class A after tax on distributions -10.29% -24.11% 3.70% --
Class A after tax on distributions, with sale -6.69% -18.22% 3.70% --
Class B before tax -11.10% -24.10% 4.35% --
Class C before tax (began 3-1-99) -7.36% -23.80% -- -9.51%
- ---------------------------------------------------------------------------------------------------
Standard & Poor's 500 Index 10.88% -2.30% 12.07% 1.16%
Russell 3000 Technology Index 1.18% -15.63% 11.07% -4.64%
12
[GRAPHIC]
MAIN RISKS
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.
Because the fund focuses on a single sector of the economy, its performance
depends in large part on the performance of that sector. As a result, the value
of your investment may fluctuate more widely than it would in a fund that is
diversified across sectors.
Technology companies may face special risks, such as short product cycles that
are difficult to predict. Some technology companies are smaller companies that
may have limited product lines and financial and managerial resources, making
them vulnerable to isolated business setbacks.
Stocks of technology companies as a group could fall out of favor with the
market, causing the fund to underperform funds that focus on other types of
stocks. In addition, if the managers' security selection strategies do not
perform as expected, the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, these risks
could increase volatility or reduce performance:
- - Certain derivatives could produce disproportionate losses.
- - Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political instability.
- - Any bonds held by the fund could be downgraded in credit rating or go into
default. Bond prices generally fall when interest rates rise. This risk is
greater for longer maturity bonds. Junk bond prices can fall on bad news
about the economy, an industry or a company.
- - In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price.
[GRAPHIC]
YOUR EXPENSES
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 front-end sales charge (load) on purchases
as a % of purchase price 5.00% none none
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 0.77% 0.77% 0.77%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.85% 0.85% 0.85%
Total fund operating expenses 1.92% 2.62% 2.62%
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 $ 685 $1,073 $1,485 $2,631
Class B with redemption $ 765 $1,114 $1,590 $2,784
Class B without redemption $ 265 $ 814 $1,390 $2,784
Class C with redemption $ 365 $ 814 $1,390 $2,954
Class C without redemption $ 265 $ 814 $1,390 $2,954
(1) A $4.00 fee will be charged for wire redemptions.
(2) Except for investments of $1 million or more; see "How sales charges are
calculated."
SUBADVISER
AMERICAN FUND ADVISORS, INC.
Responsible for day-to-day investment management
Founded in 1978
Supervised by the adviser
PORTFOLIO MANAGERS
BARRY J. GORDON
Managed fund since it began in 1983
MARC H. KLEE, CFA
Managed fund since it began in 1983
ALAN J. LOEWENSTEIN, CFA
Joined fund team in 1983
Managers share investment strategy and decisions
See page 25 for the management biographies.
FUND CODES
CLASS A Ticker NTTFX
CUSIP 478032303
Newspaper TechA
SEC number 811-3392
JH fund number 83
CLASS B Ticker FGTBX
CUSIP 478032402
Newspaper TechB
SEC number 811-3392
JH fund number 183
CLASS C Ticker JHTCX
CUSIP 478032600
Newspaper TechC
SEC number 811-3392
JH fund number 583
13
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
- - A front-end sales charge, as described at right.
- - Distribution and service (12b-1) fees of 0.30%.
CLASS B
- - No front-end sales charge; all your money goes to work for you right away.
- - Distribution and service (12b-1) fees of 1.00%.
- - A deferred sales charge, as described on following page.
- - Automatic conversion to Class A shares after eight years, thus reducing
future annual expenses.
CLASS C
- - No front-end sales charge; all your money goes to work for you right away.
- - Distribution and service (12b-1) fees of 1.00%.
- - A 1.00% contingent deferred sales charge on shares sold within one year of
purchase.
- - No automatic conversion to Class A shares, so annual expenses continue at
the Class C level throughout the life of your investment.
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.
For actual past expenses of each share class, see the fund-by-fund information
earlier in this prospectus.
Because 12b-1 fees are paid on an ongoing basis, they may cost shareholders more
than other types of sales charges.
Other classes of shares of the funds, which have their own expense structure,
may be offered in separate prospectuses.
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. These payments are described in the Statement
of Additional Information.
Your broker-dealer or agent may charge you a fee to effect transactions in fund
shares.
HOW SALES CHARGES ARE CALCULATED
CLASS A Sales charges are as follows:
CLASS A SALES CHARGES
AS A % OF AS A % OF YOUR
YOUR INVESTMENT OFFERING PRICE* INVESTMENT
Up to $49,999 5.00% 5.26%
$50,000 - $99,999 4.50% 4.71%
$100,000 - $249,999 3.50% 3.63%
$250,000 - $499,999 2.50% 2.56%
$500,000 - $999,999 2.00% 2.04%
$1,000,000 and over See below
*Offering price is the net asset value per share plus any initial sales charge.
You may qualify for a reduced Class A sales charge if you own or are purchasing
Class A, Class B, Class C, Class I or Class R shares of John Hancock mutual
funds. TO RECEIVE THE REDUCED SALES CHARGE, YOU MUST TELL YOUR BROKER OR
FINANCIAL ADVISER AT THE TIME YOU PURCHASE A FUND'S CLASS A SHARES ABOUT ANY
OTHER JOHN HANCOCK MUTUAL FUNDS HELD BY YOU, YOUR SPOUSE OR YOUR CHILDREN UNDER
THE AGE OF 21. This includes investments held in a retirement account, an
employee benefit plan or at a broker or financial adviser other than the one
handling your current purchase. John Hancock will credit the combined value, at
the current offering price, of all eligible accounts to determine whether you
qualify for a reduced sales charge on your current purchase. You may need to
provide documentation for these accounts, such as an account statement. For more
information about these reduced sales charges, you may visit the funds' Web site
at www.jhfunds.com. You may also consult your broker or financial adviser, or
refer to the section entitled "Initial Sales Charge on Class A Shares" in a
fund's Statement of Additional Information (SAI). You may request a Statement of
Additional Information from your broker or financial adviser, access the funds'
Web site at www.jhfunds.com, or call Signature Services at 1-800-225-5291.
INVESTMENTS OF $1 MILLION OR MORE Class A shares are available with no front-end
sales charge. There is a contingent deferred sales charge (CDSC) on any Class A
shares upon which a commission or finder's fee was paid that are sold within one
year of purchase, as follows:
CLASS A DEFERRED CHARGES 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.
14 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 AND CLASS C Shares are offered at their net asset value per share,
without any initial sales charge.
A CDSC may be charged if a commission has been paid and you sell Class B or
Class C shares within a certain time after you bought them, as described in the
tables below. There is no CDSC on shares acquired through reinvestment of
dividends. The CDSC is based on the original purchase cost or the current market
value of the shares being sold, whichever is less. The CDSCs are as follows:
CLASS B DEFERRED CHARGES
CDSC ON SHARES
YEARS AFTER PURCHASE BEING SOLD
1st year 5.00%
2nd year 4.00%
3rd 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.
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.
- - Accumulation Privilege -- lets you add the value of any class of shares of
any John Hancock funds you already own to the amount of your next Class A
investment for the purpose of calculating the sales charge. However, Class
A shares of money market funds will not qualify unless you have already
paid a sales charge on those shares.
- - 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. You can use a Letter of Intention to qualify for
reduced sales charges if you plan to invest at least $50,000 in a fund's
Class A shares during the next 13 months. The calculation of this amount
would include accumulations and combinations, as well as your current
holdings of all classes of John Hancock funds, which includes any
reinvestment of dividends and capital gains distributions. However, Class
A shares of money market funds will be excluded unless you have already
paid a sales charge. When you sign this letter, the funds agree to charge
you the reduced sales charges listed above. Completing a Letter of
Intention does not obligate you to purchase additional shares. However, if
you do not buy enough shares to qualify for the lower sales charges by the
earlier of the end of the 13-month period or when you sell your shares,
your sales charges will be recalculated to reflect your actual purchase
level. Also available for retirement plan investors is a 48-month Letter
of Intention, described in the SAI.
- - Combination Privilege -- lets you combine shares of all funds for purposes
of calculating the Class A sales charge.
TO UTILIZE ANY REDUCTION YOU MUST: COMPLETE THE APPROPRIATE SECTION OF YOUR
APPLICATION, OR CONTACT YOUR FINANCIAL REPRESENTATIVE OR SIGNATURE SERVICES.
CONSULT THE SAI FOR ADDITIONAL DETAILS (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 per account opened), and individual investors may close
their accounts at any time.
TO UTILIZE THIS PROGRAM YOU MUST: CONTACT YOUR FINANCIAL REPRESENTATIVE OR
SIGNATURE SERVICES TO FIND OUT HOW TO QUALIFY. CONSULT THE SAI FOR ADDITIONAL
DETAILS (SEE THE BACK COVER OF THIS PROSPECTUS).
YOUR ACCOUNT 15
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:
- - to make payments through certain systematic withdrawal plans
- - certain retirement plans participating in Merrill Lynch or
PruSolutions(SM) programs
- - redemptions pursuant to a fund's right to liquidate an account less than
$1,000
- - redemptions of Class A shares made after one year from the inception of a
retirement plan at John Hancock
- - to make certain distributions from a retirement plan
- - because of shareholder death or disability
TO UTILIZE THIS WAIVER YOU MUST: CONTACT YOUR FINANCIAL REPRESENTATIVE OR
SIGNATURE SERVICES. CONSULT THE SAI FOR ADDITIONAL DETAILS (SEE THE BACK COVER
OF THIS PROSPECTUS).
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 THIS PRIVILEGE YOU MUST: 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:
- - selling brokers and their employees and sales representatives (and their
Immediate Family, as defined in the SAI)
- - financial representatives utilizing fund shares in fee-based or wrap
investment products under a signed fee-based or wrap agreement with John
Hancock Funds
- - fund trustees and other individuals who are affiliated with these or other
John Hancock funds (and their Immediate Family, as defined in the SAI)
- - individuals transferring assets from an employee benefit plan into a John
Hancock fund
- - participants in certain retirement plans with at least 100 eligible
employees (one-year CDSC applies)
- - participants in certain 529 plans that have a signed agreement with John
Hancock Funds (one-year CDSC may apply)
- - certain retirement plans participating in Merrill Lynch or
PruSolutions(SM) programs
TO UTILIZE A WAIVER YOU MUST: CONTACT YOUR FINANCIAL REPRESENTATIVE OR
SIGNATURE SERVICES. CONSULT THE SAI FOR ADDITIONAL DETAILS (SEE THE BACK COVER
OF THIS PROSPECTUS).
OTHER WAIVERS Front-end sales charges and CDSCs are generally not imposed in
connection with the following transactions:
- - exchanges from one John Hancock fund to the same class of any other John
Hancock fund (see "Transaction Policies" in this prospectus for additional
details)
- - dividend reinvestments (see "Dividends and Account Policies" in this
prospectus for additional details)
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:
- non-retirement account: $1,000
- retirement account: $500
- group investments: $250
- Monthly Automatic Accumulation Plan (MAAP): $25 to open; you must
invest at least $25 a month
- there is no minimum initial investment for fee-based or wrap
accounts of selling firms who have executed a fee-based or wrap
agreement with John Hancock Funds
3 All shareholders must complete the account application, carefully
following the instructions. When opening a corporate account, you must
submit: (1) a new account application; (2)a corporate
business/organization resolution certified within the past 12 months or a
John Hancock Funds business/organization certification form; and (3)
articles of incorporation or a government-issued business license. When
opening a trust account, you must submit: (1) a new account application
and (2) a copy of the trust document certified within the past 12 months.
You must notify your financial representative or Signature Services if
this information changes. Signature Services reserves the right to require
additional documentation prior to opening any account. 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.
16 YOUR ACCOUNT
BUYING SHARES
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
BY CHECK
[GRAPHIC] - Make out a check for the investment amount, - Make out a check for the investment amount, payable
payable to "John Hancock Signature Services, Inc." to "John Hancock Signature Services, Inc."
- Deliver the check and your completed application - Fill out the detachable investment slip from an
to your financial representative, or mail them to account statement. If no slip is available, include
Signature Services (address below). a note specifying the fund name, your share class,
your account number and the name(s) in which the
account is registered.
- Deliver the check and your investment slip or note
to your financial representative, or mail them to
Signature Services (address below).
BY EXCHANGE
[GRAPHIC] - Call your financial representative or Signature - Log on to www.jhfunds.com to process exchanges
Services to request an exchange. between funds.
- Call EASI-Line for automated service 24 hours a day
using your touch-tone phone at 1-800-338-8080.
- Call your financial representative or Signature
Services to request an exchange.
BY WIRE - Instruct your bank to wire the amount of your
[GRAPHIC] - Deliver your completed application to your investment to:
financial representative, or mail it to Signature First Signature Bank & Trust
Services. Account # 900000260
Routing # 211475000
- Obtain your account number by calling your
financial representative or Signature Services. Specify the fund name, your share class, your account
number and the name(s) in which the account is
- Instruct your bank to wire the amount of your registered. Your bank may charge a fee to wire
investment to: 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
[GRAPHIC] See "By exchange" and "By wire." - Verify that your bank or credit union is a member
of the Automated Clearing House (ACH) system.
- Complete the "Bank Information" section on your
account application.
- Log on to www.jhfunds.com to initiate purchases
using your authorized bank account.
BY PHONE
[GRAPHIC] See "By exchange" and "By wire." - Verify that your bank or credit union is a member
of the Automated Clearing House (ACH) system.
- Complete the "Bank Information" section on your
account application.
- Call EASI-Line for automated service 24 hours a day
using your touch-tone phone at 1-800-338-8080.
- Call your financial representative or call
Signature Services between 8 A.M. and 7 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 17
SELLING SHARES
TO SELL SOME OR ALL OF YOUR SHARES
BY LETTER
[GRAPHIC] - Accounts of any type. - Write a letter of instruction or complete a stock
power indicating the fund name, your share class,
- Sales of any amount. your account number, the name(s) in which the
account is registered and the dollar value or
number of shares you wish to sell.
- Include all signatures and any additional documents
that may be required (see next page).
- Mail the materials to Signature Services.
- 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
[GRAPHIC] - Most accounts. - Log on to www.jhfunds.com to initiate redemptions
from your funds.
- Sales of up to $100,000.
BY PHONE
[GRAPHIC] - Most accounts. - Call EASI-Line for automated service 24 hours a day
using your touch-tone phone at 1-800-338-8080.
- Sales of up to $100,000.
- Call your financial representative or call
Signature Services between 8 A.M. and 7 P.M.
Eastern Time on most business days.
BY WIRE OR ELECTRONIC FUNDS TRANSFER (EFT)
[GRAPHIC] - Requests by letter to sell any amount. - To verify that the Internet or telephone redemption
privilege is in place on an account, or to request
- Requests by Internet or phone to sell up to the form to add it to an existing account, call
$100,000. Signature Services.
- Amounts of $1,000 or more will be wired on the next
business day. A $4 fee will be deducted from your
account.
- 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
[GRAPHIC] - Accounts of any type. - Obtain a current prospectus for the fund into which
you are exchanging by Internet or by calling your
- Sales of any amount. financial representative or Signature Services.
- Log on to www.jhfunds.com to process exchanges
between your funds.
- Call EASI-Line for automated service 24 hours a day
using your touch-tone phone at 1-800-338-8080.
- Call your financial representative or Signature
Services to request an exchange.
To sell shares through a systematic withdrawal plan, see "Additional investor
services."
18 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:
- - your address of record has changed within the past 30 days
- - you are selling more than $100,000 worth of shares
- - 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 [GRAPHIC]
Owners of individual, joint or UGMA/UTMA accounts (custodial - Letter of instruction.
accounts for minors).
- On the letter, the signatures of all persons authorized to sign
for the account, exactly as the account is registered.
- Signature guarantee if applicable (see above).
Owners of corporate, sole proprietorship, general partner or - Letter of instruction.
association accounts.
- Corporate business/organization resolution, certified within
the past 12 months, or a John Hancock Funds
business/organization certification form.
- On the letter and the resolution, the signature of the
person(s) authorized to sign for the account.
- Signature guarantee if applicable (see above).
Owners or trustees of trust accounts. - Letter of instruction.
- On the letter, the signature(s) of the trustee(s).
- Copy of the trust document certified within the past 12 months
or a John Hancock Funds trust certification form.
- Signature guarantee if applicable (see above).
Joint tenancy shareholders with rights of survivorship whose - Letter of instruction signed by surviving tenant.
co-tenants are deceased.
- Copy of death certificate.
- Signature guarantee if applicable (see above).
Executors of shareholder estates. - Letter of instruction signed by executor.
- Copy of order appointing executor, certified within the past 12
months.
- Signature guarantee if applicable (see above).
Administrators, conservators, guardians and other sellers or - Call 1-800-225-5291 for instructions.
account types not listed above.
ADDRESS:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
PHONE NUMBER: 1-800-225-5291
Or contact your financial representative for instructions and assistance.
YOUR ACCOUNT 19
TRANSACTION POLICIES
VALUATION OF SHARES The net asset value (NAV) per share for each fund and class
is determined each business day at the close of regular trading on the New York
Stock Exchange (typically 4 P.M. Eastern time). Each fund generally values its
portfolio of equity securities and other investments using closing market prices
or readily available market quotations. When closing market prices or market
quotations are not readily available or are considered by the Adviser to be
unreliable, a fund may use a security's fair value. Fair value is the valuation
of a security determined on the basis of factors other than market value in
accordance with procedures approved by the Board of Trustees. All methods of
determining the value of a security used by a fund, including those discussed
below, on a basis other than market value, are forms of fair value. The use of
fair value pricing by a fund may cause the net asset value of its shares to
differ from the net asset value that would be calculated only using market
prices. The Adviser may determine that the closing market price no longer
accurately reflects the value of a security for a variety of reasons that affect
either the relevant securities markets generally or the specific issuer. For
example, with respect to non-U.S. securities held by a fund, developments
relating to specific events, the securities markets or the specific issuer may
occur between the time the primary market closes and the time the fund
determines its net asset value. In those circumstances when the fund believes
the price of the security may be affected, the fund uses the fair value of the
security. In certain circumstances a fund may use a pricing service for this
purpose. Foreign stocks or other portfolio securities held by a 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 fund shares. For market prices and quotations, as well as for some fair
value methods, the funds rely upon securities prices provided by pricing
services. Certain types of securities, including some fixed-income securities,
are regularly priced using fair value rather than market prices. Each fund uses
a pricing matrix to determine the value of fixed income securities that do not
trade daily. A pricing matrix is a means of valuing a debt security on the basis
of current market prices for other debt securities and historical trading
patterns in the market for fixed income securities. The funds value debt
securities with remaining maturities of 60 days or less at amortized cost. For
more information on the valuation of shares, please see the statement of
additional information.
BUY AND SELL PRICES When you buy shares, you pay the NAV plus any applicable
sales charges, as described earlier. When you sell shares, you receive the NAV
minus any applicable deferred sales charges.
EXECUTION OF REQUESTS Each fund is open on those days when the New York Stock
Exchange is open, typically Monday through Friday. Buy and sell requests are
executed at the next NAV to be calculated after Signature Services receives your
request in good order.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider using EASI-Line, accessing www.jhfunds.com or
sending your request in writing.
In unusual circumstances, any fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to three business days
or longer, as allowed by federal securities laws.
TELEPHONE TRANSACTIONS For your protection, telephone requests may be recorded
in order to verify their accuracy. Also for your protection, telephone
redemption transactions are not permitted on accounts whose names or addresses
have changed within the past 30 days. Proceeds from telephone transactions can
only be mailed to the address of record.
EXCHANGES You may exchange shares of one John Hancock fund for shares of the
same class of any other, generally without paying any additional sales charges.
The registration for both accounts involved must be identical.
Class B and Class C shares will continue to age from the original date and will
retain the same CDSC rate. A CDSC rate that has increased will drop again with a
future exchange into a fund with a lower rate. A fund may change or cancel its
exchange policies at any time, upon 60 days' notice to its shareholders. For
further details, see "Additional Services and Programs" in the SAI (see the back
cover of this prospectus).
EXCESSIVE TRADING The funds are intended for long-term investment purposes only
and do not knowingly accept shareholders who engage in "market timing" or other
types of excessive short-term trading. Short-term trading into and out of a fund
can disrupt portfolio investment strategies and may increase fund expenses for
all shareholders, including long-term shareholders who do not generate these
costs.
RIGHT TO REJECT OR RESTRICT PURCHASE AND EXCHANGE ORDERS Purchases and exchanges
should be made primarily for investment purposes. The funds reserve the right to
restrict, reject or cancel, consistent with applicable law, for any reason and
without any prior notice, any purchase or exchange order, including transactions
representing excessive trading and transactions accepted by any shareholder's
financial intermediary. For example, the funds may in their discretion restrict,
reject or cancel a purchase or exchange order even if the transaction is not
subject to the specific "Limitations on exchange activity" described below if
the funds or their agents determine that accepting the order could interfere
with the efficient management of a fund's portfolio or otherwise not be in the
fund's best interest in light of unusual trading activity related to your
account. In the event that the funds reject or cancel an exchange request,
neither the redemption nor the purchase side of the exchange will be processed.
If you would like the redemption request to be processed even if the purchase
order is rejected, you should submit separate redemption and purchase orders
rather than placing an exchange order. The funds reserve the right to delay for
up to one business day, consistent with applicable law, the processing of
exchange requests in the event that, in the funds' judgment, such delay would be
in the funds' best interest, in
20 YOUR ACCOUNT
which case both the redemption and purchase side of the exchange will receive
the funds' net asset values at the conclusion of the delay period. The funds,
through their agents in their sole discretion, may impose these remedial actions
at the account holder level or the underlying shareholder level.
EXCHANGE LIMITATION POLICIES The funds' Boards of Trustees have adopted the
following policies and procedures by which the funds, subject to the limitations
described below, take steps reasonably designed to curtail excessive trading
practices.
LIMITATIONS ON EXCHANGE ACTIVITY The funds, through their agents, undertake to
use their best efforts to exercise the funds' right to restrict, reject or
cancel purchase and exchange orders, as described above, if an account holder,
who purchases or exchanges into a fund account in an amount of $5,000 or more,
exchanges $1,000 or more out of that fund account within 30 calendar days on
three occasions during any 12-month period. Nothing in this paragraph limits the
right of the funds to refuse any purchase or exchange order, as discussed above
under "Right to reject or restrict purchase and exchange orders".
Exchanges made on the same day in the same account are aggregated for purposes
of counting the number and dollar amount of exchanges made by the account
holder. The exchange limits referenced above will not be imposed or may be
modified under certain circumstances. For example: these exchange limits may be
modified for accounts held by certain retirement plans to conform to plan
exchange limits, ERISA considerations or Department of Labor regulations.
Certain automated or pre-established exchange, asset allocation and dollar cost
averaging programs are not subject to these exchange limits. These programs are
excluded from the exchange limitation since the funds believe that they are
advantageous to shareholders and do not offer an effective means for market
timing or excessive trading strategies. These investment tools involve regular
and predetermined purchase or redemption requests made well in advance of any
knowledge of events affecting the market on the date of the purchase or
redemption.
These exchange limits are subject to the funds' ability to monitor exchange
activity, as discussed under "Limitations on the ability to detect and curtail
excessive trading practices" below. Depending upon the composition of a fund's
shareholder accounts and in light of the limitations on the ability of the funds
to detect and curtail excessive trading practices, a significant percentage of
a fund's shareholders may not be subject to the exchange limitation policy
described above. In applying the exchange limitation policy, the funds consider
information available to them at the time and reserve the right to consider
trading activity in a single account or multiple accounts under common
ownership, control or influence.
LIMITATION ON THE ABILITY TO DETECT AND CURTAIL EXCESSIVE TRADING PRACTICES
Shareholders seeking to engage in excessive trading practices sometimes deploy a
variety of strategies to avoid detection, and, despite the efforts of the funds
to prevent their excessive trading, there is no guarantee that the funds or
their agents will be able to identify such shareholders or curtail their trading
practices. The ability of the funds and their agents to detect and curtail
excessive trading practices may also be limited by operational systems and
technological limitations. Because the funds will not always be able to detect
frequent trading activity, investors should not assume that the funds will be
able to detect or prevent all frequent trading or other practices that
disadvantage the funds. For example, the ability of the funds to monitor trades
that are placed by omnibus or other nominee accounts is severely limited in
those instances in which the financial intermediary, including a financial
adviser, broker, retirement plan administrator or fee-based program sponsor,
maintains the record of a fund's underlying beneficial owners. Omnibus or other
nominee account arrangements are common forms of holding shares of a fund,
particularly among certain financial intermediaries such as financial advisers,
brokers, retirement plan administrators or fee-based program sponsors. These
arrangements often permit the financial intermediary to aggregate their clients'
transactions and ownership positions and do not identify the particular
underlying shareholder(s) to the fund.
EXCESSIVE TRADING RISK To the extent that the funds or their agents are unable
to curtail excessive trading practices in a fund, these practices may interfere
with the efficient management of the funds' portfolio, and may result in the
fund engaging in certain activities to a greater extent than it otherwise would,
such as maintaining higher cash balances, using its line of credit and engaging
in portfolio transactions. Increased portfolio transactions and use of the line
of credit would correspondingly increase the funds' operating costs and decrease
the funds' investment performance. Maintenance of higher levels of cash balances
would likewise result in lower fund investment performance during periods of
rising markets.
While excessive trading can potentially occur in any fund, certain types of
funds are more likely than others to be targets of excessive trading. For
example:
- - A fund that invests a significant portion of its assets in small- or
mid-capitalization stocks or securities in particular industries, that may
trade infrequently or are fair valued as discussed under "Valuation of
shares," entails a greater risk of excessive trading, as investors may
seek to trade fund shares in an effort to benefit from their understanding
of the value of those types of securities (referred to as price
arbitrage).
- - A fund that invests a material portion of its assets in securities of
non-U.S. issuers may be a potential target for excessive trading if
investors seek to engage in price arbitrage based upon general trends in
the securities markets that occur subsequent to the close of the primary
market for such securities.
- - A fund that invests a significant portion of its assets in below-
investment-grade (junk) bonds, that may trade infrequently or are fair
valued as discussed under "Valuation of shares," entails a greater risk of
excessive trading, as investors may seek to trade fund shares in an effort
to benefit from their understanding of the value of those types of
securities.
Any frequent trading strategies may interfere with efficient management of a
fund's portfolio. A fund that invests in the
YOUR ACCOUNT 21
types of securities discussed above may be exposed to this risk to a greater
degree than a fund that invests in highly liquid securities. These risks would
be less significant, for example, in a fund that primarily invests in U.S.
government securities, money market instruments, investment-grade corporate
issuers or large-capitalization U.S. equity securities. Any successful price
arbitrage may cause dilution in the value of the fund shares held by other
shareholders.
ACCOUNT INFORMATION John Hancock Funds is required by law to obtain information
for verifying an account holder's identity. For example, an individual will be
required to supply name, address, date of birth and social security number. 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 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:
- - after every transaction (except a dividend reinvestment, automatic
investment or systematic withdrawal) that affects your account balance
- - after any changes of name or address of the registered owner(s)
- - in all other circumstances, every quarter
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
DIVIDENDS The funds generally distribute most or all of their net earnings
annually in the form of dividends. Regional Bank Fund and Real Estate Fund
typically pay income dividends quarterly. All the other funds declare and pay
any income dividends annually. Any capital gains are 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 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. No front-end sales
charge or CDSC will be imposed on shares derived from reinvestment of dividends
or capital gains distributions.
TAXABILITY OF DIVIDENDS Dividends you receive from a fund, whether reinvested or
taken as cash, are generally considered taxable. Dividends from a fund's
income and short-term capital gains are taxable as ordinary income. Dividends
from a fund's long-term capital gains are taxable at a lower rate. Whether gains
are short-term or long-term depends on the fund's holding period. Some
dividends paid in January may be taxable as if they had been paid the previous
December.
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, your fund may charge you $20 a
year to maintain your account. You will not be charged a CDSC if your account is
closed for this reason. Your account will not be closed or charged this fee if
its drop in value is due to fund performance or the effects of sales charges. If
your account balance is $100 or less and no action is taken, the account will be
liquidated.
22 YOUR ACCOUNT
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:
- - Complete the appropriate parts of your account application.
- - 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:
- - Make sure you have at least $5,000 worth of shares in your account.
- - 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).
- - 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.
- - Determine the schedule: monthly, quarterly, semiannually, annually or in
certain selected months.
- - 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 $500 or, for some group plans, no
minimum investment at all. To find out more, call Signature Services at
1-800-225-5291.
FUND SECURITIES The funds' portfolio securities disclosure policy can be found
in the Statement of Additional Information and on the funds' Web site,
www.jhfunds.com. The funds' Web site also lists fund holdings. Portfolio holding
information is posted on the funds' Web site each month on a one month lag and
is available on the funds' Web site until a fund files its next Form N-CSR or
Form N-Q with the Securities and Exchange Commission ("SEC"). Portfolio holding
information as filed with the SEC on Forms N-CSR and N-Q is also made available
on the funds' Web site.
YOUR ACCOUNT 23
FUND DETAILS
BUSINESS STRUCTURE
The diagram below shows the basic business structure used by the John Hancock
sector funds. Each fund's Board of Trustees oversees the fund's business
activities and retains the services of the various firms that carry out the
fund's operations.
The trustees of the Financial Industries, Health Sciences and Real Estate funds
have the power to change these 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 SUBADVISER TO TECHNOLOGY FUND American Fund Advisors, Inc. ("AFA")
subadvises the Technology Fund. AFA was founded in 1978 and provides investment
advisory services to individual and institutional investors. As of December 31,
2004, AFA had total assets under management of approximately $462 million.
MANAGEMENT FEES The management fees paid to the investment adviser by the John
Hancock sector funds last fiscal year are as follows:
FUND % OF NET ASSETS
Financial Industries 0.77%
Health Sciences 0.77%
Real Estate 0.79%*
Regional Bank 0.75%
Technology 0.77%
*After expense reimbursement.
[FLOW CHART]
SHAREHOLDERS
FINANCIAL SERVICES FIRMS AND
THEIR REPRESENTATIVES
DISTRIBUTION AND Advise current and prospective
SHAREHOLDER SERVICES shareholders on their fund
investments, often in the context
of an overall financial plan.
PRINCIPAL DISTRIBUTOR TRANSFER AGENT
John Hancock Funds, LLC John Hancock Signature Services, Inc.
Markets the fund and distributes Handles shareholder services, including
shares through selling brokers, record-keeping and statements,
financial planners and other distribution of dividends and
financial representatives. processing of buy and sell requests.
TRUSTEES
Oversee the fund's activities.
ASSET
MANAGEMENT
SUBADVISER INVESTMENT ADVISER CUSTODIAN
American Fund Advisors, Inc. John Hancock Advisers, LLC The Bank of New York
1415 Kellum Place 101 Huntington Avenue One Wall Street
Garden City, NY 11530 Boston, MA 02199-7603 New York, NY 10286
Provides portfolio Manages the fund's Holds the fund's assets,
management to Technology business and investment settles all portfolio
Fund. activities. trades and collects most
of the valuation data
required for calculating
the fund's NAV.
24 FUND DETAILS
MANAGEMENT BIOGRAPHIES
Below is an alphabetical list of the portfolio managers for the John Hancock
sector funds, including a brief summary of their business careers over the past
five years. Each fund's Statement of Additional Information includes additional
details about its portfolio manager(s), including information about their
compensation, accounts they manage other than the fund, and their ownership of
fund securities, if any.
THOMAS M. FINUCANE
Vice president
Rejoined John Hancock Advisers in 2004
Senior vice president and research analyst,
State Street Research & Management
(2002-2004)
Vice president, John Hancock Advisers, LLC
(1990-2002)
Began business career in 1983
BARRY J. GORDON
President of American Fund Advisors, Inc.
Joined subadviser in 1983
Began business career in 1971
MARC H. KLEE, CFA
Executive vice president of American Fund Advisors, Inc.
Joined subadviser in 1983
Began business career in 1977
ALAN J. LOEWENSTEIN, CFA
Senior vice president of American Fund Advisors, Inc.
Joined subadviser in 1983
Began business career in 1979
LINDA I. MILLER, CFA
Vice president
Joined John Hancock Advisers in 1995
Began business career in 1980
JAMES K. SCHMIDT, CFA
Executive vice president
Joined John Hancock Advisers in 1992
Began business career in 1979
LISA A. WELCH
Vice president
Joined John Hancock Advisers in 1998 as analyst
Portfolio manager since 2002
Began business career in 1986
FUND DETAILS 25
FINANCIAL HIGHLIGHTS
These tables detail the performance of each fund's share classes, including
total return information showing how much an investment in the fund has
increased or decreased each year.
FINANCIAL INDUSTRIES FUND
Figures audited by PricewaterhouseCoopers LLP.
CLASS A SHARES PERIOD ENDED: 10-31-00 10-31-01 10-31-02 10-31-03 10-31-04
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.92 $ 20.15 $ 15.38 $ 14.27 $ 16.78
Net investment income(1) 0.03 0.03 0.02 0.07 0.12
Net realized and unrealized gain (loss) on investments 4.20 (4.80) (0.77) 2.44 0.86
TOTAL FROM INVESTMENT OPERATIONS 4.23 (4.77) (0.75) 2.51 0.98
LESS DISTRIBUTIONS
From net realized gain -- -- (0.36) -- --
NET ASSET VALUE, END OF PERIOD $ 20.15 $ 15.38 $ 14.27 $ 16.78 $ 17.76
TOTAL RETURN(2) (%) 26.57 (23.67) (5.19)(3) 17.59 5.84(3)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 701 $ 468 $ 357 $ 345 $ 304
Ratio of expenses to average net assets (%) 1.40 1.37 1.50 1.55 1.45
Ratio of adjusted expenses to average net assets(4) (%) -- -- 1.51 -- 1.48
Ratio of net investment income to average net assets (%) 0.21 0.16 0.13 0.49 0.68
Portfolio turnover (%) 48 135 70 66 29
CLASS B SHARES PERIOD ENDED: 10-31-00 10-31-01 10-31-02 10-31-03 10-31-04
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.81 $ 19.88 $ 15.07 $ 13.88 $ 16.20
Net investment loss(1) (0.07) (0.09) (0.09) (0.03) --(5)
Net realized and unrealized gain (loss) on investments 4.14 (4.72) (0.74) 2.35 0.83
TOTAL FROM INVESTMENT OPERATIONS 4.07 (4.81) (0.83) 2.32 0.83
LESS DISTRIBUTIONS
From net realized gain -- -- (0.36) -- --
NET ASSET VALUE, END OF PERIOD $ 19.88 $ 15.07 $ 13.88 $ 16.20 $ 17.03
TOTAL RETURN(2) (%) 25.74 (24.20) (5.85)(3) 16.71 5.12(3)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 2,148 $ 1,438 $ 1,058 $ 977 $ 757
Ratio of expenses to average net assets (%) 2.05 2.03 2.20 2.25 2.15
Ratio of adjusted expenses to average net assets(4) (%) -- -- 2.21 -- 2.18
Ratio of net investment loss to average net assets (%) (0.44) (0.50) (0.57) (0.22) (0.22)
Portfolio turnover (%) 48 135 70 66 29
26 FUND DETAILS
CLASS C SHARES PERIOD ENDED: 10-31-00 10-31-01 10-31-02 10-31-03 10-31-04
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.81 $ 19.87 $ 15.06 $ 13.87 $ 16.19
Net investment loss(1) (0.10) (0.09) (0.09) (0.03) --(5)
Net realized and unrealized gain (loss) on investments 4.16 (4.72) (0.74) 2.35 0.84
TOTAL FROM INVESTMENT OPERATIONS 4.06 (4.81) (0.83) 2.32 0.84
LESS DISTRIBUTIONS
From net realized gain -- -- (0.36) -- --
NET ASSET VALUE, END OF PERIOD $ 19.87 $ 15.06 $ 13.87 $ 16.19 $ 17.03
TOTAL RETURN(2) (%) 25.68 (24.21) (5.85)(3) 16.73 5.19(3)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 58 $ 54 $ 40 $ 37 $ 29
Ratio of expenses to average net assets (%) 2.10 2.07 2.20 2.25 2.15
Ratio of adjusted expenses to average net assets(4) (%) -- -- 2.21 -- 2.18
Ratio of net investment loss to average net assets (%) (0.57) (0.52) (0.57) (0.22) (0.02)
Portfolio turnover (%) 48 135 70 66 29
(1) Based on the average of the shares outstanding.
(2) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(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.
(5) Less than $0.01 per share.
THE FOLLOWING RETURNS ARE NOT AUDITED AND ARE NOT PART OF THE AUDITED FINANCIAL
HIGHLIGHTS PRESENTED ABOVE:
Without the expense reduction, returns for the year ended October 31, 2002 and
2004 would have been, for Class A (5.20%) and 5.81%, for Class B (5.86%) and
5.09% and for Class C (5.86%) and 5.16%, respectively.
FUND DETAILS 27
HEALTH SCIENCES FUND
Figures audited by PricewaterhouseCoopers LLP.
CLASS A SHARES PERIOD ENDED: 10-31-00 10-31-01 10-31-02 10-31-03 10-31-04
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 34.28 $ 49.99 $ 40.06 $ 34.67 $ 39.79
Net investment loss(1) (0.33) (0.37) (0.41) (0.38) (0.47)
Net realized and unrealized gain (loss) on investments 16.04 (5.99) (4.98) 5.50 3.90
TOTAL FROM INVESTMENT OPERATIONS 15.71 (6.36) (5.39) 5.12 3.43
LESS DISTRIBUTIONS
From net realized gain -- (3.57) -- -- --
NET ASSET VALUE, END OF PERIOD $ 49.99 $ 40.06 $ 34.67 $ 39.79 $ 43.22
TOTAL RETURN(2) (%) 45.83 (13.56) (13.45) 14.77 8.62
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 178 $ 145 $ 110 $ 117 $ 125
Ratio of expenses to average net assets (%) 1.50 1.50 1.59 1.67 1.57
Ratio of net investment loss to average net assets (%) (0.75) (0.87) (1.06) (1.04) (1.08)
Portfolio turnover (%) 147 91 85 95 54
CLASS B SHARES PERIOD ENDED: 10-31-00 10-31-01 10-31-02 10-31-03 10-31-04
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 32.83 $ 47.55 $ 37.68 $ 32.39 $ 36.91
Net investment loss(1) (0.60) (0.63) (0.63) (0.59) (0.72)
Net realized and unrealized gain (loss) on investments 15.32 (5.67) (4.66) 5.11 3.62
TOTAL FROM INVESTMENT OPERATIONS 14.72 (6.30) (5.29) 4.52 2.90
LESS DISTRIBUTIONS
From net realized gain -- (3.57) -- -- --
NET ASSET VALUE, END OF PERIOD $ 47.55 $ 37.68 $ 32.39 $ 36.91 $ 39.81
TOTAL RETURN(2) (%) 44.84 (14.18) (14.04) 13.95 7.86
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 294 $ 231 $ 162 $ 154 $ 134
Ratio of expenses to average net assets (%) 2.20 2.20 2.29 2.37 2.27
Ratio of net investment loss to average net assets (%) (1.46) (1.57) (1.76) (1.74) (1.77)
Portfolio turnover (%) 147 91 85 95 54
CLASS C SHARES PERIOD ENDED: 10-31-00 10-31-01 10-31-02 10-31-03 10-31-04
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 32.83 $ 47.55 $ 37.68 $ 32.39 $ 36.91
Net investment loss(1) (0.64) (0.63) (0.63) (0.59) (0.72)
Net realized and unrealized gain (loss) on investments 15.36 (5.67) (4.66) 5.11 3.62
TOTAL FROM INVESTMENT OPERATIONS 14.72 (6.30) (5.29) 4.52 2.90
LESS DISTRIBUTIONS
From net realized gain -- (3.57) -- -- --
NET ASSET VALUE, END OF PERIOD $ 47.55 $ 37.68 $ 32.39 $ 36.91 $ 39.81
TOTAL RETURN(2) (%) 44.84 (14.18) (14.04) 13.95 7.86
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 14 $ 15 $ 12 $ 13 $ 13
Ratio of expenses to average net assets (%) 2.20 2.20 2.29 2.37 2.27
Ratio of net investment loss to average net assets (%) (1.50) (1.58) (1.76) (1.73) (1.78)
Portfolio turnover (%) 147 91 85 95 54
(1) Based on the average of the shares outstanding.
(2) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
28 FUND DETAILS
REAL ESTATE FUND
Figures audited by Deloitte & Touche LLP.
CLASS A SHARES PERIOD ENDED: 10-31-00 10-31-01 10-31-02 10-31-03 10-31-04
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.48 $ 10.21 $ 10.71 $ 10.52 $ 13.49
Net investment income(1) 0.52 0.45 0.40 0.51 0.49
Net realized and unrealized gain on investments 1.54 0.86 0.03 2.87 3.06
TOTAL FROM INVESTMENT OPERATIONS 2.06 1.31 0.43 3.38 3.55
LESS DISTRIBUTIONS
From net investment income (0.79) (0.37) (0.36) (0.41) (0.33)
From net realized gain (0.54) (0.44) (0.26) -- (0.06)
(1.33) (0.81) (0.62) (0.41) (0.39)
NET ASSET VALUE, END OF PERIOD $ 10.21 $ 10.71 $ 10.52 $ 13.49 $ 16.65
TOTAL RETURN(2, 3) (%) 20.40 13.26 3.74 32.91 26.78
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 3 $ 3 $ 15 $ 18 $ 28
Ratio of expenses to average net assets (%) 1.65 1.65 1.65 1.65 1.65
Ratio of adjusted expenses to average net assets(4) (%) 8.89 4.63 1.92 1.82 1.70
Ratio of net investment income to average net assets (%) 5.11 4.28 3.52 4.46 3.30
Portfolio turnover (%) 482 274 327 195 98
CLASS B SHARES PERIOD ENDED: 10-31-00(5) 10-31-01 10-31-02 10-31-03 10-31-04
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.21 $ 10.70 $ 10.51 $ 13.48
Net investment income(1) 0.30 0.38 0.32 0.43 0.39
Net realized and unrealized gain on investments 0.13 0.84 0.03 2.87 3.05
TOTAL FROM INVESTMENT OPERATIONS 0.43 1.22 0.35 3.30 3.44
LESS DISTRIBUTIONS
From net investment income (0.22) (0.29) (0.28) (0.33) (0.23)
From net realized gain -- (0.44) (0.26) -- (0.06)
(0.22) (0.73) (0.54) (0.33) (0.29)
NET ASSET VALUE, END OF PERIOD $ 10.21 $ 10.70 $ 10.51 $ 13.48 $ 16.63
TOTAL RETURN(2, 3) (%) 18.19(6) 12.37 3.03 32.04 25.87
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 1 $ 4 $ 18 $ 21 $ 24
Ratio of expenses to average net assets (%) 2.35(7) 2.35 2.35 2.35 2.35
Ratio of adjusted expenses to average net assets(4) (%) 9.59(7) 5.33 2.62 2.52 2.40
Ratio of net investment income to average net assets (%) 4.13(7) 3.65 2.82 3.76 2.62
Portfolio turnover (%) 482 274 327 195 98
FUND DETAILS 29
REAL ESTATE FUND continued
CLASS C SHARES PERIOD ENDED: 10-31-00(5) 10-31-01 10-31-02 10-31-03 10-31-04
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.21 $ 10.70 $ 10.51 $ 13.48
Net investment income(1) 0.24 0.39 0.32 0.42 0.38
Net realized and unrealized gain on investments 0.19 0.83 0.03 2.88 3.06
TOTAL FROM INVESTMENT OPERATIONS 0.43 1.22 0.35 3.30 3.44
LESS DISTRIBUTIONS
From net investment income (0.22) (0.29) (0.28) (0.33) (0.23)
From net realized gain -- (0.44) (0.26) -- (0.06)
(0.22) (0.73) (0.54) (0.33) (0.29)
NET ASSET VALUE, END OF PERIOD $ 10.21 $ 10.70 $ 10.51 $ 13.48 $ 16.63
TOTAL RETURN(2, 3) (%) 18.19(6) 12.37 3.03 32.04 25.87
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) --(8) $ 1 $ 9 $ 11 $ 14
Ratio of expenses to average net assets (%) 2.35(7) 2.35 2.35 2.35 2.35
Ratio of adjusted expenses to average net assets(4) (%) 9.59(7) 5.33 2.62 2.52 2.40
Ratio of net investment income to average net assets (%) 3.40(7) 3.55 2.82 3.74 2.61
Portfolio turnover (%) 482 274 327 195 98
(1) Based on the average of the shares outstanding.
(2) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(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.
(5) Class B shares and Class C shares began operations on 3-1-00.
(6) Not annualized.
(7) Annualized.
(8) Less than $500,000.
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 for the period or year ended
October 31, 2000, 2001, 2002, 2003 and 2004 would have been 13.16%, 10.28%,
3.47%, 32.74% and 26.73%, respectively. For Class B the returns for the periods
or year ended October 31, 2000, 2001, 2002, 2003 and 2004 would have been
10.95%, 9.39%, 2.76%, 31.87% and 25.82%, respectively, and for Class C, 10.95%,
9.39%, 2.76%, 31.87% and 25.82%, respectively.
30 FUND DETAILS
REGIONAL BANK FUND
Figures audited by PricewaterhouseCoopers LLP.
CLASS A SHARES PERIOD ENDED: 10-31-00 10-31-01 10-31-02 10-31-03 10-31-04
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 51.21 $ 41.44 $ 40.09 $ 37.81 $ 42.80
Net investment income(1) 0.78 0.60 0.45 0.53 0.61
Net realized and unrealized gain (loss) on investments (5.49) 2.04 2.55 7.10 5.07
TOTAL FROM INVESTMENT OPERATIONS (4.71) 2.64 3.00 7.63 5.68
LESS DISTRIBUTIONS
From net investment income (0.81) (0.60) (0.46) (0.52) (0.58)
From net realized gain (4.25) (3.39) (4.82) (2.12) (2.57)
(5.06) (3.99) (5.28) (2.64) (3.15)
NET ASSET VALUE, END OF PERIOD $ 41.44 $ 40.09 $ 37.81 $ 42.80 $ 45.33
TOTAL RETURN(2) (%) (8.62) 6.90 7.50 21.67 14.13
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 788 $ 797 $ 930 $ 1,214 $ 1,587
Ratio of expenses to average net assets (%) 1.37 1.28 1.35 1.39 1.34
Ratio of net investment income to average net assets (%) 2.01 1.42 1.14 1.43 1.44
Portfolio turnover (%) 5 23 7 2 5
CLASS B SHARES PERIOD ENDED: 10-31-00 10-31-01 10-31-02 10-31-03 10-31-04
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 50.94 $ 41.20 $ 39.84 $ 37.55 $ 42.48
Net investment income(1) 0.50 0.31 0.19 0.26 0.30
Net realized and unrealized gain (loss) on investments (5.46) 2.02 2.52 7.06 5.04
TOTAL FROM INVESTMENT OPERATIONS (4.96) 2.33 2.71 7.32 5.34
LESS DISTRIBUTIONS
From net investment income (0.53) (0.30) (0.18) (0.27) (0.29)
From net realized gain (4.25) (3.39) (4.82) (2.12) (2.57)
(4.78) (3.69) (5.00) (2.39) (2.86)
NET ASSET VALUE, END OF PERIOD $ 41.20 $ 39.84 $ 37.55 $ 42.48 $ 44.96
TOTAL RETURN(2) (%) (9.26) 6.15 6.77 20.83 13.32
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 2,172 $ 1,900 $ 1,491 $ 1,298 $ 885
Ratio of expenses to average net assets (%) 2.07 1.98 2.03 2.09 2.04
Ratio of net investment income to average net assets (%) 1.31 0.73 0.46 0.72 0.70
Portfolio turnover (%) 5 23 7 2 5
CLASS C SHARES PERIOD ENDED: 10-31-00 10-31-01 10-31-02 10-31-03 10-31-04
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 50.94 $ 41.20 $ 39.84 $ 37.56 $ 42.48
Net investment income(1) 0.32 0.30 0.17 0.27 0.30
Net realized and unrealized gain (loss) on investments (5.28) 2.03 2.54 7.04 5.04
TOTAL FROM INVESTMENT OPERATIONS (4.96) 2.33 2.71 7.31 5.34
LESS DISTRIBUTIONS
From net investment income (0.53) (0.30) (0.17) (0.27) (0.29)
From net realized gain (4.25) (3.39) (4.82) (2.12) (2.57)
(4.78) (3.69) (4.99) (2.39) (2.86)
NET ASSET VALUE, END OF PERIOD $ 41.20 $ 39.84 $ 37.56 $ 42.48 $ 44.96
TOTAL RETURN(2) (%) (9.26) 6.15 6.78 20.79 13.32
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 34 $ 39 $ 38 $ 56 $ 52
Ratio of expenses to average net assets (%) 2.07 1.98 2.05 2.09 2.04
Ratio of net investment income to average net assets (%) 1.30 0.71 0.44 0.72 0.72
Portfolio turnover (%) 5 23 7 2 5
(1) Based on the average of the shares outstanding.
(2) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
FUND DETAILS 31
TECHNOLOGY FUND
Figures audited by Deloitte & Touche LLP.
