SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
---------
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 (X)
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 99 (X)
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 (X)
Amendment No. 51 (X)
---------
JOHN HANCOCK INVESTMENT TRUST
(Exact Name of Registrant as Specified in Charter)
601 Congress Street
Boston, Massachusetts 02210-2805
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, (617) 663-4324
---------
ALFRED P. OUELLETTE, ESQ.
Assistant Vice President and Secretary
John Hancock Advisers, LLC
601 Congress Street
Boston, Massachusetts 02210-2805
(Name and Address of Agent for Service)
---------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
It is proposed that this filing will become effective:
(X) immediately upon filing pursuant to paragraph (b) of Rule 485
( ) on (date) pursuant to paragraph (b) of Rule 485
( ) 75 days after filing pursuant to paragraph (a) of Rule 485
( ) on (date) pursuant to paragraph (a) of Rule 485
|
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
[GRAPHIC OMITTED: JOHN HANCOCK FUNDS]
John Hancock Equity Funds
Class A, Class B and Class C Shares
Balanced Fund
Classic Value Fund
Core Equity Fund
Focused Equity Fund
Growth Trends Fund
Large Cap Equity Fund
Large Cap Select Fund
Mid Cap Equity Fund
Mid Cap Growth Fund
Multi Cap Growth Fund
Small Cap Fund
Small Cap Equity Fund
Small Cap Intrinsic Value Fund
Sovereign Investors Fund
U.S. Global Leaders Growth Fund
Prospectus
3.1.2006
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.
Balanced Fund 4 Classic Value Fund 6 Core Equity Fund 8 Focused Equity Fund 10 Growth Trends Fund 12 Large Cap Equity Fund 14 Large Cap Select Fund 16 Mid Cap Equity Fund 18 Mid Cap Growth Fund 20 Multi Cap Growth Fund 22 Small Cap Fund 24 Small Cap Equity Fund 26 Small Cap Intrinsic Value Fund 28 Sovereign Investors Fund 30 U.S. Global Leaders Growth Fund 32 YOUR ACCOUNT --------------------------------------------------------------------- Choosing a share class 34 How sales charges are calculated 34 Sales charge reductions and waivers 35 Opening an account 36 Buying shares 37 Selling shares 38 Transaction policies 40 Dividends and account policies 42 Additional investor services 43 FUND DETAILS --------------------------------------------------------------------- Business structure 44 Management biographies 46 Financial highlights 48 FOR MORE INFORMATION BACK COVER --------------------------------------------------------------------- |
Overview --------------------------------------------------------------------- |
John Hancock Equity Funds
These funds seek long-term growth by investing primarily in common stocks. However, the Balanced Fund also makes significant investments in fixed-income securities. Each fund has its own strategy and its own risk profile.
Who may want to invest
These funds may be appropriate for investors who:
* have longer time horizons
* want to diversify their portfolios
* are seeking funds for the equity portion of an asset allocation portfolio
* are investing for retirement or other goals that are many years in the future
Equity funds may NOT be appropriate if you:
* are investing with a shorter time horizon in mind
* are uncomfortable with an investment that may go up and down in value
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 equity 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, 2005, managed approximately $28 billion in assets.
FUND INFORMATION KEY
Concise fund-by-fund descriptions begin on the next page. Each description provides the following information:
[GRAPHIC OMITTED: COMPASS]
Goal and strategy
The fund's particular investment goals and the strategies it intends to use in pursuing those goals.
[GRAPHIC OMITTED: BAR CHART]
Past performance
The fund's total return, measured year-by-year and over time.
[GRAPHIC OMITTED: WORM CHART]
Main risks
The major risk factors associated with the fund.
[GRAPHIC OMITTED: CALCULATOR]
Your expenses
The overall costs borne by an investor in the fund, including sales charges and annual expenses.
Balanced Fund
[GRAPHIC OMITTED: COMPASS]
GOAL AND STRATEGY
The fund seeks current income, long-term growth of capital and income and preservation of capital. To pursue these goals, the fund allocates its investments among a diversfied mix of debt and equity securities. The fund normally invests at least 25% of assets in equity securities and at least 25% of assets in senior debt securities.
With regard to the fund's equity securities, the managers look for companies that appear to be undervalued compared to their historical valuations relative to the market. The managers use fundamental financial analysis and proprietary financial models to identify companies of any size that are selling at a discount as measured by ratios such as price-to-book, price-to-earnings and price-to-sales.
The management team then looks for a positive catalyst in a company's near-term
outlook that they believe will accelerate earnings or improve the value of the
company's assets. These positive catalysts may include, but are not limited to:
new, improved or unique products or services; new or rapidly expanding markets
for the company's products; new management; changes in the economic, financial,
political or regulatory environment affecting the company; or a business
strategy not recognized by the marketplace. The managers also consider an
issuer's dividend-paying prospects and overall financial strength.
The fund's debt securities are used to enhance current income and provide some added stability. The fund's investments in bonds of any maturity are primarily investment grade (rated BBB or above and their unrated equivalents). However, up to 20% of assets may be in junk bonds rated as low as C and their unrated equivalents.
Although the fund invests primarily in U.S. securities, it may invest up to 35% of assets in foreign securities. The fund may also make limited use of certain derivatives (investments whose value is based on indexes, securities or currencies).
In abnormal market conditions, the fund may temporarily invest extensively in investment-grade short-term securities. In these and other cases, the fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction costs (thus lowering performance) and increase your taxable distributions.
PAST PERFORMANCE
The graph shows how the fund's total return has varied from year to year, while the table shows performance over time (along with broad-based market indexes 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 '98, 11.40%
Worst quarter: Q2 '02,-12.88%
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.
Lehman Brothers Government/Credit Bond Index, an unmanaged index of U.S.
government, U.S. corporate and Yankee bonds.
Average annual total returns (including sales charge) for periods ending
12-31-05
------------------------------------------------------------------------------
Life of
1 year 5 year 10 year Class C
------------------------------------------------------------------------------
Class A before tax 7.73% 1.05% 5.20% --
------------------------------------------------------------------------------
Class A after tax on distributions 6.67% 0.19% 3.71% --
------------------------------------------------------------------------------
Class A after tax on distributions, with sale 5.75% 0.41% 3.69% --
------------------------------------------------------------------------------
Class B before tax 7.59% 1.02% 5.16% --
------------------------------------------------------------------------------
Class C before tax (began 5-3-99) 11.59% 1.39% -- 0.48%
------------------------------------------------------------------------------
Standard & Poor's 500 Index 4.91% 0.54% 9.07% 0.32%
------------------------------------------------------------------------------
Lehman Brothers Government/Credit Bond Index 2.37% 6.11% 6.17% 6.12%
4
|
[GRAPHIC OMITTED: WORM CHART]
MAIN RISKS
The value of your investment will fluctuate in response to stock and bond market movements.
The fund's management strategy has a significant influence on fund performance. 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:
* Stocks of small- and medium-capitaliza- tion companies can be more volatile than those of larger companies.
* 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.
* Any bonds held by the fund could be down- graded 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 issuer, an industry or the economy in general.
* Foreign investments carry additional risks, including potentially unfavorable currency exchange rates, inadequate or inaccurate financial information and social or political instability.
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 0.60% 0.60% 0.60% ------------------------------------------------------------------------------ Distribution and service (12b-1) fees 0.30% 1.00% 1.00% ------------------------------------------------------------------------------ Other expenses 0.47% 0.47% 0.47% ------------------------------------------------------------------------------ Total fund operating expenses 1.37% 2.07% 2.07% |
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 $633 $912 $1,212 $2,064 ------------------------------------------------------------------------------ Class B with redemption $710 $949 $1,314 $2,221 ------------------------------------------------------------------------------ Class B without redemption $210 $649 $1,114 $2,221 ------------------------------------------------------------------------------ Class C with redemption $310 $649 $1,114 $2,400 ------------------------------------------------------------------------------ Class C without redemption $210 $649 $1,114 $2,400 |
(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
Sovereign Asset Management LLC
Responsible for day-to-day investment management
A subsidiary of John Hancock Financial Services, Inc.
Founded in 1979
Supervised by the adviser
PORTFOLIO MANAGERS
Timothy E. Keefe, CFA
Joined fund team in 2004
Day-to-day purchase and sale decisions
Roger C. Hamilton
Joined fund team in 2003 Analysis of specific issuers
See page 46 for the management biographies.
FUND CODES
Class A Ticker SVBAX
CUSIP 47803P104
Newspaper BalA
SEC number 811-0560
JH fund number 36
Class B Ticker SVBBX
CUSIP 47803P203
Newspaper BalB
SEC number 811-0560
JH fund number 136
Class C Ticker SVBCX
CUSIP 47803P708
Newspaper --
SEC number 811-0560
JH fund number 536
5
|
Classic Value Fund
[GRAPHIC OMITTED: COMPASS]
GOAL AND STRATEGY
The fund seeks long-term growth of capital. To pursue this goal, the fund normally invests at least 80% of its net assets in domestic equity securities. The fund is non-diversfied and may invest more than 5% of assets in securities of individual companies.
In managing the portfolio, the subadviser seeks to identify companies that it believes are currently undervalued relative to the market, based on estimated future earnings and cash flow. These companies generally have market values at valuation ratios, such as price-to-book, below market average, as defined by the Standard & Poor's 500 Index.
In choosing individual securities, the subadviser screens a dynamic universe of the 500 largest publicly traded U.S. companies. (As of January 31, 2006, this included companies with market values above approximately $4.8 billion.) Using fundamental research and a proprietary computer model, the subadviser ranks these companies from the cheapest to the most expensive on the basis of current share price to the subadviser's estimate of normal long-term earnings power. The subadviser's management team intensively evaluates the cheapest companies to construct a portfolio of stocks that the subadviser believes generally have the following characteristics:
* cheap on the basis of current price to estimated normal level of earnings
* current earnings below normal levels
* a sound plan to restore earnings to normal
* a sustainable business advantage
Before investing, the subadviser considers the value of an entire business relative to its price. The subadviser views itself as a long-term business investor, rather than a stock buyer. This systematic process is intended to ensure that the fund's portfolio avoids the emotional inputs that can lead to overvalued securities.
The subadviser approaches sell decisions from the same disciplined framework. The subadviser generally sells a security when it reaches fair value, there are more attractive opportunities, or there is a change in company fundamentals.
Under normal market conditions, the fund is almost entirely invested in stocks. The fund may invest in securities of foreign issuers.
In abnormal market conditions, the fund may invest extensively in investment-grade short-term securities. In these and other cases, the fund might not achieve its goal.
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 broad-based market indexes for reference). This information may help to provide an indication of the fund's risks. Year-by-year and average annual figures for the period prior to November 8, 2002 reflect the actual performance of the sole class of Pzena Focused Value Fund, the fund's predecessor. On November 8, 2002, the fund acquired all of the assets of Pzena Focused Value Fund pursuant to an agreement and plan of reorganization in exchange for Class A shares of the fund. The average annual returns for Class A have been restated to reflect applicable sales charges. This adjustment will have the effect of reducing the previously reported performance of the Pzena Focused Value Fund. Year-by-year and index figures do not reflect sales charges 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. The performance of Pzena Focused Value Fund reflects stocks selected from the largest 1,000 publicly traded U.S. companies, whereas the fund invests in stocks selected from the 500 largest such companies. Past performance before and after taxes does not indicate future results.
Class A, total returns
Best quarter: Q2 '99, 30.73%
Worst quarter: Q3 '98, -21.97%
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 1000 Value Index, an unmanaged index of stocks in the Russell 1000
Index (the 1,000 largest U.S. publicly traded companies) with low price-to-book
ratios.
Average annual total returns (including sales charge) for periods ending 12-31-05
Life of Life of Life of
1 year 5 year Class A Class B Class C
-----------------------------------------------------------------------------------
Class A before tax (began 6-24-96) 3.38% 11.24% 12.30% -- --
-----------------------------------------------------------------------------------
Class A after tax on distributions 2.99% 10.75% 11.48% -- --
-----------------------------------------------------------------------------------
Class A after tax on distributions, with sale 2.39% 9.56% 10.48% -- --
-----------------------------------------------------------------------------------
Class B before tax (began 11-11-02) 2.99% -- -- 19.28% --
-----------------------------------------------------------------------------------
Class C before tax (began 11-11-02) 6.99% -- -- -- 19.93%
----------------------------------------------------------------------------------
Standard & Poor's 500 Index 4.91% 0.54% 8.49% 13.98% 13.98%
----------------------------------------------------------------------------------
Russell 1000 Value Index 7.05% 5.28% 10.72% 17.79% 17.79%
----------------------------------------------------------------------------------
|
[GRAPHIC OMITTED: WORM CHART]
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. Large-capitalization stocks as a group could fall out of favor with the market, causing the fund to underperform investments that focus on small- or medium-capitalization stocks. The fund focuses on value stocks, which could underperform growth stocks.
To the extent that the fund invests in a given industry, its performance will be hurt if that industry performs poorly. In addition, if the subadviser'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, 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.
* In a down market, higher-risk securities 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.
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 0.84% 0.84% 0.84% ------------------------------------------------------------------------------ Distribution and service (12b-1) fees 0.25% 1.00% 1.00% ------------------------------------------------------------------------------ Other expenses 0.27% 0.27% 0.27% ------------------------------------------------------------------------------ Total fund operating expenses 3 1.36% 2.11% 2.11% |
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 $632 $909 $1,207 $2,053 ------------------------------------------------------------------------------ Class B with redemption $714 $961 $1,334 $2,250 ------------------------------------------------------------------------------ Class B without redemption $214 $661 $1,134 $2,250 ------------------------------------------------------------------------------ Class C with redemption $314 $661 $1,134 $2,441 ------------------------------------------------------------------------------ Class C without redemption $214 $661 $1,134 $2,441 |
(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."
(3)The adviser has agreed to limit the fund's expenses (excluding transfer agent and 12-b1 fees) to 0.89% of the fund's average daily net assets and net operating expenses on Class A shares to 1.33% and Class B and Class C shares to 2.08%. In addition, the transfer agent has agreed to limit transfer agent fees on Class A, B and C shares to 0.19% of each class's average daily net assets. These limitations are being terminated on April 30, 2006 and have not been reflected in these expenses. Net operating expenses after taking into account this expense reduction would be 1.35%, 2.10% and 2.10% for Class A, B and C shares, respectively.
SUBADVISER
Pzena Investment Management, LLC
Responsible for day-to-day investment management
Founded in 1995
Supervised by the adviser
PORTFOLIO MANAGERS
Richard S. Pzena
Managed fund since it began in 1996
John P. Goetz
Managed fund since it began in 1996
Antonio DeSpirito III
Joined fund team in 2006
Managers share investment strategy and decisions
See page 46 for the management biographies.
FUND CODES
Class A Ticker PZFVX
CUSIP 409902780
Newspaper ClassicValA
SEC number 811-1677
JH fund number 38
Class B Ticker JCVBX
CUSIP 409902772
Newspaper ClassicValB
SEC number 811-1677
JH fund number 138
Class C Ticker JCVCX
CUSIP 409902764
Newspaper --
SEC number 811-1677
JH fund number 538
7
|
Core Equity Fund
[GRAPHIC OMITTED: COMPASS]
GOAL AND STRATEGY
The fund seeks above-average total return (capital appreciation plus income). To pursue this goal, the fund normally invests at least 80% of its assets in a diversfied portfolio of equity securities (including common and preferred stocks, ADRs and their equivalents) which are primarily large-capitalization stocks. The portfolio's risk profile is similar to that of the Standard & Poor's 500 Index.
The managers select from a menu of stocks of approximately 1,000 companies that capture the characteristics of the broad market. In managing the portfolio, the portfolio managers seek to invest in stocks that are believed to have improving fundamentals and attractive valuations. The subadviser's investment research team performs fundamental research, develops financial projections and monitors consensus-based fundamental financial data. This information is utilized in a sector-based, multi-factor series of valuation models. These proprietary models use this financial data to rank the stocks according to their combination of:
* value, meaning they appear to be underpriced
* improving fundamentals, meaning they show potential for strong growth
The portfolio managers construct and manage the portfolio using the ranked list. This process, together with a risk/return analysis against the Standard & Poor's 500 Index, results in a portfolio of approximately 75 to 160 stocks. The fund generally sells stocks that fall into the bottom 20% of the ranked list.
In normal circumstances, the fund is almost entirely invested in stocks. The fund may invest in dollar-denominated foreign securities and make limited use of certain derivatives (investments whose value is based on indexes or securities).
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.
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 '98, 24.17%
Worst quarter: Q3 '02, -16.89%
After-tax returns
After-tax returns are shown for Class A shares
only and would be different for the other classes.
They are calculated using the historical highest
individual federal marginal income-tax rates and
do not reflect the impact of state and local taxes.
Actual after-tax returns depend on the investor's
tax situation and may differ from those shown.
The after-tax returns shown are not relevant to
investors who hold their fund shares through tax-
deferred arrangements such as 401(k) plans or
individual retirement accounts.
Index (reflects no fees or taxes)
Standard & Poor's 500 Index, an unmanaged
index that includes 500 widely traded stocks.
Average annual total returns (including sales charge) for periods ending
12-31-05
Life of
1 year 5 year 10 year Class C
-------------------------------------------------------------------------------
Class A before tax 2.24% -1.11% 7.06% --
-------------------------------------------------------------------------------
Class A after tax on distributions 2.24% -1.11% 6.64% --
-------------------------------------------------------------------------------
Class A after tax on distributions, with sale 1.45% -0.94% 6.00% --
-------------------------------------------------------------------------------
Class B before tax 1.85% -1.19% 7.02% --
-------------------------------------------------------------------------------
Class C before tax (began 5-1-98) 5.86% -0.80% -- 0.95%
-------------------------------------------------------------------------------
Standard & Poor's 500 Index 4.91% 0.54% 9.07% 2.98%
-------------------------------------------------------------------------------
8
|
[GRAPHIC OMITTED: WORM CHART]
MAIN RISKS
The value of your investment will fluctuate in response to stock market movements.
Large-capitalization stocks as a group could fall out of favor with the market, causing the fund to underperform funds that focus on small- or medium-capitalization stocks.
The fund's management strategy has a significant influence on fund performance. If the investment research team's research analyses turn out to be inaccurate, or if the proprietary computer models do not perform as expected, the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, 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 inadequate or inaccurate financial information and social or political instability.
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 0.48% 0.48% 0.48% ------------------------------------------------------------------------------ Total fund operating expenses 1.53% 2.23% 2.23% |
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 $648 $959 $1,292 $2,232 ------------------------------------------------------------------------------ Class B with redemption $726 $997 $1,395 $2,388 ------------------------------------------------------------------------------ Class B without redemption $226 $697 $1,195 $2,388 ------------------------------------------------------------------------------ Class C with redemption $326 $697 $1,195 $2,565 ------------------------------------------------------------------------------ Class C without redemption $226 $697 $1,195 $2,565 |
(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
Independence Investment LLC
Responsible for day-to-day investment management
A subsidiary of John Hancock Financial Services, Inc.
Founded in 1982
Supervised by the adviser
PORTFOLIO MANAGERS
John C. Forelli, CFA
Joined fund team in 2004
Jay C. Leu, CFA
Joined fund team in 2004
Managers share investment strategy and decisions
See page 46 for the management biographies.
FUND CODES
Class A Ticker JHDCX
CUSIP 409902707
Newspaper CoreEqA
SEC number 811-1677
JH fund number 25
Class B Ticker JHIDX
CUSIP 409902806
Newspaper CoreEqB
SEC number 811-1677
JH fund number 125
Class C Ticker JHCEX
CUSIP 409902863
Newspaper CoreEqC
SEC number 811-1677
JH fund number 525
9
|
Focused Equity Fund
[GRAPHIC OMITTED: COMPASS]
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 equity securities of U.S. and foreign companies. Equity securities include common and preferred stocks and their equivalents. Under normal market conditions, the fund invests primarily in medium-capitalization companies (companies in the capitalization range of the Standard & Poor's MidCap 400 Index, which was $468.5 million to $14.8 billion as of January 31, 2006). The fund utilizes a focused investment strategy and will typically concentrate its investments in 45 to 65 companies. Because of this focused strategy, the fund has been classified as non-diversfied and may invest more than 5% of assets in securities of individual companies.
In managing the portfolio, the management team emphasizes a bottom-up approach to individual stock selection. With the aid of proprietary financial models, the management team looks for companies that possess a combination of strong earnings growth rates and reasonable valuations. These companies often exhibit financial strength by means of sound balance sheets and other financial statements.
The management team uses fundamental financial analysis of individual companies to identify those with substantial cash flows, reliable revenue streams and strong competitive positions. To a lesser extent, the team also utilizes technical analysis to assess short- and long-term market trends. The management team also looks for companies with strong senior management and coherent business strategies. They generally maintain personal contact with the senior management of the companies the fund invests in.
The fund may also make limited use of certain derivatives (investments whose value is based on securities, indexes or currencies).
In abnormal circumstances, the fund may temporarily invest extensively in investment-grade short-term securities. In these and other cases, the fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction costs (thus lowering performance) and increase your taxable distributions.
PAST PERFORMANCE
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 '01, 43.84%
Worst quarter: Q3 '01, -46.35%
After-tax returns
After-tax returns are shown for Class A shares only and would be different for
the other classes. They are calculated using the historical highest individual
federal marginal income-tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on the investor's tax situation
and may differ from those shown. The after-tax returns shown are not relevant
to investors who hold their fund shares through tax-deferred arrangements such
as 401(k) plans or individual retirement accounts.
Index (reflects no fees or taxes)
Standard & Poor's MidCap 400 Index, an unmanaged index of 400 domestic stocks
of medium-sized companies.
Average annual total returns (including sales charge) for periods ending 12-31-05
Life of Life of Life of
1 year 5 year Class A Class B Class C
------------------------------------------------------------------------------------
Class A before tax (began 11-1-00) 9.87% -2.53% -4.39% -- --
------------------------------------------------------------------------------------
Class A after tax on distributions 9.87% -2.53% -4.39% -- --
------------------------------------------------------------------------------------
Class A after tax on distributions, with sale 6.41% -2.13% -3.68% -- --
------------------------------------------------------------------------------------
Class B before tax (began 11-1-00) 9.81% -2.60% -- -4.28% --
------------------------------------------------------------------------------------
Class C before tax (began 11-1-00) 13.98% -2.20% -- -- -4.09%
------------------------------------------------------------------------------------
Standard & Poor's MidCap 400 Index 12.55% 8.62% 8.22% 8.22% 8.22%
|
[GRAPHIC OMITTED: WORM CHART]
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. The fund focuses on a small number of companies, making it highly vulnerable to isolated business setbacks.
To the extent that the fund invests in a given industry, its performance will be hurt if that industry performs poorly. In addition, if the managers' security selection strategies do not perform as expected, the fund could underperform its peers or lose money. Medium-capitalization stocks tend to be more volatile than stocks of larger companies, and as a group could fall out of favor with the market, causing the fund to underperform investments that focus either on small- or large-capitalization stocks.
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.
* If the fund invests heavily in a single issuer, its performance could suffer significantly from adverse events affecting that issuer.
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 0.85% 0.85% 0.85% ---------------------------------------------------------------------------------- Distribution and service (12b-1) fees 0.30% 1.00% 1.00% ---------------------------------------------------------------------------------- Other expenses 1.32% 1.32% 1.32% ---------------------------------------------------------------------------------- Total fund operating expenses 2.47% 3.17% 3.17% ---------------------------------------------------------------------------------- Contractual expense reimbursement (at least until 2-28-07) 0.97% 0.97% 0.97% ---------------------------------------------------------------------------------- Net annual operating expenses 1.50% 2.20% 2.20% |
The hypothetical example below shows what your expenses would be after the expense reimbursement (first year only) if you invested $10,000 over the time frames indicated, assuming you reinvested all distributions and that the average annual return was 5%. The example is for comparison only, and does not represent the fund's actual expenses and returns, either past or future.
Expenses Year 1 Year 3 Year 5 Year 10 ------------------------------------------------------------------------------ Class A $645 $1,143 $1,667 $3,096 ------------------------------------------------------------------------------ Class B with redemption $723 $1,187 $1,775 $3,247 ------------------------------------------------------------------------------ Class B without redemption $223 $887 $1,575 $3,247 ------------------------------------------------------------------------------ Class C with redemption $323 $887 $1,575 $3,409 ------------------------------------------------------------------------------ Class C without redemption $223 $887 $1,575 $3,409 |
(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
Sovereign Asset Management LLC
Responsible for day-to-day investment management
A subsidiary of John Hancock Financial Services, Inc.
Founded in 1979
Supervised by the adviser
PORTFOLIO MANAGERS
Henry E. Mehlman, CFA
Joined fund team in 2002
Alan E. Norton, CFA
Joined fund team in 2002
Managers share investment strategy and decisions
See page 46 for the management biographies.
FUND CODES
Class A Ticker JFVAX
CUSIP 478032790
Newspaper --
SEC number 811-3392
JH fund number 61
Class B Ticker JFVBX
CUSIP 478032774
Newspaper --
SEC number 811-3392
JH fund number 161
Class C Ticker JFVCX
CUSIP 478032766
Newspaper --
SEC number 811-3392
JH fund number 561
11
|
Growth Trends Fund
[GRAPHIC OMITTED: COMPASS]
GOAL AND STRATEGY
The fund seeks long-term growth of capital. To pursue this goal, the fund normally invests approximately 1/3 of assets in equity securities (including common and preferred stocks and their equivalents) of U.S. and foreign companies in each of the following sectors: financial services, health care and technology. Due to changes in market values, assets will be allocated as needed in order to attempt to achieve a 1/3 weighting in each sector. The fund attempts to concentrate its investments within each of the three sectors in 20 to 35 companies.
Companies in the financial services sector include banks, insurance companies, brokerage firms and financial holding companies. Healthcare companies include pharmaceutical, medical technology, managed care, biotechnology and biochemical research and development companies. Companies in the technology sector are typically in fields such as computer software and hardware, Internet services, telecommunications and data management and storage.
In managing the portfolio, the managers focus primarily on stock selection rather than industry allocation.
The managers seek to identify companies positioned to benefit from economic and social trends. They use fundamental financial analysis to identify individual companies of any size that appear most attractive in terms of earnings stability, growth potential, business changes and valuation.
The fund may invest in certain higher-risk securities, including investments in emerging market countries and 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 market conditions, the fund may temporarily invest extensively in investment-grade short-term securities for defensive purposes. In these and other cases, the fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction costs (thus lowering performance) and increase your taxable distributions.
PAST PERFORMANCE
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 '03, 18.93%
Worst quarter: Q1 '01, -23.27%
After-tax returns
After-tax returns are shown for Class A shares only and would be different for
the other classes. They are calculated using the historical highest individual
federal marginal income-tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on the investor's tax situation
and may differ from those shown. The after-tax returns shown are not relevant
to investors who hold their fund shares through tax-deferred arrangements such
as 401(k) plans or individual retirement accounts.
Index (reflects no fees or taxes)
Standard & Poor's 500 Index, an unmanaged index that includes 500 widely traded
stocks.
Life of Life of Life of
1 year 5 year Class A Class B Class C
---------------------------------------------------------------------------------------------
Class A before tax (began 9-22-00) 1.88% -6.76% -8.66% -- --
---------------------------------------------------------------------------------------------
Class A after tax on distributions 1.88% -6.78% -8.67% -- --
---------------------------------------------------------------------------------------------
Class A after tax on distributions, with sale 1.22% -5.63% -7.13% -- --
---------------------------------------------------------------------------------------------
Class B before tax (began 9-22-00) 1.44% -6.90% -- -8.62% --
---------------------------------------------------------------------------------------------
Class C before tax (began 9-22-00) 5.44% -6.53% -- -- -8.44%
---------------------------------------------------------------------------------------------
Standard & Poor's 500 Index 4.91% 0.54% -1.18% -1.18% -1.18%
|
[GRAPHIC OMITTED: WORM CHART]
MAIN RISKS
The value of your investment will fluctuate in response to stock market movements. It may fluctuate more widely than it would in a fund that is diversfied across several sectors.
The fund's management strategy significantly influences performance, especially because this fund focuses on a few sectors of the economy. In addition, if the managers' security selection strategies do not perform as expected, the fund could underperform its peers or lose money.
Stocks of financial services, healthcare and technology companies as a group may fall out of favor with the market, causing the fund to underperform investments that focus on other types of stocks or economic sectors.
Companies in each sector may face special risks. Falling or rising interest rates or deteriorating economic conditions could cause bank and financial service company stocks to suffer losses.
Healthcare companies are strongly affected by worldwide scientific or technological developments and changes in governmental policies.
Technology companies are subject to intense competition, making products quickly obsolete. Some technology companies are smaller and may have limited product lines and financial and managerial resources, making them more vulnerable to isolated business setbacks.
To the extent that the fund makes investments with additional risks, these risks could increase volatility or reduce performance:
* Stocks of small- and medium-capitalization companies can be more volatile than those of larger companies.
* Certain derivatives could produce disproportionate losses.
* In a down market, emerging market securities, other higher-risk securities and derivatives could become harder to value or to sell at a fair price.
* Foreign investments carry additional risks, including potentially unfavorable currency exchange rates, inadequate or inaccurate financial information and social or political instability; these risks are more significant in emerging markets.
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 1.00% 1.00% 1.00% --------------------------------------------------------------------------------- Distribution and service (12b-1) fees 0.30% 1.00% 1.00% --------------------------------------------------------------------------------- Other expenses 0.65% 0.65% 0.65% -------------------------------------------------------------------------------- Total fund operating expenses 1.95% 2.65% 2.65% -------------------------------------------------------------------------------- Contractual expense reimbursement (at least until 2-28-07) 0.30% 0.30% 0.30% -------------------------------------------------------------------------------- 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 $1,054 $1,473 $2,638 ------------------------------------------------------------------------------ Class B with redemption $738 $1,095 $1,578 $2,791 ------------------------------------------------------------------------------ Class B without redemption $238 $795 $1,378 $2,791 ------------------------------------------------------------------------------ Class C with redemption $338 $795 $1,378 $2,961 ------------------------------------------------------------------------------ Class C without redemption $238 $795 $1,378 $2,961 |
(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
Supervised by the adviser
Sovereign Asset Management LLC
Responsible for day-to-day investment management
A subsidiary of John Hancock
Financial Services, Inc.
Founded in 1979
PORTFOLIO MANAGERS
FINANCIAL SERVICES -- James K. Schmidt, CFA
Managed fund since it began in 2000
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 2000;
Analysis of bank issuers
HEALTHCARE -- Robert C. Junkin, CPA
Joined fund team in 2005;
Healthcare portfolio manager
TECHNOLOGY -- Anurag Pandit, CFA
Joined fund team in 2003; Technology portfolio manager
See page 46 for the management biographies.
FUND CODES
Class A Ticker JGTAX
CUSIP 41014V109
Newspaper GTrendA
SEC number 811-4079
JH fund number 46
Class B Ticker JGTBX
CUSIP 41014V208
Newspaper GTrendB
SEC number 811-4079
JH fund number 146
Class C Ticker JGTCX
CUSIP 41014V307
Newspaper GTrendC
SEC number 811-4079
JH fund number 546
13
|
[GRAPHIC OMITTED: COMPASS]
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 equity securities of large-capitalization companies (companies in the capitalization range of the Standard & Poor's 500 Index, which was $732.9 million to $384.8 billion as of January 31, 2006). Equity securities include common and preferred stocks and their equivalents.
In managing the portfolio, the managers look for companies that are undervalued and/or offer the potential for above-average earnings growth. The managers employ a combination of proprietary financial models and bottom-up, fundamental financial research to identify companies that are selling at what appear to be substantial discounts to their long-term intrinsic value. These companies often have identifiable catalysts for growth, such as new products, business reorganizations or mergers.
The fund manages risk by typically holding between 50 and 150 large companies that are diversfied across industry sectors. The management team also uses fundamental financial analysis to identify individual companies with substantial cash flows, reliable revenue streams, superior competitive positions and strong management.
The fund may attempt to take advantage of short-term market volatility by investing in corporate restructurings or pending acquisitions.
The fund may invest up to 20% of its assets in bonds of any maturity, with up to 15% of net assets in junk bonds rated as low as
CC/Ca and their unrated equivalents. In selecting bonds, the managers look for the most favorable risk/return ratios.
The fund may invest up to 35% of assets in foreign securities. The fund may also make limited use of certain derivatives (investments whose value is based on indexes, securities or currencies).
In abnormal circumstances, the fund may temporarily invest extensively in investment-grade short-term securities. In these and other cases, the fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction costs (thus lowering performance) and increase your taxable distributions.
PAST PERFORMANCE
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 calendar year total returns (without sales charges) ------------------------------------------------------------------------------ 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 ------------------------------------------------------------------------------ 22.21% 36.71% 15.94% 37.89% -2.93% -3.36% -37.83% 23.29% 4.14% 16.26% |
Class A, total returns
Best quarter: Q4 '99, 31.65%
Worst quarter: Q3 '01, -24.00%
After-tax returns
After-tax returns are shown for Class A shares
only and would be different for the other classes.
They are calculated using the historical highest
individual federal marginal income-tax rates and
do not reflect the impact of state and local taxes.
Actual after-tax returns depend on the investor's
tax situation and may differ from those shown.
The after-tax returns shown are not relevant to
investors who hold their fund shares through tax-
deferred arrangements such as 401(k) plans or
individual retirement accounts.
Index (reflects no fees or taxes)
Standard & Poor's 500 Index, an unmanaged
index that includes 500 widely traded stocks.
Average annual total returns (including sales charge) for periods ending 12-31-05
Life of
1 year 5 year 10 year Class C
-------------------------------------------------------------------------------
Class A before tax 10.44% -3.15% 8.24% --
-------------------------------------------------------------------------------
Class A after tax on distributions 10.44% -3.49% 6.45% --
-------------------------------------------------------------------------------
Class A after tax on distributions, with sale 6.79% -2.80% 6.42% --
-------------------------------------------------------------------------------
Class B before tax 10.36% -3.26% 8.16% --
-------------------------------------------------------------------------------
Class C before tax (began 5-1-98) 14.36% -2.89% -- 1.82%
-------------------------------------------------------------------------------
Standard & Poor's 500 Index 4.91% 0.54% 9.07% 2.98%
14
|
[GRAPHIC OMITTED: WORM CHART]
MAIN RISKS
The value of your investment will fluctuate in response to stock and bond market movements.
The fund's management strategy has a significant influence on fund performance. Large-capitalization stocks as a group could fall out of favor with the market, causing the fund to underperform investments that focus on small- or medium-capitalization stocks. In addition, if the managers' 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, and longer
maturity will increase volatility. Junk bond prices can fall on bad news
about the economy, an industry or a company.
------------------------------------------------------------------------------ YOUR EXPENSES Transaction expenses are charged directly to your account. Operating expenses are paid Management LLC 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 0.625% 0.625% 0.625% ------------------------------------------------------------------------------ Distribution and service (12b-1) fees 0.25% 1.00% 1.00% ------------------------------------------------------------------------------ Other expenses 0.435% 0.435% 0.435% ------------------------------------------------------------------------------ Total fund operating expenses 1.31% 2.06% 2.06% ------------------------------------------------------------------------------ |
Expenses Year 1 Year 3 Year 5 Year 10 ------------------------------------------------------------------------------ Class A $627 $894 $1,182 $2,000 ------------------------------------------------------------------------------ Class B with redemption $709 $946 $1,308 $2,197 ------------------------------------------------------------------------------ Class B without redemption $209 $646 $1,108 $2,197 ------------------------------------------------------------------------------ Class C with redemption $309 $646 $1,108 $2,390 ------------------------------------------------------------------------------ Class C without redemption $209 $646 $1,108 $2,390 |
(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
Sovereign Asset Management LLC
Responsible for day-to-day investment
management
A subsidiary of John Hancock Financial
Services, Inc.
Founded in 1979
Supervised by the adviser
PORTFOLIO MANAGERS
Timothy E. Keefe, CFA
Rejoined fund team in 2004
Day-to-day purchase and sale decisions
Roger C. Hamilton
Joined fund team in 2004
Analysis of specific
Robert C. Junkin, CPA
Joined fund team in 2003
Analysis of specific issuers
See page 46 for the management biographies.
FUND CODES
Class A Ticker TAGRX
CUSIP 41013P103
Newspaper LgCpEqA
EC number 811-0560
JH fund number 50
Class B Ticker TSGWX
CUSIP 41013P202
Newspaper LgCpEqB
SEC number 811-0560
JH fund number 150
Class C Ticker JHLVX
CUSIP 41013P301
Newspaper LgCpEqC
SEC number 811-0560
JH fund number 550
15
|
[GRAPHIC OMITTED: COMPASS]
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 equity securities of large-capitalization companies (companies with market capitalizations in excess of $5 billion). The fund invests primarily in U.S.-based companies whose growth, cash flow, earnings and dividend attributes are attractive and whose securities are reasonably priced and have the potential for capital appreciation, in the opinion of the management team.
In managing the portfolio, the management team looks for companies with strong balance sheets and sustainable earnings growth. In evaluating the prospects for a company's growth and earnings, the management team considers, among other things, the company's historical performance and
growth strategy, the growth rate of the industries in which it operates and the markets into which it sells, the nature of its competitive environment, technological developments and trends in market share.
In attempting to determine reasonable price levels for a company's securities, the management team utilizes a variety of measurement methods, including discounted cash flow analysis of expected earnings streams and an evaluation of the company's price-to-earnings ratio.
Under normal market conditions, the fund invests substantially all of its assets in equity securities (common and preferred stocks and their equivalents).
In abnormal conditions, the fund may invest extensively in investment-grade short-term securities. In these and other cases, the fund may not achieve its goal.
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 to provide an indication of the fund's risks. Year-by-year and average annual figures for the period prior to August 22, 2003 reflect the actual performance of the sole class of M.S.B. Fund,Inc., the fund's predecessor. On August 22, 2003, the fund acquired all f the assets of M.S.B. Fund, Inc., pursuant to an agreement and plan of reorganization in exchange for Class A shares of the fund. The average annual returns for Class A have been restated to reflect applicable sales charges. This adjustment will have the effect of reducing the previously reported performance of the M.S.B. Fund, Inc. Year-by-year and index figures do not reflect sales charges 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 calendar year total returns (without sales charges) ------------------------------------------------------------------------------ 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 ------------------------------------------------------------------------------ 21.18% 28.88% 31.45% 5.79% 5.68% -3.73% -15.08% 17.15% 5.17% -2.38% |
Class A, total returns
Best quarter: Q4 '98, 22.56%
Worst quarter: Q3 '02, -12.82%
After-tax returns
After-tax returns are shown for Class A shares
only and would be different for the other classes.
They are calculated using the historical highest
individual federal marginal income-tax rates and
do not reflect the impact of state and local taxes
Actual after-tax returns depend on the investor's
tax situation and may differ from those shown.
The after-tax returns shown are not relevant to
investors who hold their fund shares through
tax-deferred arrangements such as 401(k) plans
or individual retirement accounts.
Index (reflects no fees or taxes)
Standard & Poor's 500 Index, an unmanaged index that includes 500 widely traded stocks.
Average annual total returns (including sales charge) for periods
ending 12-31-05
------------------------------------------------------------------------------
Life of Life of
1 year 5 year 10 year Class B Class C
------------------------------------------------------------------------------
Class A before tax -7.26% -1.35% 7.92% -- --
------------------------------------------------------------------------------
Class A after tax on distributions -7.61% -1.93% 6.51% -- --
------------------------------------------------------------------------------
Class A after tax on distributions,
with sale -4.34% -1.31% 6.34% -- --
------------------------------------------------------------------------------
Class B before tax (began 8-25-03) -7.88% -- -- 3.25% --
------------------------------------------------------------------------------
Class C before tax (began 8-25-03) -4.09% -- -- -- 4.46%
------------------------------------------------------------------------------
Standard & Poor's 500 Index 4.91% 0.54% 9.07% 12.17% 12.17%
|
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. Large-capitalization stocks as a group could fall out of favor with the market, causing the fund to underperform investments that focus on small- or medium-capitalization stocks.
To the extent that the fund invests in a given industry, its performance will be hurt if that industry performs poorly. In addition, if the management team's security selection strategies do not perform as expected, the fund could underperform its peers or lose money.
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 0.25% 1.00% 1.00% --------------------------------------------------------------------------------- Other expenses 0.47% 0.47% 0.47% --------------------------------------------------------------------------------- Total fund operating expenses 1.47% 2.22% 2.22% --------------------------------------------------------------------------------- Contractual expense reimbursement (at least until 4-30-07) 0.11% 0.11% 0.11% --------------------------------------------------------------------------------- Net annual operating expenses 1.36% 2.11% 2.11% |
The hypothetical example below shows what your expenses would be after the expense reimbursement (through April 30, 2007) 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 $632 $929 $1,251 $2,159 ------------------------------------------------------------------------------ Class B with redemption $714 $982 $1,378 $2,355 ------------------------------------------------------------------------------ Class B without redemption $214 $682 $1,178 $2,355 ------------------------------------------------------------------------------ Class C with redemption $314 $682 $1,178 $2,544 ------------------------------------------------------------------------------ Class C without redemption $214 $682 $1,178 $2,544 ------------------------------------------------------------------------------ |
(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
Shay Assets Management, Inc.
Responsible for day-to-day investment management
Founded in 1981
Supervised by the adviser
PORTFOLIO MANAGERS
John J. McCabe
Managed fund since 1991
Mark F. Trautman
Managed fund since 1993
Managers share investment strategy and decisions
See page 46 for the management biographies.
FUND CODES
Class A Ticker MSBFX
CUSIP 409902749
Newspaper --
SEC number 811-1677
JH fund number 49
Class B Ticker JHLBX
CUSIP 409902731
Newspaper --
SEC number 811-1677
JH fund number 149
Class C Ticker JHLCX
CUSIP 409902723
Newspaper --
SEC number 811-1677
JH fund number 549
17
|
[GRAPHIC OMITTED: COMPASS]
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 equity securities of medium-capitalization companies (companies in the capitalization range of the Standard & Poor's MidCap 400 Index, which was $468.5 million to $14.8 billion as of January 31, 2006). Equity securities include common and preferred stocks and their equivalents. The fund will primarily invest in securities of U.S. companies.
In managing the portfolio, the management team emphasizes a bottom-up approach to individual stock selection. With the aid of proprietary financial models, the management team looks for companies that possess a combination of strong earnings growth
rates and attractive valuations. These companies often exhibit financial strength by means of sound balance sheets and other financial statements.
The management team uses fundamental financial analysis of individual companies to identify those with substantial cash flows, reliable revenue streams and strong competitive positions. To a lesser extent, the team also utilizes technical analysis to assess short- and long-term market trends. The management team also looks for companies with strong senior management and coherent business strategies.