CLASS A SHARES PERIOD ENDED: 10-31-00(1) 10-31-01(1) 10-31-02(1) 10-31-03 10-31-04
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.03 $ 12.02 $ 4.20 $ 2.40 $ 3.85
Net investment loss(2) (0.10) (0.07) (0.06) (0.06) (0.06)
Net realized and unrealized gain (loss) on investments 5.12 (7.53) (1.74) 1.51 (0.56)
TOTAL FROM INVESTMENT OPERATIONS 5.02 (7.60) (1.80) 1.45 (0.62)
LESS DISTRIBUTIONS
From net realized gain (3.03) (0.22) -- -- --
NET ASSET VALUE, END OF PERIOD $ 12.02 $ 4.20 $ 2.40 $ 3.85 $ 3.23
TOTAL RETURN(3) (%) 25.37 (64.35) (42.86) 60.42(4) (16.10)(4)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 971 $ 343 $ 175 $ 284 $ 224
Ratio of expenses to average net assets (%) 1.28 1.52 1.98 2.38 1.90
Ratio of adjusted expenses to average net assets(5) (%) -- -- -- 2.39 1.92
Ratio of net investment loss to average net assets (%) (0.69) (0.97) (1.63) (2.09) (1.68)
Portfolio turnover (%) 41 47 28 42 34
CLASS B SHARES PERIOD ENDED: 10-31-00(1) 10-31-01(1) 10-31-02(1) 10-31-03 10-31-04
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.55 $ 11.34 $ 3.93 $ 2.23 $ 3.55
Net investment loss(2) (0.19) (0.11) (0.08) (0.08) (0.08)
Net realized and unrealized gain (loss) on investments 5.01 (7.08) (1.62) 1.40 (0.51)
TOTAL FROM INVESTMENT OPERATIONS 4.82 (7.19) (1.70) 1.32 (0.59)
LESS DISTRIBUTIONS
From net realized gain (3.03) (0.22) -- -- --
NET ASSET VALUE, END OF PERIOD $ 11.34 $ 3.93 $ 2.23 $ 3.55 $ 2.96
TOTAL RETURN(3) (%) 24.49 (64.60) (43.26) 59.19(4) (16.62)(4)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 1,291 $ 372 $ 162 $ 226 $ 143
Ratio of expenses to average net assets (%) 1.98 2.19 2.66 3.09 2.59
Ratio of adjusted expenses to average net assets(5) (%) -- -- -- 3.10 2.61
Ratio of net investment loss to average net assets (%) (1.39) (1.63) (2.30) (2.79) (2.34)
Portfolio turnover (%) 41 47 28 42 34
CLASS C SHARES PERIOD ENDED: 10-31-00(1) 10-31-01(1) 10-31-02(1) 10-31-03 10-31-04
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.55 $ 11.34 $ 3.93 $ 2.23 $ 3.55
Net investment loss(2) (0.19) (0.11) (0.08) (0.08) (0.08)
Net realized and unrealized gain (loss) on investments 5.01 (7.08) (1.62) 1.40 (0.51)
TOTAL FROM INVESTMENT OPERATIONS 4.82 (7.19) (1.70) 1.32 (0.59)
LESS DISTRIBUTIONS
From net realized gain (3.03) (0.22) -- -- --
NET ASSET VALUE, END OF PERIOD $ 11.34 $ 3.93 $ 2.23 $ 3.55 $ 2.96
TOTAL RETURN(3) (%) 24.49 (64.60) (43.26) 59.19(4) (16.62)(4)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 101 $ 36 $ 17 $ 27 $ 18
Ratio of expenses to average net assets (%) 1.99 2.22 2.68 3.08 2.59
Ratio of adjusted expenses to average net assets(5) (%) -- -- -- 3.09 2.61
Ratio of net investment loss to average net assets (%) (1.40) (1.67) (2.32) (2.79) (2.35)
Portfolio turnover (%) 41 47 28 42 34
(1) Audited by previous auditor, Ernst & Young LLP.
(2) Based on the average of the shares outstanding.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Total return would have been lower had certain expenses not been reduced
during the periods shown.
(5) Does not take into consideration expense reductions during the periods
shown.
32 FUND DETAILS
For more information
Two documents are available that offer further information on John Hancock
sector 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. Each
fund's SAI includes a summary of the fund's policy regarding disclosure of its
portfolio holdings. 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:
By mail: Public Reference Section
Securities and Exchange Commission
Washington, DC 20549-0102
(duplicating fee required)
In person: at the SEC's Public Reference Room in Washington, DC.
For access to the Reference Room call 1-202-942-8090
By electronic request: publicinfo@sec.gov
(duplicating fee required)
On the Internet: www.sec.gov
(C)2005 JOHN HANCOCK FUNDS, LLC SECPN 3/05
[JOHN HANCOCK FUNDS LOGO]
JOHN HANCOCK FUNDS, LLC PRSRT STD
MEMBER NASD U.S. POSTAGE
101Huntington Avenue P A I D
Boston, MA 02199-7603 BOSTON, MA
PERMIT NO. 11
www.jhfunds.com
NOW AVAILABLE: ELECTRONIC DELIVERY
WWW.JHFUNDS/EDELIVERY
JOHN HANCOCK
Health Sciences
Fund
10.31.2004
Annual Report
[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 James A. Shepherdson, Chief Executive Officer, flush left next
to first paragraph.]
CEO CORNER
Table of contents
Your fund at a glance
page 1
Manager's report
page 2
A look at performance
page 6
Growth of $10,000
page 7
Your expenses
page 8
Fund's investments
page 10
Financial statements
page 15
Trustees & officers
page 29
For more information
page 33
Dear Fellow Shareholders,
The stock market made little, if any, headway year-to-date through October
2004, as it wrestled with a variety of uncertainties. Questions about the
continuing strength of the economy, the effects of rising interest rates
and expectations for corporate earnings growth kept investors jittery. In
addition, record high crude oil prices, geopolitical issues and a closely
contested U.S. presidential race all weighed on the market. The picture
brightened in early November with the election over and oil prices
moderating somewhat.
Year-to-date through October 31, 2004, the Standard & Poor's 500 Index was
up 3.06%, while the Dow Jones Industrial Average and the Nasdaq Composite
Index were slightly negative, returning -2.40% and -1.05%, respectively.
Despite the Federal Reserve's three hikes in short-term interest rates from
historic lows, bonds still managed to outperform stocks, with the Lehman
Brothers Aggregate Bond Index up 4.22%.
In news closer to home, we are pleased to announce that on June 15, 2004,
your fund's Board of Trustees appointed Charles L. Ladner as independent
Chairman of the Board of Trustees, a position previously held by John
Hancock Funds LLC's former Chairman and Chief Executive Officer, Maureen
Ford Goldfarb. This appointment came in advance of new SEC regulations
requiring all mutual funds to have independent chairmen.
Mr. Ladner has served as an independent member of John Hancock Funds' Board
of Trustees since 1992 and formerly held the position of Senior Vice
President and Chief Financial Officer of UGI Corporation, a public utility
holding company in Valley Forge, PA, until his retirement in 1998. He
brings a wealth of knowledge, experience and leadership and we are
delighted to have him serve as Chairman.
Sincerely,
/S/ James A. Shepherdson
James A. Shepherdson,
Chief Executive Officer
This commentary reflects the CEO's views as of October 31, 2004. 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 U.S.
and foreign health
sciences companies.
Over the last twelve months
* Health care stocks posted decent returns, but lagged the overall stock
market chiefly due to uncertainty over the presidential election and
product disappointments.
* The Fund benefited from good stock selection, particularly in the biotech
and medical technology sectors.
* Large drug companies and generic drug makers disappointed investors due
to pipeline and pricing concerns.
[Bar chart with heading "John Hancock Health Sciences Fund." Under the
heading is a note that reads "Fund performance for the year ended October
31, 2004." The chart is scaled in increments of 5% with 0% at the bottom
and 10% at the top. The first bar represents the 8.62% total return for
Class A. The second bar represents the 7.86% total return for Class B. The
third bar represents the 7.86% 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
4.7% Medtronic, Inc.
4.6% Amgen, Inc.
4.4% UnitedHealth Group, Inc.
4.3% Pfizer, Inc.
2.9% Stryker Corp.
2.8% Teva Pharmaceutical Industries Ltd.
2.7% Zimmer Holdings, Inc.
2.7% Genentech, Inc.
2.7% St. Jude Medical, Inc.
2.4% Gilead Sciences, Inc.
As a percentage of net assets on October 31, 2004.
1
BY LINDA I. MILLER, CFA, PORTFOLIO MANAGER
MANAGER'S
REPORT
JOHN HANCOCK
Health Sciences Fund
Health care stocks posted decent returns for the 12 months ended October
31, 2004, although they lagged the overall stock market primarily due to
the uncertainty over the outcome of the U.S. presidential election and
product-related disappointments. In the months leading up to the
cliffhanger race for the president, investors worried that a change in
administration would mean more regulation, would open the door to cheap
drugs from abroad, would impose price curbs and would tamper with the
recent Medicare reform initiatives. Product-related disappointments --
including Merck's recall of its arthritis treatment Vioxx after it was
shown to increase the risk of heart attacks and strokes, and Chiron's
inability to ship flu vaccine after the U.K. suspended manufacturing of the
product -- clouded the outlook for some segments of the health care group
in the final months of the period. That said, there were plenty of
positives for the health care sector during the year. Investors generally
rewarded companies with innovative and exciting products, as well as those
that continued to improve operational performance through cost control and
efficiency programs.
"Health care stocks posted decent
returns for the 12 months ended
October 31, 2004..."
Performance review
For the 12 months ended October 31, 2004, John Hancock Health Sciences
Fund's Class A, Class B and Class C shares posted total returns of 8.62%,
7.86% and 7.86%, respectively, at net asset value. During the same one-year
period, the Russell 3000 Healthcare Index returned 3.02% and the average
health/biotechnology fund had a total return of 5.93%, according to Lipper,
Inc.,1 while the Standard & Poor's 500 Index returned 9.42%. 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 results.
2
[A photo of Linda Miller flush right next to first paragraph.]
Managed care, biotechs top the charts
At the top of our best-performers list during the year were a number of
managed care holdings, including UnitedHealth Group, Wellpoint Health and
Anthem, Inc. These companies derived earnings increases from hefty
health-care premium hikes they charged their customers, which more than
offset the rising medical costs the HMOs incurred. They also benefited from
their focus on enhancing productivity, controlling costs and improving
their balance sheets.
Many of our biotech holdings also performed quite well this year. Our
biggest winners were OSI Pharmaceuticals and Biogen Idec. OSI's stock price
began zooming higher in June on news that its experimental cancer drug
Tarceva had extended survival in late-stage lung cancer patients. Tarceva
is what's known as an epidermal growth factor receptor inhibitor that
shrinks tumors by blocking proteins that promote the spread of cancer
cells. In the fall, the stock got another boost when the company announced
that it had received fast-track regulatory approval from the Food and Drug
Administration for Tarceva, meaning the agency has six months from the
application receipt date, or until January 30, 2005, to take action. OSI is
developing the drug with Genentech, another of the Fund's larger and
better-performing holdings during the year.
"At the top of our best-performers
list during the year were a number
of managed care holdings..."
Biogen Idec's shares also posted strong gains in part due to excitement
over the company's Antegren drug to treat multiple sclerosis. The drug may
launch later this year or early in 2005. Another winner was Eyetech
Pharmaceuticals, which was buoyed by investors' enthusiasm over the
company's experimental treatment Macugen, a drug for the sight-robbing
disease called wet age-related macular degeneration. Investors also liked
the fact that the company has plenty of financial support from its
marketing and development partner Pfizer. We also enjoyed good gains from
our holdings in Tularik, which was lifted mid-year by news that the company
- -- which develops potential therapies for cancer, diabetes and obesity --
was to be acquired by Amgen, the world's largest biotech company.
Unfortunately, Amgen's stock moved sideways for most of the year despite
continuing strong sales and profits from its drugs for anemia and
arthritis.
3
[Table at top left-hand side of page entitled "Top five industry groups."
The first listing is Health care equipment 27%, the second is Biotechnology
26%, the third is Pharmaceuticals 20%, the fourth is Health care services 11%
and the fifth is Managed health care 6%.]
Our focus on medical device companies also aided performance. St. Jude
Medical posted rising profits thanks to robust sales of its new product
used to treat heart failure. Device makers Medtronic and Guidant also
performed well, particularly after the Centers for Medicare and Medicaid
Services announced that they would expand reimbursement coverage of cardiac
defibrillator devices to new patients.
Drug companies falter
Our underweighting in big drug companies, which came under pressure due to
political and pipeline concerns, helped us, but our holdings in generic
drug companies generally detracted from performance. Generic drug makers --
including Mylan Laboratories, Barr Pharmaceuticals and Watson
Pharmaceuticals -- were hurt by increased competition and pressure to
reduce prices. We also suffered losses with Chiron, which plummeted on news
that U.K. authorities prohibited the company from shipping Fluvirin this
season, which accounts for about 50% of the flu vaccines sold in the U.S.
[Pie chart at middle of page with heading "Portfolio diversification As a
percentage of net assets on 10-31-04." The chart is divided into two
sections (from top to left): Common stocks 96%, and Short-term investments
& other 4%. ]
Outlook
We're reasonably optimistic about the prospects for health care stocks. The
world's aging population provides strong underpinnings for the bullish
future of health care stocks over the long term. We believe that there are
other, more near-term factors working in the group's favor. Just after the
Fund's fiscal year ended, President Bush was re-elected to a second term.
That seemed to reassure investors that status quo, rather than radical
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 OSI
Pharmaceuticals followed by an up arrow with the phrase "Positive clinical
trials for lung-cancer drug boosts stock." The second listing is Medtronic
followed by an up arrow with the phrase "Expanded reimbursement for heart
products fuels demand." The third listing is Chiron followed by a down
arrow with the phrase "U.K. shuts down manufacturing of flu vaccine."]
change, will be the watchwords for national health-care policies.
Furthermore, the fact that the economy is growing at a modest pace is a
positive. Historically speaking, health care companies tend to do best in
that environment because more robust economic growth tends to attract
investors to faster-growing segments of the market. Given those relatively
benign external factors, the performance of health care stocks likely will
hinge on innovation, new product approval and valuations. We're impressed
with the current pace of innovation, although new product approvals may
slow somewhat as the FDA takes a more cautious view in light of recent
developments with Merck and Chiron. In terms of valuations, there remain
many reasonably priced opportunities, although some stocks appear to have
gotten too expensive. In our view, those factors all add up to an
environment that we believe plays to our stock-picking strengths.
"We're reasonably optimistic about
the prospects for health care stocks."
This commentary reflects the views of the portfolio manager through the end
of the Fund's period discussed in this report. The manager's statements
reflect her 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.
Sector investing is subject to greater risks than the market as a whole.
1 Figures from Lipper, Inc. include reinvested dividends and do not take
into account sales charges. Actual load-adjusted performance is lower.
5
A LOOK AT
PERFORMANCE
For the period ended
October 31, 2004
Class A Class B Class C
Inception date 10-1-91 3-7-94 3-1-99
Average annual returns with maximum sales charge (POP)
One year 3.20% 2.86% 6.86%
Five years 5.26 5.28 5.60
Ten years 10.83 10.76 --
Since inception -- -- 4.31
Cumulative total returns with maximum sales charge (POP)
One year 3.20 2.86 6.86
Five years 29.21 29.33 31.33
Ten years 179.56 177.87 --
Since inception -- -- 27.04
Performance figures assume all distributions are reinvested. Returns with
maximum sales charge reflect a sales charge on Class A shares of 5%, and
the applicable contingent deferred sales charge (CDSC) on Class B and Class
C shares. The returns for Class C shares have been adjusted to reflect the
elimination of the front-end sales charge effective July 15, 2004. 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.
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.
6
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 two separate indexes.
Russell
Cum Value Cum Value 3000
of $10K of $10K S&P 500 Healthcare
Plot Date (No Load) (w/Load) Index Index
10-31-94 $10,000 $9,500 $10,000 $10,000
11-30-94 9,800 9,308 9,636 10,041
4-30-95 11,110 10,552 11,046 11,358
10-31-95 13,100 12,443 12,643 13,921
4-30-96 16,334 15,515 14,383 16,142
10-31-96 14,834 14,089 15,689 17,231
4-30-97 15,238 14,473 17,998 19,574
10-31-97 18,784 17,841 20,729 22,954
4-30-98 21,977 20,874 25,394 29,094
10-31-98 21,397 20,323 25,290 30,618
4-30-99 21,150 20,089 30,932 32,603
10-31-99 21,643 20,556 31,782 33,248
4-30-00 25,462 24,184 34,069 34,275
10-31-00 31,561 29,977 33,722 40,986
4-30-01 28,058 26,649 29,652 37,826
10-31-01 27,281 25,912 25,325 37,291
4-30-02 27,016 25,660 25,911 35,255
10-31-02 23,611 22,425 21,499 30,427
4-30-03 24,012 22,807 22,464 31,557
10-31-03 27,097 25,737 25,976 33,549
4-30-04 31,687 30,097 27,605 37,431
10-31-04 29,433 27,956 28,411 34,564
[Line chart with the heading "GROWTH OF $10,000." Within the chart are
four lines. The first line represents the Russell 3000 Healthcare Index and
is equal to $34,564 as of October 31, 2004. The second line represents the
value of the hypothetical $10,000 investment made in the John Hancock
Health Sciences Fund, before sales charge, and is equal to $29,433 as of
October 31, 2004. The third line represents Standard & Poor's 500 Index
and is equal to $28,411 as of October 31, 2004. The fourth line represents
the value of the same hypothetical investment made in the John Hancock
Health Sciences Fund, after sales charge, and is equal to $27,956 as of
October 31, 2004.]
Class B 1 Class C 1
Period beginning 10-31-94 3-1-99
Health Sciences Fund $27,787 $12,704
Index 1 28,411 9,939
Index 2 34,564 10,164
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 October 31, 2004. The Class C
shares investment with maximum sales charge has been adjusted to reflect
the elimination of the front-end sales charge effective July 15, 2004.
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.
Standard & Poor's 500 Index -- Index 1 -- is an unmanaged index that
includes 500 widely traded common stocks.
Russell 3000 Healthcare Index -- Index 2 -- is a capitalization-weighted
index composed of companies involved in medical services or health care.
It is not possible to invest directly in an index. Index figures do not
reflect sales charges and would be lower if they did.
1 No contingent deferred sales charge applicable.
7
YOUR
EXPENSES
These examples are intended to help you understand your ongoing operating
expenses.
Understanding fund expenses
As a shareholder of the Fund, you incur two types of costs:
* Transaction costs which include sales charges (loads) on purchases or
redemptions (varies by share class), minimum account fee charge, etc.
* Ongoing operating expenses including management fees, distribution and
service fees (if applicable) and other fund expenses.
We are going to present only your ongoing operating expenses here.
Actual expenses/actual returns
This example is intended to provide information about your fund's actual
ongoing operating expenses, and is based on your fund's actual return. It
assumes an account value of $1,000.00 on April 30, 2004, with the same
investment held until October 31, 2004.
Account value Expenses paid
$1,000.00 Ending value during period
on 4-30-04 on 10-31-04 ended 10-31-04 1
- --------------------------------------------------------------------------
Class A $928.90 $7.68
Class B 925.60 11.05
Class C 925.60 11.05
Together with the value of your account, you may use this information to
estimate the operating expenses that you paid over the period. Simply
divide your account value at October 31, 2004 by $1,000.00, then multiply
it by the "expenses paid" for your share class from the table above. For
example, for an account value of $8,600.00, the operating expenses should
be calculated as follows:
Example
-- -- -- --
| My account value / | | "expenses paid" | My
| / $1,000.00 = 8.6 | X $| | = actual
| $8,600.00 / | | from table | expenses
-- -- -- --
8
Hypothetical example for comparison purposes
This table allows you to compare your fund's ongoing operating expenses
with those of any other fund. It provides an example of the Fund's
hypothetical account values and hypothetical expenses based on each class's
actual expense ratio and an assumed 5% annual return before expenses (which
is not your fund's actual return). It assumes an account value of $1,000.00
on April 30, 2004, with the same investment held until October 31, 2004.
Look in any other fund shareholder report to find its hypothetical example
and you will be able to compare these expenses.
Account value Expenses paid
$1,000.00 Ending value during period
on 4-30-04 on 10-31-04 ended 10-31-04 1
- -------------------------------------------------------------
Class A $1,017.17 $8.03
Class B 1,013.66 11.55
Class C 1,013.66 11.55
Remember, these examples do not include any transaction costs, such as
sales charges; therefore, these examples will not help you to determine the
relative total costs of owning different funds. If transaction costs were
included, your expenses would have been higher. See the prospectus for
details regarding transaction costs.
1 Expenses are equal to the Fund's annualized expense ratio of 1.58%, 2.28%
and 2.28% for Class A, Class B and Class C, respectively, multiplied by the
average account value over the period, multiplied by [number of days in
most recent fiscal half-year/365 or 366] (to reflect the one-half year
period).
9
FINANCIAL STATEMENTS
FUND'S
INVESTMENTS
Securities owned
by the Fund on
October 31, 2004
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.
Issuer Shares Value
Common stocks 96.41% $262,127,775
(Cost $184,126,224)
Biotechnology 26.18% 71,178,084
Affymetrix, Inc. (I)(L) 76,300 2,327,150
Alkermes, Inc. (I)(L) 43,029 532,269
Amgen, Inc. (I) 220,000 12,496,000
AtheroGenics, Inc. (I)(L) 55,000 1,646,700
Biogen Idec, Inc. (I)(L) 100,000 5,816,000
Celgene Corp. (I) 70,000 2,073,400
Charles River Laboratories International, Inc. (I)(L) 55,000 2,573,450
Cotherix, Inc. (I) 154,540 927,240
Eyetech Pharmaceuticals, Inc. (I)(L) 80,000 3,395,200
Genentech, Inc. (I)(L) 160,000 7,284,800
Genzyme Corp. (I)(L) 110,000 5,771,700
Gilead Sciences, Inc. (I)(L) 190,000 6,579,700
Kosan Biosciences, Inc. (I) 140,000 875,000
Millennium Pharmaceuticals, Inc. (I)(L) 165,000 2,141,700
Nabi Biopharmaceuticals (I) 97,500 1,350,375
Neurocrine Biosciences, Inc. (I)(L) 70,000 3,258,500
OSI Pharmaceuticals, Inc. (I)(L) 50,000 3,249,000
Protein Design Labs, Inc. (I)(L) 100,000 1,915,000
Sepracor, Inc. (I)(L) 60,000 2,755,800
Telik, Inc. (I)(L) 60,000 1,107,000
Vicuron Pharmaceuticals, Inc. (I) 100,000 1,402,000
ZymoGenetics, Inc. (I) 90,000 1,700,100
Health Care Equipment 27.49% 74,741,600
American Medical Systems Holdings, Inc. (I) 65,000 2,411,500
ArthroCare Corp. (I)(L) 110,000 3,389,100
Beckman Coulter, Inc. 50,000 2,975,000
Boston Scientific Corp. (I) 165,000 5,824,500
See notes to
financial statements.
10
FINANCIAL STATEMENTS
Issuer Shares Value
Health Care Equipment (continued)
DENTSPLY International, Inc. 55,000 $2,860,550
Fisher Scientific International, Inc. (I)(L) 50,000 2,868,000
Gen-Probe, Inc. (I) 85,000 2,978,400
Guidant Corp. 50,000 3,331,000
Integra LifeSciences Holdings (I) 62,500 2,005,000
Invitrogen Corp. (I)(L) 40,000 2,316,000
Kinetic Concepts, Inc. (I) 80,000 3,986,400
Medtronic, Inc. 250,000 12,777,500
St. Jude Medical, Inc. (I) 95,000 7,274,150
Stryker Corp. (L) 180,000 7,756,200
Varian Medical Systems, Inc. (I)(L) 115,000 4,617,250
Zimmer Holdings, Inc. (I)(L) 95,000 7,371,050
Health Care Facilities 4.19% 11,394,900
Community Health Systems, Inc. (I) 100,000 2,682,000
DaVita, Inc. (I) 110,000 3,258,200
HCA, Inc. 60,000 2,203,800
VCA Antech, Inc. (I) 145,000 3,250,900
Health Care Services 11.33% 30,813,400
Accredo Health, Inc. (I) 30,000 690,900
Advisory Board Co. (The) (I)(L) 85,000 2,769,300
Caremark Rx, Inc. (I)(L) 190,000 5,694,300
Covance, Inc. (I) 85,000 3,376,200
ICON Plc American Depositary Receipts (ADR) (Ireland) (I)(L) 75,000 2,475,750
IDX Systems Corp. (I) 80,000 2,682,800
Medco Health Solutions, Inc. (I) 100,000 3,391,000
Omnicare, Inc. 50,000 1,379,500
Quest Diagnostics, Inc. 35,000 3,063,900
Stericycle, Inc. (I)(L) 75,000 3,399,750
WebMD Corp. (I)(L) 250,000 1,890,000
Health Care Supplies 1.80% 4,882,900
Johnson & Johnson 80,000 4,670,400
Retractable Technologies, Inc. (I)(L) 50,000 212,500
Managed Health Care 5.72% 15,564,000
Anthem, Inc. (I)(L) 45,000 3,618,000
UnitedHealth Group, Inc. 165,000 11,946,000
See notes to
financial statements.
11
FINANCIAL STATEMENTS
Issuer Shares Value
Pharmaceuticals 19.70% $53,552,891
Abbott Laboratories 130,000 5,541,900
Alcon, Inc. (Switzerland) 65,000 4,628,000
Allergan, Inc. 25,000 1,789,000
AstraZeneca Plc (ADR) (United Kingdom) 70,000 2,884,000
EPIX Pharmaceuticals, Inc. (I) 100,000 1,563,000
Forest Laboratories, Inc. (I) 65,000 2,899,000
IVAX Corp. (L) 110,000 1,991,000
Medicines Co. (The) (I)(L) 125,000 3,330,000
Novartis AG (ADR) (Switzerland) 130,000 6,241,300
Pfizer, Inc. 400,000 11,580,000
Roche Holding AG (Switzerland) 35,000 3,565,691
Teva Pharmaceutical Industries Ltd. (ADR) (Israel) 290,000 7,540,000
Interest Par value
Issuer, description, maturity date rate (000) Value
Short-term investments 34.89% $94,873,709
(Cost $94,873,709)
Joint Repurchase Agreement 3.03% 8,252,000
Investment in a joint repurchase agreement transaction with
Morgan Stanley -- Dated 10-29-04, due 11-01-04
(secured by U.S. Treasury Bond 8.125% due 08-15-19,
U.S. Treasury Note 5.875% due 11-15-04, U.S. Treasury
Inflation Indexed Bonds 3.625% due 04-15-28 and
3.375% due 04-15-32, and U.S. Treasury Inflation
Indexed Notes 3.375% thru 3.875% due 01-15-09
thru 01-15-12) 1.770% $8,252 8,252,000
Shares
Cash Equivalents 31.86% 86,621,709
AIM Cash Investment Trust (T) 86,621,709 86,621,709
Total investments 131.30% $357,001,484
Other assets and liabilities, net (31.30%) ($85,101,313)
Total net assets 100.00% $271,900,171
See notes to
financial statements.
12
FINANCIAL STATEMENTS
Notes to Schedule of Investments
(I) Non-income-producing security.
(L) All or a portion of this security is on loan as of October 31, 2004.
(T) Represents investment of securities lending collateral. 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.
13
FINANCIAL STATEMENTS
PORTFOLIO
CONCENTRATION
October 31, 2004
(unaudited)
This table shows the
Fund's investments
as a percentage
of net assets,
aggregated by
various countries
and industries.
Country diversification Value as a percentage of Fund's net assets
- -------------------------------------------------------------------------
Ireland 0.91%
Israel 2.77
Switzerland 5.31
United Kingdom 1.06
United States 121.25
Industry distribution Value as a percentage of Fund's net assets
- -------------------------------------------------------------------------
Biotechnology 26.18%
Health Care Equipment 27.49
Health Care Facilities 4.19
Health Care Services 11.33
Health Care Supplies 1.80
Managed Health Care 5.72
Pharmaceuticals 19.70
Short-term Investments 34.89
See notes to
financial statements.
14
FINANCIAL STATEMENTS
ASSETS AND
LIABILITIES
October 31, 2004
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 $278,999,933)
including $84,985,627 of securities loaned $357,001,484
Cash 227
Receivable for investments sold 3,783,776
Receivable for shares sold 27,247
Dividends and interest receivable 64,522
Other assets 15,198
Total assets 360,892,454
Liabilities
Payable for investments purchased 1,318,475
Payable for shares repurchased 274,704
Payable upon return of securities loaned 86,621,709
Payable to affiliates
Management fees 574,977
Distribution and service fees 29,469
Other 91,228
Other payables and accrued expenses 81,721
Total liabilities 88,992,283
Net assets
Capital paid-in 187,729,419
Accumulated net realized gain on investments
and foreign currency transactions 6,175,749
Net unrealized appreciation of investments
and translation of assets and liabilities
in foreign currencies 78,001,877
Accumulated net investment loss (6,874)
Net assets $271,900,171
Net asset value per share
Based on net asset values and shares outstanding --
the Fund has an unlimited number of shares
authorized with no par value
Class A ($125,125,836 [DIV] 2,895,273 shares) $43.22
Class B ($133,553,641 [DIV] 3,354,889 shares) $39.81
Class C ($13,220,694 [DIV] 332,110 shares) $39.81
Maximum offering price per share
Class A 1 ($43.22 [DIV] 95%) $45.49
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.
15
FINANCIAL STATEMENTS
OPERATIONS
For the year ended
October 31, 2004
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 $38,303) $1,174,458
Securities lending 211,734
Interest 105,822
Total investment income 1,492,014
Expenses
Investment management fees 2,283,152
Class A distribution and service fees 384,964
Class B distribution and service fees 1,550,706
Class C distribution and service fees 142,009
Class A, B and C transfer agent fees 1,164,726
Accounting and legal services fees 80,623
Printing 66,101
Custodian fees 46,680
Miscellaneous 51,456
Registration and filing fees 39,232
Professional fees 37,199
Trustees' fees 16,788
Securities lending fees 5,640
Interest 124
Total expenses 5,869,400
Less expense reductions (370)
Net expenses 5,869,030
Net investment loss (4,377,016)
Realized and unrealized gain (loss)
Net realized gain (loss) on
Investments 22,497,612
Foreign currency transactions (18,637)
Change in net unrealized appreciation (depreciation) of
Investments 5,298,985
Translation of assets and liabilities in foreign currencies 237
Net realized and unrealized gain 27,778,197
Increase in net assets from operations $23,401,181
See notes to
financial statements.
16
FINANCIAL STATEMENTS
CHANGES IN
NET ASSETS
These Statements
of Changes in Net
Assets show how
the value of the
Fund's net assets
has changed
during the last
two periods. 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
10-31-03 10-31-04
Increase (decrease) in net assets
From operations
Net investment loss ($4,025,912) ($4,377,016)
Net realized gain 19,286,206 22,478,975
Change in net unrealized
appreciation (depreciation) 21,020,120 5,299,222
Increase in net assets resulting
from operations 36,280,414 23,401,181
From Fund share transactions (36,109,836) (35,461,797)
Net assets
Beginning of period 283,790,209 283,960,787
End of period 1 $283,960,787 $271,900,171
1 Includes accumulated net investment loss of $5,777 and $6,874, respectively.
See notes to
financial statements.
17
FINANCIAL HIGHLIGHTS
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 10-31-00 10-31-01 10-31-02 10-31-03 10-31-04
Per share operating performance
Net asset value,
beginning of period $34.28 $49.99 $40.06 $34.67 $39.79
Net investment loss 1 (0.33) (0.37) (0.41) (0.38) (0.47)
Net realized and unrealized
gain (loss) on investments 16.04 (5.99) (4.98) 5.50 3.90
Total from
investment operations 15.71 (6.36) (5.39) 5.12 3.43
Less distributions
From net realized gain -- (3.57) -- -- --
Net asset value, end of period $49.99 $40.06 $34.67 $39.79 $43.22
Total return 2 (%) 45.83 (13.56) (13.45) 14.77 8.62
Ratios and supplemental data
Net assets, end of period
(in millions) $178 $145 $110 $117 $125
Ratio of expenses
to average net assets (%) 1.50 1.50 1.59 1.67 1.57
Ratio of net investment loss
to average net assets (%) (0.75) (0.87) (1.06) (1.04) (1.08)
Portfolio turnover (%) 147 91 85 95 54
See notes to
financial statements.
18
FINANCIAL HIGHLIGHTS
CLASS B SHARES
Period ended 10-31-00 10-31-01 10-31-02 10-31-03 10-31-04
Per share operating performance
Net asset value,
beginning of period $32.83 $47.55 $37.68 $32.39 $36.91
Net investment loss 1 (0.60) (0.63) (0.63) (0.59) (0.72)
Net realized and unrealized
gain (loss) on investments 15.32 (5.67) (4.66) 5.11 3.62
Total from
investment operations 14.72 (6.30) (5.29) 4.52 2.90
Less distributions
From net realized gain -- (3.57) -- -- --
Net asset value, end of period $47.55 $37.68 $32.39 $36.91 $39.81
Total return 2 (%) 44.84 (14.18) (14.04) 13.95 7.86
Ratios and supplemental data
Net assets, end of period
(in millions) $294 $231 $162 $154 $134
Ratio of expenses
to average net assets (%) 2.20 2.20 2.29 2.37 2.27
Ratio of net investment loss
to average net assets (%) (1.46) (1.57) (1.76) (1.74) (1.77)
Portfolio turnover (%) 147 91 85 95 54
See notes to
financial statements.
19
FINANCIAL HIGHLIGHTS
CLASS C SHARES
Period ended 10-31-00 10-31-01 10-31-02 10-31-03 10-31-04
Per share operating performance
Net asset value,
beginning of period $32.83 $47.55 $37.68 $32.39 $36.91
Net investment loss 1 (0.64) (0.63) (0.63) (0.59) (0.72)
Net realized and unrealized
gain (loss) on investments 15.36 (5.67) (4.66) 5.11 3.62
Total from
investment operations 14.72 (6.30) (5.29) 4.52 2.90
Less distributions
From net realized gain -- (3.57) -- -- --
Net asset value, end of period $47.55 $37.68 $32.39 $36.91 $39.81
Total return 2 (%) 44.84 (14.18) (14.04) 13.95 7.86
Ratios and supplemental data
Net assets, end of period
(in millions) $14 $15 $12 $13 $13
Ratio of expenses
to average net assets (%) 2.20 2.20 2.29 2.37 2.27
Ratio of net investment loss
to average net assets (%) (1.50) (1.58) (1.76) (1.73) (1.78)
Portfolio turnover (%) 147 91 85 95 54
1 Based on the average of the shares outstanding.
2 Assumes dividend reinvestment and does not reflect the effect of sales
charges.
See notes to
financial statements.
20
NOTES TO
STATEMENTS
Note A
Accounting policies
John Hancock Health Sciences Fund (the "Fund") is a non-diversified series
of John Hancock World Fund, 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 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 the terms of a distribution plan have exclusive
voting rights to that distribution plan.
Significant accounting policies
of the Fund are as follows:
Valuation of investments
Securities in the Fund's portfolio are valued on the basis of market
quotations, valuations provided by independent pricing services or, if
quotations are not readily available, or the value has been materially
affected by events occurring after the closing of a foreign market, at fair
value as determined in good faith in accordance with procedures approved by
the Trustees. Short-term debt investments, which have a remaining maturity
of 60 days or less may be valued at amortized cost which approximates
market value. Investments in AIM Cash Investment Trust are valued at their
net asset value each business day. All portfolio transactions initially
expressed in terms of foreign currencies have been translated into U.S.
dollars as described in "Foreign currency translation" below.
Joint repurchase agreement
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Fund, along with other registered investment companies
having a management contract with John Hancock Advisers, LLC (the
"Adviser"), a wholly owned subsidiary of John Hancock Financial Services,
Inc., 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.
21
Foreign currency
translation
All assets or liabilities initially expressed in terms of foreign
currencies are translated into U.S. dollars based on London currency
exchange quotations as of 4:00 P.M., London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain (loss) on
investments are translated at the rates prevailing at the dates of the
transactions.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Reported net realized foreign currency exchange gains or losses arise from
sales of foreign currency, currency gains or losses realized between the
trade and settlement dates on securities transactions and the difference
between the amounts of dividends, interest and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent of the amounts
actually received or paid. Net unrealized foreign currency exchange gains
and losses arise from changes in the value of assets and liabilities, other
than investments in securities, resulting from changes in the exchange
rates.
Investment transactions
Investment transactions are recorded as of the date of purchase, sale or
maturity. Net realized gains and losses on sales of investments are
determined on the identified cost basis. Capital gains realized on some
foreign securities are subject to foreign taxes, which are accrued as
applicable.
Class allocations
Income, common expenses and realized and unrealized gains (losses) are
determined at the fund level and allocated daily to each class of shares
based on the appropriate net asset value of the respective classes. Distri
bution and service fees, if any, are calculated daily at the class level
based on the appropriate net asset value of each class and the specific
expense rate(s) applicable to each class.
Expenses
The majority of 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 year ended October 31, 2004.
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. On October 31, 2004, the Fund loaned securities having a
market value of $84,985,627
22
collateralized by cash in the amount of $86,621,709. The cash collateral
was invested in a short-term instrument. Security lending expenses are
paid by the Fund to the Adviser.
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.
Dividends, interest
and distributions
Dividend income on investment securities is recorded on the ex-dividend 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, if any, 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, 2004, the components of distributable earnings on a tax
basis were $10,199,370 of undistributed long-term gain.
Such distributions and distributable earnings, on a tax basis, are
determined in conformity with income tax regulations, which may differ from
accounting principles generally accepted in the United States of America.
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
Use of estimates
The preparation of these financial statements, in accordance with
accounting principles generally accepted in the United States of America,
incorporates estimates made by management in determining the reported
amount of assets, liabilities, revenues and expenses of the Fund. Actual
results could differ from these estimates.
Note B
Management fee and
transactions with
affiliates and others
The Fund has an investment management contract with the Adviser. Under the
investment management contract, the Fund pays a quarterly management fee to
the Adviser equivalent, on an annual basis, to the sum of: (a) 0.80% of the
first $200,000,000 of the Fund's average daily net asset value and (b)
0.70% of the Fund's average daily net asset value in excess of
$200,000,000.
The Fund has an agreement with its custodian bank under which custody fees
are reduced by brokerage commissions offsets applied during the period.
Accord ingly, the expense reductions related to custody fee offsets
amounted to $370, and had no impact on the Fund's ratio of expenses to
average net assets for the year ended October 31, 2004.
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 asset value and 1.00% of Class B and
Class C average daily net asset value. 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 shares are assessed up-front sales charges.
23
During the year ended October 31, 2004, JH Funds received net up-front
sales charges of $185,741 with regard to sales of Class A shares. Of this
amount, $26,095 was retained and used for printing prospectuses,
advertising, sales literature and other purposes, $123,039 was paid as
sales commissions to unrelated broker-dealers and $36,607 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. Prior to July 15, 2004, Class C
shares were assessed up-front sales charges. During the year ended October
31, 2004, JH Funds received net up-front sales charges of $16,227 with
regard to sales of Class C shares. Of this amount, $15,688 was paid as
sales commissions to unrelated broker-dealers and $539 was paid as sales
commissions to sales personnel of Signator Investors.
Class B shares that are redeemed within six years of purchase are subject
to a contingent deferred sales charge ("CDSC") at declining rates,
beginning at 5.00% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed.
Class C shares that are redeemed within one year of purchase are subject to
a CDSC at a rate of 1.00% of the lesser of the current market value at the
time of redemption or the original purchase cost of the shares being
redeemed. Proceeds from the CDSCs are paid to JH Funds and are used in
whole or in part to defray its expenses for providing distribution related
services to the Fund in connection with the sale of Class B and Class C
shares. During the year ended October 31, 2004, CDSCs received by JH Funds
amounted to $242,814 for Class B shares and $555 for Class C shares.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of JHLICo.
For Class A, Class B and Class C shares, the Fund pays a monthly transfer
agent fee at an annual rate of 0.05% of the each class'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. Signature
Services agreed to voluntarily reduce the Fund's asset-based portion of the
transfer agent fee if the total transfer agent fee exceeds the Lipper, Inc.
median transfer agency fee for comparable mutual funds by 0.05%. There were
no transfer agent fee reductions during the year ended October 31, 2004.
Signature Services reserves the right to terminate this limitation at any
time.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the year
amounted to $80,623. The Fund also paid the Adviser the amount of $755 for
certain publishing services, included in the printing fees.
Mr. James A. Shepherdson is a director and/or officer of the Adviser and/or
its affiliates, as well as Trustee 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.
24
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.
Year ended 10-31-03 Year ended 10-31-04
Shares Amount Shares Amount
Class A shares
Sold 611,552 $22,343,109 838,297 $37,031,926
Repurchased (856,289) (30,738,589) (881,741) (38,668,127)
Net decrease (244,737) ($8,395,480) (43,444) ($1,636,201)
Class B shares
Sold 333,518 $11,357,801 570,109 $22,972,932
Repurchased (1,141,112) (38,411,221) (1,396,371) (56,382,735)
Net decrease (807,594) ($27,053,420) (826,262) ($33,409,803)
Class C shares
Sold 65,171 $2,217,346 92,939 $3,788,765
Repurchased (86,440) (2,878,282) (105,002) (4,204,558)
Net decrease (21,269) ($660,936) (12,063) ($415,793)
Net decrease (1,073,600) ($36,109,836) (881,769) ($35,461,797)
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
year ended October 31, 2004, aggregated $156,021,664 and $187,937,528,
respectively.
The cost of investments owned on October 31, 2004, including short-term
investments, for federal income tax purposes was $283,023,554. Gross
unrealized appreciation and depreciation of investments aggregated
$76,622,172 and $2,644,242, respectively, resulting in net unrealized
appreciation of $73,977,930. The difference between book basis and tax
basis net unrealized appreciation of investments is attributable primarily
to the tax deferral of losses on certain sales of securities.
Note E
Reclassification
of accounts
During the year ended October 31, 2004, the Fund reclassified amounts to
reflect an increase in accumulated net realized gain on investments of
$18,929, a decrease in accumulated net investment loss of $4,375,919 and a
decrease in capital paid-in of $4,394,848. This represents the amount
necessary to report these balances on a tax basis, excluding certain
temporary differences, as of October 31, 2004. 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 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, and book and
tax differences in accounting for net operating loss, deferred compensa
tion and certain foreign currency adjustments. The calculation of net
investment loss per share in the Fund's Finan cial Highlights excludes
these adjustments.
Note F
Subsequent event
A special meeting of shareholders was held on December 1, 2004, at which
time one or more new
25
Trustees were elected to the Fund's Board of Trustees. Several Trustees
had reached the age for mandatory retirement and plan to retire in 2004
and 2005. The Board of Trustees recommended and shareholders approved a
proposal to consolidate the two panels into one Board of Trustees for all
open-end funds within the John Hancock funds complex. The effective date
for the newly elected Trustees to the Fund will be January 1, 2005.
26
AUDITORS'
REPORT
Report of
Pricewaterhouse-
Coopers LLP,
Independent
Registered Public
Accounting Firm
To the Board of Trustees and Shareholders of
John Hancock Health Sciences 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 Health Sciences Fund (the "Fund") at October 31, 2004, the
results of its operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with accounting
principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial statements
in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at October 31, 2004, by correspondence
with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 13, 2004
27
TAX
INFORMATION
Unaudited
For federal income tax purposes, the following information is furnished
with respect to the distributions of the Fund, if any, paid during its
taxable year ended October 31, 2004.
The Fund hereby designates the maximum amount allowable of its net taxable
income as qualified dividend income as provided in the Jobs and Growth Tax
Relief Reconciliation Act of 2003. This amount will be reflected on Form
1099-DIV for the calendar year 2004.
Shareholders will be mailed a 2004 U.S. Treasury Department Form 1099-DIV
in January 2005. This will reflect the total of all distributions that are
taxable for the calendar year 2004.
28
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
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
Charles L. Ladner, 2 Born: 1938 2004 49
Independent Chairman (since 2004); Chairman and Trustee, Dunwoody
Village, Inc. (retirement services) (until 2003); 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).
Dennis S. Aronowitz, Born: 1931 1991 21
Professor of Law, Emeritus, Boston University School of Law
(as of 1996); Director, Brookline Bancorp (since 1998).
Richard P. Chapman, Jr., Born: 1935 1991 21
President and Chief Executive Officer, Brookline Bancorp Inc. (lending)
(since 1972); Director, Lumber Insurance Co. (insurance) (until 2000);
Chairman and Director, Northeast Retirement Services, Inc. (retirement
administration) (since 1998).
William J. Cosgrove, Born: 1933 1991 21
Vice President, Senior Banker and Senior Credit Officer, Citibank, N.A.
(retired 1991); Executive Vice President, Citadel Group Representatives,
Inc. (financial reinsurance) (until 2004); Director, Hudson City Savings Bank
(since 1995); Director, Hudson City Bancorp (since 1999); Trustee, Scholarship
Fund for Inner City Children (since 1986).
Richard A. Farrell, Born: 1932 1996 21
President, Farrell, Healer & Co., Inc. (venture capital management firm)
(since 1980) and President, the Venture Capital Fund of NE (since 1980);
prior to 1980, headed the venture capital group at Bank of Boston Corporation;
Trustee, Marblehead Savings Bank (since 1994).
29
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
William F. Glavin, 2 Born: 1932 1996 21
President Emeritus, Babson College (as of 1998); Vice Chairman, Xerox
Corporation (until 1989); Director, Reebok, Inc. (until 2002) and Inco Ltd.
(until 2002).
John A. Moore, 2 Born: 1939 1996 31
President and Chief Executive Officer, Institute for Evaluating Health
Risks, (nonprofit institution) (until 2001); Chief Scientist, Sciences
International (health research) (until 2003); Principal, Hollyhouse
(consulting) (since 2000); Director, CIIT (nonprofit research) (since 2002).
Patti McGill Peterson, 2 Born: 1943 1996 31
Executive Director, Council for International Exchange of Scholars and
Vice President, Institute of International Education (since 1998);
Senior Fellow, Cornell Institute of Public Affairs, Cornell University (until
1998); Former President of Wells College and St. Lawrence University;
Director, Niagara Mohawk Power Corporation (until 2003); Director, Ford
Foundation, International Fellowships Program (since 2002); Director,
Lois Roth Endowment (since 2002); Director, Council for International
Educational Exchange (since 2003).
John W. Pratt, Born: 1931 1996 21
Professor of Business Administration Emeritus, Harvard University
Graduate School of Business Administration (as of 1998).
Non-Independent 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
James A. Shepherdson, Born: 1952 2004 49
President and Chief Executive Officer
Executive Vice President, Manulife Financial Corporation (since 2004);
Chairman, Director, President and Chief Executive Officer, John Hancock
Advisers, LLC and The Berkeley Financial Group, LLC (holding company);
Chairman, Director, President and Chief Executive Officer, John Hancock
Funds, LLC; Chairman, President, Director and Chief Executive Officer,
Sovereign Asset Management Corporation ("SAMCorp"); Director, Chairman
and President, NM Capital Management, Inc.; President, John Hancock
Retirement Services, John Hancock Life Insurance Company (until 2004);
Chairman, Essex Corporation (until 2004); Co-Chief Executive Officer,
MetLife Investors Group (until 2003); Senior Vice President, AXA/Equitable
Insurance Company (until 2000).
30
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 H. King, Born: 1952 1991
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 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 Financial Group, LLC;
Vice President, Signature Services (until 2000); Director, Senior Vice President and Secretary,
NM Capital Management, Inc.
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 Non-independent Trustees hold positions with the Fund's investment
adviser, underwriter and certain other affiliates.
31
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 Select Fund
Mid Cap Growth Fund
Multi Cap Growth Fund
Small Cap 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 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
A fund's investment objectives, risks, charges and expenses are included in
the prospectus and should be considered carefully before investing. For a
prospectus, call your financial professional, call John Hancock Funds at
1-800-225-5291 or visit our Web site at www.jhfunds.com. Please read the
prospectus carefully before investing or sending money.
32
For more information
The Fund's proxy voting policies, procedures and records are available
without charge, upon request:
By phone On the Fund's Web site On the SEC's Web site
1-800-225-5291 www.jhfunds.com/proxy www.sec.gov
Investment adviser
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, MA 02199-7603
Principal distributor
John Hancock Funds, LLC
101 Huntington Avenue
Boston, MA 02199-7603
Custodian
The Bank of New York
One Wall Street
New York, NY 10286
Transfer agent
John Hancock Signature
Services, Inc.
1 John Hancock Way,
Suite 1000
Boston, MA 02217-1000
Legal counsel
Wilmer Cutler Pickering
Hale and Dorr LLP
60 State Street
Boston, MA 02109-1803
Independent registered
public accounting firm
PricewaterhouseCoopers LLP
125 High Street
Boston, MA 02110
How to contact us
Internet www.jhfunds.com
Mail Regular mail: Express mail:
John Hancock John Hancock
Signature Services, Inc. Signature Services, Inc.
1 John Hancock Way, Suite 1000 Mutual Fund Image Operations
Boston, MA 02217-1000 529 Main Street
Charlestown, MA 02129
Phone Customer service representatives 1-800-225-5291
24-hour automated information 1-800-338-8080
TDD line 1-800-554-6713
A listing of month-end portfolio holdings is available on our Web site,
www.jhfunds.com. A more detailed portfolio holdings summary is available on
a quarterly basis 60 days after the fiscal quarter on our Web site or upon
request by calling 1-800-225-5291, or on the Securities and Exchange
Commission's Web site, www.sec.gov.
33
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A tag line below reads "JOHN HANCOCK FUNDS."]
1-800-225-5291
1-800-554-6713 (TDD)
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www.jhfunds.com
Now available: electronic delivery
www.jhfunds.com/edelivery
This report is for the information of
the shareholders of the John Hancock
Health Sciences Fund.
2800A 10/04
12/04
JOHN HANCOCK HEALTH SCIENCES FUND
CLASS A, CLASS B AND CLASS C SHARES
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 2005
This Statement of Additional Information provides information about John Hancock
Health Sciences Fund (the "Fund") in addition to the information that is
contained in the combined Sector Funds' Prospectus (the "Prospectus"). The Fund
is a non-diversified series of John Hancock World Fund (the "Trust").
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus. This Statement of Additional Information
incorporates by reference the Fund's Annual Report. A copy of the Prospectus or
Annual Report can be obtained free of charge by writing or telephoning:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston MA 02217-1000
1-(800)-225-5291
TABLE OF CONTENTS
Page
Organization of the Fund................................................... 2
Investment Objective and Policies.......................................... 2
Investment Restrictions.................................................... 12
Those Responsible for Management........................................... 15
Investment Advisory and Other Services..................................... 24
Additional Information About the Fund's Portfolio Manager.................. 24
Distribution Contracts..................................................... 31
Sales Compensation......................................................... 33
Net Asset Value............................................................ 34
Initial Sales Charge on Class A Shares..................................... 36
Deferred Sales Charge on Class B and Class C Shares ....................... 39
Special Redemptions........................................................ 43
Additional Services and Programs........................................... 43
Purchases and Redemptions through Third Parties............................ 44
Description of the Fund's Shares........................................... 45
Tax Status................................................................. 46
Calculation of Performance................................................. 51
Brokerage Allocation....................................................... 53
Transfer Agent Services.................................................... 56
Custody of Portfolio....................................................... 56
Independent Registered Public Accounting Firm ............................. 56
Appendix A- Description of Investment Risk................................. A-1
Appendix B-Description of Bond and Commercial Paper Ratings................ B-1
Appendix C-Proxy Voting Summary............................................ C-1
Appendix D-Description of Portfolio Holdings Disclosure Policy............. D-1
Financial Statements....................................................... F-1
1
ORGANIZATION OF THE FUND
The Fund is a series of the Trust, an open-end investment management company
organized as a Massachusetts business trust in August, 1986 under the laws of
The Commonwealth of Massachusetts. On October 1, 1998 the Fund changed its name
from John Hancock Global Rx to John Hancock Global Health Sciences Fund and on
March 1, 2000 changed its name to John Hancock Health Sciences 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 a wholly
owned subsidiary of John Hancock Financial Services, Inc., a subsidiary of
Manulife Financial Corporation ("Manulife Financial"). Founded in 1862, John
Hancock Financial Services and its subsidiaries today offer a broad range of
financial products and services, including whole, term, variable, and universal
life insurance, as well as college savings products, mutual funds, fixed and
variable annuities, long-term care insurance and various forms of business
insurance.
Manulife Financial is a leading Canadian-based financial services group serving
millions of customers in 19 countries and territories worldwide. Operating as
Manulife Financial in Canada and most of Asia, and primarily through John
Hancock in the United States, the Company offers clients a diverse range of
financial protection products and wealth management services through its
extensive network of employees, agents and distribution partners. Funds under
management by Manulife Financial and its subsidiaries were Cdn$348 billion
(US$289 billion) as at December 31, 2004.
Manulife Financial Corporation trades as 'MFC' on the TSX, NYSE and PSE, and
under '0945' on the SEHK. Manulife Financial can be found on the Internet at
www.manulife.com.
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 risk. The investment objective is
non-fundamental. There is no assurance that the Fund will achieve its investment
objective.
The investment objective of the Fund is long-term capital appreciation through
investments in a portfolio consisting primarily of equity securities of issuers
in the health care industries. Accordingly, the Fund seeks to increase the value
of shareholder investments, and any current income is incidental to this
objective.
Under normal circumstances, the Fund will invest at least 80% of its Assets in
the securities of health sciences companies. A "health sciences" company is one
in which at least 50% of gross revenues are derived from, or 50% of gross assets
are committed to, health sciences activities as of the end of its last fiscal
year or its most recent publicly available financial statement. The health
sciences industries are diverse, including companies which design, produce
and/or sell prescription drugs and over-the-counter medicines, drug delivery
systems and medical and analytical instruments; companies which own and/or
manage health care facilities; and companies involved in biotechnology. In
managing the Fund's portfolio, the managers study economic trends, demographic
trends, the development of new products and consolidation trends. Because the
Fund concentrates its investments in the health sciences industries, its
performance is closely tied to conditions in these industries. The types of
products and services comprising the health sciences industries tend to become
obsolete quickly with the discovery of more effective medical techniques.
Additionally, the companies providing these services and
2
products are subject to strict government regulation which could have an
unfavorable impact on the price and supply of their services and products.
Because the Fund is non-diversified it will be more susceptible to adverse
developments affecting any single issuer.
With respect to the Fund's investment policy of investing at least 80% of its
Assets in health-sciences companies, "Assets" is defined as net assets plus the
amount of any borrowings for investment purposes. In addition, the Fund will
notify shareholders at least 60 days prior to any change in this policy.
In abnormal circumstances, such as situations where the Fund experiences 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.
The Fund invests in common stocks and in securities convertible into or with
rights to purchase common stock of U.S. and foreign issuers. The value of
convertible securities, while influenced by the level of interest rates, is also
affected by the changing value of the underlying common stock into which the
securities are convertible. The Fund will not purchase any convertible
securities rated below "B" by a major rating agency.
A significant portion of the Fund's investments may be in smaller capitalization
developing-growth companies with relatively limited operating histories as
publicly traded companies, and without regard to a record of profits or
dividends. Investing in securities of smaller capitalization developing-growth
companies also involves greater risk and the possibility of greater portfolio
price volatility. Among the reasons for the greater price volatility in these
small companies and unseasoned stocks are the less certain growth prospects of
smaller firms, the lower degree of liquidity in the markets for these stocks and
the greater sensitivity of small companies to changing economic conditions in
their geographic region. Securities of these companies involve higher investment
risks than those normally associated with larger firms due to the greater
business risks of small size and limited product lines, markets, distribution
channels and financial and managerial resources.
Investment in Foreign Securities. The Fund may invest directly in the securities
of foreign issuers as well as in the form of sponsored and unsponsored American
Depository Receipts ("ADRs"), European Depository Receipts (EDRs) or other
securities convertible into securities of foreign issuers. ADRs are receipts
typically issued by an U.S. bank or trust company which evidence ownership of
underlying securities issued by a foreign corporation. EDRs are receipts issued
in Europe by banks or depositories which evidence a similar ownership
arrangement. Generally, ADRs, in registered form, are designed for use in U.S.
securities markets and EDRs are designed for use in foreign securities markets.
Issuers of unsponsored ADRs are not contractually obligated to disclose material
information including financial information in the United States.
Foreign Currency Transactions. The Fund's foreign currency transactions may be
conducted on a spot (i.e., cash) basis at the spot rate for purchasing or
selling currency prevailing in the foreign exchange market.
The Fund may also enter into forward foreign currency exchange contracts to
enhance return, to hedge against fluctuations in currency exchange rates
affecting a particular transaction or portfolio position, or as a substitute for
the purchase or sale of a currency or assets denominated in that currency.
Forward contracts are agreements to purchase or sell a specified currency at a
specified future date and price set at the time of the contract. Transaction
hedging is the purchase or sale of forward foreign currency contracts with
respect to specific receivables or payables of the Fund accruing in connection
with the purchase and sale of its portfolio securities quoted or
3
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.
If the Fund purchases a forward contract or sells a forward contract for
non-hedging purposes, the Fund will segregate cash or liquid securities in a
separate account of the Fund in an amount equal to the value of the Fund's total
assets committed to the consummation of such forward contract. The assets in the
segregated account will be valued at market daily and if the value of the
securities in the separate account declines, additional cash or securities will
be placed in the account so that the value of the account will be equal the
amount of the Fund's commitment with respect to such contracts.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency rises. Moreover, it may
not be possible for the Fund to hedge against a devaluation that is so generally
anticipated that the Fund is not able to contract to sell the currency at a
price above the devaluation level it anticipates.
Risks of Foreign Securities. Investments in foreign securities may involve a
greater degree of risk than those in domestic securities. There is generally
less publicly available information about foreign companies in the form of
reports and ratings similar to those that are published about issuers in the
United States. Also, foreign issuers are generally not subject to uniform
accounting, auditing and financial reporting requirements comparable to those
applicable to United States issuers.
Because foreign securities may be denominated in currencies other than the U.S.
dollar, changes in foreign currency exchange rates will affect the Fund's net
asset value, the value of dividends and interest earned, gains and losses
realized on the sale of securities, and any net investment income and gains that
the Fund distributes to shareholders. Securities transactions undertaken in some
foreign markets may not be settled promptly so that the Fund's investments on
foreign exchanges may be less liquid and subject to the risk of fluctuating
currency exchange rates pending settlement.
Foreign securities will be purchased in the best available market, whether
through over-the-counter markets or exchanges located in the countries where
principal offices of the issuers are located. Foreign securities markets are
generally not as developed or efficient as those in the United States. While
growing in volume, they usually have substantially less volume than the New York
Stock Exchange, and securities of some foreign issuers are less liquid and more
volatile than securities of comparable United States issuers. Fixed commissions
on foreign exchanges are generally higher than negotiated commissions on United
State 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 favorable or unfavorable from
the United States' economy in terms of growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
4
The dividends, in some cases, capital gains and interest payable on certain of
the Fund's foreign portfolio securities may be subject to foreign withholding or
other foreign taxes, thus reducing the net amount of income or gains available
for distribution to the Fund's shareholders.
These risks may be intensified in the case of investments in emerging markets or
countries with limited or developing capital markets. These countries are
located in the Asia-Pacific region, Eastern Europe, Latin and South America and
Africa. Security prices in these markets can be significantly more volatile than
in more developed countries, reflecting the greater uncertainties of investing
in less established markets and economies. Political, legal and economic
structures in many of these emerging market countries may be undergoing
significant evolution and rapid development, and they may lack the social,
political, legal and economic stability characteristic of more developed
countries. Emerging market countries may have failed in the past to recognize
private property rights. They may have relatively unstable governments, present
the risk of nationalization of businesses, restrictions on foreign ownership, or
prohibitions on repatriation of assets, and may have less protection of property
rights than more developed countries. Their economies may be predominantly based
on only a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt burdens or
inflation rates. Local securities markets may trade a small number of securities
and may be unable to respond effectively to increases in trading volume,
potentially making prompt liquidation of substantial holdings difficult or
impossible at times. The Fund may be required to establish special custodial or
other arrangements before making certain investments in those countries.
Securities of issuers located in these countries may have limited marketability
and may be subject to more abrupt or erratic price movements.
Repurchase Agreements. In a repurchase agreement the Fund buys a security for a
relatively short period (usually not more than 7 days) subject to the obligation
to sell it back to the issuer at a fixed time and price plus accrued interest.
The Fund will enter into repurchase agreements only with member banks of the
Federal Reserve System and with "primary dealers" in U.S. Government securities.
The Adviser will continuously monitor the creditworthiness of the parties with
whom the Fund enters into repurchase agreements.
The Fund has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, the Fund could experience delays in
liquidating the underlying securities during the period in which the Fund seeks
to enforce its rights thereto, possible subnormal levels of income decline in
value of the underlying securities or lack of access to income during this
period as well as the expense of enforcing its rights.
Reverse Repurchase Agreements. 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 these securities (plus accrued
interest thereon) under such agreements. In addition, the Fund will not borrow
money or enter into reverse repurchase agreements except from banks as a
temporary
5
measure for extraordinary emergency purposes 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. The Fund will not use leverage to attempt to increase income. The
Fund will not purchase securities while outstanding borrowings exceed 5% of the
Fund's total assets. The Fund will enter into reverse repurchase agreements only
with federally insured banks which are approved in advance as being creditworthy
by the Trustees. Under procedures established by the Trustees, the Adviser will
monitor the creditworthiness of the banks involved.
Restricted Securities. The Fund may purchase securities that are not registered
("restricted securities") under the Securities Act of 1933 ("1933 Act"),
including commercial paper issued in reliance on Section 4(2) of the 1933 Act
and securities offered and sold to "qualified institutional buyers" under Rule
144A under the 1933 Act. The Fund will not invest more than 15% of its net
assets in illiquid investments. If the Trustees determine, based upon a
continuing review of the trading markets for specific Section 4(2) paper or Rule
144A securities, that they are liquid, they will not be subject to the 15%
limit. The Trustees have adopted guidelines and delegated to the Adviser the
daily function of determining and monitoring the liquidity of restricted
securities. The Trustees, however, will retain sufficient oversight and be
ultimately responsible for the determinations. The Trustees will carefully
monitor the Fund's investments in these securities, focusing on such important
factors, among others, as valuation, liquidity and availability of information.
This investment practice could have the effect of increasing the level of
illiquidity in the Fund if qualified institutional buyers become for a time
uninterested in purchasing these restricted securities.
Options on Securities, Securities Indices and Currency. The Fund may purchase
and write (sell) call and put options on any securities in which it may invest,
on any securities index based on securities in which it may invest or on any
currency in which Fund investments may be denominated. These options may be
listed on national domestic securities exchanges or foreign securities exchanges
or traded in the over-the-counter market. The Fund may write covered put and
call options and purchase put and call options to enhance total return, as a
substitute for the purchase or sale of securities or currency, or to protect
against declines in the value of portfolio securities and against increases in
the cost of securities to be acquired.
Writing Covered Options. A call option on securities or currency written by the
Fund obligates the Fund to sell specified securities or currency to the holder
of the option at a specified price if the option is exercised at any time before
the expiration date. A put option on securities or currency written by the Fund
obligates the Fund to purchase specified securities or currency from the option
holder at a specified price if the option is exercised at any time before the
expiration date. Options on securities indices are similar to options on
securities, except that the exercise of securities index options requires cash
settlement payments and does not involve the actual purchase or sale of
securities. In addition, securities index options are designed to reflect price
fluctuations in a group of securities or segment of the securities market rather
than price fluctuations in a single security. Writing covered call options may
deprive the Fund of the opportunity to profit from an increase in the market
price of the securities or foreign currency assets in its portfolio. Writing
covered put options may deprive the Fund of the opportunity to profit from a
decrease in the market price of the securities or foreign currency assets to be
acquired for its portfolio.
All call and put options written by the Fund are covered. A written call option
or put option may be covered by (i) maintaining cash or liquid securities,
either of which may be quoted or denominated in any currency, in a segregated
account with a value at least equal to the Fund's obligation under the option,
(ii) entering into an offsetting forward commitment and/or (iii) purchasing an
offsetting option or any other option which, by virtue of its exercise price or
otherwise, reduces the Fund's net exposure on its written option position. A
written call option on securities is typically covered by maintaining the
securities that are subject to the option in a
6
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.
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
7
exchange on opening transactions or closing transactions or both; (iii) trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of options; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the facilities
of an exchange or the Options Clearing Corporation may not at all times be
adequate to handle current trading volume; or (vi) one or more exchanges could,
for economic or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or series of options).
If trading were discontinued, the secondary market on that exchange (or in that
class or series of options) would cease to exist although outstanding options on
that exchange that had been issued by the Options Clearing Corporation as a
result of trades on that exchange would continue to be exercisable in accordance
with their terms.
The Fund's ability to terminate over-the-counter options is more limited than
with exchange-traded options and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. The
Adviser will determine the liquidity of each over-the-counter option in
accordance with guidelines adopted by the Trustees.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of options
depends in part on the Adviser's ability to predict future price fluctuations
and, for hedging transactions, the degree of correlation between the options and
securities or currency markets.
Futures Contracts and Options on Futures Contracts. To seek to increase total
return or hedge against changes in interest rates, securities prices or currency
exchange rates, the Fund may purchase and sell various kinds of futures
contracts, and purchase and write call and put options on these futures
contracts. The Fund may also enter into closing purchase and sale transactions
with respect to any of these contracts and options. The futures contracts may be
based on various securities (such as U.S. Government securities), securities
indices, foreign currencies and any other financial instruments and indices. All
futures contracts entered into by the Fund are traded on U.S. or foreign
exchanges or boards of trade that are licensed, regulated or approved by the
Commodity Futures Trading Commission ("CFTC").
Futures Contracts. A futures contract may generally be described as an agreement
between two parties to buy and sell particular financial instruments [or
currencies] for an agreed price during a designated month (or to deliver the
final cash settlement price, in the case of a contract relating to an index or
otherwise not calling for physical delivery at the end of trading in the
contract).
Positions taken in the futures markets are not normally held to maturity but are
instead liquidated through offsetting transactions which may result in a profit
or a loss. While futures contracts on securities or currency will usually be
liquidated in this manner, the Fund may instead make, or take, delivery of the
underlying securities or currency whenever it appears economically advantageous
to do so. A clearing corporation associated with the exchange on which futures
contracts are traded guarantees that, if still open, the sale or purchase will
be performed on the settlement date.
Hedging and Other Strategies. Hedging is an attempt to establish with more
certainty than would otherwise be possible the effective price or rate of return
on portfolio securities or securities that the Fund proposes to acquire or the
exchange rate of currencies in which portfolio securities are quoted or
denominated. When interest rates are rising or securities prices are falling,
the Fund can seek to offset a decline in the value of its current portfolio
securities through the sale of futures contracts. When interest rates are
falling or securities prices are rising, the Fund, through the purchase of
futures contracts, can attempt to secure better rates or prices than might later
be available in the market when it effects anticipated purchases. The Fund may
seek to offset anticipated changes in the value of a currency in which its
portfolio securities, or securities that it
8
intends to purchase, are quoted or denominated by purchasing and selling futures
contracts on such currencies.
The Fund may, for example, take a "short" position in the futures market by
selling futures contracts in an attempt to hedge against an anticipated rise in
interest rates or a decline in market prices or foreign currency rates that
would adversely affect the dollar value of the Fund's portfolio securities. Such
futures contracts may include contracts for the future delivery of securities
held by the Fund or securities with characteristics similar to those of the
Fund's portfolio securities. Similarly, the Fund may sell futures contracts on
any currencies in which its portfolio securities are quoted or denominated or in
one currency to hedge against fluctuations in the value of securities
denominated in a different currency if there is an established historical
pattern of correlation between the two currencies.
If, in the opinion of the Adviser, there is a sufficient degree of correlation
between price trends for the Fund's portfolio securities and futures contracts
based on other financial instruments, securities indices or other indices, the
Fund may also enter into such futures contracts as part of its hedging strategy.
Although under some circumstances prices of securities in the Fund's portfolio
may be more or less volatile than prices of such futures contracts, the Adviser
will attempt to estimate the extent of this volatility difference based on
historical patterns and compensate for any differential by having the Fund enter
into a greater or lesser number of futures contracts or by attempting to achieve
only a partial hedge against price changes affecting the Fund's portfolio
securities.
When a short hedging position is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the value
of the futures position. On the other hand, any unanticipated appreciation in
the value of the Fund's portfolio securities would be substantially offset by a
decline in the value of the futures position.
On other occasions, the Fund may take a "long" position by purchasing futures
contracts. This would be done, for example, when the Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates then available in the applicable
market to be less favorable than prices that are currently available. The Fund
may also purchase futures contracts as a substitute for transactions in
securities or foreign currency, to alter the investment characteristics of or
currency exposure associated with portfolio securities or to gain or increase
its exposure to a particular securities market or currency.
Options on Futures Contracts. The Fund may purchase and write options on futures
for the same purposes as its transactions in futures contracts. The purchase of
put and call options on futures contracts will give the Fund the right (but not
the obligation) for a specified price to sell or to purchase, respectively, the
underlying futures contract at any time during the option period. As the
purchaser of an option on a futures contract, the Fund obtains the benefit of
the futures position if prices move in a favorable direction but limits its risk
of loss in the event of an unfavorable price movement to the loss of the premium
and transaction costs.
The writing of a call option on a futures contract generates a premium which may
partially offset a decline in the value of the Fund's assets. By writing a call
option, the Fund becomes obligated, in exchange for the premium (upon exercise
of the option) to sell a futures contract if the option is exercised, which may
have a value higher than the exercise price. Conversely, the writing of a put
option on a futures contract generates a premium which may partially offset an
increase in the price of securities that the Fund intends to purchase. However,
the Fund becomes obligated (upon exercise of the option) to purchase a futures
contract if the option is exercised, which may have a value lower than the
exercise price. The loss incurred by the Fund in writing options on futures is
potentially unlimited and may exceed the amount of the premium received.
9
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option of the same series. There
is no guarantee that such closing transactions can be effected. The Fund's
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.
Other Considerations. The Fund will engage in futures and related options
transactions either for bona fide hedging purposes or to seek to increase total
return as permitted by the CFTC. To the extent that the Fund is using futures
and related options for hedging purposes, futures contracts will be sold to
protect against a decline in the price of securities (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 (or assets denominated in the related currency) in the cash
market at the time when the futures or option position is closed out. However,
in particular cases, when it is economically advantageous for the Fund to do so,
a long futures position may be terminated or an option may expire without the
corresponding purchase of securities or other assets.
To the extent that the Fund engages in nonhedging transactions in futures
contracts and options on futures, the aggregate initial margin and premiums
required to establish these nonhedging positions will not exceed 5% of the net
asset value of the Fund's portfolio, after taking into account unrealized
profits and losses on any such positions and excluding the amount by which such
options were in-the-money at the time of purchase. The Fund will engage in
transactions in futures contracts and related options only to the extent such
transactions are consistent with the requirements of the Internal Revenue Code
of 1986, as amended (the "Code"), for maintaining its qualifications as a
regulated investment company for federal income tax purposes.
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating the Fund to purchase securities or currencies, require the Fund to
establish a segregated account consisting of cash or liquid securities in an
amount equal to the underlying value of such contracts and options.
While transactions in futures contracts and options on futures may reduce
certain risks, these transactions themselves entail certain other risks. For
example, unanticipated changes in interest rates, securities prices or currency
exchange rates may result in a poorer overall performance for the Fund than if
it had not entered into any futures contracts or options transactions.
Perfect correlation between the Fund's futures positions and portfolio positions
will be impossible to achieve. In the event of an imperfect correlation between
a futures position and a portfolio position which is intended to be protected,
the desired protection may not be obtained and the Fund may be exposed to risk
of loss. In addition, it is not possible to hedge fully or protect against
currency fluctuations affecting the value of securities denominated in foreign
currencies because the value of such securities is likely to fluctuate as a
result of independent factors not related to currency fluctuations.
Some futures contracts or options on futures may become illiquid under adverse
market conditions. In addition, during periods of market volatility, a commodity
exchange may suspend or limit trading in a futures contract or related option,
which may make the instrument temporarily illiquid and difficult to price.
Commodity exchanges may also establish daily limits
10
on the amount that the price of a futures contract or related option can vary
from the previous day's settlement price. Once the daily limit is reached, no
trades may be made that day at a price beyond the limit. This may prevent the
Fund from closing out positions and limiting its losses.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers and financial institutions if the loan is collateralized by cash or U.S.
Government securities according to applicable regulatory requirements. The Fund
may reinvest any cash collateral in short-term securities and money market
funds. When the Fund lends portfolio securities, there is a risk that the
borrower may fail to return the securities involved in the transaction. As a
result, the Fund may incur a loss or, in the event of the borrower's bankruptcy,
the Fund may be delayed in or prevented from liquidating the collateral. It is a
fundamental policy of the Fund not to lend portfolio securities having a total
value exceeding 33 1/3% of its total assets.
Rights and Warrants. The Fund may purchase warrants and rights which are
securities permitting, but not obligating, their holder to purchase the
underlying securities at a predetermined price, subject to the Fund's Investment
Restrictions. Generally, warrants and stock purchase rights do not carry with
them the right to receive dividends or exercise voting rights with respect to
the underlying securities, and they do not represent any rights in the assets of
the issuer. As a result, an investment in warrants and rights may be considered
to entail greater investment risk than certain other types of investments. In
addition, the value of warrants and rights does not necessarily change with the
value of the underlying securities, and they cease to have value if they are not
exercised on or prior to their expiration date. Investment in warrants and
rights increases the potential profit or loss to be realized from the investment
of a given amount of the Fund's assets as compared with investing the same
amount in the underlying stock.
Short Sales. The Fund may engage in short sales in order to profit from an
anticipated decline in the value of a security. The Fund may also engage in
short sales to attempt to limit its exposure to a possible market decline in the
value of its portfolio securities through short sales of securities which the
Adviser believes possess volatility characteristics similar to those being
hedged. To effect such a transaction, the Fund must borrow the security sold
short to make delivery to the buyer. The Fund then is obligated to replace the
security borrowed by purchasing it at the market price at the time of
replacement. Until the security is replaced the Fund is required to pay to the
lender any accrued interest and may be required to pay a premium.
The Fund will realize a gain if the security declines in price between the date
of the short sale and the date on which the Fund replaces the borrowed security.
On the other hand, the Fund will incur a loss as a result of the short sale if
the price of the security increases between those dates. The amount of any gain
will be decreased, and the amount of any loss increased, by the amount of any
premium, interest or dividends the Fund may be required to pay in connection
with a short sale. The successful use of short selling as a hedging device may
be adversely affected by imperfect correlation between movements in the price of
the security sold short and the securities being hedged.
Under applicable guidelines of the staff of the SEC, if the Fund engages in
short sales of the type referred to in non-fundamental Investment Restriction
No. (c) (ii) and (iii) below, it must put in a segregated account (not with the
broker) an amount of cash or liquid securities equal to the difference between
(1) the market value of the securities sold short at the time they were sold
short and (2) any cash or liquid securities required to be deposited as
collateral with the broker in connection with the short sale (not including the
proceeds from the short sale). In addition, until the Fund replaces the borrowed
security, it must daily maintain the segregated account at such a level that the
amount deposited in it plus the amount deposited with the broker as collateral
will equal the current market value of the securities sold short. Except for
short sales against the box, the amount of the Fund's net assets that may be
committed to short sales is limited and the securities in which short sales are
made must be listed on a national securities exchange.
11
Short selling may produce higher than normal portfolio turnover which may result
in increased transaction costs to the Fund and may result in gains from the sale
of securities deemed to have been held for less than three months, which gains
must constitute less than 30% of the Fund's gross income for its taxable year in
order for the Fund to qualify for treatment as a regulated investment company
under the Internal Revenue Code of 1986, as amended (the "Code"), for that year.
The Fund does not intend to enter into short sales (other than those "against
the box") if immediately after such sale the aggregate of the value of all
collateral plus the amount in such segregated account exceeds 5% of the value of
the Fund's net assets. A short sale is "against the box" to the extent that the
Fund contemporaneously owns or has the right to obtain at no added cost
securities identical to those sold short.
Forward Commitment and When-Issued Securities. The Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. The Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, the Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time.
When the Fund engages in forward commitment and when-issued transactions, it
relies on the seller to consummate the transaction. The failure of the issuer or
seller to consummate the transaction may result in the Fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid securities, of any type or maturity, equal in value to
the Fund's commitment. These assets will be valued daily at market, and
additional cash or securities will be segregated in a separate account to the
extent that the total value of the assets in the account declines below the
amount of the when-issued commitments. Alternatively, the Fund may enter into
offsetting contracts for the forward sale of other securities that it owns.
Short-Term Trading and Portfolio Turnover. Short-term trading means the purchase
and subsequent sale of a security after it has been held for a relatively brief
period of time. The Fund may engage in short-term trading in response to stock
market conditions, changes in interest rates or other economic trends and
developments, or to take advantage of yield disparities between various fixed
income securities in order to realize capital gains or improve income. Over the
past several years, political and economic events in foreign countries and in
the health care industry have affected the Fund's geographic allocation of
assets. A high rate of portfolio turnover (100% or more) involves
correspondingly greater brokerage expenses. The Fund's portfolio turnover rate
is set forth in the table under the caption "Financial Highlights" in the
prospectus.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions will
not be changed without the approval of a majority of the Fund's outstanding
voting securities which, as used in the Prospectus and this Statement of
Additional Information, means the approval by the lesser of (1) the holders of
67% or more of the Fund's shares represented at a meeting if more than 50% of
12
the Fund's outstanding shares are present in person or by proxy at that meeting
or (2) more than 50% of the Fund's outstanding shares.
The Fund may not:
(1) Issue senior securities, except as permitted by paragraphs (2), (6) and (7)
below. For purposes of this restriction the issuance of shares of beneficial
interest in multiple classes or series, the purchase or sale of options, futures
contracts and options on futures contracts, forward 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 within the meaning of paragraph 3 below, are not deemed to be senior
securities.
(2) Borrow money, except from banks as a temporary measure for extraordinary
emergency purposes 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. The Fund
will not use leverage to attempt to increase income. The Fund will not purchase
securities while outstanding borrowings exceed 5% of the Fund's total assets.
(3) Pledge, mortgage or hypothecate its assets, except to secure indebtedness
permitted by paragraph (2) above and then only if such pledging, mortgaging or
hypothecating does not exceed 33 1/3% of the Fund's total assets taken at market
value.
(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 purposes of the Securities Act of 1933.
(5) Purchase or sell real estate or any interest therein, except that the Fund
may invest in securities of corporate or governmental entities secured by real
estate or marketable interests therein or securities issued by companies that
invest in real estate or interests therein.
(6) Make loans, except that the Fund may (1) lend portfolio securities in
accordance with the Fund's investment policies up to 33 1/3% of the Fund's total
assets taken at market value, (2) enter into repurchase agreements, and (3)
purchase all or a portion of an issue of publicly distributed debt securities,
bank loan participation interests, bank certificates of deposit, bankers'
acceptances, debentures or other securities, whether or not the purchase is made
upon the original issuance of the securities.
(7) Invest in commodities or in commodity contracts or in puts, calls, or
combinations of both, except options on currency, securities and securities
indices, futures contracts on currency, securities and securities indices 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.
(8) Purchase securities, other than obligations of the U.S. Government or any of
its agencies or instrumentalities, if such purchase would cause 25% or more of
the value of the Fund's total assets to be invested in securities of issuers
conducting their principal business activities in the same industry, except that
the Fund shall invest at least 25% of the value of its total assets in
securities of issuers in the health care group of industries.
Non-fundamental Investment Restrictions. The following investment restrictions
are designated as non-fundamental and may be changed by the Trustees without
shareholder approval.
13
The Fund may not:
(a) Participate on a joint or joint-and-several basis in any securities trading
account. The "bunching" of orders for the sale or repurchase of marketable
portfolio securities with other accounts under the management of the Adviser to
save commissions or to average prices among them is not deemed to be
participation in a joint securities trading account.
(b) Purchase securities on margin except that the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases and sales
of securities.
(c) Make short sales of securities or maintain a short position unless (i) at
all times when a short position is open the Fund owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short; (ii) for the purpose of hedging the Fund's
exposure to an actual or anticipated market decline in the value of its
investments; or (iii) in order to profit from an anticipated decline in the
value of a security.
(d) 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.
(e) Invest more than 15% of its net assets in illiquid securities.
Except with respect to borrowing money, if a percentage restriction on
investment or utilization of assets as set forth above is adhered to at the time
an investment is made, a later change in percentage resulting from changes in
the values of the Fund's assets will not be considered a violation of the
restriction.
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.
14
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").
TRUSTEE/
NAME, ADDRESS (1) POSITION(S) HELD OFFICER PRINCIPAL OCCUPATION(S) AND OTHER DIRECTORSHIPS NUMBER OF JOHN HANCOCK
AND AGE WITH FUND SINCE(2) DURING PAST 5 YEARS FUNDS OVERSEEN BY TRUSTEE
- -------------------- ---------------- -------- ----------------------------------------------- -------------------------
INDEPENDENT TRUSTEES
Charles L. Ladner Chairman and 2004 Chairman and Trustee, Dunwoody Village, Inc. 51
Born: 1938 Trustee (retirement services) (until 2003); 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).
James F. Carlin Trustee 2005 Director and Treasurer, Alpha Analytical 49
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 (engineering) (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 non-independent 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) Non-Independent Trustee: holds positions with the Fund's investment
adviser, underwriter, and or certain other affiliates.
15
TRUSTEE/
NAME, ADDRESS (1) POSITION(S) HELD OFFICER PRINCIPAL OCCUPATION(S) AND OTHER DIRECTORSHIPS NUMBER OF JOHN HANCOCK
AND AGE WITH FUND SINCE(2) DURING PAST 5 YEARS FUNDS OVERSEEN BY TRUSTEE
- ----------------------- ---------------- -------- ----------------------------------------------- -------------------------
INDEPENDENT TRUSTEES
Richard P. Chapman, Jr. Trustee 1991 President and Chief Executive Officer, Brookline 41
Born: 1935 Bancorp., Inc. (lending) (since 1972); Chairman
and Director, Lumber Insurance Co. (insurance)
(until 2000); Chairman and Director, Northeast
Retirement Services, Inc. (retirement
administration) (since 1998).
William J. Cosgrove Trustee 1991 Vice President, Senior Banker and Senior Credit 41
Born: 1933 Officer, Citibank, N.A. (retired 1991);
Executive Vice President, Citadel Group
Representatives, Inc. (until 2004); Director,
Hudson City Bancorp; Trustee, Scholarship Fund
for Inner City Children (since 1986).
(1) Business address for independent and non-independent 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) Non-Independent Trustee: holds positions with the Fund's investment adviser,
underwriter, and or certain other affiliates.
16
TRUSTEE/
NAME, ADDRESS (1) POSITION(S) HELD OFFICER PRINCIPAL OCCUPATION(S) AND OTHER DIRECTORSHIPS NUMBER OF JOHN HANCOCK
AND AGE WITH FUND SINCE(2) DURING PAST 5 YEARS FUNDS OVERSEEN BY TRUSTEE
- ----------------------- ---------------- -------- ----------------------------------------------- -------------------------
INDEPENDENT TRUSTEES
William H. Cunningham Trustee 2005 Former Chancellor, University of Texas System 49
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 (until
2004), STC Broadcasting, Inc. and Sunrise
Television Corp. (until 2001), Symtx, Inc.
(electronic manufacturing) (since 2001),
Adorno/Rogers Technology, Inc. (until 2004),
Pinnacle Foods Corporation (until 2003),
rateGenius (until 2003), 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
(until 2003); Director, Chase Bank (formerly
Texas Commerce Bank - Austin), LIN Television
(since 2002), WilTel Communications (until 2003)
and Hayes Lemmerz International, Inc.
(diversified automotive parts supple company)
(since 2003).
(1) Business address for independent and non-independent 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) Non-Independent Trustee: holds positions with the Fund's investment adviser,
underwriter, and or certain other affiliates.
17
TRUSTEE/
NAME, ADDRESS (1) POSITION(S) HELD OFFICER PRINCIPAL OCCUPATION(S) AND OTHER DIRECTORSHIPS NUMBER OF JOHN HANCOCK
AND AGE WITH FUND SINCE(2) DURING PAST 5 YEARS FUNDS OVERSEEN BY TRUSTEE
- ------------------------ ---------------- -------- ----------------------------------------------- -------------------------
Ronald R. Dion Trustee 2005 Chairman and Chief Executive Officer, R.M. 49
Born: 1946 Bradley & Co., Inc.; Director, The New England
Council and Massachusetts Roundtable; Director,
Boston Stock Exchange; Trustee, North Shore
Medical Center; Director, BJ's Wholesale Club,
Inc. and a corporator of the Eastern Bank;
Trustee, Emmanuel College.
John A. Moore Trustee 1996 President and Chief Executive Officer, Institute 51
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 1996 Executive Director, Council for International 51
Born: 1943 Exchange of Scholars and Vice President,
Institute of International Education (since
1998); Senior Fellow, Cornell Institute of
Public Affairs, Cornell University (until 1997);
Former President of Wells College and St.
Lawrence University; Director, Niagara Mohawk
Power Corporation (until 2003); Director, Ford
Foundation, International Fellowships Program
(since 2002); Director, Lois Roth Endowment
(since 2002); Director, Council for
International Exchange (since 2003).
Steven Pruchansky Trustee 2005 Chairman and Chief Executive Officer, Mast 49
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).
(1) Business address for independent and non-independent 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) Non-Independent Trustee: holds positions with the Fund's investment adviser,
underwriter, and or certain other affiliates.
18
TRUSTEE/
NAME, ADDRESS (1) POSITION(S) HELD OFFICER PRINCIPAL OCCUPATION(S) AND OTHER DIRECTORSHIPS NUMBER OF JOHN HANCOCK
AND AGE WITH FUND SINCE(2) DURING PAST 5 YEARS FUNDS OVERSEEN BY TRUSTEE
- ------------------------ ---------------- -------- ----------------------------------------------- -------------------------
Norman H. Smith Trustee 2005 Lieutenant General, United States Marine Corps; 49
Born: 1933 Deputy Chief of Staff for Manpower and Reserve
Affairs, Headquarters Marine Corps; Commanding
General III Marine Expeditionary Force/3rd
Marine Division (retired 1991).
NON-INDEPENDENT TRUSTEE
James A. Shepherdson (3) Trustee, 2004 Executive Vice President, Manulife Financial 51
Born: 1952 President and Corporation (since 2004); Director, President
Chief Executive and Chief Executive Officer, John Hancock
Officer Advisers, LLC (the "Adviser") and The Berkeley
Financial Group, LLC ("The Berkeley Group")
(holding company); Director, President and Chief
Executive Officer, John Hancock Funds, LLC.
("John Hancock Funds"); Director, President and
Chief Executive Officer, Sovereign Asset
Management Corporation ("SAMCorp."); Director,
John Hancock Signature Services, Inc.; Director,
Chairman and President, NM Capital Management,
Inc. (NM Capital); President, John Hancock
Retirement Services, John Hancock Life Insurance
Company (until 2004); Chairman, Essex
Corporation (until 2004); Co-Chief Executive
Officer MetLife Investors Group (until 2003);
Senior Vice President, AXA/Equitable Insurance
Company (until 2000).
(1) Business address for independent and non-independent 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) Non-Independent Trustee: holds positions with the Fund's investment adviser,
underwriter, and or certain other affiliates.
19
TRUSTEE/
NAME, ADDRESS (1) POSITION(S) HELD OFFICER PRINCIPAL OCCUPATION(S) AND OTHER DIRECTORSHIPS NUMBER OF JOHN HANCOCK
AND AGE WITH FUND SINCE(2) DURING PAST 5 YEARS FUNDS OVERSEEN BY TRUSTEE
- ------------------------ ---------------- -------- ----------------------------------------------- -------------------------
PRINCIPAL OFFICERS WHO
ARE NOT TRUSTEES
William H. King Vice President 1991 Vice President and Assistant Treasurer, the N/A
Born: 1952 and Treasurer 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 Senior Vice 1991 Senior Vice President, Secretary and Chief Legal N/A
Born: 1950 President, Officer, SAMCorp., the Adviser and each of the
Secretary and John Hancock funds, John Hancock Funds and The
Chief Legal Berkeley Group; Director, Senior Vice President,
Officer NM Capital.
(1) Business address for independent and non-independent 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) Non-Independent 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 who are not "interested persons."
The Audit Committee members are Messrs. Chapman, Ladner, Chapman, Moore and Ms.
McGill Peterson. All of the members of the Audit Committee are independent under
the New York Stock Exchange's Revised Listing Rules and each member is
financially literate with at least one having accounting or financial management
expertise. The Board has adopted a written charter for the Audit Committee. 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, 2004.
The Administration Committee members are all of the independent Trustees. 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. All members of the Administration Committee are
independent under the New York Stock Exchange's Revised Listing Rules and are
not interested persons, as defined in the 1940 Act, of John Hancock or the Fund
(the "Independent Trustees"). Among other things, the Administration Committee
acts as a nominating committee of the Board. The Trustees who are not
Independent Trustees and the officers of the Fund are nominated and selected by
the Board. In reviewing a potential nominee and in evaluating the renomination
of current Independent Trustees, the Administration Committee will apply the
following criteria: (i) the nominee's reputation for integrity, honesty and
adherence to high ethical standards, (ii) the nominee's
20
business acumen, experience and ability to exercise sound judgments, (iii) a
commitment to understand the Fund and the responsibilities of a trustee of an
investment company, (iv) a commitment to regularly attend and participate in
meetings of the Board and its committees, (v) the ability to understand
potential conflicts of interest involving management of the Fund and to act in
the interests of all shareholders, and (vi) the absence of a real or apparent
conflict of interest that would impair the nominee's ability to represent the
interests of all the shareholders and to fulfill the responsibilities of an
Independent Trustee. The Administration Committee does not necessarily place the
same emphasis on each criteria and each nominee may not have each of these
qualities. The Administration Committee does not discriminate on the basis of
race, religion, national origin, sex, sexual orientation, disability or any
other basis proscribed by law. The Administration Committee held four meetings
during the fiscal year ended October 31, 2004.
As long as an existing Independent Trustee continues, in the opinion of the
Administration Committee, to satisfy these criteria, the Fund anticipates that
the Committee would favor the renomination of an existing Trustee rather than a
new candidate. Consequently, while the Administration Committee will consider
nominees recommended by shareholders to serve as trustees, the Administration
Committee may only act upon such recommendations if there is a vacancy on the
Board or the Administration Committee determines that the selection of a new or
additional Independent Trustee is in the best interests of the Fund. In the
event that a vacancy arises or a change in Board membership is determined to be
advisable, the Administration Committee will, in addition to any shareholder
recommendations, consider candidates identified by other means, including
candidates proposed by members of the Administration Committee. While it has not
done so in the past, the Administration Committee may retain a consultant to
assist the Committee in a search for a qualified candidate.
Any shareholder recommendation must be submitted in compliance with all of the
pertinent provisions of Rule 14a-8 under the Securities Exchange Act of 1934, as
amended, to be considered by the Administration Committee. In evaluating a
nominee recommended by a shareholder, the Administration Committee, in addition
to the criteria discussed above, may consider the objectives of the shareholder
in submitting that nomination and whether such objectives are consistent with
the interests of all shareholders. If the Board determines to include a
shareholder's candidate among the slate of nominees, the candidate's name will
be placed on the Fund's proxy card. If the Administration Committee or the Board
determines not to include such candidate among the Board's designated nominees
and the shareholder has satisfied the requirements of Rule 14a-8, the
shareholder's candidate will be treated as a nominee of the shareholder who
originally nominated the candidate. In that case, the candidate will not be
named on the proxy card distributed with the Fund's proxy statement.
Shareholders may communicate with the members of the Board as a group or
individually. Any such communication should be sent to the Board or an
individual Trustee c/o the secretary of the Fund at the following address: 101
Huntington Avenue, Boston, MA 02199. The Secretary may determine not to forward
any letter to the members of the Board that does not relate to the business of
the Fund.
The Contracts/Operations Committee members are Messrs. Carlin, Dion, Pruchansky
and Smith. 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 (if, applicable),
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, 2004.
21
The Investment Performance Committee members are all of the independent
Trustees. 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, 2004.
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, 2004.
AGGREGATE DOLLAR RANGE OF HOLDINGS
DOLLAR RANGE OF FUND SHARES IN JOHN HANCOCK FUNDS
NAME OF TRUSTEE OWNED BY TRUSTEE (1) OVERSEEN BY TRUSTEE (1)
- ----------------------- --------------------------- ----------------------------------
INDEPENDENT TRUSTEES
James F. Carlin* $ 1-10,000 Over 100,000
Richard P. Chapman, Jr. $ 1-10,000 Over 100,000
William J. Cosgrove $ 1-10,000 Over 100,000
William H. Cunningham* none $10,001-50,000
Ronald R. Dion* none Over 100,000
Charles L. Ladner** $10,001-50,000 Over 100,000
Dr. John A. Moore $ 1-10,000 Over 100,000
Patti McGill Peterson $10,001-50,000 Over 100,000
Steven R. Pruchansky* $ 1-10,000 Over 100,000
Norman H. Smith* $10,001-50,000 Over 100,000
Non-Independent Trustees
James A. Shepherdson** $ 1-10,000 $10,001-50,000
(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, 2004, 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: $1-$10,000 and over $100,000 for
Mr. Chapman, $1-10,001 and over $100,000 for Mr. Cosgrove, none and over
$100,000 Mr. Cunningham, none and over $100,000 for Mr. Dion, $1-$10,000
and over $100,000 for Dr. Moore, $1-10,000 and over $100,000 for Mr.
Pruchansky and $10,001-50,000 and over $100,000 for Mr. Smith.
*Messrs. Carlin, Cunningham, Dion and Pruchansky were elected to the Board
by shareholders on December 1, 2004 effective January 1, 2005. Mr. Smith
was appointed to the Board by the Trustees on December 14, 2004 effective
January 1, 2005.
**Mr. Shepherdson was appointed Trustee of the John Hancock Funds as of
May 12, 2004. As of June 16, 2004, the Independent Trustees elected
Charles L. Ladner as Trustee and Independent Chairman of the Board.
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. Any Non-Independent Trustee, and each
of the officers of the Fund are interested persons of the Adviser, and/or
affiliates are compensated by the Adviser and received no compensation from the
Fund for their services.
22
Total Compensation From the
Aggregate Compensation Fund and John Hancock Fund
Independent Trustees from the Fund (1) Complex to Trustees (2)
Dennis J. Aronowitz+ $ 2,138 $ 77,500
James F. Carlin++ 0 76,500
Richard P. Chapman* 2,217 79,500
William J. Cosgrove* 2,496 89,500
William H. Cunningham*++ 0 77,500
Ronald R. Dion*++ 0 76,500
Richard A. Farrell+ 2,154 76,500
William F. Glavin*+ 2,126 76,350
Charles L. Ladner+++ 142 104,150
Dr. John A. Moore* 1,439 79,900
Patti McGill Peterson 1,419 74,900
John Pratt+ 2,133 76,500
Steven R. Pruchansky*++ 0 79,500
Norman H. Smith*++ 0 76,500
------- ----------
Total $16,264 $1,121,300
(1) Compensation is for the fiscal year ending October 31, 2004.
(2) Total compensation paid by the John Hancock Funds Complex to the Independent
Trustees is as of December 31, 2004. As of this date, there were forty-nine
funds in the John Hancock Fund Complex: Messrs. Aronowitz, Chapman, Cosgrove,
Farrell, Glavin and Pratt serving on twenty-one funds; Messrs. Carlin,
Cunningham, Dion, Pruchansky and Smith serving on twenty-eight funds; Dr. Moore
and Ms. McGill Peterson serving on thirty funds and Mr. Ladner serving on
forty-nine funds.
*As of December 31, 2004, the value of the aggregate accrued deferred
compensation amount from all funds in the John Hancock Funds Complex for Mr.
Chapman was $69,035, Mr. Cosgrove was $232,538, Mr. Cunningham was $627,144, Mr.
Dion was $242,968, Mr. Glavin was $353,669, Dr. Moore was $273,394, Mr.
Pruchansky was $194,392 and Mr. Smith was $331,243 under the John Hancock Group
of Funds Deferred Compensation Plan for Independent Trustees (the "Plan").
+Messrs. Aronowitz, Farrell, Glavin and Pratt retired as of December 31, 2004.
++ Messrs. Carlin, Cunningham, Dion and Pruchansky each became a Trustee and
were elected to the Board by shareholders on December 1, 2004 effective January
1, 2005. Mr. Smith was appointed to the Board by the Trustees on December 14,
2004 effective January 1, 2005.
+++ As of June 16, 2004, the Independent Trustees elected Charles L. Ladner as a
Trustee of the Fund and Independent Chairman of the Board.
All of the officers listed are officers or employees of the Adviser or
Affiliated Companies. Some of the Trustees and officers may also be officers or
Trustees of one or more of the other funds for which the Adviser serves as
investment adviser.
As of February 2, 2005, the officers and Trustees of the Fund as a group
beneficially owned less than 1% of the outstanding shares of the Fund. As of
that date, the following shareholders beneficially owned 5% or more of
outstanding shares of each class of the Fund:
23
Name and Address of Owners of More than 5% of Shares Class A Class B Class C
- ---------------------------------------------------- ------- ------- -------
MLPF&S -- 7.08% 14.41%
For The Sole Benefit Of Its Customers
Attn: Fund Administration 97DR6
4800 Deerlake Drive East
Jacksonville FL 32246-6484
Citigroup Global Markets, Inc. -- 5.60% 7.46%
0010981250
Attn: Cindy Tempesta 7th Floor
333 West 34th Street
New York NY 10001-2483
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603,
a premier investment management company, managed approximately $30 billion in
open-end funds, closed-end funds, private accounts, retirement plans and related
party assets for individual and institutional investors as of December 31, 2004.
Additional information about John Hancock Advisers can be found on the website:
www.jhfunds.com.
The Fund has entered into an investment management contract (the "Advisory
Agreement") with the Adviser which was approved by the Fund's shareholders.
Pursuant to the Advisory Agreement, the Adviser will: (a) furnish continuously
an investment program for the Fund and determine, subject to the overall
supervision and review of the Trustees, which investments should be purchased,
held, sold or exchanged, and (b) provide supervision over all aspects of the
Fund's operations except those which are delegated to a custodian, transfer
agent or other agent.