The fund may also make limited use of certain derivatives (investments whose value is based on securities, indexes or currencies).
In abnormal circumstances, the fund may temporarily invest extensively in investment-grade short-term securities. In these and other cases, the fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction costs (thus lowering performance) and increase your taxable distributions.
PAST PERFORMANCE
The graph shows the fund's calendar year total return, 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 return for Class C has 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, 9.66%
Worst quarter: Q3 '04, -1.52%
After-tax returns
After-tax returns are shown for Class A shares
only and would be different for the other classes.
They are calculated using the historical highest
individual federal marginal income-tax rates and
do not reflect the impact of state and local taxes.
Actual after-tax returns depend on the investor's
tax situation and may differ from those shown.
The after-tax returns shown are not relevant to
investors who hold their fund shares through tax-
deferred arrangements such as 401(k) plans or
individual retirement accounts.
Index (reflects no fees or taxes)
Standard & Poor's MidCap 400 Index,
an unmanaged index of 400 domestic stocks of
medium-sized companies.
Class A calendar year total returns (without sales charges)
------------------------------------------------------------------------------
2004 2005
------------------------------------------------------------------------------
12.06% 16.85%
|
Average annual total returns (including sales charge) for periods ending 12-31-05
-----------------------------------------------------------------------------------
Life of Life of Life of
1 year Class A Class B Class C
-----------------------------------------------------------------------------------
Class A before tax (began 8-4-03) 10.98% 16.57% -- --
-----------------------------------------------------------------------------------
Class A after tax on distributions 8.85% 14.66% -- --
-----------------------------------------------------------------------------------
Class A after tax on distributions, with sale 9.73% 13.60% -- --
-----------------------------------------------------------------------------------
Class B before tax (began 8-4-03) 11.31% -- 17.53% --
-----------------------------------------------------------------------------------
Class C before tax (began 8-4-03) 15.31% -- -- 18.52%
-----------------------------------------------------------------------------------
Standard & Poor's MidCap 400 Index 12.55% 19.89% 19.89% 19.89%
|
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.
To the extent that the fund invests in a given industry, its performance will be hurt if that industry performs poorly. In addition, if the managers' security selection strategies do not perform as expected, the fund could underperform its peers or lose money. Medium-capitalization stocks tend to be more volatile than stocks of larger companies, and as a group could fall out of favor with the market causing the fund to underperform investments that focus either on small- or large-capitalization stocks.
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.
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 3 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 2.12% 2.12% 2.12% ---------------------------------------------------------------------------------- Total fund operating expenses 3.22% 3.92% 3.92% ---------------------------------------------------------------------------------- Contractual expense reimbursement (at least until 2-28-07) 1.72% 1.72% 1.72% ---------------------------------------------------------------------------------- Net annual operating expenses 1.50% 2.20% 2.20% |
The hypothetical example below shows what your expenses would be after the expense reimbursement (first year only) if you invested $10,000 over the time frames indicated, assuming you reinvested all distributions and that the average annual return was 5%. The example is for comparison only, and does not represent the fund's actual expenses and returns, either past or future.
------------------------------------------------------------------------------ Expenses Year 1 Year 3 Year 5 Year 10 ------------------------------------------------------------------------------ Class A $645 $1,290 $1,957 $3,733 ------------------------------------------------------------------------------ Class B with redemption $723 $1,338 $2,070 $3,879 ------------------------------------------------------------------------------ Class B without redemption $223 $1,038 $1,870 $3,879 ------------------------------------------------------------------------------ Class C with redemption $323 $1,038 $1,870 $4,031 ------------------------------------------------------------------------------ Class C without redemption $223 $1,038 $1,870 $4,031 |
(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."
(3) Expense information in this table has been restated to reflect current fees.
SUBADVISER
Sovereign Asset Management LLC
Responsible for day-to-day investment management
A subsidiary of John Hancock Financial Services, Inc.
Founded in 1979
Supervised by the adviser
PORTFOLIO MANAGERS
Henry E. Mehlman, CFA
Managed fund since it began in 2003
Alan E. Norton, CFA
Managed fund since it began in 2003
Managers share portfolio management responsibilities
See page 46 for the management biographies.
FUND CODES
Class A Ticker --
CUSIP 478032741
Newspaper --
SEC number 811-3392
JH fund number 81
Class B Ticker --
CUSIP 478032733
Newspaper --
SEC number 811-3392
JH fund number 181
Class C Ticker --
CUSIP 478032725
Newspaper --
SEC number 811-3392
JH fund number 581
|
[GRAPHIC OMITTED: COMPASS]
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 stocks of medium-capitalization companies (companies in the capitalization range of the Russell Midcap Growth Index, which was $698 million to $23.5 billion as of January 31, 2006).
In managing the portfolio, the manager conducts fundamental financial analysis to identify companies with above-average earnings growth.
In choosing individual securities, the manager looks for companies with growth stemming from a combination of gains in market share and increasing operating efficiency. Before investing, the manager typically identifies a specific catalyst for growth, such as a new product, business reorganization or merger.
The management team generally maintains personal contact with the senior management of the companies the fund invests in.
The manager considers broad economic trends, demographic factors, technological changes, consolidation trends and legislative initiatives.
The fund may invest up to 10% of assets in foreign securities. The fund may also make limited use of certain derivatives (investments whose value is based on indexes, securities or currencies).
In abnormal circumstances, the fund may temporarily invest in U.S. government securities with maturities of up to three years and more than 10% of assets in cash or cash equivalents. In these and other cases, the fund might not achieve its goal.
The fund may not invest more than 5% of assets in any one security.
The fund may trade securities actively, which could increase its transaction costs (thus lowering performance) and increase your taxable distributions.
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 broad-based market indexes 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, 45.43%
Worst quarter: Q1 '01, -30.04%
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 Midcap Growth Index, an unmanaged index containing those stocks from
the Russell Midcap Index with a greater-than-average growth orientation.
Class A calendar year total returns (without sales charges) ------------------------------------------------------------------------------ 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 ------------------------------------------------------------------------------ 29.05% 2.37% 6.53% 58.17% -13.52% -33.59% -24.88% 34.83% 4.94% 11.82% |
Average annual total returns (including sales charge) for periods ending
12-31-05
------------------------------------------------------------------------------
Life of
1 year 5 year 10 year Class C
------------------------------------------------------------------------------
Class A before tax 6.24% -5.60% 3.74% --
------------------------------------------------------------------------------
Class A after tax on distributions 6.24% -5.60% 2.55% --
------------------------------------------------------------------------------
Class A after tax on distributions, with sale 4.05% -4.67% 2.67% --
------------------------------------------------------------------------------
Class B before tax 5.92% -5.69% 3.68% --
------------------------------------------------------------------------------
Class C before tax (began 6-1-98) 9.92% -5.30% -- 0.56%
------------------------------------------------------------------------------
Standard & Poor's 500 Index 4.91% 0.54% 9.07% 3.36%
------------------------------------------------------------------------------
Russell Midcap Growth Index 12.10% 1.38% 9.27% 6.09%
|
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. Medium-capitalization stocks tend to be more volatile than stocks of larger companies, and as a group could fall out of favor with the market, causing the fund to under-perform investments that focus either on small- or large-capitalization stocks. Similarly, growth stocks could underper-form value stocks. To the extent that the fund invests in a given industry, its performance will be hurt if that industry performs poorly.
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, 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.
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 0.69% 0.69% 0.69% ------------------------------------------------------------------------------ Total fund operating expenses 1.79% 2.49% 2.49% |
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 $673 $1,035 $1,421 $2,500 ------------------------------------------------------------------------------ Class B with redemption $752 $1,076 $1,526 $2,654 ------------------------------------------------------------------------------ Class B without redemption $252 $776 $1,326 $2,654 ------------------------------------------------------------------------------ Class C with redemption $352 $776 $1,326 $2,826 ------------------------------------------------------------------------------ Class C without redemption $252 $776 $1,326 $2,826 |
(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
Sovereign Asset Management LLC
Responsible for day-to-day investment management
A subsidiary of John Hancock Financial Services, Inc.
Founded in 1979
Supervised by the adviser
PORTFOLIO MANAGER
Thomas P. Norton, CFA
Joined fund team in 2002
See page 46 for the management biographies.
FUND CODES
Class A Ticker SPOAX
CUSIP 409906807
Newspaper MdCpGrA
SEC number 811-4630
JH fund number 39
Class B Ticker SPOBX
CUSIP 409906880
Newspaper MdCpGrB
SEC number 811-4630
JH fund number 139
Class C Ticker SPOCX
CUSIP 409906823
Newspaper --
SEC number 811-4630
JH fund number 539
21
|
[GRAPHIC OMITTED: COMPASS]
GOAL AND STRATEGY
The fund seeks long-term capital appreciation. To pursue this goal, the fund normally invests in a diversfied portfolio of growth-oriented stocks of U.S. and foreign companies of any size.
In managing the portfolio, the management team focuses primarily on stocks, selecting companies that are expected to have above-average growth. In choosing individual securities, the manager uses fundamental financial analysis to identify companies with improving business fundamentals, such as revenue growth, profitability and improving cash flows. The management team also looks for companies with strong senior management and coherent business strategies. They generally maintain personal contact with the senior management of the companies the fund invests in.
The fund may invest in preferred stocks and other types of equity securities. The fund may also make limited use of certain derivatives (investments whose value is based on indexes or currencies).
In abnormal market conditions, the fund may temporarily invest extensively in investment-grade short-term securities. In these and other cases, the fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction costs (thus lowering performance) and increase your taxable distributions.
PAST PERFORMANCE
The graph shows how the fund's total return has varied from year to year, while the table shows performance over time (along with broad-based market indexes 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 '01, 25.85%
Worst quarter: Q1 '01, -28.42%
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)
Russell 1000 Growth Index, an unmanaged index of growth stocks in the Russell
1000 Index (an unmanaged index of the 1,000 largest-capitalization U.S.
stocks).
Russell 2000 Growth Index, an unmanaged index containing those stocks from the
Russell 2000 Index (an unmanaged index of 2,000 U.S. small-capitalization
stocks) with a greater-than-average growth orientation.
2001 2002 2003 2004 2005 ------------------------------------------------------------------------------ -23.89% -25.53% 34.10% 14.23% 3.46% ------------------------------------------------------------------------------ |
Life of Life of Life of
1 year 5 year Class A Class B Class C
-------------------------------------------------------------------------------------
Class A before tax (began 12-1-00) -1.71% -3.12% -2.75% -- --
-------------------------------------------------------------------------------------
Class A after tax on distributions -1.71% -3.26% -2.89% -- --
-------------------------------------------------------------------------------------
Class A after tax on distributions, with sale -1.11% -2.72% -2.41% -- --
-------------------------------------------------------------------------------------
Class B before tax (began 12-1-00) -2.17% -3.18% -- -2.62% --
-------------------------------------------------------------------------------------
Class C before tax (began 12-1-00) 1.83% -2.79% -- -- -2.43%
-------------------------------------------------------------------------------------
Russell 1000 Growth Index 5.26% -3.58% -4.27% -4.27% -4.27%
-------------------------------------------------------------------------------------
Russell 2000 Growth Index 4.15% 2.28% 2.78% 2.78% 2.78%
|
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. The fund focuses on growth stocks, which could underperform value stocks.
To the extent that the fund invests in a given industry, its performance will be hurt if that industry performs poorly. In addition, if the manager's security selection strategies do not perform as expected, the fund could underperform its peers or lose money.
Stocks of small- and medium-size companies are more volatile than stocks of larger companies. Many smaller companies have short track records, narrow product lines or niche markets, making them highly vulnerable to isolated business setbacks.
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; this risk could
also affect small-capitalization stocks,
especially those with low trading volumes.
* Foreign investments carry additional
risks, including potentially unfavorable
currency exchange rates, inadequate or
inaccurate financial information and
social or political instability.
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 1.35% 1.35% 1.35% ---------------------------------------------------------------------------------- Total fund operating expenses 2.40% 3.10% 3.10% ---------------------------------------------------------------------------------- Contractual expense reimbursement (at least until 2-28-07) 1.00% 1.00% 1.00% ---------------------------------------------------------------------------------- Net annual operating expenses 1.40% 2.10% 2.10% |
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 $635 $1,120 $1,630 $3,027 ------------------------------------------------------------------------------ Class B with redemption $713 $1,163 $1,738 $3,178 ------------------------------------------------------------------------------ Class B without redemption $213 $863 $1,538 $3,178 ------------------------------------------------------------------------------ Class C with redemption $313 $863 $1,538 $3,342 ------------------------------------------------------------------------------ Class C without redemption $213 $863 $1,538 $3,342 |
(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
Sovereign Asset Management LLC
Responsible for day-to-day investment management
A subsidiary of John Hancock Financial Services, Inc.
Founded in 1979
Supervised by the adviser
PORTFOLIO MANAGER
Anurag Pandit, CFA
Managed fund since it began in 2000
See page 46 for the management biographies.
FUND CODES
Class A Ticker JMGAX
CUSIP 478032709
Newspaper --
SEC number 811-3392
JH fund number 10
Class B Ticker JMGBX
CUSIP 478032808
Newspaper --
SEC number 811-3392
JH fund number 110
Class C Ticker JMGCX
CUSIP 478032881
Newspaper --
SEC number 811-3392
JH fund number 510
23
|
[GRAPHIC OMITTED: COMPASS]
GOAL AND STRATEGY
The fund seeks capital appreciation. To pursue this goal, the fund normally invests at least 80% of its assets in equity securities of small-capitalization companies (which, for purposes of this fund, are those companies with market capitalizations under $2 billion, or market capitalizations within the range of market capitalization of the companies in the Russell 2000 Index or the Standard & Poor's Small Cap 600 Index).
In managing the portfolio, the portfolio managers select securities using a bottom-up selection process that focuses on stocks of statistically undervalued yet promising companies that they believe are likely to show improving fundamental prospects with an identifiable catalyst for change. Such catalysts may include, but are not limited to, a new product, new management, regulatory changes, industry or company restructuring or a strategic acquisition.
The portfolio managers attempt to identify undervalued securities using quantitative screening parameters, including various financial ratios and "earnings per share" revisions, which measure the change in earnings estimate expectations. The portfolio managers additionally narrow the list of stocks using fundamental security analysis, which may include on-site visits, outside research and analytical judgment.
The fund may sell a security if, among other reasons, it reaches the target price set by the portfolio managers; the management team decides that the stock is statistically over-valued; or the portfolio managers believe earnings expectations or the fundamental outlook for the company have deteriorated.
The fund may purchase other types of securities that are not primary investment vehicles, such as U.S. dollar-denominated foreign securities and ADRs, certain exchange-traded funds ("ETFs") and certain derivatives (investments whose value is based on securities, indexes or currencies).
In abnormal circumstances, the fund may invest extensively in investment-grade short-term securities. In these and other cases, the fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction costs (thus lowering performance) and increase your taxable distributions.
PAST PERFORMANCE
The graph shows how the fund's total return has varied from year to year, while the table shows performance over time (along with broad-based market indexes for reference). This information may help to provide an indication of the fund's risks. Year-by-year and average annual figures for the period prior to December 3, 2004, reflect the actual performance of the sole class of Independence Small Cap Portfolio, the fund's predecessor. On December 3, 2004, the fund acquired all of the assets of Independence Small Cap Portfolio, pursuant to an agreement and plan of reorganization in exchange for Class A shares of the fund. The average annual returns for Class A have been restated to reflect applicable sales charges. This adjustment will have the effect of reducing the previously reported performance of the Independence Small Cap Portfolio. Year-by-year and index figures do not reflect sales charges and would be lower if they did. All figures assume dividend reinvestment. Past performance before and after taxes does not indicate future results. For the periods prior to June 24, 2002, the performance shown represents the performance of the UAM Independence Small Cap Portfolio ( the "UAM Portfolio"). On June 24, 2002, Independence Small Cap Portfolio acquired all of the assets of the UAM Portfolio, which had the same investment adviser and portfolio management team, identical investment objectives and strategies and substantially similar fees and expenses as Independence Small Cap Portfolio.
Average annual total returns (including sales charge) for periods ending
12-31-05
--------------------------------------------------------------------------
Life of Life of Life of
1 year 5 year Class A Class B Class C
------------------------------------------------------------------------------
Class A before tax (began 12-16-98) -0.92% 10.25% 11.25% -- --
------------------------------------------------------------------------------
Class A after tax on distributions -0.99% 7.71% 9.33% -- --
------------------------------------------------------------------------------
Class A after tax on distributions,
with sale -0.52% 7.70% 8.97% -- --
------------------------------------------------------------------------------
Class B before tax (began 12-6-04) -1.48% -- -- 3.52% --
------------------------------------------------------------------------------
Class C before tax (began 12-6-04) 2.52% -- -- -- 7.25%
------------------------------------------------------------------------------
Standard & Poor's Small Cap 600
Index 7.70% 10.77% 12.59% 9.24%* 9.24%*
------------------------------------------------------------------------------
Russell 2000 Index 4.55% 8.22% 9.47% 6.31% 6.31%
*For period 11-30-04 -- 12-31-05.
|
Class A, total returns
Best quarter: Q2 '01, 25.55%
Worst quarter: Q3 '02, -16.97%
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 Small Cap 600 Index,
an unmanaged index of 600 U.S. small-sized
companies.
Russell 2000 Index, an unmanaged index of
2,000 U.S. small-capitalization companies.
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. Small-capitalization stocks as a group could fall out of favor with the market, causing the fund to underperform investments that focus on medium- or large-capitalization stocks. To the extent that the fund invests in a given industry, its performance will be hurt if that industry performs poorly. In addition, if the manager's security selection strategies or the quantitative screening parameters do not perform as expected, the fund could underperform its peers or lose money.
Stocks of smaller companies are more volatile than stocks of larger companies. Many smaller companies have short track records, narrow product lines or niche markets, making them highly vulnerable to isolated business setbacks. Also, since common stocks of smaller companies may not be traded as often as common stocks of larger, more-established companies, it may be difficult for the fund to sell these securities at a desirable price.
To the extent that the fund makes investments with additional risks, these risks could increase volatility or reduce performance:
* Foreign investments carry additional risks, including potentially
inadequate or inaccurate financial information and social or political
instability.
* 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.
[GRAPHIC OMITTED: CALCULATOR]
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 0.90% 0.90% 0.90% ---------------------------------------------------------------------------------- Distribution and service (12b-1) fees 0.30% 1.00% 1.00% ---------------------------------------------------------------------------------- Other expenses 0.45% 0.45% 0.45% ---------------------------------------------------------------------------------- Total fund operating expenses 1.65% 2.35% 2.35% ---------------------------------------------------------------------------------- Contractual expense reimbursement (at least until 2-28-07) 0.08% 0.08% 0.08% ---------------------------------------------------------------------------------- Net annual operating expenses 1.57% 2.27% 2.27% |
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 $652 $987 $1,345 $2,350 ------------------------------------------------------------------------------ Class B with redemption $730 $1,026 $1,448 $2,506 ------------------------------------------------------------------------------ Class B without redemption $230 $726 $1,248 $2,506 ------------------------------------------------------------------------------ Class C with redemption $330 $726 $1,248 $2,680 ------------------------------------------------------------------------------ Class C without redemption $230 $726 $1,248 $2,680 |
(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
Independence Investment LLC
Responsible for day-to-day investment management
A subsidiary of John Hancock Financial Services, Inc.
Founded in 1982
Supervised by the adviser
PORTFOLIO MANAGER
Charles S. Glovsky, CFA
Managed fund since 1998
See page 46 for the management biographies.
FUND CODES
Class A Ticker DSISX
CUSIP 41014V802
Newspaper --
SEC number 811-4079
JH fund number 82
Class B Ticker DSBSX
CUSIP 41014V885
Newspaper --
SEC number 811-4079
JH fund number 182
Class C Ticker DSCSX
CUSIP 41014V877
Newspaper --
SEC number 811-4079
JH fund number 582
25
|
[GRAPHIC OMITTED: CALCULATOR]
GOAL AND STRATEGY
The fund seeks capital appreciation. To pursue this goal, the fund normally invests at least 80% of its assets in equity securities of small-capitalization companies (companies in the capitalization range of the Russell 2000 Index, which was $26 million to $4.9 billion as of January 31, 2006). Equity securities include common and preferred stocks and their equivalents.
In managing the portfolio, the managers emphasize a bottom-up approach to individual stock selection. With the aid of proprietary financial models, the management team looks for U.S. and foreign companies that possess a combination of strong earning growth rates and reasonable valuations. These companies often exhibit financial strength by means of sound balance sheets and other financial statements.
The management team uses fundamental financial analysis of individual companies to identify those with substantial cash flows, reliable revenue streams and strong competitive positions. To a lesser extent, the team also utilizes technical analysis to assess short- and long-term market trends. The management team also looks for companies with strong senior management and coherent business strategies. They generally maintain personal contact with the senior management of the companies the fund invests in. The fund diversifies across industry sectors. The fund may not invest more than 5% of assets in any one security.
The fund may invest up to 15% of assets in a basket of foreign securities or in bonds of any maturity rated as low as CC/Ca and their unrated equivalents (bonds below BBB/Baa are considered junk bonds). The fund may make limited use of certain
derivatives (investments whose value is based on securities, indexes or currencies) and may short-sell up to 15% of the fund's assets for non-speculative purposes to manage volatility.
Under normal conditions, the fund may not invest more than 10% of assets in cash or cash equivalents.
In abnormal circumstances, the fund may temporarily invest extensively in investment-grade short-term securities. In these and other cases, the fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction costs (thus lowering performance) and increase your taxable distributions.
PAST PERFORMANCE
The graph shows how the fund's total return has varied from year to year, while the table shows performance over time (along with broad-based market indexes 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, 47.75%
Worst quarter: Q3 '01, -33.72%
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)
Russell 2000 Index, an unmanaged index of 2,000 U.S. small-capitalization
stocks.
Standard & Poor's Small Cap 600 Index, an unmanaged index of 600 U.S.
small-sized companies.
Average annual total returns (including sales charge) for periods ending
12-31-05
------------------------------------------------------------------------------
Life of
1 year 5 year 10 year Class C
------------------------------------------------------------------------------
Class A before tax 2.80% 1.31% 10.63% --
------------------------------------------------------------------------------
Class A after tax on distributions 2.80% 1.27% 9.35% --
------------------------------------------------------------------------------
Class A after tax on distributions, with sale 1.82% 1.11% 8.61% --
------------------------------------------------------------------------------
Class B before tax 2.46% 1.26% 10.59% --
------------------------------------------------------------------------------
Class C before tax (began 5-1-98) 6.46% 1.64% -- 7.68%
------------------------------------------------------------------------------
Russell 2000 Index 4.55% 8.22% 9.26% 5.71%
------------------------------------------------------------------------------
Standard & Poor's Small Cap 600 Index 7.70% 10.77% 12.16% 8.28%
26
|
------------------------------------------------------------------------------ [GRAPHIC OMITTED: WORM CHART] |
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. Small-capitalization stocks as a group could fall out of favor with the market, causing the fund to underperform investments that focus on medium- or large-capitalization stocks. To the extent that the fund invests in a given industry, its performance will be hurt if that industry performs poorly. In addition, if the managers' security selection strategies do not perform as expected, the fund could underperform its peers or lose money.
Stocks of smaller companies are more volatile than stocks of larger companies. Many smaller companies have short track records, narrow product lines or niche markets, making them highly vulnerable to isolated business setbacks. Also, since common stocks of smaller companies may not be traded as often as common stocks of larger, more established companies, it may be difficult for the fund to sell these securities at a desirable price.
To the extent that the fund makes investments with additional risks, these risks could increase volatility or reduce performance:
* Certain derivatives, such as short sales,
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 issuer, an industry or the economy
in general.
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 0.70% 0.70% 0.70% ------------------------------------------------------------------------------ Distribution and service (12b-1) fees 0.30% 1.00% 1.00% ------------------------------------------------------------------------------ Other expenses 0.47% 0.47% 0.47% ------------------------------------------------------------------------------ Total fund operating expenses 1.47% 2.17% 2.17% |
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 $642 $942 $1,263 $2,170 ------------------------------------------------------------------------------ Class B with redemption $720 $979 $1,364 $2,326 ------------------------------------------------------------------------------ Class B without redemption $220 $679 $1,164 $2,326 ------------------------------------------------------------------------------ Class C with redemption $320 $679 $1,164 $2,503 ------------------------------------------------------------------------------ Class C without redemption $220 $679 $1,164 $2,503 |
(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
Sovereign Asset Management LLC
Responsible for day-to-day investment management
A subsidiary of John Hancock Financial Services, Inc.
Founded in 1979
Supervised by the adviser
PORTFOLIO MANAGERS
Alan E. Norton, CFA
Joined fund team in 2002
Henry E. Mehlman, CFA
Joined fund team in 2002
Managers share investment strategy and decisions
See page 46 for the management biographies.
FUND CODES
Class A Ticker SPVAX
CUSIP 409905700
Newspaper SmCpEqA
SEC number 811-3999
JH fund number 37
Class B Ticker SPVBX
CUSIP 409905809
Newspaper SmCpEqB
SEC number 811-3999
JH fund number 137
Class C Ticker SPVCX
CUSIP 409905882
Newspaper SmCpEqC
SEC number 811-3999
JH fund number 537
27
|
[GRAPHIC OMITTED: COMPASS]
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 equity securities of small-capitalization companies (companies in the capitalization range of the Russell 2000 Index, which was $26 million to $4.9 billion as of January 31, 2006). Equity securities include common and preferred stocks and their equivalents.
In managing the portfolio, the managers emphasize a value-oriented bottom-up approach to individual stock selection. With the aid of proprietary financial models, the management team looks for companies that are selling at what appear to be substantial discounts to their long-term intrinsic values. These companies often have identifiable catalysts for growth, such as new products, business reorganizations or mergers.
The management team uses fundamental financial analysis of individual companies to identify those with substantial cash flows, reliable revenue streams, strong competitive positions and strong management. The fund may attempt to take advantage of short-term market volatility by investing in corporate restructurings or pending acquisitions.
The fund may invest up to 35% of assets in foreign securities. The fund may invest up to 20% of assets in bonds of any maturity rated as low as CC/Ca and their unrated equivalents (bonds below BBB/Baa are considered junk bonds). The fund may make limited use of certain derivatives (investments whose value is based on securities, indexes or currencies).
In abnormal circumstances, the fund may temporarily invest extensively in investment-grade short-term securities. In these and other cases, the fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction costs (thus lowering performance) and increase your taxable distributions.
PAST PERFORMANCE
This section normally shows how the fund's total return has varied from year to year, along with a broad-based market index for reference. Because the fund has existed for less than a full calendar year, there is no past performance to report.
MAIN RISKS
The value of your investment will fluctuate in response to stock and bond market movements.
The fund's management strategy has a significant influence on fund performance. Small-capitalization stocks as a group could fall out of favor with the market, causing the fund to underperform investment that focus on medium- or large-capitalization stocks. Similarly, value stocks could under-perform growth stocks. To the extent that the fund invests in a given industry, its performance will be hurt if that industry performs poorly. In addition, if the managers' security selection strategies do not perform as expected, the fund could underperform its peers or lose money.
Stocks of smaller companies are more volatile than stocks of larger companies. Many smaller companies have short track records, narrow product lines or niche markets, making them highly vulnerable to isolated business setbacks. Also, since common stocks of smaller companies may not be traded as often as common stocks of larger, more established companies, it may be difficult for the fund to sell its securities at a desirable price.
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.
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 3 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 3.94% 3.94% 3.94% --------------------------------------------------------------------------------- Total fund operating expenses 5.14% 5.84% 5.84% --------------------------------------------------------------------------------- Contractual expense reimbursement (at least until 4-30-07) 3.39% 3.39% 3.39% --------------------------------------------------------------------------------- Net annual operating expenses 1.75% 2.45% 2.45% |
The hypothetical example below shows what your expenses would be after the expense reimbursement (through April 30, 2007) 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 $669 $1,625 $2,635 $5,147 ------------------------------------------------------------------------------ Class B with redemption $748 $1,684 $2,758 $5,281 ------------------------------------------------------------------------------ Class B without redemption $248 $1,384 $2,558 $5,281 ------------------------------------------------------------------------------ Class C with redemption $348 $1,384 $2,558 $5,409 ------------------------------------------------------------------------------ Class C without redemption $248 $1,384 $2,558 $5,409 |
(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."
(3) Expense information in this table has been restated to reflect current fees.
SUBADVISER
Sovereign Asset Management LLC
Responsible for day-to-day investment management
A subsidiary of John Hancock Financial Services, Inc.
Founded in 1992
Supervised by the adviser
PORTFOLIO MANAGERS
Timothy E. Keefe, CFA
Managed fund since it began in 2005
Timothy M. Malloy
Managed fund since it began in 2005
Managers share investment strategy decisions
See page 46 for the management biographies.
FUND CODES
Class A Ticker --
CUSIP 41013P848
Newspaper --
SEC number 811-0560
JH fund number 64
Class B Ticker --
CUSIP 41013P830
Newspaper --
SEC number 811-0560
JH fund number 164
Class C Ticker --
CUSIP 41013P822
Newspaper --
SEC number 811-0560
JH fund number 564
29
|
[GRAPHIC OMITTED: COMPASS]
GOAL AND STRATEGY
The fund seeks long-term growth of capital and income without assuming undue market risks. To pursue this goal, the fund normally invests at least 80% of its stock investments in a diversfied portfolio of companies with market capitalizations within the range of the Standard & Poor's 500 Index. On January 31, 2006, that range was $732.9 million to $384.8 billion.
At least 65% of the fund's stock investments are "dividend performers" -- companies whose dividend payments have increased steadily for ten years. In managing the portfolio, the managers use fundamental financial analysis to identify individual companies with high-quality income statements, substantial cash reserves and identifiable catalysts for growth, which
may be new products or benefits from industrywide growth. The managers generally visit companies to evaluate the strength and consistency of their management strategy. Finally, the managers look for stocks that are reasonably priced relative to their earnings and industry.
The fund may not invest more than 5% of assets in any one security. The fund may invest in bonds of any maturity, with up to 5% of assets in junk bonds rated as low as C and their unrated equivalents.
The fund typically invests in U.S. companies but may invest in dollar-denominated foreign securities. It may also make limited use of certain derivatives (investments whose value is based on indexes).
Under normal conditions, the fund may not invest more than 10% of assets in cash or cash equivalents.
In abnormal market conditions, the fund may temporarily invest extensively in investment-grade short-term securities. In these and other cases, the fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction costs (thus lowering performance) and increase your taxable distributions.
PAST PERFORMANCE
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 B
est quarter: Q4 '98, 15.56%
Worst quarter: Q3 '02, -13.87%
After-tax returns
After-tax returns are shown for Class A shares only and would be different for
the other classes. They are calculated using the historical highest individual
federal marginal income-tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on the investor's tax situation
and may differ from those shown. The after-tax returns shown are not relevant
to investors who hold their fund shares through tax-deferred arrangements such
as 401(k) plans or individual retirement accounts.
Index (reflects no fees or taxes)
Standard & Poor's 500 Index, an unmanaged index that includes 500 widely traded
stocks.
Average annual total returns (including sales charge) for periods ending
12-31-05
------------------------------------------------------------------------------
Life of
1 year 5 year 10 year Class C
------------------------------------------------------------------------------
Class A before tax -2.84% -1.36% 6.10% --
------------------------------------------------------------------------------
Class A after tax on distributions -4.10% -2.32% 4.54% --
------------------------------------------------------------------------------
Class A after tax on distributions, with sale -0.57% -1.51% 4.64% --
------------------------------------------------------------------------------
Class B before tax -3.17% -1.37% 6.03% --
------------------------------------------------------------------------------
Class C before tax (began 5-1-98) 0.62% -1.03% -- 1.07%
------------------------------------------------------------------------------
Standard & Poor's 500 Index 4.91% 0.54% 9.07% 2.98%
30
|
MAIN RISKS
The value of your investment will fluctuate in response to stock and bond market movements.
The fund's management strategy has a significant influence on fund performance. Large-capitalization stocks as a group could fall out of favor with the market, causing the fund to underperform funds that focus on small- or medium-capitalization stocks. 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 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 and longer maturity will
increase volatility. Junk bond prices can
fall on bad news about the economy, an
industry or a company.
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 0.58% 0.58% 0.58% -------------------------------------------------------------------------------------- Distribution and service (12b-1) fees 0.30% 1.00% 1.00% -------------------------------------------------------------------------------------- Other expenses 0.32% 0.32% 0.32% -------------------------------------------------------------------------------------- Total fund operating expenses 1.20% 1.90% 1.90% |
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 $616 $862 $1,127 $1,882 ------------------------------------------------------------------------------ Class B with redemption $693 $897 $1,226 $2,040 ------------------------------------------------------------------------------ Class B without redemption $193 $597 $1,026 $2,040 ------------------------------------------------------------------------------ Class C with redemption $293 $597 $1,026 $2,222 ------------------------------------------------------------------------------ Class C without redemption $193 $597 $1,026 $2,222 |
(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
Sovereign Asset Management LLC
Responsible for day-to-day investment
management
A subsidiary of John Hancock Financial
Services, Inc.
Founded in 1979
Supervised by the adviser
PORTFOLIO MANAGERS
John F. Snyder, III
Joined fund team in 1983
Barry H. Evans, CFA
Joined fund team in 1996
Managers share investment strategy and decisions
See page 46 for the management biographies.
FUND CODES
Class A Ticker SOVIX
CUSIP 47803P302
Newspaper SvInvA
SEC number 811-0560
JH fund number 29
Class B Ticker SOVBX
CUSIP 47803P401
Newspaper SvInvB
SEC number 811-0560
JH fund number 129
Class C Ticker SOVCX
CUSIP 47803P609
Newspaper --
SEC number 811-0560
JH fund number 529
31
|
[GRAPHIC OMITTED: COMPASS]
GOAL AND STRATEGY
The fund seeks long-term growth of capital. To pursue this goal, the fund invests primarily in common stocks of "U.S. Global Leaders." Under normal market conditions, at least 80% of the fund's assets will be invested in stocks of companies the managers regard as U.S. Global Leaders.
The managers consider U.S. Global Leaders to be U.S. companies with multinational operations that typically exhibit the following key sustainable growth characteristics:
* Hold leading market shares of their relevant industries that result in high profit margins and high investment returns.
* Supply consumable products or services so that their revenue streams are recurring.
The managers seek to identify companies with superior long-term earnings prospects and to continue to own them as long as the
managers believe they will continue to enjoy favorable prospects for capital growth and are not overvalued in the marketplace.
As a result of its investment strategy, the fund typically invests in large-capitalization companies (companies in the capitalization range of the Standard & Poor's 500 Index, which was $732.9 million to $384.8 billion as of January 31, 2006).
The fund is non-diversfied, which allows it to make larger investments in individual companies.
The fund may invest in other types of equity securities and foreign stocks.
In abnormal circumstances, the fund may temporarily invest in short-term cash equivalents. In these and other cases, the fund might not achieve its goal.
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 to provide an indication of the fund's risks. Year-by-year and average annual figures for the period prior to May 17, 2002 reflect the actual performance of the sole class of U.S. Global Leaders Growth Fund, the fund's predecessor. On May 17, 2002, the fund acquired all of the assets of U.S. Global Leaders Growth Fund pursuant to an agreement and plan of reorganization in exchange for Class A shares of the fund. The average annual returns for Class A have been restated to reflect applicable sales charges. This adjustment will have the effect of reducing the previously reported performance of the U.S. Global Leaders Growth Fund. Year-by-year and index figures do not reflect sales charges 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 '98, 29.43%
Worst quarter: Q3 '98, -16.69%
After-tax returns
After-tax returns are shown for Class A shares
only and would be different for the other classes.
They are calculated using the historical highest
individual federal marginal income-tax rates and
do not reflect the impact of state and local taxes.
Actual after-tax returns depend on the investor's
tax situation and may differ from those shown.
The after-tax returns shown are not relevant to
investors who hold their fund shares through tax-
deferred arrangements such as 401(k) plans or
individual retirement accounts.
Index (reflects no fees or taxes)
Standard & Poor's 500 Index, an
unmanaged index that includes 500
widely traded stocks.
Average annual total returns (including sales charge) for periods ending 12-31-05
Life of Life of
1 year 5 year 10 year Class B Class C
-----------------------------------------------------------------------------------------
Class A before tax -2.97% 0.00% 9.88% -- --
-----------------------------------------------------------------------------------------
Class A after tax on distributions -2.97% -0.02% 9.83% -- --
-----------------------------------------------------------------------------------------
Class A after tax on distributions, with sale -1.93% -0.01% 8 .80% -- --
-----------------------------------------------------------------------------------------
Class B before tax (began 5-20-02) -3.57% -- -- 1.23% --
-----------------------------------------------------------------------------------------
Class C before tax (began 5-20-02) 0.43% -- -- -- 2.02%
-----------------------------------------------------------------------------------------
Standard & Poor's 500 Index 4.91% 0.54% 9.07% 5.64% 5.64%
|
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. Large-capitalization stocks as a group could fall out of favor with the market, causing the fund to underperform investments that focus on small- or medium-capitalization stocks. Similarly, growth stocks could underperform value stocks.
Companies that have substantial multinational operations may be affected by fluctuations in currency exchange rates and by economic and political conditions in
foreign countries. These conditions may include restrictions on monetary repatriation and possible seizure, nationalization or expropriation of assets. To the extent the fund invests in a given industry, its performance will be hurt if that industry performs poorly. 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:
* If the fund invests heavily in a single issuer, its performance could suffer significantly from adverse events affecting that issuer.
* In a down market, higher-risk securities could become harder to value or to sell at a fair price.
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(3) Class A Class B Class C ---------------------------------------------------------------------------------- Management fee 0.75% 0.75% 0.75% ---------------------------------------------------------------------------------- Distribution and service (12b-1) fees 0.25% 1.00% 1.00% ---------------------------------------------------------------------------------- Other expenses 0.33% 0.33% 0.33% ---------------------------------------------------------------------------------- Total fund operating expenses 1.33% 2.08% 2.08% ---------------------------------------------------------------------------------- Contractual expense reimbursement (at least until 4-30-07) 0.05% 0.05% 0.05% ---------------------------------------------------------------------------------- Net annual operating expenses 1.28% 2.03% 2.03% |
The hypothetical example below shows what your expenses would be after the expense reimbursement (through April 30, 2007) 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 $624 $895 $1,187 $2,016 ------------------------------------------------------------------------------ Class B with redemption $706 $946 $1,313 $2,214 ------------------------------------------------------------------------------ |
(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
Sustainable Growth Advisers, LP
Responsible for day-to-day investment management
Founded in 2003
Supervised by the adviser
PORTFOLIO MANAGERS
Gordon M. Marchand, CFA, CIC
Managed fund since 1995
George P. Fraise
Joined fund team in 2000
Robert L. Rohn
Joined fund team in 2003
Managers share investment strategy and decisions
See page 46 for the management biographies.
FUND CODES
Class A Ticker USGLX
CUSIP 409902830
Newspaper USGlobLdrs
SEC number 811-1677
JH fund number 26
Class B Ticker USLBX
CUSIP 409902822
Newspaper --
SEC number 811-1677
JH fund number 126
Class C Ticker USLCX
CUSIP 409902814
Newspaper --
SEC number 811-1677
JH fund number 526
33
|
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.
The maximum amount you may invest in Class B shares with any single purchase request is $99,999, and the maximum amount you may invest in Class C shares with any single purchase is $999,999. Signature Services may accept a purchase request for Class B shares for $100,000 or more or for Class C shares for $1,000,000 or more when the purchase is pursuant to the Reinstatement Privilege (see Sales Charge Reductions and Waivers below).
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 will increase the cost of your investment and 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, LLC, the fund's principal distributor, may pay significant compensation out of its own resources to your broker-dealer. These payments are described in the Statement of Additional Information (SAI).
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 open-end mutual funds (John Hancock Funds). To receive the reduced sales charge, you must tell your broker or financial representative 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 living in the same household. This includes investments held in a retirement account, an employee benefit plan or with a broker or financial representative 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 representative, or refer to the section entitled "Initial Sales Charge on Class A Shares" in a fund's SAI. You may request a SAI from your broker or financial representative, access the funds' Web site at www.jhfunds.com, or call John Hancock Signature Services, Inc. (Signature Services), the funds' transfer agent 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:
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.
YOUR ACCOUNT 34
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.
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 calcu-
lating 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 accumu-
lation 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 pur-
chase 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).
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
* 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 a 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 back into the same share class of the same John Hancock fund and account from which it was removed, within 120 days without a sales charge, as
YOUR ACCOUNT 35
long as Signature Services or your financial representative 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.
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, LLC
* 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 held in a SIMPLE IRA, SEP, or
SARSEP invested in John Hancock funds directly to an IRA
* individuals converting assets held in an IRA, SIMPLE IRA, SEP or
SARSEP invested in John Hancock funds directly to a ROTH IRA
* 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, LLC (one-year CDSC may apply)
* certain retirement plans participating in Merrill Lynch or PruSolutions(SM)
programs
Class A shares of John Hancock Classic Value Fund may be offered without front-end sales charges or CDSCs to any shareholder account of Pzena Focused Value Fund registered on this fund's books in the shareholder's name as of November 8, 2002.
Class A shares of John Hancock Large Cap Select Fund may be offered without front-end sales charges or CDSCs to any shareholder account of M.S.B. Fund, Inc. registered on this fund's books in the shareholder's name as of August 22, 2003.
Class A shares of Small Cap Fund may be offered without front-end sales charges or CDSCs to any shareholder account of the Independence Small Cap Portfolio as of December 3, 2004 (including shareholder accounts held in a broker's name or other omnibus account).
Class A shares of John Hancock U.S. Global Leaders Growth Fund may be offered without front-end sales charges or CDSCs to any shareholder account of U.S. Global Leaders Growth Fund registered on this fund's books in the shareholder's name as of May 17, 2002.
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)
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 l
east $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, LLC
3 All shareholders must complete the account application, care- fully following the instructions. If you have any questions, please contact your financial representative or call Signature Services at 1-800-225-5291.
4 Complete the appropriate parts of the account privileges applica- tion. 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.
6 Important information about opening a new account To help the government fight the funding of terrorism and money laundering activities, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), requires all financial institutions to obtain, verify, and record information that identifies each person or entity that opens an account.
For individual investors opening an account: When you open an account, you will be asked for your name, residential address, date of birth, and social security number.