The Fund bears all costs of its organization and operation, including but not
limited to expenses of preparing, printing and mailing all shareholders'
reports, notices, prospectuses, proxy statements and reports to regulatory
agencies; expenses relating to the issuance, registration and qualification of
shares; government fees; interest charges; expenses of furnishing to
shareholders their account statements; taxes; expenses of redeeming shares;
brokerage and other expenses connected with the execution of portfolio
securities transactions; expenses pursuant to the Fund's plan of distribution;
fees and expenses of custodians including those for keeping books and accounts,
maintaining a committed line of credit and calculating the net asset value of
shares; fees and expenses of transfer agents and dividend disbursing agents;
legal, accounting, financial, management, tax and auditing fees and expenses of
the Fund (including an allocable portion of the cost of the Adviser's employees
rendering such services to the Fund); the compensation and expenses of Trustees
who are not otherwise affiliated with the Trust, the Adviser or any of their
affiliates; expenses of Trustees' and shareholders' meetings; trade association
membership; insurance premiums; and any extraordinary expenses.
As compensation for its services under the Advisory Agreement, the Fund pays the
Adviser quarterly a fee based on a stated percentage of the average daily net
assets of the Fund as follows:
Average Daily Net Assets Annual Rate
- ------------------------ -----------
First $200,000,000 0.80%
Amount over $200,000,000 0.70%
24
From time to time, the Adviser may reduce its fee or make other arrangements to
limit the Fund's expenses to a specified percentage of its average daily net
assets. The Adviser retains the right to reimpose a fee and recover any other
payments to the extent that, at the end of any fiscal year, the Fund's annual
expenses fall below this limit.
For the fiscal years ended October 31, 2002, 2003 and 2004, the Adviser received
fees of $2,638,584, $2,133,426 and $2,283,152, respectively.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser or their 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 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 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 their 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 its 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 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 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.
25
In evaluating the Advisory Agreement, the Independent Trustees reviewed
materials furnished by the Adviser, including information regarding the Adviser,
its respective affiliates and their personnel, operations and financial
condition. The Independent Trustees also reviewed, among other things:
- - 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 healthcare/biotechnology funds derived
from data provided by Lipper Inc. and appropriate market indexes.
- - The fee charged by the Adviser for investment advisory and administrative
services. 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.
- - 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 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 Non-Independent Trustees of the Fund and any officers of
the Adviser or its affiliates. The Independent Trustees also relied upon the
assistance of counsel to the Independent Trustees and counsel to the Fund.
The continuation of the Advisory Agreement and Distribution Agreement (discussed
below) was approved by all the Trustees. The Advisory Agreement and the
Distribution Agreement, will continue in effect from year to year, provided that
their 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. These agreements may be terminated on 60 days'
written notice by either party to the contract or by vote of a majority of the
outstanding voting securities of the Fund and will terminate automatically if
assigned.
Accounting and Legal Services Agreement. The Trust, on behalf of the Fund, is a
party to an Accounting and Legal Services Agreement with the Adviser. Pursuant
to this agreement, the Adviser provides the Fund with certain tax, accounting
and legal services. For the fiscal years ended October 31, 2002, 2003 and 2004,
the Fund paid the Adviser $73,585, $98,619 and $80,623, respectively, for
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. Information
regarding how the Fund voted proxies relating to portfolio securities during the
12-month period ending June 30, 2004 is available by calling 1-800-225-5291 or
on the Fund's website: www.jhfunds.com/proxy or on the SEC's website at
www.sec.gov.
26
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.
ADDITIONAL INFORMATION ABOUT THE PORTFOLIO MANAGER
OTHER ACCOUNTS THE PORTFOLIO MANAGER IS MANAGING. The table below indicates for
the portfolio manager of the Fund information about the accounts over which the
portfolio manager has day-to-day investment responsibility. All information on
the number of accounts and total assets in the table is as of October 31, 2004.
For purposes of the table, "Other Pooled Investment Vehicles" may include
investment partnerships and group trusts, and "Other Accounts" may include
separate accounts for institutions or individuals, insurance company general or
separate accounts, pension funds and other similar institutional accounts.
PORTFOLIO
MANAGER NAME OTHER ACCOUNTS MANAGED BY THE PORTFOLIO MANAGER
- ---------------- ----------------------------------------------------------
Linda I. Miller Other Registered Investment Companies: Two (2) funds with
total net assets of approximately $194.8 million
Other Pooled Investment Vehicles: None
Other Accounts: None
The Adviser does not receive a fee based upon the investment performance of any
of the accounts included under "Other Accounts Managed by the Portfolio Manager"
in the table above. When a portfolio manager is responsible for the management
of more than one account, the potential arises for the portfolio manager to
favor one account over another. The principal types of potential conflicts of
interest that may arise are discussed below. For the reasons outlined below, the
Fund does not believe that any material conflicts are likely to arise out of a
portfolio manager's responsibility for the management of the Fund as well as one
or more other accounts. The Adviser has adopted procedures that are intended to
monitor compliance with the policies referred to in the following paragraphs.
Generally, the risks of such conflicts of interests are increased to the extent
that a portfolio manager has a financial incentive to favor one account over
another. The Adviser has structured its compensation arrangements in a manner
that is intended to limit such potential for conflicts of interests. See
"Compensation of Portfolio Managers" below.
- A portfolio manager could favor one account over another in
allocating new investment opportunities that have limited supply,
such as initial public offerings and private placements. If, for
example, an initial public offering that was expected to appreciate
in value significantly shortly after the offering was allocated to a
single account, that account may be expected to have better
investment performance than other accounts that did not receive an
allocation on the initial public offering. The Adviser has policies
that require a portfolio manager to allocate such investment
opportunities in an equitable manner and generally to allocate such
investments proportionately among all accounts with similar
investment objectives.
- A portfolio manager could favor one account over another in the
order in which trades for the accounts are placed. If a portfolio
manager determines to purchase a security for more than one account
in an aggregate amount that may influence the market price of the
security, accounts that purchased or sold the security first may
receive a more favorable
27
price than accounts that made subsequent transactions. The less
liquid the market for the security or the greater the percentage
that the proposed aggregate purchases or sales represent of average
daily trading volume, the greater the potential for accounts that
make subsequent purchases or sales to receive a less favorable
price. When a portfolio manager intends to trade the same security
for more than one account, the policies of the Adviser generally
require that such trades be "bunched," which means that the trades
for the individual accounts are aggregated and each account receives
the same price. There are some types of accounts as to which
bunching may not be possible for contractual reasons (such as
directed brokerage arrangements). Circumstances may also arise where
the trader believes that bunching the orders may not result in the
best possible price. Where those accounts or circumstances are
involved, the Adviser will place the order in a manner intended to
result in as favorable a price as possible for such client.
- A portfolio manager could favor an account if the portfolio
manager's compensation is tied to the performance of that account
rather than all accounts managed by the portfolio manager. If,
for example, the portfolio manager receives a bonus based upon
the performance of certain accounts relative to a benchmark while
other accounts are disregarded for this purpose, the portfolio
manager will have a financial incentive to seek to have the
accounts that determine the portfolio manager's bonus achieve the
best possible performance to the possible detriment of other
accounts. Similarly, if the Adviser receives a performance-based
advisory fee, the portfolio manager may favor that account,
whether or not the performance of that account directly
determines the portfolio manager's compensation. The investment
performance on specific accounts is not a factor in determining
the portfolio manager's compensation. See "Compensation of
Portfolio Managers" below. The Adviser does not receive a
performance-based fee with respect to any of the accounts managed
by the portfolio managers.
- A portfolio manager could favor an account if the portfolio manager
has a beneficial interest in the account, in order to benefit a
large client or to compensate a client that had poor returns. For
example, if the portfolio manager held an interest in an investment
partnership that was one of the accounts managed by the portfolio
manager, the portfolio manager would have an economic incentive to
favor the account in which the portfolio manager held an interest.
The Adviser imposes certain trading restrictions and reporting
requirements for accounts in which a portfolio manager or certain
family members have a personal interest in order to confirm that
such accounts are not favored over other accounts.
- If the different accounts have materially and potentially
conflicting investment objectives or strategies, a conflict of
interest may arise. For example, if a portfolio manager purchases a
security for one account and sells the same security short for
another account, such trading pattern could disadvantage either the
account that is long or short. In making portfolio manager
assignments, the Adviser seeks to avoid such potentially conflicting
situations. However, where a portfolio manager is responsible for
accounts with differing investment objectives and policies, it is
possible that the portfolio manager will conclude that it is in the
best interest of one account to sell a portfolio security while
another account continues to hold or increase the holding in such
security.
COMPENSATION OF PORTFOLIO MANAGERS. The Adviser has adopted a system of
compensation for portfolio managers and others involved in the investment
process that is applied systematically among investment professionals and seeks
to align the financial interests of the investment professionals with both those
of the Adviser, through incentive payments based in part upon the Adviser's
financial performance, and also shareholders of the funds they manage, through
incentive payments based in part upon the relative investment performance of
those funds. The Adviser's compensation arrangements with investment
professionals are determined on the basis
28
of the investment professional's overall services to the Adviser and not on the
basis of specific funds or accounts managed by the investment professional. At
the Adviser, the structure of compensation of investment professionals is
currently comprised of the following basic components: base salary, an annual
investment bonus plan and a phantom stock plan, as well as customary benefits
that are offered generally to all full-time employees of the Adviser. A limited
number of senior portfolio managers, who serve as officers of both the Adviser
and its parent company, may also receive options or restricted stock grants of
common shares of Manulife Financial. The following describes each component of
the compensation package for the individuals identified as a portfolio manager
for the fund.
- BASE SALARY. Base compensation is fixed and normally reevaluated on
an annual basis. The Adviser seeks to set compensation at market
rates, taking into account the experience and responsibilities of
the investment professional.
- INVESTMENT BONUS PLAN. Only investment professionals are eligible to
participate in the Investment Bonus Plan. Under the plan, investment
professionals are eligible for an annual bonus. The plan is intended
to provide a competitive level of annual bonus compensation that is
tied to the investment professional achieving superior investment
performance and aligns the financial incentives of the Adviser and
the investment professional. Any bonus under the plan is completely
discretionary, with a maximum annual bonus that may be in excess of
base salary. While the amount of any bonus is discretionary, the
following factors are generally used in determining bonuses under
the plan:
- INVESTMENT PERFORMANCE: The investment performance of
all accounts managed by the investment professional over
one and three- year periods are considered. The pre-tax
performance of each account is measured relative to an
appropriate peer group benchmark (for example a Lipper
large cap growth peer group if the fund invests
primarily in large cap stocks with a growth strategy).
With respect to fixed income accounts, relative yields
are also used to measure performance.
- THE PROFITABILITY OF THE ADVISER: The profitability of
the Adviser and its parent company are also considered
in determining bonus awards, with greater emphasis
placed upon the profitability of the Adviser.
- NON-INVESTMENT PERFORMANCE: The more intangible
contributions of an investment professional to the
Adviser's business, including the investment
professional's support of sales activities, new
fund/strategy idea generation, professional growth and
development, and management, where applicable, are
evaluating in determining the amount of any bonus award.
- PHANTOM STOCK APPRECIATION PLAN. The Adviser is not a public company
and, consequently, does not compensate its employees through the
grant of the company's common shares. However, the Adviser
participates in a phantom stock appreciation plan that is intended
to provide employees of the Adviser with equity like interests in
the Adviser's financial performance. All employees of the Adviser,
not just investment professionals, who are of a designated level of
seniority, are eligible to participate in this plan. As part of the
overall compensation package, this plan is designed, among other
things, to motivate and reward the investment professionals if the
Adviser achieves earnings growth. Awards under the plan are granted
to investment professionals based on a number of factors, including
past and current performance, impact on overall business results and
recognition of long-term potential and value to the company.
Payments under the plan are based upon three-year
29
performance cycles. Participants are granted an interest in a
phantom stock pool. The pool represents appreciation, if any, of a
portion of the total equity interests in the Adviser. For purposes
of the plan, the Adviser's common shares are valued on the basis of
a multiple of EBITDA (earnings before interest, taxes, depreciation
and amortization expense). The value of the pool is equal to the
difference, if positive, in the value of the Adviser's common
shares, using that valuation method, at the start of the performance
cycle and the value of those shares at the end of the performance
cycle. A participant receives the participant's allocated share of
the pool, with that interest payable in three annual installments.
Generally, a participant must remain an employee at the time of
distribution of an installment in order to be entitled to receive
it.
- OPTIONS AND STOCK GRANTS. A limited number of senior investment
professionals may receive options to purchase shares of Manulife
Financial stock. Generally, such option would permit the investment
professional to purchase a set amount of stock at the market price
on the date of grant. The option can be exercised for a set period
(normally a number of years or until termination of employment) and
the investment professional would exercise the option if the market
value of Manulife Financial stock increases. Some investment
professionals may receive restricted stock grants, where the
investment professional is entitle to receive the stock at no or
nominal cost, provided that the stock is forgone if the investment
professional's employment is terminated prior to a vesting date.
The Adviser also permits investment professionals to participate on a voluntary
basis in a deferred compensation plan, under which the investment professional
may elect on an annual basis to defer receipt of a portion of their compensation
until retirement. Participation in the plan is voluntary. No component of the
compensation arrangements for the investment professionals involves mandatory
deferral arrangements. While the profitability of the Adviser and the investment
performance of the accounts that the investment professionals maintain are
factors in determining an investment professional's overall compensation, the
investment professional's compensation is not linked directly to the net asset
value of any fund.
SHARE OWNERSHIP BY THE PORTFOLIO MANAGER. The following table indicates as of
October 31, 2004 the value, within the indicated range, of shares beneficially
owned by the portfolio manager in the Fund. For purposes of this table, the
following letters represent the range indicated below:
A - $0
B - $1 - $10,000
C - $10,001 - $50,000
D - $50,001 - $100,000
E - $100,001 - $500,000
F - $500,001 - $1,000,000
G - More than $1 million
RANGE OF BENEFICIAL
PORTFOLIO MANAGER OWNERSHIP
- ----------------- -------------------
Linda I. Miller A
30
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, banks and registered investment advisors ("Selling Firms") that
have entered into selling agreements with John Hancock Funds. These Selling
Firms 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 any applicable sales charge, if any. In connection
with the sale of Fund shares, John Hancock Funds and Selling Firms receive
compensation from a sales charge imposed, in the case of Class A shares, at the
time of sale. (Prior to July 15, 2004, Class C shares were also subject to a
sales load imposed at the time of purchase.) In the case of Class B, Class C and
Class R shares, the Selling Firm receives compensation immediately but John
Hancock Funds is compensated on a deferred basis.
Total underwriting commissions (sales charges) for sales of the Fund's Class A
shares for the fiscal years ended October 31, 2002, 2003 and 2004 were $249,274,
$183,894 and $185,741, respectively, of such amounts $31,404, $24,958 and
$26,095, respectively, were retained by John Hancock Funds in 2002, 2003 and
2004, respectively. The underwriting commissions (sales charges) for sales of
the Fund's Class C shares for the years ended October 31, 2002, 2003 and 2004
were $27,882, $12,993 and $16,227, respectively. No Class C commissions were
retained by John Hancock Funds, the remainder of the underwriting commissions
were reallowed to Selling Firms.
The Fund's Trustees adopted Distribution Plans with respect to each class of
shares (the "Plans"), pursuant to Rule 12b-1 under the Investment Company Act of
1940. Under the Plans, the Fund will pay distribution and service fees at an
aggregate annual rate of up to 0.30% for Class A and 1.00% for Class B and Class
C shares of the Fund's average daily net assets attributable to shares of that
class. However, the service fee will not exceed 0.25% of the Fund's average
daily net assets attributable to each class of shares. The distribution fee 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 Firms
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 Firms and others
for providing personal and account maintenance services to shareholders. In the
event that John Hancock Funds is not fully reimbursed for payments or expenses
they incur under the Class A Plan, these expenses will not be carried beyond
twelve months from the date they were incurred. Unreimbursed expenses under the
Class B and Class C Plans will be carried forward together with interest on the
balance of these unreimbursed expenses. The Fund does not treat unreimbursed
expenses under the Class B and Class C Plans as a liability of the Fund because
the Trustees may terminate Class B and/or Class C Plans at any time. For the
fiscal year ended October 31, 2004, an aggregate of $518,133 of Distribution
Expenses or 0.35% of the average net assets of the Fund's Class B shares was not
reimbursed or recovered by John Hancock Funds through the receipt of deferred
sales charges or Rule 12b-1 fees in prior periods. For the fiscal year ended
October 31, 2004, an aggregate of $73,473 of Distribution Expenses or 0.55% 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 in prior periods.
31
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 provide the Fund
with a written report of the amounts expended under the Plans and the purpose
for which these expenditures were made. The Trustees review these reports on a
quarterly basis to determine their continued appropriateness.
The Plans provide that they will continue in effect only so long as their
continuance is approved at least annually by a majority of both the Trustees and
Independent Trustees. The Plans provide that they may be terminated without
penalty, (a) by the vote of a majority of the Independent Trustees, (b) by a
vote of a majority of the Fund's outstanding shares of the applicable class upon
60 days' written notice to John Hancock Funds, and (c) automatically in the
event of assignment. The Plans further provide that they may not be amended to
increase the maximum amount of the fees for the services described therein
without the approval of a majority of the outstanding shares of the class of the
Fund which has voting rights with respect to that Plan. Each plan provides, that
no material amendment to the Plans will be effective unless it is approved by a
majority vote of the Trustees and the Independent Trustees of the Fund. The
holders of Class A, Class B and Class C shares have exclusive voting rights with
respect to the Plan applicable to their respective class of shares. In adopting
the Plans, the Trustees concluded that, in their judgment, there is a reasonable
likelihood that the Plans will benefit the holders of the applicable class of
shares of the Fund.
Amounts paid to John Hancock Funds by any class of shares of the Fund will not
be used to pay the expenses incurred with respect to any other class of shares
of the Fund; provided, however, that expenses attributable to the Fund as a
whole will be allocated, to the extent permitted by law, according to a formula
based upon gross sales dollars and/or average daily net assets of each such
class, as may be approved from time to time by vote of a majority of Trustees.
From time to time, the Fund may participate in joint distribution activities
with other Funds and the costs of those activities will be borne by each Fund in
proportion to the relative net asset value of the participating Fund.
For the fiscal year ended October 31, 2004, 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,
Prospectus Compensation Expenses of Carrying
Shares Advertising to New Shareholders to Selling Firms Distributor Or Other Finance Charges
- ------ ----------- ----------------------- ---------------- ----------- ------------------------
Class A $29,112 $560 $240,092 $115,201 $0
Class B $73,926 $907 $637,905 $837,967 $0
Class C $ 6,825 $ 82 $108,864 $ 26,237 $0
32
SALES COMPENSATION
As part of their business strategies, the Fund, along with John Hancock Funds,
pay compensation to Selling 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 Selling Firm compensation payments for Class A, Class
B, Class C and Class R are (1) the 12 b-1 fees that are paid out of the fund's
assets and (2) sales charges paid by investors. The sales charges and 12b-1 fees
are detailed in the prospectus and under the "Distribution Contracts" in this
Statement of Additional Information. The portions of these expenses that are
paid to Selling Firms are shown on the next page. For Class I shares, John
Hancock Funds may make a one-time payment at the time of initial purchase out of
its own resources to a Selling Firm which sells shares of the Fund. This payment
may not exceed 0.15% of the amount invested.
INITIAL COMPENSATION Whenever you make an investment in Class A, Class B or
Class C shares of the Fund, the Selling Firm receives a
reallowance/payment/commission as described on the next page. The Selling Firm
also receives the first year's 12b-1 service fee at this time.
ANNUAL COMPENSATION For Class A, Class B and Class C shares of the Fund,
beginning in the second year after an investment is made, the Selling Firm
receives an annual 12b-1 service fee of 0.25% of its average daily net (aged)
assets. In addition, beginning in the second year after an investment is made in
Class C shares, the Distributor will pay the Selling Firm a distribution fee in
an amount not to exceed 0.75% of the average daily net (aged) assets. These
service and distribution fees are paid quarterly in arrears.
Selling Firms receive service and distribution fees if, for the preceding
quarter, (1) their clients/shareholders have invested combined average daily net
assets of no less than $1,000,000 in eligible (aged) assets; or (2) an
individual registered representative of the Selling Firm has no less than
$250,000 in eligible (aged) assets. The reason for these criteria is to save the
Fund the expense of paying out de minimus amounts. As a result, if a Selling
Firm does not meet one of the criteria noted above, the money for that firm's
fees remains in the Fund.
In addition, from time to time, John Hancock Funds, at its expense, and without
additional cost to the Fund or its shareholders, 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 Selling
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 Selling Firm-sponsored events or
activities. From time to time, John Hancock Funds may provide expense
reimbursements for special training of a Selling Firm's registered
representatives and other employees in group meetings or non-cash compensation
in the form of occasional gifts, meals, tickets or other entertainment. Payments
may also include amounts for sub-administration and other services for
shareholders whose shares are held of record in omnibus or other group accounts.
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.
33
FIRST YEAR BROKER OR OTHER SELLING FIRM COMPENSATION
INVESTOR PAYS
SALES CHARGE SELLING FIRM SELLING FIRM
(% OF OFFERING RECEIVES RECEIVES 12B-1 TOTAL SELLING FIRM
CLASS A INVESTMENTS PRICE) COMMISSION (1) SERVICE FEE (2) COMPENSATION (3)(4)
- ------------------- -------------- -------------- --------------- -------------------
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 (5)
First $1M - $4,999,999 -- 0.75% 0.25% 1.00%
Next $1 - $5M above that -- 0.25% 0.25% 0.50%
Next $1 or more above that -- 0.00% 0.25% 0.25%
CLASS B INVESTMENTS
All amounts -- 3.75% 0.25% 4.00%
CLASS C INVESTMENTS
All amounts -- 0.75% 0.25% 1.00%
(1) For Class A investments under $1 million, a portion of the Selling Firm's
commission is paid out of the sales charge.
(2) For Class A, B and C shares, the Selling Firm receives 12b-1 fees in the
first year as a % of the amount invested and after the first year as a % of
average daily net eligible assets. For Selling Firms with a fee-based/WRAP
program agreement with John Hancock Funds, the Selling Firm receives 12b-1 fees
in the first year as a % of average daily net eligible assets. Certain
retirement platforms also receive 12b-1 fees in the first year as a % of average
daily net eligible assets. Quarterly payments are made in arrears.
(3) Selling Firm commission and 12b-1 service fee percentages are calculated
from different amounts, and therefore may not equal the total Selling Firm
compensation percentages if combined using simple addition.
(4) Underwriter retains the balance.
(5) See "Initial Sales Charge on Class A Shares" for discussion on how to
qualify for a reduced sales charge. 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 Selling Firm
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.
34
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. In addition, because of the amount of time required to
collect and process trading information as to large numbers of securities
issues, the values of certain securities (such as convertible bonds, U.S.
government securities and tax-exempt securities) are determined based on market
quotations collected prior to the close of the Exchange. Occasionally, events
affecting the value of such securities may occur between the time of the
determination of value and the close of the Exchange which will not be reflected
in the computation of the Fund's net asset value. If events materially affecting
the value of such securities occur during such period, then these securities
will be valued at their fair value following procedures approved by the
Trustees.
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.
Equity options held by a Fund are priced as of the close of trading (generally 4
p.m. Eastern Time), futures contracts on U.S. government and other fixed-income
securities (generally 3 p.m. Eastern Time) and index options held by a Fund are
priced as of their close of trading (generally 4:15 p.m. Eastern Time).
Short-term debt investments which have a remaining maturity of 60 days or less
may be 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.
If any securities held by the Fund are restricted as to resale, the fair value
of such securities is generally determined as the amount which the Fund could
reasonably expect to realized from an orderly disposition of such securities
over a reasonable period of time. The valuation procedures applied in any
specific instance are likely to vary from case to case. However, consideration
is generally given to the financial position of the issuer and other fundamental
analytical data relating to the investment and to the nature of the restrictions
on disposition of the securities (including any registration expenses that might
be borne by the Fund in connection with such disposition). In addition, specific
factors are also generally considered, such as the cost of the investment, the
market value of any unrestricted securities of the same class, the size of the
holding, the prices of any recent transactions or offers with respect to such
securities and any available analysts' reports regarding the issuer.
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 4:00 p.m., London time on the date
of any determination of the Fund's NAV. Generally, trading in foreign securities
is substantially completed each day at various times prior to the closed of the
Exchange. Currency exchange rates are normally determined at the close of
trading in London, England (11:00 a.m., New York Time). The closing prices for
securities in markets or on exchanges outside the U.S. that close prior to the
close of the Exchange may not fully reflect events that occur after such close
but before the close of the Exchange. As a result, the Fund has adopted fair
value pricing procedures, which, among other things, require the Fund to fair
value such securities if these has been a movement in the U.S. market that
exceeds a specified threshold. Although the threshold may be revised from time
to time and the number of days on
35
which fair value prices will be used will depend on market activity, it is
possible that fair value prices will be used by the Fund to a significant
extent. In addition, securities held by some of the Funds may be traded in
foreign markets that are open for business on days that the Fund is not, and the
trading of such securities on those days may have an impact on the value of a
shareholder's investment at a time when the shareholder cannot buy and sell
shares of the Fund.
The NAV for each class of the Fund is determined each business day at the close
of regular trading on the New York Stock Exchange (typically 4:00 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 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") or on a contingent deferred basis
(the "contingent deferred sales charge or CDSC").
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 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 current offering
price of the Class A, Class B, Class C, Class I, or Class R shares of the John
Hancock mutual funds owned by the investor (see "Accumulation Privilege" below).
IN ORDER TO RECEIVE THE REDUCED SALES CHARGE, THE INVESTOR MUST NOTIFY HIS/HER
FINANCIAL ADVISER AND/OR THE FINANCIAL ADVISER MUST NOTIFY JOHN HANCOCK
SIGNATURE SERVICES, INC. ("SIGNATURE SERVICES") AT THE TIME OF PURCHASE OF THE
CLASS A SHARES, ABOUT ANY OTHER JOHN HANCOCK MUTUAL FUNDS OWNED BY THE INVESTOR,
THE INVESTOR'S SPOUSE AND THEIR CHILDREN UNDER THE AGE OF 21 (SEE "COMBINATION
PRIVILEGE" BELOW). THIS INCLUDES INVESTMENTS HELD IN A RETIREMENT ACCOUNT, AN
EMPLOYEE BENEFIT PLAN OR AT A BROKER OR FINANCIAL ADVISER OTHER THAN THE ONE
HANDLING YOUR CURRENT PURCHASE. JOHN HANCOCK WILL CREDIT THE COMBINED VALUE, AT
THE CURRENT OFFERING PRICE, OF ALL ELIGIBLE ACCOUNTS TO DETERMINE WHETHER YOU
QUALIFY FOR A REDUCED SALES CHARGE ON YOUR CURRENT PURCHASE.
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:
- - A Trustee or officer of the Trust; a Director or officer of the Adviser
and its affiliates, sub-adviser or Selling Firms; 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, child, grandparent, grandchild, parent, sibling, mother-in-law,
father-in-law, daughter-in-law, son-in-law, niece, nephew and same sex
domestic partner; "Immediate Family") of any of the foregoing; or any
fund, pension, profit sharing or other benefit plan for the individuals
described above.
36
- - 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.
- - 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.
- - A member of a class action lawsuit against insurance companies who is
investing settlement proceeds.
- - Certain retirement plans participating in Merrill Lynch servicing programs
offered in Class A shares, including transferee recordign arrangements,
Merrill Lynch Connect Arrangements and third party administrator
recordkeeping arrangements. See your Merrill Lynch Financial Consultant
for further information.
- - Retirement plans investing through PruSolutions(sm) program.
- - Participants in certain 529 Plans that have a signed agreement with John
Hancock Funds. No CDSC will be due for redemptions on plan purchases made
at NAV with no finder's fee. However, if a plan had a finder's fee or
commission, and the entire plan redeemed within 12 months of the first
investment in the plan, a CDSC would be due.
- - Participant directed retirement plans with at least 100 eligible employees
at the inception of the Fund account. Each of these employees may purchase
Class A shares with no initial sales charge, if the plan sponsor notifies
Signature Services of the number of employees at the time the account is
established. However, if the shares are redeemed within 12 months of the
inception of the plan, a CDSC will be imposed at the following rate:
Amount Invested CDSC Rate
- -------------------------- ---------
First $1 to $4,999,999 1.00%
Next $1-$5M above that 0.50%
Next $1 or more above that 0.25%
As of July 15, 2004, no Class C shares paid a front-end sales charge.
Class A 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.
With Reduced Sales Charges
Combination Privilege. For all shareholders 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). Qualified and non-qualified retirement plan
investments can be combined to take advantage of this privilege. Further
information about combined purchases, including
37
certain restrictions on combined group purchases, is available from Signature
Services or a Selling Firm's representative.
Accumulation Privilege. Class A investors may also reduce their Class A sales
charge by taking into account not only the amount being invested but also the
current offering price of all the Class A, Class B, Class C, Class I and Class R
shares of all John Hancock funds already held by such person. However, 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. To receive a reduced sales charge, the investor must
tell his/her financial adviser or Signature Services at the time of the purchase
about any other John Hancock mutual funds held by that investor or his/her
Immediate Family.
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 Class A sales charges under the Accumulation
Privilege 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 can be
combined to satisfy an LOI (either 13 or 48 months). Since some retirement plans
are held in an omnibus account, an investor wishing to count retirement plan
holdings towards a Class A purchase must notify Signature Services of these
holdings. Such an investment (including accumulations, combinations and
reinvested dividends) must aggregate $50,000 or more during the specified period
from the date of the LOI or from a date within ninety (90) days prior thereto,
upon written request to Signature Services. The sales charge applicable to all
amounts invested under the LOI is computed as if the aggregate amount intended
to be invested had been invested immediately. If such aggregate amount is not
actually invested, the difference in the sales charge actually paid and the
sales charge payable had the LOI not been in effect is due from the investor.
However, for the purchases actually made within the specified period (either 13
or 48 months) the sales charge applicable will not be higher than that which
would have applied (including accumulations and combinations) had the LOI been
for the amount actually invested.
The LOI authorizes Signature Services to hold in escrow sufficient Class A
shares (approximately 5% of the aggregate) to make up any difference in sales
charges on the amount intended to be invested and the amount actually invested,
until such investment is completed within the specified period, at which time
the escrowed Class A shares will be released. If the total investment specified
in the LOI is not completed, the Class A shares held in escrow may be redeemed
and the proceeds used as required to pay the sales charge as may be due. By
signing the LOI, the investor authorizes Signature Services to act as his or her
attorney-in-fact to redeem any escrowed Class A shares and adjust the sales
charge, if necessary. A LOI does not constitute a binding commitment by an
investor to purchase or by the Fund to sell any additional Class A shares and
may be terminated at any time.
38
DEFERRED SALES CHARGE ON CLASS B AND CLASS C SHARES
Investments in Class B and Class C 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, respectively, of purchase will be subject to a
CDSC at the rates set forth in the Prospectus as a percentage of the dollar
amount subject to the CDSC. The charge will be assessed on an amount equal to
the lesser of the current market value or the original purchase cost of the
Class B or Class C shares being redeemed. No CDSC will be imposed on increases
in account value above the initial purchase price or on shares derived from
reinvestment of dividends or capital gains distributions.
Class B shares are not available to retirement plans that had more than 100
eligible employees at the inception of the Fund account. You must notify
Signature Services of the number of eligible employees at the time your account
is established.
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.
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:
- - Proceeds of 50 shares redeemed at $12 per shares (50 x 12) $ 600.00
- - *Minus Appreciation ($12 - $10) x 100 shares (200.00)
- - Minus proceeds of 10 shares not subject to CDSC (dividend reinvestment) (120.00)
--------
- - Amount subject to CDSC $ 280.00
*The appreciation is based on all 100 shares in the account NOT just the shares
being redeemed.
39
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 Firms 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 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" in the Prospectus.
* Redemptions of Class B and Class C shares made under a periodic withdrawal
plan, or redemptions for fees charged by planners or advisors for advisory
services, as long as your annual redemptions do not exceed 12% of your
account value, including reinvested dividends, at the time you established
your periodic withdrawal plan and 12% of the value of subsequent
investments (less redemptions) in that account at the time you notify
Signature Services. (Please note that this waiver does not apply to
periodic withdrawal plan redemptions of Class A or Class C 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 by retirement plans that invested through
PruSolutions(sm) program.
* Redemptions of Class A shares made after one year from the inception date
of a retirement plan at John Hancock.
For Retirement Accounts (such as traditional, Roth IRAs and Coverdell ESAs,
SIMPLE IRA, SIMPLE 401(k), Rollover IRA, TSA, 457, 403(b), 401(k), Money
Purchase Pension Plan, Profit-Sharing Plan and other plans as described in the
Internal Revenue Code) unless otherwise noted.
* Redemptions made to effect mandatory or life expectancy distributions
under the Internal Revenue Code. (Waiver based on required, minimum
distribution calculations for John Hancock Mutual Fund IRA assets only.)
* Returns of excess contributions made to these plans.
40
* Redemptions made to effect certain distributions, as outlined in the chart
on the following page, to participants or beneficiaries from employer
sponsored retirement plans under sections 401(a) (such as Money Purchase
Pension Plans and Profit-Sharing/401(k) Plans), 403(b), 457 and 408 (SEPs
and SIMPLE IRAs) of the Internal Revenue Code.
Please see matrix for some examples.
41
401 (a)
Plan (401
(k), MPP,
PSP) 457
& 408
Type of (SEPs & IRA, IRA
Distribution Simple IRAs) 403 (b) 457 Rollover Non-retirement
- --------------------------------------- -------------- -------------- --------------- --------------- ---------------
Death or Disability Waived Waived Waived Waived Waived
Over 70 1/2 Waived Waived Waived Waived for 12% of account
required minimum value annually
Distributions* in periodic
or 12% of payments
account value
annually in
periodic
payments.
Between 59 1/2 and 70 1/2 Waived Waived Waived Waived for Life 12% of account
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 only) annuity annuity annuity annuity value annually
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 Relations Orders Waived Waived Waived N/A N/A
Termination of Employment Before Normal Waived Waived Waived N/A N/A
Retirement Age
Return of Excess Waived Waived Waived Waived N/A
* Required minimum distributions based on John Hancock Mutual Fund IRA assets
only.
If you qualify for a CDSC waiver under one of these situations, you must notify
Signature Services at the time you make your redemption. The waiver will be
granted once Signature Services has confirmed that you are entitled to the
waiver.
42
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion, the shareholder will incur a brokerage
charge. Any such securities would be valued for the purposes of making such
payment at the same value as used in determining net asset value. The Fund has,
however, elected to be governed by Rule 18f-1 under the Investment Company Act.
Under that rule, the Fund must redeem its shares for cash except to the extent
that the redemption payments to any shareholder during any 90- day period would
exceed the lesser of $250,000 or 1% of the Fund's net asset value at the
beginning of such period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. The Fund permits exchanges of shares of any class of a fund
for shares of the same class in any other John Hancock fund offering that class.
Exchanges between funds are based on their respective net asset values. No sales
charge is imposed, except on exchanges of Class A shares from Money Market Fund
or U.S. Government Cash Reserve Fund to another John Hancock fund, if a sales
charge has not previously been paid on those shares. 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. 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.
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.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares of another for Federal Income Tax purposes. An exchange may
result in a taxable gain or loss. See "TAX STATUS".
Systematic Withdrawal Plan. The Fund permits the establishment of a Systematic
Withdrawal Plan. Payments under this plan represent proceeds arising from the
redemption of Fund shares which may result in realization of gain or loss for
purposes of Federal, state and local income taxes. The maintenance of a
Systematic Withdrawal Plan concurrently with purchases of additional shares of
the Fund could be disadvantageous to a shareholder because of the initial sales
charge payable on such purchases of Class A shares and the CDSC imposed on
redemptions of Class B and Class C shares and because redemptions are taxable
events. Therefore, a shareholder should not purchase shares at the same time a
Systematic Withdrawal Plan is in effect. The Fund reserves the right to modify
or discontinue the Systematic Withdrawal Plan of any 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.
43
The privilege of making investments through the MAAP may be revoked by Signature
Services without prior notice if any investment is not honored by the
shareholder's bank. The bank shall be under no obligation to notify the
shareholder as to the non-payment of any checks.
The program may be discontinued by the shareholder either by calling Signature
Services or upon written notice to Signature Services which is received at least
five (5) business days prior to the order date of any investment.
Reinstatement or Reinvestment Privilege. If Signature Services is notified prior
to reinvestment, a shareholder who has redeemed Fund shares may, within 120 days
after the date of redemption, reinvest without payment of a sales charge any
part of the redemption proceeds in shares of the same class of the Fund or
another John Hancock fund, subject to the minimum investment limit of that fund.
The proceeds from the redemption of Class A shares may be reinvested at net
asset value without paying a sales charge in Class A shares of the Fund or in
Class A shares of any John Hancock fund. If a CDSC was paid upon a redemption, a
shareholder may reinvest the proceeds from this redemption at net asset value in
additional shares of the class from which the redemption was made. The
shareholder's account will be credited with the amount of the CDSC charged upon
the prior redemption and the new shares will continue to be subject to the CDSC.
The holding period of the shares acquired through reinvestment will, for
purposes of computing the CDSC payable upon a subsequent redemption, include the
holding period of the redeemed shares.
The Fund may refuse any reinvestment request and may change or cancel its
reinvestment policies at any time.
A redemption or exchange of Fund shares is a taxable transaction for Federal
income tax purposes even if the reinvestment privilege is exercised, and any
gain or loss realized by a shareholder on the redemption or other disposition of
Fund shares will be treated for tax purposes as described under the caption "TAX
STATUS."
Retirement plans participating in Merrill Lynch's servicing programs:
Class A shares are available at net asset value for 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 Selling Firms.
Selling Firms may charge the investor additional fees for their services. The
Fund will be deemed to have received a purchase or redemption order when an
authorized Selling Firm, or if applicable, a Selling Firm's authorized designee,
receives the order. Orders may be processed at the NAV next calculated after the
Selling Firm receives the order. The Selling Firm 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
Selling Firms that maintain network/omnibus/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
44
services they provide with respect to the underlying Fund shares. This fee is
paid by the Adviser, the Fund and/or John Hancock Funds, LLC (the Fund's
principal distributor).
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 of shares will be borne
exclusively by that class (ii) Class B and Class C shares will pay higher
distribution and service fees than Class A shares and (iii) each class of shares
will bear any class expenses properly allocable to that class of shares, subject
to the conditions the Internal Revenue Service imposes with respect to
multiple-class structures. Similarly, the net asset value per share may vary
depending on the class of shares purchased. No interest will be paid on uncashed
dividend or redemption checks.
In the event of liquidation, shareholders of each class are entitled to share
pro rata in the net assets of the Fund available for distribution to these
shareholders. Shares entitle their holders to one vote per share, are freely
transferable and have no preemptive, subscription or conversion rights. When
issued, shares are fully paid and non-assessable, except as set forth below.
Unless otherwise required by the Investment Company Act or the Declaration of
Trust, the Fund has no intention of holding annual meetings of shareholders.
Fund shareholders may remove a Trustee by the affirmative vote of at least
two-thirds of the Trust's outstanding shares and the Trustees shall promptly
call a meeting for such purpose when requested to do so in writing by the record
holders of not less than 10% of the outstanding shares of the Trust.
Shareholders may, under certain circumstances, communicate with other
shareholders in connection with requesting a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
were elected by the shareholders, the Trustees will call a special meeting of
shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the Trust. However, the Fund's Declaration of Trust contains an express
disclaimer of shareholder liability for acts, obligations or affairs of the
Fund. The Declaration of Trust also provides for indemnification out of the
Fund's assets for all losses and expenses of any shareholder held personally
liable by reason of being or having been a shareholder. The Declaration of Trust
also provides that no series of the Trust shall be liable for the liabilities of
any other series. Furthermore, no fund included in this Fund's prospectus shall
be liable for the liabilities of any other John Hancock fund. Liability is
45
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 redemptions 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.
Shares of the Fund generally may be sold only to U.S. citizens, U.S. residents,
and Domestic corporations, partnerships trusts or estates.
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 seeks 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 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
46
such a reinvestment equal to the amount of cash they would have received had
they elected to receive the distribution in cash, divided by the number of
shares received in the reinvestment.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
certain foreign currency options, foreign currency forward contracts, foreign
currencies, or payables or receivables denominated in a foreign currency are
subject to Section 988 of the Code, which generally causes such gains and losses
to be treated as ordinary income and losses and may affect the amount, timing
and character of distributions to shareholders. Transactions in foreign
currencies that are not directly related to the Fund's investment in stock or
securities, possibly including speculative currency positions could under future
Treasury regulations produce income not among the types of "qualifying income"
from which the Fund must derive at least 90% of its gross income for each
taxable year. If the net foreign exchange loss for a year treated as ordinary
loss under Section 988 were to exceed the Fund's investment company taxable
income computed without regard to such loss, the resulting overall ordinary loss
for such year would not be deductible by the Fund or its shareholders in future
years.
If the Fund invests in stock (including an option to acquire stock such as is
inherent in a convertible bond) of certain foreign corporations that receive at
least 75% of their annual gross income from passive sources (such as interest,
dividends, certain rents and royalties or capital gain) or hold at least 50% of
their assets in investments producing such passive income ("passive foreign
investment companies"), the Fund could be subject to Federal income tax and
additional interest charges on "excess distributions" received from these
passive foreign investment companies or gain from the sale of stock in such
companies, even if all income or gain actually received by the Fund is timely
distributed to its shareholders. The Fund would not be able to pass through to
its shareholders any credit or deduction for such a tax. An election may be
available to ameliorate these adverse tax consequences, but could require the
Fund to recognize taxable income or gain without the concurrent receipt of cash.
These investments could also result in the treatment of associated capital gains
as ordinary income. The Fund may limit and/or manage its investments in passive
foreign investment companies or make an available election to minimize its tax
liability or maximize its return from these investments.
Certain of options, futures, and forward currency contracts undertaken by the
Fund may cause the Fund to recognize gains or losses from marking to market even
though its positions have not been sold or terminated and may affect the
character as long-term or short-term (or, in the case of foreign currency
contracts, as ordinary income or loss) and timing of some capital gains and
losses realized by the Fund. Additionally, the Fund may be required to recognize
gain, but not loss, if an option, short sale or other transaction is treated as
a constructive sale of an appreciated financial position in the Fund's
portfolio. Also, certain of the Fund's losses on 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 or 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, futures or forward transactions
that will generate capital gains. At the time of an investor's purchase of Fund
shares, a portion of the purchase price is often attributable to realized or
unrealized appreciation in the Fund's portfolio or undistributed taxable income
of the Fund. Consequently, subsequent distributions on those shares from such
appreciation or income may be taxable to
47
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 distribution of shares of the Fund (including by
exercise of the exchange privilege) in a transaction that is treated as a sale
for tax purposes, a shareholder will ordinarily realize a taxable gain or loss
depending upon the amount of the proceeds and the investor's basis in his
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands. A sales charge paid in purchasing
shares of the Fund cannot be taken into account for purposes of determining gain
or loss on the redemption or exchange of such shares within 90 days after their
purchase to the extent shares of the Fund or another John Hancock fund are
subsequently acquired without payment of a sales charge pursuant to the
reinvestment or exchange privilege. This disregarded charge will result in an
increase in the shareholder's tax basis in the shares subsequently acquired.
Also, any loss realized on a redemption or exchange may be disallowed to the
extent the shares disposed of are replaced with other shares of the Fund within
a period of 61 days beginning 30 days before and ending 30 days after the shares
are disposed of, such as pursuant to automatic dividend reinvestments. In such a
case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized upon the redemption of shares with a tax
holding period of six months or less will be treated as a long-term capital loss
to the extent of any amounts treated as distributions of long-term capital gain
with respect to such shares. Shareholders should consult their own tax advisers
regarding their particular circumstances to determine whether a disposition of
Fund shares is properly treated as a sale for tax purposes, as is assumed in the
foregoing discussion.
Although its present intention is to distribute, at least annually, all net
capital gain, if any, the Fund reserves the right to retain and reinvest all or
any portion of the excess, as computed for Federal income tax purposes, of net
long-term capital gain over net short-term capital loss in any year. The Fund
will not in any event distribute net capital gain realized in any year to the
extent that a capital loss is carried forward from prior years against such
gain. To the extent such excess was retained and not exhausted by the
carryforward of prior years' capital losses, it would be subject to Federal
income tax in the hands of the Fund. Upon proper designation of this amount by
the Fund, each shareholder would be treated for Federal income tax purposes as
if the 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 carry forwards
available to offset future net realized capital gains.
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.
48
If the Fund should have dividend income that qualifies for the
dividends-received deduction for corporations, it will be subject to the
limitations applicable under the Code. The qualifying portion is limited to
properly designated distributions attributed to dividend income (if any) the
Fund receives from certain stock in U.S. domestic corporations and the deduction
is subject to holding period requirements and debt-financing limitations under
the Code.
For purposes of the dividends-received deduction available to corporations,
dividends received by the Fund, if any, from U.S. domestic corporations in
respect of any share of stock held by the Fund, for U.S. Federal income tax
purposes, for at least 46 days (91 days in the case of certain preferred stock)
during a prescribed period extending before and after each such dividend and
distributed and properly designated by the Fund may be treated as qualifying
dividends. Corporate shareholders must meet the holding period requirement
stated above with respect to their Fund shares of the Fund for each dividend in
order to qualify for the deduction and, if they have any debt that is deemed
under the Code directly attributable to such shares, may be denied a portion of
the dividends received deduction. The entire qualifying dividend, including the
otherwise-deductible amount, will be included in determining alternative minimum
tax liability, if any. Additionally, any corporate shareholder should consult
its tax adviser regarding the possibility that its tax basis in its shares may
be reduced, for Federal income tax purposes, by reason of "extraordinary
dividends" received with respect to the shares and, to the extent such basis
would be reduced below zero, that current recognition of income would be
required.
The Fund may be subject to withholding and other taxes imposed by foreign
countries with respect to its investments in foreign securities. Tax conventions
between certain countries and the U.S. may reduce or eliminate such taxes.
Investors may be entitled to claim U.S. foreign tax credits or deductions with
respect to foreign income taxes or certain other foreign taxes ("qualified
foreign taxes"), paid by the Fund, subject to certain provisions and limitations
contained in the Code, if the Fund so elects. If more than 50% of the value of
the Fund's total assets at the close of any taxable year consists of stock or
securities of foreign corporations, the Fund may file an election with the
Internal Revenue Service pursuant to which shareholders of the Fund will be
required to (i) include in ordinary gross income (in addition to taxable
dividends and distributions actually received) their pro rata shares of
qualified foreign taxes paid by the Fund even though not actually received by
them, and (ii) treat such respective pro rata portions as foreign taxes paid by
them.
If the Fund makes this election, shareholders may then deduct such pro rata
portions of qualified foreign taxes in computing their taxable income, or,
alternatively, use them as foreign tax credits, subject to applicable
limitations, against their U.S. Federal income taxes. Shareholders who do not
itemize deductions for Federal income tax purposes will not, however, be able to
deduct their pro rata portion of qualified foreign taxes paid by the Fund,
although such shareholders will be required to include their shares of such
taxes in gross income. Shareholders who claim a foreign tax credit for such
foreign taxes may be required to treat a portion of dividends received from the
Fund as a separate category of income for purposes of computing the limitations
on the foreign tax credit. Tax-exempt shareholders will ordinarily not benefit
from this election. Each year (if any) that the Fund files the election
described above, its shareholders will be notified of the amount of (i) each
shareholder's pro rata share of qualified foreign taxes paid by the Fund and
(ii) the portion of Fund dividends which represents income from each foreign
country. If the Fund cannot or does not make this election, the Fund will deduct
the foreign taxes it pays in determining the amount it has available for
distribution to shareholders, and shareholders will not include these foreign
taxes in their income, nor will they be entitled to any tax deductions or
credits with respect to such taxes.
The Fund is required to accrue income on any debt securities that have more than
a de minimis amount of original issue discount (or debt securities acquired at a
market discount, if the Fund elects to include market discount in income
currently) prior to the receipt of the corresponding
49
cash payments. The mark to market or constructive sale rules applicable to
certain options, futures, forwards, short sales or other transactions may also
require the Fund to recognize income or gain without a concurrent receipt of
cash. Additionally, some countries restrict repatriation which may make it
difficult or impossible for the Fund to obtain cash corresponding to its
earnings or assets in those countries. However, the Fund must distribute to
shareholders for each taxable year substantially all of its net income and net
capital gains, including such income or gain, to qualify as a regulated
investment company and avoid liability for any federal income or excise tax.
Therefore, the Fund may have to dispose of its portfolio securities under
disadvantageous circumstances to generate cash, or borrow cash, to satisfy these
distribution requirements.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent (if any) the Fund's distributions
are derived from interest on (or, in the case of intangible property taxes, the
value of its assets is attributable to) certain U.S. Government obligations,
provided in some states that certain thresholds for holdings of such obligations
and/or reporting requirements are satisfied. The Fund will not seek to satisfy
any threshold or reporting requirements that may apply in particular taxing
jurisdictions, although the Fund may in its sole discretion provide relevant
information to shareholders.