For investors other than individuals: When you open an account, you will be asked for the name of the entity, its principal place of business and taxpayer identification number (TIN) and may be requested to provide information on persons with authority or control over the account such as name, residential address, date of birth and social security number. You may also be asked to provide documents, such as articles of incorporation, trust instruments or partnership aggreements and other information that will help Signature Services identify the entity. Please see the Mutual Fund Account Application for more details.
YOUR ACCOUNT 36
* Deliver the check and your completed application to your financial representative, or mail them to Signature Services (address below).
* Fill out the detachable investment slip from 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).
* 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.
* Obtain your account number by calling your financial representative or Signature Services.
* Obtain wiring instructions by calling Signature Services at 1-800-225-5291.
* Instruct your bank to wire the amount of your investment.
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.
* Instruct your bank to wire the amount of your investment.
Specify the fund name, your share class, your account number and the name(s) in which the account is registered. Your bank may charge a fee to wire funds.
* Complete the "Bank Information" section on your account application.
* Log on to www.jhfunds.com to initiate purchases using your authorized bank account.
* 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.
37 YOUR ACCOUNT
* Accounts of any type.
* Sales of any amount.
* 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.
* Most accounts.
* Sales of up to $100,000.
* Most accounts.
* 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.
* Requests by letter to sell any amount.
* Requests by Internet or phone to sell up to $100,000.
* 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.
* Accounts of any type.
* Sales of any amount.
* 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."
YOUR ACCOUNT 38
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 -- this requirement is waived for certain entities operating under a signed fax trading agreement with John Hancock.
* 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.
* On the letter, the signatures of all persons authorized to sign for the account, exactly as the account is registered.
* Medallion signature guarantee if applicable (see above).
* 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.
* Medallion signature guarantee if applicable (see above).
* 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.
* Medallion signature guarantee if applicable (see above).
* Copy of death certificate.
* Medallion signature guarantee if applicable (see above).
* Inheritance tax waiver (if applicable).
* Copy of order appointing executor, certified within the past 12 months.
* Medallion signature guarantee if applicable (see above).
* Inheritance tax waiver (if applicable).
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.
39 YOUR ACCOUNT
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, fixed-income 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. The funds use 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 SAI.
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. In unusual circumstances, the funds have the right to redeem in kind.
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 (with respect to cancellations, within
one day of the order), 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 "Limitation 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 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
40 YOUR ACCOUNT
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, takes steps reasonably designed to curtail excessive trading practices.
Limitation 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 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 funds' ability to monitor exchange activity, as discussed under "Limitation 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 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 records 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 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 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 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.
YOUR ACCOUNT 41
Account information John Hancock Funds, LLC 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, LLC may close your account, redeem your shares at the next NAV minus any applicable sales charges and take any 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.
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. Balanced Fund and Sovereign Investors Fund typically declare and pay income dividends quarterly. All 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 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.
42 YOUR ACCOUNT
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 each fund's SAI and on the funds' Web site, www.jhfunds.com. The funds' 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 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 43
The diagram below shows the basic business structure used by the John Hancock equity 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 Balanced, Classic Value, Focused Equity, Growth Trends, Large Cap Equity, Large Cap Select, Mid Cap Equity, Mid Cap Growth, Multi Cap Growth, Small Cap, Small Cap Intrinsic Value and U.S. Global Leaders Growth Funds have the power to change these funds' respective investment goals without shareholder approval.
The trustees of Core Equity, Focused Equity, Large Cap Equity, Large Cap Select, Mid Cap Equity, Mid Cap Growth, Small Cap, Small Cap Equity, Small Cap Intrinsic Value and U.S. Global Leaders Growth Funds have the power to change the focus of each 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.
[GRAPHIC OMITTED: BUSINESS STRUCTURE FLOW CHART]
Shareholders
--------------------------------------------
| |
__ | |
| | |
| Distribution and Financial services firms and |
| shareholder services their representatives |
| |------------------------------------------------
| | Advise current and prospective 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 shares Handles shareholder services, including record-
| through selling brokers, financial planners keeping and statements, distribution of dividends
| and other financial representatives. and processing of buy and sell requests.
| | |
| | |
__ |-----------------------------------|----------|
|
Subadviser Investment adviser | Custodian __
---------- ------------------ | --------- |
Pzena Investment Management, LLC | | John Hancock Advisers, LLC | The Bank of New York |
120 West 45th Street | | 601 Congress Street | One Wall Street |
New York, NY 10036 |--| Boston, MA 02210-2805 | New York, NY 10286 |
| |
Sovereign Asset Management LLC | | Manages the funds' business | Holds the funds' assets, settles Asset |
101 Huntington Avenue | | and investment activities. | all portfolio trades and collects Management |
Boston, MA 02199 | | most of the valuation data |
| | required for calculating the |
Sustainable Growth Advisers, LP | | funds NAV. |
3 Stamford Plaza | | | |
301 Tresser Blvd., Suite 1310 | | | __
Stamford, CT 06901 -------------------------------
|
Provide portfolio management to Trustees
certain funds. ------------
Oversee the funds' activities.
|
44 FUND DETAILS
Management fees The management fees paid to the investment adviser by the John Hancock equity funds last fiscal year are as follows:
Fund % of net assets ------------------------------------------------------------------------------ Balanced 0.60% ------------------------------------------------------------------------------ Classic Value 0.80* ------------------------------------------------------------------------------ Core Equity 0.75 ------------------------------------------------------------------------------ Focused Equity 0.00* ------------------------------------------------------------------------------ Growth Trends 0.75* ------------------------------------------------------------------------------ Large Cap Equity 0.625 ------------------------------------------------------------------------------ Large Cap Select 0.64* ------------------------------------------------------------------------------ Mid Cap Equity 0.00* ------------------------------------------------------------------------------ Mid Cap Growth 0.80 ------------------------------------------------------------------------------ Multi Cap Growth 0.00* ------------------------------------------------------------------------------ Small Cap 0.82* ------------------------------------------------------------------------------ Small Cap Equity 0.70 ------------------------------------------------------------------------------ Small Cap Intrinsic Value 0.00* ------------------------------------------------------------------------------ Sovereign Investors 0.58 ------------------------------------------------------------------------------ U.S. Global Leaders Growth 0.70* |
*After expense reimbursement.
A discussion regarding the basis for the board of trustees approving each fund's inveestment advisory agreement is available in each fund's annual or semiannual report to shareholders, as follows:
Semiannual report dated June 30, 2005 Balanced Fund, Classic Value Fund, Core Equity Fund, Large Cap Equity Fund, Large Cap Select Fund, Sovereign Investors Fund, U.S. Global Leaders Growth Fund
Annual report dated October 31, 2005 Focused Equity Fund, Growth Trends Fund, Mid Cap Equity Fund, Mid Cap Growth Fund, Multi Cap Growth Fund, Small Cap Fund, Small Equity Cap Fund
Annual report dated December 31, 2005 Small Cap Intrinsic Value Fund
Subadvisers Independence Investment LLC ("Independence") subadvises Core Equity Fund and Small Cap Fund. Independence was founded in 1982 and provides investment advisory services to individual and institutional investors. Independence is a wholly owned subsidiary of John Hancock Financial Services, Inc. (a subsidiary of Manulife Financial Corporation) and, as of December 31, 2005, had total assets under management of approximately $7.7 billion.
Pzena Investment Management, LLC ("PIM") subadvises Classic Value Fund and was investment adviser to its predecessor fund, Pzena Focused Value Fund. PIM was founded in 1995 and is controlled by Richard S. Pzena, Managing Principal, Chief Executive Officer and Co-Chief Investment Officer. PIM provides investment advisory services to individual and institutional investors and, as of December 31, 2005, had total assets under management of approximately $16.8 billion.
Shay Assets Management, Inc. ("SAM") subadvises Large Cap Select Fund. SAM was founded in 1981 and is controlled by Rodger D. Shay, Chairman. SAM managed approximately $3.9 billion in assets as of December 31, 2005, and was the investment adviser to the fund's predecessor, M.S.B. Fund, Inc.
Sovereign Asset Management LLC ("Sovereign") subadvises Balanced, Focused Equity, Growth Trends, Large Cap Equity, Mid Cap Equity, Mid Cap Growth, Multi Cap Growth, Small Cap Equity, Small Cap Intrinsic Value and Sovereign Investors Funds. Sovereign was founded in 1979 and provides investment advisory services to individual and institutional investors. Sovereign is a wholly owned subsidiary of John Hancock Financial Services, Inc. (a subsidiary of Manulife Financial Corporation) and, as of December 31, 2005, had total assets under management of approximately $26 billion.
Sustainable Growth Advisers, LP ("SGA") subadvises U.S. Global Leaders Growth Fund. SGA is a Delaware limited partnership founded in 2003 to provide investment advice to private accounts of institutional and individual clients, private investment companies and mutual funds. George Fraise, Gordon Marchand and Robert L. Rohn each own 24% of SGA. Total assets under management by SGA principals as of December 31, 2005 were approximately $2.7 billion.
FUND DETAILS 45
MANAGEMENT BIOGRAPHIES
Below is an alphabetical list of the portfolio managers for the John Hancock equity funds, including a brief summary of their business careers over the past five years. The Statement of Additional Information for each fund includes additional information about its portfolio manager(s), including information about their compensation, accounts they manage other than the fund and their ownership of fund shares, if any.
(2000--2004)
Began business career in 1993
46 FUND DETAILS
FUND DETAILS 47
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.
Balanced Fund
Figures for the years ended 12-31-03, 12-31-04 and 12-31-05 were audited by Deloitte & Touche LLP.
CLASS A SHARES PERIOD ENDED 12-31-01(1,2) 12-31-02(1) 12-31-03 12-31-04 12-31-05
-------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
-------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $13.03 $12.02 $9.61 $11.15 $11.67
-------------------------------------------------------------------------------------------------------------------
Net investment income(3) 0.30 0.23 0.17 0.19 0.13
-------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.99) (2.40) 1.56 0.56 1.41
-------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.69) (2.17) 1.73 0.75 1.54
-------------------------------------------------------------------------------------------------------------------
Less distributions
-------------------------------------------------------------------------------------------------------------------
From net investment income (0.32) (0.24) (0.19) (0.23) (0.16)
-------------------------------------------------------------------------------------------------------------------
From net realized gain -- -- -- -- (0.45)
-------------------------------------------------------------------------------------------------------------------
(0.32) (0.24) (0.19) (0.23) (0.61)
-------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.02 $9.61 $11.15 $11.67 $12.60
-------------------------------------------------------------------------------------------------------------------
Total return(4)(%) (5.23) (18.19) 18.21 6.78(5) 13.36(5)
RATIOS AND SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $136 $85 $88 $86 $92
-------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.37 1.39 1.41 1.35 1.35
-------------------------------------------------------------------------------------------------------------------
Ratio of adjusted expenses to average net assets(6)(%) -- -- -- 1.39 1.37
-------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 2.45 2.15 1.70 1.72 1.13
-------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 98 86 60 56 88
CLASS B SHARES PERIOD ENDED 12-31-01(1,2) 12-31-02(1) 12-31-03 12-31-04 12-31-05
-------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
-------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $13.03 $12.01 $9.61 $11.15 $11.67
-------------------------------------------------------------------------------------------------------------------
Net investment income(3) 0.22 0.16 0.10 0.11 0.05
-------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (1.00) (2.40) 1.56 0.56 1.41
-------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.78) (2.24) 1.66 0.67 1.46
-------------------------------------------------------------------------------------------------------------------
Less distributions
-------------------------------------------------------------------------------------------------------------------
From net investment income (0.24) (0.16) (0.12) (0.15) (0.08)
-------------------------------------------------------------------------------------------------------------------
From net realized gain -- -- -- -- (0.45)
-------------------------------------------------------------------------------------------------------------------
(0.24) (0.16) (0.12) (0.15) (0.53)
-------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.01 $9.61 $11.15 $11.67 $12.60
-------------------------------------------------------------------------------------------------------------------
Total return(4)(%) (5.99) (18.71) 17.42 6.05(5) 12.59(5)
RATIOS AND SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $46 $28 $30 $27 $27
-------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 2.07 2.09 2.11 2.04 2.05
-------------------------------------------------------------------------------------------------------------------
Ratio of adjusted expenses to average net assets(6)(%) -- -- -- 2.08 2.07
-------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 1.75 1.44 1.00 1.03 0.43
-------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 98 86 60 56 88
|
48 FUND DETAILS
Balanced Fund (continued)
CLASS C SHARES PERIOD ENDED 12-31-01(1,2) 12-31-02(1) 12-31-03 12-31-04 12-31-05
-------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
-------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $13.03 $12.01 $9.61 $11.15 $11.67
-------------------------------------------------------------------------------------------------------------------
Net investment income(3) 0.21 0.16 0.10 0.11 0.05
-------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.99) (2.40) 1.56 0.56 1.41
-------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.78) (2.24) 1.66 0.67 1.46
-------------------------------------------------------------------------------------------------------------------
Less distributions
-------------------------------------------------------------------------------------------------------------------
From net investment income (0.24) (0.16) (0.12) (0.15) (0.08)
-------------------------------------------------------------------------------------------------------------------
From net realized gain -- -- -- -- (0.45)
-------------------------------------------------------------------------------------------------------------------
(0.24) (0.16) (0.12) (0.15) (0.53)
-------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.01 $9.61 $11.15 $11.67 $12.60
-------------------------------------------------------------------------------------------------------------------
Total return(4)(%) (5.99) (18.71) 17.42 6.04(5) 12.59(5)
RATIOS AND SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $2 $2 $4 $5 $6
-------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 2.07 2.09 2.11 2.05 2.05
-------------------------------------------------------------------------------------------------------------------
Ratio of adjusted expenses to average net assets(6)(%) -- -- -- 2.09 2.07
-------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 1.76 1.46 0.99 1.00 0.43
-------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 98 86 60 56 88
(1) Audited by previous auditor.
(2) As required, effective 1-1-01, the Fund has adopted the provisions of the
AICPA Audit and Accounting Guide for Investment Companies, as revised,
relating to the amortizationof premiums and accretion of discounts on debt
securities. The effect of this change on per share amounts for the year
ended 12-31-01, was to decrease net investment income per share by $0.01,
decrease net realized and unrealized losses pershare by $0.01, and, had
the Fund not made these changes to amortization and accretion, the ratio
of net investment income to average net assets would have been 2.50%,
1.80% and 1.80% for Class A, Class B and Class C shares, respectively.
Per share ratios and supplemental data for periods prior to 1-1-01, have
not been restated to reflect this change in presentation.
(3) Based on the average of the shares outstanding.
(4) Assumes dividend reinvestment and does not reflect the effect of
sales charges.
(5) Total return would have been lower had certain expenses not been reduced
during the periods shown.
(6) Does not take into consideration expense reductions during the periods shown.
-------------------------------------------------------------------------------------------------------------------
The following returns are not audited and are not part of the audited financial
highlights presented above:
Without the expense reductions, returns for the year ended December 31, 2004
and 2005 would have been 6.74% and 13.34% for Class A, 6.01% and 12.57% for
Class B and 6.00% and 12.57% for Class C.
|
FUND DETAILS 49
Classic Value Fund
Figures audited by PricewaterhouseCoopers LLP.
CLASS A SHARES PERIOD ENDED 4-30-01(1) 4-30-02(1) 12-31-02(2,3) 12-31-03 12-31-04 12-31-05
--------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
--------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.63 $16.08 $18.16 $15.07 $20.27 $23.01
--------------------------------------------------------------------------------------------------------------------------
Net investment income(4) 0.02 0.05 0.05 0.20 0.17 0.15
--------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 4.43 2.42 (2.68) 5.25 2.73 1.88
--------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.45 2.47 (2.63) 5.45 2.90 2.03
--------------------------------------------------------------------------------------------------------------------------
Less distributions
--------------------------------------------------------------------------------------------------------------------------
From net investment income -- (0.06) (0.02) (0.13) (0.09) (0.10)
--------------------------------------------------------------------------------------------------------------------------
From net realized gain -- (0.33) (0.44) (0.12) (0.07) (0.30)
-- (0.39) (0.46) (0.25) (0.16) (0.40)
--------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.08 $18.16 $15.07 $20.27 $23.01 $24.64
--------------------------------------------------------------------------------------------------------------------------
Total return(5,6)(%) 38.26 15.67 (14.00)(7) 36.25 14.28 8.81
RATIOS AND SUPPLEMENTAL DATA
--------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $11 $22 $22 $145 $1,223 $3,017
--------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.75 1.25 1.27(8) 1.16 1.30 1.32
--------------------------------------------------------------------------------------------------------------------------
Ratio of adjusted expenses to average net assets(9)(%) 2.81 2.01 2.57(8) 1.52 1.40 1.36
--------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 0.22 0.34 0.44(8) 1.13 0.81 0.65
--------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 78 38 47 25 16 27
CLASS B SHARES PERIOD ENDED 12-31-02(10) 12-31-03 12-31-04 12-31-05
--------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
--------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $14.11 $15.05 $20.24 $22.89
--------------------------------------------------------------------------------------------------------------------------
Net investment income (loss)(4) --(11) 0.07 0.01 (0.03)
--------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 0.94 5.24 2.71 1.86
--------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.94 5.31 2.72 1.83
--------------------------------------------------------------------------------------------------------------------------
Less distributions
--------------------------------------------------------------------------------------------------------------------------
From net investment income -- --(11) -- --
--------------------------------------------------------------------------------------------------------------------------
From net realized gain -- (0.12) (0.07) (0.30)
--------------------------------------------------------------------------------------------------------------------------
-- (0.12) (0.07) (0.30)
--------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $15.05 $20.24 $22.89 $24.42
--------------------------------------------------------------------------------------------------------------------------
Total return(5,6)(%) 6.66(7) 35.36 13.44 7.99
RATIOS AND SUPPLEMENTAL DATA
--------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $1 $47 $200 $296
--------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 2.10(8) 1.91 2.05 2.07
--------------------------------------------------------------------------------------------------------------------------
Ratio of adjusted expenses to average net assets(9)(%) 6.82(8) 2.27 2.15 2.11
--------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (%) (0.06)(8) 0.38 0.03 (0.11)
--------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 47 25 16 27
|
50 FUND DETAILS
Classic Value Fund (continued)
CLASS C SHARES PERIOD ENDED 12-31-02(10) 12-31-03 12-31-04 12-31-05
--------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
--------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $14.11 $15.05 $20.24 $22.89
--------------------------------------------------------------------------------------------------------------------------
Net investment income (loss)(4) --(11) 0.07 0.01 (0.02)
--------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 0.94 5.24 2.71 1.85
--------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.94 5.31 2.72 1.83
--------------------------------------------------------------------------------------------------------------------------
Less distributions
--------------------------------------------------------------------------------------------------------------------------
From net investment income -- --(11) -- --
--------------------------------------------------------------------------------------------------------------------------
From net realized gain -- (0.12) 0.07) (0.30)
--------------------------------------------------------------------------------------------------------------------------
-- (0.12) (0.07) (0.30)
--------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $15.05 $20.24 $22.89 $24.42
--------------------------------------------------------------------------------------------------------------------------
Total return(5,6)(%) 6.66(7) 35.36 13.44 7.99
RATIOS AND SUPPLEMENTAL DATA
--------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $1 $82 $423 $832
--------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 2.10(8) 1.91 2.05 2.07
--------------------------------------------------------------------------------------------------------------------------
Ratio of adjusted expenses to average net assets(9)(%) 6.82(8) 2.26 2.15 2.11
--------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (%) (0.10)(8) 0.39 0.04 (0.10)
--------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 47 25 16 27
(1) Audited by previous auditors.
(2) Effective 11-8-02, shareholders of the former Pzena Focused Value Fund
became owners of an equal number of full and fractional shares of Class A
shares of the John Hancock Classic Value Fund. Additionally, the
accounting and performance history of the former Pzena Focused Value Fund
was redesignated as that of Class A of John Hancock Classic Value Fund.
(3) Effective 12-31-02, the fiscal year changed from April 30 to December 31.
(4) Based on the average of the shares outstanding.
(5) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(6) Total returns would have been lower had certain expenses not been reduced
during the periods shown.
(7) Not annualized.
(8) Annualized.
(9) Does not take into consideration expense reductions during the periods
shown.
(10) Class B and Class C and Class I shares began operations on 11-11-02.
(11) Less that $0.01 per share.
--------------------------------------------------------------------------------------------------------------------------
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 periods or years
ended April 30, 2001 and 2002, and December 31, 2002, 2003, 2004 and 2005 would
have been 37.20%, 14.91%, (15.30%), 35.89%, 14.18% and 8.77%, respectively. For
Class B, the returns for the periods or years ended December 31, 2002, 2003,
2004 and 2005 would have been 1.94%, 35.00%, 13.34% and 7.95%, respectively,
and for Class C, 1.94%, 35.01%, 13.34% and 7.95%, respectively.
|
FUND DETAILS 51
Core Equity Fund
Figures audited by PricewaterhouseCoopers LLP.
CLASS A SHARES PERIOD ENDED 12-31-01 12-31-02 12-31-03 12-31-04 12-31-05 -------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $29.87 $26.61 $20.53 $25.39 $27.62 -------------------------------------------------------------------------------------------------------------------------- Net investment income (loss)(1) (0.03) (0.02) --(2) 0.10 0.01 -------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (3.22) (6.06) 4.86 2.13 2.09 -------------------------------------------------------------------------------------------------------------------------- Total from investment operations (3.25) (6.08) 4.86 2.23 2.10 -------------------------------------------------------------------------------------------------------------------------- Less distributions -------------------------------------------------------------------------------------------------------------------------- From net investment income (0.01) -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $26.61 $20.53 $25.39 $27.62 $29.72 -------------------------------------------------------------------------------------------------------------------------- Total return(3)(%) (10.87) (22.85) 23.67 8.78(4) 7.60(4) RATIOS AND SUPPLEMENTAL DATA -------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $255 $184 $201 $193 $195 -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 1.47 1.60 1.61 1.52 1.47 -------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(5)(%) -- -- -- 1.57 1.52 -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) (0.12) (0.10) (0.02) 0.41 0.03 -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 76 64(6) 70 68 54 CLASS B SHARES PERIOD ENDED 12-31-01 12-31-02 12-31-03 12-31-04 12-31-05 -------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $29.06 $25.71 $19.70 $24.19 $26.12 -------------------------------------------------------------------------------------------------------------------------- Net investment loss(1) (0.22) (0.18) (0.15) (0.08) (0.18) -------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (3.12) (5.83) 4.64 2.01 1.97 -------------------------------------------------------------------------------------------------------------------------- Total from investment operations (3.34) (6.01) 4.49 1.93 1.79 -------------------------------------------------------------------------------------------------------------------------- Less distributions -------------------------------------------------------------------------------------------------------------------------- From net investment income (0.01) -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $25.71 $19.70 $24.19 $26.12 $27.91 -------------------------------------------------------------------------------------------------------------------------- Total return(3)(%) (11.49) (23.38) 22.79 7.98(4) 6.85(4) RATIOS AND SUPPLEMENTAL DATA -------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $377 $253 $252 $197 $140 -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 2.17 2.30 2.31 2.22 2.18 -------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(5)(%) -- -- -- 2.27 2.23 -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%) (0.82) (0.80) (0.72) (0.33) (0.68) -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 76 64(6) 70 68 54 CLASS C SHARES PERIOD ENDED 12-31-01 12-31-02 12-31-03 12-31-04 12-31-05 -------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $29.05 $25.70 $19.69 $24.18 $26.11 -------------------------------------------------------------------------------------------------------------------------- Net investment loss(1) (0.22) (0.18) (0.15) (0.08) (0.18) -------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (3.12) (5.83) 4.64 2.01 1.97 -------------------------------------------------------------------------------------------------------------------------- Total from investment operations (3.34) (6.01) 4.49 1.93 1.79 -------------------------------------------------------------------------------------------------------------------------- Less distributions -------------------------------------------------------------------------------------------------------------------------- From net investment income (0.01) -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $25.70 $19.69 $24.18 $26.11 $27.90 -------------------------------------------------------------------------------------------------------------------------- Total return(3)(%) (11.49) (23.39) 22.80 7.98 4 6.86(4) RATIOS AND SUPPLEMENTAL DATA -------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $30 $23 $24 $20 $16 -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 2.17 2.30 2.31 2.22 2.18 -------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(5)(%) -- -- -- 2.27 2.23 -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%) (0.82) (0.80) (0.72) (0.31) (0.68) -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 76 64(6) 70 68 54 (1)Based on the average of the shares outstanding. (2)Less than $0.01 per share. (3)Assumes dividend reinvestment and does not reflect the effect of sales charges. (4)Total returns would have been lower had certain expenses not been reduced during the periods shown. (5)Does not take into consideration expense reductions during the periods shown. (6)Excludes merger activity. -------------------------------------------------------------------------------------------------------------------------- The following returns are not audited and are not part of the audited financial highlights presented above: Without the expense reductions, returns for the years ended December 31, 2004 and 2005 would have been 8.73% and 7.55% for Class A, 7.93% and 6.80% for Class B and 7.93% and 6.81% for Class C. |
52 FUND DETAILS
Focused Equity Fund
Figures audited by Deloitte & Touche LLP.
CLASS A SHARES PERIOD ENDED 10-31-01(1,2) 10-31-02(1) 10-31-03 10-31-04 10-31-05 -------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $10.00 $7.17 $4.66 $6.34 $6.53 -------------------------------------------------------------------------------------------------------------------------- Net investment loss(3) (0.10) (0.06) (0.05) (0.05) (0.06) -------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (2.73) (2.45) 1.73 0.24 1.34 -------------------------------------------------------------------------------------------------------------------------- Total from investment operations (2.83) (2.51) 1.68 0.19 1.28 -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $7.17 $4.66 $6.34 $6.53 $7.81 -------------------------------------------------------------------------------------------------------------------------- Total return(4,5)(%) (28.30)(6) (35.01) 36.05 3.00 19.60 RATIOS AND SUPPLEMENTAL DATA -------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $12 $6 $6 $6 $7 -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 1.50(7) 1.50 1.50 1.50 1.50 -------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(8)(%) 2.47(7) 2.13 2.68 2.39 2.47 -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%) (1.09)(7) (0.89) (0.97) (0.80) (0.87) -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 97 144 46 50 62 CLASS B SHARES PERIOD ENDED 10-31-01(1,2) 10-31-02(1) 10-31-03 10-31-04 10-31-05 -------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $10.00 $7.12 $4.59 $6.21 $6.35 -------------------------------------------------------------------------------------------------------------------------- Net investment loss(3) (0.17) (0.10) (0.08) (0.09) (0.11) -------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (2.71) (2.43) 1.70 0.23 1.31 -------------------------------------------------------------------------------------------------------------------------- Total from investment operations (2.88) (2.53) 1.62 0.14 1.20 -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $7.12 $4.59 $6.21 $6.35 $7.55 -------------------------------------------------------------------------------------------------------------------------- Total return(4,5)(%) (28.80)(6) (35.53) 35.29 2.25 18.90 RATIOS AND SUPPLEMENTAL DATA -------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $11 $5 $6 $5 $6 -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 2.20(7) 2.18 2.17 2.20 2.20 -------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(8)(%) 3.17(7) 2.81 3.35 3.09 3.17 -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%) (1.80)(7) (1.57) (1.64) (1.50) (1.57) -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 97 144 46 50 62 CLASS C SHARES PERIOD ENDED 10-31-01(1,2) 10-31-02(1) 10-31-03 10-31-04 10-31-05 ------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $10.00 $7.12 $4.59 $6.21 $6.35 -------------------------------------------------------------------------------------------------------------------------- Net investment loss(3) (0.17) (0.10) (0.09) (0.09) (0.11) -------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (2.71) (2.43) 1.71 0.23 1.30 -------------------------------------------------------------------------------------------------------------------------- Total from investment operations (2.88) (2.53) 1.62 0.14 1.19 -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $7.12 $4.59 $6.21 $6.35 $7.54 -------------------------------------------------------------------------------------------------------------------------- Total return(4,5)(%) (28.80)(6) (35.53) 35.29 2.25 18.74 RATIOS AND SUPPLEMENTAL DATA -------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $4 $2 $2 $2 $2 -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 2.20(7) 2.20 2.20 2.20 2.20 -------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(8)(%) 3.17(7) 2.83 3.38 3.09 3.17 -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%) (1.78)(7) (1.59) (1.67) (1.49) (1.57) -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 97 144 46 50 62 (1)Class A, Class B and Class C shares began operations on 11-1-00. (2)Audited by previous auditor. (3)Based on the average of the shares outstanding. (4)Assumes dividend reinvestment and does not reflect the effect of sales charges. (5)Total returns would have been lower had certain expenses not been reduced during the periods shown. (6)Not annualized. (7)Annualized. (8)Does not take into consideration expense reductions during the periods shown. -------------------------------------------------------------------------------------------------------------------------- The following returns are not audited and are not part of the audited financial highlights presented above: Without the expense reductions, returns for the periods or years ended October 31, 2001, 2002, 2003, 2004 and 2005 would have been (29.27%), (35.64%), 34.87%, 2.11% and 18.63% for Class A, (29.77%), (36.16%), 34.11%, 1.36% and 17.93% for Class B and (29.77%), (36.16%), 34.11%, 1.36% and 11.77% for Class C, respectively. |
FUND DETAILS 53
Growth Trends Fund
Figures audited by PricewaterhouseCoopers LLP.
CLASS A SHARES PERIOD ENDED 10-31-01 10-31-02 10-31-03 10-31-04 10-31-05 -------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $9.54 $5.87 $4.49 $5.51 $5.67 -------------------------------------------------------------------------------------------------------------------------- Net Investment loss(1) (0.05) (0.05) (0.03) (0.04) -- (2) -------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (3.61) (1.33) 1.05 0.20 0.60 -------------------------------------------------------------------------------------------------------------------------- Total from investment operations (3.66) (1.38) 1.02 0.16 0.60 -------------------------------------------------------------------------------------------------------------------------- Less distributions -------------------------------------------------------------------------------------------------------------------------- From net investment income (0.01) -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.87 $4.49 $5.51 $5.67 $6.27 -------------------------------------------------------------------------------------------------------------------------- Total return(3,4)(%) (38.37) (23.51) 22.72 2.90 10.58 RATIOS AND SUPPLEMENTAL DATA -------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $99 $65 $69 $58 $46 -------------------------------------------------------------------------------------------------------------------------- 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(5)(%) 1.85 1.88 2.02 1.86 1.95 -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) (0.70) (0.91) (0.64) (0.62) 0.01 -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 116 68 76 40 27 CLASS B SHARES PERIOD ENDED 10-31-01 10-31-02 10-31-03 10-31-04 10-31-05 -------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $9.54 $5.83 $4.42 $5.40 $5.51 -------------------------------------------------------------------------------------------------------------------------- Net Investment loss(1) (0.10) (0.09) (0.06) (0.07) (0.04) -------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (3.61) (1.32) 1.04 0.18 0.59 -------------------------------------------------------------------------------------------------------------------------- Total from investment operations (3.71) (1.41) 0.98 0.11 0.55 -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.83 $4.42 $5.40 $5.51 $6.06 -------------------------------------------------------------------------------------------------------------------------- Total return(3,4)(%) (38.89) (24.19) 22.17 2.04 9.98 RATIOS AND SUPPLEMENTAL DATA -------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $161 $102 $104 $85 $66 -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 2.35 2.35 2.35 2.35 2.35 -------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(5)(%) 2.55 2.58 2.72 2.56 2.65 -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%) (1.40) (1.61) (1.34) (1.32) (0.67) -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 116 68 76 40 27 CLASS C SHARES PERIOD ENDED 10-31-01 10-31-02 10-31-03 10-31-04 10-31-05 -------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $9.54 $5.83 $4.42 $5.40 $5.51 -------------------------------------------------------------------------------------------------------------------------- Net Investment loss(1) (0.10) (0.09) (0.06) (0.07) (0.04) -------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (3.61) (1.32) 1.04 0.18 0.59 -------------------------------------------------------------------------------------------------------------------------- Total from investment operations (3.71) (1.41) 0.98 0.11 0.55 -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.83 $4.42 $5.40 $5.51 $6.06 -------------------------------------------------------------------------------------------------------------------------- Total return(3,4)(%) (38.89) (24.19) 22.17 2.04 9.98 RATIOS AND SUPPLEMENTAL DATA -------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $69 $42 $41 $31 $23 -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 2.35 2.35 2.35 2.35 2.35 -------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(5)(%) 2.55 2.58 2.72 2.56 2.65 -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%) (1.40) (1.61) (1.34) (1.32) (0.66) -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 116 68 76 40 27 (1)Based on the average of the shares outstanding. (2)Less than $0.01 per share. (3)Assumes dividend reinvestment and does not reflect the effect of sales charges. (4)Total returns would have been lower had certain certain expenses not been reduced during the periods shown. (5)Does not take into consideration expense reductions during the periods shown. -------------------------------------------------------------------------------------------------------------------------- The following returns are not audited and are not part of the audited financial highlights presented above: Without the expense reductions, returns for the periods or years ended October 31, 2001, 2002, 2003, 2004 and 2005 would have been (38.57%), (23.74%), 22.35%, 2.69% and 10.28% for Class A, (39.09%), (24.42%), 21.80%, 1.83% and 9.68% for Class B and (39.09%), (24.42%), 21.80%, 1.83% and 9.68% for Class C, respectively. |
54 FUND DETAILS
Large Cap Equity Fund
Figures for the years 12-31-03, 12-31-04 and 12-31-05 were audited by Deloitte &
Touche LLP.
CLASS A SHARES PERIOD ENDED 12-31-01(1) 12-31-02(1) 12-31-03 12-31-04 12-31-05
--------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
--------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $20.93 $19.10 $11.85 $14.61 $15.19
--------------------------------------------------------------------------------------------------------------------------
Net investment income (loss)(2) (0.10) --(3) 0.01 0.06 (0.02)
--------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.62) (7.23) 2.75 0.54 2.49
--------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.72) (7.23) 2.76 0.60 2.47
--------------------------------------------------------------------------------------------------------------------------
Less distributions
--------------------------------------------------------------------------------------------------------------------------
From net investment income -- -- -- (0.02) --
--------------------------------------------------------------------------------------------------------------------------
From net realized gain (1.11) (0.02) -- -- --
--------------------------------------------------------------------------------------------------------------------------
(1.11) (0.02) -- (0.02) --
--------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.10 $11.85 $14.61 $15.19 $17.66
--------------------------------------------------------------------------------------------------------------------------
Total return(4)(%) (3.36) (37.83) 23.29 4.14(5) 16.26(5)
RATIOS AND SUPPLEMENTAL DATA
--------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $768 $365 $376 $325 $343
--------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.23 1.28 1.35 1.29 1.25
--------------------------------------------------------------------------------------------------------------------------
Ratio of adjusted expenses to average net assets(6)(%) -- -- -- 1.34 1.30
--------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (%) (0.50) 0.02 0.10 0.44 (0.12)
--------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 71 114 140 97 74
CLASS B SHARES PERIOD ENDED 12-31-01(1) 12-31-02(1) 12-31-03 12-31-04 12-31-05
--------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
--------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $20.52 $18.55 $11.42 $13.98 $14.45
--------------------------------------------------------------------------------------------------------------------------
Net investment loss(2) (0.25) (0.11) (0.08) (0.05) (0.13)
--------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.61) (7.00) 2.64 0.52 2.35
--------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.86) (7.11) 2.56 0.47 2.22
--------------------------------------------------------------------------------------------------------------------------
Less distributions
--------------------------------------------------------------------------------------------------------------------------
From net realized gain (1.11) (0.02) -- -- --
--------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.55 $11.42 $13.98 $14.45 $16.67
--------------------------------------------------------------------------------------------------------------------------
Total return(4)(%) (4.12) (38.31) 22.42 3.36(5) 15.36(5)
RATIOS AND SUPPLEMENTAL DATA
--------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $718 $290 $267 $196 $153
--------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.98 2.03 2.10 2.04 2.01
--------------------------------------------------------------------------------------------------------------------------
Ratio of adjusted expenses to average net assets(6)(%) -- -- -- 2.09 2.06
--------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss to average net assets (%) (1.25) (0.74) (0.66) (0.35) (0.88)
--------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 71 114 140 97 74
|
FUND DETAILS 55
Large Cap Equity Fund (continued) CLASS C SHARES PERIOD ENDED 12-31-01(1) 12-31-02(1) 12-31-03 12-31-04 12-31-05 -------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $20.52 $18.55 $11.42 $13.98 $14.45 -------------------------------------------------------------------------------------------------------------------------- Net investment loss(2) (0.25) (0.11) (0.08) (0.05) (0.13) -------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (0.61) (7.00) 2.64 0.52 2.35 -------------------------------------------------------------------------------------------------------------------------- Total from investment operations (0.86) (7.11) 2.56 0.47 2.22 -------------------------------------------------------------------------------------------------------------------------- Less distributions -------------------------------------------------------------------------------------------------------------------------- From net realized gain (1.11) (0.02) -- -- -- -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $18.55 $11.42 $13.98 $14.45 $16.67 -------------------------------------------------------------------------------------------------------------------------- Total return(4)(%) (4.12) (38.31) 22.42 3.36(5) 15.36(5) RATIOS AND SUPPLEMENTAL DATA -------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $120 $40 $35 $25 $20 -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 1.98 2.03 2.10 2.04 2.01 -------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(6)(%) -- -- -- 2.09 2.06 -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%) (1.25) (0.75) (0.66) (0.36) (0.87) -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 71 114 140 97 74 (1)Audited by previous auditor. (2)Based on the average of the shares outstanding. (3)Less than $0.01 per share. (4)Assumes dividend reinvestment and does not reflect the effect of sales charges. (5)Total returns would have been lower had certain expenses not been reduced during the periods shown. (6)Does not take into consideration expense reductions during the periods shown. -------------------------------------------------------------------------------------------------------------------------- The following returns are not audited and are not part of the audited financial highlights presented above: Without the expense reductions, returns for the years ended December 31, 2004 and 2005 would have been 4.09% and 16.21% for Class A, 3.31% and 15.31% for Class B and 3.31% and 15.31% for Class C, respectively. |
56 FUND DETAILS
Large Cap Select Fund
Figures for the years ended 12-31-03, 12-31-04 and 12-31-05 were audited by
PricewaterhouseCoopers LLP.
CLASS A SHARES PERIOD ENDED 12-31-01(1) 12-31-02(1) 12-31-03 12-31-04 12-31-05
--------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
--------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $20.74 $18.78 $15.27 $17.80 $18.44
--------------------------------------------------------------------------------------------------------------------------
Net investment income (loss)(3) (0.03) --(4) (0.01) 0.08 0.05
--------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.74) (2.83) 2.63 0.84 (0.48)
--------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.77) (2.83) 2.62 0.92 (0.43)
--------------------------------------------------------------------------------------------------------------------------
Less distributions
--------------------------------------------------------------------------------------------------------------------------
From net investment income -- -- -- (0.07) (0.04)
--------------------------------------------------------------------------------------------------------------------------
From net realized gain (1.19) (0.68) (0.09) (0.21) (0.37)
--------------------------------------------------------------------------------------------------------------------------
(1.19) (0.68) (0.09) (0.28) (0.41)
--------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.78 $15.27 $17.80 $18.44 $17.60
--------------------------------------------------------------------------------------------------------------------------
Total return(5,6)(%) (3.73) (15.08) 17.15 5.17 (2.38)
RATIOS AND SUPPLEMENTAL DATA
--------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $59 $50 $55 $65 $58
--------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.44 1.38 1.51 1.34 1.36
--------------------------------------------------------------------------------------------------------------------------
Ratio of adjusted expenses to average net assets(7)(%) 1.52 1.48 1.89 1.44 1.47
--------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (%) (0.14) (0.01) (0.03) 0.45 0.26
--------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 13 18 22 13 23
CLASS B SHARES PERIOD ENDED 12-31-03(8) 12-31-04 12-31-05
-------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
-------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $16.29 $17.76 $18.33
-------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.03) (0.03) (0.09)
-------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments(3) 1.59 0.81 (0.48)
-------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.56 0.78 (0.57)
-------------------------------------------------------------------------------------------------------------------------
Less distributions
-------------------------------------------------------------------------------------------------------------------------
From net realized gain (0.09) (0.21) (0.37)
-------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.76 $18.33 $17.39
-------------------------------------------------------------------------------------------------------------------------
Total return(5,6)(%) 9.57(9) 4.40 (3.14)
RATIOS AND SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $2 $6 $5
-------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 2.13(10) 2.09 2.11
-------------------------------------------------------------------------------------------------------------------------
Ratio of adjusted expenses to average net assets(7)(%) 3.02(10) 2.19 2.22
-------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss to average net assets (%) (0.49)(10) (0.18) (0.50)
-------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 22 13 23
|
FUND DETAILS 57
Large Cap Select Fund (continued) CLASS C SHARES PERIOD ENDED 12-31-03(8) 12-31-04 12-31-05 ------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $16.29 $17.76 $18.33 ------------------------------------------------------------------------------------------------------------------------- Net investment loss(3) (0.03) --(4) (0.09) ------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 1.59 0.78 (0.48) ------------------------------------------------------------------------------------------------------------------------- Total from investment operations 1.56 0.78 (0.57) ------------------------------------------------------------------------------------------------------------------------- Less distributions ------------------------------------------------------------------------------------------------------------------------- From net realized gain (0.09) (0.21) (0.37) ------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $17.76 $18.33 $17.39 ------------------------------------------------------------------------------------------------------------------------- Total return(5,6)(%) 9.57(9) 4.40 (3.14) RATIOS AND SUPPLEMENTAL DATA ------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $1 $6 $7 ------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 2.13(10) 2.09 2.11 ------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(7)(%) 3.02(10) 2.19 2.22 ------------------------------------------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%) (0.45)(10) (0.01) (0.49) ------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 22 13 23 (1)Audited by previous auditor. (2)Effective 8-25-03, shareholders of the former M.S.B. Fund, Inc. became owners of an equal number of full and fractional Class A shares of the John Hancock Large Cap Select Fund. Additionally, the accounting and performance history of the former M.S.B. Fund, Inc. was redesignated as that of Class A of John Hancock Large Cap Select Fund. (3)Based on the average of the shares outstanding. (4)Less than $0.01 per share. (5)Assumes dividend reinvestment and does not reflect the effect of sales charges. (6)Total returns would have been lower had certain expenses not been reduced during the periods shown. (7)Does not take into consideration expense reductions during the periods shown. (8)Class B and Class C shares began operations on 8-25-03. (9)Not annualized. (10)Annualized. ------------------------------------------------------------------------------------------------------------------------- The following returns are not audited and are not part of the audited financial highlights presented above: Without the expense reductions, returns for the years ended December 31, 2001, 2002, 2003, 2004 and 2005 would have been (3.81%), (15.18%), 16.77% , 5.07%, and (2.49%) for Class A, respectively, and the returns for the periods or years ended December 31, 2003, 2004 and 2005, 9.26%, 4.30% and (3.25%) for Class B, and 9.26%, 4.30% and (3.25%) for Class C, respectively. |
58 FUND DETAILS
Mid Cap Equity Fund Figures audited by Deloitte & Touche LLP. CLASS A SHARES PERIOD ENDED 10-31-03(1) 10-31-04 10-31-05 ------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $10.00 $11.35 $11.61 ------------------------------------------------------------------------------------------------------------------------- Net investment loss(2) (0.01) (0.06) (0.08) ------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain on investments 1.36 0.50 2.38 ------------------------------------------------------------------------------------------------------------------------- Total from investment operations 1.35 0.44 2.30 ------------------------------------------------------------------------------------------------------------------------- Less distributions ------------------------------------------------------------------------------------------------------------------------- From net realized gain -- (0.18) (0.53) ------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $11.35 $11.61 $13.38 ------------------------------------------------------------------------------------------------------------------------- Total return(3,4)(%) 13.50(5) 3.92 20.31 RATIOS AND SUPPLEMENTAL DATA ------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $2 $2 $2 ------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 1.20(6) 1.20 1.20 ------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(7)(%) 6.20(6) 2.42 2.97 ------------------------------------------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%) (0.57)(6) (0.56) (0.65) ------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 48 46 63 CLASS B SHARES PERIOD ENDED 10-31-03(1) 10-31-04 10-31-05 ------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $10.00 $11.33 $11.54 ------------------------------------------------------------------------------------------------------------------------- Net investment loss(2) (0.03) (0.12) (0.14) ------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain on investments 1.36 0.51 2.36 ------------------------------------------------------------------------------------------------------------------------- Total from investment operations 1.33 0.39 2.22 ------------------------------------------------------------------------------------------------------------------------- Less distributions ------------------------------------------------------------------------------------------------------------------------- From net realized gain -- (0.18) (0.53) ------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $11.33 $11.54 $13.23 ------------------------------------------------------------------------------------------------------------------------- Total return(3,4)(%) 13.30(5) 3.49 19.72 RATIOS AND SUPPLEMENTAL DATA ------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) --(8) --(8) --(8) ------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 1.90(6) 1.65 1.65 ------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(7)(%) 6.90(6) 2.87 3.42 ------------------------------------------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%) (1.27)(6) (1.01) (1.10) ------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 48 46 63 |
FUND DETAILS 59
Mid Cap Equity Fund (continued) CLASS C SHARES PERIOD ENDED 10-31-03(1) 10-31-04 10-31-05 ------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $10.00 $11.33 $11.54 ------------------------------------------------------------------------------------------------------------------------- Net investment loss(2) (0.03) (0.12) (0.14) ------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain on investments 1.36 0.51 2.36 ------------------------------------------------------------------------------------------------------------------------- Total from investment operations 1.33 0.39 2.22 ------------------------------------------------------------------------------------------------------------------------- Less distributions ------------------------------------------------------------------------------------------------------------------------- From net realized gain -- (0.18) (0.53) ------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $11.33 $11.54 $13.23 ------------------------------------------------------------------------------------------------------------------------- Total return(3,4)(%) 13.30(5) 3.49 19.72 RATIOS AND SUPPLEMENTAL DATA ------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) --(8) --(8) --(8) ------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 1.90(6) 1.65 1.65 ------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(7)(%) 6.90(6) 2.87 3.42 ------------------------------------------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%) (1.27)(6) (1.01) (1.10) ------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 48 46 63 (1)Class A, Class B and Class C shares began operations on 8-4-03. (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. (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, the returns for the period or years ended October 31, 2003, 2004 and 2005 would have been 12.29%, 2.70% and 18.54% for Class A, 12.09%, 2.27% and 17.95% for Class B, and 12.09%, 2.27% and 17.95% for Class C, respectively. |
60 FUND DETAILS
Mid Cap Growth Fund
Figures for the years ended 10-31-03, 10-31-04 and 10-31-05 were audited by
PricewaterhouseCoopers LLP.