The Fund will be required to report to the Internal Revenue Service (the "IRS")
all taxable distributions to shareholders, as well as gross proceeds from the
redemption or exchange of Fund shares, except in the case of certain exempt
recipients, i.e., corporations and certain other investors distributions to
which are exempt from the information reporting provisions of the Code. Under
the backup withholding provisions of Code Section 3406 and applicable Treasury
regulations, all such reportable distributions and proceeds may be subject to
backup withholding of federal income tax in the case of non-exempt shareholders
who fail to furnish the Fund with their correct taxpayer identification number
and certain certifications required by the IRS or if the IRS or a broker
notifies the Fund that the number furnished by the shareholder is incorrect or
that the shareholder is subject to backup withholding as a result of failure to
report interest or dividend income. The Fund may refuse to accept an application
that does not contain any required taxpayer identification number or
certification that the number provided is correct. If the backup withholding
provisions are applicable, any such distributions and proceeds, whether taken in
cash or reinvested in shares, will be reduced by the amounts required to be
withheld. Any amounts withheld may be credited against a shareholder's U.S.
federal income tax liability. Investors should consult their tax advisers about
the applicability of the backup withholding provisions.
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 U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain types of
investors, such as tax-exempt entities, insurance companies, and financial
institutions. Dividends, capital gain distributions, and ownership of or gains
realized on the redemption (including an exchange) of Fund shares may also be
subject to state and local taxes. Shareholders should consult their own tax
advisers as to the Federal, state or local tax consequences of ownership of
shares of, and receipt of distribution from, the Fund in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their
investment in the Fund is effectively connected will be subject to U.S. Federal
income tax treatment that is
50
different from that described above. These investors may be subject to
non-resident alien withholding tax at the rate of 30% (or a lower rate under an
applicable tax treaty) on amounts treated as ordinary dividends from the Fund
and, unless an effective IRS Form W-8, Form W-8BEN or other authorized
withholding certificate is on file and to backup withholding on certain other
payments from the Fund. Non-U.S. investors should consult their tax advisers
regarding such treatment and the application of foreign taxes to an investment
in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise taxes.
The Fund anticipates that, provided that the Fund qualifies as a regulated
investment company under the Code, it will also not be required to pay any
Massachusetts income tax.
CALCULATION OF PERFORMANCE
As of October 31, 2004, the average annual total returns before taxes for the
Fund's Class A shares of the Fund for the one year and five year and ten year
periods were 3.20%, 5.26% and 10.83%, respectively.
As of October 31, 2004, the average annual total returns before taxes for the
Fund's Class B shares of the Fund for the one year, five year and ten year
periods were 2.86%, 5.28% and 10.76%, respectively.
As of October 31, 2004, the average annual total returns before taxes for the
Fund's Class C shares of the Fund for the one year period, five year period and
since the commencement of operations on March 1, 1999 were 6.86%, 5.60% and
4.31%, respectively. The average annual total returns for Class C have been
adjusted to reflect the elimination of the front-end sales charge that became
effective July 15, 2004.
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 ten year periods ended December 31, 2004 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:
51
P(1+T)(n) = ATV(D)
Where:
P= a hypothetical initial payment of $1,000.
T= average annual total return (after taxes on distributions)
n= number of years
ATV(D)= ending value of a hypothetical $1,000 payment made at the beginning
of the 1-year, 5-year, 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) = ATV(DR)
Where:
P= a hypothetical initial payment of $1,000.
T= average annual total return (after taxes on distributions and
redemption)
n= number of years
ATV(DR)= ending value of a hypothetical $1,000 payment made at the beginning
of the 1-year, 5-year or 10-year periods (or fractional portion),
after taxes on fund distributions and redemption.
Because each class has its own sales charge and fee structure, the classes have
different performance results. In the case of each class, these calculations
assume the maximum sales charge is included in the initial investment or the
CDSC is applied at the end of the period, respectively. These calculations
assume that all dividends and distributions are reinvested at net asset value on
the reinvestment dates during the period. The "distribution rate" is determined
by annualizing the result of dividing the declared dividends of the Fund during
the period stated by the maximum offering price or net asset value at the end of
the period. Excluding the Fund's sales charge from the distribution rate
produces a higher rate.
In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Cumulative total returns may be quoted as a percentage or
as a dollar amount, and may be calculated for a single investment, a series of
investments, and/or a series of redemptions, over any time period. Total returns
may be quoted with or without taking the Fund's sales charge on Class A shares
or the CDSC on Class B or Class C shares into account. Excluding the Fund's
sales charge on Class A shares and the CDSC on Class B or Class C shares from a
total return calculation produces a higher total return figure.
From time to time, in reports and promotional literature, the Fund's total
return will be compared to indices of mutual funds, such as Lipper Analytical
Services, Inc.'s "Lipper- Mutual Performance Analysis," a monthly publication
which tracks net assets and total return on mutual funds in the United States.
Ibottson and Associates, CDA Weisenberger and F.C. Towers are also used for
comparison purposes as well as the Russell and Wilshire Indices.
Performance rankings and ratings reported periodically in, and excerpts from,
national financial publications such as MONEY Magazine, FORBES, BUSINESS WEEK,
THE WALL STREET
52
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 risks 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 periodically by the Adviser's Senior Investment
Policy Committee and its Brokerage Practices Committee which consists of
officers of the Adviser and quarterly by the Adviser's Investment Committee
which consists of officers 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 best execution, the Fund's trades may
be executed by dealers and also sell shares of John Hancock funds. However, the
Adviser does not 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, and may include,
to a lesser extent, the availability and value of research information and
statistical assistance furnished to the Adviser of the Fund. The Adviser has
implemented policies and procedures (approved by the Fund's board of Trustees)
reasonably designed to ensure that the Fund's selection of the broker-dealer is
not influenced by considerations about the sales of Fund shares.
53
Where research is available for cash payments, the Adviser pays for such
research from its own resources, and not with brokerage commissions. In other
cases, 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 Adviser 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,
2004, the Fund paid $33,997 as compensation to brokers for research services
such as industry, economic and company reviews and evaluations of securities.
"Commissions", as interpreted by the SEC, include fees paid to brokers for
trades conducted on an agency basis, and certain mark-ups, mark-downs,
commission equivalents and other fees received by dealers in riskless principal
transactions placed in the over-the-counter market.
The term "brokerage and research services" includes research services received
from broker-dealers which 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 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.
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, or
would have developed comparable information through its own staff, 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.
54
Broker-dealers may be willing to furnish statistical, research and other factual
information or service to the Adviser for no consideration other than brokerage
or underwriting commissions. Securities may be bought or sold from time to time
through such broker-dealers on behalf of the Fund or the Adviser's other
clients.
In effecting portfolio transactions on behalf of the Fund and the Adviser's
other clients, the Adviser may from time to time instruct the broker-dealer that
executes the transaction to allocate, or "step-out", a portion of the
transaction to another broker-dealer. The broker-dealer to which the Adviser
"stepped-out" would then settle and complete the designated portion of the
transaction. Each broker-dealer would receive a commission or brokerage fee with
respect to that portion of the transaction that it settles and completes.
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 October 31, 2002, 2003 and 2004, the
Fund paid negotiated brokerage commissions of $752,593, $745,815 and $417,734,
respectively.
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 ("Signator" or an
"Affiliated Broker"). The Adviser's indirect parent, Manulife Financial, is the
parent of another broker-dealer, John Hancock Distributors LLC (until December
31, 2004, Manulife Financial Securities, LLC) ("JH Distributors" or "Affiliated
Broker"). For the fiscal years ended October 31, 2002, 2003 and 2004, the Fund
paid no brokerage commissions to any Affiliated Broker.
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
55
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 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. For shares held of record in omnibus or there group accounts where
administration and other shareholder services are provided by the Selling Firm
or group administrator, the Selling Firm or administrator will charge a service
fee to the Fund. For such shareholders, Signature Services does not charge its
account fee.
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 REGISTERED PUBLIC ACCOUNTING FIRM
The independent registered public accounting firm of the Fund is
PricewaterhouseCoopers LLP, 125 High 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.
56
APPENDIX A- DESCRIPTION OF INVESTMENT RISK
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's primary securities and
investment practices. You may find the most concise description of the fund's
risk profile in the prospectus.
A fund is permitted to utilize -- within limits established by the trustees --
certain other securities and investment practices that have higher risks and
opportunities associated with them. To the extent that the Fund utilizes these
securities or practices, its overall performance may be affected, either
positively or negatively. On the following pages are brief definitions of
certain associated risks with them with examples of related securities and
investment practices included in brackets. See the "Investment Objective and
Policies" and "Investment Restrictions" sections of this Statement of Additional
Information for a description of this Fund's investment policies. The Fund
follows certain policies that may reduce these risks.
As with any mutual fund, there is no guarantee that the Fund will earn income or
show a positive return over any period of time -- days, months or years.
TYPES OF INVESTMENT RISK
CORRELATION RISK The risk that changes in the value of a hedging instrument will
not match those of the asset being hedged (hedging is the use of one investment
to offset the effects of another investment). (e.g., short sales, currency
contracts, financial futures and options; securities and index options).
CREDIT RISK The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation. (e.g., repurchase agreements, securities lending, foreign debt
securities, non-investment-grade debt securities, asset-backed securities,
mortgage-backed securities, participation interests, financial futures and
options; securities and index options, structured securities).
CURRENCY RISK The risk that fluctuations in the exchange rates between the U.S.
dollar and foreign currencies may negatively affect an investment. Adverse
changes in exchange rates may erode or reverse any gains produced by foreign
currency denominated investments, and may widen any losses. (e.g., currency
trading, foreign debt securities, currency contracts, financial futures and
options; securities and index options).
EXTENSION RISK The risk that an unexpected rise in interest rates will extend
the life of a mortgage-backed security beyond the expected prepayment time,
typically reducing the security's value. (e.g., mortgage-backed securities,
structured securities).
INFORMATION RISK The risk that key information about a security or market is
inaccurate or unavailable. (e.g., non-investment-grade debt securities).
INTEREST RATE RISK The risk of market losses attributable to changes in interest
rates. With fixed-rate securities, a rise in interest rates typically causes a
fall in values, while a fall in rates typically causes a rise in values. (e.g.,
foreign debt securities, non-investment-grade debt securities, asset-backed
securities, mortgage-backed securities, participation interests, financial
future and options; securities and index options, structured securities).
LEVERAGE RISK Associated with securities or practices (such as borrowing) that
multiply small index or market movements into large changes in value. (e.g.,
when-issued securities and forward
A-1
commitments, currency contracts, financial futures and options; securities and
index options, structured securities).
- - 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.
- - SPECULATIVE To the extent that a derivative is not used as a hedge, the
fund is directly exposed to the risks of that derivative. Gains or losses
from speculative positions in a derivative may be substantially greater
than the derivative's original cost.
LIQUIDITY RISK The risk that certain securities may be difficult or impossible
to sell at the time and the price that the seller would like. The seller may
have to lower the price, sell other securities instead, or forego an investment
opportunity, any of which could have a negative effect on fund management or
performance. (e.g., short sales, non-investment-grade debt securities,
restricted and illiquid securities, mortgage-backed securities, participation
interests, currency contracts, financial futures and options; securities and
index options, structured securities).
MANAGEMENT RISK The risk that a strategy used by a fund's management may fail to
produce the intended result. Common to all mutual funds.
MARKET RISK The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. These fluctuations may cause a security to
be worth less than it was worth at an earlier time. Market risk may affect a
single issuer, industry, sector of the economy or the market as a whole. Common
to all stocks and bonds and the mutual funds that invest in them. (e.g., short
sales, short-term trading, when-issued securities and forward commitments,
foreign debt securities, non-investment-grade debt securities, restricted and
illiquid securities, financial futures and options; securities and index
options, structured securities).
NATURAL EVENT RISK The risk of losses attributable to natural disasters, crop
failures and similar events.
OPPORTUNITY RISK The risk of missing out on an investment opportunity because
the assets necessary to take advantage of it are tied up in less advantageous
investments. (e.g., short sales, when-issued securities and forward commitments,
currency contracts, financial futures and options; securities and index
options).
POLITICAL RISK The risk of losses attributable to government or political
actions, from changes in tax or trade statutes to governmental collapse and war.
(e.g., foreign debt securities).
PREPAYMENT RISK The risk that unanticipated prepayments may occur during periods
of falling interest rates, reducing the value of mortgage-backed securities.
(e.g., mortgage-backed securities, structured securities).
VALUATION RISK The risk that a fund has valued certain of its securities at a
higher price than it can sell them for. (e.g., non-investment-grade debt
securities, restricted and illiquid securities, participation interests,
structured securities)
A-2
APPENDIX B-DESCRIPTION OF BOND RATINGS
Moody's Bond Ratings
"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.
"Bonds which are rated 'Aa' are judged to be of high quality by all standards.
Together with the 'Aaa' group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in 'Aaa' securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in 'Aaa'
securities."
"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."
"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,
characterizes 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."
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: (i) an
application for rating was not received or accepted; (ii) the issue or issuer
belongs to a group of securities that are not rated as a matter of policy; (iii)
there is a lack of essential data pertaining to the issue or issuer; or (iv) 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.
Standard & Poor's Bond Ratings
"AAA. Debt rated 'AAA' has the highest rating by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong."
B-1
"AA. Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the higher 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 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" OR "B" is regarded, on balance, as predominantly speculative
with respect to the issuer's capacity to pay interest and pay 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 may be outweighed
by large uncertainties or major risk exposures to adverse conditions."
UNRATED. This indicates that 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 RATINGS
Moody's Commercial Paper Ratings
Moody's ratings for commercial paper are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's two highest commercial paper rating categories
are as follows:
"P-1 -- "Prime-1" indicates the highest quality repayment capacity of the rated
issues.
"P-2 -- "Prime-2" indicates that the issuer has a strong capacity for repayment
of short-term promissory obligations. 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."
Standard & Poor's Commercial Paper Ratings
Standard & Poor's commercial paper ratings are current assessments of the
likelihood of timely payment of debts having an original maturity of no more
than 365 days. Standard & Poor's two highest commercial paper rating categories
are as follows:
"A-1 -- This designation indicates that the degree of safety regarding timely
payment is very strong. Those issues determined to possess overwhelming safety
characteristics will be denoted with a plus (+) sign designation."
"A-2 -- Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1."
B-2
APPENDIX C
SUMMARY OF PROXY VOTING
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
C-1
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.
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.
C-2
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.
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 compensation committee is not fully independent
- plan dilution is more than 10% of outstanding common stock,
- company allows or has allowed the re-pricing or replacement of
underwater options in the past three fiscal years (or the exchange
of underwater options) without shareholder approval.
- the option is not premium priced or indexed, or does not vest based
on future performance
With respect to the adoption or amendment of employee stock purchase plans or a
stock award plan, we will vote against management if:
- the plan allows stock to be purchased at less than 85% of fair
market value;
- this plan dilutes outstanding common equity greater than 10%
- all stock purchase plans, including the proposed plan, exceed 15% of
outstanding common equity
- the potential dilution from all company plans is more than 85%
With respect to director stock incentive/option plans, we will vote against
management if:
- the minimum vesting period for options or time lapsing restricted
stock is les than one year
- the potential dilution for all company plans is more than 85%
OTHER BUSINESS
For routine business matters which are the subject of many proxy related
questions, we will vote with management proposals to:
- change the company name;
- approve other business;
- adjourn meetings;
C-3
- make technical amendments to the by-laws or charters;
- approve financial statements;
- 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:
- calling for shareholder ratification of auditors;
- calling for auditors to attend annual meetings;
- seeking to increase board independence;
- requiring minimum stock ownership by directors;
- seeking to create a nominating committee or to increase the
independence of the nominating committee;
- 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
APPENDIX D
JOHN HANCOCK FUNDS
DESCRIPTION OF PORTFOLIO HOLDINGS DISCLOSURE POLICY
GENERAL. The Board of Trustees has adopted a policy that governs when and
by whom portfolio holdings information may be provided to investors, service
providers to the fund or market participants. It is the policy of the fund to
provide nonpublic information regarding fund's portfolio holdings only in the
limited circumstances permitted by the policy and only where there is a
legitimate business purpose for providing the information. The policy applies to
the officers of the fund, the adviser, any subadviser, John Hancock Funds, its
affiliates and their employees. This is a summary of the fund's policy. The
Board of Trustees has approved this policy and must approve any material
changes. In doing so, the Board has concluded that the limited circumstances
where disclosure of non-public information is permitted are in the best
interests of the fund. Under no circumstances may any person receive
compensation for providing non-public information regarding the fund's holdings
to any person.
The Board is responsible for overseeing the policy and has delegated to
the Chief Compliance Officer ("CCO") the responsibility for monitoring the use
of nonpublic information and the fund's and the Adviser's compliance with this
policy. In connection with the Board's oversight of the policy, the CCO will
provide periodic reports to the Board on the implementation of the policy, and
the Board will review at least annually a list of the entities that have
received nonpublic information, the frequency of such disclosures and the
business purpose thereof. In addition, the Board must approve any modifications
to the policy.
The CCO is required to report any material issues that may arise under the
policy or disclosure in violation of this policy to the Board of Trustees. If
the fund or another party subject to this policy desire to provide portfolio
information that has not already been made public to a Nonaffiliated Person (as
defined below), the Board or the CCO determines if the interests of the fund and
the services providers may be in conflict in determining whether to supply that
such information. If the Board or the CCO determines that no conflict exists,
the Board or the CCO may authorize release of the information. If the CCO
determines that a conflict exists, the CCO refers the conflict to the Board of
Trustees. When considering a potential conflict, the Board of Trustees shall
only permit such disclosure of the nonpublic information if in their reasonable
business judgment they conclude such disclosure will be in the best interest of
shareholders.
The following defined terms are used in the policy and this summary.
Nonpublic Information. Portfolio holdings are considered Nonpublic Information
until such holdings are posted on a publicly available website which is
disclosed in the fund prospectus or until filed with the SEC via Edgar on either
Form N-CSR or Form N-Q.
"Affiliated Persons" are: (a) persons affiliated with the Funds, (b) the Funds'
investment adviser or principal underwriter or any affiliate of either entity,
(c) the investment adviser's ultimate parent, Manulife Financial Corporation
("MFC") or any affiliate thereof, (d) in the case of a particular Fund
portfolio, the subadviser to the portfolio, or any affiliate of the subadviser,
(e) the Funds' custodian and (f) the Funds' certified public accountants.
"Nonaffiliated Persons" is any person who is not an Affiliated Person.
D-1
PUBLIC DISCLOSURE. The Funds' portfolio holdings are disclosed in publicly
available filings with the SEC (e.g. Form N-CSR or Form N-Q). The Funds also
publish the following information on their website jhfunds.com:
(1) On the fifth business day after month-end, the following information for
each fund will be posted on www.jhfunds.com: top ten holdings (% of each
position); top ten sector analysis; total return/yield; top ten
countries/SIC; average quality/maturity; beta/alpha/r2 (open-end funds
only); top ten portfolio composition
(2) The following information regarding portfolio holdings will be posted on
www.jhfunds.com each month on a one-month lag (i.e., information as of
December 31 will be posted on February 1): security name; cusip; market
value; shares/amount; coupon rate; maturity date
(3) With respect to Money Market Fund and U.S. Government Cash Reserve, the
following information regarding portfolio holdings will be posted weekly
on www.jhfunds.com: net assets; seven day yield; thirty day yield; %
maturing in last seven days; portfolio breakdown by securities type;
weighted average maturity
The information referenced in (1), (2), and (3) above will be available on the
funds' website until a fund files its next Form N-CSR or Form N-Q with the
Securities and Exchange Commission.
DISCLOSURE OF PORTFOLIO HOLDINGS TO NONAFFILIATED PERSONS
Subject to monitoring and authorization by the CCO, persons subject to the
policy may provide Nonpublic Information regarding portfolio holdings to
Nonaffiliated Persons in the circumstances listed below. Each Nonaffiliated
Person must agree to keep such information confidential and to prohibit its
employees from trading on such information for personal or proprietary purposes.
In addition, each Nonaffiliated Person must provide certification at least
annually to the CCO stating that they have complied with the restrictions
referenced above. The funds have ongoing relationships with any entities
referenced below.
RATING ORGANIZATIONS. Nonpublic Information regarding portfolio holdings
will be provided to ratings organizations, such as Moodys, S&P, Morningstar and
Lipper, for the purpose of reviewing the portfolio, the adviser or, if
applicable, subadviser. Generally, this information is provided on a monthly
basis, as soon as practical after the end of each month. The fund generally
expects that it will continue to provide these rating organizations with such
information. The Board believes that allowing rating organizations to have this
information will provide the market with a rating for the fund and is in the
best interests of shareholders.
RISK MANAGEMENT, ATTRIBUTION, PORTFOLIO ANALYSIS TOOLS. Nonpublic
Information regarding portfolio holdings may be provided to Factset, BondEdge,
Investools, Salomon Yieldbook, Lehman Brothers Municipal Index Group, Wilshire,
or other entities for the purpose of compiling reports and preparing data for
use by the fund and its service providers. Generally, this information is
provided on a daily or monthly basis, as soon as practical after the end of each
day or month respectively. The fund generally expects that it will continue to
provide these service providers with such information. The Board believes that
having these analytical tools available to the fund and its service providers is
in the best interests of shareholders.
PROXY VOTING SERVICES. Nonpublic Information regarding portfolio holdings
may be provided to IRRC, the fund's proxy voting service, for the purpose of
voting proxies relating to portfolio holdings. The proxy voting service has
regular access to the fund's portfolio holdings
D-2
in order to determine if there are any securities held by the fund as to which
there is upcoming shareholder action in which the fund is entitled to vote. The
provision of this information is necessary in order to carry out the fund's
proxy voting policy. The fund expects that it will continue to provide IRRC with
such information.
COMPUTER PRODUCTS AND SERVICES. NONPUBLIC Information regarding portfolio
holdings may be provided to entities providing computer products and services to
the Funds (for example, for the purpose of generating compliance reports or
reports relating to proxy voting). These services may require regular, normally
daily, access to the fund's portfolio holdings in order to provide the
contracted services to the fund.
INSTITUTIONAL TRADERS. Nonpublic Information regarding portfolio holdings
may be provided to institutional traders to assist in research and trade
execution. This information, which identifies current holdings without a time
lag, is provided on an irregular basis and is normally only used to identify
portfolio positions as to which the fund would welcome bids. The provision of
this information is in the fund's best interest because it assists the fund in
receiving the best possible price on the sale of portfolio holdings.
COURTS AND REGULATORS. Nonpublic Information regarding portfolio holdings
may be provided to any court or regulator with appropriate jurisdiction. The
frequency and time lag depends upon the request. In providing this information,
the fund is merely complying with its legal obligations.
OTHER NONAFFILIATED PERSONS OR OTHER CIRCUMSTANCES. Nonpublic Information
regarding portfolio holdings may be provided to other Nonaffiliated Persons or
in other circumstances, if approved by the Board, the CCO or his or her
designee. In determining whether to approve such disclosure, the Board or the
CCO considers: (a) the purpose of providing such information, (b) the procedures
that will be used to ensure that such information remains confidential and is
not traded upon and (c) whether such disclosure is in the best interest of the
shareholders of the Fund. The time lag and frequency of the information being
provided depends upon the nature of the request. The CCO only provides such
information where the CCO has determined, in accordance with the authority
delegated by the Board of Trustees, that the provision of the information is
beneficial to the fund. The CCO is required to report to the Board of Trustees
any provision of Non-Public information that falls in this category. The fund
currently has an ongoing arrangement to provide to portfolio information to
McMunn Associates, Inc., a financial printer, for the purpose of preparing fund
shareholder reports and regulatory filings, typically within a week following
the end of a reporting period.
DISCLOSURE OF PORTFOLIO HOLDINGS TO AFFILIATED PERSONS
Certain affiliated persons of the fund or its service providers need
access to Non-Public information regarding portfolio holdings in order to
provide their services to the fund. For example, employees of the Adviser or a
subadviser who provide portfolio management or administrative services to the
funds need current access to portfolio holdings to perform those services.
Accountants need access to portfolio holdings in performing audits. In addition,
some persons who work for the affiliates of the adviser may need access to
Non-Public information to perform their roles. For example, risk management
personnel of the Adviser's parent, may need to know the portfolio holdings in
order to evaluate whether the Adviser's internal controls are being properly
implemented or designed. Generally, affiliated persons that have access to
Non-Public Information are provided that information without time lag and with
such frequency as is necessary to perform their duties, which frequently is
daily. While the fund generally expects that it will continue to provide these
service providers with such information, there are
D-3
no ongoing arrangements to provide such data. The following is a list of the
categories of affiliated persons who may be given access to portfolio holdings.
- The Adviser or, if applicable, any subadviser (as identified under
"Investment Advisory and Other Services" in this Statement of
Additional Information) and their employees - provision of
information on-going and daily.
- The fund's custodian, the Bank of New York, (and its employees)
which requires information in order to provide its assigned services
to the fund - provision of information on-going and daily.
- The fund's certified public accounting firm, as identified under
"Independent Registered Public Accounting Firm" in this Statement of
Additional Information, and its employees who provide audit or other
services to the fund - provision of information on an annual basis,
such information being provided immediately after the end of the
fund's fiscal year, in connection with the accounting firm's audit
of financial statements.
- Manulife, its affiliates and any of their employees, to the extent
such entities or persons are acting in a legal, accounting,
compliance, internal control or supervisory capacity but only to the
extent that such access is required to enable those employees to
perform their assigned duties which do not conflict with the
interests of the fund - provision of information is not on a
scheduled basis, but rather on an as-needed basis to perform the
functions referenced above.
Each Affiliated Person must agree to keep such information confidential
and to prohibit its employees from trading on such information for personal or
proprietary purposes. In addition, each Affiliated Person must provide
certification at least annually to the CCO stating that they have complied with
the restrictions referenced above. As with any of the fund's policies, the CCO
is charged with reviewing its implementation and evaluating periodically if it
is reasonably designed to comply with the federal securities laws. The CCO will,
in that process, consider whether the access outlined above to Affiliated
Persons continues to be appropriate.
The Board or the CCO may authorize the provision of any Nonpublic
Information regarding portfolio holdings to other Affiliated Persons. If
authorized by the CCO, the CCO must report such approval to the Board of
Trustees.
D-4
FINANCIAL STATEMENTS
The financial statements listed below are included in the Fund's 2004 Annual
Report to Shareholders for the year ended October 31, 2004; (filed
electronically on December 30, 2004, accession number 0000928816-04-001486) and
are included in and incorporated by reference into Part B of the Registration
Statement for John Hancock Health Sciences Fund (file nos. 811-4932 and
33-10722).
John Hancock World Fund
John Hancock Health Sciences Fund
Statement of Assets and Liabilities as of October 31, 2004
Statement of Operations for year ended October 31, 2004
Statement of Changes in Net Assets for the two years ended October 31, 2004
Financial Highlights.
Notes to Financial Statements.
Schedule of Investments as of October 31, 2004
Report of Independent Auditors.
F-1
John Hancock Biotechnology Fund
Supplement to the Prospectus
Dated March 1, 2005
On March 8, 2005, the Trustees of John Hancock Biotechnology Fund (the "Fund")
voted to recommend that the shareholders of the Fund approve a tax-free
reorganization of the Fund, as described below.
Under the terms of the reorganization, subject to shareholder approval at a
shareholder meeting scheduled to be held on June 8, 2005, the Fund would
transfer all of its assets and liabilities to John Hancock Health Sciences Fund
("Health Sciences Fund") in a tax-free exchange for shares of equal value of
Health Sciences Fund. Further information regarding the proposed reorganization
will be contained in a proxy statement and prospectus which is scheduled to be
mailed to the Fund's shareholders on or about April 18, 2005.
Effective at the close of business on April 6, 2005, the Fund will be closed to
all new accounts.
March 9, 2005
2/05
JOHN HANCOCK
Biotechnology Fund
PROSPECTUS 3.1.2005
[JOHN HANCOCK FUNDS LOGO]
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
BIOTECHNOLOGY FUND 4
YOUR 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 14
ADDITIONAL INVESTOR SERVICES 15
FUND DETAILS
BUSINESS STRUCTURE 16
FINANCIAL HIGHLIGHTS 17
FOR MORE INFORMATION BACK COVER
BIOTECHNOLOGY FUND
[GRAPHIC]
GOAL AND STRATEGY
The fund seeks long-term capital appreciation. To pursue this goal, the fund
normally invests at least 80% of its assets in securities of U.S. and foreign
biotechnology companies. These companies are principally engaged in the
research, development or manufacture of various biotechnological products,
services and processes. Biotechnology companies typically employ genetic
engineering to develop new drugs and products in areas such as health care,
pharmaceuticals, medical surgery, biochemistry and agriculture.
Because the fund is non-diversified, it may invest more than 5% of assets in
securities of individual companies.
The management team uses fundamental financial analysis to identify individual
companies of any size that appear most attractive in terms of growth potential.
The team generally assesses the senior management of companies through
interviews and company visits.
The fund may invest in certain higher risk securities, including securities that
are not publicly offered or traded, called restricted securities.
The fund may also use certain derivatives (investments whose value is based on
indexes, securities or currencies).
In abnormal circumstances, the fund may temporarily invest more than 20% of its
assets in investment-grade short-term securities. In these and other cases, the
fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable distributions.
[GRAPHIC]
PAST PERFORMANCE
The graph shows how the fund's 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. The average annual total returns
for Class C have been adjusted to reflect the elimination of the front-end sales
charge effective July 15, 2004. All figures assume dividend reinvestment. Past
performance before and after taxes does not indicate future results.
CLASS A, TOTAL RETURNS
BEST QUARTER: Q2 '03, 33.79%
WORST QUARTER: Q2 '02,-33.13%
AFTER-TAX RETURNS
After-tax returns are shown for Class A shares only and would be different for
the other classes. They are calculated using the historical highest individual
federal marginal income-tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on the investor's tax situation and
may differ from those shown. The after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
INDEXES (reflect no fees or taxes)
STANDARD & POOR'S 500 INDEX, an unmanaged index that includes 500 widely traded
stocks.
NASDAQ BIOTECHNOLOGY INDEX, an unmanaged index of the largest and most actively
traded Nasdaq biotechnology stocks.
CLASS A CALENDAR YEAR TOTAL RETURNS (WITHOUT SALES CHARGES)
[BAR CHART]
2002 -47.91%
2003 50.19%
2004 10.55%
AVERAGE ANNUAL TOTAL RETURNS (INCLUDING SALES CHARGE) FOR PERIODS ENDING
12-31-04
LIFE OF LIFE OF LIFE OF
1 YEAR CLASS A CLASS B CLASS C
Class A before tax (began 3-1-01) 5.07% -4.83% -- --
Class A after tax on distributions 5.07% -4.84% -- --
Class A after tax on distributions, with sale 3.30% -4.07% -- --
Class B before tax (began 3-1-01) 4.84% -- -4.97% --
Class C before tax (began 3-1-01) 8.84% -- -- -4.21%
- -----------------------------------------------------------------------------------------
Standard & Poor's 500 Index 10.88% 1.02% 1.02% 1.02%
Nasdaq Biotechnology Index 6.13% -5.31% -5.31% -5.31%
4
[GRAPHIC]
MAIN RISKS
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.
Because the fund focuses on a single industry, its performance depends in large
part on the performance of that industry. As a result, the value of your
investment may fluctuate more widely than it would in a fund that is diversified
across sectors.
The biotechnology industry is subject to intensive government regulation,
including strict regulatory approval requirements for new drugs and products. In
addition, biotechnology companies could be hurt by intense competition, patent
considerations and rapid technological change. Many biotechnology companies are
smaller companies that may have limited product lines and financial and
managerial resources, making them vulnerable to isolated business setbacks.
Stocks of biotechnology companies as a group could fall out of favor with the
market, causing the fund to underperform funds that focus on other types of
stocks. In addition, if the manager's security selection strategies do not
perform as expected, the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
- - If the fund invests heavily in a single issuer, its performance could suffer
significantly from adverse events affecting that issuer.
- - Certain derivatives could produce disproportionate losses.
- - Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political instability.
- - In a down market, higher-risk securities and derivatives could become harder
to value or to sell at a fair price; this risk could also affect
small-capitalization stocks, especially those with low trading volumes.
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.
[GRAPHIC]
YOUR EXPENSES
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 front-end sales charge (load) on purchases 5.00% none none
as a % of purchase price
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 0.90% 0.90% 0.90%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.92% 0.92% 0.92%
Total fund operating expenses 2.12% 2.82% 2.82%
Contractual expense reimbursement (at least until 2-28-06) 0.52% 0.52% 0.52%
Net annual operating expenses 1.60% 2.30% 2.30%
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 $ 655 $1,083 $1,537 $2,790
Class B with redemption $ 733 $1,125 $1,643 $2,943
Class B without redemption $ 233 $ 825 $1,443 $2,943
Class C with redemption $ 333 $ 825 $1,443 $3,110
Class C without redemption $ 233 $ 825 $1,443 $3,110
(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 MANAGER
LINDA I. MILLER, CFA
Vice president
Managed fund since it began in 2001
Joined John Hancock Advisers in 1995
Began business career in 1980
The fund's Statement of Additional Information includes additional details about
the portfolio manager, including information about her compensation, accounts
she manages other than the fund, and her ownership of fund securities, if any.
FUND CODES
CLASS A Ticker JBTAX
CUSIP 410233845
Newspaper --
SEC number 811-4932
JH fund number 73
CLASS B Ticker JBTBX
CUSIP 410233837
Newspaper --
SEC number 811-4932
JH fund number 173
CLASS C Ticker JBTCX
CUSIP 410233829
Newspaper --
SEC number 811-4932
JH fund number 573
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
- - A front-end sales charge, as described at right.
- - Distribution and service (12b-1) fees of 0.30%.
CLASS B
- - No front-end sales charge; all your money goes to work for you right away.
- - Distribution and service (12b-1) fees of 1.00%.
- - A deferred sales charge, as described on following page.
- - Automatic conversion to Class A shares after eight years, thus reducing
future annual expenses.
CLASS C
- - No front-end sales charge; all your money goes to work for you right away.
- - Distribution and service (12b-1) fees of 1.00%.
- - A 1.00% contingent deferred sales charge on shares sold within one year of
purchase.
- - No automatic conversion to Class A shares, so annual expenses continue at
the Class C level throughout the life of your investment.
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.
For actual past expenses of each share class, see the fund information earlier
in this prospectuses.
Because 12b-1 fees are paid on an ongoing basis, they may cost shareholders more
than other types of sales charges.
Other classes of shares of the fund, which have their own expense structure, may
be offered in separate prospectuses.
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. These payments are described in the Statement
of Additional Information.
Your broker-dealer or agent may charge you a fee to effect transactions in fund
shares.
HOW SALES CHARGES ARE CALCULATED
CLASS A 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
*Offering price is the net asset value per share plus any initial sales charge.
You may qualify for a reduced Class A sales charge if you own or are purchasing
Class A, Class B, Class C, Class I or Class R shares of John Hancock mutual
funds. TO RECEIVE THE REDUCED SALES CHARGE, YOU MUST TELL YOUR BROKER OR
FINANCIAL ADVISER AT THE TIME YOU PURCHASE A FUND'S CLASS A SHARES ABOUT ANY
OTHER JOHN HANCOCK MUTUAL FUNDS HELD BY YOU, YOUR SPOUSE OR YOUR CHILDREN UNDER
AGE THE AGE OF 21. This includes investments held in a retirement account, an
employee benefit plan or at a broker or financial adviser other than the one
handling your current purchase. John Hancock will credit the combined value, at
the current offering price, of all eligible accounts to determine whether you
qualify for a reduced sales charge on your current purchase. You may need to
provide documentation for these accounts, such as an account statement. For more
information about these reduced sales charges, you may visit the fund's Web site
at www.jhfunds.com. You may also consult your broker or financial adviser or
refer to the section entitled "Initial Sales Charge on Class A Shares" in the
fund's Statement of Additional Information. You may request a Statement of
Additional Information from your broker or financial adviser, access the fund's
Web site at www.jhfunds.com or call Signature Services at 1-800-225-5291.
INVESTMENTS OF $1 MILLION OR MORE Class A shares are available with no front-end
sales charge. There is a contingent deferred sales charge (CDSC) on any Class A
shares upon which a commission or finder's fee was paid that are sold within one
year of purchase, as follows:
CLASS A DEFERRED CHARGES ON $1 MILLION+ INVESTMENTS
CDSC ON SHARES
YOUR INVESTMENT BEING SOLD
First $1M - $4,999,999 1.00%
Next $1 - $5M above that 0.50%
Next $1 or more above that 0.25%
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the first day of that month.
The CDSC is based on the lesser of the original purchase cost or the current
market value of the shares being sold, and is not charged on shares you acquired
by reinvesting your dividends. To keep your CDSC as low as possible, each time
you place a
6 YOUR ACCOUNT
request to sell shares we will first sell any shares in your account that are
not subject to a CDSC.
CLASS B AND CLASS C Shares are offered at their net asset value per share,
without any initial sales charge.
A CDSC may be charged if a commission has been paid and you sell Class B or
Class C shares within a certain time after you bought them, as described in the
tables below. There is no CDSC on shares acquired through reinvestment of
dividends. The CDSC is based on the original purchase cost or the current market
value of the shares being sold, whichever is less. The CDSCs are as follows:
CLASS B DEFERRED CHARGES
CDSC ON FUND SHARES
YEARS AFTER PURCHASE 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.
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.
- - Accumulation Privilege -- lets you add the value of any class of shares of
any John Hancock funds you already own to the amount of your next Class A
investment for purposes of calculating the sales charge. However, Class A
shares of money market funds will not qualify unless you have already paid a
sales charge on those shares.
- - 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. You can use a Letter of Intention to qualify for reduced
sales charges if you plan to invest at least $50,000 in a fund's Class A
shares during the next 13 months. The calculation of this amount would
include accumulations and combinations as well as your current holdings of
all classes of John Hancock funds, which includes any reinvestment of
dividends and capital gains distributions. However, Class A shares of money
market funds will be excluded unless you have already paid a sales charge.
When you sign this letter, the fund agrees to charge you the reduced sales
charges listed above. Completing a Letter of Intention does not obligate you
to purchase additional shares. However, if you do not buy enough shares to
qualify for the lower sales charges by the earlier of the end of the 13-month
period or when you sell your shares, your sales charges will be recalculated
to reflect your actual purchase level. Also available for retirement plan
investors is a 48-month Letter of Intention, described in the SAI.
- - Combination Privilege -- lets you combine shares of all funds for purposes of
calculating the Class A sales charge.
TO UTILIZE ANY REDUCTION YOU MUST: COMPLETE THE APPROPRIATE SECTION OF YOUR
APPLICATION, OR CONTACT YOUR FINANCIAL REPRESENTATIVE OR SIGNATURE SERVICES.
CONSULT THE SAI FOR ADDITIONAL DETAILS (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 per account opened) and individual investors may close their
accounts at any time.
TO UTILIZE THIS PROGRAM YOU MUST: CONTACT YOUR FINANCIAL REPRESENTATIVE OR
SIGNATURE SERVICES TO FIND OUT HOW TO QUALIFY. CONSULT THE SAI FOR ADDITIONAL
DETAILS (SEE THE BACK COVER OF THIS PROSPECTUS).
YOUR ACCOUNT 7
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:
- - to make payments through certain systematic withdrawal plans
- - certain retirement plans participating in Merrill Lynch or PruSolutions(SM)
programs
- - redemptions pursuant to the fund's right to liquidate an account less than
$1,000
- - redemptions of Class A shares made after one year from the inception of a
retirement plan at John Hancock
- - to make certain distributions from a retirement plan
- - because of shareholder death or disability
TO UTILIZE THIS WAIVER YOU MUST: CONTACT YOUR FINANCIAL REPRESENTATIVE OR
SIGNATURE SERVICES. CONSULT THE SAI FOR ADDITIONAL DETAILS (SEE THE BACK COVER
OF THIS PROSPECTUS).
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 THIS PRIVILEGE YOU MUST: 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:
- - selling brokers and their employees and sales representatives (and their
Immediate Family, as defined in the SAI)
- - financial representatives utilizing fund shares in fee-based or wrap
investment products under a signed fee-based or wrap agreement with John
Hancock Funds
- - fund trustees and other individuals who are affiliated with these or other
John Hancock funds (and their Immediate Family, as defined in the SAI)
- - individuals transferring assets from an employee benefit plan into a John
Hancock fund
- - participants in certain retirement plans with at least 100 eligible employees
(one-year CDSC applies)
- - participants in certain 529 plans that have a signed agreement with John
Hancock Funds (one-year CDSC may apply)
- - certain retirement plans participating in Merrill Lynch or PruSolutions(SM)
programs
TO UTILIZE THIS WAIVER YOU MUST: CONTACT YOUR FINANCIAL REPRESENTATIVE OR
SIGNATURE SERVICES. CONSULT THE SAI FOR ADDITIONAL DETAILS (SEE THE BACK COVER
OF THIS PROSPECTUS).
OTHER WAIVERS Front-end sales charges and CDSCs are generally not imposed in
connection with the following transactions:
- - exchanges from one John Hancock fund to the same class of any other John
Hancock fund (see "Transaction Policies" in this prospectus for additional
details)
- - dividend reinvestments (see "Dividends and Account Policies" in this
prospectus for additional details)
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:
- non-retirement account: $1,000
- retirement account: $500
- group investments: $250
- Monthly Automatic Accumulation Plan (MAAP): $25 to open; you must invest
at least $25 a month
- there is no minimum initial investment for fee-based or wrap accounts of
selling firms who have executed a fee based or wrap agreement with John
Hancock Funds
3 All shareholders must complete the account application, carefully following
the instructions. When opening a corporate account, you must submit: (1) a
new account application; (2) a corporate business/organization resolution
certified within the past 12 months or a John Hancock Funds
business/organization certification form; and (3) articles of incorporation
or a government-issued business license. When opening a trust account, you
must submit: (1) a new account application and (2) a copy of the trust
document certified within the past 12 months. You must notify your financial
representative or Signature Services if this information changes. Signature
Services reserves the right to require additional documentation prior to
opening any account. 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
[GRAPHIC] - Make out a check for the investment amount, payable to - Make out a check for the investment amount,
"John Hancock Signature Services, Inc." payable to "John Hancock Signature Services,
Inc."
- Deliver the check and your completed application to
your financial representative, or mail them to - Fill out the detachable investment slip from
Signature Services (address below). an account statement. If no slip is available,
include a note specifying the fund name, your
share class, your account number and the name(s)
in which the account is registered.
- Deliver the check and your investment slip or
note to your financial representative, or mail
them to Signature Services (address below).
BY EXCHANGE
[GRAPHIC] - Call your financial representative or Signature - Log on to www.jhfunds.com to process exchanges
Services to request an exchange. between funds.
- Call EASI-Line for automated service 24 hours a
day using your touch-tone phone at 1-800-338-8080.
- Call your financial representative or Signature
Services to request an exchange.
BY WIRE
[GRAPHIC] - Deliver your completed application to your financial - Instruct your bank to wire the amount of your
representative, or mail it to Signature Services. investment to:
- Obtain your account number by calling your financial First Signature Bank & Trust
representative or Signature Services. Account # 900000260
Routing # 211475000
- Instruct your bank to wire the amount of your
investment to: Specify the fund name, your share class, your
account number and the name(s) in which the account
First Signature Bank & Trust is registered. Your bank may charge a fee to wire
Account # 900000260 funds.
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
[GRAPHIC] See "By exchange" and "By wire." - Verify that your bank or credit union is a
member of the Automated Clearing House (ACH)
system.
- Complete the "Bank Information" section on your
account application.
- Log on to www.jhfunds.com to initiate purchases
using your authorized bank account.
BY PHONE
[GRAPHIC] See "By exchange" and "By wire." - Verify that your bank or credit union is a
member of the Automated Clearing House (ACH)
system.
- Complete the "Bank Information" section on your
account application.
- Call EASI-Line for automated service 24 hours a
day using your touch-tone phone at
1-800-338-8080.
- Call your financial representative or call
Signature Services between 8 A.M. and 7 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
TO SELL SOME OR ALL OF YOUR SHARES
BY LETTER
[GRAPHIC] - Accounts of any type. - Write a letter of instruction or complete a
stock power indicating the fund name, your share
- Sales of any amount. 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.
- Include all signatures and any additional
documents that may be required (see next page).
- Mail the materials to Signature Services.
- 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
[GRAPHIC] - Most accounts. - Log on to www.jhfunds.com to initiate
redemptions from your funds.
- Sales of up to $100,000.
BY PHONE
[GRAPHIC] - Most accounts. - Call EASI-Line for automated service 24 hours a
day using your touch-tone phone at
- Sales of up to $100,000. 1-800-338-8080.
- Call your financial representative or call
Signature Services between 8 a.m. and 7 p.m.
Eastern Time on most business days.
BY WIRE OR ELECTRONIC FUNDS TRANSFER (EFT)
[GRAPHIC] - Requests by letter to sell any amount. - To verify that the Internet or telephone
redemption privilege is in place on an account,
- Requests by Internet or phone to sell up to $100,000. or to request the form to add it to an existing
account, call Signature Services.
- Amounts of $1,000 or more will be wired on the
next business day. A $4 fee will be deducted
from your account.
- 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
[GRAPHIC] - Accounts of any type. - Obtain a current prospectus for the fund into
which you are exchanging by Internet or by
- Sales of any amount. calling your financial representative or
Signature Services.
- Log on to www.jhfunds.com to process exchanges
between your funds.
- Call EASI-Line for automated service 24 hours a
day using your touch-tone phone at
1-800-338-8080.
- 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:
- - your address of record has changed within the past 30 days
- - you are selling more than $100,000 worth of shares
- - 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 [GRAPHIC]
Owners of individual, joint or UGMA/UTMA accounts - Letter of instruction.
(custodial accounts for minors).
- On the letter, the signatures and titles of all
persons authorized to sign for the account,
exactly as the account is registered.
- Signature guarantee if applicable (see above).
Owners of corporate, sole proprietorship, general - Letter of instruction.
partner or association accounts.
- Corporate business/organization resolution,
certified within the past 12 months, or a John
Hancock Funds business/organization
certification form.
- On the letter and the resolution, the signature
of the person(s) authorized to sign for the
account.
- Signature guarantee if applicable (see above).
Owners or trustees of trust accounts. - Letter of instruction.
- On the letter, the signature(s) of the trustee(s).
- Copy of the trust document certified within the
past 12 months or a John Hancock Funds trust
certification form.
- Signature guarantee if applicable (see above).
Joint tenancy shareholders with rights of - Letter of instruction signed by surviving tenant.
survivorship whose co-tenants are deceased.
- Copy of death certificate.
- Signature guarantee if applicable (see above).
Executors of shareholder estates. - Letter of instruction signed by executor.
- Copy of order appointing executor, certified
within the past 12 months.
- Signature guarantee if applicable (see above).
Administrators, conservators, guardians and other - Call 1-800-225-5291 for instructions.
sellers or account types not listed above.
ADDRESS:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
PHONE NUMBER: 1-800-225-5291
Or contact your financial representative for instructions and assistance.
YOUR ACCOUNT 11
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:
- - your address of record has changed within the past 30 days
- - you are selling more than $100,000 worth of shares
- - 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 [GRAPHIC]
Owners of individual, joint or UGMA/UTMA accounts - Letter of instruction.
(custodial accounts for minors).
- On the letter, the signatures and titles of all
persons authorized to sign for the account,
exactly as the account is registered.
- Signature guarantee if applicable (see above).
Owners of corporate, sole proprietorship, general - Letter of instruction.
partner or association accounts.
- Corporate business/organization resolution,
certified within the past 12 months, or a John
Hancock Funds business/organization
certification form.
- On the letter and the resolution, the signature
of the person(s) authorized to sign for the
account.
- Signature guarantee if applicable (see above).
Owners or trustees of trust accounts. - Letter of instruction.
- On the letter, the signature(s) of the trustee(s).
- Copy of the trust document certified within the
past 12 months or a John Hancock Funds trust
certification form.
- Signature guarantee if applicable (see above).
Joint tenancy shareholders with rights of - Letter of instruction signed by surviving tenant.
survivorship whose co-tenants are deceased.
- Copy of death certificate.
- Signature guarantee if applicable (see above).
Executors of shareholder estates. - Letter of instruction signed by executor.
- Copy of order appointing executor, certified
within the past 12 months.
- Signature guarantee if applicable (see above).
Administrators, conservators, guardians and other - Call 1-800-225-5291 for instructions.
sellers or account types not listed above.
ADDRESS:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
PHONE NUMBER: 1-800-225-5291
Or contact your financial representative for instructions and assistance.
YOUR ACCOUNT 11
TRANSACTION POLICIES
VALUATION OF SHARES The net asset value (NAV) per share for the fund and class
is determined each business day at the close of regular trading on the New York
Stock Exchange (typically 4 P.M. Eastern time). The fund generally values its
portfolio of equity securities and other investments using closing market prices
or readily available market quotations. When closing market prices or market
quotations are not readily available or are considered by the Adviser to be
unreliable, a fund may use a security's fair value. Fair value is the valuation
of a security determined on the basis of factors other than market value in
accordance with procedures approved by the Board of Trustees. All methods of
determining the value of a security used by a fund, including those discussed
below, on a basis other than market value, are forms of fair value. The use of
fair value pricing by a fund may cause the net asset value of its shares to
differ from the net asset value that would be calculated only using market
prices. The Adviser may determine that the closing market price no longer
accurately reflects the value of a security for a variety of reasons that affect
either the relevant securities markets generally or the specific issuer. For
example, with respect to non-U.S. securities held by a fund, developments
relating to specific events, the securities markets or the specific issuer may
occur between the time the primary market closes and the time the fund
determines its net asset value. In those circumstances when the fund believes
the price of the security may be affected, the fund uses the fair value of the
security. In certain circumstances a fund may use a pricing service for this
purpose. Foreign stocks or other portfolio securities held by a 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 fund shares. For market prices and quotations, as well as for some fair
value methods, the fund relies upon securities prices provided by pricing
services. Certain types of securities, including some fixed-income securities,
are regularly priced using fair value rather than market prices. The fund uses a
pricing matrix to determine the value of fixed income securities that do not
trade daily. A pricing matrix is a means of valuing a debt security on the basis
of current market prices for other debt securities and historical trading
patterns in the market for fixed income securities. The fund values debt
securities with remaining maturities of 60 days or less at amortized cost. For
more information on the valuation of shares, please see the statement of
additional information.
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. A CDSC rate that has increased will drop again with a
future exchange into a fund with a lower rate. A fund may change or cancel its
exchange policies at any time, upon 60 days' notice to its shareholders. For
further details, see "Additional Services and Programs" in the SAI (see the back
cover of this prospectus).
EXCESSIVE TRADING The fund is intended for long-term investment purposes only
and does not knowingly accept shareholders who engage in "market timing" or
other types of excessive short-term trading. Short-term trading into and out of
a fund can disrupt portfolio investment strategies and may increase fund
expenses for all shareholders, including long-term shareholders who do not
generate these costs.
RIGHT TO REJECT OR RESTRICT PURCHASE AND EXCHANGE ORDERS Purchases and exchanges
should be made primarily for investment purposes. The fund reserves the right to
restrict, reject or cancel, consistent with applicable law, for any reason and
without any prior notice, any purchase or exchange order, including transactions
representing excessive trading and transactions accepted by any shareholder's
financial intermediary. For example, the fund may in its discretion restrict,
reject or cancel a purchase or exchange order even if the transaction is not
subject to the specific "Limitations on exchange activity" described below if
the fund or its agents determine that accepting the order could interfere with
the efficient management of the fund's portfolio or otherwise not be in the
fund's best interest in light of unusual trading activity related to your
account. In the event that the fund rejects or cancels an exchange request,
neither the redemption nor the purchase side of the exchange will be processed.
If you would like the redemption request to be processed even if the purchase
order is rejected, you should submit separate redemption and purchase orders
rather than placing an exchange order. The fund reserves the right to delay for
up to one business day, consistent with applicable law, the processing of
exchange requests in the event that, in the fund's
12 YOUR ACCOUNT
judgment, such delay would be in the fund's best interest, in which case both
the redemption and purchase side of the exchange will receive the fund's net
asset values at the conclusion of the delay period. The fund, through its agents
in their sole discretion, may impose these remedial actions at the account
holder level or the underlying shareholder level.
EXCHANGE LIMITATION POLICIES The fund's Board of Trustees has adopted the
following policies and procedures by which the fund, subject to the limitations
described below, take steps reasonably designed to curtail excessive trading
practices.
LIMITATIONS ON EXCHANGE ACTIVITY The fund, through its agents, undertakes to use
its best efforts to exercise the fund's right to restrict, reject or cancel
purchase and exchange orders, as described above, if an account holder, who
purchases or exchanges into a fund account in an amount of $5,000 or more,
exchanges $1,000 or more out of that fund account within 30 calendar days on
three occasions during any 12-month period. Nothing in this paragraph limits the
right of the fund to refuse any purchase or exchange order, as discussed above
under "Right to reject or restrict purchase and exchange orders".
Exchanges made on the same day in the same account are aggregated for purposes
of counting the number and dollar amount of exchanges made by the account
holder. The exchange limits referenced above will not be imposed or may be
modified under certain circumstances. For example: these exchange limits may be
modified for accounts held by certain retirement plans to conform to plan
exchange limits, ERISA considerations or Department of Labor regulations.
Certain automated or pre-established exchange, asset allocation and dollar cost
averaging programs are not subject to these exchange limits. These programs are
excluded from the exchange limitation since the fund believes that they are
advantageous to shareholders and do not offer an effective means for market
timing or excessive trading strategies. These investment tools involve regular
and predetermined purchase or redemption requests made well in advance of any
knowledge of events affecting the market on the date of the purchase or
redemption.
These exchange limits are subject to the fund's ability to monitor exchange
activity, as discussed under "Limitations on the ability to detect and curtail
excessive trading practices" below. Depending upon the composition of the fund's
shareholder accounts and in light of the limitations on the ability of the fund
to detect and curtail excessive trading practices, a significant percentage of a
fund's shareholders may not be subject to the exchange limitation policy
described above. In applying the exchange limitation policy, the fund considers
information available to it at the time and reserves the right to consider
trading activity in a single account or multiple accounts under common
ownership, control or influence.
LIMITATION ON THE ABILITY TO DETECT AND CURTAIL EXCESSIVE TRADING PRACTICES
Shareholders seeking to engage in excessive trading practices sometimes deploy a
variety of strategies to avoid detection, and, despite the efforts of the fund
to prevent its excessive trading, there is no guarantee that the fund or its
agents will be able to identify such shareholders or curtail their trading
practices. The ability of the fund and its agents to detect and curtail
excessive trading practices may also be limited by operational systems and
technological limitations. Because the fund will not always be able to detect
frequent trading activity, investors should not assume that the fund will be
able to detect or prevent all frequent trading or other practices that
disadvantage the fund. For example, the ability of the fund to monitor trades
that are placed by omnibus or other nominee accounts is severely limited in
those instances in which the financial intermediary, including a financial
adviser, broker, retirement plan administrator or fee-based program sponsor,
maintains the record of the fund's underlying beneficial owners. Omnibus or
other nominee account arrangements are common forms of holding shares of the
fund, particularly among certain financial intermediaries such as financial
advisers, brokers, retirement plan administrators or fee-based program sponsors.
These arrangements often permit the financial intermediary to aggregate their
clients' transactions and ownership positions and do not identify the particular
underlying shareholder(s) to the fund.
EXCESSIVE TRADING RISK To the extent that the fund or its agents are unable to
curtail excessive trading practices in a fund, these practices may interfere
with the efficient management of the fund's portfolio, and may result in the
fund engaging in certain activities to a greater extent than it otherwise would,
such as maintaining higher cash balances, using its line of credit and engaging
in portfolio transactions. Increased portfolio transactions and use of the line
of credit would correspondingly increase the fund's operating costs and decrease
the fund's investment performance. Maintenance of higher levels of cash balances
would likewise result in lower fund investment performance during periods of
rising markets.
While excessive trading can potentially occur in the fund, certain types of
funds are more likely than others to be targets of excessive trading. For
example:
- - The fund may invest a significant portion of its assets in small or
mid-capitalization stocks or securities in particular industries, that may
trade infrequently or are fair valued as discussed under "Valuation of
shares." These types of securities entail a greater risk of excessive
trading, as investors may seek to trade fund shares in an effort to
benefit from their understanding of the value of those types of securities
(referred to as price arbitrage).
- - The fund may invest a material portion of its assets in securities of
non-U.S. issuers and may be a potential target for excessive trading if
investors seek to engage in price arbitrage based upon general trends in
the securities markets that occur subsequent to the close of the primary
market for such securities.
Any frequent trading strategies may interfere with efficient management of a
fund's portfolio. A fund that invests in the types of securities discussed above
may be exposed to this risk to a greater degree than a fund that invests in
highly liquid securities. These risks would be less significant, for example, in
a fund that primarily invests in U.S. government securities, money market
instruments, investment-grade corporate issuers or
YOUR ACCOUNT 13
large-capitalization U.S. equity securities. Any successful price arbitrage may
cause dilution in the value of the fund shares held by other shareholders.
ACCOUNT INFORMATION John Hancock Funds is required by law to obtain information
for verifying an account holder's identity. For example, an individual will be
required to supply name, address, date of birth and social security number. 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 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:
- - after every transaction (except a dividend reinvestment, automatic
investment or systematic withdrawal) that affects your account balance
- - after any changes of name or address of the registered owner(s)
- - 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 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. No front-end sales
charge or CDSC will be imposed on shares derived from reinvestment of dividends
or capital gains distributions.
TAXABILITY OF DIVIDENDS Dividends you receive from a fund, whether reinvested or
taken as cash, are generally considered taxable. Dividends from the fund's
income and short-term capital gains are taxable as ordinary income. Dividends
from the 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. 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, your fund may charge you $20 a
year to maintain your account. You will not be charged a CDSC if your account is
closed for this reason. Your account will not be closed or charged this fee if
its drop in value is due to fund performance or the effects of sales charges. If
your account balance is $100 or less and no action is taken, the account will be
liquidated.
14 YOUR ACCOUNT
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:
- - Complete the appropriate parts of your account application.
- - 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:
- - Make sure you have at least $5,000 worth of shares in your account.
- - 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).
- - 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.
- - Determine the schedule: monthly, quarterly, semiannually, annually or in
certain selected months.
- - 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 $500 or, for some group plans, no
minimum investment at all. To find out more, call Signature Services at
1-800-225-5291.
FUND SECURITIES The fund's portfolio securities disclosure policy can be found
in the Statement of Additional Information and on the fund's Web site,
www.jhfunds.com. The fund's Web site also lists fund holdings. Portfolio holding
information is posted on the fund's Web site each month on a one month lag and
is available on the fund's Web site until a fund files its next form N-CSR or
Form N-Q with the Securities and Exchange Commission ("SEC"). Portfolio holding
information as filed with the SEC on Forms N-CSR and N-Q is also made available
on the fund's Web site.
YOUR ACCOUNT 15
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 fund's policy
of investing at least 80% of assets in biotechnology companies without
shareholder approval. The fund will provide written notice to shareholders at
least 60 days prior to a change in this 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. (a subsidiary of Manulife Financial Corporation) and
managed approximately $30 billion in assets as of December 31, 2004.
MANAGEMENT FEE During the fund's last fiscal year, the fund paid the investment
adviser management fee at a rate of 0.38% of the fund's average daily net
assets, after expense reimbursement.
[FLOW CHART]
SHAREHOLDERS
FINANCIAL SERVICES FIRMS AND
THEIR REPRESENTATIVES
DISTRIBUTION AND Advise current and prospective
SHAREHOLDER SERVICES shareholders on their fund
investments, often in the context
of an overall financial plan.
PRINCIPAL DISTRIBUTOR TRANSFER AGENT
John Hancock Funds, LLC John Hancock Signature Services, Inc.
Markets the fund and distributes Handles shareholder services, including
shares through selling brokers, record-keeping and statements,
financial planners and other distribution of dividends and
financial representatives. processing of buy and sell requests.
ASSET
MANAGEMENT
INVESTMENT ADVISER CUSTODIAN
John Hancock Advisers, LLC The Bank of New York
101 Huntington Avenue One Wall Street
Boston, MA 02199-7603 New York, New York 10286
Manages the fund's business and Holds the fund's assets,
investment activities. settles all portfolio trades
and collects most of the
valuation data required for
calculating the fund's NAV.
TRUSTEES
Oversee the fund's activities.
16 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.
BIOTECHNOLOGY FUND
Figures audited by PricewaterhouseCoopers LLP.
CLASS A SHARES PERIOD ENDED: 10-31-01(1) 10-31-02 10-31-03 10-31-04
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 9.49 $ 5.55 $ 7.39
Net investment loss(2) (0.07) (0.09) (0.08) (0.12)
Net realized and unrealized gain (loss) on investments (0.44) (3.84) 1.92 0.59
TOTAL FROM INVESTMENT OPERATIONS (0.51) (3.93) 1.84 0.47
LESS DISTRIBUTIONS
From net investment income -- (0.01) -- --
NET ASSET VALUE, END OF PERIOD $ 9.49 $ 5.55 $ 7.39 $ 7.86
TOTAL RETURN(3,4)(%) (5.10)(5) (41.46) 33.15 6.36
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 6 $ 5 $ 8 $ 8
Ratio of expenses to average net assets (%) 1.60(6) 1.60 1.60 1.60
Ratio of adjusted expenses to average net assets(7 )(%) 4.34(6) 2.59 2.65 2.12
Ratio of net investment loss to average net assets (%) (1.15)(6) (1.29) (1.35) (1.46)
Portfolio turnover (%) 63 97 130 80
CLASS B SHARES PERIOD ENDED: 10-31-01(1) 10-31-02 10-31-03 10-31-04
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 9.44 $ 5.49 $ 7.26
Net investment loss(2) (0.13) (0.14) (0.13) (0.17)
Net realized and unrealized gain (loss) on investments (0.43) (3.81) 1.90 0.58
TOTAL FROM INVESTMENT OPERATIONS (0.56) (3.95) 1.77 0.41
NET ASSET VALUE, END OF PERIOD $ 9.44 $ 5.49 $ 7.26 $ 7.67
TOTAL RETURN(3,4)(%) (5.60)(5) (41.84) 32.24 5.65
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 4 $ 4 $ 8 $ 9
Ratio of expenses to average net assets (%) 2.30(6) 2.30 2.30 2.30
Ratio of adjusted expenses to average net assets(7 )(%) 5.05(6) 3.29 3.35 2.82
Ratio of net investment loss to average net assets (%) (2.01)(6) (1.99) (2.05) (2.16)
Portfolio turnover (%) 63 97 130 80
17 FUND DETAILS
CLASS C SHARES PERIOD ENDED: 10-31-01(1) 10-31-02 10-31-03 10-31-04
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 9.44 $ 5.49 $ 7.26
Net investment loss(2) (0.13) (0.14) (0.13) (0.17)
Net realized and unrealized gain (loss) on investments (0.43) (3.81) 1.90 0.58
TOTAL FROM INVESTMENT OPERATIONS (0.56) (3.95) 1.77 0.41
NET ASSET VALUE, END OF PERIOD $ 9.44 $ 5.49 $ 7.26 $ 7.67
TOTAL RETURN(3,4)(%) (5.60)(5) (41.84) 32.24 5.65
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 2 $ 2 $ 2 $ 4
Ratio of expenses to average net assets (%) 2.30(6) 2.30 2.30 2.30
Ratio of adjusted expenses to average net assets(7 )(%) 5.05(6) 3.29 3.35 2.82
Ratio of net investment loss to average net assets (%) (2.07)(6) (1.99) (2.05) (2.16)
Portfolio turnover (%) 63 97 130 80
(1) Class A, Class B and Class C shares began operations on 3-1-01.
(2) Based on the average of the shares outstanding.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Total returns would have been lower had certain expenses not been reduced
during the periods shown.
(5) Not annualized.
(6) Annualized.
(7) 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 for the period or year ended
October 31, 2001, 2002, 2003 and 2004 would have been (6.94%), (42.45%), 32.10%
and 5.84%, for Class B (7.45%), (42.83%), 31.19%, 8.08% and 5.13% and for Class
C (7.45%), (42.83%), 31.19% and 5.13%, respectively.
18 FUND NAME FUND DETAILS 18
For more information
Two documents are available that offer further information on the John Hancock
Biotechnology 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
fund's SAI includes a summary of the fund's policy regarding disclosure of its
portfolio holdings. 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:
By mail: Public Reference Section Securities and Exchange
Commission Washington, DC 20549-0102 (duplicating fee required)
In person: at the SEC's Public Reference Room in Washington, DC. Foraccess to
the Reference Roomcall 1-202-942-8090
By electronic request: publicinfo@sec.gov
(duplicating fee required)
On the Internet: www.sec.gov
(C)2005 JOHN HANCOCK FUNDS, LLC 730PN 3/05
[JOHN HANCOCK LOGO] PRSRT STD
U.S. POSTAGE
JOHN HANCOCK FUNDS, LLC P A I D
MEMBER NASD BOSTON, MA
101Huntington Avenue PERMIT NO. 11
Boston, MA 02199-7603
www.jhfunds.com
JOHN HANCOCK BIOTECHNOLOGY FUND
CLASS A, CLASS B AND CLASS C SHARES
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 2005
This Statement of Additional Information provides information about John Hancock
Biotechnology 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 World Fund (the "Trust").
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus. This Statement of Additional Information
incorporates by reference the Fund's Annual Report. A copy of the Prospectus or
Annual Report can be obtained free of charge by writing or telephoning:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
1-800-225-5291
TABLE OF CONTENTS
PAGE
Organization of the Fund................................................... 2
Investment Objective and Policies.......................................... 2
Investment Restrictions.................................................... 14
Those Responsible for Management........................................... 16
Additional Investment Advisory and Other Services.......................... 29
Information About the Fund's Portfolio Manager............................. 33
Distribution Contracts..................................................... 29
Sales Compensation......................................................... 35
Net Asset Value............................................................ 37
Initial Sales Charge on Class A Shares..................................... 39
Deferred Sales Charge on Class B and Class C Shares........................ 42
Special Redemptions........................................................ 46
Additional Services and Programs........................................... 46
Purchase and Redemptions through Third Parties............................. 47
Description of the Fund's Shares........................................... 48
Tax Status................................................................. 49
Calculation of Performance................................................. 54
Brokerage Allocation....................................................... 56
Transfer Agent Services.................................................... 59
Custody of Portfolio....................................................... 60
Independent Registered Public Accounting Firm ............................. 60
Appendix A- Description of Investment Risk................................. A-1
Appendix B-Description of Bond Ratings..................................... B-1
Appendix C-Summary of Proxy Voting ....................................... C-1
Appendix D-Description of Portfolio Holdings Disclosure Policy............. D-1
Financial Statements....................................................... F-1
1
ORGANIZATION OF THE FUND
The Fund is a series of the Trust, an open-end investment management company
organized as a Massachusetts business trust in August, 1986 under the laws of
The Commonwealth of Massachusetts.
John Hancock Advisers, LLC (prior to February 1, 2002, John Hancock Advisers,
Inc.) (the "Adviser") is the Fund's investment adviser. The Adviser is a wholly
owned subsidiary of John Hancock Financial Services, Inc., a subsidiary of
Manulife Financial Corporation ("Manulife Financial"). Founded in 1862, John
Hancock Financial Services and its subsidiaries today offer a broad range of
financial products and services, including whole, term, variable, and universal
life insurance, as well as college savings products, mutual funds, fixed and
variable annuities, long-term care insurance and various forms of business
insurance.
Manulife Financial is a leading Canadian-based financial services group serving
millions of customers in 19 countries and territories worldwide. Operating as
Manulife Financial in Canada and most of Asia, and primarily through John
Hancock in the United States, the Company offers clients a diverse range of
financial protection products and wealth management services through its
extensive network of employees, agents and distribution partners. Funds under
management by Manulife Financial and its subsidiaries were Cdn$348 billion
(US$289 billion) as at December 31, 2004.
Manulife Financial Corporation trades as 'MFC' on the TSX, NYSE and PSE, and
under '0945' on the SEHK. Manulife Financial can be found on the Internet at
www.manulife.com.
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's investment objective is to seek long-term capital appreciation. To
pursue this goal, the Fund normally invests at least 80% of its Assets in
securities of U.S. and foreign biotechnology companies. These are companies that
are principally engaged in the research, development and manufacture of various
biotechnological products, services and processes. These may include companies
involved with applications and developments in areas such as human health care,
pharmaceuticals, medical/surgical, biochemistry, and agriculture. They may also
include companies that manufacture biotechnological and biomedical products,
including devices and instruments; companies that provide biotechnological
services or processes; and companies involved in areas such as genomics, genetic
engineering, and gene therapy. The Fund may also invest in companies that
distribute biotechnological and biomedical products and companies that benefit
significantly from scientific and technological advances in biotechnology.
Because the Fund is non-diversified, it may invest more than 5% of its total
assets in the securities of individual companies. (See "Non-Diversification"
below.)
The Fund may invest in certain higher-risk securities that are not publicly
offered or traded, called restricted securities. The Fund may also invest in
preferred stocks and other types of equities and may make limited use of certain
derivatives (investments whose value is based on indices, securities or
currencies).
In abnormal circumstances, such as situations where the Fund experiences large
cash inflows or anticipates unusually large redemptions, and in adverse market,
economic, political, or other
2
conditions, the Fund may temporarily invest more than 20% of its Assets in
investment-grade short-term securities, cash, and cash equivalents.
With respect to the Fund's policy of investing at least 80% of its Assets in
biotechnology companies, "Assets" means 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 Adviser considers an issuer to be principally engaged in a business activity
if: (i) in its most recent fiscal year, the issuer derived at least 50% of its
revenues or earnings from the business activity, or devoted at least 50% of its
assets to such activity, or (ii) a third party has given the issuer an industry
or sector classification consistent with the designated business activity.
Risks of Biotechnology Companies: Since the Fund's investments will be
concentrated in the biotechnology sector, it will be subject to risks in
addition to those that apply to the general equity and debt markets. Events may
occur which significantly affect the sector as a whole or a particular segment
in which the Fund invests. Accordingly, the Fund may be subject to greater
market volatility than a fund that does not concentrate in a particular economic
sector or industry. Thus, it is recommended that an investment in the Fund be
only a portion of your overall investment portfolio.
In addition, most biotechnology companies are subject to extensive governmental
regulation, which limits their activities and may affect ability to earn a
profit from a given line of business. The biotechnology industry will be
affected by regulatory approval for new drugs and medical products.
Biotechnology companies may also be significantly affected by factors such as
intense competition, product liability, patent considerations, rapid
technological change and obsolescence.
Smaller Capitalization Companies. Many biotechnology companies are smaller
companies. Smaller capitalization companies may have limited product lines,
market and financial resources, or they may be dependent on smaller or less
experienced management groups. In addition, trading volume for these securities
may be limited. Historically, the market price for these securities has been
more volatile than for securities of companies with greater capitalization.
However, securities of companies with smaller capitalization may offer greater
potential for capital appreciation since they may be overlooked and thus
undervalued by investors.
Non-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 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
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 more diversified fund.
3
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
creditworthiness of the issuer and general market liquidity (market risk).
Lower Rated High Yield Debt Obligations. The Fund may invest up to 5% of assets
in high yielding, fixed income securities rated 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").
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 B 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.
4
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 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.
5
Investments in Foreign Securities. The Fund may invest directly in the
securities of foreign issuers as well as securities in the form of sponsored or
unsponsored American Depository Receipts ("ADRs"), European Depository Receipts
("EDRs"), Global Depository Receipts (GDRs), 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 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.
6
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.
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.
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.
7
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.
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 income. 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.
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
8
purchase or sale of securities. In addition, securities index options are
designed to reflect price fluctuations in a group of securities or segment of
the securities market rather than price fluctuations in a single security.
Writing covered call options may deprive the Fund of the opportunity to profit
from an increase in the market price of the securities or foreign currency
assets in its portfolio. Writing covered put options may deprive the Fund of the
opportunity to profit from a decrease in the market price of the securities or
foreign currency assets to be acquired for its portfolio.
All call and put options written by the Fund are covered. A written call option
or put option may be covered by (i) maintaining cash or liquid securities,
either of which may be quoted or denominated in any currency, in a segregated
account with a value at least equal to the Fund's obligation under the option,
(ii) entering into an offsetting forward commitment and/or (iii) purchasing an
offsetting option or any other option which, by virtue of its exercise price or
otherwise, reduces the Fund's net exposure on its written option position. A
written call option on securities is typically covered by maintaining the
securities that are subject to the option in a segregated account. The Fund may
cover call options on a securities index by owning securities whose price
changes are expected to be similar to those of the underlying index.
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
9
written or purchased by other investment advisory clients of the Adviser. An
exchange, board of trade or other trading facility may order the liquidation of
positions found to be in excess of these limits, and it may impose certain other
sanctions.
Risks Associated with Options Transactions. There is no assurance that a liquid
secondary market on a domestic or foreign options exchange will exist for any
particular exchange-traded option or at any particular time. If the Fund is
unable to effect a closing purchase transaction with respect to covered options
it has written, the Fund will not be able to sell the underlying securities or
currencies or dispose of assets held in a segregated account until the options
expire or are exercised. Similarly, if the Fund is unable to effect a closing
sale transaction with respect to options it has purchased, it would have to
exercise the options in order to realize any profit and will incur transaction
costs upon the purchase or sale of underlying securities or currencies.
Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options). If trading were discontinued, the
secondary market on that exchange (or in that class or series of options) would
cease to exist. However, outstanding options on that exchange that had been
issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
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
10
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 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
11
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.
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.
12
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 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
13
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.
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, 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.
14
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.
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; except that the Fund will
ordinarily invest more than 25% of its assets in the biotechnology
industry. 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.
15
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 Fund will invest only in countries on the Adviser's Approved Country
Listing. The Approved Country Listing is a list maintained by the Adviser's
investment department that outlines all countries, including the United States,
that have been approved for investment by Funds managed by the Adviser.
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").
16
R>
NUMBER OF
JOHN HANCOCK
NAME, ADDRESS (1) POSITION(S) HELD TRUSTEE/ PRINCIPAL OCCUPATION(S) AND OTHER DIRECTORSHIPS FUNDS OVERSEEN
AND AGE WITH FUND OFFICER SINCE(2) DURING PAST 5 YEARS BY TRUSTEE
- -------------------- ---------------- ---------------- ----------------------------------------------- --------------
INDEPENDENT TRUSTEES
Charles L. Ladner Chairman and 2004 Chairman and Trustee, Dunwoody Village, Inc. 51
Born: 1938 Trustee (retirement services) (until 2003); 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).
James F. Carlin Trustee 2005 Director and Treasurer, Alpha Analytical 49
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 (engineering) (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 non-independent 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) Non-Independent Trustee: holds positions with the Fund's investment
adviser, underwriter, and or certain other affiliates.
17
NUMBER OF
JOHN HANCOCK
NAME, ADDRESS (1) POSITION(S) HELD TRUSTEE/ PRINCIPAL OCCUPATION(S) AND OTHER DIRECTORSHIPS FUNDS OVERSEEN
AND AGE WITH FUND OFFICER SINCE(2) DURING PAST 5 YEARS BY TRUSTEE
- -------------------- ---------------- ---------------- ----------------------------------------------- --------------
INDEPENDENT TRUSTEES
Richard P. Chapman, Jr. Trustee 2001 President and Chief Executive Officer, Brookline 41
Born: 1935 Bancorp., Inc. (lending) (since 1972); Chairman
and Director, Lumber Insurance Co. (insurance)
(until 2000); Chairman and Director, Northeast
Retirement Services, Inc. (retirement
administration) (since 1998).
William J. Cosgrove Trustee 2001 Vice President, Senior Banker and Senior Credit 41
Born: 1933 Officer, Citibank, N.A. (retired 1991);
Executive Vice President, Citadel Group
Representatives, Inc. (until 2004); Director,
Hudson City Bancorp; Trustee, Scholarship Fund
for Inner City Children (since 1986).
(1) Business address for independent and non-independent 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) Non-Independent Trustee: holds positions with the Fund's investment
adviser, underwriter, and or certain other affiliates.
18
NUMBER OF
JOHN HANCOCK
NAME, ADDRESS (1) POSITION(S) HELD TRUSTEE/ PRINCIPAL OCCUPATION(S) AND OTHER DIRECTORSHIPS FUNDS OVERSEEN
AND AGE WITH FUND OFFICER SINCE(2) DURING PAST 5 YEARS BY TRUSTEE
- -------------------- ---------------- ---------------- ----------------------------------------------- --------------
INDEPENDENT TRUSTEES
William H. Cunningham Trustee 2005 Former Chancellor, University of Texas System 49
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 (until
2004), STC Broadcasting, Inc. and Sunrise
Television Corp. (until 2001), Symtx,
Inc. (electronic manufacturing) (since 2001),
Adorno/Rogers Technology, Inc. (until 2004),
Pinnacle Foods Corporation (until 2003),
rateGenius (until 2003), 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
(until 2003); Director, Chase Bank (formerly
Texas Commerce Bank - Austin), LIN Television
(since 2002), WilTel Communications (until 2003)
and Hayes Lemmerz International, Inc.
(diversified automotive parts supple company)
(since 2003).
(1) Business address for independent and non-independent 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) Non-Independent Trustee: holds positions with the Fund's investment adviser,
underwriter, and or certain other affiliates.
19
NUMBER OF
JOHN HANCOCK
NAME, ADDRESS (1) POSITION(S) HELD TRUSTEE/ PRINCIPAL OCCUPATION(S) AND OTHER DIRECTORSHIPS FUNDS OVERSEEN
AND AGE WITH FUND OFFICER SINCE(2) DURING PAST 5 YEARS BY TRUSTEE
- -------------------- ---------------- ---------------- ----------------------------------------------- --------------
Ronald R. Dion Trustee 2005 Chairman and Chief Executive Officer, R.M. 49
Born: 1946 Bradley & Co., Inc.; Director, The New England
Council and Massachusetts Roundtable; Director,
Boston Stock Exchange; Trustee, North Shore
Medical Center; Director, BJ's Wholesale Club,
Inc. and a corporator of the Eastern Bank;
Trustee, Emmanuel College.
John A. Moore Trustee 2001 President and Chief Executive Officer, Institute 51
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 51
Born: 1943 Exchange of Scholars and Vice President,
Institute of International Education (since
1998); Senior Fellow, Cornell Institute of
Public Affairs, Cornell University (until 1997);
Former President of Wells College and St.
Lawrence University; Director, Niagara Mohawk
Power Corporation (until 2003); Director, Ford
Foundation, International Fellowships Program
(since 2002); Director, Lois Roth Endowment
(since 2002); Director, Council for
International Exchange (since 2003).
Steven Pruchansky Trustee 2005 Chairman and Chief Executive Officer, Mast 49
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).
(1) Business address for independent and non-independent 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) Non-Independent Trustee: holds positions with the Fund's investment adviser,
underwriter, and or certain other affiliates.
20
NUMBER OF
JOHN HANCOCK
NAME, ADDRESS (1) POSITION(S) HELD TRUSTEE/ PRINCIPAL OCCUPATION(S) AND OTHER DIRECTORSHIPS FUNDS OVERSEEN
AND AGE WITH FUND OFFICER SINCE(2) DURING PAST 5 YEARS BY TRUSTEE
- ----------------------- ---------------- ---------------- ----------------------------------------------- --------------
Norman H. Smith Trustee 2005 Lieutenant General, United States Marine Corps; 49
Born: 1933 Deputy Chief of Staff for Manpower and Reserve
Affairs, Headquarters Marine Corps; Commanding
General III Marine Expeditionary Force/3rd
Marine Division (retired 1991).
NON-INDEPENDENT TRUSTEE
James A. Shepherdson (3) Trustee, President 2004 Executive Vice President, Manulife Financial 51
Born: 1952 and Chief Corporation (since 2004); Director, President
Executive Officer and Chief Executive Officer, John Hancock
Advisers, LLC (the "Adviser") and The Berkeley
Financial Group, LLC ("The Berkeley Group")
(holding company); Director, President and Chief
Executive Officer, John Hancock Funds, LLC.
("John Hancock Funds"); Director, President and
Chief Executive Officer, Sovereign Asset
Management Corporation ("SAMCorp."); Director,
John Hancock Signature Services, Inc.; Director,
Chairman and President, NM Capital Management,
Inc. (NM Capital); President, John Hancock
Retirement Services, John Hancock Life Insurance
Company (until 2004); Chairman, Essex
Corporation (until 2004); Co-Chief Executive
Officer MetLife Investors Group (until 2003);
Senior Vice President, AXA/Equitable Insurance
Company (until 2000).
(1) Business address for independent and non-independent 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) Non-Independent Trustee: holds positions with the Fund's investment adviser,
underwriter, and or certain other affiliates.
21
NUMBER OF
JOHN HANCOCK
NAME, ADDRESS (1) POSITION(S) HELD TRUSTEE/ PRINCIPAL OCCUPATION(S) AND OTHER DIRECTORSHIPS FUNDS OVERSEEN
AND AGE WITH FUND OFFICER SINCE(2) DURING PAST 5 YEARS BY TRUSTEE
- -------------------- ---------------- ---------------- ----------------------------------------------- --------------
PRINCIPAL OFFICERS
WHO ARE NOT TRUSTEES
William H. King Vice President 2001 Vice President and Assistant Treasurer, the N/A
Born: 1952 and Treasurer 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 Senior Vice 2001 Senior Vice President, Secretary and Chief Legal N/A
Born: 1950 President, Officer, SAMCorp., the Adviser and each of the
Secretary and John Hancock funds, John Hancock Funds and The
Chief Legal Berkeley Group; Director, Senior Vice President,
Officer NM Capital.
(1) Business address for independent and non-independent 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) Non-Independent 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 who are not "interested persons."
The Audit Committee members are Messrs. Chapman, Ladner, Chapman, Moore and Ms.
McGill Peterson. All of the members of the Audit Committee are independent under
the New York Stock Exchange's Revised Listing Rules and each member is
financially literate with at least one having accounting or financial management
expertise. The Board has adopted a written charter for the Audit Committee. 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, 2004.
The Administration Committee members are all of the independent Trustees. 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. All members of the Administration Committee are
independent under the New York Stock Exchange's Revised Listing Rules and are
not interested persons, as defined in the 1940 Act, of John Hancock or the Fund
(the "Independent Trustees"). Among other things, the Administration Committee
acts as a nominating committee of the Board. The Trustees who are not
Independent Trustees and the officers of the Fund are nominated and selected by
the Board. In reviewing a potential nominee and in evaluating the renomination
of current Independent Trustees, the Administration Committee will apply the
following criteria: (i) the nominee's reputation for integrity, honesty and
adherence to high ethical standards, (ii) the nominee's
22
business acumen, experience and ability to exercise sound judgments, (iii) a
commitment to understand the Fund and the responsibilities of a trustee of an
investment company, (iv) a commitment to regularly attend and participate in
meetings of the Board and its committees, (v) the ability to understand
potential conflicts of interest involving management of the Fund and to act in
the interests of all shareholders, and (vi) the absence of a real or apparent
conflict of interest that would impair the nominee's ability to represent the
interests of all the shareholders and to fulfill the responsibilities of an
Independent Trustee. The Administration Committee does not necessarily place the
same emphasis on each criteria and each nominee may not have each of these
qualities. The Administration Committee does not discriminate on the basis of
race, religion, national origin, sex, sexual orientation, disability or any
other basis proscribed by law. The Administration Committee held four meetings
during the fiscal year ended October 31, 2004.
As long as an existing Independent Trustee continues, in the opinion of the
Administration Committee, to satisfy these criteria, the Fund anticipates that
the Committee would favor the renomination of an existing Trustee rather than a
new candidate. Consequently, while the Administration Committee will consider
nominees recommended by shareholders to serve as trustees, the Administration
Committee may only act upon such recommendations if there is a vacancy on the
Board or the Administration Committee determines that the selection of a new or
additional Independent Trustee is in the best interests of the Fund. In the
event that a vacancy arises or a change in Board membership is determined to be
advisable, the Administration Committee will, in addition to any shareholder
recommendations, consider candidates identified by other means, including
candidates proposed by members of the Administration Committee. While it has not
done so in the past, the Administration Committee may retain a consultant to
assist the Committee in a search for a qualified candidate.
Any shareholder recommendation must be submitted in compliance with all of the
pertinent provisions of Rule 14a-8 under the Securities Exchange Act of 1934, as
amended, to be considered by the Administration Committee. In evaluating a
nominee recommended by a shareholder, the Administration Committee, in addition
to the criteria discussed above, may consider the objectives of the shareholder
in submitting that nomination and whether such objectives are consistent with
the interests of all shareholders. If the Board determines to include a
shareholder's candidate among the slate of nominees, the candidate's name will
be placed on the Fund's proxy card. If the Administration Committee or the Board
determines not to include such candidate among the Board's designated nominees
and the shareholder has satisfied the requirements of Rule 14a-8, the
shareholder's candidate will be treated as a nominee of the shareholder who
originally nominated the candidate. In that case, the candidate will not be
named on the proxy card distributed with the Fund's proxy statement.
Shareholders may communicate with the members of the Board as a group or
individually. Any such communication should be sent to the Board or an
individual Trustee c/o the secretary of the Fund at the following address: 101
Huntington Avenue, Boston, MA 02199. The Secretary may determine not to forward
any letter to the members of the Board that does not relate to the business of
the Fund.
The Contracts/Operations Committee members are Messrs. Carlin, Dion, Pruchansky
and Smith. 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 (if, applicable),
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, 2004.
23
The Investment Performance Committee members are all of the independent
Trustees. 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, 2004.
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, 2004.
DOLLAR RANGE OF FUND SHARES AGGREGATE DOLLAR RANGE OF HOLDINGS IN JOHN
NAME OF TRUSTEE OWNED BY TRUSTEE (1) HANCOCK FUNDS OVERSEEN BY TRUSTEE (1)
- ----------------------- --------------------------- ------------------------------------------
INDEPENDENT TRUSTEES
James F. Carlin* $ 1-10,000 Over 100,000
Richard P. Chapman, Jr. none Over 100,000
William J. Cosgrove none Over 100,000
William H. Cunningham* none $10,001-50,000
Ronald R. Dion* none Over 100,000
Charles L. Ladner** $10,001-50,000 Over 100,000
Dr. John A. Moore $ 1-10,000 Over 100,000
Patti McGill Peterson none Over 100,000
Steven R. Pruchansky* none Over 100,000
Norman H. Smith* none Over 100,000
NON-INDEPENDENT TRUSTEES
James A. Shepherdson** $ 1-10,000 $10,001-50,000
(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, 2004, 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
Mr. Cunningham, none and over $100,000 for Mr. Dion, $1-$10,000 and over
$100,000 for Dr. Moore, none and over $100,000 for Mr. Pruchansky and none
and over $100,000 for Mr. Smith.
*Messrs. Carlin, Cunningham, Dion and Pruchansky were elected to the Board
by shareholders on December 1, 2004 effective January 1, 2005. Mr. Smith
was appointed to the Board by the Trustees on December 14, 2004 effective
January 1, 2005.
**Mr. Shepherdson was appointed Trustee of the John Hancock Funds as of
May 12, 2004. As of June 16, 2004, the Independent Trustees elected
Charles L. Ladner as Trustee and Independent Chairman of the Board.
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. Any Non-Independent Trustee, and each
of the officers of the Fund are interested persons of the Adviser, and/or
affiliates are compensated by the Adviser and received no compensation from the
Fund for their services.
24
Total Compensation From the
Independent Trustees Aggregate Compensation from the Fund (1) Fund and John Hancock Fund Complex to Trustees (2)
Dennis J. Aronowitz+ $ 150 $ 77,500
James F. Carlin++ 0 76,500
Richard P. Chapman* 156 79,500
William J. Cosgrove* 175 89,500
William H. Cunningham*++ 0 77,500
Ronald R. Dion*++ 0 76,500
Richard A. Farrell+ 151 76,500
William F. Glavin*+ 149 76,350
Charles L. Ladner+++ 11 104,150
Dr. John A. Moore* 102 79,900
Patti McGill Peterson 99 74,900
John Pratt+ 150 76,500
Steven R. Pruchansky*++ 0 79,500
Norman H. Smith*++ 0 76,500
------ ----------
Total $1,143 $1,121,300
(1) Compensation is for the fiscal year ending October 31, 2004.
(2) Total compensation paid by the John Hancock Funds Complex to the Independent
Trustees is as of December 31, 2004. As of this date, there were forty-nine
funds in the John Hancock Fund Complex: Messrs. Aronowitz, Chapman, Cosgrove,
Farrell, Glavin and Pratt serving on twenty-one funds; Messrs. Carlin,
Cunningham, Dion, Pruchansky and Smith serving on twenty-eight funds; Dr. Moore
and Ms. McGill Peterson serving on thirty funds and Mr. Ladner serving on
forty-nine funds.
*As of December 31, 2004, the value of the aggregate accrued deferred
compensation amount from all funds in the John Hancock Funds Complex for Mr.
Chapman was $69,035, Mr. Cosgrove was $232,538, Mr. Cunningham was $627,144, Mr.
Dion was $242,968, Mr. Glavin was $353,669, Dr. Moore was $273,394, Mr.
Pruchansky was $194,392 and Mr. Smith was $331,243 under the John Hancock Group
of Funds Deferred Compensation Plan for Independent Trustees (the "Plan").
+Messrs. Aronowitz, Farrell, Glavin and Pratt retired as of December 31, 2004.
++ Messrs. Carlin, Cunningham, Dion and Pruchansky each became a Trustee and
were elected to the Board by shareholders on December 1, 2004 effective January
1, 2005. Mr. Smith was appointed to the Board by the Trustees on December 14,
2004 effective January 1, 2005.
+++ As of June 16, 2004, the Independent Trustees elected Charles L. Ladner as a
Trustee of the Fund and Independent Chairman of the Board.
All of the officers listed are officers or employees of the Adviser or
Affiliated Companies. Some of the Trustees and officers may also be officers or
Trustees of one or more of the other funds for which the Adviser serves as
investment adviser.
As of February 2, 2005, the officers and Trustees of the Fund as a group
beneficially owned less than 1% of the outstanding shares of the Fund. As of
that date, the following shareholders beneficially owned 5% or more of the
outstanding shares of each class of the Fund.
25
Name and Address of Owners of More than 5% of Shares Class A Class B Class C
- ---------------------------------------------------- ------- ------- -------
MLPF&S -- 8.14% 7.86%
For The Sole Benefit of Its Customers
Attn: Fund Administration 973R9
4800 Deer Lake Drive East 2nd Fl
Jacksonville FL 32246-6484
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603,
a premier investment management company, managed approximately $30 billion in
open-end funds, closed-end funds, private accounts, retirement plans and related
party assets for individual and institutional investors as of December 31, 2004.
Additional information about John Hancock Advisers can be found on the website:
www.jhfunds.com.
The Fund has entered into an investment management contract (the "Advisory
Agreement") with the Adviser which was approved by the Fund's shareholders.
Pursuant to the Advisory Agreement, the Adviser will: (a) furnish continuously
an investment program for the Fund and determine, subject to the overall
supervision and review of the Trustees, which investments should be purchased,
held, sold or exchanged, and (b) provide supervision over all aspects of the
Fund's operations except those which are delegated to a custodian, transfer
agent or other agent.
The Fund bears all costs of its organization and operation, including but not
limited to expenses of preparing, printing and mailing all shareholders'
reports, notices, prospectuses, proxy statements and reports to regulatory
agencies; expenses relating to the issuance, registration and qualification of
shares; government fees; interest charges; expenses of furnishing to
shareholders their account statements; taxes; expenses of redeeming shares;
brokerage and other expenses connected with the execution of portfolio
securities transactions; expenses pursuant to the Fund's plan of distribution;
fees and expenses of custodians including those for keeping books and accounts,
maintaining a committed line of credit, and calculating the net asset value of
shares; fees and expenses of transfer agents and dividend disbursing agents;
legal, accounting, financial, management, tax and auditing fees and expenses of
the Fund (including an allocable portion of the cost of the Adviser's employees
rendering such services to the Fund); the compensation and expenses of Trustees
who are not otherwise affiliated with the Trust, the Adviser or any of their
affiliates; expenses of Trustees' and shareholders' meetings; trade association
memberships; insurance premiums; and any extraordinary expenses.
As compensation for its services under the Advisory Agreement, the Fund pays the
Adviser monthly a fee based on a stated percentage of the average daily net
assets of the Fund as follows:
Average Daily Net Assets Annual Rate
- ------------------------ -----------
First $500,000,000 0.90%
Next $500,000,000 0.85%
Amount over $1,000,000,000 0.80%
From time to time, the Adviser may reduce its fee or make other arrangements to
limit the Fund's expenses to a specified percentage of its average daily net
assets. The Adviser retains the right to reimpose a fee and recover any other
payments to the extent that, at the end of any fiscal year, the Fund's annual
expenses fall below this limit.
26
For the fiscal years ended October 31, 2002, 2003 and 2004, the advisory fees
payable to the Fund's adviser amounted to $111,799, $110,374 and $207,042,
respectively. However, a portion of such fees were not imposed pursuant to the
voluntary fee reduction and expense limitation agreement then in effect. For the
fiscal years ended October 31, 2002, 2003 and 2004, the advisory fees actually
payable to the Fund amounted to $0, $0 and $88,525, respectively.
The Adviser has agreed to limit the Fund's expenses (excluding 12b-1 fees) to
1.30% of the Fund's average daily net assets. The Adviser reserves the right to
terminate this limitation in the future.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser or their 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 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 their 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 its 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 by the
Adviser of its 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 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 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
27
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 the Adviser, including information regarding the Adviser,
its respective affiliates and their personnel, operations and financial
condition. The Independent Trustees also reviewed, among other things:
- - 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 health/biotechnology funds derived from
data provided by Lipper Inc. and appropriate market indexes.
- - The fee charged by the Adviser for investment advisory and administrative
services. 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.
- - 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 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 Non-Independent Trustees of the Fund and any officers of
the Adviser or its affiliates. The Independent Trustees also relied upon the
assistance of counsel to the Independent Trustees and counsel to the Fund.
The continuation of the Advisory Agreement and the Distribution Agreement
(discussed below) was approved by all Trustees. The Advisory Agreement and the
Distribution Agreement, will continue in effect from year to year, provided that
their 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. These Agreements may be terminated on 60 days
written notice by any party or by vote of a majority of the outstanding voting
securities of the Fund and will terminate automatically if assigned.
Accounting and Legal Services Agreement. The Trust, on behalf of the Fund, is a
party to an Accounting and Legal Services Agreement with the Adviser. Pursuant
to this agreement, the Adviser provides the Fund with certain tax, accounting
and legal services. For the fiscal years ended October 31, 2002, 2003 and 2004,
the Fund paid the Adviser $2,624, $3,524 and $6,216, respectively, for 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. Information
regarding how the Fund voted proxies relating to portfolio securities
28
during the 12-month period ending June 30, 2004 is available by calling
1-800-225-5291 or on the Fund's website: www.jhfunds.com/proxy or on the SEC's
website at www.sec.gov.
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.
ADDITIONAL INFORMATION ABOUT THE PORTFOLIO MANAGER
OTHER ACCOUNTS THE PORTFOLIO MANAGER IS MANAGING. The table below indicates for
each portfolio manager of the Fund information about the accounts over which the
portfolio manager has day-to-day investment responsibility. All information on
the number of accounts and total assets in the table is as of October 31, 2004.
For purposes of the table, "Other Pooled Investment Vehicles" may include
investment partnerships and group trusts, and "Other Accounts" may include
separate accounts for institutions or individuals, insurance company general or
separate accounts, pension funds and other similar institutional accounts.
PORTFOLIO MANAGER NAME OTHER ACCOUNTS MANAGED BY THE PORTFOLIO MANAGER
- ---------------------- -----------------------------------------------------
Linda I. Miller Other Registered Investment Companies: Two (2) funds
with total net assets of approximately $445.9 million
Other Pooled Investment Vehicles: None
Other Accounts: None
The Adviser does not receive a fee based upon the investment performance of any
of the accounts included under "Other Accounts Managed by the Portfolio Manager"
in the table above. When a portfolio manager is responsible for the management
of more than one account, the potential arises for the portfolio manager to
favor one account over another. The principal types of potential conflicts of
interest that may arise are discussed below. For the reasons outlined below, the
Fund does not believe that any material conflicts are likely to arise out of a
portfolio manager's responsibility for the management of the Fund as well as one
or more other accounts. The Adviser has adopted procedures that are intended to
monitor compliance with the policies referred to in the following paragraphs.
Generally, the risks of such conflicts of interests are increased to the extent
that a portfolio manager has a financial incentive to favor one account over
another. The Adviser has structured its compensation arrangements in a manner
that is intended to limit such potential for conflicts of interests. See
"Compensation of Portfolio Managers" below.
- A portfolio manager could favor one account over another in
allocating new investment opportunities that have limited supply,
such as initial public offerings and private placements. If, for
example, an initial public offering that was expected to appreciate
in value significantly shortly after the offering was allocated to a
single account, that account may be expected to have better
investment performance than other accounts that did not receive an
allocation on the initial public offering. The Adviser has policies
that require a portfolio manager to allocate such investment
opportunities in an equitable Manner and generally to allocate such
investments proportionately among all accounts with similar
investment objectives.
29
- A portfolio manager could favor one account over another in the
order in which trades for the accounts are placed. If a portfolio
manager determines to purchase a security for more than one account
in an aggregate amount that may influence the market price of the
security, accounts that purchased or sold the security first may
receive a more favorable price than accounts that made subsequent
transactions. The less liquid the market for the security or the
greater the percentage that the proposed aggregate purchases or
sales represent of average daily trading volume, the greater the
potential for accounts that make subsequent purchases or sales to
receive a less favorable price. When a portfolio manager intends to
trade the same security for more than one account, the policies of
the Adviser generally require that such trades be "bunched," which
means that the trades for the individual accounts are aggregated and
each account receives the same price. There are some types of
accounts as to which bunching may not be possible for contractual
reasons (such as directed brokerage arrangements). Circumstances may
also arise where the trader believes that bunching the orders may
not result in the best possible price. Where those accounts or
circumstances are involved, the Adviser will place the order in a
manner intended to result in as favorable a price as possible for
such client.