CLASS A SHARES PERIOD ENDED 10-31-01 10-31-02 10-31-03 10-31-04 10-31-05 -------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $16.03 $7.66 $6.47 $8.43 $8.33 -------------------------------------------------------------------------------------------------------------------------- Net investment loss(1) (0.12) (0.11) (0.11) (0.12) (0.12) -------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (7.48) (1.08) 2.07 0.02 1.43 -------------------------------------------------------------------------------------------------------------------------- Total from investment operations (7.60) (1.19) 1.96 (0.10) 1.31 -------------------------------------------------------------------------------------------------------------------------- Less distributions -------------------------------------------------------------------------------------------------------------------------- From net realized gain (0.77) -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $7.66 $6.47 $8.43 $8.33 $9.64 -------------------------------------------------------------------------------------------------------------------------- Total return(2)(%) (49.87) (15.54) 30.29 (1.19)(3) 15.73(3) RATIOS AND SUPPLEMENTAL DATA -------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $85 $85 $107 $98 $101 -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 1.63 1.89 1.98 1.75 1.74 -------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(4)(%) -- -- -- 1.79 1.79 -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%) (1.13) (1.52) (1.62) (1.44) (1.35) -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 211 267(5) 183 75 71 CLASS B SHARES PERIOD ENDED 10-31-01 10-31-02 10-31-03 10-31-04 10-31-05 -------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $15.08 $7.13 $5.98 $7.74 $7.59 -------------------------------------------------------------------------------------------------------------------------- Net investment loss(1) (0.18) (0.16) (0.15) (0.17) (0.17) -------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (7.00) (0.99) 1.91 0.02 1.31 -------------------------------------------------------------------------------------------------------------------------- Total from investment operations (7.18) (1.15) 1.76 (0.15) 1.14 -------------------------------------------------------------------------------------------------------------------------- Less distributions -------------------------------------------------------------------------------------------------------------------------- From net realized gain (0.77) -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $7.13 $5.98 $7.74 $7.59 $8.73 -------------------------------------------------------------------------------------------------------------------------- Total return(2)(%) (50.24) (16.13) 29.43 (1.94)(3) 15.02(3) RATIOS AND SUPPLEMENTAL DATA -------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $101 $46 $48 $34 $26 -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 2.33 2.56 2.67 2.45 2.44 -------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(4)(%) -- -- -- 2.49 2.49 -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%) (1.83) (2.20) (2.31) (2.14) (2.03) -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 211 267(5) 183 75 71 CLASS C SHARES PERIOD ENDED 10-31-01 10-31-02 10-31-03 10-31-04 10-31-05 -------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $15.07 $7.13 $5.99 $7.74 $7.59 -------------------------------------------------------------------------------------------------------------------------- Net investment loss(1) (0.18) (0.16) (0.15) (0.17) (0.17) -------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (6.99) (0.98) 1.90 0.02 1.31 -------------------------------------------------------------------------------------------------------------------------- Total from investment operations (7.17) (1.14) 1.75 (0.15) 1.14 -------------------------------------------------------------------------------------------------------------------------- Less distributions -------------------------------------------------------------------------------------------------------------------------- From net realized gain (0.77) -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $7.13 $5.99 $7.74 $7.59 $8.73 -------------------------------------------------------------------------------------------------------------------------- Total return(2)(%) (50.21) (15.99) 29.22 (1.94)(3) 15.02(3) RATIOS AND SUPPLEMENTAL DATA -------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $3 $2 $3 $3 $3 -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 2.33 2.58 2.68 2.45 2.44 -------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(4)(%) -- -- -- 2.49 2.49 -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%) (1.83) (2.21) (2.32) (2.14) (2.05) -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 211 267(5) 183 75 71 (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)Excludes merger activity. -------------------------------------------------------------------------------------------------------------------------- The following returns are not audited and are not part of the audited financial highlights presented above: Without the expense reductions, returns for the years ended October 31, 2004 and 2005 would have been (1.23%) and 15.68% for Class A, (1.98%) and 14.97% for Class B and (1.98%) and 14.97% for Class C, respectively. |
FUND DETAILS 61
Multi Cap Growth Fund
Figures audited by Deloitte & Touche LLP.
CLASS A SHARES PERIOD ENDED 10-31-01(1,2) 10-31-02(2) 10-31-03 10-31-04 10-31-05 -------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $10.00 $6.78 $5.71 $7.33 $7.92 -------------------------------------------------------------------------------------------------------------------------- Net investment loss(3) (0.05) (0.06) (0.03) (0.05) (0.03) -------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (3.17) (0.91) 1.65 0.64 0.67 -------------------------------------------------------------------------------------------------------------------------- Total from investment operations (3.22) (0.97) 1.62 0.59 0.64 -------------------------------------------------------------------------------------------------------------------------- Less distributions -------------------------------------------------------------------------------------------------------------------------- From net investment income -- (0.10) -- -- -- -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $6.78 $5.71 $7.33 $7.92 $8.56 -------------------------------------------------------------------------------------------------------------------------- Total return(4,5)(%) (32.20)(6) (14.24) 28.37 8.05 8.08 RATIOS AND SUPPLEMENTAL DATA -------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $2 $2 $3 $5 $6 -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 1.40(7) 1.40 1.40 1.40 1.40 -------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(8)(%) 6.03(7) 4.05 3.29 2.51 2.40 -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%) (0.80)(7) (0.96) (0.55) (0.71) (0.40) -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 106 103 66 64 56 CLASS B SHARES PERIOD ENDED 10-31-01(1,2) 10-31-02(2) 10-31-03 10-31-04 10-31-05 -------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $10.00 $6.74 $5.68 $7.24 $7.77 -------------------------------------------------------------------------------------------------------------------------- Net investment loss(3) (0.10) (0.11) (0.08) (0.10) (0.09) -------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (3.16) (0.89) 1.64 0.63 0.66 -------------------------------------------------------------------------------------------------------------------------- Total from investment operations (3.26) (1.00) 1.56 0.53 0.57 -------------------------------------------------------------------------------------------------------------------------- Less distributions -------------------------------------------------------------------------------------------------------------------------- From net investment income -- (0.06) -- -- -- -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $6.74 $5.68 $7.24 $7.77 $8.34 -------------------------------------------------------------------------------------------------------------------------- Total return(4,5)(%) (32.60)(6) (14.80) 27.46 7.32 7.34 RATIOS AND SUPPLEMENTAL DATA -------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $1 $1 $3 $3 $3 -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 2.10(7) 2.10 2.10 2.06 2.10 -------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(8)(%) 6.73(7) 4.75 3.99 3.17 3.10 -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%) (1.57)(7) (1.66) (1.27) (1.37) (1.04) -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 106 103 66 64 56 CLASS C SHARES PERIOD ENDED 10-31-01(1,2) 10-31-02(2) 10-31-03 10-31-04 10-31-05 -------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $10.00 $6.74 $5.68 $7.24 $7.77 -------------------------------------------------------------------------------------------------------------------------- Net investment loss(3) (0.10) (0.11) (0.08) (0.11) (0.08) -------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (3.16) (0.89) 1.64 0.64 0.65 -------------------------------------------------------------------------------------------------------------------------- Total from investment operations (3.26) (1.00) 1.56 0.53 0.57 -------------------------------------------------------------------------------------------------------------------------- Less distributions -------------------------------------------------------------------------------------------------------------------------- From net investment income -- (0.06) -- -- -- -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $6.74 $5.68 $7.24 $7.77 $8.34 -------------------------------------------------------------------------------------------------------------------------- Total return(4,5)(%) (32.60)(6) (14.79) 27.46 7.32 7.34 RATIOS AND SUPPLEMENTAL DATA -------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $1 $1 $1 $2 $1 -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 2.10(7) 2.09 2.10 2.10 2.10 -------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(8)(%) 6.72(7) 4.74 3.99 3.21 3.10 -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%) (1.56)(7) (1.65) (1.26) (1.39) (0.99) -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 106 103 66 64 56 (1)Class A, Class B and Class C shares began operations on 12-1-00. (2)Audited by previous auditor. (3)Based on the average of the shares outstanding. (4)Assumes dividend reinvestment and does not reflect the effect of sales charges. (5)Total returns would have been lower had certain expenses not been reduced during the periods shown. (6)Not annualized. (7)Annualized. (8)Does not take into consideration expense reductions during the periods shown. -------------------------------------------------------------------------------------------------------------------------- The following returns are not audited and are not part of the audited financial highlights presented above: Without the expense reductions, returns for the year ended October 31, 2001, 2002, 2003, 2004 and 2005 would have been (36.45%), (16.89%), 26.48%, 6.94% and 7.08% for Class A, (36.85%), (13.45%), 25.57%, 6.21% and 6.34% for Class B and (36.84%), (17.44%), 25.57%, 6.21% and 6.34% for Class C. |
62 FUND DETAILS
Small Cap Fund
Figures for the years ended 10-31-03, 10-31-04 and 10-31-05 were audited by
PricewaterhouseCoopers LLP.
CLASS A SHARES PERIOD ENDED 10-31-01 10-31-02(1) 10-31-03 10-31-04 10-31-05(2) -------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $14.64 $12.99 $8.22 $10.06 $11.44 -------------------------------------------------------------------------------------------------------------------------- Net investment loss(3) (0.29) (0.16) (0.05) (0.09) (0.11) -------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (1.17) 0.36(4) 2.22 1.61 1.61 -------------------------------------------------------------------------------------------------------------------------- Total from investment operations (1.46) 0.20 2.17 1.52 1.50 -------------------------------------------------------------------------------------------------------------------------- Less distributions -------------------------------------------------------------------------------------------------------------------------- From net realized gain (0.19) (4.97) (0.33) (0.14) (1.38) -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $12.99 $8.22 $10.06 $11.44 $11.56 -------------------------------------------------------------------------------------------------------------------------- Total return(5,6)(%) (9.92) (3.59) 27.41 15.25 13.44 RATIOS AND SUPPLEMENTAL DATA -------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $10 $11 $16 $28 $105 -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 1.97 2.28 1.18 1.23 1.57 -------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(7)(%) 2.07 2.69 2.60 2.23 1.65 -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%) (1.54) (1.92) (0.57) (0.80) (0.99) -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 65 92 79 129 145 CLASS B SHARES PERIOD ENDED 10-31-05(2,8) -------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $11.21 -------------------------------------------------------------------------------------------------------------------------- Net investment loss(3) (0.17) -------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain on investments 0.45 -------------------------------------------------------------------------------------------------------------------------- Total from investment operations 0.28 -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $11.49 -------------------------------------------------------------------------------------------------------------------------- Total return(5,6)(%) 2.50(9) RATIOS AND SUPPLEMENTAL DATA -------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $9 -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 2.27 (10) -------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(7)(%) 2.35 (10) -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%) (1.67) (10) -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 145 |
FUND DETAILS 63
Small Cap Fund (continued)
CLASS C SHARES PERIOD ENDED 10-31-05(2,8) -------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $11.21 -------------------------------------------------------------------------------------------------------------------------- Net investment loss(3) (0.17) -------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain on investments 0.45 -------------------------------------------------------------------------------------------------------------------------- Total from investment operations 0.28 -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $11.49 -------------------------------------------------------------------------------------------------------------------------- Total return(5,6)(%) 2.50(9) RATIOS AND SUPPLEMENTAL DATA -------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $31 -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 2.27(10) -------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(7)(%) 2.35(10) -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (% (1.67)(10) -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 145 (1)On 6-24-02, the Advisors' Inner Circle Fund Independence Small Cap Portfolio acquired the assets and liabilities of the UAM Independence Small Cap Portfolio, a series of the UAM Funds, Inc. The operations of the Advisers' Inner Circle Fund Independence Small Cap Portfolio prior to the acquisition were those of the predeces- sor fund, the UAM Independence Small Cap Portfolio. (2)Effective 12-3-04, shareholders of the former Independence Small Cap Portfolio became owners of an equal number of full and fractional Class A shares of the John Hancock Small Cap Fund. Additionally, the accounting and performance history of the Independence Small Cap Portfolio was redesignated as that of Class A shares of John Hancock Small Cap Fund. (3)Based on the average of the shares outstanding. (4)The per share amount does not accord with the aggregate net losses on investments because of the sales and repurchase of the Fund's shares in relation to fluctuating market value of the investments in the Fund. (5)Total returns would have been lower had certain expenses not been reduced during the periods shown. (6)Assumes dividend reinvestment and does not reflect the effect of sales charges. (7)Does not take into consideration expense reductions during the periods shown. (8)Class B and Class C shares began operations on 12-6-04. (9)Not annualized. (10)Annualized. -------------------------------------------------------------------------------------------------------------------------- The following returns are not audited and are not part of the audited financial highlights presented above: Without the expense reductions, returns for the years ended October 31, 2001, 2002, 2003, 2004 and 2005 would have been (10.02%), 4.00%, 25.99%, 14.25% and 13.36% for Class A, respectively. Returns for the period ended October 31, 2005 would have been 2.42% for Class B and 2.42% for Class C. |
64 FUND DETAILS
Small Cap Equity Fund
Figures for the years ended 10-31-03, 10-31-04 and 10-31-05 were audited by
PricewaterhouseCoopers LLP.
CLASS A SHARES PERIOD ENDED 10-31-01(1) 10-31-02(1) 10-31-03 10-31-04 10-31-05 -------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $22.07 $16.59 $11.43 $15.61 $17.38 -------------------------------------------------------------------------------------------------------------------------- Net investment loss(2) (0.18) (0.16) (0.12) (0.13) (0.20) -------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (3.49) (4.83) 4.30 1.90 2.82 -------------------------------------------------------------------------------------------------------------------------- Total from investment operations (3.67) (4.99) 4.18 1.77 2.62 -------------------------------------------------------------------------------------------------------------------------- Less distributions -------------------------------------------------------------------------------------------------------------------------- From net realized gain (1.81) (0.17) -- -- -- -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $16.59 $11.43 $15.61 $17.38 $20.00 -------------------------------------------------------------------------------------------------------------------------- Total return(3)(%) (18.02) (30.44) 36.57 11.34(4) 15.07(4) RATIOS AND SUPPLEMENTAL DATA -------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $353 $201 $220 $213 $214 -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 1.35 1.58 1.83 1.48 1.42 -------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(5)(%) -- -- -- 1.51 1.47 -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%) (0.95) (1.00) (0.91) (0.79) (1.05) -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 66 44 52 54 38 CLASS B SHARES PERIOD ENDED 10-31-01(1) 10-31-02(1) 10-31-03 10-31-04 10-31-05 -------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $21.51 $16.02 $10.96 $14.85 $16.43 -------------------------------------------------------------------------------------------------------------------------- Net investment loss(2) (0.31) (0.26) (0.19) (0.24) (0.31) -------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (3.37) (4.63) 4.08 1.82 2.65 -------------------------------------------------------------------------------------------------------------------------- Total from investment operations (3.68) (4.89) 3.89 1.58 2.34 -------------------------------------------------------------------------------------------------------------------------- Less distributions -------------------------------------------------------------------------------------------------------------------------- From net realized gain (1.81) (0.17) -- -- -- -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $16.02 $10.96 $14.85 $16.43 $18.77 -------------------------------------------------------------------------------------------------------------------------- Total return(3)(%) (18.58) (30.90) 35.49 10.64(4) 14.24(4) RATIOS AND SUPPLEMENTAL DATA -------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $288 $175 $191 $168 $140 -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 2.05 2.28 2.53 2.18 2.12 -------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(5)(%) -- -- -- 2.21 2.17 -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%) (1.65) (1.70) (1.61) (1.48) (1.75) -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 66 44 52 54 38 CLASS C SHARES PERIOD ENDED 10-31-01(1) 10-31-02(1) 10-31-03 10-31-04 10-31-05 -------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $21.51 $16.02 $10.96 $14.86 $16.43 -------------------------------------------------------------------------------------------------------------------------- Net investment loss(2) (0.30) (0.26) (0.20) (0.24) (0.31) -------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (3.38) (4.63) 4.10 1.81 2.65 -------------------------------------------------------------------------------------------------------------------------- Total from investment operations (3.68) (4.89) 3.90 1.57 2.34 -------------------------------------------------------------------------------------------------------------------------- Less distributions -------------------------------------------------------------------------------------------------------------------------- From net realized gain (1.81) (0.17) -- -- -- -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $16.02 $10.96 $14.86 $16.43 $18.77 -------------------------------------------------------------------------------------------------------------------------- Total return(3)(%) (18.58) (30.90) 35.58 10.57(4) 14.24(4) RATIOS AND SUPPLEMENTAL DATA -------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $96 $63 $74 $59 $48 -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 2.05 2.28 2.52 2.17 2.12 -------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(5)(%) -- -- -- 2.20 2.17 -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%) (1.62) (1.70) (1.61) (1.47) (1.75) -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 66 44 52 54 38 (1)Audited by previous auditor. (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)Does not take into consideration expense reductions during the periods shown. -------------------------------------------------------------------------------------------------------------------------- The following returns are not audited and are not part of the audited financial highlights presented above: Without the expense reductions, returns for the years ended October 31, 2004 and 2005 would have been 11.31% and 15.02% for Class A, 10.61% and 14.19% for Class B and 10.54% and 14.19% for Class C, respectively. |
FUND DETAILS 65
Small Cap Intrinsic Value Fund
Figures audited by Deloitte & Touche LLP.
CLASS A SHARES PERIOD ENDED 12-31-05(1) -------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $10.00 -------------------------------------------------------------------------------------------------------------------------- Net investment loss(2) (0.01) -------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain on investments 1.72 -------------------------------------------------------------------------------------------------------------------------- Total from investment operations 1.71 -------------------------------------------------------------------------------------------------------------------------- Less distributions -------------------------------------------------------------------------------------------------------------------------- From net realized gain (0.85) -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $10.86 -------------------------------------------------------------------------------------------------------------------------- Total return(3)(%) 17.28(4,5) RATIOS AND SUPPLEMENTAL DATA -------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $3 -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 1.45(6) -------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(7)(%) 4.89(6) -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%) (0.08)(6) -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 97 CLASS B SHARES PERIOD ENDED 12-31-05(1) -------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $10.00 -------------------------------------------------------------------------------------------------------------------------- Net investment loss(2) (0.05) -------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain on investments 1.71 -------------------------------------------------------------------------------------------------------------------------- Total from investment operations 1.66 -------------------------------------------------------------------------------------------------------------------------- Less distributions -------------------------------------------------------------------------------------------------------------------------- From net realized gain (0.85) -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $10.81 -------------------------------------------------------------------------------------------------------------------------- Total return(3)(%) 16.78(4,5) RATIOS AND SUPPLEMENTAL DATA -------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) --(8) -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 1.95(6) -------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(7)(%) 5.39(6) -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%) (0.57)(6) -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 97 |
66 FUND DETAILS
Small Cap Intrinsic Value Fund (continued)
CLASS C SHARES PERIOD ENDED 12-31-05(1) -------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $10.00 -------------------------------------------------------------------------------------------------------------------------- Net investment loss(2) (0.05) -------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain on investments 1.71 -------------------------------------------------------------------------------------------------------------------------- Total from investment operations 1.66 -------------------------------------------------------------------------------------------------------------------------- Less distributions -------------------------------------------------------------------------------------------------------------------------- From net realized gain (0.85) -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $10.81 -------------------------------------------------------------------------------------------------------------------------- Total return(3)(%) 16.78(4,5) RATIOS AND SUPPLEMENTAL DATA -------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) --(8) -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 1.95(6) -------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(7)(%) 5.39(6) -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%) (0.57)(6) -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 97 (1)Beginning of operations from 2-28-05 through 12-31-05. (2)Based on the average of the shares outstanding. (3)Assumes dividend reinvestment and does not reflect the effect of sales charges. (4)Not annualized. (5)Total return would have been lower had certain expenses not been reduced during the period shown. (6)Annualized. (7)Does not take into consideration expense reductions during the period shown. (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 the period ended October 31, 2005 would have been 14.40% for Class A, 13.90% for Class B and 13.90% for Class C, respectively. |
FUND DETAILS 67
Sovereign Investors Fund
Figures for the years ended 12-31-03, 12-31-04 and 12-31-05 were audited by
Deloitte & Touche LLP.
CLASS A SHARES PERIOD ENDED 12-31-01(1,2) 12-31-02(2) 12-31-03 12-31-04 12-31-05
--------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
--------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $23.35 $19.88 $15.81 $18.74 $19.54
--------------------------------------------------------------------------------------------------------------------------
Net investment income(3) 0.32 0.24 0.14 0.17 0.18
--------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (1.77) (3.94) 2.93 0.80 0.27
--------------------------------------------------------------------------------------------------------------------------
Total from investment operations (1.45) (3.70) 3.07 0.97 0.45
--------------------------------------------------------------------------------------------------------------------------
Less distributions
--------------------------------------------------------------------------------------------------------------------------
From net investment income (0.37) (0.25) (0.14) (0.17) (0.18)
--------------------------------------------------------------------------------------------------------------------------
From net realized gain (1.65) (0.12) -- -- (1.30)
--------------------------------------------------------------------------------------------------------------------------
(2.02) (0.37) (0.14) (0.17) (1.48)
--------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.88 $15.81 $18.74 $19.54 $18.51
--------------------------------------------------------------------------------------------------------------------------
Total return(4)(%) (6.06) (18.68) 19.55 5.23 2.28(5)
RATIOS AND SUPPLEMENTAL DATA
--------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $1,217 $908 $998 $936 $818
--------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.10 1.17 1.24 1.20 1.19
--------------------------------------------------------------------------------------------------------------------------
Ratio of adjusted expenses to average net assets(6)(%) -- -- -- -- 1.20
--------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 1.50 1.36 0.85 0.91 0.92
--------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 76 85 47 20 30
CLASS B SHARES PERIOD ENDED 12-31-01(1,2) 12-31-02(2) 12-31-03 12-31-04 12-31-05
--------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
--------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $23.31 $19.86 $15.79 $18.71 $19.49
--------------------------------------------------------------------------------------------------------------------------
Net investment income(3) 0.17 0.12 0.03 0.03 0.04
--------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (1.76) (3.94) 2.92 0.80 0.27
--------------------------------------------------------------------------------------------------------------------------
Total from investment operations (1.59) (3.82) 2.95 0.83 0.31
--------------------------------------------------------------------------------------------------------------------------
Less distributions
--------------------------------------------------------------------------------------------------------------------------
From net investment income (0.21) (0.13) (0.03) (0.05) (0.04)
--------------------------------------------------------------------------------------------------------------------------
From net realized gain (1.65) (0.12) -- -- (1.30)
--------------------------------------------------------------------------------------------------------------------------
(1.86) (0.25) (0.03) (0.05) (1.34)
--------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.86 $15.79 $18.71 $19.49 $18.46
--------------------------------------------------------------------------------------------------------------------------
Total return(4)(%) (6.66) (19.29) 18.75 4.45 1.57(5)
RATIOS AND SUPPLEMENTAL DATA
--------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $551 $328 $315 $232 $155
--------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.80 1.87 1.94 1.90 1.89
--------------------------------------------------------------------------------------------------------------------------
Ratio of adjusted expenses to average net assets(6)(%) -- -- -- -- 1.90
--------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 0.80 0.65 0.16 0.18 0.21
--------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 76 85 47 20 30
|
68 FUND DETAILS
Sovereign Investors Fund (continued)
CLASS A SHARES PERIOD ENDED 12-31-01(1,2) 12-31-02(2) 12-31-03 12-31-04 12-31-05
--------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
--------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $23.33 $19.88 $15.81 $18.73 $19.52
--------------------------------------------------------------------------------------------------------------------------
Net investment income(3) 0.17 0.12 0.03 0.04 0.04
--------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (1.76) (3.94) 2.92 0.80 0.27
--------------------------------------------------------------------------------------------------------------------------
Total from investment operations (1.59) (3.82) 2.95 0.84 0.31
--------------------------------------------------------------------------------------------------------------------------
Less distributions
--------------------------------------------------------------------------------------------------------------------------
From net investment income (0.21) (0.13) (0.03) (0.05) (0.04)
--------------------------------------------------------------------------------------------------------------------------
From net realized gain (1.65) (0.12) -- -- (1.30)
--------------------------------------------------------------------------------------------------------------------------
(1.86) (0.25) (0.03) (0.05) (1.34)
--------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.88 $15.81 $18.73 $19.52 $18.49
--------------------------------------------------------------------------------------------------------------------------
Total return(4)(%) (6.66) (19.27) 18.73 4.50 1.57(5)
RATIOS AND SUPPLEMENTAL DATA
--------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $17 $24 $32 $27 $17
--------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.80 1.87 1.94 1.90 1.89
--------------------------------------------------------------------------------------------------------------------------
Ratio of adjusted expenses to average net assets(6)(%) -- -- -- -- 1.90
--------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 0.82 0.67 0.14 0.19 0.21
--------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 76 85 47 20 30
(1)Audited by previous auditor.
(2)As required, effective 1-1-01, the Fund has adopted the provisions of the
AICPA Audit and Accounting Guide for Investment Companies, as revised,
relating to the amortization of premiums and accretion of discounts
on debt securities. The effect of this change on per share
amounts for the year ended 12-31-01, was to decrease net investment income per
share by $0.01, decrease net realized and unrealized losses per share by $0.01,
and, had the Fund not made these changes to amortization and accretion, the
ratio of net investment income to average net assets would have been 1.53%,
0.83% and 0.85% for Class A, Class B and Class C shares, respectively. Per
share ratios and supplemental data for periods prior to 1-1-01, have not been
restated to reflect this change in presentation.
(3)Based on the average of the shares outstanding.
(4)Assumes dividend reinvestment and does not reflect the effect of sales charges.
(5)Total return would have been lower had certain expenses not been reduced during the period shown.
(6)Does not take into consideration expense reductions during the period shown.
--------------------------------------------------------------------------------------------------------------------------
The following returns are not audited and are not part of the audited financial
highlights presented above:
Without the expense reductions, returns for the year ended December 31, 2005
would have been 2.27% for Class A, 1.56% for Class B and 1.56% for Class C,
respectively.
|
FUND DETAILS 69
U.S. Global Leaders Growth Fund
Figures for the years ended 12-31-03, 12-31-04 and 12-31-05 were audited by
PricewaterhouseCoopers LLP.
CLASS A SHARES PERIOD ENDED 6-30-01(1) 6-30-02(1,2) 12-31-02(2,3) 12-31-03 12-31-04 12-31-05 ------------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $26.37 $24.98 $24.03 $21.57 $25.72 $27.84 ------------------------------------------------------------------------------------------------------------------------------- Net investment income (loss)(4) (0.14) (0.09) 0.01 --(5) 0.15 (0.04) ------------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (1.25) (0.86) (2.47) 4.15 2.04 0.64 ------------------------------------------------------------------------------------------------------------------------------- Total from investment operations (1.39) (0.95) (2.46) 4.15 2.19 0.60 ------------------------------------------------------------------------------------------------------------------------------- Less distributions ------------------------------------------------------------------------------------------------------------------------------- From net investment income -- -- -- -- (0.07) -- ------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $24.98 $24.03 $21.57 $25.72 $27.84 $28.44 ------------------------------------------------------------------------------------------------------------------------------- Total return(6)(%) (5.27) (3.80)(7) (10.24)(7,8) 19.24(7) 8.51 2.16(7) RATIOS AND SUPPLEMENTAL DATA ------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $81 $150 $237 $392 $893 $1,271 ------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 1.38 1.37 1.27(9) 1.35 1.32 1.28 ------------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(10)(%) -- 1.40 1.36(9) 1.36 -- 1.33 ------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) (0.54) (0.36) 0.07(9) (0.02) 0.57 (0.14) ------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 3 3 1 15 16 28(11) CLASS B SHARES PERIOD ENDED 6-30-02(1,2) 12-31-02(2,3) 12-31-03 12-31-04 12-31-05 ------------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $25.81 $24.01 $21.47 $25.41 $27.36 ------------------------------------------------------------------------------------------------------------------------------- Net investment loss(4) (0.02) (0.07) (0.18) (0.05) (0.24) ------------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (1.78) (2.47) 4.12 2.00 0.63 ------------------------------------------------------------------------------------------------------------------------------- Total from investment operations (1.80) (2.54) 3.94 1.95 0.39 ------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $24.01 $21.47 $25.41 $27.36 $27.75 ------------------------------------------------------------------------------------------------------------------------------- Total return(6)(%) (6.97)(7,8) (10.58)(7,8) 18.35(7) 7.67 1.43(7) RATIOS AND SUPPLEMENTAL DATA ------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $12 $73 $164 $208 $218 ------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 2.13(9) 2.02(9) 2.10 2.07 2.03 ------------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(10)(%) 2.39(9) 2.11(9) 2.11 -- 2.08 ------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%) (0.93)(9) (0.67)(9) (0.77) (0.21) (0.88) ------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 3 1 15 16 28(11) CLASS C SHARES PERIOD ENDED 6-30-02(1,2) 12-31-02(2,3) 12-31-03 12-31-04 12-31-05 ------------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $25.81 $24.01 $21.47 $25.41 $27.36 ------------------------------------------------------------------------------------------------------------------------------- Net investment loss(4) (0.02) (0.07) (0.18) (0.04) (0.24) ------------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (1.78) (2.47) 4.12 1.99 0.63 ------------------------------------------------------------------------------------------------------------------------------- Total from investment operations (1.80) (2.54) 3.94 1.95 0.39 ------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $24.01 $21.47 $25.41 $27.36 $27.75 ------------------------------------------------------------------------------------------------------------------------------- Total return(6)(%) (6.97)(7,8) (10.58)(7,8) 18.35(7) 7.67 1.43(7) RATIOS AND SUPPLEMENTAL DATA ------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $6 $49 $160 $246 $284 ------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 2.12(9) 2.02(9) 2.10 2.07 2.03 ------------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(10)(%) 2.38(9) 2.11(9) 2.11 -- 2.08 ------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%) (0.96)(9) (0.67)(9) (0.77) (0.17) (0.88) ------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 3 1 15 16 28(11) (1)Audited by previous auditor. (2)Effective 5-17-02, shareholders of the former US Global Leaders Growth Fund became owners of that number of full and fractional shares of Class A shares of the John Hancock U.S. Global Leaders Growth Fund. Additionally, the accounting and performance history of the former U.S. Global Leaders Growth Fund was redesignated as that of Class A of John Hancock U.S. Global Leaders Growth Fund. (3)Effective 12-31-02, the fiscal year changed from June 30 to December 31. (4)Based on the average of the shares outstanding. (5)Less than $0.01 per share. (6)Assumes dividend reinvestment and does not reflect the effect of sales charges. (7)Total returns would have been lower had certain expenses not been reduced during the periods shown. (8)Not annualized. (9)Annualized. (10)Does not take into consideration expense reductions during the periods shown. (11)Excludes merger activity. (12)Class B and Class C shares began operations on 5-20-02. Class R shares began on 8-5-03. ------------------------------------------------------------------------------------------------------------------------------- The following returns are not audited and are not part of the audited financial highlights presented above: Without the expense reductions, returns for the periods ended June 30, 2002 and December 31, 2002 and years ended December 31, 2003 and 2005 would have been (3.83%), (10.29%), 19.23% and 2.11% for Class A, (7.00%), (10.63%), 18.34% and 1.38% for Class B, and (7.00%), (10.63%),18.34% and 1.38% for Class C, respectively. |
70 FUND DETAILS
For more information
Two documents are available that offer further information on John Hancock equity 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.
[C]2006 JOHN HANCOCK FUNDS, LLC EQTPN 3/06
[GRAPHIC OMITTED: JOHN HANCOCK FUND]
John Hancock Funds, LLC
MEMBER NASD
601 Congress Street
Boston, MA 02210-2805
www.jhfunds.com
Now available: electronic delivery
www.jhfunds.com/edelivery
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
In addition, you may visit the funds' Web site at www.jhfunds.com to obtain a free copy of a prospectus, SAI, annual or semiannual report or to request other information.
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
[GRAPHIC OMITTED JOHN HANCOCK]
John Hancock Large Cap Intrinsic Value Fund
Class A, Class B and Class C shares
Prospectus
3.1.2006
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 LARGE CAP INTRINSIC VALUE 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 --------------------------------------------------------------------- |
Large Cap Intrinsic Value Fund |
[GRAPHIC OMITTED: COMPASS]
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 equity securities of large-capitalization companies (companies with market capitalizations in excess of $4.5 billion). Equity securities include common and preferred stocks and their equivalents.
In managing the portfolio, the managers emphasize a value-oriented bottom-up approach to individual stock selection. With the aid of proprietary financial models, the management team looks for companies that are selling at what appear to be substantial discounts to their long-term intrinsic values. These companies often have identifiable catalysts for growth, such as new products, business reorganizations or mergers.
The management team uses fundamental financial analysis to identify individual companies with substantial cash flows, reliable revenue streams, strong competitive positions and strong management. The fund may attempt to take advantage of short-term market volatility by investing in corporate restructurings or pending acquisitions.
The fund may also invest up to 35% of assets in foreign securities. The fund may invest up to 20% of assets in bonds of any maturity rated as low as CC/Ca and their unrated equivalents (bonds below BBB/Baa are considered junk bonds). The fund may make limited use of certain derivatives (investments whose value is based on securities, indexes or currencies).
In abnormal circumstances, the fund may temporarily invest extensively in investment-grade short-term securities. In these and other cases, the fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction costs (thus lowering performance) and increase your taxable distributions.
[GRAPHIC OMITTED BAR CHART]
PAST PERFORMANCE
This section normally shows how the fund's total return has varied from year to year, along with a broad-based market index for reference. Because the fund has existed for less than a full calendar year, there is no past performance to report.
[GRAPHIC OMITTED WORM CHART]
MAIN RISKS
The value of your investment will fluctuate in response to stock and bond market movements.
The fund's management strategy has a significant influence on fund performance. Large-capitalization stocks as a group could fall out of favor with the market, causing the fund to underperform investments that focus on small- or medium-capitalization stocks. Similarly, value stocks could under-perform growth stocks. To the extent that the fund invests in a given industry, its performance will be hurt if that industry performs poorly. 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 investment 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 and longer maturity will increase volatility. Junk bond prices can fall on bad news about the economy, an industry or a company.
Investments in the fund are not bank deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. You could lose money by investing in this fund.
YOUR EXPENSES
Transaction expenses are charged directly to your account. Operating expenses are paid from the fund's assets, and therefore are paid by shareholders indirectly. The figures below show estimated annual expenses. Actual expenses may be greater or less.
-------------------------------------------------------------------------------- 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 1.83% 1.83% 1.83% -------------------------------------------------------------------------------- Total fund operating expenses 2.88% 2.58% 2.58% -------------------------------------------------------------------------------- Contractual expense reimbursement (at least until 4-30-06) 1.48% 1.48% 1.48% -------------------------------------------------------------------------------- Net annual operating expenses 1.40% 2.10% 2.10% |
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 $635 $1,191 $1,796 $2,425 -------------------------------------------------------------------------------- Class B with redemption $713 $1,236 $1,906 $3,573 -------------------------------------------------------------------------------- Class B without redemption $213 $936 $1,706 $3,573 -------------------------------------------------------------------------------- Class C with redemption $313 $936 $1,706 $3,730 -------------------------------------------------------------------------------- Class C without redemption $213 $936 $1,706 $3,730 |
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."
Sovereign Asset Management LLC
Responsible for day-to-day investment
management
A subsidiary of John Hancock Financial
Services, Inc.
Founded in 1979
Supervised by the adviser
PORTFOLIO MANAGERS
Timothy E. Keefe, CFA
Senior vice president of Sovereign Asset Management LLC (since 2005)
Senior vice president and chief equity officer, John Hancock
Advisers, LLC (2004-2005)
Managed fund since it began in 2005
Partner and portfolio manager, Thomas
Weisel Partners (2000--2004)
Began business career in 1987
Timothy M. Malloy
Second vice president of Sovereign Asset
Management LLC (since 2005)
Second vice president, joined John Hancock
Advisers, LLC (2004-2005)
Managed fund since it began in 2005
Investment analyst, Thomas Weisel Partners
(2000--2004)
Investment analyst, Baring Asset Management
(2000--2001)
Began business career in 1993
Managers share investment strategy and decisions
FUND CODES
Class A Ticker --
CUSIP 41013P798
Newspaper --
SEC number 811-0560
JH fund number 69
Class B Ticker --
CUSIP 41013P780
Newspaper --
SEC number 811-0560
JH fund number 169
Class C Ticker --
CUSIP 41013P772
Newspaper --
SEC number 811-0560
JH fund number 569
5
|
Your account |
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.
* Distribution and service (12b-1) fees of 1.00%.
* A deferred sales charge, as described on the following page.
* 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.
The maximum amount you may invest in Class B shares with any single purchase request is $99,999, and the maximum amount you may invest in Class C shares with any single purchase is $999,999. Signature Services may accept a purchase request for Class B shares for $100,000 or more or for Class C shares for $1,000,000 or more when the purchase is pursuant to the Reinstatement Privilege (see Sales Charge Reductions and Waivers below).
For actual past expenses of each share class, see the fund information earlier in this prospectus.
Because 12b-1 fees are paid on an ongoing basis, they will increase the cost of your investment and 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 LLC may pay significant compensation out of its own resources to your broker-dealer. These payments are described in the Statement of Additional Information (SAI).
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 representative 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 living in the same household. This includes investments held in a retirement account, an employee benefit plan or with a broker or financial representative 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 representative or refer to the section entitled "Initial Sales Charge on Class A Shares" in the fund's SAI. You may request a SAI from your broker or financial representative, access the fund's Web site at www.jhfunds.com or call John Hancock Signature Services, Inc., (Signature Services), the fund's transfer agent, 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:
CDSC on shares
Your investment being sold
--------------------------------------------------------------------------------
First $1M -- $4,999,999 1.00%
--------------------------------------------------------------------------------
Next $1 -- $5M above that 0.50%
--------------------------------------------------------------------------------
Next $1 or more above that 0.25%
|
For purposes of this CDSC, all purchases made during a calendar month are counted as having been made on the first day of that month.
6 YOUR ACCOUNT
The CDSC is based on the lesser of the original purchase cost or the current market value of the shares being sold, and is not charged on shares you acquired by reinvesting your dividends. To keep your CDSC as low as possible, each time you place a request to sell shares we will first sell any shares in your account that are not subject to a CDSC.
Class B 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.
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 Class A shares of multiple funds for purposes of calculating the 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 back into the same share class of the same John Hancock fund and account from which it was removed, within 120 days without a sales charge, as long as Signature Services or your financial representative 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.