- A portfolio manager could favor an account if the portfolio
manager's compensation is tied to the performance of that account
rather than all accounts managed by the portfolio manager. If,
for example, the portfolio manager receives a bonus based upon
the performance of certain accounts relative to a benchmark while
other accounts are disregarded for this purpose, the portfolio
manager will have a financial incentive to seek to have the
accounts that determine the portfolio manager's bonus achieve the
best possible performance to the possible detriment of other
accounts. Similarly, if the Adviser receives a performance-based
advisory fee, the portfolio manager may favor that account,
whether or not the performance of that account directly
determines the portfolio manager's compensation. The investment
performance on specific accounts is not a factor in determining
the portfolio manager's compensation. See "Compensation of
Portfolio Managers" below. The Adviser does not receive a
performance-based fee with respect to any of the accounts managed
by the portfolio managers.
- A portfolio manager could favor an account if the portfolio manager
has a beneficial interest in the account, in order to benefit a
large client or to compensate a client that had poor returns. For
example, if the portfolio manager held an interest in an investment
partnership that was one of the accounts managed by the portfolio
manager, the portfolio manager would have an economic incentive to
favor the account in which the portfolio manager held an interest.
The Adviser imposes certain trading restrictions and reporting
requirements for accounts in which a portfolio manager or certain
family members have a personal interest in order to confirm that
such accounts are not favored over other accounts.
- If the different accounts have materially and potentially
conflicting investment objectives or strategies, a conflict of
interest may arise. For example, if a portfolio manager purchases a
security for one account and sells the same security short for
another account, such trading pattern could disadvantage either the
account that is long or short. In making portfolio manager
assignments, the Adviser seeks to avoid such potentially conflicting
situations. However, where a portfolio manager is responsible for
accounts with differing investment objectives and policies, it is
possible that the portfolio manager will conclude that it is in the
best interest of one account to sell a portfolio security while
another account continues to hold or increase the holding in such
security.
COMPENSATION OF PORTFOLIO MANAGERS. The Adviser has adopted a system of
compensation for portfolio managers and others involved in the investment
process that is applied systematically among investment professionals and seeks
to align the financial interests of the investment
30
professionals with both those of the Adviser, through incentive payments based
in part upon the Adviser's financial performance, and also shareholders of the
funds they manage, through incentive payments based in part upon the relative
investment performance of those funds. The Adviser's compensation arrangements
with investment professionals are determined on the basis of the investment
professional's overall services to the Adviser and not on the basis of specific
funds or accounts managed by the investment professional. At the Adviser, the
structure of compensation of investment professionals is currently comprised of
the following basic components: base salary, an annual investment bonus plan and
a phantom stock plan, as well as customary benefits that are offered generally
to all full-time employees of the Adviser. A limited number of senior portfolio
managers, who serve as officers of both the Adviser and its parent company, may
also receive options or restricted stock grants of common shares of Manulife
Financial. The following describes each component of the compensation package
for the individuals identified as a portfolio manager for the fund.
- BASE SALARY. Base compensation is fixed and normally reevaluated on
an annual basis. The Adviser seeks to set compensation at market
rates, taking into account the experience and responsibilities of
the investment professional.
- INVESTMENT BONUS PLAN. Only investment professionals are eligible to
participate in the Investment Bonus Plan. Under the plan, investment
professionals are eligible for an annual bonus. The plan is intended
to provide a competitive level of annual bonus compensation that is
tied to the investment professional achieving superior investment
performance and aligns the financial incentives of the Adviser and
the investment professional. Any bonus under the plan is completely
discretionary, with a maximum annual bonus that may be in excess of
base salary. While the amount of any bonus is discretionary, the
following factors are generally used in determining bonuses under
the plan:
- INVESTMENT PERFORMANCE: The investment performance of
all accounts managed by the investment professional over
one and three- year periods are considered. The pre-tax
performance of each account is measured relative to an
appropriate peer group benchmark (for example a Lipper
large cap growth peer group if the fund invests
primarily in large cap stocks with a growth strategy).
With respect to fixed income accounts, relative yields
are also used to measure performance.
- THE PROFITABILITY OF THE ADVISER: The profitability of
the Adviser and its parent company are also considered
in determining bonus awards, with greater emphasis
placed upon the profitability of the Adviser.
- NON-INVESTMENT PERFORMANCE: The more intangible
contributions of an investment professional to the
Adviser's business, including the investment
professional's support of sales activities, new
fund/strategy idea generation, professional growth and
development, and management, where applicable, are
evaluating in determining the amount of any bonus award.
- PHANTOM STOCK APPRECIATION PLAN. The Adviser is not a public company
and, consequently, does not compensate its employees through the
grant of the company's common shares. However, the Adviser
participates in a phantom stock appreciation plan that is intended
to provide employees of the Adviser with equity like interests in
the Adviser's financial performance. All employees of the Adviser,
not just investment professionals, who are of a designated level of
seniority, are eligible to participate in this plan. As part of the
overall compensation package, this plan is designed, among other
things, to motivate and reward the investment professionals if
31
the Adviser achieves earnings growth. Awards under the plan are
granted to investment professionals based on a number of factors,
including past and current performance, impact on overall business
results and recognition of long-term potential and value to the
company. Payments under the plan are based upon three-year
performance cycles. Participants are granted an interest in a
phantom stock pool. The pool represents appreciation, if any, of a
portion of the total equity interests in the Adviser. For purposes
of the plan, the Adviser's common shares are valued on the basis of
a multiple of EBITDA (earnings before interest, taxes, depreciation
and amortization expense). The value of the pool is equal to the
difference, if positive, in the value of the Adviser's common
shares, using that valuation method, at the start of the performance
cycle and the value of those shares at the end of the performance
cycle. A participant receives the participant's allocated share of
the pool, with that interest payable in three annual installments.
Generally, a participant must remain an employee at the time of
distribution of an installment in order to be entitled to receive
it.
- OPTIONS AND STOCK GRANTS. A limited number of senior investment
professionals may receive options to purchase shares of Manulife
Financial stock. Generally, such option would permit the investment
professional to purchase a set amount of stock at the market price
on the date of grant. The option can be exercised for a set period
(normally a number of years or until termination of employment) and
the investment professional would exercise the option if the market
value of Manulife Financial stock increases. Some investment
professionals may receive restricted stock grants, where the
investment professional is entitle to receive the stock at no or
nominal cost, provided that the stock is forgone if the investment
professional's employment is terminated prior to a vesting date.
The Adviser also permits investment professionals to participate on a voluntary
basis in a deferred compensation plan, under which the investment professional
may elect on an annual basis to defer receipt of a portion of their compensation
until retirement. Participation in the plan is voluntary. No component of the
compensation arrangements for the investment professionals involves mandatory
deferral arrangements.
While the profitability of the Adviser and the investment performance of the
accounts that the investment professionals maintain are factors in determining
an investment professional's overall compensation, the investment professional's
compensation is not linked directly to the net asset value of any fund.
SHARE OWNERSHIP BY THE PORTFOLIO MANAGER. The following table indicates as of
October 31, 2004 the value, within the indicated range, of shares beneficially
owned by the portfolio manager in the Fund. For purposes of this table, the
following letters represent the range indicated below:
A - $0
B - $1 - $10,000
C - $10,001 - $50,000
D - $50,001 - $100,000
E - $100,001 - $500,000
F - $500,001 - $1,000,000
G - More than $1 million
PORTFOLIO MANAGER RANGE OF BENEFICIAL OWNERSHIP
Linda I. Miller A
32
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, banks and registered investment advisors ("Selling Firms") that
have entered into selling agreements with John Hancock Funds. These Selling
Firms 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 any applicable sales charge, if any. In connection
with the sale of Fund shares, John Hancock Funds and Selling Firms receive
compensation from a sales charge imposed, in the case of Class A shares, at the
time of sale. (Prior to July 15, 2004, Class C shares were also subject to a
sales load imposed at the time of purchase.) In the case of Class B, Class C and
Class R shares, the Selling Firm receives compensation immediately but John
Hancock Funds is compensated on a deferred basis.
Total underwriting commissions (sales charges) for sales of the Fund's Class A
shares for the fiscal years ended October 31, 2002, 2003 and 2004 were $45,485,
$68,423 and $76,596, respectively. Of such amount, $6,702, $10,775 and $11,828,
respectively, were retained by John Hancock Funds for the fiscal years ended
October 31, 2002, 2003 and 2004, respectively. Total underwriting commissions
(sales charges) for sales of the Fund's Class C shares for the fiscal years
ended October 31, 2002, 2003 and 2004 were $7,199, $5,474 and $6,678,
respectively. No Class C commissions were retained by John Hancock Funds, the
remainder of the underwriting commissions were reallowed to Selling Firms.
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 the John Hancock Funds for its distribution
expenses, including but not limited to: (i) initial and ongoing sales
compensation to Selling Firms 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 Firms 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 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,
2004 an aggregate of $213,456 of distribution expenses or 2.54% 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 Rules 12b-1 fees
in prior periods. For the fiscal year ended October 31, 2004, an aggregate of
$48,033 distribution expense or 1.54% 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 charge or Rule 12b-1 fees in prior
periods.
33
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.
During the fiscal year ended October 31, 2004, the Fund paid John Hancock Funds
the following amounts of expenses in connection with their services.
34
Expense Items
Printing and
Mailing of
Prospectuses Compensation Expenses of Interest, Carrying,
to New to Selling John Hancock or other
Advertising Shareholders Firms Funds Finance Charges
----------- ------------ ----- ----- ---------------
Class A $ 4,944 $147 $ 3,756 $20,313 $0
Class B $ 15,728 $251 $14,974 $66,306 $0
Class C $ 4,070 $ 84 $13,551 $17,886 $0
SALES COMPENSATION
As part of their business strategies, the Fund, along with John Hancock Funds,
pay compensation to Selling 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 Selling Firm compensation payments for Class A, Class
B, Class C and Class R are (1) the 12 b-1 fees that are paid out of the fund's
assets and (2) sales charges paid by investors. The sales charges and 12b-1 fees
are detailed in the prospectus and under the "Distribution Contracts" in this
Statement of Additional Information. The portions of these expenses that are
paid to Selling Firms are shown on the next page. For Class I shares, John
Hancock Funds may make a one-time payment at the time of initial purchase out of
its own resources to a Selling Firm which sells shares of the Fund. This payment
may not exceed 0.15% of the amount invested.
INITIAL COMPENSATION Whenever you make an investment in Class A, Class B or
Class C shares of the Fund, the Selling Firm receives a
reallowance/payment/commission as described on the next page. The Selling Firm
also receives the first year's 12b-1 service fee at this time.
ANNUAL COMPENSATION For Class A, Class B and Class C shares of the Fund,
beginning in the second year after an investment is made, the Selling Firm
receives an annual 12b-1 service fee of 0.25% of its average daily net (aged)
assets. In addition, beginning in the second year after an investment is made in
Class C shares, the Distributor will pay the Selling Firm a distribution fee in
an amount not to exceed 0.75% of the average daily net (aged) assets. These
service and distribution fees are paid quarterly in arrears.
Selling Firms receive service and distribution fees if, for the preceding
quarter, (1) their clients/shareholders have invested combined average daily net
assets of no less than $1,000,000 in eligible (aged) assets; or (2) an
individual registered representative of the Selling Firm has no less than
$250,000 in eligible (aged) assets. The reason for these criteria is to save the
Fund the expense of paying out de minimus amounts. As a result, if a Selling
Firm does not meet one of the criteria noted above, the money for that firm's
fees remains in the Fund.
In addition, from time to time, John Hancock Funds, at its expense, and without
additional cost to the Fund or its shareholders, 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 Selling
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
35
development programs, as well as assistance for seminars for the public,
advertising and sales campaigns regarding one or more Funds, and other Selling
Firm-sponsored events or activities. From time to time, John Hancock Funds may
provide expense reimbursements for special training of a Selling Firm's
registered representatives and other employees in group meetings or non-cash
compensation in the form of occasional gifts, meals, tickets or other
entertainment. Payments may also include amounts for sub-administration and
other services for shareholders whose shares are held of record in omnibus or
other group accounts. 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.
36
FIRST YEAR BROKER OR OTHER SELLING FIRM COMPENSATION
INVESTOR PAYS
SALES CHARGE SELLING FIRM SELLING FIRM
(% OF OFFERING RECEIVES RECEIVES 12b-1 TOTAL SELLING FIRM
CLASS A INVESTMENTS PRICE) COMMISSION (1) SERVICE FEE (2) COMPENSATION (3)(4)
- ------------------- -------------- -------------- --------------- -------------------
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 (5)
First $1M - $4,999,999 -- 0.75% 0.25% 1.00%
Next $1 - $5M above that -- 0.25% 0.25% 0.50%
Next $1 or more above that -- 0.00% 0.25% 0.25%
CLASS B INVESTMENTS
All amounts -- 3.75% 0.25% 4.00%
CLASS C INVESTMENTS
All amounts -- 0.75% 0.25% 1.00%
(1) For Class A investments under $1 million, a portion of the Selling Firm's
commission is paid out of the sales charge.
(2) For Class A, B and C shares, the Selling Firm receives 12b-1 fees in the
first year as a % of the amount invested and after the first year as a % of
average daily net eligible assets. For Selling Firms with a fee-based/WRAP
program agreement with John Hancock Funds, the Selling Firm receives 12b-1 fees
in the first year as a % of average daily net eligible assets. Certain
retirement platforms also receive 12b-1 fees in the first year as a % of average
daily net eligible assets. Quarterly payments are made in arrears.
(3) Selling Firm commission and 12b-1 service fee percentages are calculated
from different amounts, and therefore may not equal the total Selling Firm
compensation percentages if combined using simple addition.
(4) Underwriter retains the balance.
(5) See "Initial Sales Charge on Class A Shares" for discussion on how to
qualify for a reduced sales charge. 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 Selling Firm
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.
37
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. In addition, because of the amount of time required to
collect and process trading information as to large numbers of securities
issues, the values of certain securities (such as convertible bonds, U.S.
government securities and tax-exempt securities) are determined based on market
quotations collected prior to the close of the Exchange. Occasionally, events
affecting the value of such securities may occur between the time of the
determination of value and the close of the Exchange which will not be reflected
in the computation of the Fund's net asset value. If events materially affecting
the value of such securities occur during such period, then these securities
will be valued at their fair value following procedures approved by the
Trustees.
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.
Equity options held by a Fund are priced as of the close of trading (generally 4
p.m. Eastern Time), futures contracts on U.S. government and other fixed-income
securities (generally 3 p.m. Eastern Time) and index options held by a Fund are
priced as of their close of trading (generally 4:15 p.m. Eastern Time).
Short-term debt investments which have a remaining maturity of 60 days or less
may be 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.
If any securities held by the Fund are restricted as to resale, the fair value
of such securities is generally determined as the amount which the Fund could
reasonably expect to realized from an orderly disposition of such securities
over a reasonable period of time. The valuation procedures applied in any
specific instance are likely to vary from case to case. However, consideration
is generally given to the financial position of the issuer and other fundamental
analytical data relating to the investment and to the nature of the restrictions
on disposition of the securities (including any registration expenses that might
be borne by the Fund in connection with such disposition). In addition, specific
factors are also generally considered, such as the cost of the investment, the
market value of any unrestricted securities of the same class, the size of the
holding, the prices of any recent transactions or offers with respect to such
securities and any available analysts' reports regarding the issuer.
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 4:00 p.m., London time on the date
of any determination of the Fund's NAV. Generally, trading in foreign securities
is substantially completed each day at various times prior to the closed of the
Exchange. Currency exchange rates are normally determined at the close of
trading in London, England (11:00 a.m., New York Time). The closing prices for
securities in markets or on exchanges outside the U.S. that close prior to the
close of the Exchange may not fully reflect events that occur after such close
but before the close of the Exchange. As a result, the Fund has adopted fair
value pricing procedures, which, among other things, require the Fund to fair
value such securities if these has been a movement in the U.S. market that
exceeds a specified threshold. Although the threshold may be revised from time
to time and the number of days on
38
which fair value prices will be used will depend on market activity, it is
possible that fair value prices will be used by the Fund to a significant
extent. In addition, securities held by some of the Funds may be traded in
foreign markets that are open for business on days that the Fund is not, and the
trading of such securities on those days may have an impact on the value of a
shareholder's investment at a time when the shareholder cannot buy and sell
shares of the Fund.
The NAV for each class of the Fund is determined each business day at the close
of regular trading on the New York Stock Exchange (typically 4:00 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 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") or on a contingent deferred basis
(the "contingent deferred sales charge or CDSC").
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 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 current offering
price of the Class A, Class B, Class C, Class I, or Class R shares of the John
Hancock mutual funds owned by the investor (see "Accumulation Privilege" below).
IN ORDER TO RECEIVE THE REDUCED SALES CHARGE, THE INVESTOR MUST NOTIFY HIS/HER
FINANCIAL ADVISER AND/OR THE FINANCIAL ADVISER MUST NOTIFY JOHN HANCOCK
SIGNATURE SERVICES, INC. ("SIGNATURE SERVICES") AT THE TIME OF PURCHASE OF THE
CLASS A SHARES, ABOUT ANY OTHER JOHN HANCOCK MUTUAL FUNDS OWNED BY THE INVESTOR,
THE INVESTOR'S SPOUSE AND THEIR CHILDREN UNDER THE AGE OF 21 (SEE "COMBINATION
PRIVILEGE" BELOW). THIS INCLUDES INVESTMENTS HELD IN A RETIREMENT ACCOUNT, AN
EMPLOYEE BENEFIT PLAN OR AT A BROKER OR FINANCIAL ADVISER OTHER THAN THE ONE
HANDLING YOUR CURRENT PURCHASE. JOHN HANCOCK WILL CREDIT THE COMBINED VALUE, AT
THE CURRENT OFFERING PRICE, OF ALL ELIGIBLE ACCOUNTS TO DETERMINE WHETHER YOU
QUALIFY FOR A REDUCED SALES CHARGE ON YOUR CURRENT PURCHASE.
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:
- - A Trustee or officer of the Trust; a Director or officer of the Adviser
and its affiliates, sub-adviser or Selling Firms; 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, child, grandparent, grandchild, parent, sibling, mother-in-law,
father-in-law, daughter-in-law, son-in-law, niece, nephew and same sex
domestic partner; "Immediate Family") of any of the foregoing; or any
fund, pension, profit sharing or other benefit plan for the individuals
described above.
39
- - 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.
- - 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.
- - A member of a class action lawsuit against insurance companies who is
investing settlement proceeds.
- - 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.
- - Retirement plans investing through PruSolutions(sm) program.
- - Participants in certain 529 Plans that have a signed agreement with John
Hancock Funds. No CDSC will be due for redemptions on plan purchases made
at NAV with no finder's fee. However, if a plan had a finder's fee or
commission, and the entire plan redeemed within 12 months of the first
investment in the plan, a CDSC would be due.
- - Participant directed retirement plans with at least 100 eligible employees
at the inception of the Fund account. Each of these employees may purchase
Class A shares with no initial sales charge, if the plan sponsor notifies
Signature Services of the number of employees at the time the account is
established. However, if the shares are redeemed within 12 months of the
inception of the plan, a CDSC will be imposed at the following rate:
Amount Invested CDSC Rate
- --------------- ---------
First $1 to $4,999,999 1.00%
Next $1-$5M above that 0.50%
Next $1 or more above that 0.25%
As of July 15, 2004, no Class C shares paid a front-end sales charge.
Class A 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.
With Reduced Sales Charges
Combination Privilege. For all shareholders 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). Qualified and non-qualified retirement plan
investments can be combined to take advantage of this privilege. Further
information about combined purchases, including
40
certain restrictions on combined group purchases, is available from Signature
Services or a Selling Firm's representative.
Accumulation Privilege. Class A investors may also reduce their Class A sales
charge by taking into account not only the amount being invested but also the
current offering price of all the Class A, Class B, Class C, Class I and Class R
shares of all John Hancock funds already held by such person. However, 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. To receive a reduced sales charge, the investor must
tell his/her financial adviser or Signature Services at the time of the purchase
about any other John Hancock mutual funds held by that investor or his/her
Immediate Family.
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 Class A sales charges under the Accumulation
Privilege 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 can be
combined to satisfy an LOI (either 13 or 48 months). Since some retirement plans
are held in an omnibus account, an investor wishing to count retirement plan
holdings towards a Class A purchase must notify Signature Services of these
holdings. Such an investment (including accumulations, combinations and
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 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.
41
DEFERRED SALES CHARGE ON CLASS B AND CLASS C SHARES
Investments in Class B and Class C 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
contingent deferred sales charge ("CDSC") at the rates set forth in the
Prospectus as a percentage of the dollar amount subject to the CDSC. The charge
will be assessed on an amount equal to the lesser of the current market value or
the original purchase cost of the Class B or Class C shares being redeemed. No
CDSC will be imposed on increases in account value above the initial purchase
prices or on shares derived from reinvestment of dividends or capital gains
distributions.
Class B shares are not available to retirement plans that had more than 100
eligible employees at the inception of the Fund account. You must notify
Signature Services of the number of eligible employees at the time your account
is established.
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.
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:
- - Proceeds of 50 shares redeemed at $12 per shares (50 x 12) $ 600.00
- - *Minus Appreciation ($12 - $10) x 100 shares (200.00)
- - Minus proceeds of 10 shares not subject to CDSC (dividend reinvestment) (120.00)
--------
- - Amount subject to CDSC $ 280.00
*The appreciation is based on all 100 shares in the account NOT just the shares
being redeemed.
42
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 Firms 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 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.
* 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 by retirement plans that invested through
the PruSolutions(sm) program.
* 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) 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.
43
* Redemptions made to effect current distributions, as outlined in the chart
on the following page, 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), 403(b), 457 and 408
(SEPs and SIMPLE IRAs) of the Internal Revenue Code.
Please see matrix for some examples.
44
401 (a) Plan
(401 (k),
MPP, PSP)
457 & 408
Type of (SEPs & IRA, IRA Non-
Distribution Simple IRAs) 403 (b) 457 Rollover retirement
- -------------------------- -------------- ------------ ------------ -------------------- --------------------
Death or Waived Waived Waived Waived Waived
Disability
Over 70 1/2 Waived Waived Waived Waived for 12% of
required account value
minimum annually in
distributions* periodic
or 12% of payments
account value
annually in
periodic
payments.
Between 59 1/2 Waived Waived Waived Waived for Life 12% of account value
and 70 1/2 Expectancy or 12% of annually in periodic
account value payments
annually in periodic
payments.
Under 59 1/2 Waived for Waived for Waived for Waived for 12% of
(Class B and Class C only) annuity annuity annuity annuity account value
payments payments payments payments annually in
(72t) or 12% (72t) or 12% (72t) or 12% (72t) or 12% periodic
of account of account of account of account payments
value annually value value value
in periodic annually in annually in annually in
payments. periodic periodic periodic
payments. payments. payments.
Loans Waived Waived N/A N/A N/A
Termination of Not Waived Not Waived Not Waived Not Waived N/A
Plan
Hardships Waived Waived Waived N/A N/A
Qualified Waived Waived Waived N/A N/A
Domestic
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.
45
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 a waiver.
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion, the 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 for shares
of the same class in any other John Hancock fund offering that class.
Exchanges between funds are based on their respective net asset values. No sales
charge is imposed, except on exchanges of Class A shares from Money Market Fund
or U.S. Government Cash Reserve Fund to another John Hancock fund, if a sales
charge has not previously been paid on those shares. 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. 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.
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.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares of another for Federal Income Tax purposes. An exchange may
result in a taxable gain or loss. See "TAX STATUS".
Systematic Withdrawal Plan. The Fund permits the establishment of a Systematic
Withdrawal Plan. Payments under this plan represent proceeds arising from the
redemption of Fund shares which may result in realization of gain or loss for
purposes of Federal, state and local income taxes. The maintenance of a
Systematic Withdrawal Plan concurrently with purchases of additional shares of
the Fund could be disadvantageous to a shareholder because of the initial sales
charge payable on such purchases of Class A shares and the CDSC imposed on
redemptions of Class B and Class C shares and because redemptions are taxable
events. Therefore, a shareholder should not purchase shares at the same time a
Systematic Withdrawal Plan is in effect. The Fund reserves the right to modify
or discontinue the Systematic Withdrawal Plan of any 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.
46
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.
The Fund may refuse any reinvestment request and may change or cancel its
reinvestment policies at any time.
A redemption or exchange of Fund shares is a taxable transaction for Federal
income tax purposes even if the reinvestment privilege is exercised, and any
gain or loss realized by a shareholder on the redemption or other disposition of
Fund shares will be treated for tax purposes as described under the caption "TAX
STATUS."
Retirement plans participating in Merrill Lynch's servicing programs:
Class A shares are available at net asset value for 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 Selling Firms.
Selling Firms may charge the investor additional fees for their services. The
Fund will be deemed to have received a purchase or redemption order when an
authorized Selling Firm, or if applicable, a Selling Firm's authorized designee,
receives the order. Orders may be processed at the NAV
47
next calculated after the Selling Firm receives the order. The Selling Firm 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 Selling Firms that maintain network/omnibus/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. This fee is
paid by the Adviser, the Fund and/or John Hancock Funds, LLC (the Fund's
principal distributor).
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, 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
48
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 redemptions 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.
Shares of the Fund may generally be sold only to U.S. citizens, U.S. residents,
and U.S. Domestic corporations, partnerships, trusts or estates.
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.
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.
49
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.
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
50
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 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.
51
For Federal income tax purposes, the Fund is permitted to carry forward a net
realized capital loss in any year to offset net capital gains, if any, during
the eight years following the year of the loss. To the extent subsequent net
capital gains are offset by such losses, they would not result in Federal income
tax liability to the Fund and, as noted above, would not be distributed as such
to shareholders. The Fund has a $4,431,628 capital loss carryforward available,
to the extent provided by regulations, to offset future net realized capital
gains. The Fund's carryforwards expire as follows: $3,046,491 on October 31,
2010 and $1,385,137 on October 31, 2011.
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.
If the Fund should have dividend income that qualifies for the
dividends-received deduction for corporations, it will be subject to the
limitations applicable under the Code. The qualifying portion is limited to
properly designated distributions attributed to dividend income (if any) the
Fund receives from certain stock in U.S. domestic corporations and the deduction
is subject to holding period requirements and debt-financing limitations under
the Code.
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
52
earnings or assets in those countries. However, the Fund must distribute to
shareholders for each taxable year substantially all of its net income and net
capital gains, including such income or gain, to qualify as a regulated
investment company and avoid liability for any federal income or excise tax.
Therefore, the Fund may have to dispose of its portfolio securities under
disadvantageous circumstances to generate cash, or 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 nor
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
53
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, 2004, the average annual total returns before taxes of the
Class A shares of the Fund for the one year period and since the commencement of
operations on March 1, 2001 were 1.03% and -7.64%, respectively.
As of October 31, 2004, the average annual total returns before taxes of the
Class B shares of the Fund for the one year period and since the commencement of
operations on March 1, 2001 were 0.65% and -7.74%, respectively.
As of October 31, 2004, the average annual total returns before taxes of the
Class C shares of the Fund for the one year period and since the commencement of
operations on March 1, 2001 were 4.65% and -6.98%, respectively. The average
annual total returns for Class C have been adjusted to reflect the elimination
of the front-end sales charge that became effective July 15, 2004.
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 inception, 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 A shares
for the one, five and ten year periods ended December 31, 2004 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:
54
P(1+T)(n) = ATV(D)
Where:
P= a hypothetical initial payment of $1,000.
T= average annual total return (after taxes on distributions)
n= number of years
ATV(D)= ending value of a hypothetical $1,000 payment made at the beginning of
the 1-year, 5-year, or 10-year periods (or fractional portion) after
taxes on fund distributions but not after taxes on redemption.
The average annual total return (after taxes on distributions and redemption) is
computed by finding the average annual compounded rate of return over the
1-year, 5-year, and 10-year periods, or the period since inception, that would
equate the initial amount invested to the ending redeemable value according to
the following formula:
P(1+T)(n) = ATV(DR)
Where:
P= a hypothetical initial payment of $1,000.
T= average annual total return (after taxes on distributions and
redemption)
n= number of years
ATV(DR)= ending value of a hypothetical $1,000 payment made at the beginning of
the 1-year, 5-year or 10-year periods (or fractional portion), after
taxes on fund distributions and redemption.
Because each class has its own sales charge and fee structure, the classes have
different performance results. In the case of each class, these calculations
assume the maximum sales charge is included in the initial investment or the
CDSC is applied at the end of the period, respectively. These calculations
assume that all dividends and distributions are reinvested at net asset value on
the reinvestment dates during the period. The "distribution rate" is determined
by annualizing the result of dividing the declared dividends of the Fund during
the period stated by the maximum offering price or net asset value at the end of
the period. Excluding the Fund's sales charge from the distribution rate
produces a higher rate.
In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Cumulative total returns may be quoted as a percentage or
as a dollar amount, and may be calculated for a single investment, a series of
investments and/or a series of redemptions over any time period. Total returns
may be quoted with or without taking the Fund's sales charge on Class A shares
or the CDSC on Class B or Class C shares into account. Excluding the Fund's
sales charge on Class A shares and the CDSC on Class B or Class C shares from a
total return calculation produces a higher total return figure.
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:
55
Yield = 2 ([(a-b/cd)+1](6)-1)
Where:
a = dividends and interest earned during the period.
b = net expenses accrued during the period.
c = the average daily number of fund shares outstanding during the period
that would be entitled to receive dividends.
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.
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 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 periodically by the Adviser's Senior Investment
Policy Committee and its Brokerage Practices Committee which consists of
officers of the Adviser and quarterly by the Adviser's Investment Committee
which consists of officers 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,
56
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 best execution, the Fund's trades may
be executed by dealers that also sell shares of John Hancock funds. However, the
Adviser does not 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, and may include,
to a lesser extent, the availability and value of research information and
statistical assistance furnished to the Adviser of the Fund. The Adviser has
implemented policies and procedures (approved by the Fund's board of Trustees)
reasonably designed to ensure that the Fund's selection of the broker-dealer is
not influenced by considerations about the sales of Fund shares.
Where research is available for cash payments, the Adviser pays for such
research from its own resources, and not with brokerage commissions. In other
cases, as permitted by Section 28(e) of the Securities Exchange Act of 1934, the
Fund may pay 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 Adviser 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,
2004, the Fund paid $4,687 as compensation to brokers for research services such
as industry, economic and company reviews and evaluations of securities.
"Commissions", as interpreted by the SEC, include fees paid to brokers for
trades conducted on an agency basis, and certain mark-ups, mark-downs,
commission equivalents and other fees received by dealers in riskless principal
transactions placed in the over-the-counter market.
The term "brokerage and research services" includes research services received
from broker-dealers which 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, 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
57
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.
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 or
would have developed comparable information through its own staff, 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.
Broker-dealers may be willing to furnish statistical, research and other factual
information or service to the Adviser for no consideration other than brokerage
or underwriting commissions. Securities may be bought or sold from time to time
through such broker-dealers on behalf of the Fund or the Adviser's other
clients.
In effecting portfolio transactions on behalf of the Fund and the Adviser's
other clients, the Adviser may from time to time instruct the broker-dealer that
executes the transaction to allocate, or "step-out", a portion of the
transaction to another broker-dealer. The broker-dealer to which the Adviser
"stepped-out" would then settle and complete the designated portion of the
transaction. Each broker-dealer would receive a commission or brokerage fee with
respect to that portion of the transaction that it settles and completes.
While the Adviser's officers will be primarily responsible for the allocation of
the Fund's brokerage business, the policies 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 October 31, 2002, 2003 and 2004, the Fund paid
negotiated brokerage commissions of $44,543, $67,332 and $58,969, respectively.
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
58
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 ("Signator" or
"Affiliated Broker"). The Adviser's indirect parent, Manulife Financial, is the
parent of another broker-dealer, Manulife Financial Securities, LLC ("MF
Securities") or ("Affiliated Broker"). For the fiscal years ended October 31,
2002, 2003 and 2004, the Fund paid no brokerage commissions to any Affiliated
Broker.
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 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 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. For shares held of record in omnibus or there group accounts where
administration and other shareholder services are provided by the Selling Firm
or
59
group administrator, the Selling Firm or administrator will charge a service fee
to the Fund. For such shareholders, Signature Services does not charge its
account fee.
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 REGISTERED PUBLIC ACCOUNTING FIRM
The independent registered public accounting firm of the Fund is
PricewaterhouseCoopers LLP, 125 High 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.
60
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).
- - 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).
- - 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).
- - 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
APPENDIX C
SUMMARY OF PROXY VOTING
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
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conclude that the effect on our clients' economic interests or the value of the
portfolio holding is indeterminable or insignificant.
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.
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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 compensation committee is not fully independent
- plan dilution is more than 10% of outstanding common stock,
- company allows or has allowed the re-pricing or replacement of
underwater options in the past three fiscal years (or the exchange
of underwater options) without shareholder approval.
- the option is not premium priced or indexed, or does not vest based
on future performance
With respect to the adoption or amendment of employee stock purchase plans or a
stock award plan, we will vote against management if:
- the plan allows stock to be purchased at less than 85% of fair
market value;
- this plan dilutes outstanding common equity greater than 10%
- all stock purchase plans, including the proposed plan, exceed 15% of
outstanding common equity
- the potential dilution from all company plans is more than 85%
With respect to director stock incentive/option plans, we will vote against
management if:
- the minimum vesting period for options or time lapsing restricted
stock is less than one year
- the potential dilution for all company plans is more than 85%
OTHER BUSINESS
For routine business matters which are the subject of many proxy related
questions, we will vote with management proposals to:
- change the company name;
- approve other business;
- adjourn meetings;
- make technical amendments to the by-laws or charters;
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- approve financial statements;
- 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:
- calling for shareholder ratification of auditors;
- calling for auditors to attend annual meetings;
- seeking to increase board independence;
- requiring minimum stock ownership by directors;
- seeking to create a nominating committee or to increase the
independence of the nominating committee;
- 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
APPENDIX D
JOHN HANCOCK FUNDS
DESCRIPTION OF PORTFOLIO HOLDINGS DISCLOSURE POLICY
GENERAL. The Board of Trustees has adopted a policy that governs when and
by whom portfolio holdings information may be provided to investors, service
providers to the fund or market participants. It is the policy of the fund to
provide nonpublic information regarding fund's portfolio holdings only in the
limited circumstances permitted by the policy and only where there is a
legitimate business purpose for providing the information. The policy applies to
the officers of the fund, the adviser, any subadviser, John Hancock Funds, its
affiliates and their employees. This is a summary of the fund's policy. The
Board of Trustees has approved this policy and must approve any material
changes. In doing so, the Board has concluded that the limited circumstances
where disclosure of non-public information is permitted are in the best
interests of the fund. Under no circumstances may any person receive
compensation for providing non-public information regarding the fund's holdings
to any person.
The Board is responsible for overseeing the policy and has delegated to
the Chief Compliance Officer ("CCO") the responsibility for monitoring the use
of nonpublic information and the fund's and the Adviser's compliance with this
policy. In connection with the Board's oversight of the policy, the CCO will
provide periodic reports to the Board on the implementation of the policy, and
the Board will review at least annually a list of the entities that have
received nonpublic information, the frequency of such disclosures and the
business purpose thereof. In addition, the Board must approve any modifications
to the policy.
The CCO is required to report any material issues that may arise under the
policy or disclosure in violation of this policy to the Board of Trustees. If
the fund or another party subject to this policy desire to provide portfolio
information that has not already been made public to a Nonaffiliated Person (as
defined below), the Board or the CCO determines if the interests of the fund and
the services providers may be in conflict in determining whether to supply that
such information. If the Board or the CCO determines that no conflict exists,
the Board or the CCO may authorize release of the information. If the CCO
determines that a conflict exists, the CCO refers the conflict to the Board of
Trustees. When considering a potential conflict, the Board of Trustees shall
only permit such disclosure of the nonpublic information if in their reasonable
business judgment they conclude such disclosure will be in the best interest of
shareholders.
The following defined terms are used in the policy and this summary.
Nonpublic Information. Portfolio holdings are considered Nonpublic Information
until such holdings are posted on a publicly available website which is
disclosed in the fund prospectus or until filed with the SEC via Edgar on either
Form N-CSR or Form N-Q.
"Affiliated Persons" are: (a) persons affiliated with the Funds, (b) the Funds'
investment adviser or principal underwriter or any affiliate of either entity,
(c) the investment adviser's ultimate parent, Manulife Financial Corporation
("MFC") or any affiliate thereof, (d) in the case of a particular Fund
portfolio, the subadviser to the portfolio, or any affiliate of the subadviser,
(e) the Funds' custodian and (f) the Funds' certified public accountants.
"Nonaffiliated Persons" is any person who is not an Affiliated Person.
D-1
PUBLIC DISCLOSURE. The Funds' portfolio holdings are disclosed in publicly
available filings with the SEC (e.g. Form N-CSR or Form N-Q). The Funds also
publish the following information on their website jhfunds.com:
(1) On the fifth business day after month-end, the following information for
each fund will be posted on www.jhfunds.com: top ten holdings (% of each
position); top ten sector analysis; total return/yield; top ten
countries/SIC; average quality/maturity; beta/alpha/r2 (open-end funds
only); top ten portfolio composition
(2) The following information regarding portfolio holdings will be posted on
www.jhfunds.com each month on a one-month lag (i.e., information as of
December 31 will be posted on February 1): security name; cusip; market
value; shares/amount; coupon rate; maturity date
(3) With respect to Money Market Fund and U.S. Government Cash Reserve, the
following information regarding portfolio holdings will be posted weekly
on www.jhfunds.com: net assets; seven day yield; thirty day yield; %
maturing in last seven days; portfolio breakdown by securities type;
weighted average maturity
The information referenced in (1), (2), and (3) above will be available on the
funds' website until a fund files its next Form N-CSR or Form N-Q with the
Securities and Exchange Commission.
DISCLOSURE OF PORTFOLIO HOLDINGS TO NONAFFILIATED PERSONS
Subject to monitoring and authorization by the CCO, persons subject to the
policy may provide Nonpublic Information regarding portfolio holdings to
Nonaffiliated Persons in the circumstances listed below. Each Nonaffiliated
Person must agree to keep such information confidential and to prohibit its
employees from trading on such information for personal or proprietary purposes.
In addition, each Nonaffiliated Person must provide certification at least
annually to the CCO stating that they have complied with the restrictions
referenced above. The funds have ongoing relationships with any entities
referenced below.
RATING ORGANIZATIONS. Nonpublic Information regarding portfolio holdings
will be provided to ratings organizations, such as Moodys, S&P, Morningstar and
Lipper, for the purpose of reviewing the portfolio, the adviser or, if
applicable, subadviser. Generally, this information is provided on a monthly
basis, as soon as practical after the end of each month. The fund generally
expects that it will continue to provide these rating organizations with such
information. The Board believes that allowing rating organizations to have this
information will provide the market with a rating for the fund and is in the
best interests of shareholders.
RISK MANAGEMENT, ATTRIBUTION, PORTFOLIO ANALYSIS TOOLS. Nonpublic
Information regarding portfolio holdings may be provided to Factset, BondEdge,
Investools, Salomon Yieldbook, Lehman Brothers Municipal Index Group, Wilshire,
or other entities for the purpose of compiling reports and preparing data for
use by the fund and its service providers. Generally, this information is
provided on a daily or monthly basis, as soon as practical after the end of each
day or month respectively. The fund generally expects that it will continue to
provide these service providers with such information. The Board believes that
having these analytical tools available to the fund and its service providers is
in the best interests of shareholders.
PROXY VOTING SERVICES. Nonpublic Information regarding portfolio holdings
may be provided to IRRC, the fund's proxy voting service, for the purpose of
voting proxies relating to portfolio holdings. The proxy voting service has
regular access to the fund's portfolio holdings
D-2
in order to determine if there are any securities held by the fund as to which
there is upcoming shareholder action in which the fund is entitled to vote. The
provision of this information is necessary in order to carry out the fund's
proxy voting policy. The fund expects that it will continue to provide IRRC with
such information.
COMPUTER PRODUCTS AND SERVICES. Nonpublic Information regarding portfolio
holdings may be provided to entities providing computer products and services to
the Funds (for example, for the purpose of generating compliance reports or
reports relating to proxy voting). These services may require regular, normally
daily, access to the fund's portfolio holdings in order to provide the
contracted services to the fund.
INSTITUTIONAL TRADERS. Nonpublic Information regarding portfolio holdings
may be provided to institutional traders to assist in research and trade
execution. This information, which identifies current holdings without a time
lag, is provided on an irregular basis and is normally only used to identify
portfolio positions as to which the fund would welcome bids. The provision of
this information is in the fund's best interest because it assists the fund in
receiving the best possible price on the sale of portfolio holdings.
COURTS AND REGULATORS. Nonpublic Information regarding portfolio holdings
may be provided to any court or regulator with appropriate jurisdiction. The
frequency and time lag depends upon the request. In providing this information,
the fund is merely complying with its legal obligations.
OTHER NONAFFILIATED PERSONS OR OTHER CIRCUMSTANCES. Nonpublic Information
regarding portfolio holdings may be provided to other Nonaffiliated Persons or
in other circumstances, if approved by the Board, the CCO or his or her
designee. In determining whether to approve such disclosure, the Board or the
CCO considers: (a) the purpose of providing such information, (b) the procedures
that will be used to ensure that such information remains confidential and is
not traded upon and (c) whether such disclosure is in the best interest of the
shareholders of the Fund. The time lag and frequency of the information being
provided depends upon the nature of the request. The CCO only provides such
information where the CCO has determined, in accordance with the authority
delegated by the Board of Trustees, that the provision of the information is
beneficial to the fund. The CCO is required to report to the Board of Trustees
any provision of Non-Public information that falls in this category. The fund
currently has an ongoing arrangement to provide to portfolio information to
McMunn Associates, Inc., a financial printer, for the purpose of preparing fund
shareholder reports and regulatory filings, typically within a week following
the end of a reporting period.
DISCLOSURE OF PORTFOLIO HOLDINGS TO AFFILIATED PERSONS
Certain affiliated persons of the fund or its service providers need
access to Non-Public information regarding portfolio holdings in order to
provide their services to the fund. For example, employees of the Adviser or a
subadviser who provide portfolio management or administrative services to the
funds need current access to portfolio holdings to perform those services.
Accountants need access to portfolio holdings in performing audits. In addition,
some persons who work for the affiliates of the adviser may need access to
Non-Public information to perform their roles. For example, risk management
personnel of the Adviser's parent, may need to know the portfolio holdings in
order to evaluate whether the Adviser's internal controls are being properly
implemented or designed. Generally, affiliated persons that have access to
Non-Public Information are provided that information without time lag and with
such frequency as is necessary to perform their duties, which frequently is
daily. While the fund generally expects that it will continue to provide these
service providers with such information, there are no
D-3
ongoing arrangements to provide such data. The following is a list of the
categories of affiliated persons who may be given access to portfolio holdings.
- The Adviser or, if applicable, any subadviser (as identified under
"Investment Advisory and Other Services" in this Statement of
Additional Information) and their employees - provision of
information on-going and daily.
- The fund's custodian, the Bank of New York, (and its employees)
which requires information in order to provide its assigned services
to the fund - provision of information on-going and daily.
- The fund's certified public accounting firm, as identified under
"Independent Registered Public Accounting Firm" in this Statement of
Additional Information, and its employees who provide audit or other
services to the fund - provision of information on an annual basis,
such information being provided immediately after the end of the
fund's fiscal year, in connection with the accounting firm's audit
of financial statements.
- Manulife, its affiliates and any of their employees, to the extent
such entities or persons are acting in a legal, accounting,
compliance, internal control or supervisory capacity but only to the
extent that such access is required to enable those employees to
perform their assigned duties which do not conflict with the
interests of the fund - provision of information is not on a
scheduled basis, but rather on an as-needed basis to perform the
functions referenced above.
Each Affiliated Person must agree to keep such information confidential
and to prohibit its employees from trading on such information for personal or
proprietary purposes. In addition, each Affiliated Person must provide
certification at least annually to the CCO stating that they have complied with
the restrictions referenced above. As with any of the fund's policies, the CCO
is charged with reviewing its implementation and evaluating periodically if it
is reasonably designed to comply with the federal securities laws. The CCO will,
in that process, consider whether the access outlined above to Affiliated
Persons continues to be appropriate.
The Board or the CCO may authorize the provision of any Nonpublic
Information regarding portfolio holdings to other Affiliated Persons. If
authorized by the CCO, the CCO must report such approval to the Board of
Trustees.
D-4
FINANCIAL STATEMENT
The financial statements listed below are included in the Fund's 2004 Annual
Report to Shareholders for the year ended October 31, 2004; (filed
electronically on December 30, 2004, accession number 0000928816-04-001486) and
are included in and incorporated by reference into Part B of the Registration
Statement for John Hancock Biotechnology Fund (file nos. 811-4932 and 33-10722).
John Hancock World Fund
John Hancock Biotechnology Fund
Statement of Assets and Liabilities as of October 31, 2004
Statement of Operations for year ended October 31, 2004
Statement of Changes in Net Assets for the two years ended October 31, 2004
Financial Highlights.
Notes to Financial Statements.
Schedule of Investments as of October 31, 2004
Report of Independent Auditors.
F-1
JOHN HANCOCK
Biotechnology Fund
10.31.2004
Annual Report
[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 James A. Shepherdson, Chief Executive Officer, flush left next
to first paragraph.]
CEO CORNER
Table of contents
Your fund at a glance
page 1
Manager's report
page 2
A look at performance
page 6
Growth of $10,000
page 7
Your expenses
page 8
Fund's investments
page 10
Financial statements
page 14
Trustees & officers
page 28
For more information
page 33
Dear Fellow Shareholders,
The stock market made little, if any, headway year-to-date through October
2004, as it wrestled with a variety of uncertainties. Questions about the
continuing strength of the economy, the effects of rising interest rates
and expectations for corporate earnings growth kept investors jittery. In
addition, record high crude oil prices, geopolitical issues and a closely
contested U.S. presidential race all weighed on the market. The picture
brightened in early November with the election over and oil prices
moderating somewhat.
Year-to-date through October 31, 2004, the Standard & Poor's 500 Index was
up 3.06%, while the Dow Jones Industrial Average and the Nasdaq Composite
Index were slightly negative, returning -2.40% and -1.05%, respectively.
Despite the Federal Reserve's three hikes in short-term interest rates from
historic lows, bonds still managed to outperform stocks, with the Lehman
Brothers Aggregate Bond Index up 4.22%.
In news closer to home, we are pleased to announce that on June 15, 2004,
your fund's Board of Trustees appointed Charles L. Ladner as independent
Chairman of the Board of Trustees, a position previously held by John
Hancock Funds LLC's former Chairman and Chief Executive Officer, Maureen
Ford Goldfarb. This appointment came in advance of new SEC regulations
requiring all mutual funds to have independent chairmen.
Mr. Ladner has served as an independent member of John Hancock Funds' Board
of Trustees since 1992 and formerly held the position of Senior Vice
President and Chief Financial Officer of UGI Corporation, a public utility
holding company in Valley Forge, PA, until his retirement in 1998. He
brings a wealth of knowledge, experience and leadership and we are
delighted to have him serve as Chairman.
Sincerely,
/S/ James A. Shepherdson
James A. Shepherdson,
Chief Executive Officer
This commentary reflects the CEO's views as of October 31, 2004. They are
subject to change at any time.
YOUR FUND
AT A GLANCE
The Fund seeks
long-term capital
appreciation by
normally investing
at least 80% of its
assets in securities
of U.S. and foreign
biotechnology
companies.
Over the last twelve months
* Biotechnology stocks posted decent returns, but performed far better in
the first half than they did in the second.
* The Fund benefited from good stock selection.
* Smaller companies with funding concerns disappointed investors.
[Bar chart with heading "John Hancock Biotechnology Fund". Under the
heading is a note that reads "Fund performance for the year ended October
31, 2004." The chart is scaled in increments of 4% with 0% at the bottom
and 8% at the top. The first bar represents the 6.36% total return for
Class A. The second bar represents the 5.65% total return for Class B. The
third bar represents the 5.65% 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
13.1% Amgen, Inc.
6.3% Biogen Idec, Inc.
5.3% Gilead Sciences, Inc.
4.4% Genentech, Inc.
4.0% Genzyme Corp.
3.1% Teva Pharmaceutical Industries Ltd.
2.6% Affymetrix, Inc.
2.5% OSI Pharmaceuticals, Inc.
2.4% Medicines Co. (The)
2.4% Celgene Corp.
As a percentage of net assets on October 31, 2004
1
BY LINDA I. MILLER, CFA, PORTFOLIO MANAGER
MANAGER'S
REPORT
JOHN HANCOCK
Biotechnology Fund
Biotechnology stocks posted decent returns for the 12 months ended October
31, 2004, although they fared far better in the first half of the period
than they did in the second. Much of the sector's early strength can be
traced to relatively strong economic conditions, which fueled demand for
faster growing stocks, as well as positive clinical trial results and a
rise in product approvals. But as robust economic growth gave way to more
anemic conditions, biotech and other fast-growing stock sectors started to
fade when investors gravitated to more stable, defensive sectors. Weakened
equity markets called into question the ability of some biotech companies
to tap them for funding. Other difficulties confronting biotechs included
worries that a change in the White House would mean more regulation, open
the door to cheap drugs from abroad, impose price curbs and tamper with the
recent Medicare reform initiatives. Product-related disappointments further
clouded the outlook for biotech stocks in the final months of the period.
"Biotechnology stocks posted
decent returns for the 12 months
ended October 31, 2004, although
they fared far better in the first
half of the period than they did in
the second."
Performance review
For the 12 months ended October 31, 2004, John Hancock Biotechnology Fund's
Class A, Class B and Class C shares posted total returns of 6.36%, 5.65%
and 5.65%, respectively, at net asset value. During the same one-year
period, the more broadly diversified average health/biotechnology fund had
a total return of 5.93%, according to Lipper, Inc.,1 while the Standard &
Poor's 500 Index returned 9.42% and the Nasdaq Biotechnology Index returned
- -2.81%. 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 results. The Fund's outperformance of its
peers and benchmark Nasdaq Biotechnology Index can be attributed primarily
to strong stock selection within the health care group.
2
[A photo of Linda Miller flush right next to first paragraph.]
New drugs boost leaders
At the top of our best-performers list were OSI Pharmaceuticals and Biogen
Idec. OSI's stock price began zooming higher in June on news that its
experimental cancer drug Tarceva had extended survival in late-stage lung
cancer patients. Tarceva is what's known as an epidermal growth factor
receptor inhibitor that shrinks tumors by blocking proteins that promote
the spread of cancer cells. In the fall, the stock got another boost when
the company announced that it had received fast-track regulatory approval
from the Food and Drug Administration for Tarceva, meaning the agency has
six months from the application receipt date, or until January 30, 2005, to
take action. Biogen Idec's shares also posted strong gains in part due to
excitement over the company's Antegren drug to treat the symptoms of
multiple sclerosis, which may launch later this year. Another winner was
Eyetech Pharmaceuticals, which was buoyed by investors' enthusiasm over the
company's experimental treatment Macugen, a drug for the sight-robbing
disease called wet age-related macular degeneration. Investors also liked
the fact that the company has plenty of financial support from its
marketing and development partner Pfizer. We also enjoyed good gains from
our holdings in Tularik, which was lifted mid-year by news that the company
- -- which develops potential therapies for cancer, diabetes and obesity --
was to be acquired by Amgen, the world's largest biotech company.
Unfortunately, Amgen's stock stumbled in reaction to concerns about new
pricing guidelines for its chemotherapy-related products.
Other winners included Gilead Sciences, which enjoyed better-than-expected
financial results thanks to strong sales growth of its HIV treatments, and
Sepracor, which bounced back from a dismal 2003 thanks to clinical success
of its drug used to treat insomnia.
"Merger and acquisition
activity provided the
underpinnings for some of
our other best performers."
"Urge to merge"
Merger and acquisition activity provided the underpinnings for some of our
other best performers. The stock price of Atrix Labs, which markets an
injectable prostate drug, was boosted on news that it would be acquired by
Vancouver-based biotech company QLT. Likewise, Ilex Oncology Inc, which
makes
3
a leukemia treatment, moved higher on news that Genzyme Corp. planned
to acquire it.
[Table at top left-hand side of page entitled "Top industry groups." The
first listing is Biotechnology 67%; the second is Pharmaceuticals 14%, the
third is Health care equipment 10% and the fourth is Health care services 5%.]
Early stage companies fall out of favor
Companies dependent on the capital markets to fund their future growth fell
out of favor during the year and were among our biggest disappointments.
The main worry was that given the downturn in the stock market in the
second half of the period, some biotech companies wouldn't be able to raise
enough money to bring exciting and innovative products to market. Among our
holdings that were hurt by this development were Human Genome Sciences,
Amylin Pharmaceuticals, NPS Pharmaceuticals and Onyx Pharmaceuticals. We
also suffered losses with Chiron, which plummeted on news that U.K.
authorities prohibited the company from shipping Fluvirin this season,
which was to account for about 50% of the flu vaccines sold in the United
States. We sold the stock.
[Pie chart at middle of page with heading "Portfolio diversification As a
percentage of net assets on 10-31-04." The chart is divided into two
sections (from top to left): Common stocks 95%, and Short-term investments
& other 5%. ]
Outlook
We're reasonably optimistic about the prospects for biotech stocks. The
world's aging population provides strong support for a bullish outlook for
the group over the long term. We believe that there are other, more
near-term factors working in the group's favor. Just after the Fund's
fiscal year ended, President Bush was re-elected to a second term. That
seemed to reassure investors that status quo, rather than radical change,
will be the watchwords for national health care policies. Furthermore,
large biotech companies enjoy a marketplace that has high barriers to
entry, thereby limiting potential competition over the next year or so. But
the performance
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 OSI
Pharmaceuticals followed by an up arrow with the phrase "Positive clinical
trials for lung cancer drug boost stock." The second listing is Gilead
Sciences followed by an up arrow with the phrase, "Strong sales of HIV
treatments fuel better financial results." The third listing is Chiron
followed by a down arrow with the phrase, "U.K. shuts down manufacturing
of flu vaccine."]
of biotech stocks will continue to hinge on innovation, new product
approvals and valuations. We're impressed with the current pace of
innovation, although new product approval may slow somewhat as the FDA
takes a more cautious view in light of recent developments with Merck and
Chiron. In terms of valuations, there remain many reasonably priced
opportunities, although some stocks appear to have gotten too expensive.
Given that funding could remain an issue for smaller companies, they are
likely to remain the type of investment they've always been: more
speculative ventures with poten tially higher rewards. In our view, those
factors all add up to an environment that we believe plays to our
stock-picking strengths.
"We're reasonably optimistic about
the prospects for biotech stocks."
This commentary reflects the views of the portfolio manager through the end
of the Fund's period discussed in this report. The manager's statements
reflect her 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.
Sector investing is subject to greater risks than the market as a whole.
1 Figures from Lipper, Inc. include reinvested dividends and do not take
into account sales charges. Actual load-adjusted performance is lower.
5
A LOOK AT
PERFORMANCE
For the period ended
October 31, 2004
Class A Class B Class C
Inception date 3-1-01 3-1-01 3-1-01
Average annual returns with maximum sales charge (POP)
One year 1.03% 0.65% 4.65%
Since inception -7.64 -7.74 -6.98
Cumulative total returns with maximum sales charge (POP)
One year 1.03 0.65 4.65
Since inception -25.28 -25.60 -23.30
Performance figures assume all distributions are reinvested. Returns with
maximum sales charge reflect a sales charge on Class A shares of 5% and the
applicable contingent deferred sales charge (CDSC) on Class B and Class C
shares. The returns for Class C shares have been adjusted to reflect the
elimination of the front-end sales charge effective July 15, 2004. 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.
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.
6
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 two separate indexes.
Cum Value Cum Value Nasdaq
of $10K of $10K S&P 500 Biotechnology
Plot Date (No Load) (w/Load) Index Index
3-1-01 $10,000 $9,500 $10,000 $10,000
3-31-01 8,520 8,091 9,366 7,966
4-30-01 9,870 9,373 10,094 9,476
7-31-01 9,300 8,832 9,817 9,030
10-31-01 9,490 9,012 8,621 8,975
1-31-02 8,609 8,176 9,227 8,104
4-30-02 6,927 6,578 8,820 6,768
7-31-02 5,606 5,324 7,498 5,334
10-31-02 5,556 5,276 7,318 5,314
1-31-03 5,105 4,848 7,103 5,051
4-30-03 5,586 5,305 7,647 5,966
7-31-03 7,368 6,997 8,296 7,614
10-31-03 7,398 7,025 8,842 7,432
1-31-04 8,429 8,004 9,560 8,048
4-30-04 8,979 8,527 9,397 8,121
7-31-04 7,808 7,415 9,389 7,138
10-31-04 7,868 7,472 9,663 7,338
[Line chart with the heading "GROWTH OF $10,000." Within the chart are four
lines. The first line represents Standard & Poor's 500 Index and is equal
to $9,663 as of October 31, 2004. The second line represents the value of
the hypothetical $10,000 investment made in the John Hancock Biotechnology
Fund, before sales charge, and is equal to $7,868 as of October 31, 2004.
The third line represents the value of the same hypothetical $10,000
investment made in the John Hancock Biotechnology Fund, after sales charge,
and is equal to $7,472 as of October 31, 2004. The fourth line represents the
NASDAQ Biotechnology Index and is equal to $7,338 as of October 31, 2004.]
Class B Class C 1
Period beginning 3-1-01 3-1-01
Without sales charge $7,670 $7,670
With maximum sales charge 7,440 7,670
Index 1 9,663 9,663
Index 2 7,338 7,338
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 October 31, 2004. The Class C
shares investment with maximum sales charge has been adjusted to reflect
the elimination of the front-end sales charge effective July 15, 2004.
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.
Standard & Poor's 500 Index -- Index 1 -- is an unmanaged index that
includes 500 widely traded common stocks.
Nasdaq Biotechnology Index -- Index 2 -- is an unmanaged index that
represents the largest and most actively traded Nasdaq biotechnology
stocks.
It is not possible to invest directly in an index. Index figures do not
reflect sales charges and would be lower if they did.
1 No contingent deferred sales charge applicable.
7
YOUR
EXPENSES
These examples are intended to help you understand your ongoing operating
expenses.
Understanding fund expenses
As a shareholder of the Fund, you incur two types of costs:
* Transaction costs which include sales charges (loads) on purchases or
redemptions (varies by share class), minimum account fee charge, etc.
* Ongoing operating expenses including management fees, distribution and
service fees (if applicable) and other fund expenses.
We are going to present only your ongoing operating expenses here.
Actual expenses/actual returns
This example is intended to provide information about your fund's actual
ongoing operating expenses, and is based on your fund's actual return. It
assumes an account value of $1,000.00 on April 30, 2004, with the same
investment held until October 31, 2004.
Account value Expenses paid
$1,000.00 Ending value during period
on 4-30-04 on 10-31-04 ended 10-31-04 1
- --------------------------------------------------------------------------
Class A $876.30 $7.55
Class B 873.60 10.83
Class C 873.60 10.83
Together with the value of your account, you may use this information to
estimate the operating expenses that you paid over the period. Simply
divide your account value at October 31, 2004 by $1,000.00, then multiply
it by the "expenses paid" for your share class from the table above. For
example, for an account value of $8,600.00, the operating expenses should
be calculated as follows:
Example
-- -- -- --
| My account value / | | "expenses paid" | My
| / $1,000.00 = 8.6 | X $| | = actual
| $8,600.00 / | | from table | expenses
-- -- -- --
8
Hypothetical example for comparison purposes
This table allows you to compare your fund's ongoing operating expenses
with those of any other fund. It provides an example of the Fund's
hypothetical account values and hypothetical expenses based on each class's
actual expense ratio and an assumed 5% annual return before expenses (which
is not your fund's actual return). It assumes an account value of $1,000.00
on April 30, 2004, with the same investment held until October 31, 2004.
Look in any other fund shareholder report to find its hypothetical example
and you will be able to compare these expenses.
Account value Expenses paid
$1,000.00 Ending value during period
on 4-30-04 on 10-31-04 ended 10-31-04 1
- --------------------------------------------------------------------------
Class A $1,017.09 $8.11
Class B 1,013.57 11.64
Class C 1,013.57 11.64
Remember, these examples do not include any transaction costs, such as
sales charges; therefore, these examples will not help you to determine the
relative total costs of owning different funds. If transaction costs were
included, your expenses would have been higher. See the prospectus for
details regarding transaction costs.
1 Expenses are equal to the Fund's annualized expense ratio of 1.60%, 2.30%
and 2.30% for Class A, Class B, Class C, respectively, multiplied by the
average account value over the period, multiplied by [number of days in
most recent fiscal half-year/365 or 366] (to reflect the one-half year
period).
9
FINANCIAL STATEMENTS
FUND'S
INVESTMENTS
Securities owned
by the Fund on
October 31, 2004
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.
Issuer Shares Value
Common stocks 95.21% $19,776,244
(Cost $17,245,155)
Biotechnology 66.85% 13,884,994
Abgenix, Inc. (I) 31,000 282,410
Alkermes, Inc. (I) 11,000 136,070
Amgen, Inc. (I) 48,000 2,726,400
Amylin Pharmaceuticals, Inc. (I)(L) 6,000 127,800
Applera Corp.-Celera Genomics Group (I) 30,000 384,600
AtheroGenics, Inc. (I)(L) 8,500 254,490
Biogen Idec, Inc. (I) 22,500 1,308,600
Celgene Corp. (I) 17,000 503,540
Cephalon, Inc. (I) 9,000 429,030
Charles River Laboratories International, Inc. (I) 4,000 187,160
Eyetech Pharmaceuticals, Inc. (I)(L) 6,500 275,860
Genentech, Inc. (I) 20,000 910,600
Genzyme Corp. (I) 16,000 839,520
Gilead Sciences, Inc. (I) 32,000 1,108,160
Human Genome Sciences, Inc. (I) 10,000 102,900
Kosan Biosciences, Inc. (I) 30,000 187,500
Martek Biosciences Corp. (I) 6,500 305,864
Medarex, Inc. (I)(L) 32,500 247,325
MedImmune, Inc. (I) 10,000 284,200
Millennium Pharmaceuticals, Inc. (I)(L) 30,000 389,400
Nabi Biopharmaceuticals (I) 9,900 137,115
Neurocrine Biosciences, Inc. (I)(L) 9,000 418,950
OSI Pharmaceuticals, Inc. (I)(L) 8,000 519,840
Protein Design Labs, Inc. (I) 22,000 421,300
QIAGEN N.V. (Netherlands) (I) 20,000 212,800
Sepracor, Inc. (I)(L) 10,000 459,300
Telik, Inc. (I)(L) 7,000 129,150
See notes to
financial statements.
10
FINANCIAL STATEMENTS
Issuer Shares Value
Biotechnology (continued)
Vicuron Pharmaceuticals, Inc. (I) 15,500 $217,310
ZymoGenetics, Inc. (I) 20,000 377,800
Health Care Equipment 9.95% 2,067,000
Affymetrix, Inc. (I)(L) 18,000 549,000
Applera Corp.-Applied Biosystems Group 12,500 238,500
Caliper Life Sciences, Inc. (I) 60,000 420,000
EPIX Pharmaceuticals, Inc. (I) 6,000 93,780
Fisher Scientific International, Inc. (I)(L) 4,000 229,440
Gen-Probe, Inc. (I) 12,000 420,480
Invitrogen Corp. (I) 2,000 115,800
Health Care Services 4.65% 965,600
Accredo Health, Inc. (I) 10,000 230,300
Cytokinetics, Inc. (I) 18,500 166,500
Nektar Therapeutics (I) 20,000 288,200
Onyx Pharmaceuticals, Inc. (I) 10,000 280,600
Health Care Supplies 0.20% 42,500
Retractable Technologies, Inc. (I) 10,000 42,500
Pharmaceuticals 13.56% 2,816,150
ARIAD Pharmaceuticals, Inc. (I) 25,000 141,750
Enzon Pharmaceuticals, Inc. (I) 15,000 242,550
ICOS Corp. (I)(L) 6,000 135,120
Medicines Co. (The) (I) 19,000 506,160
MGI Pharma, Inc. (I)(L) 8,000 213,360
Nuvelo, Inc. (I) 33,000 302,940
Rigel Pharmaceuticals, Inc. (I) 20,000 480,000
Salix Pharmaceuticals, Ltd. (I) 9,000 144,270
Teva Pharmaceutical Industries Ltd., American Depositary Receipt (ADR) (Israel) 25,000 650,000
See notes to
financial statements.
11
FINANCIAL STATEMENTS
Interest Par value
Issuer, description, maturity date rate (000) Value
Short-term investments 24.57% $5,102,676
(Cost $5,102,676)
Joint Repurchase Agreement 5.62% 1,167,000
Investment in a joint repurchase agreement transaction with
Morgan Stanley -- Dated 10-29-04, due 11-01-04
(secured by U.S. Treasury Bond 8.125% due 08-15-19
and U.S. Treasury Note 5.875% due 11-15-04 and U.S.
Treasury Inflation Indexed Bonds 3.375% thru 3.625%
due 04-15-28 thru 04-15-32, and U.S. Treasury Inflation
Indexed Notes 3.375% thru 3.875% due 01-15-09
thru 01-15-12) 1.770% $1,167 1,167,000
Shares
Cash Equivalents 18.95% 3,935,676
AIM Cash Investment Trust (T) 3,935,676 3,935,676
Total investments 119.78% $24,878,920
Other assets and liabilities, net (19.78%) ($4,108,862)
Total net assets 100.00% $20,770,058
(I) Non-income-producing security.
(L) All or a portion of this security is on loan as of October 31, 2004.
(T) Represents investment of securities lending collateral.
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.
12
FINANCIAL STATEMENTS
PORTFOLIO
CONCENTRATION
October 31, 2004
(unaudited)
This table shows the
Fund's investments
as a percentage
of net assets,
aggregated by
various industries.
Industry distribution Value as a percentage of Fund's net assets
- -------------------------------------------------------------------------
Biotechnology 66.85%
Health Care Equipment 9.95
Health Care Services 4.65
Health Care Supplies 0.20
Pharmaceuticals 13.56
Short-term investments 24.57
See notes to
financial statements.
13
FINANCIAL STATEMENTS
ASSETS AND
LIABILITIES
October 31, 2004
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 $22,347,831)
including $3,856,536 of securities loaned $24,878,920
Cash 989
Receivable for shares sold 8,369
Interest receivable 172
Receivable from affiliates 13,247
Other assets 407
Total assets 24,902,104
Liabilities
Payable for investments purchased 102,855
Payable for shares repurchased 22,261
Payable upon return of securities loaned 3,935,676
Payable to affiliates
Management fees 16,265
Distribution and service fees 2,153
Other 8,059
Other payables and accrued expenses 44,777
Total liabilities 4,132,046
Net assets
Capital paid-in 23,198,244
Accumulated net realized loss on investments (4,959,215)
Net unrealized appreciation of investments 2,531,089
Accumulated net investment loss (60)
Net assets $20,770,058
Net asset value per share
Based on net asset values and shares outstanding --
the Fund has an unlimited number of shares
authorized with no par value
Class A ($8,226,985 [DIV] 1,046,686 shares) $7.86
Class B ($8,799,514 [DIV] 1,147,551 shares) $7.67
Class C ($3,743,559 [DIV] 488,240 shares) $7.67
Maximum offering price per share
Class A 1 ($7.86 [DIV] 95%) $8.27
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.
14
FINANCIAL STATEMENTS
OPERATIONS
For the year ended
October 31, 2004
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
Securities lending $15,184
Interest 12,168
Dividends (net of foreign withholding taxes of $525) 4,331
Total investment income 31,683
Expenses
Investment management fees 207,042
Class A distribution and service fees 29,159
Class B distribution and service fees 97,259
Class C distribution and service fees 35,591
Transfer agent fees 96,824
Registration and filing fees 41,890
Professional fees 21,515
Printing 18,263
Custodian fees 17,224
Miscellaneous 7,017
Accounting and legal services fees 6,216
Trustees' fees 1,183
Securities lending fees 404
Total expenses 579,587
Less expense reductions (118,517)
Net expenses 461,070
Net investment loss (429,387)
Realized and unrealized gain (loss)
Net realized gain on investments 2,324,411
Change in net unrealized appreciation (depreciation)
of investments (932,719)
Net realized and unrealized gain 1,391,692
Increase in net assets from operations $962,305
See notes to
financial statements.
15
FINANCIAL STATEMENTS
CHANGES IN
NET ASSETS
These Statements
of Changes in Net
Assets show how
the value of the
Fund's net assets
has changed
during the last
two periods. 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
10-31-03 10-31-04
Increase (decrease) in net assets
From operations
Net investment loss ($214,497) ($429,387)
Net realized gain (loss) (1,112,209) 2,324,411
Change in net unrealized
appreciation (depreciation) 4,607,427 (932,719)
Increase in net assets resulting
from operations 3,280,721 962,305
From Fund share transactions 5,261,545 904,366
Net assets
Beginning of period 10,361,121 18,903,387
End of period 1 $18,903,387 $20,770,058
1 Includes accumulated net investment loss of $17 and $60, respectively.
See notes to
financial statements.
16
FINANCIAL HIGHLIGHTS
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 10-31-01 1 10-31-02 10-31-03 10-31-04
Per share operating performance
Net asset value,
beginning of period $10.00 $9.49 $5.55 $7.39
Net investment loss 2 (0.07) (0.09) (0.08) (0.12)
Net realized and unrealized
gain (loss) on investments (0.44) (3.84) 1.92 0.59
Total from
investment operations (0.51) (3.93) 1.84 0.47
Less distributions
From net investment income -- (0.01) -- --
Net asset value, end of period $9.49 $5.55 $7.39 $7.86
Total return 3,4 (%) (5.10)5 (41.46) 33.15 6.36
Ratios and supplemental data
Net assets, end of period
(in millions) $6 $5 $8 $8
Ratio of expenses
to average net assets (%) 1.60 6 1.60 1.60 1.60
Ratio of adjusted expenses
to average net assets 7(%) 4.34 6 2.59 2.65 2.12
Ratio of net investment loss
to average net assets (%) (1.15)6 (1.29) (1.35) (1.46)
Portfolio turnover (%) 63 97 130 80
See notes to
financial statements.
17
FINANCIAL HIGHLIGHTS
CLASS B SHARES
Period ended 10-31-01 1 10-31-02 10-31-03 10-31-04
Per share operating performance
Net asset value,
beginning of period $10.00 $9.44 $5.49 $7.26
Net investment loss 2 (0.13) (0.14) (0.13) (0.17)
Net realized and unrealized
gain (loss) on investments (0.43) (3.81) 1.90 0.58
Total from
investment operations (0.56) (3.95) 1.77 0.41
Net asset value, end of period $9.44 $5.49 $7.26 $7.67
Total return 3,4 (%) (5.60)5 (41.84) 32.24 5.65
Ratios and supplemental data
Net assets, end of period
(in millions) $4 $4 $8 $9
Ratio of expenses
to average net assets (%) 2.30 6 2.30 2.30 2.30
Ratio of adjusted expenses
to average net assets 7(%) 5.05 6 3.29 3.35 2.82
Ratio of net investment
loss to average net assets (%) (2.01)6 (1.99) (2.05) (2.16)
Portfolio turnover (%) 63 97 130 80
See notes to
financial statements.
18
FINANCIAL HIGHLIGHTS
CLASS C SHARES
Period ended 10-31-01 1 10-31-02 10-31-03 10-31-04
Per share operating performance
Net asset value,
beginning of period $10.00 $9.44 $5.49 $7.26
Net investment loss 2 (0.13) (0.14) (0.13) (0.17)
Net realized and unrealized
gain (loss) on investments (0.43) (3.81) 1.90 0.58
Total from
investment operations (0.56) (3.95) 1.77 0.41
Net asset value, end of period $9.44 $5.49 $7.26 $7.67
Total return 3,4 (%) (5.60)5 (41.84) 32.24 5.65
Ratios and supplemental data
Net assets, end of period
(in millions) $2 $2 $2 $4
Ratio of expenses
to average net assets (%) 2.30 6 2.30 2.30 2.30
Ratio of adjusted expenses
to average net assets 7(%) 5.05 6 3.29 3.35 2.82
Ratio of net investment
loss to average net assets (%) (2.07)6 (1.99) (2.05) (2.16)
Portfolio turnover (%) 63 97 130 80
1 Class A, Class B and Class C shares began operations on 3-1-01.
2 Based on the average of the shares outstanding.
3 Assumes dividend reinvestment and does not reflect the effect of sales
charges.
4 Total returns would have been lower had certain expenses not been reduced
during the periods shown.
5 Not annualized.
6 Annualized.
7 Does not take into consideration expense reductions during the periods
shown.
See notes to
financial statements.
19
NOTES TO
STATEMENTS
Note A
Accounting policies
John Hancock Biotechnology Fund (the "Fund") is a non-diversified series of
John Hancock World Fund, 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 capital appreciation.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A, Class B and Class C shares. The shares of
each class represent an interest in the same portfolio of investments of
the Fund and have equal rights as to voting, redemptions, dividends and
liquidation, except that certain expenses, subject to the approval of the
Trustees, may be applied differently to each class of shares in accordance
with current regulations of the Securities and Exchange Commission and the
Internal Revenue Service. Shareholders of a class that bears distribution
and service expenses under the 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 may be
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 John Hancock Financial Services,
Inc., 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
20
fund level and allocated daily to each class of shares based on the
appropriate net asset value of the respective classes. Distribution and
service fees, if any, are calculated daily at the class level based on the
appropriate net asset value of each class and the specific expense rate(s)
applicable to each class.
Expenses
The majority of expenses are directly identifiable to an individual fund.
Expenses that are not readily identifiable to a specific fund are allocated
in such a manner as deemed equitable, taking into consideration, among
other things, the nature and type of expense and the relative sizes of the
funds.
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 October 31, 2004.
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. On October 31, 2004, the Fund loaned securities having a
market value of $3,856,536 collateralized by cash in the amount of
$3,935,676. The cash collateral was invested in a short-term instrument.
Securities lending expenses are paid by the Fund to the Adviser.
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 $4,431,628 of a capital loss
carryforward available, to the extent provided by regulations, to offset
future net realized capital gains. To the extent that such carryforward is
used by the Fund, no capital gain distributions will be made. The loss
carryforward expires as follows: October 31, 2010 -- $3,046,491 and October
31, 2011 -- $1,385,137.
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, if any, 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, 2004, there were no distributable earnings on a tax
basis.
Such distributions and distributable earnings, on a
21
tax basis, are determined in conformity with income tax regulations, which
may differ from accounting principles generally accepted in the United
States of America. Distributions in excess of tax basis earnings and
profits, if any, are reported in the Fund's financial statements as a
return of capital.
Use of estimates
The preparation of these financial statements, in accordance with
accounting principles generally accepted in the United States of America,
incorporates estimates made by management in determining the reported
amount of assets, liabilities, revenues and expenses of the Fund. Actual
results could differ from these estimates.
Note B
Management fee and
transactions with
affiliates and others
The Fund has an investment management contract with the Adviser. Under the
investment management contract, the Fund pays a monthly management fee to
the Adviser equivalent, on an annual basis, to the sum of: (a) 0.90% of the
first $500,000,000 of the Fund's average daily net asset value, (b) 0.85%
of the next $500,000,000 and (c) 0.80% of the Fund's average daily net
asset value in excess of $1,000,000,000.
The Adviser has agreed to limit the Fund's total expenses excluding the
distribution and service fees, to 1.30% of the Fund's average daily net
asset value, on an annual basis, at least until February 28, 2005.
Accordingly, the expense reduction related to the total expense limitation
amounted to $118,517 for the year ended October 31, 2004. 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 asset value and 1.00% of Class B and
Class C average daily net asset value. 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 shares are assessed up-front sales charges. During the year ended
October 31, 2004, JH Funds received net up-front sales charges of $76,596
with regard to sales of Class A shares. Of this amount, $11,828 was
retained and used for printing prospectuses, advertising, sales literature
and other purposes, $60,031 was paid as sales commissions to unrelated
broker-dealers and $4,737 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.
Prior to July 15, 2004, Class C shares were assessed up-front sales
charges. During the year ended October 31, 2004, JH Funds received net
up-front sales charges of $6,678 with regard to sales of Class C shares. Of
this amount, $6,487 was paid as sales commissions to unrelated
broker-dealers and $191 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
22
rate of 1.00% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed.
Proceeds from the CDSCs are paid to JH Funds and are used, in whole or in
part, to defray its expenses for providing distribution-related services
to the Fund in connection with the sale of Class B and Class C shares.
During the year ended October 31, 2004, CDSCs received by JH Funds
amounted to $25,546 for Class B shares and $1,979 for Class C shares.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc., ("Signature Services") 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. Signature Services agreed to voluntarily reduce the Fund's
asset-based portion of the transfer agent fee if the total transfer agent
fee exceeds the Lipper, Inc. median transfer agency fee for comparable
mutual funds by 0.05%. There were no transfer agent fee reductions during
the year ended October 31, 2004. Signature Services reserves the right to
terminate this limitation at any time.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the year
amounted to $6,216. The Fund also paid the Adviser the amount of $369 for
certain publishing services, included in the printing fees.
Mr. James A. Shepherdson is a director and/or officer of the Adviser and/or
its affiliates, as well as Trustee 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.
23
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.
Year ended 10-31-03 Year ended 10-31-04
Shares Amount Shares Amount
Class A shares
Sold 559,783 $3,876,141 995,092 $8,365,725
Repurchased (274,305) (1,674,677) (1,047,383) (8,849,637)
Net increase (decrease) 285,478 $2,201,464 (52,291) ($483,912)
Class B shares
Sold 715,050 $4,927,300 588,836 $4,817,701
Repurchased (354,315) (2,274,524) (585,849) (4,633,982)
Net increase 360,735 $2,652,776 2,987 $183,719
Class C shares
Sold 111,436 $716,782 248,261 $1,998,289
Repurchased (52,642) (309,477) (100,421) (793,730)
Net increase 58,794 $407,305 147,840 $1,204,559
Net increase 705,007 $5,261,545 98,536 $904,366
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
year ended October 31, 2004, aggregated $17,482,336 and $17,673,959,
respectively.
The cost of investments owned on October 31, 2004, including short-term
investments, for federal income tax purposes, was $22,875,417. Gross
unrealized appreciation and depreciation of investments aggregated
$3,493,712 and $1,490,209, respectively, resulting in net unrealized
appreciation of $2,003,503. The difference between book basis and tax basis
net unrealized appreciation of investments is attributable primarily to the
tax deferral of losses on certain sales of securities.
Note E
Reclassification
of accounts
During the year ended October 31, 2004, the Fund reclassified amounts to
reflect a decrease in accumulated net realized loss on investments of $20,
a decrease in accumulated net investment loss of $429,344 and a decrease in
capital paid-in of $429,364. This represents the amounts necessary to
report these balances on a tax basis, ex clud ing certain temporary
differences, as of October 31, 2004. 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
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, and book and tax differences in
accounting for deferred compensation and net operating loss. The
calculation of net investment loss per share in the Fund's Financial
Highlights excludes these adjustments.
Note F
Subsequent event
A special meeting of shareholders was held on December 1, 2004, at which
time one or more new Trustees were elected to the Fund's Board of Trustees.
Several Trustees had reached
24
the age for mandatory retirement and plan to retire in 2004 and 2005. The
Board of Trustees recommended and shareholders approved a proposal to
consolidate the two panels into one Board of Trustees for all open-end
funds within the John Hancock funds complex. The effective date for the
newly elected Trustees to the Fund will be January 1, 2005.
25
AUDITORS'
REPORT
Report of
Pricewaterhouse-
Coopers LLP,
Independent
Registered Public
Accounting Firm
To the Board of Trustees and Shareholders of
John Hancock Biotechnology 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 John
Hancock Biotechnology Fund (the "Fund") at October 31, 2004, the results of
its operations, the changes in its net assets and the financial highlights
for the periods indicated, in conformity with accounting principles
generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at October 31, 2004 by correspondence
with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 13, 2004
26
TAX
INFORMATION
Unaudited
For federal income tax purposes, the following information is furnished
with respect to the distributions of the Fund, if any, paid during its
taxable year ended October 31, 2004.
The Fund hereby designates the maximum amount allowable of its net taxable
income as qualified dividend income as provided in the Jobs and Growth Tax
Relief Reconciliation Act of 2003. This amount will be reflected on Form
1099-DIV for the calendar year 2004.
Shareholders will be mailed a 2004 U.S. Treasury Department Form 1099-DIV
in January 2005. This will reflect the total of all distributions that are
taxable for calendar year 2004.
27
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
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
Charles L. Ladner, 2 Born: 1938 2004 49
Independent Chairman (since 2004); Chairman and Trustee, Dunwoody
Village, Inc. (retirement services) (until 2003); 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).
Dennis S. Aronowitz, Born: 1931 2001 21
Professor of Law, Emeritus, Boston University School of Law
(as of 1996); Director, Brookline Bancorp (since 1998).
Richard P. Chapman, Jr., Born: 1935 2001 21
President and Chief Executive Officer, Brookline Bancorp Inc. (lending)
(since 1972); Director, Lumber Insurance Co. (insurance) (until 2000);
Chairman and Director, Northeast Retirement Services, Inc. (retirement
administration) (since 1998).
William J. Cosgrove, Born: 1933 2001 21
Vice President, Senior Banker and Senior Credit Officer, Citibank, N.A.
(retired 1991); Executive Vice President, Citadel Group Representatives,
Inc. (financial reinsurance) (until 2004); Director, Hudson City Savings Bank
(since 1995); Director, Hudson City Bancorp (since 1999); Trustee, Scholarship
Fund for Inner City Children (since 1986).
Richard A. Farrell, Born: 1932 2001 21
President, Farrell, Healer & Co., Inc. (venture capital management firm)
(since 1980) and President, the Venture Capital Fund of NE (since 1980);
prior to 1980, headed the venture capital group at Bank of Boston Corporation;
Trustee, Marblehead Savings Bank (since 1994).
28
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
William F. Glavin, 2 Born: 1932 2001 21
President Emeritus, Babson College (as of 1998); Vice Chairman, Xerox
Corporation (until 1989); Director, Reebok, Inc. (until 2002) and Inco Ltd.
(until 2002).
John A. Moore, 2 Born: 1939 2001 31
President and Chief Executive Officer, Institute for Evaluating Health
Risks, (nonprofit institution) (until 2001); Chief Scientist, Sciences
International (health research) (until 2003); Principal, Hollyhouse
(consulting) (since 2000); Director, CIIT (nonprofit research) (since 2002).
Patti McGill Peterson, 2 Born: 1943 2001 31
Executive Director, Council for International Exchange of Scholars and
Vice President, Institute of International Education (since 1998);
Senior Fellow, Cornell Institute of Public Affairs, Cornell University (until
1998); Former President of Wells College and St. Lawrence University;
Director, Niagara Mohawk Power Corporation (until 2003); Director, Ford
Foundation, International Fellowships Program (since 2002); Director,
Lois Roth Endowment (since 2002); Director, Council for International
Educational Exchange (since 2003).
John W. Pratt, Born: 1931 2001 21
Professor of Business Administration Emeritus, Harvard University
Graduate School of Business Administration (as of 1998).
Non-Independent 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
James A. Shepherdson, Born: 1952 2004 49
President and Chief Executive Officer
Executive Vice President, Manulife Financial Corporation (since 2004);
Chairman, Director, President and Chief Executive Officer, John Hancock
Advisers, LLC and The Berkeley Financial Group, LLC (holding company);
Chairman, Director, President and Chief Executive Officer, John Hancock
Funds, LLC; Chairman, President, Director and Chief Executive Officer,
Sovereign Asset Management Corporation ("SAMCorp"); Director, Chairman
and President, NM Capital Management, Inc.; President, John Hancock
Retirement Services, John Hancock Life Insurance Company (until 2004);
Chairman, Essex Corporation (until 2004); Co-Chief Executive Officer,
MetLife Investors Group (until 2003); Senior Vice President, AXA/Equitable
Insurance Company (until 2000).
29
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 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 Financial Group, LLC;
Vice President, Signature Services (until 2000); Director, Senior Vice President and Secretary,
NM Capital Management, Inc.
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 Non-independent Trustees hold positions with the Fund's investment
adviser, underwriter and certain other affiliates.
30
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 Select Fund
Mid Cap Growth Fund
Multi Cap Growth Fund
Small Cap 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 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
A fund's investment objectives, risks, charges and expenses are included in
the prospectus and should be considered carefully before investing. For a
prospectus, call your financial professional, call John Hancock Funds at
1-800-225-5291 or visit our Web site at www.jhfunds.com. Please read the
prospectus carefully before investing or sending money.
31
ELECTRONIC
DELIVERY
Now available from
John Hancock Funds
Instead of sending annual and semiannual reports and prospectuses through
the U.S. mail, we'll notify you by e-mail when these documents are
available for online viewing.
How does electronic delivery benefit you?
* No more waiting for the mail to arrive; you'll receive an e-mail
notification as soon as the document is ready for online viewing.
* Reduces the amount of paper mail you receive from John Hancock Funds.
* Reduces costs associated with printing and mailing.
Sign up for electronic delivery today at
www.jhfunds.com/edelivery
32
For more information
The Fund's proxy voting policies, procedures and records are available
without charge, upon request:
By phone On the Fund's Web site On the SEC's Web site
1-800-225-5291 www.jhfunds.com/proxy www.sec.gov
Investment adviser
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, MA 02199-7603
Principal distributor
John Hancock Funds, LLC
101 Huntington Avenue
Boston, MA 02199-7603
Custodian
The Bank of New York
One Wall Street
New York, NY 10286
Transfer agent
John Hancock Signature
Services, Inc.
1 John Hancock Way,
Suite 1000
Boston, MA 02217-1000
Legal counsel
Wilmer Cutler Pickering
Hale and Dorr LLP
60 State Street
Boston, MA 02109-1803
Independent registered
public accounting firm
PricewaterhouseCoopers LLP
125 High Street
Boston, MA 02110
How to contact us
Internet www.jhfunds.com
Mail Regular mail: Express mail:
John Hancock John Hancock
Signature Services, Inc. Signature Services, Inc.
1 John Hancock Way, Suite 1000 Mutual Fund Image Operations
Boston, MA 02217-1000 529 Main Street
Charlestown, MA 02129
Phone Customer service representatives 1-800-225-5291
24-hour automated information 1-800-338-8080
TDD line 1-800-554-6713
A listing of month-end portfolio holdings is available on our Web site,
www.jhfunds.com. A more detailed portfolio holdings summary is available on
a quarterly basis 60 days after the fiscal quarter on our Web site or upon
request by calling 1-800-225-5291, or on the Securities and Exchange
Commission's Web site, www.sec.gov.
33
[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.jhfunds.com/edelivery
This report is for the information of
the shareholders of the John Hancock
Biotechnology Fund.
7300A 10/04
12/04
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
No change from the information set forth in Item 27 of the Registration
Statement of John Hancock World Fund (the "Registrant") on Form N-1A under the
Securities Act of 1933 and the Investment company Act of 1940 (File Nos.
33-10722 and 811-4932), which information is incorporated herein by reference.
ITEM 16.
EXHIBITS
1 Registrant's Amended and Filed as Exhibit 99.a to Registrant's Registration
Restated Declaration of Trust. Statement on Form N-1A and incorporated herein by
reference to post-effective amendment no. 34 (file
nos. 811-4932 and 33-10722 on February 12, 2003;
accession no. 0001010521-03-000088) ("PEA 34").
1.1 Amendment to Declaration of Trust Filed as Exhibit 99.a.1 to PEA 34 and incorporated
herein by reference.
1.2 Amendment to Declaration of Trust Filed as Exhibit 99.a.2 to Registrant's Registration
Statement on Form N-1A and incorporated herein by
reference to post-effective amendment no. 36 (file
nos. 811-4932 and 33-10722 on March 1, 2004;
accession no. 0001010521-04-000074) ("PEA 36").
1.3 Amendment to Declaration of Trust Filed as Exhibit 99.a.3 to PEA 34 and incorporated
herein by reference.
2 Amended and Restated By-Laws of Filed as Exhibit 99.b Registrant's Registration
Registrant. Statement on Form N-1A and incorporated herein by
reference to post-effective amendment no. 21 file
nos. 811-4932 and 33-10722 on February 27, 1997;
accession no. 0001010521-97-000226) ("PEA 21).
2.1 Amendment to Amended and Filed as Exhibit 99.b.1 to PEA 34 and incorporated
Restated By-Laws of Registrant. herein by reference.
3 Not applicable
4 Form of Agreement and Plan of Filed herewith as Exhibit A to the Proxy Statement
reorganization. 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 Registration
between the Global Rx Fund and Statement on Form N-1A and incorporated herein by
John Hancock Advisers, LLC. reference to post-effective amendment no. 18 (file
nos. 811-4932 and 33-10722 on December 26, 1995;
accession no.0000950135-95-002745 ("PEA 18").
6.1 Investment Management Contract Filed as Exhibit 99.d.1 to Registrant's Registration
between the Biotechnology Fund Statement on Form N-1A and incorporated herein by
and John Hancock Advisers, LLC. reference to post-effective amendment no. 29 (file
nos. 811-4932 and 33-10722 on February 9, 2001;
accession no.0001010521-01-000107 ("PEA 29").
6.2 Investment Management Contract Filed as Exhibit 99.d.2 to Registrant's Registration
between International Small Cap Statement on Form N-1A and incorporated herein by
Growth Fund and John Hancock reference to post-effective amendment no. 32 (file
Advisers, LLC. nos. 811-4932 and 33-10722 on December 27, 2001 ;
accession no.0001010521-01-500299 ("PEA 32").
6.3 Sub-Investment Management Filed as Exhibit 99.d.3 to Registrant's Registration
Contract between International Statement on Form N-1A and incorporated herein by
Small Cap Growth Fund and John reference to post-effective amendment no. 34 (file
Hancock Advisers, LLC. nos. 811-4932 and 33-10722 on February 12, 2003;
accession no.0001010521-03-000088 ("PEA 34").
7 Distribution Agreement between Filed as Exhibit 99.e to PEA 18 and incorporated
the Registrant and John Hancock herein by reference.
Funds, Inc. (formerly named John
Hancock Broker Distribution
Services, Inc.)
7.1 Amendment to Distribution Filed as Exhibit 99.e.1 to PEA 18 and incorporated
Agreement between the Registrant herein by reference.
and John Hancock Funds, Inc.
7.2 Amendment to Distribution Filed as Exhibit 99.e.2 to PEA 32 and incorporated
Agreement between the Registrant herein by reference.
and John Hancock Funds, Inc.
7.3 Form of Soliciting Dealer Filed as Exhibit 99.e.3 to Registrant's Registration
Agreement between John Hancock Statement on Form N-1A and incorporated herein by
Funds, Inc. and Selected Dealers. reference to post-effective amendment no. 37 (file
nos. 811-4932 and 33-10722 on March 1, 2005;
accession no.0001010521-05-000070 ("PEA 37").
7.4 Form of Financial Institution Filed as Exhibit 99.e.4 to PEA 18 and incorporated
Sales and Services Agreement herein by reference.
8 Not applicable.
9 Master Custodian Agreement Filed as Exhibit 99.g to PEA 32 and incorporated
between John Hancock Mutual herein by reference.
Funds (including Registrant)
and The Bank of New York.
10 Amended and Restated Master Filed as Exhibit 99.h to Registrant's Registration
Transfer Agency and Service Statement on Form N-1A and incorporated herein by
Agreement Between John Hancock reference to post-effective amendment no. 24 (file
funds and John Hancock Funds, nos. 811-4932 and 33-10722 on December 21, 1998;
LLC. accession no.0001010521-98-000401 ("PEA 24").
10.1 Accounting and Legal Services Filed as Exhibit 99.h.1 to Registrant's Registration
Agreement between John Hancock Statement on Form N-1A and incorporated herein by
Advisers, LLC and Registrant. reference to post-effective amendment no. 19 (file
nos. 811-4932 and 33-10722 on July 1, 1996; accession
no.0001010521-96-000117 ("PEA 19").
10.2 Amendment to Amended and Filed as Exhibit 99.h.2 to PEA 32 and incorporated
Restated Master Transfer Agency herein by reference.
and Service Agreement.
10.3 Amendment to Amended and Filed as Exhibit 99.h.3 to Registrant's Registration
Restated Master Transfer Agency Statement on Form N-1A and incorporated herein by
and Service Agreement. reference to post-effective amendment no. 36 (file
nos. 811-4932 and 33-10722 on March 1, 2004;
accession no.0001010521-04-000074 ("PEA 36").
10.4 Amendment to Amended and Filed as Exhibit 99.h.4 to PEA 37 and incorporated
Restated Master Transfer Agency herein by reference.
and Service Agreement.
12 Class A Distribution Plans Filed as Exhibit 99.m to PEA 19 and incorporated
between Global Health Sciences herein by reference.
and John Hancock Funds, LLC.
12.1 Class B Distribution Plans Filed as Exhibit 99.m.1 to PEA 18 and incorporated
between Global Health Sciences herein by reference.
Fund and John Hancock Funds, LLC.
12.2 Class C Distribution Plans Filed as Exhibit 99.m.2 to Registrant's Registration
between Global Health Fund and Statement on Form N-1A and incorporated herein by
John Hancock Funds, LLC. reference to post-effective amendment no. 26 (file
nos. 811-4932 and 33-10722 on December 23, 1999;
accession no.0001010521-99-000391 ("PEA 26").
12.3 Class A, Class B, Class C Filed as Exhibit 99.m.3 to PEA 29 and incorporated
Distribution Plans between herein by reference.
Biotechnology Fund and John
Hancock Funds, LLC.
12.4 Class A, Class B, Class C Filed as Exhibit 99.m.4 to PEA 32 and incorporated
Distribution Plans between herein by reference.
International Small Cap Growth
Fund and John Hancock Funds, LLC.
13 John Hancock Funds Class A, Filed as Exhibit 99.o to Registrant's Registration
Class B and Class C Amended and Statement on Form N-1A and incorporated herein by
restated Multiple Class Plan reference to post-effective amendment no. 25 (file
pursuant to Rule 18f-3. nos. 811-4932 and 33-10722 on February 25, 1999;
accession no.0001010521-99-000141 ("PEA 25").
14 Opinion as to legality of shares Filed herewith as Exhibit 15.
and consent.
15 Form of opinion as to tax Filed herewith as Exhibit 16.
matters and consent.
16 Consents of Filed herewith as Exhibit 17.
PricewaterhouseCoopers LLP
regarding the audited financial
statements of Health Sciences
and Biotechnology Funds
17 Not applicable
18 Powers of Attorney Filed as addendum to signature pages and incorporated
herein by reference.
19 Code of Ethics-John Hancock Filed as Exhibit 99.p to PEA 37 and incorporated
Advisers, John Hancock Funds, LLC herein by reference.
and each of the John Hancock
Funds.
ITEM 17
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is
part of this registration statement by any person or party which is
deemed to be an underwriter within the meaning of Rule 145 (C) under
the Securities Act of 1933, the reoffering prospectus will contain the
information called for by the applicable registration form for
reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as part of an amendment to the
registration statement and will not be used until the amendment is
effective, and that, in determining any liability under the Securities
Act of 1933, each post-effective amendment shall be deemed to be a new
registration statement for the securities offered therein, and the
offering of the securities at that time shall be deemed to be the
initial bona fide offering of them.
(3) The undersigned Registrant agrees to file, by post-effective amendment,
an opinion of counsel supporting the tax consequence of the proposed
reorganization within a reasonable time after receipt of such opinion.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly 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 Commonwealth of Massachusetts on the 18th day of March, 2005.
JOHN HANCOCK WORLD FUND
By: *
--------------------------------------------
James A. Shepherdson
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
* Trustee and Chief
- --------------------------- Executive Officer
James A. Shepherdson
/s/William H. King Vice President, Treasurer March 18, 2005
- --------------------------- (Chief Accounting Officer)
William H. King
* Trustee
- ---------------------------
James F. Carlin
* Trustee
- ---------------------------
Richard P. Chapman, Jr.
* Trustee
- ---------------------------
William J. Cosgrove
* Trustee
- ---------------------------
William H. Cunningham
* Trustee
- ---------------------------
Ronald R. Dion
* Chairman and Trustee
- ---------------------------
Charles L. Ladner
* Trustee
- ---------------------------
John A. Moore
* Trustee
- ---------------------------
Patti McGill Peterson
* Trustee
- ---------------------------
Steven R. Pruchansky
* Trustee
- ---------------------------
Norman H. Smith
* By: /s/Susan S. Newton March 18, 2005
---------------------------
Susan S. Newton, Attorney-in-Fact,
under Powers of Attorney dated
January 1, 2005.
John Hancock Bond Trust John Hancock Series Trust
John Hancock California Tax-Free Income Fund John Hancock Sovereign Bond Fund
John Hancock Capital Series John Hancock Strategic Series
John Hancock Current Interest John Hancock Tax-Free Bond Trust
John Hancock Equity Trust John Hancock Tax-Exempt Series Trust
John Hancock Institutional Series Trust John Hancock World Fund
John Hancock Investment Trust
John Hancock Investment Trust II
John Hancock Investment Trust III
POWER OF ATTORNEY
The undersigned Trustee of each of the above listed Trusts, each a
Massachusetts business trust, does hereby severally constitute and appoint Susan
S. Newton, WILLIAM H. KING AND ALFRED P. OUELLETTE, 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 1st day of January, 2005.
/s/James F. Carlin /s/Charles L. Ladner
- ------------------------------------ ------------------------------------------
James F. Carlin Charles L. Ladner, as Chairman
/s/ Richard P. Chapman, Jr. /s/John A. Moore
- ------------------------------------ ------------------------------------------
Richard P. Chapman, Jr. John A. Moore
/s/ William J. Cosgrove /s/Patti McGill Peterson
- ------------------------------------ ------------------------------------------
William J. Cosgrove Patti McGill Peterson
/s/William H. Cunningham /s/Steven R. Pruchansky
- ------------------------------------ ------------------------------------------
William H. Cunningham Steven R. Pruchansky
/s/Ronald R. Dion /s/James A. Shepherdson
- ------------------------------------ ------------------------------------------
Ronald R. Dion James A. Shepherdson
/s/Norman H. Smith
------------------------------------------
Norman H. Smith
EXHIBIT INDEX
The following exhibits are filed as part of this Registration Statement:
Exhibit No. Description
2 Form of Agreement and Plan of Reorganization between the John Hancock
Health Sciences Fund (the "Acquiring Fund") and Independence
Biotechnology (the "Acquired Fund") (filed as EXHIBIT A to Part A of
this Registration Statement).
5 Opinion as to legality of shares and consent.
8 Form of opinion as to tax matters and consent.
23 Consents of PricewaterhouseCoopers LLP regarding the audited financial
statements and highlights of the Biotechnology Fund and Health Sciences
Fund.