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, LLC
* 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 held in a SIMPLE IRA, SEP or SARSEP invested in John Hancock funds directly to an IRA
* individuals converting assets held in an IRA, SIMPLE IRA, SEP or SARSEP invested in John Hancock funds directly to a ROTH IRA
* 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, LLC (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)
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, LLC
3 All shareholders must complete the account application, carefully following the instructions. If you have any questions, please contact your financial representative or call Signature Services at 1-888-225-5291.
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.
6 Important information about opening a new account To help the government fight the funding of terrorism and money laundering activities, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), requires all financial institutions to obtain, verify, and record information that identifies each person or entity that opens an account.
For individual investors opening an account: When you open an account, you will be asked for your name, residential address, date of birth, and Social Security number.
For investors other than individuals: When you open an account, you will be asked for the name of the entity, its principal place of business and taxpayer identification number (TIN) and may be requested to provide information on persons with authority or control over the account such as name, residential address, date of birth and social security number. You may also be asked to provide documents, such as articles of incorporation, trust instruments or partnership aggreements and other information that will help Signature Services identify the entity. Please see the Mutual Fund Account Application for more details.
8 YOUR ACCOUNT
* Make out a check for the investment amount, payable to "John Hancock Signature Services, Inc."
* Deliver the check and your completed application to your financial representative, or mail them to Signature Services (address below).
* Fill out the detachable investment slip from 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).
[GRAPHIC OMITTED: BLACK AND WHITE ARROWS]
* 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.
[GRAPHIC OMITTED: JAGGED ARROW]
* Deliver your completed application to your financial representative, or mail it to Signature Services.
* Obtain your account number by calling your financial representative or Signature Services.
* Obtain wiring instructions by calling Signature Services at 1-800-225-5291.
* Instruct your bank to wire the amount of your investment.
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.
* Obtain wiring instructions by calling Signature Services at 1-800-225-5291.
* Instruct your bank to wire the amount of your investment.
Specify the fund name, your share class, your account number and the name(s) in which the account is registered. Your bank may charge a fee to wire funds.
[GRAPHIC OMITTED: COMPUTER]
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 OMITTED: TELEPHONE]
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
* Accounts of any type.
* Sales of any amount.
* Write a letter of instruction or complete a stock power indicating the fund name, your share class, your account number, the name(s) in which the account is registered and the dollar value or number of shares you wish to sell.
* 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.
[GRAPHIC OMITTED: COMPUTER]
* Most accounts.
* Sales of up to $100,000.
* Log on to www.jhfunds.com to initiate redemptions from your funds.
[GRAPHIC OMITTED: TELEPHONE]
* Most accounts.
* Sales of up to $100,000.
* 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.
[GRAPHIC OMITTED: Jagged ARROW]
* Requests by letter to sell any amount.
* Requests by Internet or phone to sell up to $100,000.
* To verify that the Internet or telephone redemption privilege is in place on an account, 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.
[GRAPHIC OMITTED: BLACK AND WHITE ARROWS]
* Accounts of any type.
* Sales of any amount.
* Obtain a current prospectus for the fund into which you are exchanging by Internet or by 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.
* On the letter, the signatures and titles of all persons authorized to sign for the account, exactly as the account is registered.
* Medallion signature guarantee if applicable (see above).
* Letter of instruction.
* 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.
* Medallion signature guarantee if applicable (see above).
* 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.
* Medallion signature guarantee if applicable (see above).
Joint tenancy shareholders with rights of survivorship with a deceased co-tenant(s).
* Copy of death certificate.
* Medallion signature guarantee if applicable (see above).
* Inheritance tax waiver (if applicable).
* Copy of order appointing executor, certified within the past 12 months.
* Medallion signature guarantee if applicable (see above).
* Inheritance tax waiver (if applicable).
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
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 (SAI).
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. In unusual circumstances, the fund has the right to redeem in kind.
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, (with respect to cancellations, within one day of the order), 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 "Limitation 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 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.
12 YOUR ACCOUNT
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, takes steps reasonably designed to curtail excessive trading practices.
Limitation 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 "Limitation 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 records of the fund's underlying beneficial owners. Omnibus or othernominee 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 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.
* The fund may invest 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." 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.
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 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, LLC 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, LLC may close your account, redeem your shares at the next NAV minus any applicable sales charges and take any other steps that it deems reasonable.
YOUR ACCOUNT 13
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.
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 long-term capital gains are taxable as capital gains; dividends from the fund's income and short-term capital gains are generally taxable as ordinary income. Whether gains are short term or long term depends on the fund's holding period. Some dividends paid in January may be taxable as if they had been paid the previous December.
The Form 1099 that is mailed to you every January details your dividends and their federal tax category, although you should verify your tax liability with your tax professional.
Taxability of transactions Any time you sell or exchange shares, it is considered a taxable event for you. Depending on the purchase price and the sale price of the shares you sell or exchange, you may have a gain or a loss on the transaction. You are responsible for any tax liabilities generated by your transactions.
Small accounts (non-retirement only) If you draw down a non-retirement account so that its total value is less than $1,000, you may be asked to purchase more shares within 30 days. If you do not take action, your fund may close out your account and mail you the proceeds. Alternatively, 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
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, LLC 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 SAI 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 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
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 reserve the right to close the fund , if appropriate.
The trustees also have the power to change the fund's policy of investing at least 80% of its assets in large-capitalization companies without shareholder approval. The fund will provide shareholders with written notice at least 60 days prior to a change in this 80% policy.
The management firm The fund is managed by John Hancock Advisers, LLC. Founded in 1968, John Hancock Advisers, LLC is a wholly owned subsidiary of John Hancock Financial Services, Inc. (a subsidiary of Manulife Financial Corporation) and managed approximately $28 billion in assets as of December 31, 2005.
Management fee The fund pays the investment adviser a management fee at an annual rate of 0.00% of the fund's average daily net assets after the expense reimbursement.
A discussion regarding the basis for the board of trustees approving the fund's investment advisory agreement is available the fund's annual report to shareholders dated December 31, 2005.
Subadvisers Sovereign Asset Management LLC ("Sovereign") subadvises the Fund. Sovereign was founded in 1979 and provides investment advisory services to individual and institutional investors. Sovereign is a wholly owned subsidiary of John Hancock Financial Services, Inc. (a subsidiary of Manulife Financial Corporation) and, as of December 31, 2005, had a total assets under management of approximately $25 billion.
Shareholders
--------------------------------------------
| |
__ | |
| | |
| Distribution and Financial services firms and |
| shareholder services their representatives |
| |------------------------------------------------
| | Advise current and prospective 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 shares Handles shareholder services, including record-
| through selling brokers, financial planners keeping and statements, distribution of dividends
| and other financial representatives. and processing of buy and sell requests.
| | |
| | |
__ |-----------------------------------|----------|
|
Subadviser Investment adviser | Custodian __
---------- ------------------ | --------- |
Sovereign Asset Management LLC | | John Hancock Advisers, LLC | The Bank of New York |
101 Huntington Avenue | | 601 Congress Street | One Wall Street |
Boston, MA 02199 |--| Boston, MA 02210-2805 | New York, NY 10286 |
| |
| | Manages the funds' business | Holds the funds' assets, settles Asset |
Provide portfolio management to | | and investment activities. | all portfolio trades and collects Management |
certain funds. | | most of the valuation data |
| | required for calculating the |
| | fund's NAV. |
| | | |
| | | __
-------------------------------
|
Trustees
------------
Oversee the funds' 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.
Large Cap Intrinsic Value Fund
Figures audited by Deloitte & Touche LLP.
-------------------------------------------------------------------------------- CLASS A SHARES PERIOD ENDED 12-31-05 (1) -------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE -------------------------------------------------------------------------------- Net asset value, beginning of period $10.00 -------------------------------------------------------------------------------- Net investment income (2) -- (3) -------------------------------------------------------------------------------- Net realized and unrealized gain on investments 1.88 -------------------------------------------------------------------------------- Total from investment operations 1.88 -------------------------------------------------------------------------------- Less distributions -------------------------------------------------------------------------------- From net realized gain (0.31) -------------------------------------------------------------------------------- Net asset value, end of period $11.57 -------------------------------------------------------------------------------- Total return (4)(%) 18.85 (5,6) RATIOS AND SUPPLEMENTAL DATA -------------------------------------------------------------------------------- Net assets, end of period (in millions) $3 -------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 1.35 (7) -------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(8)(%) 2.88 (7) -------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) 0.03 (7) -------------------------------------------------------------------------------- Portfolio turnover (%) 77 -------------------------------------------------------------------------------- CLASS B SHARES PERIOD ENDED 12-31-05 (1) -------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE -------------------------------------------------------------------------------- Net asset value, beginning of period $10.00 -------------------------------------------------------------------------------- Net investment loss(2) (0.04) -------------------------------------------------------------------------------- Net realized and unrealized gain on investments 1.87 -------------------------------------------------------------------------------- Total from investment operations 1.83 -------------------------------------------------------------------------------- Less distributions -------------------------------------------------------------------------------- From net realized gain (0.31) -------------------------------------------------------------------------------- Net asset value, end of period $11.52 -------------------------------------------------------------------------------- Total return(4)(%) 18.35 (5,6) -------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA -------------------------------------------------------------------------------- Net assets, end of period (in millions) -- (9) -------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 1.85 (7) -------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(8)(%) 3.38 (7) -------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%) (0.47) (7) -------------------------------------------------------------------------------- Portfolio turnover (%) 77 |
FUND DETAILS 17
Large Cap Intrinsic Value Fund (continued)
CLASS C SHARES PERIOD ENDED 12-31-05 (1) -------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE -------------------------------------------------------------------------------- Net asset value, beginning of period $10.00 -------------------------------------------------------------------------------- Net investment loss(2) (0.04) -------------------------------------------------------------------------------- Net realized and unrealized gain on investments 1.87 -------------------------------------------------------------------------------- Total from investment operations 1.83 -------------------------------------------------------------------------------- Less distributions -------------------------------------------------------------------------------- From net realized gain (0.31) -------------------------------------------------------------------------------- Net asset value, end of period $11.52 -------------------------------------------------------------------------------- Total return(4)(%) 18.35 (5,6) RATIOS AND SUPPLEMENTAL DATA -------------------------------------------------------------------------------- Net assets, end of period (in millions) -- (9) -------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 1.85 (7) -------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(8)(%) 3.38 (7) -------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%) (0.47) (7) -------------------------------------------------------------------------------- Portfolio turnover (%) 77 -------------------------------------------------------------------------------- |
1 Beginning of operations from 2-28-05 through 12-31-05.
2 Based on the average of the shares outstanding.
3 Less than $0.01 per share.
4 Assumes dividend reinvestment and does not reflect the effect of sales charges.
5 Not annualized.
6 Total return would have been lower had certain expenses not been reduced during the period shown.
7 Annualized.
8 Does not take into consideration expense reductions during the period shown.
9 Less than $500,000.
18 FUND DETAILS
For more information
Two documents are available that offer further information on John Hancock Large Cap Intrinsic Value 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
In addition, you may visit the funds' Web site at www.jhfunds.com to obtain a free copy of a prospectus, SAI, annual or semiannual report or to request other information.
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]2006 JOHN HANCOCK FUNDS, LLC 690PN 3/06
[GRAPHIC OMITTED: JOHN HANCOCK LOGO]
John Hancock Funds, LLC
MEMBER NASD
601 Congress Street Boston, MA 02210-2805
www.jhfunds.com
[LOGO OMITTED: JOHN HANCOCK FUNDS]
John Hancock Equity Funds
INSTITUTIONAL CLASS I
Balanced Fund
Classic Value Fund
Core Equity Fund
Large Cap Equity Fund
Large Cap Select Fund
Mid Cap Equity Fund
Mid Cap Growth Fund
Small Cap Fund
Small Cap Equity Fund
Small Cap Intrinsic Value Fund
Sovereign Investors Fund
U.S. Global Leaders Growth Fund
Prospectus 3.1.2006
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.
Balanced Fund 4 Classic Value Fund 6 Core Equity Fund 8 Large Cap Equity Fund 10 Large Cap Select Fund 12 Mid Cap Equity Fund 14 Mid Cap Growth Fund 16 Small Cap Fund 18 Small Cap Equity Fund 20 Small Cap Intrinsic Value Fund 22 Sovereign Investors Fund 24 U.S. Global Leaders Growth Fund 26 |
Who can buy shares 28 Opening an account 28 Buying shares 29 Selling shares 30 Transaction policies 32 Dividends and account policies 34 Additional investor services 34 FUND DETAILS --------------------------------------------------------------------- Business structure 35 Management biographies 36 Financial highlights 37 FOR MORE INFORMATION BACK COVER --------------------------------------------------------------------- |
Overview --------------------------------------------------------------------- |
John Hancock Equity Funds -- Institutional Class I
These funds offer clearly defined investment strategies, each focusing on a particular market segment and following a disciplined investment process. Blended together or selected individually, these funds are designed to meet the needs of investors seeking risk-managed investment strategies from seasoned professional portfolio managers.
Risks of mutual funds
Mutual funds are not bank deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Because you could lose money by investing in these funds, be sure to read all risk disclosure carefully before investing.
The management firm
All John Hancock equity 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, 2005, managed approximately $28 billion in assets.
Concise fund-by-fund descriptions begin on the next page. Each description provides the following information:
[GRAPHIC OMITTED: COMPASS]
Goal and strategy
The fund's particular investment goals and the strategies it intends to use in pursuing those goals.
[GRAPHIC OMITTED: BAR CHART]
The fund's total return, measured year-by-year and over time.
[GRAPHIC OMITTED: WORM CHART]
Main risks
The major risk factors associated with the fund.
[GRAPHIC OMITTED: CALCULATOR]
Your expenses
The overall costs borne by an investor in the fund, including sales charges and annual expenses.
Balanced Fund
[GRAPHIC OMITTED: COMPASS]
GOAL AND STRATEGY
The fund seeks current income, long-term growth of capital and income and preservation of capital. To pursue these goals, the fund allocates its investments among a diversified mix of debt and equity securities. The fund normally invests at least 25% of assets in equity securities and at least 25% of assets in senior debt securities.
With regard to the fund's equity securities, the managers look for companies that appear to be undervalued compared to their historical valuations relative to the market. The managers use fundamental financial analysis and proprietary financial models to identify companies of any size that are selling at a discount as measured by ratios such as price-to-book, price-to-earnings and price-to-sales.
The management team then looks for a positive catalyst in a company's near-term
outlook that they believe will accelerate earnings or improve the value of the
company's assets. These positive catalysts may include, but are not limited to:
new, improved or unique products or services; new or rapidly expanding markets
for the company's products; new management; changes in the economic, financial,
political or regulatory environment affecting the company; or a business
strategy not recognized by the marketplace. The managers also consider an
issuer's dividend-paying prospects and overall financial strength.
The fund's debt securities are used to enhance current income and provide some added stability. The fund's investments in bonds of any maturity are primarily investment grade (rated BBB or above and
their unrated equivalents). However, up to 20% of assets may be in junk bonds rated as low as C and their unrated equivalents.
Although the fund invests primarily in U.S. securities, it may invest up to 35% of assets in foreign securities. The fund may also make limited use of certain derivatives (investments whose value is based on indexes, securities or currencies).
In abnormal market conditions, the fund may temporarily invest extensively in investment-grade short-term securities. In these and other cases, the fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction costs (thus lowering performance) and increase your taxable distributions.
PAST PERFORMANCE
The graph shows how the fund's total return has varied from year to year, while the table shows performance over time (along with broad-based market indexes for reference). This information may help provide an indication of the fund's risks. All figures assume dividend reinvestment. Past performance before and after taxes does not indicate future results.
Class I, total returns
Best quarter: Q2 '03, 9.92%
Worst quarter: Q1 '03, -0.71%
After-tax returns
After-tax returns are shown for Class I shares.
They are calculated using the historical highest
individual federal marginal income-tax rates and
do not reflect the impact of state and local taxes.
Actual after-tax returns depend on the investor's
tax situation and may differ from those shown.
The after-tax returns shown are not relevant to
investors who hold their fund shares through tax-
deferred arrangements such as 401(k) plans or
individual retirement accounts.
Indexes (reflect no fees or taxes)
Standard & Poor's 500 Index, an unmanaged
index that includes 500 widely traded stocks.
Lehman Brothers Government/Credit
Bond Index, an unmanaged index of U.S.
government, U.S. corporate and Yankee bonds.
Class I calendar year total returns
------------------------------------------------------------------------------
2003 2004 2005
------------------------------------------------------------------------------
18.87% 7.31% 14.02%
Average annual total returns for periods ending 12-31-05
1 year Life of
Class I
------------------------------------------------------------------------------
Class I before tax (began 3-1-02) 14.02% 4.94%
------------------------------------------------------------------------------
Class I after tax on distributions 12.71% 3.88%
------------------------------------------------------------------------------
Class I after tax on distributions, with sale 9.86% 3.64%
------------------------------------------------------------------------------
Standard & Poor's 500 Index 4.91% 4.41%
------------------------------------------------------------------------------
Lehman Brothers Government/Credit Bond Index 2.37% 5.46%
4
|
[GRAPHIC OMITTED: WORM CHART]
MAIN RISKS
The value of your investment will fluctuate in response to stock and bond market movements.
The fund's management strategy has a significant influence on fund performance. 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, these risks could increase volatility or reduce performance:
* Stocks of small- and medium-capitalization companies can be more volatile than those of larger companies.
* 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.
* 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 issuer, an industry or the economy in general.
* Foreign investments carry additional risks, including potentially unfavorable currency exchange rates, inadequate or inaccurate financial information and social or political instability.
YOUR EXPENSES
Operating expenses are paid from the fund's assets, and therefore are paid by
shareholders indirectly.
Annual operating expenses ------------------------------------------------------------------------------ Management fee 0.60% ------------------------------------------------------------------------------ Other expenses 0.24% ------------------------------------------------------------------------------ Total fund operating expenses 0.84% |
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.
Sovereign Asset Management LLC
Responsible for day-to-day investment management
A subsidiary of John Hancock Financial Services, Inc.
Founded in 1979
Supervised by the Adviser
PORTFOLIO MANAGERS
Timothy E. Keefe, CFA
Joined fund team in 2004
Day-to-day purchase and sale decisions
Roger C. Hamilton
Joined fund team in 2003 Analysis of specific issuers
See page 36 for the management biographies.
FUND CODES
Class I Ticker SVBIX
CUSIP 47803P807
Newspaper --
SEC number 811-0560
JH fund number 432
5
|
Classic Value Fund
GRAPHIC OMITTED: COMPASS]
GOAL AND STRATEGY
The fund seeks long-term growth of capital. To pursue this goal, the fund normally invests at least 80% of its net assets in domestic equity securities. The fund is non-diversified and may invest more than 5% of assets in securities of individual companies.
In managing the portfolio, the subadviser seeks to identify companies that it believes are currently undervalued relative to the market, based on estimated future earnings and cash fow. These companies generally have market values at valuation ratios, such as price-to-book, below market average, as defined by the Standard & Poor's 500 Index.
In choosing individual securities, the subad-viser screens a dynamic universe of the 500 largest publicly traded U.S. companies. (As of January 31, 2006, this included companies with market values above approximately $4.8 billion.) Using fundamental research and a proprietary computer model, the subadviser ranks these companies from the cheapest to the most expensive on the basis of current share price to the subadviser's estimate of normal long-term earnings power. The subadviser's management team intensively evaluates the cheapest companies to construct a portfolio of stocks that the subadviser believes generally have the following characteristics:
* cheap on the basis of current price to estimated normal level of earnings
* current earnings below normal levels
* a sound plan to restore earnings to normal
* a sustainable business advantage
Before investing, the subadviser considers the value of an entire business relative to its price. The subadviser views itself as a long-term business investor, rather than a stock buyer. This systematic process is intended to ensure that the fund's portfolio avoids the emotional inputs that can lead to overvalued securities.
The subadviser approaches sell decisions from the same disciplined framework. The subadviser generally sells a security when it reaches fair value, there are more attractive opportunities, or there is a change in company fundamentals.
Under normal market conditions, the fund is almost entirely invested in stocks. The fund may invest in securities of foreign issuers.
In abnormal market conditions, the fund may invest extensively in investment-grade short-term securities. In these and other cases, the fund might not achieve its goal.
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 broad-based market indexes for reference). This information may help to provide an indication of the fund's risks. Past performance before and after taxes does not indicate future results.
Class I, total returns
Best quarter: Q2 '03, 20.72%
Worst quarter: Q1 '03, -5.57%
After-tax returns
After-tax returns are shown for Class I shares.
They are calculated using the historical highest
individual federal marginal income-tax rates and
do not reflect the impact of state and local taxes.
Actual after-tax returns depend on the investor's
tax situation and may differ from those shown.
The after-tax returns shown are not relevant to
investors who hold their fund shares through
tax-deferred arrangements such as 401(k) plans
or individual retirement accounts.
Indexes (reflect no fees or taxes)
Standard & Poor's 500 Index,
an unmanaged index that includes 500 widely
traded stocks.
Russell 1000 Value Index, an unmanaged
index of stocks in the Russell 1000 Index (the
1,000 largest U.S. publicly traded companies)
with low price-to-book ratios.
Class I calendar year total returns
------------------------------------------------------------------------------
2003 2004 2005
------------------------------------------------------------------------------
36.81% 14.77% 9.28%
Average annual total returns for periods ending 12-31-05
Life of
1 year Class I
------------------------------------------------------------------------------
Class I before tax (began 11-11-02) 9.28% 21.33%
------------------------------------------------------------------------------
Class I after tax on distributions 8.72% 20.81%
------------------------------------------------------------------------------
Class I after tax on distributions, with sale 6.23% 18.35%
------------------------------------------------------------------------------
Standard & Poor's 500 Index 4.91% 13.98%
------------------------------------------------------------------------------
Russell 1000 Value Index 7.05% 17.79%
6
|
[GRAPHIC OMITTED: WORM CHART]
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. Large-capitalization stocks as a group could fall out of favor with the market, causing the fund to underperform investments that focus on small- or medium-capitalization stocks. The fund focuses on value stocks, which could underperform growth stocks.
To the extent that the fund invests in a given industry, its performance will be hurt if that industry performs poorly. In addition, if the subadviser'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, 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.
* In a down market, higher-risk securities 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.
YOUR EXPENSES
Operating expenses are paid from the fund's assets, and therefore are paid by
shareholders indirectly.
Annual operating expenses ------------------------------------------------------------------------------ Management fee 0.84% ------------------------------------------------------------------------------ Other expenses 0.14% ------------------------------------------------------------------------------ Total fund operating expenses 0.98% |
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 I $100 $312 $542 $1,201 ------------------------------------------------------------------------------ |
SUBADVISER
Pzena Investment Management, LLC
Responsible for day-to-day investment management
Founded in 1995
Supervised by the adviser
PORTFOLIO MANAGERS
Richard S. Pzena
Managed fund since it began in 1996
John P. Goetz
Managed fund since it began in 1996
Antonio DeSpirito, III
Joined fund team in 2006
Managers share investment strategy and decisions
See page 36 for the management biographies.
FUND CODES
Class I Ticker JCVIX
CUSIP 409902756
Newspaper --
SEC number 811-1677
JH fund number 438
7
|
Core Equity Fund |
[GRAPHIC OMITTED: COMPASS]
GOAL AND STRATEGY
The fund seeks above-average total return (capital appreciation plus income). To pursue this goal, the fund normally invests at least 80% of its assets in a diversified portfolio of equity securities (including common and preferred stocks, ADRs and their equivalents) which are primarily large-capitalization stocks. The portfolio's risk profile is similar to that of the Standard & Poor's 500 Index.
The managers select from a menu of stocks of approximately 1,000 companies that capture the characteristics of the broad market. In managing the portfolio, the portfolio managers seek to invest in stocks that are believed to have improving fundamentals and attractive valuations. The subadviser's investment research team performs fundamental research, develops financial projections and monitors consensus-based fundamental financial data. This information is utilized in a sector-based, multi-factor series of valuation models. These proprietary models use this financial data to rank the stocks according to their combination of:
* value, meaning they appear to be underpriced
* improving fundamentals, meaning they show potential for strong growth
The portfolio managers construct and manage the portfolio using the ranked list. This process, together with a risk/return analysis against the Standard & Poor's 500 Index, results in a portfolio of approximately 75 to 160 stocks. The fund generally sells stocks that fall into the bottom 20% of the ranked list.
In normal circumstances, the fund is almost entirely invested in stocks. The fund may invest in dollar-denominated foreign securities and make limited use of certain derivatives (investments whose value is based on indexes or securities).
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.
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. All figures assume dividend reinvestment. Past performance before and after taxes does not indicate future results.
Class I, total returns
Best quarter: Q2 '03, 11.69%
Worst quarter: Q1 '03, -3.39%
After-tax returns
After-tax returns are shown for Class I shares.
They are calculated using the historical highest
individual federal marginal income-tax rates and
do not reflect the impact of state and local taxes.
Actual after-tax returns depend on the investor's
tax situation and may differ from those shown.
The after-tax returns shown are not relevant to
investors who hold their fund shares through tax-
deferred arrangements such as 401(k) plans or
individual retirement accounts.
Index (reflects no fees or taxes)
Standard & Poor's 500 Index, an unmanaged
index that includes 500 widely traded stocks.
Class I calendar year total returns
2003 2004 2005
------------------------------------------------------------------------------
24.38% 9.39% 8.19%
Average annual total returns for periods ending 12-31-05
Life of
1 year Class I
------------------------------------------------------------------------------
Class I before tax (began 3-1-02) 8.19% 3.98%
------------------------------------------------------------------------------
Class I after tax on distributions 8.19% 3.98%
------------------------------------------------------------------------------
Class I after tax on distributions, with sale 5.33% 3.41%
------------------------------------------------------------------------------
Standard & Poor's 500 Index 4.91% 4.41%
8
|
[GRAPHIC OMITTED: WORM CHART]
MAIN RISKS
The value of your investment will fluctuate in response to stock market movements.
Large-capitalization stocks as a group could fall out of favor with the market, causing the fund to underperform funds that focus on small- or medium-capitalization stocks.
The fund's management strategy has a significant influence on fund performance. If the investment research team's research analyses turn out to be inaccurate, or if the proprietary computer models do not perform as expected, the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, 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 inadequate or inaccurate financial information and social or political instability.
YOUR EXPENSES
Operating expenses are paid from the fund's assets, and therefore are paid by
shareholders indirectly.
Annual operating expenses ------------------------------------------------------------------------------ Management fee 0.75% ------------------------------------------------------------------------------ Other expenses 0.15% ------------------------------------------------------------------------------ Total fund operating expenses 0.90% |
The hypothetical example below shows what your expenses would be if you invested $10,000 over the time frames indicated, assuming you reinvested all distributions and that the average annual return was 5%. The example is for comparison only, and does not represent the fund's actual expenses and returns, either past or future.
Expenses Year 1 Year 3 Year 5 Year 10 ------------------------------------------------------------------------------ Class I $92 $287 $498 $1,108 ------------------------------------------------------------------------------ |
SUBADVISER
Independence Investment LLC
Responsible for day-to-day investment management
A subsidiary of John Hancock Financial Services, Inc.
Founded in 1982
Supervised by the adviser
PORTFOLIO MANAGERS
John C. Forelli, CFA
Joined fund team in 2004
Jay C. Leu, CFA
Joined fund team in 2004
Managers share investment strategy and decisions
See page 36 for the management biographies.
FUND CODES
Class I Ticker JHCIX
CUSIP 409902848
Newspaper --
SEC number 811-1677
JH fund number 423
9
|
Large Cap Equity Fund
[GRAPHIC OMITTED: COMPASS]
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 equity securities of large-capitalization companies (companies in the capitalization range of the Standard & Poor's 500 Index, which was $732.9 million to $384.8 billion as of January 31, 2006). Equity securities include common and preferred stocks and their equivalents.
In managing the portfolio, the managers look for companies that are undervalued and/or offer the potential for above-average earnings growth. The managers employ a combination of proprietary finan-cial models and bottom-up, fundamental financial research to identify companies that are selling at what appear to be substantial discounts to their long-term intrinsic value.
These companies often have identifiable catalysts for growth, such as new products, business reorganizations or mergers.
The fund manages risk by typically holding between 50 and 150 large companies that are diversified across industry sectors. The management team also uses fundamental financial analysis to identify individual companies with substantial cash flows, reliable revenue streams, superior competitive positions and strong management.
The fund may attempt to take advantage of short-term market volatility by investing in corporate restructurings or pending acquisitions.
The fund may invest up to 20% of its assets in bonds of any maturity, with up to 15% of net assets in junk bonds rated as low as CC/Ca and their unrated equivalents. In selecting bonds, the managers look for the most favorable risk/return ratios.
The fund may invest up to 35% of assets in foreign securities. The fund may also make limited use of certain derivatives (investments whose value is based on indexes, securities or currencies).
In abnormal circumstances, the fund may temporarily invest extensively in investment-grade short-term securities. In these and other cases, the fund might not achieve its goal.
PAST PERFORMANCE
The graph shows the fund's calendar year total returns, while the table shows performance over time (along with a broad-based market index for reference). This information may help provide an indication of the fund's risks. All figures assume dividend reinvestment. Past performance before and after taxes does not indicate future results.
Class I, total returns
Best quarter: Q2 '03, 12.52%
Worst quarter: Q2 '02, -19.74%
After-tax returns
After-tax returns are shown for Class I shares.
They are calculated using the historical highest
individual federal marginal income-tax rates and
do not reflect the impact of state and local taxes.
Actual after-tax returns depend on the investor's
tax situation and may differ from those shown.
The after-tax returns shown are not relevant to
investors who hold their fund shares through tax-
deferred arrangements such as 401(k) plans or
individual retirement accounts.
Index (reflects no fees or taxes)
Standard & Poor's 500 Index, an unmanaged
index that includes 500 widely traded stocks.
Class I calendar year total returns
Average annual total returns for periods ending 12-31-05
Life of
1 year Class I
------------------------------------------------------------------------------
Class I before tax (began 3-1-01) 16.75% -2.51%
------------------------------------------------------------------------------
Class I after tax on distributions 16.75% -2.53%
------------------------------------------------------------------------------
Class I after tax on distributions, with sale 10.89% -2.00%
------------------------------------------------------------------------------
Standard & Poor's 500 Index 4.91% 1.81%
10
|
[GRAPHIC OMITTED: WORM CHART]
MAIN RISKS
The value of your investment will fluctuate in response to stock and bond market movements.
The fund's management strategy has a significant influence on fund performance. Large-capitalization stocks as a group could fall out of favor with the market, causing the fund to underperform investments that focus on small- or medium-capitalization stocks. In addition, if the managers' securities selection strategies 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:
* 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 and longer maturity will increase volatility. Junk bond prices can fall on bad news about the economy, an industry or a company.
The fund may trade securities actively, which could increase its transaction costs (thus lowering performance) and increase your taxable distributions.
Investments in the fund are not bank deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. You could lose money by investing in this fund.
YOUR EXPENSES
Operating expenses are paid from the fund's assets, and therefore are paid by
shareholders indirectly.
Annual operating expenses ------------------------------------------------------------------------------ Management fee 0.625% ------------------------------------------------------------------------------ Other expenses 0.155% ------------------------------------------------------------------------------ Total fund operating expenses 0.78% |
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.
Responsible for day-to-day investment management
A subsidiary of John Hancock Financial Services, Inc.
Founded in 1979
Supervised by the adviser
PORTFOLIO MANAGERS
Timothy E. Keefe, CFA
Rejoined fund team in 2004
Day-to-day purchase and sale decisions
Roger C. Hamilton
Joined fund team in 2004
Analysis of specific issuers
Robert C. Junkin, CPA
Joined fund team in 2003
Analysis of specific issuers
See page 36 for the management biographies.
FUND CODES
Class I Ticker JLVIX
CUSIP 41013P608
Newspaper --
SEC number 811-0560
JH fund number 450
11
|
Large Cap Select Fund
[GRAPHIC OMITTED: COMPASS]
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 equity securities of large-capitalization companies (companies with market capitalizations in excess of $5 billion). The fund invests primarily in U.S.-based companies whose growth, cash flow, earnings and dividend attributes are attractive and whose securities are reasonably priced and have the potential for capital appreciation, in the opinion of the management team.
In managing the portfolio, the management team looks for companies with strong balance sheets and sustainable earnings growth. In evaluating the prospects for a company's growth and earnings, the management team considers, among other things, the company's historical performance and growth strategy, the growth rate of the industries in which it operates and the markets into which it sells, the nature of its competitive environment, technological developments and trends in market share.
In attempting to determine reasonable price levels for a company's securities, the management team utilizes a variety of measurement methods, including discounted cash flow analysis of expected earnings streams and an evaluation of the company's price-to-earnings ratio.
Under normal market conditions, the fund invests substantially all of its assets in equity securities (common and preferred stocks and their equivalents).
In abnormal conditions, the fund may invest extensively in investment-grade short-term securities. In these and other cases, the fund may not achieve its goal.
PAST PERFORMANCE
The graph shows the fund's calendar year total return, while the table shows performance over time (along with a broad-based market index for reference). This information may help to provide an indication of the fund's risks. All figures assume dividend reinvestment. Past performance before and after taxes does not indicate future results.
Class I, total returns
Best quarter: Q4 '04, 6.68%
Worst quarter: Q3 '04, -4.34%
After-tax returns
After-tax returns are shown for Class I shares.
They are calculated using the historical highest
individual federal marginal income-tax rates and
do not reflect the impact of state and local taxes.
Actual after-tax returns depend on the investor's
tax situation and may differ from those shown.
The after-tax returns shown are not relevant to
investors who hold their fund shares through
tax-deferred arrangements such as 401(k) plans
or individual retirement accounts.
Index (reflects no fees or taxes)
Standard & Poor's 500 Index, an unmanaged
index that includes 500 widely traded stocks.
Class I calendar year total returns
------------------------------------------------------------------------------
2004 2005
------------------------------------------------------------------------------
5.54% -1.98%
Average annual total returns for periods ending 12-31-05
Life of
1 year Class I
------------------------------------------------------------------------------
Class I before tax (began 8-25-03) -1.98% 5.65%
------------------------------------------------------------------------------
Class I after tax on distributions -2.48% 5.19%
------------------------------------------------------------------------------
Class I after tax on distributions, with sale -0.88% 4.71%
------------------------------------------------------------------------------
Standard & Poor's 500 Index 4.91% 12.17%
12
|
[GRAPHIC OMITTED: WORM CHART]
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. Large-capitalization stocks as a group could fall out of favor with the market, causing the fund to underperform investments that focus on small- or medium-capitalization stocks.
To the extent that the fund invests in a given industry, its performance will be hurt if that industry performs poorly. In addition, if the management team's security selection strategies do not perform as expected, the fund could underperform its peers or lose money.
YOUR EXPENSES
Operating expenses are paid from the fund's assets, and therefore are paid by
shareholders indirectly.
Annual operating expenses ------------------------------------------------------------------------------ Management fee 0.75% ------------------------------------------------------------------------------ Other expenses 0.31% ------------------------------------------------------------------------------ Total fund operating expenses 1.06% ------------------------------------------------------------------------------ Contractual expense reimbursement (at least until 4-30-07) 0.11% ------------------------------------------------------------------------------ Net fund operating expenses 0.95% |
The hypothetical example below shows what your expenses would be after the expense reimbursement (through April 30, 2007) if you invested $10,000 over the time frames indicated, assuming you reinvested all distributions and that the average annual return was 5%. The example is for comparison only, and does not represent the fund's actual expenses and returns, either past or future.
Expenses Year 1 Year 3 Year 5 Year 10 ------------------------------------------------------------------------------ Class I $97 $324 $572 $1,282 ------------------------------------------------------------------------------ |
SUBADVISER
Shay Assets Management, Inc.
Responsible for day-to-day investment management
Founded in 1981
Supervised by the adviser
PORTFOLIO MANAGERS
John J. McCabe
Managed fund since 1991
Mark F. Trautman
Managed fund since 1993
Managers share investment strategy and decisions
See page 36 for the management biographies.
FUND CODES
Class I Ticker --
CUSIP 409902715
Newspaper --
SEC number 811-1677
JH fund number 449
13
|
[GRAPHIC OMITTED: COMPASS]
Mid Cap Equity Fund
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 equity securities of medium-capitalization companies (companies in the capitalization range of the Standard & Poor's MidCap 400 Index, which was $468 million to $14.8 billion as of January 31, 2006). Equity securities include common and preferred stocks and their equivalents. The fund will primarily invest in securities of U.S. companies.
In managing the portfolio, the management team emphasizes a bottom-up approach to individual stock selection. With the aid of proprietary financial models, the management team looks for companies that possess a combination of strong earnings growth rates and attractive valuations. These companies often exhibit financial strength by means of sound balance sheets and other financial statements.
The management team uses fundamental financial analysis of individual companies to identify those with substantial cash flows, reliable revenue streams and strong competitive positions. To a lesser extent, the team also utilizes technical analysis to assess short- and long-term market trends. The management team also looks for companies with strong senior management and coherent business strategies.
The fund may also make limited use of certain derivatives (investments whose value is based on securities, indexes or currencies).
In abnormal circumstances, the fund may temporarily invest extensively in investment-grade short-term securities. In these and other cases, the fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction costs (thus lowering performance) and increase your taxable distributions.
PAST PERFORMANCE
The graph shows the fund's calendar year total return, while the table shows performance over time (along with a broad-based market index for reference). This information may help provide an indication of the fund's risks. All figures assume dividend reinvestment. Past performance before and after taxes does not indicate future results.
Class I, total returns
Best quarter: Q4 '04, 9.71%
Worst quarter: Q3 '04, -1.43%
After-tax returns
After-tax returns are shown for Class I shares.
They are calculated using the historical highest
individual federal marginal income-tax rates and
do not reflect the impact of state and local taxes.
Actual after-tax returns depend on the investor's
tax situation and may differ from those shown.
The after-tax returns shown are not relevant to
investors who hold their fund shares through tax-
deferred arrangements such as 401(k) plans or
individual retirement accounts.
Index (reflects no fees or taxes)
Standard & Poor's MidCap 400 Index, an
unmanaged index of 400 domestic stocks of
medium-sized companies.
Class I calendar year total returns
------------------------------------------------------------------------------
2004 2005
------------------------------------------------------------------------------
12.39% 17.19%
Average annual total returns for periods ending 12-31-05
Life of
1 year Class I
------------------------------------------------------------------------------
Class I before tax (began 8-4-03) 17.19% 19.43%
------------------------------------------------------------------------------
Class I after tax on distributions 14.95% 17.48%
------------------------------------------------------------------------------
Class I after tax on distributions, with sale 13.89% 16.09%
------------------------------------------------------------------------------
Standard & Poor's MidCap 400 Index 12.55% 19.89%
14
|
[GRAPHIC OMITTED: WORM CHART]
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.
To the extent that the fund invests in a given industry, its performance will be hurt if that industry performs poorly. In addition, if the managers' security selection strategies do not perform as expected, the fund could underperform its peers or lose money. Medium-capitalization stocks tend to be more volatile than stocks of larger companies, and as a group could fall out of favor with the market causing the fund to underperform investments that focus either on small- or on large-capitalization stocks.
* 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.
To the extent that the fund makes investments with additional risks, these risks could increase volatility or reduce performance:
YOUR EXPENSES
Operating expenses are paid from the fund's assets, and therefore are paid by
shareholders indirectly.
Annual operating expenses 1 ------------------------------------------------------------------------------ Management fee 0.80% ------------------------------------------------------------------------------ Other expenses 1.87% ------------------------------------------------------------------------------ Total fund operating expenses 2.67% ------------------------------------------------------------------------------ Contractual expense reimbursement (at least until 2-28-07) 1.72% ------------------------------------------------------------------------------ Net annual operating expenses 0.95% |
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.
(1)Expense information in this table has been restated to reflect current fees.
Sovereign Asset Management LLC
Responsible for day-to-day investment management
A subsidiary of John Hancock Financial Services, Inc.
Founded in 1979
Supervised by the adviser
PORTFOLIO MANAGERS
Henry E. Mehlman, CFA
Managed fund since it began in 2003
Alan E. Norton, CFA
Managed fund since it began in 2003
Managers share portfolio management responsibilities
See page 36 for the management biographies.
FUND CODES
Class I Ticker --
CUSIP 478032717
Newspaper --
SEC number 811-3390
JH fund number 481
15
|
[GRAPHIC OMITTED: COMPASS]
Mid Cap Growth Fund
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 stocks of medium-capitalization companies (companies in the capitalization range of the Russell Midcap Growth Index, which was $698 million to $23.5 billion as of January 31, 2006).
In managing the portfolio, the manager conducts fundamental financial analysis to identify companies with above-average earnings growth.
In choosing individual securities, the manager looks for companies with growth stemming from a combination of gains in market share and increasing operating efficiency. Before investing, the manager typically identifies a specific catalyst for growth, such as a new product, business reorganization or merger.
The management team generally maintains personal contact with the senior management of the companies the fund invests in.
The manager considers broad economic trends, demographic factors, technological changes, consolidation trends and legislative initiatives.
The fund may invest up to 10% of assets in foreign securities. The fund may also make limited use of certain derivatives (investments whose value is based on indexes, securities or currencies).
In abnormal circumstances, the fund may temporarily invest in U.S. government securities with maturities of up to three years and more than 10% of assets in cash or cash equivalents. In these and other cases, the fund might not achieve its goal.
The fund may not invest more than 5% of assets in any one security.
The fund may trade securities actively, which could increase its transaction costs (thus lowering performance) and increase your taxable distributions.
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 broad-based market indexes for reference). This information may help to provide an indication of the fund's risks. All figures assume dividend reinvestment. Past performance before and after taxes does not indicate future results.
Class I, total returns
Best quarter: Q2 '03, 20.13%
Worst quarter: Q3 '04, -6.40%
After-tax returns
After-tax returns are shown for Class I shares.
They are calculated using the historical highest
individual federal marginal income-tax rates and
do not reflect the impact of state and local taxes.
Actual after-tax returns depend on the investor's
tax situation and may differ from those shown.
The after-tax returns shown are not relevant to
investors who hold their fund shares through
tax-deferred arrangements such as 401(k) plans
or individual retirement accounts.
Indexes (reflect no fees or taxes)
Standard & Poor's 500 Index,
an unmanaged index that includes 500 widely
traded stocks.
Russell Midcap Growth Index,
an unmanaged index containing those stocks
from the Russell Midcap Index with a greater-
than-average growth orientation.
Class I calendar year total returns
2003 2004 2005
------------------------------------------------------------------------------
35.79% 5.77% 12.51%
Average annual total returns for periods ending 12-31-05
Life of
1 year Class I
------------------------------------------------------------------------------
Class I before tax (began 3-1-02) 12.51% 6.85%
------------------------------------------------------------------------------
Class I after tax on distributions 12.51% 6.85%
------------------------------------------------------------------------------
Class I after tax on distributions, with sale 8.13% 5.90%
----------------------------------------------------------------------------
Standard & Poor's 500 Index 4.91% 4.41%
------------------------------------------------------------------------------
Russell Midcap Growth Index 12.10% 9.71%
16
|
[GRAPHIC OMITTED: WORM CHART]
MAIN RISKS
The value of your investment will fluctuate in response to stock market movements.
The fund's management strategy has a sig-nificant influence on fund performance. Medium-capitalization stocks tend to be more volatile than stocks of larger companies, and as a group could fall out of favor with the market, causing the fund to underperform investments that focus either on small- or large-capitalization stocks. Similarly, growth stocks could underper-form value stocks. To the extent that the fund invests in a given industry, its performance will be hurt if that industry performs poorly. 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, 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.
YOUR EXPENSES
Operating expenses are paid from the fund's assets, and therefore are paid by
shareholders indirectly.
Annual operating expenses ------------------------------------------------------------------------------ Management fee 0.80% ------------------------------------------------------------------------------ Other expenses 0.24% ------------------------------------------------------------------------------ Total fund operating expenses 1.04% |
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.
Sovereign Asset Management LLC
Responsible for day-to-day investment management
A subsidiary of John Hancock Financial Services, Inc.
Founded in 1979
Supervised by the adviser
PORTFOLIO MANAGER
Thomas P. Norton, CFA
Joined fund team in 2002
See page 36 for the management biographies.
FUND CODES
Class I Ticker SPOIX
CUSIP 409906740
Newspaper --
SEC number 811-4630
JH fund number 433
17
|
[GRAPHIC OMITTED: COMPASS]
Small Cap Fund
GOAL AND STRATEGY
The fund seeks capital appreciation. To pursue this goal, the fund normally invests at least 80% of its assets in equity securities of small-capitalization companies (which, for purposes of this fund, are those companies with market capitalizations under $2 billion, or market capitalizations within the range of market capitalization of the companies in the Russell 2000 Index or the Standard & Poor's Small Cap 600 Index).
In managing the portfolio, the portfolio managers select securities using a bottom-up selection process that focuses on stocks of statistically undervalued yet promising companies that they believe are likely to show improving fundamental prospects with an identifiable catalyst for change. Such catalysts may include, but are not limited to,a new product, new management, regulatory changes, industry or company restructuring or a strategic acquisition.
The portfolio managers attempt to identify undervalued securities using quantitative screening parameters, including various financial ratios and "earnings per share" revisions, which measure the change in earnings estimate expectations. The portfolio managers additionally narrow the list of stocks using fundamental security analysis, which may include on-site visits, outside research and analytical judgment.
The fund may sell a security if, among other reasons, it reaches the target price set by the portfolio managers; the management team decides that the stock is statistically over-valued; or the portfolio managers believe earnings expectations or the fundamental outlook for the company have deteriorated.
The fund may purchase other types of securities that are not primary investment vehicles, such as U.S. dollar-denominated foreign securities and ADRs, certain exchange-traded funds ("ETFs") and certain derivatives (investments whose value is based on securities, indexes or currencies).
In abnormal circumstances, the fund may invest extensively in investment-grade short-term securities. In these and other cases, the fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction costs (thus lowering performance) and increase your taxable distributions.
PAST PERFORMANCE
The graph shows how the fund's total return has varied from year to year, while the table shows performance over time (along with broad-based market indexes for reference). This information may help to provide an indication of the fund's risks. All figures assume dividend reinvestment. Past performance before and after taxes does not indicate future results.
Class I, total returns
Best quarter: Q3 '05, 5.11%
Worst quarter: Q1 '05, -5.31%
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 Small Cap 600 Index,
an unmanaged index of 600 U.S. small-sized
companies.
Russell 2000 Index, an unmanaged index of
2,000 U.S. small-capitalization companies.
Class I calendar year total returns (without sales charges)
Average annual total returns (including sales charge) for periods ending
Life of
1 year Class A
Class I before tax (began 12-6-04) 4.72% 8.42%
------------------------------------------------------------------------------
Class I after tax on distributions 4.65% 8.35%
------------------------------------------------------------------------------
Class I after tax on distributions, with sale 3.15% 7.15%
---------------------------------------------------------------------------
Standard & Poor's Small Cap 600 Index 7.70% 9.24%*
------------------------------------------------------------------------------
Russell 2000 Index 4.55% 6.31%
(*) For period 11-30-04 -- 12-31-05
18
|
[GRAPHIC OMITTED: WORM CHART]
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. Small-capitalization stocks as a group could fall out of favor with the market, causing the fund to underperform investments that focus on medium- or large-capitalization stocks. To the extent that the fund invests in a given industry, its performance will be hurt if that industry performs poorly. In addition, if the manager's security selection strategies or the quantitative screening parameters do not perform as expected, the fund could underperform its peers or lose money.
Stocks of smaller companies are more volatile than stocks of larger companies. Many smaller companies have short track records, narrow product lines or niche markets, making them highly vulnerable to isolated business setbacks. Also, since common stocks of smaller companies may not be traded as often as common stocks of larger, more-established companies, it may be diffi-cult for the fund to sell these securities at a desirable price.
To the extent that the fund makes investments with additional risks, these risks could increase volatility or reduce performance:
* Foreign investments carry additional risks, including potentially inadequate or inaccurate financial information and social or political instability.
* 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.
YOUR EXPENSES
Operating expenses are paid from the fund's assets, and therefore are paid by shareholders indirectly. Because Class I is new, its expenses are based on Class A expenses, adjusted to reflect any changes.
Annual operating expenses ------------------------------------------------------------------------------ Management fee 0.90% ------------------------------------------------------------------------------ Other expenses 0.28% ------------------------------------------------------------------------------ Total fund operating expenses 1.18% ------------------------------------------------------------------------------ Contractual expense reimbursement (at least until 2-28-07) 0.08% ------------------------------------------------------------------------------ Net annual operating expenses 1.10% |
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.
SUBADVISER
Independence Investment LLC
Responsible for day-to-day investment management
A subsidiary of John Hancock Financial Services, Inc.
Founded in 1982
Supervised by the adviser
PORTFOLIO MANAGER Charles S. Glovsky, CFA Managed fund since 1998
See page 36 for the management biographies.
FUND CODES
Class I Ticker --
CUSIP 41014V869
Newspaper --
SEC number 811-4079
JH fund number 482
19
|
Small Cap Equity Fund
[GRAPHIC OMITTED: COMPASS]
GOAL AND STRATEGY
The fund seeks capital appreciation. To pursue this goal, the fund normally invests at least 80% of its assets in equity securities of small-capitalization companies (companies in the capitalization range of the Russell 2000 Index, which was $26 million to $4.9 billion as of January 31, 2006). Equity securities include common and preferred stocks and their equivalents.
In managing the portfolio, the managers emphasize a bottom-up approach to individual stock selection. With the aid of proprietary financial models, the management team looks for U.S. and foreign companies that possess a combination of strong earning growth rates and reasonable valuations. These companies often exhibit financial strength by means of sound balance sheets and other financial statements.
The management team uses fundamental financial analysis of individual companies to identify those with substantial cash flows, reliable revenue streams and strong competitive positions. To a lesser extent, the team also utilizes technical analysis to assess short- and long-term market trends. The management team also looks for companies with strong senior management and coherent business strategies. They generally maintain personal contact with the senior management of the companies the fund invests in. The fund diversifies across industry sectors. The fund may not invest more than 5% of assets in any one security.
The fund may invest up to 15% of assets in a basket of foreign securities or in bonds of any maturity rated as low as CC/Ca and their unrated equivalents (bonds below BBB/Baa are considered junk bonds). The fund may make limited use of certain derivatives (investments whose value is based on securities, indexes or currencies) and may short-sell up to 15% of the fund's assets for non-speculative purposes to manage volatility.
Under normal conditions, the fund may not invest more than 10% of assets in cash or cash equivalents.
In abnormal circumstances, the fund may temporarily invest extensively in investment-grade short-term securities. In these and other cases, the fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction costs (thus lowering performance) and increase your taxable distributions.
PAST PERFORMANCE
The graph shows how the fund's total return has varied from year to year, while the table shows performance over time (along with broad-based market indexes for reference). This information may help provide an indication of the fund's risks. All figures assume dividend reinvestment. Past performance before and after taxes does not indicate future results.
Class I, total returns
Best quarter: Q2 '03, 20.71%
Worst quarter: Q3 '02, -23.88%
After-tax returns
After-tax returns are shown for Class I shares. They are calculated using the
historical highest individual federal marginal income-tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on
the investor's tax situation and may differ from those shown. The after-tax
returns shown are not relevant to investors who hold their fund shares through
tax-deferred arrangements such as 401(k) plans or individual retirement
accounts.
Indexes (reflect no fees or taxes)
Russell 2000 Index, an unmanaged index of 2,000 U.S. small-capitalization
stocks.
Standard & Poor's Small Cap 600 Index, an unmanaged index of 600 U.S.
small-sized companies.
Average annual total returns for periods ending 12-31-05
Life of
1 year Class I
-----------------------------------------------------------------------------
Class I before tax (began 8-15-01) 8.81% 1.38%
-----------------------------------------------------------------------------
Class I after tax on distributions 8.81% 1.34%
-----------------------------------------------------------------------------
Class I after tax on distributions, with sale 5.72% 1.16%
-----------------------------------------------------------------------------
Russell 2000 Index 4.55% 9.47%
-----------------------------------------------------------------------------
Standard & Poor's Small Cap 600 Index 7.70% 11.37%
20
|
[GRAPHIC OMITTED: WORM CHART]
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. Small-capitalization stocks as a group could fall out of favor with the market, causing the fund to underperform investments that focus on medium- or large-capitalization stocks. To the extent that the fund invests in a given industry, its performance will be hurt if that industry performs poorly. In addition, if the managers' security selection strategies do not perform as expected, the fund could underperform its peers or lose money.
Stocks of smaller companies are more volatile than stocks of larger companies. Many smaller companies have short track records, narrow product lines or niche markets, making them highly vulnerable to isolated business setbacks. Also, since common stocks of smaller companies may not be traded as often as common stocks of larger, more established companies, it may be difficult for the fund to sell these securities at a desirable price.
To the extent that the fund makes investments with additional risks, these risks could increase volatility or reduce performance:
* Certain derivatives, such as short sales, 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 issuer, an industry or the economy in general.
[GRAPHIC OMITTED: CALCULATOR]
YOUR EXPENSES
Operating expenses are paid from the fund's assets, and therefore are paid by
shareholders indirectly.
Annual operating expenses ----------------------------------------------------------------------------- Management fee 0.70% ----------------------------------------------------------------------------- Other expenses 0.17% ----------------------------------------------------------------------------- Total fund operating expenses 0.87% |
The hypothetical example below shows what your expenses would be if you invested $10,000 over the time frames indicated, assuming you reinvested all distributions and that the average annual return was 5%. The example is for comparison only, and does not represent the fund's actual expenses and returns, either past or future.
Expenses Year 1 Year 3 Year 5 Year 10 ----------------------------------------------------------------------------- Class I $89 $278 $482 $1,073 ----------------------------------------------------------------------------- |
SUBADVISER
Sovereign Asset Management LLC
Responsible for day-to-day investment management
A subsidiary of John Hancock Financial Services, Inc.
Founded in 1979
Supervised by the adviser
PORTFOLIO MANAGERS
Alan E. Norton, CFA
Joined fund team in 2002
Henry E. Mehlman, CFA
Joined fund team in 2002
Managers share investment strategy and decisions
See page 36 for the management biographies.
FUND CODES
Class I Ticker SPVIX
CUSIP 409905841
Newspaper --
SEC number 811-3999
JH fund number 427
21
|
Small Cap Intrinsic Value Fund
[GRAPHIC OMITTED: COMPASS]
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 equity securities of small-capitalization companies (companies in the capitalization range of the Russell 2000 Index, which was $26 million to $4.9 billion as of January 31, 2006). Equity securities include common and preferred stocks and their equivalents.
In managing the portfolio, the managers emphasize a value-oriented bottom-up approach to individual stock selection. With the aid of proprietary financial models, the management team looks for companies that are selling at what appear to be substantial discounts to their long-term intrinsic values. These companies often have identifiable catalysts for growth, such as new products, business reorganizations or mergers.
The management team uses fundamental financial analysis of individual companies to identify those with substantial cash flows, reliable revenue streams, strong competitive positions and strong management. The fund may attempt to take advantage of short-term market volatility by investing in corporate restructurings or pending acquisitions.
The fund may invest up to 35% of assets in foreign securities. The fund may invest up to 20% of assets in bonds of any maturity rated as low as CC/Ca and their unrated equivalents (bonds below BBB/Baa are considered junk bonds). The fund may make limited use of certain derivatives (investments whose value is based on securities, indexes or currencies).
In abnormal circumstances, the fund may temporarily invest extensively in investment-grade short-term securities.
In these and other cases, the fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction costs (thus lowering performance) and increase your taxable distributions.
[GRAPHIC OMITTED: BAR CHART]
PAST PERFORMANCE
This section normally shows how the fund's total return has varied from year to year, along with a broad-based market index for reference. Because the fund has existed for less than a full calendar year, there is no past performance to report.
[GRAPHIC OMITTED: WORM CHART]
MAIN RISKS
The value of your investment will fluctuate in response to stock and bond market movements.
The fund's management strategy has a significant influence on fund performance. Small-capitalization stocks as a group could fall out of favor with the market, causing the fund to underperform investment that focus on medium- or large-capitalization stocks. Similarly, value stocks could underperform growth stocks. To the extent that the fund invests in a given industry, its performance will be hurt if that industry performs poorly. In addition, if the managers' security selection strategies do not perform as expected, the fund could underperform its peers or lose money.
Stocks of smaller companies are more volatile than stocks of larger companies. Many smaller companies have short track records, narrow product lines or niche
markets, making them highly vulnerable to isolated business setbacks. Also, since common stocks of smaller companies may not be traded as often as common stocks of larger, more established companies, it may be difficult for the fund to sell its securities at a desirable price.
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.
[GRAPHIC OMITTED: CALCULATOR]
YOUR EXPENSES
Operating expenses are paid from the fund's assets, and therefore are paid by shareholders indirectly. The figures below show estimated annual operating expenses. Actual expenses may be greater or less.
Annual operating expenses 1 ------------------------------------------------------------------------------ Management fee 0.90% ------------------------------------------------------------------------------ Other expenses 3.69% ------------------------------------------------------------------------------ Total fund operating expenses 4.59% ------------------------------------------------------------------------------ Contractual expense reimbursement (at least until 4-30-07) 3.39% ------------------------------------------------------------------------------ Net annual operating expenses 1.20% |
The hypothetical example below shows what your expenses would be after the expense reimbursement (through April 30, 2007) 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.
(1)Expense information in this table has been restated to reflect current fees.
Sovereign Asset Management LLC
Responsible for day-to-day investment management
A subsidiary of John Hancock Financial Services, Inc.
Founded in 1979
Supervised by the adviser
PORTFOLIO MANAGERS
Timothy E. Keefe, CFA
Managed fund since it began in 2005
Timothy M. Malloy
Managed fund since it began in 2005
Managers share investment strategy and decisions
See page 36 for the management biographies.
FUND CODES
Class I Ticker --
CUSIP 41013P814
Newspaper --
SEC number 811-0560
JH fund number 464
23
|
Sovereign Investors Fund
[GRAPHIC OMITTED: COMPASS]
GOAL AND STRATEGY
The fund seeks long-term growth of capital and income without assuming undue market risks. To pursue this goal, the fund normally invests at least 80% of its stock investments in a diversified portfolio of companies with market capitalizations within the range of the Standard & Poor's 500 Index. On January 31, 2006, that range was $732.9 million to $384.8 billion.
At least 65% of the fund's stock investments are "dividend performers" -- companies whose dividend payments have increased steadily for ten years. In managing the portfolio, the managers use fundamental financial analysis to identify individual companies with high-quality income statements, substantial cash reserves and identi-fiable catalysts for growth, which may be new products or benefits from industrywide growth. The managers generally visit companies to evaluate the strength and consistency of their management strategy. Finally, the managers look for stocks that are reasonably priced relative to their earnings and industry.
The fund may not invest more than 5% of assets in any one security. The fund may invest in bonds of any maturity, with up to 5% of assets in junk bonds rated as low as C and their unrated equivalents.
The fund typically invests in U.S. companies but may invest in dollar-denominated foreign securities. It may also make limited use of certain derivatives (investments whose value is based on indexes).
Under normal conditions, the fund may not invest more than 10% of assets in cash or cash equivalents.
In abnormal market conditions, the fund may temporarily invest extensively in investment-grade short-term securities. In these and other cases, the fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction costs (thus lowering performance) and increase your taxable distributions.
[GRAPHIC OMITTED: BAR CHART]
PAST PERFORMANCE
The graph shows the fund's calendar year total return, while the table shows performance over time (along with a broad-based market index for reference). This information may help to provide an indication of the fund's risks. All figures assume dividend reinvestment. Past performance before and after taxes does not indicate future results.
Class I, total returns
Best quarter: Q4 '04, 6.70%
Worst quarter: Q3 '04, -2.25%
After-tax returns
After-tax returns are shown for Class I shares.
They are calculated using the historical highest
individual federal marginal income-tax rates and
do not reflect the impact of state and local taxes.
Actual after-tax returns depend on the investor's
tax situation and may differ from those shown.
The after-tax returns shown are not relevant to
investors who hold their fund shares through
tax-deferred arrangements such as 401(k) plans
or individual retirement accounts.
Index (reflects no fees or taxes)
Standard & Poor's 500 Index, an unmanaged
index that includes 500 widely traded stocks.
Class I calendar year total returns
------------------------------------------------------------------------------
2004 2005
------------------------------------------------------------------------------
5.73% 2.76%
Average annual total returns for periods ending 12-31-05
Life of
1 year Class I
Class I before tax (began 12-1-03) 2.76% 5.94%
------------------------------------------------------------------------------
Class I after tax on distributions 1.26% 4.91%
------------------------------------------------------------------------------
Class I after tax on distributions, with sale 3.13% 4.76%
------------------------------------------------------------------------------
Standard & Poor's 500 Index 4.91% 9.61%
24
|
[GRAPHIC OMITTED: WORM CHART]
MAIN RISKS
The value of your investment will fluctuate in response to stock and bond market movements.
The fund's management strategy has a significant influence on fund performance. Large-capitalization stocks as a group could fall out of favor with the market, causing the fund to underperform funds that focus on small- or medium-capitalization stocks. 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 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 and longer maturity will increase volatility. Junk bond prices can fall on bad news about the economy, an industry or a company.
[GRAPHIC OMITTED]
YOUR EXPENSES
Operating expenses are paid from the fund's assets, and therefore are paid by
shareholders indirectly.
Annual operating expenses ------------------------------------------------------------------------------ Management fee 0.58% ------------------------------------------------------------------------------ Other expenses 0.14% ------------------------------------------------------------------------------ Total fund operating expenses 0.72% |
The hypothetical example below shows what your expenses would be if you invested $10,000 over the time frames indicated, assuming you reinvested all distributions and that the average annual return was 5%. The example is for comparison only, and does not represent the fund's actual expenses and returns, either past or future.
Expenses Year 1 Year 3 Year 5 Year 10 ------------------------------------------------------------------------------ Class I $74 $230 $401 $894 ------------------------------------------------------------------------------ SUBADVISER |
Sovereign Asset Management LLC
Responsible for day-to-day investment management
A subsidiary of John Hancock Financial Services, Inc.
Founded in 1979
Supervised by the adviser
PORTFOLIO MANAGERS
John F. Snyder, III
Joined fund team in 1983
Barry H. Evans, CFA
Joined fund team in 1996
Managers share investment strategy and decisions
See page 36 for the management biographies.
FUND CODES
Class I Ticker --
CUSIP 47803P880
Newspaper --
SEC number 811-0560
JH fund number 429
25
|
U.S. Global Leaders Growth Fund
[GRAPHIC OMITTED: COMPASS]
GOAL AND STRATEGY
The fund seeks long-term growth of capital. To pursue this goal, the fund invests primarily in common stocks of "U.S. Global Leaders." Under normal market conditions, at least 80% of the fund's assets will be invested in stocks of companies the managers regard as U.S. Global Leaders.
The managers consider U.S. Global Leaders to be U.S. companies with multinational operations that typically exhibit the following key sustainable growth characteristics:
* Hold leading market shares of their rele- vant industries that result in high profit margins and high investment returns.
* Supply consumable products or services so that their revenue streams are recurring.
The managers seek to identify companies with superior long-term earnings prospects and to continue to own them as long as the managers believe they will continue to enjoy favorable prospects for capital growth and are not overvalued in the marketplace.
As a result of its investment strategy, the fund typically invests in large-capitalization companies (companies in the capitalization range of the Standard & Poor's 500 Index, which was $732.9 million to $384.8 billion as of January 31, 2006).
The fund is non-diversified, which allows it to make larger investments in individual companies.
The fund may invest in other types of equity securities and foreign stocks.
In abnormal circumstances, the fund may temporarily invest in short-term cash equivalents. In these and other cases, the fund might not achieve its goal.
[GRAPHIC OMITTED: BAR CHART]
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. All figures assume dividend reinvestment. Past performance before and after taxes does not indicate future results.
Class I, total returns
Best quarter: Q2 '03, 10.20%
Worst quarter: Q1 '05, -4.96%
After-tax returns
After-tax returns are shown for Class I shares.
They are calculated using the historical highest
individual federal marginal income-tax rates and
do not reflect the impact of state and local taxes.
Actual after-tax returns depend on the investor's
tax situation and may differ from those shown.
The after-tax returns shown are not relevant to
investors who hold their fund shares through
tax-deferred arrangements such as 401(k) plans
or individual retirement accounts.
Index (reflects no fees or taxes)
Standard & Poor's 500 Index, an unmanaged
index that includes 500 widely traded stocks.
Class I calendar year total returns
------------------------------------------------------------------------------
2003 2004 2005
------------------------------------------------------------------------------
19.77% 8.94% 2.64%
Average annual total returns for periods ending 12-31-05
Life of
1 year Class I
------------------------------------------------------------------------------
Class I before tax (began 5-20-02) 2.64% 3.20%
------------------------------------------------------------------------------
Class I after tax on distributions 2.64% 3.14%
------------------------------------------------------------------------------
Class I after tax on distributions, with sale 1.72% 2.70%
------------------------------------------------------------------------------
Standard & Poor's 500 Index 4.91% 5.64%
26
|
[GRAPHIC OMITTED: WORM CHART]
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. Large-capitalization stocks as a group could fall out of favor with the market, causing the fund to underperform investments that focus on small- or medium-capitalization stocks. Similarly, growth stocks could underperform value stocks.
Companies that have substantial multinational operations may be affected by fluctu-ations in currency exchange rates and by economic and political conditions in foreign countries. These conditions may include restrictions on monetary repatriation and possible seizure, nationalization or expropriation of assets. To the extent the fund invests in a given industry, its performance will be hurt if that industry performs poorly. 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:
* If the fund invests heavily in a single issuer, its performance could suffer significantly from adverse events affecting that issuer.
* In a down market, higher-risk securities 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.
[GRAPHIC OMITTED: CALCULATOR]
YOUR EXPENSES
Operating expenses are paid from the fund's assets, and therefore are paid by
shareholders indirectly.
Annual operating expenses ------------------------------------------------------------------------------ Management fee 0.75% ------------------------------------------------------------------------------ Other expenses 0.15% ------------------------------------------------------------------------------ Total fund operating expenses 0.90% ------------------------------------------------------------------------------ Contractual expense reimbursement (at least until 4-30-07) 0.05% ------------------------------------------------------------------------------ Net annual operating expenses 0.85% |
The hypothetical example below shows what your expenses would be after the expense reimbursement (through April 30, 2007) 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.
SUBADVISER
Sustainable Growth Advisers, LP
Responsible for day-to-day investment management
Founded in 2003
Supervised by the adviser
PORTFOLIO MANAGERS
Gordon M. Marchand, CFA, CIC
Managed fund since 1995
George P. Fraise
Joined fund team in 2000
Robert L. Rohn
Joined fund team in 2003
Managers share investment strategy and decisions
See page 36 for the management biographies.
FUND CODES
Class I Ticker USLIX
CUSIP 409902798
Newspaper --
SEC number 811-1677
JH fund number 426
27
|
Your account
WHO CAN BUY SHARES
Class I shares are offered without any sales charge to certain types of investors, as noted below:
* Retirement and other benefit plans and their participants
* Rollover assets for participants whose plans are invested in the fund
* Endowment funds and foundations
* Any state, county or city, or its instrumentality, department, authority or agency
* Accounts registered to insurance companies, trust companies and bank trust departments
* Investment companies not affiliated with the adviser
* Investors who participate in fee-based, wrap and other investment platform programs
* Any entity that is considered a corporation for tax purposes
* Fund trustees and other individuals who are affiliated with these funds or other John Hancock funds
OPENING AN ACCOUNT
1 Read this prospectus carefully.
2 Determine if you are eligible, by referring to "Who can buy shares" on the left.
3 Determine how much you want to invest. The minimum initial investment is $10,000. There is no minimum investment for retirement plans with at least 350 eligible employees.
4 All shareholders must complete the account application, carefully following the instructions. If you have any questions, please contact your financial representative or call Signature Services at 1-888-972-8696.
5 Make your initial investment using the table on the next page.
6 Important information about opening a new account To help the government fight the funding of terrorism and money laundering activities, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), requires all financial institutions to obtain, verify, and record information that identifies each person or entity that opens an account.
For individual investors opening an account: When you open an account, you will be asked for your name, residential address, date of birth, and Social Security number.
For investors other than individuals: When you open an account, you will be asked for the name of the entity, its principal place of business and taxpayer identification number (TIN) and may be requested to provide information on persons with authority or control over the account such as name, residential address, date of birth and social security number. You may also be asked to provide documents, such as articles of incorporation, trust instruments or partnership aggreements and other information that will help Signature Services identify the entity. Please see the Mutual Fund Account Application for more details.
John Hancock Funds, LLC, the fund's principal distributor, may pay significant compensation out of its own resources to your financial representative. These payments are described in the Statement of Additional Information (SAI).
Your broker-dealer or agent may charge you a fee to effect transactions in fund shares.
Other classes of shares of the funds, which have their own expense structure, may be offered in separate prospectuses.
28 YOUR ACCOUNT
* Deliver the check and your completed application to your financial representative, or mail them to Signature Services (address below).
* If your account statement has a detachable investment slip, please complete in its entirety. If no slip is available, include a note specifying the fund name(s), your share class, your account number and the name(s) in which the account is registered.
* Deliver the check and investment slip or note to your financial representative, or mail them to Signature Services (address below).
* Call your financial representative or Signature Services to request an exchange.
* You may only exchange Class I shares for other Class I shares or Money Market Fund Class A shares.
* You may only exchange Class I shares for other Class I shares or Money Market Fund Class A shares.
* Obtain your account number by calling your financial representative or Signature Services.
* Obtain wiring instructions by calling Signature Services at 1-800-972-8696.
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.
* Instruct your bank to wire the amount of your investment.
Specify the fund name, your share class, your account number and the name(s) in which the account is registered. Your bank may charge a fee to wire funds.
* Complete the "To Purchase, Exchange or Redeem Shares via Telephone" and "Bank Information" sections on your account application.
* Call Signature Services between 8:30 A.M. and 5:00 P.M. Eastern Time on most business days to verify that these features are in place on your account.
* Call your financial representative or Signature Services with the fund name(s), your share class, your account number, the name(s) in which the account is registered and the amount of your investment.
Address:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1001
Boston, MA 02217-1001
Phone Number: 1-800-225-5291
Or contact your financial representative for instructions and assistance.
YOUR ACCOUNT 29
* Sales of any amount.
* Include all signatures and any additional documents that may be required (see next page).
* Mail the materials to Signature Services.
* A check or wire will be sent according to your letter of instruction.
* Certain requests will require a Medallion signature guarantee. Please refer to "Selling shares in writing" on the next page.
To sell some or all of your shares
* Most accounts.
Amounts up to $5 million:
* Available to the following types of accounts: custodial accounts
held by banks, trust companies or broker-dealers; endowments and
foundations; corporate accounts; group retirement plans; and pension
accounts (excluding IRAs, 403(b) plans and all John Hancock custodial
retirement accounts).
* Redemption proceeds of up to $100,000 may be sent by wire or by check. A check will be mailed to the exact name(s) and address on the account.
* To place your request with a representative at John Hancock Funds, call Signature Services between 8:30 A.M. and 5:00 P.M. Eastern Time on most business days or your financial representative.
* Redemption proceeds exceeding $100,000 must be wired to your designated bank account.
* Redemption proceeds exceeding $100,000 and sent by check will require a letter of instruction with a Medallion guarantee. Please refer to "Selling shares in writing" on the next page.
* Requests by letter to sell any amount.
* Qualified requests by phone to sell up to $5 million (accounts with telephone redemption privileges). To sell some or all of your shares
* To verify that the telephone redemption privilege is in place on an account, or to request the forms to add it to an existing account, call Signature Services.
* Amounts of $5 million or more will be wired on the next business day.
* Amounts up to $100,000 may be sent by EFT or by check. Funds from EFT transactions are generally available by the second business day. Your bank may charge a fee for this service.
* Sales of any amount.
* Obtain a current prospectus for the fund into which you are exchanging by calling your financial representative or Signature Services.
* You may only exchange Class I shares for other Class I shares or Money Market Fund Class A shares.
* Call your financial representative or Signature Services to request an exchange.
30 YOUR ACCOUNT
Selling shares in writing In certain circumstances, you will need to make your request to sell shares in writing. You may need to include additional items with your request, as shown in the table below, unless they were previously provided to Signature Services and are still accurate. You may also need to include a Medallion signature guarantee, which protects you against fraudulent orders. You will need a signature guarantee if:
* your address of record has changed within the past 30 days
* you are selling more than $100,000 worth of shares and are requesting payment by check
* you are selling more than $5 million worth of shares from the following types of accounts: custodial accounts held by banks, trust companies or broker-dealers; endowments and foundations; cor- porate accounts; group retirement plans; and pension accounts (excluding IRAs, 403(b) plans and all John Hancock custodial retirement accounts).
* you are requesting payment other than by a check/wire mailed to the address/bank of record and payable to the registered owner(s)
You will need to obtain your Medallion signature guarantee from a member of the Signature Guarantee Medallion Program. Most banks, brokers and securities dealers are members of this program. A notary public CANNOT provide a signature guarantee.
Owners of individual, joint or UGMA/UTMA accounts (custodial accounts for minors).
* Letter of instruction.
* On the letter, the signatures of all persons authorized to sign for the account, exactly as the account is registered.
* Medallion signature guarantee if applicable (see above).
Owners of corporate, sole proprietorship, general 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.
* Medallion signature guarantee if applicable (see above).
* 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.
* Medallion signature guarantee if applicable (see above).
* Copy of order appointing executor, certified within the past 12 months.
* Medallion signature guarantee if applicable (see above).
* Inheritance tax waiver (if applicable).
Address:
John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1001 Boston, MA 02217-1001
Phone Number: 1-888-972-8696
Or contact your financial representative for instructions and assistance.
YOUR ACCOUNT 31
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, fixed-income 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 funds use 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 SAI.
Buy and sell prices When you buy shares, you pay the NAV. When you sell shares, you receive the NAV.
Execution of requests Each fund is open on those days when the New York Stock Exchange is open, typically Monday through Friday. Buy and sell requests are executed at the next NAV to be calculated after Signature Services receives your request in good order. In unusual circumstances, the funds have the right to redeem in kind.
At times of peak activity, it may be difficult to place requests by phone. During these times, consider sending your request in writing. In unusual circumstances, any fund may temporarily suspend the processing of sell requests, or may postpone payment of proceeds for up to three business days or longer, as allowed by federal securities laws.
Telephone transactions For your protection, telephone requests may be recorded in order to verify their accuracy. Also for your protection, telephone redemption transactions are not permitted on accounts whose names or addresses have changed within the past 30 days. Proceeds from telephone transactions can only be mailed to the address of record.
Exchanges You may exchange Class I shares for Class I shares of other John Hancock funds or Money Market Fund Class A shares. The registration for both accounts involved must be identical. Note: Once exchanged into Money Market Fund Class A, shares may only be exchanged back to Class I shares.
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 (with respect to cancellations, within one day of the order), 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 "Limitation 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 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.
32 YOUR ACCOUNT
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, takes steps reasonably designed to curtail excessive trading practices.
Limitation 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 "Limitation 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 records 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 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 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 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, LLC is required by law to obtain information for verifying an account holder's identity. For example, an individual will be required to supply
YOUR ACCOUNT 33
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, LLC may close your account, redeem your shares at the next NAV and take any other steps that it deems reasonable.
Certificated shares The funds no longer issue share certificates. Shares are electronically recorded. Any existing certificated shares can only be sold by returning the certificated shares to Signature Services, along with a letter of instruction or a stock power and a signature guarantee.
Sales in advance of purchase payments When you place a request to sell shares for which the purchase money has not yet been collected, the request will be executed in a timely fashion, but a fund will not release the proceeds to you until your purchase payment clears. This may take up to ten business days after the purchase.
Account statements In general, you will receive account statements as follows:
* after every transaction (except a dividend reinvestment) that affects your account balance
* after any changes of name or address of the registered owner(s)
* in all other circumstances, at least quarterly
Every year you should also receive, if applicable, a Form 1099 tax information statement, mailed by January 31.
Dividends The funds generally distribute most or all of their net earnings annually in the form of dividends. Balanced Fund and Sovereign Investors Fund typically pay income dividends quarterly. All other funds declare and pay any income dividends annually. Any capital gains are distributed annually.
Dividend reinvestments Dividends will be reinvested automatically in additional shares of the same fund on the dividend record date. Alternatively, you can choose to have your dividends and capital gains sent directly to your bank account or a check will be sent in the amount of more than $10. However, if the check is not deliverable or the combined dividend and capital gains amount is $10 or less, your proceeds will be reinvested. If five or more of your dividend or capital gains checks remain uncashed after 180 days, all subsequent dividends and capital gains will be reinvested.
Taxability of dividends For investors who are not exempt from federal income taxes, dividends you receive from a fund, whether reinvested or taken as cash, are generally considered taxable. Dividends from a fund's short-term capital gains are taxable as ordinary income. Dividends from a fund's long-term capital gains are taxable at a lower rate. Whether gains are short term or long term depends on the fund's holding period. Some dividends paid in January may be taxable as if they had been paid the previous December.
The Form 1099 that is mailed to you every January details your dividends and their federal tax category, although you should verify your tax liability with your tax professional.
Taxability of transactions Any time you sell or exchange shares, it is considered a taxable event for you if you are not exempt from federal income taxes. Depending on the purchase price and the sale price of the shares you sell or exchange, you may have a gain or a loss on the transaction. You are responsible for any tax liabilities generated by your transactions.
Fund securities The funds' portfolio securities disclosure policy can be found in each fund's SAI 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 ("the 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.
34 YOUR ACCOUNT
Fund details
Each fund's board of trustees oversees each fund's business activities and retains the services of the various firms that carry out the fund's operations. The trustees of the Balanced, Classic Value, Large Cap Equity, Large Cap Select, Mid Cap Equity, Mid Cap Growth, Small Cap, Small Cap Intrinsic Value and U.S. Global Leaders Growth Funds have the power to change these funds' respective investment goals without shareholder approval.
The trustees of Core Equity, Large Cap Equity, Large Cap Select, Mid Cap Equity, Mid Cap Growth, Small Cap, Small Cap Equity, Small Cap Intrinsic Value and U.S. Global Leaders Growth Funds have the power to change the focus of each 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% policy.
The investment adviser John Hancock Advisers, LLC, 601 Congress Street, Boston, MA 02210-2805.
Management fees The management fee paid to the investment adviser by the funds last fiscal year are as follows:
Fund % of net assets ------------------------------------------------------------------------ Balanced 0.60% ------------------------------------------------------------------------ Classic Value 0.80* ------------------------------------------------------------------------ Core Equity 0.75 ------------------------------------------------------------------------ Large Cap Equity 0.625 ------------------------------------------------------------------------ Large Cap Select 0.64* ------------------------------------------------------------------------ Mid Cap Equity 0.00* ------------------------------------------------------------------------ Mid Cap Growth 0.80 ------------------------------------------------------------------------ Small Cap 0.82* ------------------------------------------------------------------------ Small Cap Equity 0.70 ------------------------------------------------------------------------ Small Cap Intrinsic Value 0.00* ------------------------------------------------------------------------ Sovereign Investors 0.58 ------------------------------------------------------------------------ U.S. Global Leaders Growth 0.70* ------------------------------------------------------------------------ |
*After expense reimbursement.
A discussion regarding the basis for the board of trustees approving each fund's investment advisory agreement is available in each fund's annual or semiannual report to shareholders, as follows:
Semiannual report dated June 30, 2005 Balanced Fund, Classic Value Fund, Core Equity Fund, Large Cap Equity Fund, Large Cap Select Fund, Sovereign Investors Fund, U.S. Global Leaders Growth Fund
Annual report dated October 31, 2005 Mid Cap Equity Fund, Mid Cap Growth Fund, Small Cap Fund, Small Equity Cap Fund
Annual report dated December 31, 2005 Small Cap Intrinsic Value Fund
Subadvisers Independence Investment LLC ("Independence"), 53 State Street, Boston, MA 02109, subadvises Core Equity Fund and Small Cap Fund. Independence was founded in 1982 and provides investment advisory services to individual and institutional investors. Independence is a wholly owned subsidiary of John Hancock Financial Services, Inc. (a subsidiary of Manulife Financial Corporation), and as of December 31, 2005, had total assets under management of approximately $7.7 billion.
Pzena Investment Management, LLC ("PIM"), 120 West 45th Street, New York, NY 10036, subadvises Classic Value Fund, and was investment adviser to its predecessor fund, Pzena Focused Value Fund. PIM was founded in 1995 and is controlled by Richard S. Pzena, Managing Principal, Chief Executive Officer and Co-Chief Investment Officer. PIM provides investment advisory services to individual and institutional investors, and as of December 31, 2005, had total assets under management of approximately $16.8 billion.
Sovereign Asset Management LLC ("Sovereign") subadvises Balanced, Mid Cap Equity, Mid Cap Growth, Small Cap Equity, Small Cap Intrinsic Value and Sovereign Investors Funds. Sovereign was founded in 1979 and provides investment advisory services to individual and institutional investors. Sovereign is a wholly owned subsidiary of John Hancock Financial Services, Inc. (a subsidiary of Manulife Financial Corporation) and, as of December 31, 2005, had total assets under management of approximately $25 billion.
Shay Assets Management, Inc. ("SAM"), 230 West Monroe Street, Chicago, IL 60606, subadvises Large Cap Select Fund. SAM was founded in 1981 and is controlled by Rodger D. Shay, Chairman. SAM managed approximately $3.9 billion in assets as of December 31, 2005, and was the investment adviser to the fund's predecessor, M.S.B. Fund, Inc.
Sustainable Growth Advisers, LP ("SGA"), 3 Stamford Plaza, 301 Tresser Blvd., Suite 1310, Stamford, CT 06901, subadvises U.S. Global Leaders Growth Fund. SGA is a Delaware limited partnership founded in 2003 to provide investment advice to private accounts of institutional and individual clients, private investment companies and mutual funds. George P. Fraise, Gordon M. Marchand and Robert L. Rohn each own 24% of SGA. Total assets under management by SGA principals as of December 31, 2005 were approximately $2.7 billion.
FUND DETAILS 35
MANAGEMENT BIOGRAPHIES
Below is an alphabetical list of the portfolio managers for the John Hancock equity funds, including a brief summary of their business careers over the past five years. The SAI for each fund includes additional information about its portfolio manager(s), including information about their compensation, accounts they manage other than the fund and their ownership of fund shares, if any.
(since 2003)
Chief financial and operating officer of Yeager, Wood & Marshall, Inc. (1984--2003) Began business career in 1977
(2002--2005)
Senior portfolio manager, The Colony Group
(2001--2002)
Began business career in 1972
(2002--2005)
Senior portfolio manager, The Colony Group
(2001--2002)
Began business career in 1987
(2002--2005)
Investment manager, Baring Asset
Management (1997--2002)
Began business career in 1986
(since 2003)
Chairman and chief executive officer,
W.P. Stewart, Inc. (1991--2003)
Began business career in 1983
36 FUND DETAILS
FINANCIAL HIGHLIGHTS
These tables detail the performance of each fund's Class I shares, including total return information showing how much an investment in the fund has increased or decreased each year.
Balanced Fund
Figures for the years ended 12-31-03, 12-31-04 and 12-31-05 were audited by
Deloitte & Touche LLP.
CLASS I SHARES PERIOD ENDED 12-31-02(1,2) 12-31-03 12-31-04 12-31-05
---------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.93 $9.61 $11.15 $11.67
---------------------------------------------------------------------------------------------------------------
Net investment income(3) 0.21 0.23 0.25 0.19
---------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (2.26) 1.56 0.55 1.43
---------------------------------------------------------------------------------------------------------------
Total from investment operations (2.05) 1.79 0.80 1.62
---------------------------------------------------------------------------------------------------------------
Less distributions
---------------------------------------------------------------------------------------------------------------
From net investment income (0.27) (0.25) (0.28) (0.23)
---------------------------------------------------------------------------------------------------------------
From net realized gain -- -- -- (0.45)
---------------------------------------------------------------------------------------------------------------
(0.27) (0.25) (0.28) (0.68)
---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.61 $11.15 $11.67 $12.61
---------------------------------------------------------------------------------------------------------------
Total return(4)(%) (17.29)(5) 18.87 7.31 14.02
RATIOS AND SUPPLEMENTAL DATA
---------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $7 $7 $6 $7
---------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.15(6) 0.89 0.83 0.84
---------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 2.59(6) 2.22 2.25 1.63
---------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 86 60 56 88
|
(1)Class I shares began operations on 3-1-01.
(2)Audited by previous auditor.
(3)Based on the average of the shares outstanding.
(4)Assumes dividend reinvestment and does not reflect the effect of sales charges.
(5)Not annualized.
(6)Annualized.
FUND DETAILS 37
Classic Value Fund
Figures audited by PricewaterhouseCoopers LLP.
CLASS I SHARES PERIOD ENDED 12-31-02(1) 12-31-03 12-31-04 12-31-05
---------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $14.11 $15.08 $20.30 $23.05
---------------------------------------------------------------------------------------------------------------
Net investment income(2) 0.03 0.27 0.27 0.26
---------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 0.94 5.26 2.73 1.88
---------------------------------------------------------------------------------------------------------------
Total from investment operations 0.97 5.53 3.00 2.14
---------------------------------------------------------------------------------------------------------------
Less distributions
---------------------------------------------------------------------------------------------------------------
From net investment income -- (0.19) (0.18) (0.20)
---------------------------------------------------------------------------------------------------------------
From net realized gain -- (0.12) (0.07) (0.30)
-- (0.31) (0.25) (0.50)
---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $15.08 $20.30 $23.05 $24.69
---------------------------------------------------------------------------------------------------------------
Total return(3,4)(%) 6.87(5) 36.81 14.77 9.28
RATIOS AND SUPPLEMENTAL DATA
---------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $6 $23 $206 $665
---------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 0.77(6) 0.76 0.86 0.89
---------------------------------------------------------------------------------------------------------------
Ratio of adjusted expenses to average net assets(7)(%) 5.49(6) 1.12 1.01 0.98
---------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 1.62(6) 1.54 1.25 1.09
---------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 47 25 16 27
|
(1)Class I shares began operations on 11-11-02.
(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
38 FUND DETAILS
Large Cap Equity Fund
Figures audited by Deloitte & Touche LLP.
CLASS I SHARES PERIOD ENDED 12-31-02(1) 12-31-03 12-31-04 12-31-05 --------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE --------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $26.15 $20.63 $25.66 $28.07 --------------------------------------------------------------------------------------------------------------- Net investment income(2) 0.06 0.12 0.26 0.16 --------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (5.58) 4.91 2.15 2.14 --------------------------------------------------------------------------------------------------------------- Total from investment operations (5.52) 5.03 2.41 2.30 --------------------------------------------------------------------------------------------------------------- Net asset value, end of period $20.63 $25.66 $28.07 $30.37 --------------------------------------------------------------------------------------------------------------- Total return(3)(%) (21.11)(4) 24.38 9.39 8.19 RATIOS AND SUPPLEMENTAL DATA --------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $2 $2 --(5) --(5) --------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 1.26(6) 1.06 0.92 0.90 --------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) 0.33(6) 0.53 1.00 0.54 --------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 64(7) 70 68 54 |
(1)Class I shares began operations on 3-1-02.
(2)Based on the average of the shares outstanding.
(3)Assumes dividend reinvestment and does not reflect the effect of sales charges.
(4)Not annualized.
(5)Less than $500,000.
(6)Annualized.
(7)Excludes merger activity.
FUND DETAILS 39
Core Equity Fund
Figures audited by PricewaterhouseCoopers LLP.
CLASS I SHARES PERIOD ENDED 12-31-02(1,2) 12-31-03(2) 12-31-04 12-31-05 12-31-05
----------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $21.42 $19.11 $11.91 $14.87 $15.46
----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss)(3) (0.02) 0.07 0.08 0.15 0.06
----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (1.18) (7.25) 2.88 0.54 2.53
----------------------------------------------------------------------------------------------------------------------------
Total from investment operations (1.20) (7.18) 2.96 0.69 2.59
----------------------------------------------------------------------------------------------------------------------------
Less distributions
----------------------------------------------------------------------------------------------------------------------------
From net investment income -- -- -- (0.10) --
----------------------------------------------------------------------------------------------------------------------------
From net realized gain (1.11) (0.02) -- -- --
----------------------------------------------------------------------------------------------------------------------------
(1.11) (0.02) -- (0.10) --
----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.11 $11.91 $14.87 $15.46 $18.05
----------------------------------------------------------------------------------------------------------------------------
Total return(4)(%) (5.53)(5) (37.55) 24.85 4.68 16.75
RATIOS AND SUPPLEMENTAL DATA
----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $2 $1 --(6) --(6) --(6)
----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 0.84(7) 0.81 0.84 0.79 0.78
----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (%)(0.10)(7) 0.49 0.62 0.98 0.35
----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 71 114 140 97 74
(1)Class I shares began operations on 3-1-01.
(2)Audited by previous auditor.
(3)Based on the average of the shares outstanding.
(4)Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5)Not annualized.
(6)Less than $500,000.
(7)Annualized.
|
40 FUND DETAILS
Large Cap Select Fund
Figures audited by PricewaterhouseCoopers LLP.
CLASS I SHARES PERIOD ENDED 12-31-03(1) 12-31-04 12-31-05
---------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $16.29 $17.83 $18.46
---------------------------------------------------------------------------------------------------------------
Net investment income(2) 0.04 0.15 0.12
---------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.59 0.84 (0.48)
---------------------------------------------------------------------------------------------------------------
Total from investment operations 1.63 0.99 (0.36)
---------------------------------------------------------------------------------------------------------------
Less distributions
---------------------------------------------------------------------------------------------------------------
From net investment income -- (0.15) (0.11)
---------------------------------------------------------------------------------------------------------------
From net realized gain (0.09) (0.21) (0.37)
---------------------------------------------------------------------------------------------------------------
(0.09) (0.36) (0.48)
---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.83 $18.46 $17.62
---------------------------------------------------------------------------------------------------------------
Total return(3,4)(%) 10.00(5) 5.54 (1.98)
RATIOS AND SUPPLEMENTAL DATA
---------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $3 $3 $3
---------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 0.95(6) 0.95 0.95
---------------------------------------------------------------------------------------------------------------
Ratio of adjusted expenses to average net assets(7)(%) 1.84(6) 1.05 1.06
---------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 0.61(6) 0.83 0.67
---------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 22 13 23
(1)Class I shares began operations on 8-25-03.
(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 part of the audited financial highlights presented
above:
Without the expense reductions, the returns for Class I for the period or years
ended December 31, 2003, 2004 and 2005 would have been 9.69%, 5.44%, (2.09%),
respectively.
FUND DETAILS 41
Mid Cap Equity Fund
Figures audited by Deloitte & Touche LLP.
CLASS I SHARES PERIOD ENDED 10-31-03(1) 10-31-04 10-31-05 ------------------------------------------------------------------------------------------------------ PER SHARE OPERATING PERFORMANCE ------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $10.00 $11.35 $11.66 ------------------------------------------------------------------------------------------------------ Net investment loss(2) (0.01) (0.03) (0.04) ------------------------------------------------------------------------------------------------------ Net realized and unrealized gain on investments 1.36 0.52 2.38 ------------------------------------------------------------------------------------------------------ Total from investment operations 1.35 0.49 2.34 ------------------------------------------------------------------------------------------------------ Less distributions ------------------------------------------------------------------------------------------------------ From net realized gain -- (0.18) (0.53) ------------------------------------------------------------------------------------------------------ Net asset value, end of period $11.35 $11.66 $13.47 ------------------------------------------------------------------------------------------------------ Total return(3,4)(%) 13.50(5) 4.37 20.58 RATIOS AND SUPPLEMENTAL DATA ------------------------------------------------------------------------------------------------------ Net assets, end of period (in millions) --(6) --(6) --(6) ------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%) 0.90(7) 0.90 0.90 ------------------------------------------------------------------------------------------------------ Ratio of adjusted expenses to average net assets(8)(%) 5.90(7) 2.12 2.67 ------------------------------------------------------------------------------------------------------ Ratio of net investment loss to average net assets (%) (0.27)(7) (0.26) (0.35) ------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 48 46 63 |
(1)Class I shares began operations on 8-4-03.
(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)Less than $500,000.
(7)Annualized.
(8)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, the return for the period or years ended
October 21, 2003, 2004 and 2005 would have been 12.29%, 3.15% and 18.81% for
Class I shares, respectively.
42 FUND DETAILS
Mid Cap Growth Fund
Figures audited by PricewaterhouseCoopers LLP.
CLASS I SHARES PERIOD ENDED 10-31-02(1) 10-31-03 10-31-04 10-31-05 --------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE --------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $8.16 $6.51 $8.54 $8.50 --------------------------------------------------------------------------------------------------------------- Net investment loss(2) (0.06) (0.06) (0.06) (0.06) --------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (1.59) 2.09 0.02 1.47 --------------------------------------------------------------------------------------------------------------- Total from investment operations (1.65) 2.03 (0.04) 1.41 --------------------------------------------------------------------------------------------------------------- Net asset value, end of period $6.51 $8.54 $8.50 $9.91 --------------------------------------------------------------------------------------------------------------- Total return(3)(%) (20.22)(4) 31.18 (0.47) 16.59 RATIOS AND SUPPLEMENTAL DATA --------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $3 $3 $3 $3 --------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 1.46(5) 1.22 1.02 1.04 --------------------------------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%) (1.00)(5) (0.85) (0.71) (0.65) --------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 267(6) 183 75 71 (1)Class I shares began operations on 3-1-02. (2)Based on the average of the shares outstanding. (3)Assumes dividend reinvestment and does not reflect the effect of sales charges. (4)Not annualized. (5)Annualized. (6)Excludes merger activity. |
FUND DETAILS 43
Small Cap Fund
Figures audited by PricewaterhouseCoopers LLP.
CLASS A SHARES PERIOD ENDED 10-31-05(1,2) ------------------------------------------------------------------------------------------ PER SHARE OPERATING PERFORMANCE ------------------------------------------------------------------------------------------ Net asset value, beginning of period $11.21 ------------------------------------------------------------------------------------------ Net investment loss(3) (0.05) ------------------------------------------------------------------------------------------ Net realized and unrealized gain on investments 0.44 ------------------------------------------------------------------------------------------ Total from investment operations 0.39 ------------------------------------------------------------------------------------------ Net asset value, end of period $11.60 ------------------------------------------------------------------------------------------ Total return(4,5)(%) 3.48(6) RATIOS AND SUPPLEMENTAL DATA ------------------------------------------------------------------------------------------ Net assets, end of period (in millions) $34 ------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%) 1.10(7) ------------------------------------------------------------------------------------------ Ratio of adjusted expenses to average net assets(8)(%) 1.18(7) ------------------------------------------------------------------------------------------ Ratio of net investment loss to average net assets (%) (0.53)(7) ------------------------------------------------------------------------------------------ Portfolio turnover (%) 145 |
(1)Effective 12-3-04, shareholders of the former Independence Small Cap Portfolio became owners of an equal number of full and fractional Class A shares of the John Hancock Small Cap Fund. Additionally, the accounting and performance history of the Independence Small Cap Portfolio was redesignated as that of Class A shares of John Hancock Small Cap Fund.
(2)Class I shares began operations on 12-6-04.
(3)Based on the average of the shares outstanding.
(4)Total return would have been lower had certain expenses not been reduced during the period shown.
(5)Assumes dividend reinvestment and does not reflect the effect of sales charges.
(6)Not annualized.
(7)Annualized.
(8)Does not take into consideration expense reductions during the period shown.
The following return is not audited and is not part of the unaudited financial
highlights presented above:
Without the expense reductions, the return for the Class I would have been
3.41%.
44 FUND DETAILS
Small Cap Equity Fund
Figures for the years ended 10-31-03, 10-31-04 and 10-31-05 were audited by
PricewaterhouseCoopers LLP.
CLASS I SHARES PERIOD ENDED 10-31-01(1,2) 10-31-02(2) 10-31-03 10-31-04 10-31-05 ---------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE ---------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $20.44 $16.61 $11.53 $15.86 $17.77 ---------------------------------------------------------------------------------------------------------------------------- Net investment loss(3) --(4) (0.09) (0.02) (0.03) (0.10) ---------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (3.83) (4.82) 4.35 1.94 2.89 ---------------------------------------------------------------------------------------------------------------------------- Total from investment operations (3.83) (4.91) 4.33 1.91 2.79 ---------------------------------------------------------------------------------------------------------------------------- Less distributions ---------------------------------------------------------------------------------------------------------------------------- From net realized gain -- (0.17) -- -- -- ---------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $16.61 $11.53 $15.86 $17.77 $20.56 ---------------------------------------------------------------------------------------------------------------------------- Total return(5)(%) (18.74)(6) (29.91) 37.55 12.04 15.70 RATIOS AND SUPPLEMENTAL DATA ---------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) --(7) $14 $17 $21 $25 ---------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 0.87(8) 1.28 1.03 0.86 0.87 ---------------------------------------------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%) (0.06)(8) (0.69) (0.12) (0.19) (0.50) ---------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 66 44 52 54 38 (1)Class I began operations on 8-15-01. (2)Audited by previous auditor. (3)Based on the average of the shares outstanding. (4)Less than $0.01 per share. (5)Assumes dividend reinvestment and does not reflect the effect of sales charges. (6)Not annualized. (7)Less than $500,000. (8)Annualized. |
FUND DETAILS 45
Small Cap Intrinsic Value Fund
Figures audited by PricewaterhouseCoopers LLP.
CLASS A SHARES PERIOD ENDED 12-31-05(1) ------------------------------------------------------------------------------------------ PER SHARE OPERATING PERFORMANCE ------------------------------------------------------------------------------------------ Net asset value, beginning of period $10.00 ------------------------------------------------------------------------------------------ Net investment income(2) 0.02 ------------------------------------------------------------------------------------------ Net realized and unrealized gain on investments 1.72 ------------------------------------------------------------------------------------------ Total from investment operations 1.74 ------------------------------------------------------------------------------------------ Less distributions ------------------------------------------------------------------------------------------ From net realized gain (0.85) ------------------------------------------------------------------------------------------ Net asset value, end of period $10.89 ------------------------------------------------------------------------------------------ Total return(3)(%) 17.58(4,5) RATIOS AND SUPPLEMENTAL DATA ------------------------------------------------------------------------------------------ Net assets, end of period (in millions) --(6) ------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%) 1.15(8) ------------------------------------------------------------------------------------------ Ratio of adjusted expenses to average net assets(7)(%) 4.59(8) ------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 0.22(8) ------------------------------------------------------------------------------------------ Portfolio turnover (%) 97 (1)Beginning of operations from 2-28-05 through 12-31-05. (2)Based on the average of the shares outstanding. (3)Assumes dividend reinvestment and does not reflect the effect of sales charges. (4)Not annualized. (5)Total return would have been lower had certain expenses not been reduced during the period shown. (6)Less than $500,000. (7)Does not take into consideration expense reductions during the period shown. (8)Annualized. The following return is not part of the audited financial highlights presented above: Without the expense reductions the return for the Class I would have been 14.70%. |
46 FUND DETAILS
Sovereign Investors Fund
Figures audited by Deloitte & Touche LLP.
CLASS I SHARES PERIOD ENDED 12-31-03(1) 12-31-04 12-31-05
------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $18.09 $18.74 $19.54
------------------------------------------------------------------------------------------------------
Net investment income(2) 0.01 0.26 0.27
------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 0.67 0.80 0.27
------------------------------------------------------------------------------------------------------
Total from investment operations 0.68 1.06 0.54
------------------------------------------------------------------------------------------------------
Less distributions
------------------------------------------------------------------------------------------------------
From net investment income (0.03) (0.26) (0.27)
------------------------------------------------------------------------------------------------------
From net realized gain -- -- (1.30)
------------------------------------------------------------------------------------------------------
(0.03) (0.26) (1.57)
------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.74 19.54 $18.51
------------------------------------------------------------------------------------------------------
Total return(3)(%) 3.78(4) 5.73 2.76
RATIOS AND SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $3 $3 $3
------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 0.70(5) 0.72 0.72
------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 0.92(5) 1.38 1.40
------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 47 20 30
(1)Class I shares began operations on 12-1-03.
(2)Based on the average of the shares outstanding.
(3)Assumes dividend reinvestment and does not reflect the effect of sales charges.
(4)Not annualized.
(5)Annualized.
|
FUND DETAILS 47
U.S. Global Leaders Growth Fund
Figures for the years ended 12-31-03, 12-31-04 and 12-31-05 were audited
by PricewaterhouseCoopers LLP.
CLASS I SHARES PERIOD ENDED 6-30-02(1,2) 12-31-02(2) 12-31-03 12-31-04 12-31-05 ---------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE ---------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $25.81 $24.04 $21.60 $25.87 $28.00 ---------------------------------------------------------------------------------------------------------------------------- Net investment income(4) 0.01 0.02 0.10 0.25 0.08 ---------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (1.78) (2.46) 4.17 2.06 0.66 ---------------------------------------------------------------------------------------------------------------------------- Total from investment operations (1.77) (2.44) 4.27 2.31 0.74 ---------------------------------------------------------------------------------------------------------------------------- Less distributions ---------------------------------------------------------------------------------------------------------------------------- From net investment income -- -- -- (0.18) -- ---------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $24.04 $21.60 $25.87 $28.00 $28.74 ---------------------------------------------------------------------------------------------------------------------------- Total return(5)(%) (6.86)(6,7) (10.15)(6,7) 19.77 8.94 2.64(6) RATIOS AND SUPPLEMENTAL DATA ---------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $5 $6 $5 $8 $13 ---------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 0.91(8) 1.11(8) 0.90 0.90 0.85 ---------------------------------------------------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(9)(%) 1.17(8) 1.20(8) -- -- 0.90 ---------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) 0.21(8) 0.22(8) 0.43 0.94 0.30 ---------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 3 1 15 16 28(10) (1)Audited by previous auditor. (2)Class I shares began operations on 5-20-02. (3)Effective 12-31-02, the fiscal year changed from June 30 to December 31. (4)Based on the average of the shares outstanding. (5)Assumes dividend reinvestment and does not reflect the effect of sales charges. (6)Total returns would have been lower had certain expenses not been reduced during the periods shown. (7)Not annualized. (8)Annualized. (9)Does not take into consideration expense reductions during the periods shown. (10)Excludes merger activity. The following returns are not audited and are not part of the audited financial highlights presented above: Without the expense reductions, returns for Class I would have been (6.89%) for the year ended June 30, 2002 (10.20%) for the period ended December 31, 2002 and 2.59% for the year ended December 31, 2005. |
48 FUND DETAILS
For more information
Two documents are available that offer further information on John Hancock equity 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 Statement of Additional Information 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.
[C]2006 JOHN HANCOCK FUNDS, LLC KEQPN 3/06
[GRAPHIC OMITTED: JOHN HANCOCK FUNDS]
John Hancock Funds, LLC
MEMBER NASD
601 Congress Street
Boston, MA 02210-2805
www.jhfunds.com
Now available: electronic delivery
www.jhfunds.com/edelivery
To request a free copy of the current annual/semiannual report or the SAI, please contact John Hancock:
By mail: John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1001 Boston, MA 02217-1001
By phone: 1-888-972-8696
By EASI-Line: 1-800-597-1897
By TDD: 1-800-554-6713
In addition, you may visit the funds' Web site at www.jhfunds.com to obtain a free copy of a prospectus, SAI, annual or semiannual report or to request other information.
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
[GRAPHIC OMITTED: JOHN HANCOCK LOGO]
John Hancock Large Cap Intrinsic Value Fund
INSTITUTIONAL CLASS I
Prospectus
3.1.2006
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 LARGE CAP INTRINSIC VALUE FUND 4 ------------------------------------------------------------------------------- YOUR ACCOUNT ------------------------------------------------------------------------------- Who can buy shares 6 Opening an account 6 Buying shares 7 Selling shares 8 Transaction policies 10 Dividends and account policies 12 Additional investor services 12 FUND DETAILS ------------------------------------------------------------------------------- Business structure 13 Financial Highlights 14 FOR MORE INFORMATION BACK COVER ------------------------------------------------------------------------------- |
Large Cap Intrinsic Value Fund
[GRAPHIC OMITTED: COMPASS]
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 equity securities of large- capitalization companies (companies with market capitalizations in excess of $4.5 billion). Equity securities include common and preferred stocks and their equivalents.
In managing the portfolio, the managers emphasize a value-oriented bottom-up approach to individual stock selection. With the aid of proprietary financial models, the management team looks for companies that are selling at what appear to be substantial discounts to their long-term intrinsic values. These companies often have identifiable catalysts for growth, such as new products, business reorganizations or mergers.
The management team uses fundamental financial analysis to identify individual companies with substantial cash flows, reliable revenue streams, strong competitive positions and strong management. The fund may attempt to take advantage of short-term market volatility by investing in corporate restructurings or pending acquisitions.
The fund may also invest up to 35% of assets in foreign securities. The fund may invest up to 20% of assets in bonds of any maturity rated as low as CC/Ca and their unrated equivalents (bonds below BBB/Baa are considered junk bonds). The fund may make limited use of certain derivatives (investments whose value is based on securities, indexes or currencies).
In abnormal circumstances, the fund may temporarily invest extensively in investment-grade short-term securities. In these and other cases, the fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction costs (thus lowering performance) and increase your taxable distributions.
PAST PERFORMANCE
This section normally shows how the fund's total return has varied from year to
year, along with a broad-based market index for reference. Because the fund has
existed for less than a full calendar year, there is no past performance to
report.
MAIN RISKS
The value of your investment will fluctuate in response to stock and bond market movements.
The fund's management strategy has a significant influence on fund performance. Large-capitalization stocks as a group could fall out of favor with the market, causing the fund to underperform investments that focus on small- or medium-capitalization stocks. Similarly, value stocks could under-perform growth stocks. To the extent that the fund invests in a given industry, its performance will be hurt if that industry performs poorly. 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 investment 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 and longer maturity will increase volatility. Junk bond prices can fall on bad news about the economy, an industry or a company.
Investments in the fund are not bank deposits and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
You could lose money by investing
in this fund.
YOUR EXPENSES
Operating expenses are paid from the fund's assets, and therefore are paid by shareholders indirectly. The figures below show estimated annual operating expenses. Actual expenses may be greater or less.
------------------------------------------------------------------------------- Annual operating expenses ------------------------------------------------------------------------------- Management fee 0.75% ------------------------------------------------------------------------------- Other expenses 1.83% ------------------------------------------------------------------------------- Total fund operating expenses 2.58% ------------------------------------------------------------------------------- Contractual expense reimbursement (at least until 4-30-07) 1.48% ------------------------------------------------------------------------------- Net annual operating expenses 1.10% |
The hypothetical example below shows what your expenses would be after the expense reimbursement (through April 31, 2007) if you invested $10,000 over the time frames indicated, assuming you reinvested all distributions and that the average annual return was 5%. The example is for comparison only, and does not represent the fund's actual expenses and returns, either past or future.
------------------------------------------------------------------------------- Expenses Year 1 Year 3 Year 5 Year 10 ------------------------------------------------------------------------------- Class I $112 $636 $1,214 $2,784 |
Sovereign Asset Management LLC
Responsible for day-to-day investment
management
A subsidiary of John Hancock Financial
Services, Inc.
Founded in 1979
Supervised by the adviser
PORTFOLIO MANAGERS
Timothy E. Keefe, CFA
Senior vice president and chief equity officer,
Sovereign Asset Management LLC (since 2005)
Senior vice president and chief equity
officer, John Hancock Advisers, LLC
(2004-2005)
Managed fund since it began in 2005
Partner and portfolio manager, Thomas
Weisel Partners (2000--2004)
Began business career in 1987
Timothy M. Malloy
Second vice president of Sovereign Asset
Management LLC (since 2005)
Second vice president, joined John Hancock
Advisers, LLC (2004-2005)
Managed fund since it began in 2005
Investment analyst, Thomas Weisel Partners
(2000--2004)
Began business career in 1993
Managers share investment strategy and decisions
FUND CODES
Class I Ticker --
CUSIP 41013P764
Newspaper --
SEC number 811-0560
JH fund number 469
5
|
Your account ------------------------------------------------------------------------------- |
WHO CAN BUY SHARES
Class I shares are offered without any sales charge to certain types of investors, as noted below:
* Retirement and other benefit plans and their participants
* Rollover assets for participants whose plans are invested in the fund
* Endowment funds and foundations
* Any state, county or city, or its instrumentality, department, authority or agency
* Accounts registered to insurance companies, trust companies and bank trust departments
* Investment companies not affiliated with the adviser
* Investors who participate in fee-based, wrap and other investment platform programs
* Any entity that is considered a corporation for tax purposes
* Fund trustees and other individuals who are affiliated with this fund or other John Hancock funds
1 Read this prospectus carefully.
2 Determine if you are eligible, by referring to "Who can buy shares" on the left.
3 Determine how much you want to invest. The minimum initial investment is $10,000. There is no minimum investment for retirement plans with at least 350 eligible employees.
4 All shareholders must complete the account application, carefully following the instructions. If you have any questions, please contact your financial representative or call Signature Services at 1-888-972-8696.
5 Make your initial investment using the table on the next page.
6 Important information about opening a new account.
To help the government fight the funding of terrorism and money laundering
activities, the Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT
Act), requires all financial institutions to obtain, verify, and record
information that identifies each person or entity that opens an account.
For individual investors opening an account: When you open an account, you will be asked for your name, residential address, date of birth, and Social Security number.
For investors other than individuals: When you open an account, you will be asked for the name of the entity, its principal place of business and taxpayer identification number (TIN) and may be requested to provide information on persons with authority or control over the account such as name, residential address, date of birth and social security number. You may also be asked to provide documents, such as articles of incorporation, trust instruments or partnership aggreements and other information that will help Signature Services identify the entity. Please see the Mutual Fund Account Application for more details.
John Hancock Funds, LLC, the fund's principal distributor, may pay significant compensation out of its own resources to your financial representative. These payments are described in the Statement of Additional Information (SAI).
Your broker-dealer or agent may charge you a fee to effect transactions in fund shares.
Other classes of shares of the fund, which have their own expense structure, may be offered in separate prospectuses.
6 YOUR ACCOUNT
* Deliver the check and your completed application to your financial representative, or mail them to Signature Services (address below).
* If your account has a detachable investment slip, please complete in its entirety. If no slip is available, include a note specifying the fund name(s), your share class, your account number and the name(s) in which the account is registered.
* Deliver the check and investment slip or note to your financial representative, or mail them to Signature Services (address below).
* You may only exchange Class I shares for other Class I shares or Money Market Fund Class A shares.
* You may only exchange Class I shares for other Class I shares or Money Market Fund Class A shares.
* Deliver your completed application to your financial representative or mail it to Signature Services.
* Obtain your account number by calling your financial representative or Signature Services.
* Obtain wiring instructions by calling Signature Services at 1-888-972-8696.
* Instruct your bank to wire the amount of your investment.
Specify the fund name, your choice of share class, your the new account number and the name(s) in which the account is registered. Your bank may charge a fee to wire funds.
* Instruct your bank to wire the amount of your investment.
Specify the fund name, your share class, your account number and the name(s) in which the account is registered. Your bank may charge a fee to wire funds.
* Complete the "To Purchase, Exchange or Redeem Shares via Telephone" and "Bank Information" sections on your account application.
* Call Signature Services between 8:30 A.M. and 5:00 P.M. Eastern Time on most business days to verify that these features are in place on your account.
* Call your financial representative or Signature Services with the fund name(s), your share class, your account number, the name(s) in which the account is registered and the amount of your investment.
Address:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1001
Boston, MA 02217-1001
Phone Number: 1-888-972-8696
Or contact your financial representative for instructions and assistance.
YOUR ACCOUNT 7
* Sales of any amount.
* Include all signatures and any additional documents that may be required (see next page).
* Mail the materials to Signature Services.
* A check or wire will be sent according to your letter of instruction.
* Certain requests will require a Medallion signature guarantee. Please refer to "Selling shares in writing" on the next page.
Amounts up to $100,000:
* Most accounts.
Amounts up to $5 million:
* Available to the following types of accounts: custodial accounts held by
banks, trust companies or broker-dealers; endowments and foundations;
corporate accounts; group retirement plans; and pension accounts (excluding
IRAs, 403(b) plans and all John Hancock custodial retirement accounts).
* Redemption proceeds of up to $100,000 may be sent by wire or by check. A check will be mailed to the exact name(s) and address on the account.
* To place your request with a representative at John Hancock Funds, call Signature Services between 8:30 A.M. and 5:00 P.M. Eastern Time on most business days or your financial representative.
* Redemption proceeds exceeding $100,000 must be wired to your designated bank account.
* Redemption proceeds exceeding $100,000 and sent by check will require a letter of instruction with a Medallion signature guarantee. Please refer to "Selling shares in writing" on the next page.
* Requests by letter to sell any amount.
* Qualified requests by phone to sell up to $5 million (accounts with telephone redemption privileges).
* Amounts of $5 million or more will be wired on the next business day.
* Amounts up to $100,000 may be sent by EFT or by check. Funds from EFT transactions are generally available by the second business day. Your bank may charge a fee for this service.
* Sales of any amount.
* You may only exchange Class I shares for other Class I shares or Money Market Fund Class A shares.
* Call your financial representative or Signature Services to request an exchange.
8 YOUR ACCOUNT
Selling shares in writing In certain circumstances, you will need to make your request to sell shares in writing. You may need to include additional items with your request, as shown in the table below, unless they were previously provided to Signature Services and are still accurate. You may also need to include a Medallion signature guarantee, which protects you against fraudulent orders. You will need a signature guarantee if:
* your address of record has changed within the past 30 days
* you are selling more than $100,000 worth of shares and are requesting payment by check
* you are selling more than $5 million worth of shares from the following types of accounts: custodial accounts held by banks, trust companies or broker- dealers; endowments and foundations; corporate accounts; group retirement plans; and pension accounts (excluding IRAs, 403(b) plans and all John Hancock custodial retirement accounts).
* you are requesting payment other than by a check/wire mailed to the address/bank of record and payable to the registered owner(s)
You will need to obtain your Medallion signature guarantee from a member of the Signature Guarantee Medallion Program. Most banks, brokers and securities dealers are members of this program. A notary public CANNOT provide a signature guarantee.
[GRAPHIC OMITTED: ENVELOPE]
Owners of individual, joint or UGMA/UTMA accounts (custodial accounts for minors).
* On the letter, the signatures of all persons authorized to sign for the account, exactly as the account is registered.
* Medallion signature guarantee if applicable (see above).
* 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.
* Medallion signature guarantee if applicable (see above).
* 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.
* Medallion signature guarantee if applicable (see above).
* Copy of death certificate.
* Medallion signature guarantee if applicable (see above).
* Inheritance tax waiver (if applicable).
* Copy of order appointing executor, certified within the past 12 months.
* Medallion signature guarantee if applicable (see above).
* Inheritance tax waiver (if applicable).
Address:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1001
Boston, MA 02217-1001
Phone Number: 1-888-972-8696
Or contact your financial representative for instructions and assistance.
YOUR ACCOUNT 9
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 SAI.
Buy and sell prices When you buy shares, you pay the NAV. When you sell shares, you receive the NAV.
Execution of requests The fund is open on those days when the New York Stock Exchange is open, typically Monday through Friday. Buy and sell requests are executed at the next NAV to be calculated after Signature Services receives your request in good order. In unusual circumstances, the fund has the right to redeem in kind.
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 Class I shares for shares of any other institutional fund, Class I shares or Money Market Fund Class A shares. The registration for both accounts involved must be identical.
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, (with respect to cancellations, within one day of the order), 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 "Limitation 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 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, takes steps reasonably designed to curtail excessive trading practices.
10 YOUR ACCOUT
Limitation 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 "Limitation 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 funds. 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 records 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 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.
* The fund may invest 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." 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.
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 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, LLC 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, LLC may close your account, redeem your shares at the next NAV 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.
YOUR ACCOUNT 11
Account statements In general, you will receive account
statements as follows:
* after every transaction (except a dividend reinvestment) that affects your account balance
* after any changes of name or address of the registered owner(s)
* in all other circumstances, at least quarterly
Every year you should also receive, if applicable, a Form 1099 tax information statement, mailed by January 31.
Dividends The fund generally distributes most or all of its net earnings in the form of dividends. The fund declares and pays any income dividends annually. Capital gains, if any, are distributed annually.
Dividend reinvestments Dividends will be reinvested automatically in additional shares of the same fund on the dividend record date. Alternatively, you can choose to have your dividends and capital gains sent directly to your bank account or a check will be sent in the amount of more than $10. However, if the check is not deliverable or the combined dividend and capital gains amount is $10 or less, your proceeds will be reinvested. If five or more of your dividend or capital gains checks remain uncashed after 180 days, all subsequent dividends and capital gains will be reinvested.
Taxability of dividends For investors who are not exempt from federal income taxes, dividends you receive from the fund, whether reinvested or taken as cash, are generally considered taxable. Dividends from the fund's 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 if you are not exempt from federal income taxes. Depending on the purchase price and the sale price of the shares you sell or exchange, you may have a gain or a loss on the transaction. You are responsible for any tax liabilities generated by your transactions.
Fund securities The fund's portfolio securities disclosure policy can be found in the SAI 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.
12 YOUR ACCOUNT
Fund details
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 reserve the right to close the fund, if appropriate.
The trustees also have the power to change the fund's policy of investing at least 80% of its assets in large-capitalization companies without shareholder approval. The fund will provide shareholders with written notice at least 60 days prior to a change in this 80% policy.
The management firm The fund is managed by John Hancock Advisers, LLC, 601 Congress Street, Boston, MA 02210-2805. Founded in 1968, John Hancock Advisers, LLC is a wholly owned subsidiary of John Hancock Financial Services, Inc. (a subsidiary of Manulife Financial Corporation) and managed approximately $28 billion in assets as of December 31, 2005.
Management fee The fund pays the investment adviser a management fee at an annual rate of 0.00% of the fund's average daily net assets, after the expense reimbursements.
A discussion regarding the basis for the board of trustees approving the fund's investment advisory agreement is available the fund's annual report to shareholders dated December 31, 2005.
Subadvisers Sovereign Asset Management LLC ("Sovereign") subadvises the Fund. Sovereign was founded in 1979 and provided investment advisory services to individual and institutional investors. Sovereign is a wholly owned subsidiary of John Hancock Financial Services, Inc. (a subsidiary of Manulife Financial Corporation) and, as of December 31, 2005, had a total assets under management of approximately $25 billion.
FUND DETAILS 13
FINANCIAL HIGHLIGHTS
These tables detail the performance of the fund's Class I share class, including total return information showing how much an investment in the fund has increased or decreased each year.
Figures audited by Deloitte & Touche LLP.
CLASS I SHARES PERIOD ENDED 12-31-05 (1) ------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE ------------------------------------------------------------------------------- Net asset value, beginning of period $10.00 ------------------------------------------------------------------------------- Net investment income (2) 0.03 ------------------------------------------------------------------------------- Net realized and unrealized gain on investments 1.88 ------------------------------------------------------------------------------- Total from investment operations 1.91 ------------------------------------------------------------------------------- Less distributions ------------------------------------------------------------------------------- From net realized gain (0.31) ------------------------------------------------------------------------------- Net asset value, end of period $11.60 ------------------------------------------------------------------------------- Total return (3)(%) 19.15 (4,5) RATIOS AND SUPPLEMENTAL DATA ------------------------------------------------------------------------------- Net assets, end of period (in millions) --6 ------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 1.057 ------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets8(%) 2.587 ------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) 0.337 ------------------------------------------------------------------------------- Portfolio turnover (%) 77 |
1 Beginning of operations from 2-28-05 through 12-31-05.
2 Based on the average of the shares outstanding.
3 Assumes dividend reinvestment and does not reflect the effect of sales
charges.
4 Not annualized.
5 Total return would have been lower had certain expenses not been reduced
during the period shown.
6 Less than $500,000.
7 Annualized.
8 Does not take into consideration expense reductions during the period shown.
14 FUND DETAILS
For more information
Two documents are available that offer further information on John Hancock Large Cap Intrinsic Value 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 1001
Boston, MA 02217-1001
By phone: 1-888-972-8696
By EASI-Line: 1-800-597-1897
By TDD: 1-800-554-6713
In addition, you may visit the funds' Web site at www.jhfunds.com to obtain a free copy of a prospectus, SAI, annual or semiannual report or to request other information.
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]2006 JOHN HANCOCK FUNDS, LLC 69IPN 3/06
[GRAPHIC OMITTED: JOHN HANCOCK LOGO]
John Hancock Funds, LLC
MEMBER NASD
601 Congress Street
Boston, MA 02210-2805
www.jhfunds.com
[LOGO OMMITED: JOHN HANCOCK FUNDS]
John Hancock Retirement Funds
CLASS R SHARES
Bond Fund
Classic Value Fund
Large Cap Select Fund
Small Cap Equity Fund
Sovereign Investors Fund
Strategic Income Fund
U.S. Global Leaders Growth Fund
Prospectus
3.1.2006
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.
Bond Fund 4 Classic Value Fund 6 Large Cap Select Fund 8 Small Cap Equity Fund 10 Sovereign Investors Fund 12 Strategic Income Fund 14 U.S. Global Leaders Growth Fund 16 YOUR ACCOUNT --------------------------------------------------------------------- Who can buy Class R shares 18 Class R shares cost structure 18 Opening an account 18 Information for plan participants 18 Buying shares 19 Selling shares 20 Transaction policies 22 Dividends and account policies 24 Additional investor services 24 FUND DETAILS --------------------------------------------------------------------- Business structure 25 Management biographies 27 Financial highlights 28 FOR MORE INFORMATION BACK COVER --------------------------------------------------------------------- |
Overview --------------------------------------------------------------------- |
John Hancock Retirement Funds -- Class R shares
These funds offer clearly defined investment strategies, each focusing on a particular market segment and following a disciplined investment process. Blended together or selected individually, these funds are designed to meet the needs of investors seeking risk-managed investment strategies from seasoned professional portfolio managers.
Risks of mutual funds
Mutual funds are not bank deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Because you could lose money by investing in these funds, be sure to read all risk disclosure carefully before investing.
The management firm
All John Hancock 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, 2005 managed approximately $28 billion in assets.
Concise fund-by-fund descriptions begin on the next page. Each description provides the following information:
[GRAPHIC OMITTED: COMPASS]
GOAL AND STRATEGY
The fund's particular investment goals and the strategies it intends to use in pursuing those goals.
PAST PERFORMANCE
The fund's total return, measured year-by-year and over time.
MAIN RISKS
The major risk factors associated with the fund.
YOUR EXPENSES
The overall costs borne by an investor in the fund, including sales charges and annual expenses.
Bond Fund
[GRAPHIC OMITTED: COMPASS]
GOAL AND STRATEGY
The fund seeks to generate a high level of current income consistent with prudent investment risk. In pursuing this goal, the fund normally invests at least 80% of its assets in a diversified portfolio of bonds. These may include, but are not limited to, corporate bonds and debentures as well as U.S. government and agency securities. Most of these securities are investment grade, although the fund may invest up to 25% of assets in high yield bonds rated as low as CC/Ca and their unrated equivalents. There is no limit on the fund's average maturity.
In managing the fund's portfolio, the managers concentrate on sector allocation, industry allocation and securities selection: deciding which types of bonds and industries to emphasize at a given time, and then which individual bonds to buy. When making sector and industry allocations, the managers try to anticipate shifts in the business cycle, using top-down analysis to determine which sectors and industries may benefit over the next 12 months.
In choosing individual securities, the managers use bottom-up research to find securities that appear comparatively undervalued. The managers look at bonds of all quality levels and maturities from many different issuers, potentially including U.S. dollar-denominated securities of foreign governments and corporations.
The fund intends to keep its exposure to interest rate movements generally in line with those of its peers. The fund may invest in mortgage-related securities and certain other derivatives (investments whose value is based on indexes, securities or currencies) The fund's investments in U.S. government and agency securities may or may not be supported by the full faith and credit of the United States.
Under normal circumstances, the fund may not invest more than 10% of assets in cash or cash equivalents.
In abnormal circumstances, the fund may temporarily invest extensively in investment-grade short-term securities. In these and other cases, the fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction costs (thus lowering performance) and increase your taxable distributions.
PAST PERFORMANCE
The graph shows how the fund's total return has varied from year to year, while the table shows performance over time (along with a broad-based market index for reference). This information may help provide an indication of the fund's risks. All figures assume dividend reinvestment. Past performance before and after taxes does not indicate future results.
Class R, total returns
Best quarter: Q3 '04, 3.25%
Worst quarter: Q2 '04, -2.62%
After-tax returns
After-tax returns are shown for Class R shares. They are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown. Since Class R shares are only offered to retirement plans, the after-tax returns shown may not be relevant to Class R shareholders.
Index (reflects no fees or taxes)
Lehman Brothers Government/Credit Bond Index, an unmanaged index of U.S. government, U.S. corporate and Yankee bonds.
------------------------------------------------------------------------------
Class R calendar year total returns
------------------------------------------------------------------------------
2004 2005
4.37% 2.10%
------------------------------------------------------------------------------
Average annual total returns for periods ending 12-31-05
------------------------------------------------------------------------------
Life of
1 year Class R
------------------------------------------------------------------------------
Class R before tax (began 8-5-03) 2.10% 4.80%
------------------------------------------------------------------------------
Class R after tax on distributions 0.50% 3.13%
------------------------------------------------------------------------------
Class R after tax on distributions, with sale 1.36% 3.12%
------------------------------------------------------------------------------
Lehman Brothers Government/Credit Bond Index 2.37% 4.35%
4
|
[GRAPHIC OMITTED: LINE CHART]
MAIN RISKS
The major factors in this fund's performance are interest rates and credit risk. When interest rates rise, bond prices generally fall. Generally, an increase in the fund's average maturity will make it more sensitive to interest rate risk.
The fund could lose money if any bonds it owns are downgraded in credit rating or go into default. In general, high yield bonds (also known as "junk bonds") have higher credit risks. If certain sectors or investments do not perform as the fund expects, it 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:
* Junk bonds and foreign securities may make the fund more sensitive to market or economic shifts in the U.S. and abroad.
* If interest rate movements cause the fund's mortgage-related and callable securities to be paid off substantially earlier or later than expected, the fund's share price or yield could be hurt.
* In a down market, higher-risk securities and derivatives could become harder to value or to sell at a fair price.
* Certain derivatives could produce disproportionate losses.
Any U.S. government guarantees on portfolio securities do not apply to these securities' market value or current yield, or to fund shares.
No assurance can be given that the U.S. government will provide financial support in the future to U.S. government agencies, authorities or instrumentalities not backed by the full faith and credit of the United States.
YOUR EXPENSES
Operating expenses are paid from the fund's assets, and therefore are paid by shareholders indirectly.
------------------------------------------------------------------------------ Annual operating expenses ------------------------------------------------------------------------------ Management fee 0.50% ------------------------------------------------------------------------------ Distribution and service (12b-1)fees 0.50% ------------------------------------------------------------------------------ Service plan fee 0.10% ------------------------------------------------------------------------------ Other expenses 0.26% ------------------------------------------------------------------------------ Total fund operating expenses 1.36% |
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 R $138 $431 $745 $1,635 SUBADVISER |
Sovereign Asset Management LLC
Responsible for day-to-day investment management
A subsidiary of John Hancock Financial Services, Inc.
Founded in 1979
Supervised by the adviser
PORTFOLIO MANAGERS
Barry H. Evans, CFA
Joined fund team in 2002
Howard C. Greene, CFA
Joined fund team in 2002
Benjamin A. Matthews
Joined fund team in 1995
Managers share investment strategy and decisions
See page 27 for the management biographies.
FUND CODES
Class R Ticker JHBRX
CUSIP 410223507
Newspaper --
SEC number 811-2402
JH fund number 621
5
|
Classic Value Fund
[GRAPHIC OMITTED: COMPASS]
GOAL AND STRATEGY
The fund seeks long-term growth of capital. To pursue this goal, the fund normally invests at least 80% of its net assets in domestic equity securities. The fund is non-diversified and may invest more than 5% of assets in securities of individual companies.
In managing the portfolio, the subadviser seeks to identify companies that it believes are currently undervalued relative to the market, based on estimated future earnings and cash flow. These companies generally have market values at valuation ratios, such as price-to-book, below market average, as defined by the Standard & Poor's 500 Index.
In choosing individual securities, the subadviser screens a dynamic universe of the 500 largest publicly traded U.S. companies. (As of January 31, 2006, this included companies with market values above approximately $4.8 billion.) Using fundamental research and a proprietary computer model, the subadviser ranks these companies from the cheapest to the most expensive on the basis of current share price to the subadviser's estimate of normal long-term earnings power. The subadviser's management team intensively evaluates the cheapest companies to construct a portfolio of stocks that the subadviser believes generally have the following characteristics:
* cheap on the basis of current price to estimated normal level of earnings
* current earnings below normal levels
* a sound plan to restore earnings to normal
* a sustainable business advantage
Before investing, the subadviser considers the value of an entire business relative to its price. The subadviser views itself as a long-term business investor, rather than a stock buyer. This systematic process is intended to ensure that the fund's portfolio avoids the emotional inputs that can lead to overvalued securities.
The subadviser approaches sell decisions from the same disciplined framework. The subadviser generally sells a security when it reaches fair value, there are more attractive opportunities, or there is a change in company fundamentals.
Under normal market conditions, the fund is almost entirely invested in stocks. The fund may invest in securities of foreign issuers.
In abnormal market conditions, the fund may invest extensively in investment-grade short-term securities. In these and other cases, the fund might not achieve its goal.
[GRAPHIC OMITTED: BAR CHART]
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. All figures assume dividend reinvestment. Past performance before and after taxes does not indicate future results.
Class R, total returns
Best quarter: Q4 '04, 9.64%
Worst quarter: Q1 '05, -2.00%
After-tax returns
After-tax returns are shown for Class R shares. They are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown. Since Class R shares are only offered to retirement plans, the after-tax returns shown may not be relevant to Class R shareholders.
Indexes (reflect no fees or taxes)
Standard & Poor's 500 Index, an unmanaged index that includes 500 widely traded stocks.
Russell 1000 Value Index, an unmanaged index of stocks in the Russell 1000 Index (the 1,000 largest U.S. publicly traded companies) with low price-to- book ratios.
------------------------------------------------------------------------------
Class R calendar year total returns
------------------------------------------------------------------------------
2004 2005
13.91% 8.44%
Average annual total returns for periods ending 12-31-05
------------------------------------------------------------------------------
Life of
1 year Class R
------------------------------------------------------------------------------
Class R before tax (began 8-5-03) 8.44% 17.45%
------------------------------------------------------------------------------
Class R after tax on distributions 8.13% 17.12%
------------------------------------------------------------------------------
Class R after tax on distributions, with sale 5.69% 14.92%
------------------------------------------------------------------------------
Standard & Poor's 500 Index 4.91% 13.29%
------------------------------------------------------------------------------
Russell 1000 Value Index 7.05% 16.79%
6
|
[GRAPHIC OMITTED: LINE CHART]
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. Large-capitalization stocks as a group could fall out of favor with the market, causing the fund to underperform investments that focus on small- or medium-capitalization stocks. The fund focuses on value stocks, which could underperform growth stocks.
To the extent that the fund invests in a given industry, its performance will be hurt if that industry performs poorly. In addition, if the subadviser'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, 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.
* In a down market, higher-risk securities 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.
YOUR EXPENSES
Operating expenses are paid from the fund's assets, and therefore are paid by shareholders indirectly.
------------------------------------------------------------------------------ Annual operating expenses ------------------------------------------------------------------------------ Management fee 0.84% ------------------------------------------------------------------------------ Distribution and service (12b-1) fees 0.50% ------------------------------------------------------------------------------ Service plan fee 0.16% ------------------------------------------------------------------------------ Other expenses 0.19% ------------------------------------------------------------------------------ Total fund operating expenses (1) 1.69% |
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.
1 The adviser has agreed to limit the fund's expenses (excluding transfer agent, 12b-1 and service plan fees, to 0.89% of the fund's average daily net assets. This limitation is being terminated on April 30, 2006 and has not been reflected in these expenses. Net operating expenses after taking into account this expense reduction would be 1.68%.
SUBADVISER
Pzena Investment Management, LLC
Responsible for day-to-day investment management
Founded in 1995
Supervised by the adviser
PORTFOLIO MANAGERS
Richard S. Pzena
Managed fund since it began in 1996
John P. Goetz
Managed fund since it began in 1996
Antonio DeSpirito, III
Joined fund team in 2006
Managers share investment strategy and decisions
See page 27 for the management biographies.
FUND CODES
Class R Ticker JCVRX
CUSIP 409902699
Newspaper --
SEC number 811-1677
JH fund number 638
7
|
Large Cap Select Fund
[GRAPHIC OMITTED: COMPASS]
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 equity securities of large-capitalization companies (companies with market capitalizations in excess of $5 billion). The fund invests primarily in U.S.-based companies whose growth, cash flow, earnings and dividend attributes are attractive and whose securities are reasonably priced and have the potential for capital appreciation, in the opinion of the management team.
In managing the portfolio, the management team looks for companies with strong balance sheets and sustainable earnings growth. In evaluating the prospects for a company's growth and earnings, the management team considers, among other things, the company's historical performance and growth strategy, the growth rate of the industries in which it operates and the markets into which it sells, the nature of its competitive environment, technological developments and trends in market share.
In attempting to determine reasonable price levels for a company's securities, the management team utilizes a variety of measurement methods, including discounted cash flow analysis of expected earnings streams and an evaluation of the company's price-to-earnings ratio.
Under normal market conditions, the fund invests substantially all of its assets in equity securities (common and preferred stocks and their equivalents).
In abnormal conditions, the fund may invest extensively in investment-grade short-term securities. In these and other cases, the fund may not achieve its goal.
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. All figures assume dividend reinvestment. Past performance before and after taxes does not indicate future results.
Class R, total returns
Best quarter: Q4 '04, 6.78%
Worst quarter: Q3 '04, -4.48%
After-tax returns
After-tax returns are shown for Class R shares. They are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown. Since Class R shares are only offered to retirement plans, the after-tax returns shown may not be relevant to Class R shareholders.
Index (reflects no fees or taxes)
Standard & Poor's 500 Index, an unmanaged index that includes 500 widely traded stocks.
------------------------------------------------------------------------------
Class R calendar year total returns
------------------------------------------------------------------------------
2004 2005
4.98% -2.96%
------------------------------------------------------------------------------
Average annual total returns for periods ending 12-31-05
------------------------------------------------------------------------------
Life of
1 year Class R
------------------------------------------------------------------------------
Class R before tax (began 11-3-03) -2.96% 2.97%
------------------------------------------------------------------------------
Class R after tax on distributions -3.26% 2.69%
------------------------------------------------------------------------------
Class R after tax on distributions, with sale -1.52% 2.52%
------------------------------------------------------------------------------
Standard & Poor's 500 Index 4.91% 9.87%
8
|
[GRAPHIC OMITTED: LINE CHART]
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. Large-capitalization stocks as a group could fall out of favor with the market, causing the fund to underperform investments that focus on small- or medium-capitalization stocks.
To the extent that the fund invests in a given industry, its performance will be hurt if that industry performs poorly. In addition, if the management team's security selection strategies do not perform as expected, the fund could underperform its peers or lose money.
YOUR EXPENSES
Operating expenses are paid from the fund's assets, and therefore are paid by shareholders indirectly.
------------------------------------------------------------------------------ Management fee 0.75% ------------------------------------------------------------------------------ Distribution and service (12b-1) fees 0.50% ------------------------------------------------------------------------------ Service plan fee 0.07% ------------------------------------------------------------------------------ Other expenses 0.82% ------------------------------------------------------------------------------ Total fund operating expenses 2.14% ------------------------------------------------------------------------------ Contractual expense reimbursement (at least until 4-30-07) 0.11% ------------------------------------------------------------------------------ Net fund operating expenses 2.03% |
The hypothetical example below shows what your expenses would be after the expense reimbursement (through April 30, 2007) 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.
SUBADVISER
Shay Assets Management, Inc.
Responsible for day-to-day investment management
Founded in 1981
Supervised by the adviser
PORTFOLIO MANAGERS
John J. McCabe
Managed fund since 1991
Mark F. Trautman
Managed fund since 1993
Managers share investment strategy and decisions
See page 27 for the management biographies.
FUND CODES
Class R Ticker JHLRX
CUSIP 409902673
Newspaper --
SEC number 811-1677
JH fund number 649
9
|
Small Cap Equity Fund
[GRAPHIC OMITTED: COMPASS]
GOAL AND STRATEGY
The fund seeks capital appreciation. To pursue this goal, the fund normally invests at least 80% of its assets in equity securities of small-capitalization companies (companies in the capitalization range of the Russell 2000 Index, which was $26 million to $4.9 billion as of January 31, 2006). Equity securities include common and preferred stocks and their equivalents.
In managing the portfolio, the managers emphasize a bottom-up approach to individual stock selection. With the aid of proprietary financial models, the management team looks for U.S. and foreign companies that possess a combination of strong earning growth rates and reasonable valuations. These companies often exhibit financial strength by means of sound balance sheets and other financial statements.
The management team uses fundamental financial analysis of individual companies to identify those with substantial cash flows, reliable revenue streams and strong competitive positions. To a lesser extent, the team also utilizes technical analysis to assess short- and long-term market trends. The management team also looks for companies with strong senior management and coherent business strategies. They generally maintain personal contact with the senior management of the companies the fund invests in. The fund diversifies across industry sectors. The fund may not invest more than 5% of assets in any one security.
The fund may invest up to 15% of assets in a basket of foreign securities or in bonds of any maturity rated as low as CC/Ca and their unrated equivalents (bonds below BBB/Baa are considered junk bonds). The fund may make limited use of certain derivatives (investments whose value is based on securities, indexes or currencies) and may short-sell up to 15% of the fund's assets for non-speculative purposes to manage volatility.
Under normal conditions, the fund may not invest more than 10% of assets in cash or cash equivalents.
In abnormal circumstances, the fund may temporarily invest extensively in investment-grade short-term securities. In these and other cases, the fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction costs (thus lowering performance) and increase your taxable distributions.
PAST PERFORMANCE
The graph shows how the fund's total return has varied from year to year, while the table shows performance over time (along with broad-based market indexes for reference). This information may help provide an indication of the fund's risks. All figures assume dividend reinvestment. Past performance before and after taxes does not indicate future results.
Class R, total returns
Best quarter: Q4 '04, 11.65%
Worst quarter: Q1 '05, -6.43%
After-tax returns
After-tax returns are shown for Class R shares They are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown. Since Class R shares are only offered retirement plans, the after-tax returns shown may not be relevant to Class R shareholders.
Indexes (reflect no fees or taxes)
Russell 2000 Index, an unmanaged index of 2,000 U.S. small-capitalization stocks.
Standard & Poor's Small Cap 600 Index, an unmanaged index of 600 U.S. small-sized companies.
------------------------------------------------------------------------------
Class R calendar year total returns
------------------------------------------------------------------------------
2004 2005
12.69% 7.94%
------------------------------------------------------------------------------
Average annual total returns for periods ending 12-31-05
------------------------------------------------------------------------------
Life of
1 year Class R
------------------------------------------------------------------------------
Class R before tax (began 8-5-03) 7.94% 19.65%
------------------------------------------------------------------------------
Class R after tax on distributions 7.94% 19.65%
------------------------------------------------------------------------------
Class R after tax on distributions, with sale 5.16% 16.99%
------------------------------------------------------------------------------
Russell 2000 Index 4.55% 18.79%
------------------------------------------------------------------------------
Standard & Poor's Small Cap 600 Index 7.70% 21.43%
10
|
[GRAPHIC OMITTED: LINE CHART]
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. Small-capitalization stocks as a group could fall out of favor with the market, causing the fund to underperform investments that focus on medium- or large-capitalization stocks. To the extent that the fund invests in a given industry, its performance will be hurt if that industry performs poorly. In addition, if the managers' security selection strategies do not perform as expected, the fund could underperform its peers or lose money.
Stocks of smaller companies are more volatile than stocks of larger companies. Many smaller companies have short track records, narrow product lines or niche markets, making them highly vulnerable to isolated business setbacks. Also, since common stocks of smaller companies may not be traded as often as common stocks of larger, more established companies, it may be difficult for the fund to sell these securities at a desirable price.
To the extent that the fund makes investments with additional risks, these risks could increase volatility or reduce performance:
* Certain derivatives, such as short sales, 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 issuer, an industry or the economy in general.
YOUR EXPENSES
Operating expenses are paid from the fund's assets, and therefore are paid by shareholders indirectly.
------------------------------------------------------------------------------ Annual operating expenses ------------------------------------------------------------------------------ Management fee 0.70% ------------------------------------------------------------------------------ Distribution and service (12b-1) fees 0.50% ------------------------------------------------------------------------------ Service plan fee 0.25% ------------------------------------------------------------------------------ Other expenses 0.24% ------------------------------------------------------------------------------ Total fund operating expenses 1.69% |
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.
SUBADVISER
Sovereign Asset Management LLC
Responsible for day-to-day investment management
A subsidiary of John Hancock Financial Services, Inc.
Founded in 1979
Supervised by the adviser
PORTFOLIO MANAGERS
Henry E. Mehlman, CFA
Joined fund team in 2002
Alan E. Norton, CFA
Joined fund team in 2002
Managers share investment strategy and decisions
See page 27 for the management biographies.
FUND CODES
Class R Ticker SPVRX
CUSIP 409905833
Newspaper --
SEC number 811-3999
JH fund number 637
11
|
Sovereign Investors Fund
[GRAPHIC OMITTED: COMPASS]
GOAL AND STRATEGY
The fund seeks long-term growth of capital and income without assuming undue market risks. To pursue this goal, the fund normally invests at least 80% of its stock investments in a diversified portfolio of companies with market capitalizations within the range of the Standard & Poor's 500 Index. On January 31, 2006, that range was $732.9 million to $384.8 billion.
At least 65% of the fund's stock investments are "dividend performers" -- companies whose dividend payments have increased steadily for ten years. In managing the portfolio, the managers use fundamental financial analysis to identify individual companies with high-quality income statements, substantial cash reserves and identifiable catalysts for growth, which may be new products or benefits from industrywide growth. The managers generally visit companies to evaluate the strength and consistency of their management strategy. Finally, the managers look for stocks that are reasonably priced relative to their earnings and industry.
The fund may not invest more than 5% of assets in any one security. The fund may invest in bonds of any maturity, with up to 5% of assets in junk bonds rated as low as C and their unrated equivalents.
The fund typically invests in U.S. companies but may invest in dollar-denominated foreign securities. It may also make limited use of certain derivatives (investments whose value is based on indexes).
Under normal conditions, the fund may not invest more than 10% of assets in cash or cash equivalents.
In abnormal market conditions, the fund may temporarily invest extensively in investment-grade short-term securities. In these and other cases, the fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction costs (thus lowering performance) and increase your taxable distributions.
PAST PERFORMANCE
The graph shows how the fund's total return has varied from year to year, while the table shows performance over time (along with a broad-based market index for reference). This information may help provide an indication of the fund's risks. All figures assume dividend reinvestment. Past performance before and after taxes does not indicate future results.
Class R, total returns
Best quarter: Q4 '04, 6.80%
Worst quarter: Q3 '04, -2.33%
After-tax returns
After-tax returns are shown for Class R shares. They are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown. Since Class R shares are only offered to retirement plans, the after-tax returns shown may not be relevant to Class R shareholders.
Index (reflects no fees or taxes)
Standard & Poor's 500 Index, an unmanaged index that includes 500 widely traded stocks.
------------------------------------------------------------------------------
Class R calendar year total returns
------------------------------------------------------------------------------
2004 2005
5.22% 1.75%
------------------------------------------------------------------------------
Average annual total returns for periods ending 12-31-05
------------------------------------------------------------------------------
Life of
1 year Class R
------------------------------------------------------------------------------
Class R before tax (began 8-5-03) 1.75% 8.18%
------------------------------------------------------------------------------
Class R after tax on distributions 0.50% 7.46%
------------------------------------------------------------------------------
Class R after tax on distributions, with sale 2.48% 6.85%
------------------------------------------------------------------------------
Standard & Poor's 500 Index 4.91% 13.29%
12
|
[GRAPHIC OMITTED: LINE CHART]
MAIN RISKS
The value of your investment will fluctuate in response to stock and
bond market
movements.
The fund's management strategy has a significant influence on fund performance. Large-capitalization stocks as a group could fall out of favor with the market, causing the fund to underperform funds that focus on small- or medium-capitalization stocks. In addition, if the managers' securities selection strategies do not perform as expected, the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, these risks could increase volatility or reduce performance:
* 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 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 and longer maturity will increase volatility. Junk bond prices can fall on bad news about the economy, an industry or a company.
YOUR EXPENSES
Operating expenses are paid from the fund's assets, and therefore are paid by shareholders indirectly.
------------------------------------------------------------------------------ Annual operating expenses ------------------------------------------------------------------------------ Management fee 0.58% ------------------------------------------------------------------------------ Distribution and service (12b-1) fees 0.50% ------------------------------------------------------------------------------ Service plan fee 0.10% ------------------------------------------------------------------------------ Other expenses 0.81% ------------------------------------------------------------------------------ Total fund operating expenses 1.99% |
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 R $202 $624 $1,073 $2,317 SUBADVISER |
Sovereign Asset Management LLC
Responsible for day-to-day investment management
A subsidiary of John Hancock Financial Services, Inc.
Founded in 1979
Supervised by the adviser
PORTFOLIO MANAGERS
John F. Snyder, III
Joined fund team in 1983
Barry H. Evans, CFA
Joined fund team in 1996
Managers share investment strategy and decisions
See page 27 for the management biographies.
FUND CODES
Class R Ticker SVIRX
CUSIP 47803P849
Newspaper --
SEC number 811-0560
JH fund number 629
13
|
Strategic Income Fund
[GRAPHIC OMITTED: COMPASS]
GOAL AND STRATEGY
The fund seeks a high level of current income. In pursuing this goal, the fund invests primarily in the following types of securities:
* foreign government and corporate debt securities from developed and emerging markets
* U.S. government and agency securities
* U.S. high yield bonds
The fund may also invest in preferred stock and other types of debt securities.
Although the fund invests in securities rated as low as CC/Ca and their unrated equivalents, it generally intends to keep its average credit quality in the investment-grade range (AAA to BBB). There is no limit on the fund's average maturity.
In managing the portfolio, the managers allocate assets among the three major sectors based on analysis of economic factors such as projected international interest rate movements, industry cycles and political trends. However, the managers may invest up to 100% of assets in any one sector.
Within each sector, the managers look for securities that are appropriate for the overall portfolio in terms of yield, credit quality, structure and industry distribution. In selecting securities, relative yields and risk/reward ratios are the primary considerations.
The fund may use certain higher-risk investments, including derivatives (investments whose value is based on indexes, securities or currencies) and restricted or illiquid securities. In addition, the fund may invest up to 10% of net assets in U.S. or foreign stocks.
In abnormal circumstances, the fund may temporarily invest extensively in investment-grade short-term securities. In these and other cases, the fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction costs (thus lowering performance) and increase your taxable distributions.
PAST PERFORMANCE
The graph shows how the fund's total return has varied from year to year, while the table shows performance over time (along with broad-based market indexes for reference). This information may help provide an indication of the fund's risks. All figures assume dividend reinvestment. Past performance before and after taxes does not indicate future results.
Class R, total returns
Best quarter: Q4 '04, 5.89%
Worst quarter: Q2 '04, -3.37%
After-tax returns
After-tax returns are shown for Class R shares. They are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown. Since Class R shares are only offered to retirement plans, the after-tax returns shown may not be relevant to Class R shareholders.
Indexes (reflect no fees or taxes)
Merrill Lynch High Yield Master II Index, an unmanaged index consisting of U.S.
dollar-denominated public corporate issues with par amounts greater than $100
million that are rated below investment grade.
Merrill Lynch AAA U.S. Treasury/Agency Master Index, an unmanaged index of
fixed-rate U.S. Treasury and agency securities.
Citigroup World Government Bond Index, an unmanaged index consisting of
approximately 650 securities issued by 18 governments in various countries.
------------------------------------------------------------------------------
Class R calendar year total returns
------------------------------------------------------------------------------
2004 2005
8.39% 2.04%
------------------------------------------------------------------------------
Average annual total returns for periods ending 12-31-05
------------------------------------------------------------------------------
Life of
1 year Class R
------------------------------------------------------------------------------
Class R before tax (began 8-5-03) 2.04% 7.26%
------------------------------------------------------------------------------
Class R after tax on distributions -0.32% 4.71%
------------------------------------------------------------------------------
Class R after tax on distributions, with sale 1.31% 4.70%
------------------------------------------------------------------------------
Merrill Lynch High Yield Master II Index 2.72% 10.21%
------------------------------------------------------------------------------
Merrill Lynch AAA U.S. Treasury/Agency Master Index 2.64% 3.80%
------------------------------------------------------------------------------
Citigroup World Government Bond Index -6.88% 5.25%
14
|
[GRAPHIC OMITTED: LINE CHART]
MAIN RISKS
The fund's risk profile depends on its sector allocation. In general, investors should expect fluctuations in share price, yield and total return that are above average for bond funds.
When interest rates rise, bond prices generally fall. Generally, an increase in the fund's average maturity will make it more sensitive to interest rate risk.
A fall in worldwide demand for U.S. government securities could also lower the prices of these securities.
The fund could lose money if any bonds it owns are downgraded in credit rating or go into default. In general, high yield bonds (also known as "junk bonds") have higher credit risks, and their prices can fall on bad news about the economy, an industry or a company. If certain allocation strategies or certain industries or investments do not perform as the fund expects, the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, those risks could increase volatility or reduce performance:
* Foreign investments carry additional risks, including potentially unfavorable currency exchange rates, inadequate or inaccurate financial information and social or political instability. These risks are greater in emerging markets.
* If interest rate movements cause the fund's callable securities to be paid off substantially earlier or later than expected, the fund's share price or yield could be hurt.
* Stock investments may go down in value due to stock market movements or negative company or industry events.
* In a down market, higher-risk securities and derivatives could become harder to value or to sell at a fair price.
* Certain derivatives could produce disproportionate losses.
YOUR EXPENSES
Operating expenses are paid from the fund's assets, and therefore are paid by shareholders indirectly.
------------------------------------------------------------------------------ Annual operating expenses ------------------------------------------------------------------------------ Management fee 0.36% ------------------------------------------------------------------------------ Distribution and service (12b-1) fees 0.50% ------------------------------------------------------------------------------ Service plan fee 0.03% ------------------------------------------------------------------------------ Other expenses 0.28% ------------------------------------------------------------------------------ Total fund operating expenses 1.17% |
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.
SUBADVISER
Sovereign Asset Management LLC
Responsible for day-to-day investment management
A subsidiary of John Hancock Financial Services, Inc.
Founded in 1979
Supervised by the adviser
PORTFOLIO MANAGERS
Frederick L. Cavanaugh, Jr.
Joined fund team in 1986
Barry H. Evans, CFA
Joined fund team in 2006
Daniel S. Janis, III
Joined fund team in 1999
John F. Iles
Joined fund team in 2005
Managers share investment strategy and decisions
See page 27 for the management biographies.
FUND CODES
Class R Ticker JSTRX
CUSIP 410227821
Newspaper --
SEC number 811-4651
JH fund number 691
15
|
U.S. Global Leaders Growth Fund
[GRAPHIC OMITTED: COMPASS]
GOAL AND STRATEGY
The fund seeks long-term growth of capital. To pursue this goal, the fund invests primarily in common stocks of "U.S. Global Leaders". Under normal market conditions, at least 80% of the fund's assets will be invested in stocks of companies the managers regard as U.S. Global Leaders.
The managers consider U.S. Global Leaders to be U.S. companies with multinational operations that typically exhibit the following key sustainable growth characteristics:
* Hold leading market shares of their relevant industries that result in high profit margins and high investment returns.
* Supply consumable products or services so that their revenue streams are recurring.
The managers seek to identify companies with superior long-term earnings prospects and to continue to own them as long as the managers believe they will continue to enjoy favorable prospects for capital growth and are not overvalued in the marketplace.
As a result of its investment strategy, the fund typically invests in large-capitalization companies (companies in the capitalization range of the Standard & Poor's 500 Index, which was $732.9 million to $384.8 billion as of January 31, 2006).
The fund is non-diversified, which allows it to make larger investments in individual companies.
The fund may invest in other types of equity securities and foreign stocks.
In abnormal circumstances, the fund may temporarily invest in short-term cash equivalents. In these and other cases, the fund might not achieve its goal.
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. All figures assume dividend reinvestment. Past performance before and after taxes does not indicate future results.
Class R, total returns
Best quarter: Q4 '04, 7.53%
Worst quarter: Q1 '05, -5.08%
After-tax returns
After-tax returns are shown for Class R shares. They are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown. Since Class R shares are only offered to retirement plans, the after-tax returns shown may not be relevant to Class R shareholders.
Index (reflects no fees or taxes)
Standard & Poor's 500 Index, an unmanaged index that includes 500 widely traded stocks.
------------------------------------------------------------------------------
Class R calendar year total returns
------------------------------------------------------------------------------
2004 2005
8.20% 2.09%
------------------------------------------------------------------------------
Average annual total returns for periods ending 12-31-05
------------------------------------------------------------------------------
Life of
1 year Class R
------------------------------------------------------------------------------
Class R before tax (began 8-5-03) 2.09% 9.07%
------------------------------------------------------------------------------
Class R after tax on distributions 2.09% 9.06%
------------------------------------------------------------------------------
Class R after tax on distributions, with sale 1.36% 7.77%
------------------------------------------------------------------------------
Standard & Poor's 500 Index 4.91% 13.29%
16
|
[GRAPHIC OMITTED: WORM CHART]
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. Large-capitalization stocks as a group could fall out of favor with the market, causing the fund to underperform investments that focus on small- or medium-capitalization stocks. Similarly, growth stocks could underperform value stocks.
Companies that have substantial multinational operations may be affected by fluctuations in currency exchange rates and by economic and political conditions in foreign countries. These conditions may include restrictions on monetary repatriation and possible seizure, nationalization or expropriation of assets. To the extent the fund invests in a given industry, its performance will be hurt if that industry performs poorly. 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:
* If the fund invests heavily in a single issuer, its performance could suffer significantly from adverse events affecting that issuer.
* In a down market, higher-risk securities 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.
YOUR EXPENSES
Operating expenses are paid from the fund's assets, and therefore are paid by shareholders indirectly.
------------------------------------------------------------------------------ Annual operating expenses ------------------------------------------------------------------------------ Management fee 0.75% ------------------------------------------------------------------------------ Distribution and service (12b-1) fees 0.50% ------------------------------------------------------------------------------ Service plan fee 0.21% ------------------------------------------------------------------------------ Other expenses 0.16% ------------------------------------------------------------------------------ Total fund operating expenses 1.62% ------------------------------------------------------------------------------ Contractual expense reimbursement (at least until 4-30-07) 0.05% ------------------------------------------------------------------------------ Net annual operating expenses 1.57% |
The hypothetical example below shows what your expenses would be after the expense reimbursement (through April 30, 2007) 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 R $160 $505 $876 $1,917 SUBADVISER |
Sustainable Growth Advisers, LP
Responsible for day-to-day investment management
Founded in 2003
Supervised by the adviser
PORTFOLIO MANAGERS
Gordon M. Marchand, CFA, CIC
Managed fund since it began in 1995
George P. Fraise
Joined fund team in 2000
Robert L. Rohn
Joined fund team in 2003
Managers share investment strategy and decisions
See page 27 for the management biographies.
FUND CODES
Class R Ticker UGLRX
CUSIP 409902681
Newspaper --
SEC number 811-1677
JH fund number 626
17
|
Your account |
Class R shares are available to certain types of investors, as noted below:
* 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit-sharing and money purchase plans, defined-benefit plans and non-qualified deferred compensation plans (eligible retirement plans).
* The plan's recordkeeper or financial service firm must have an agreement with John Hancock Funds, LLC to utilize Class R shares in certain investment products or programs.
* Class R shares are available only to retirement plans where Class R shares are held on the books of the funds through omnibus accounts (either at the plan level or at the level of the financial service firm).
* Rollover individual retirement accounts are available for participants whose plans are already invested in John Hancock R shares.
Class R shares are not available to retail or institutional non-retirement accounts, traditional and Roth IRAs, Coverdell Educational Savings Accounts, SEPs, SAR-SEPs, SIMPLE IRAs or Individual 403(b) plans.
Class R shares are offered without any front-end or contingent deferred sales charges.
Class R shares have a Rule 12b-1 plan and a separate Service Plan. Under the 12b-1 plan, each fund pays a fee of up to 0.50% for the sale, distribution and service of its shares, including services to retirement plans or plan participants. In addition, under the Service Plan, a fund may pay a separate service fee of up to 0.25% for certain other services to retirement plans or participants.
Because 12b-1 fees are paid on an ongoing basis, they will increase the cost of your investment and may cost shareholders more than other types of sales charges.
Other share classes of the funds, which have their own expense structure, may be offered in separate prospectuses.
Your broker-dealer or agent may charge you a fee to effect transactions in fund shares.
John Hancock Funds, LLC, the funds' principal distributor, may pay significant compensation out of its own resources to your broker-dealer. These payments are described in the Statement of Additional Information (SAI).
1 Read this prospectus carefully.
2 Determine if you are eligible, referring to "Who can buy Class R shares."
3 Eligible retirement plans generally may open an account and purchase Class R shares by contacting any broker, dealer or other financial service firm authorized to sell Class R shares of the funds. Additional shares may be purchased through a retire- ment plan's administrator or recordkeeper. There is no mini- mum initial investment for Class R shares. A retirement plan participant can obtain a retirement plan application or a rollover individual retirement account application from his/her financial representative, plan administrator or by calling John Hancock Signature Services, Inc. (Signature Services), the fund's transfer agent at 1-888-972-8696.
Plan participants generally must contact their plan service provider to purchase, redeem or exchange shares.
The administrator of a retirement plan or employee benefits office can provide participants with detailed information on how to participate in the plan, elect a fund as an investment option, elect different investment options, alter the amounts contributed to the plan or change allocations among investment options. For questions about participant accounts, participants should contact their employee benefits office, the plan administrator or the organization that provides recordkeeping services for the plan.
Financial service firms may provide some of the shareholder servicing and account maintenance services required by retirement plan accounts and their plan participants, including transfers of registration, dividend payee changes and generation of confirmation statements, and may arrange for plan administrators to provide other investment or administrative services. Financial service firms may charge retirement plans and plan participants transaction fees and/or other additional amounts for such services. Similarly, retirement plans may charge plan participants for certain expenses. These fees and additional amounts could reduce an investment return in Class R shares of the funds.
18 YOUR ACCOUNT
FOR IRA ROLLOVER ACCOUNTS ONLY
* Make out a check for the investment amount, payable to "John Hancock Signature Services, Inc."
* Deliver the check and your completed application to your financial representative, or mail them to Signature Services (address below).
* Make out a check for the investment amount, payable to "John Hancock Signature Services, Inc."
* Fill out the detachable investment slip from an account statement. If no slip is available, include a note specifying the fund name(s), your share class, your account number and the name(s) in which the account is registered.
* Deliver the check and investment slip or note to your financial representative, or mail them to Signature Services (address below).
* You may only exchange Class R shares for other Class R shares or Money Market Fund Class A shares.
* You may only exchange Class R shares for other Class R shares or Money Market Fund Class A shares.
* Obtain your account number by calling your financial representative or Signature Services.
* Obtain wiring instructions by calling Signature Services at 1-888-972-8696.
* Instruct your bank to wire the amount of your investment.
Specify the fund name(s), the share class, the new account number and the name(s) in which the account is registered. Your bank may charge a fee to wire funds.
* Obtain wiring instructions by calling Signature Services at 1-888-972-8696.
* Instruct your bank to wire the amount of your investment.
Specify the fund name(s), your share class, your account number and the name(s) in which the account is registered. Your bank may charge a fee to wire funds.
* Complete the "To Purchase, Exchange or Redeem Shares via Telephone" and "Bank Information" sections on your account application.
* Call Signature Services to verify that these features are in place on your account.
* Call your financial representative or Signature Services with the fund name(s), your share class, your account number, the name(s) in which the account is registered and the amount of your investment.
Address:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1001
Boston, MA 02217-1001
Phone Number: 1-888-972-8696
YOUR ACCOUNT 19
* Sales of any amount.
* Certain requests will require a Medallion signature guarantee. Please refer to "Selling shares in writing" (see next page).
* Include all signatures and any additional documents that may be required (see next page).
* Mail the materials to Signature Services.
* A check or wire will be sent according to your letter of instruction.
* Sales of up to $100,000.
Tosell some of your shares
* To place your request with a representative at John Hancock Funds, call Signature Services between 8:30 A.M. and 5:00 P.M. Eastern Time on most business days or your financial representative.
* Redemption proceeds of up to $100,000 may be sent by wire or by check. A check will be mailed to the exact name(s) and address on the account. Redemption proceeds exceeding $100,000 must be wired to your designated bank account.
* Requests by letter to sell any amount.
* Requests by phone to sell up to $100,000 (accounts with telephone redemption privileges).
* Amounts of $5 million or more will be wired on the next business day.
* Amounts up to $100,000 may be sent by EFT or by check. Funds from EFT transactions are generally available by the second business day. Your bank may charge a fee for this service.
* Sales of any amount.
* You may only exchange Class R shares for other Class R shares or Money Market Fund Class A shares.
* Call your financial representative or Signature Services to request an exchange.
20 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.
* On the letter, the signatures of all persons authorized to sign for the account, exactly as the account is registered.
* Medallion signature guarantee if applicable (see above).
* Corporate business/organization resolution if applicable.
* Inheritance tax waiver (if applicable).
* Copy of order appointing executor, certified within the past 12 months.
* Medallion signature guarantee if applicable (see above).
* Inheritance tax waiver (if applicable).
Address:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1001
Boston, MA 02217-1001
Phone Number: 1-888-972-8696
YOUR ACCOUNT 21
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, fixed-income 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 will 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 wellas 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.The funds use 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 (SAI).
Execution of requests The funds are 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.
In unusual circumstances, the funds have the right to redeem in kind.
At times of peak activity, it may be difficult to place requests by phone. During these times, consider using EASI-Line or sending your request in writing.
In unusual circumstances, the funds 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 Class R shares for Class R shares of other John Hancock Funds that are available through your plan, or Money Market Fund Class A shares without paying any additional sales charges. The registration for both accounts involved must be identical. Note: Once exchanged into Money Market Fund Class A, shares may only be exchanged back into Class R shares.
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 (with respect to cancellations, within one day of the order), 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 "Limitation 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 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' board 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.
22 YOUR ACCOUNT
Limitation 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 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 funds' ability to monitor exchange activity, as discussed under "Limitation 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 records of the funds' 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 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 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 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, LLC 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, LLC may close your account, redeem your shares at the next NAV and take any other steps that it deems reasonable.
YOUR ACCOUNT 23
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.
Account statements In general, you will receive account statements as follows:
* after every transaction (except a dividend reinvestment) 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.
The transfer agent maintains an account for each financial services firm and records all account transactions. Retirement Plan Accounts will be sent confirmation statements showing the details of your transactions as they occur.
Dividends The funds generally distribute most or all of their net earnings annually in the form of dividends. Sovereign Investors Fund typically declares and pays income dividends quarterly. Bond Fund and Strategic Income Fund generally declare dividends daily and pay them monthly. All other funds declare and pay any income dividends annually. Any capital gains are distributed annually. With respect to Bond Fund and Strategic Income Fund, your dividends begin accruing the day after the fund receives payment and continue through the day your shares are actually sold.
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.
Taxability of dividends For investors who are not exempt from federal income taxes, dividends you receive from a fund, whether reinvested or taken as cash, are generally considered taxable. Dividends from a fund's short-term capital gains are taxable as ordinary income. Dividends from a fund's long-term capital gains are taxable at a lower rate. Whether gains are short-term or long-term depends on the fund's holding period. Some dividends paid in January may be taxable as if they had been paid the previous December.
The Form 1099 that is mailed to you every January details your dividends and their federal tax category, although you should verify your tax liability with your tax professional.
Taxability of transactions Any time you sell or exchange shares, it is considered a taxable event for you if you are not exempt from federal income taxes. Depending on the purchase price and the sale price of the shares you sell or exchange, you may have a gain or a loss on the transaction. You are responsible for any tax liabilities generated by your transactions.
Fund securities The funds' portfolio securities disclosure policy can be found
in the SAI and on the funds' Web site at 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.
24 YOUR ACCOUNT
Fund details
The diagram below shows the basic business structure used by the 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 Classic Value, Large Cap Select and U.S. Global Leaders Growth Funds have the power to change these funds' respective investment goals without shareholder approval.
The trustees of Bond, Large Cap Select, Small Cap Equity and U.S. Global Leaders Growth Funds have the power to change the focus of each 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.
Shareholders
--------------------------------------------
| |
__ | |
| | |
| Distribution and Financial services firms and |
| shareholder services their representatives |
| |------------------------------------------------
| | Advise current and prospective 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 shares Handles shareholder services, including record-
| through selling brokers, financial planners keeping and statements, distribution of dividends
| and other financial representatives. and processing of buy and sell requests.
| | |
| | |
__ |-----------------------------------|----------|
|
Subadviser Investment adviser | Custodian __
---------- ------------------ | --------- |
Pzena Investment Management, LLC | | John Hancock Advisers, LLC | The Bank of New York |
120 West 45th Street | | 601 Congress Street | One Wall Street |
New York, NY 10036 |--| Boston, MA 02210-2805 | New York, NY 10286 |
| |
Shay Assets Managment LLC | | Manages the funds' business | Holds the funds' assets, settles Asset
230 West Monroe Street | | and investment activities. | all portfolio trades and collects Management
Chicago, IL 60606 | | most of the valuation data |
| | required for calculating the |
Sovereign Asset Management LLC | | fund's NAV. |
101 Huntington Avenue
Boston, MA 02199 ----------------------------
Sustainable Growth Advisors, LP
3 Stamford Plaza
301 Tresser Blvd., Suite 1310
Stamford, CT 06901
Provide portfolio management to certain funds. Trustees
Oversee the funds' activities.
|
FUND DETAILS 25
Management fees The management fees paid to the investment adviser by the John Hancock funds' last fiscal year are as follows:
Fund % of net assets -------------------------------------------------------- Bond 0.50% -------------------------------------------------------- Classic Value 0.80* -------------------------------------------------------- Large Cap Select 0.64* -------------------------------------------------------- Small Cap Equity 0.70 -------------------------------------------------------- Sovereign Investors 0.58 -------------------------------------------------------- Strategic Income 0.36 -------------------------------------------------------- U.S. Global Leaders Growth 0.70 |
* After expense reimbursement.
A discussion regarding the basis for the board of trustees approving each fund's investment advisory agreement is available in each fund's annual or semiannual report to shareholders, as follows:
Semiannual report dated June 30, 2005 Classic Value Fund, Large Cap Select Fund, Sovereign Investors Fund, U.S. Global Leaders Growth Fund
Annual report dated October 31, 2005 Small Cap Equity Fund
Semiannual report dated November 30, 2005 Bond Fund and Strategic Income Fund
Subadvisers Pzena Investment Management, LLC ("PIM") subadvises Classic Value
Fund, and was investment adviser to its predecessor fund, Pzena Focused Value
Fund. PIM was founded in 1995 and is controlled by Richard S. Pzena, Managing
Principal, Chief Executive officer and Co-Chief Investment officer.
PIM provides
investment advisory services to individual and institutional investors, and as
of December 31, 2005, had total assets under management of approximately $16.8
billion.
Shay Assets Management, Inc. ("SAM") subadvises Large Cap Select Fund. SAM was founded in 1981 and is controlled by Rodger D. Shay, Chairman. SAM managed approximately $3.9 billion in assets as of December 31, 2005, and was the investment adviser to the fund's predecessor, M.S.B. Fund, Inc.
Sovereign Asset Management LLC ("Sovereign") subadvises Bond, Small Cap Equity, Sovereign Investors and Strategic Income Funds. Sovereign was founded in 1979 and provides investment advisory services to individual and institutional investors. Sovereign is a wholly owned subsidiary of John Hancock Financial Services, Inc. (a subsidiary of Manulife Financial Corporation) and, as of December 31, 2005, had total assets under management of approximately $25 billion.
Sustainable Growth Advisers, LP ("SGA") subadvises U.S. Global Leaders Growth Fund. SGA is a Delaware limited partnership founded in 2003 to provide investment advice to private accounts of institutional and individual clients, private investment companies and mutual funds. George Fraise, Gordon Marchand and Robert L. Rohn each own 24% of SGA. Total assets under management by SGA principals as of December 31, 2005 were approximately $2.7 billion.
26 FUND DETAILS
MANAGEMENT BIOGRAPHIES
Below is an alphabetical list of the portfolio managers for the funds, including a brief summary of their business careers over the past five years. The Statement of Additional Information if each fund 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 shares, if any.
FUND DETAILS 27
FINANCIAL HIGHLIGHTS
These tables detail the performance of each fund's Class R shares, including total return information showing how much an investment in the fund has increased or decreased each year.
Bond Fund
Figures were audited by PricewaterhouseCoopers LLP.
CLASS R SHARES PERIOD ENDED 5-31-04(1) 5-31-05 ------------------------------------------------------------------------------------------------------------------------------ S> PER SHARE OPERATING PERFORMANCE ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $14.93 $14.98 ------------------------------------------------------------------------------------------------------------------------------ Net investment income (2) 0.54 0.67 ------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain on investments 0.10 0.36 ------------------------------------------------------------------------------------------------------------------------------ Total from investment operations 0.64 1.03 ------------------------------------------------------------------------------------------------------------------------------ Less distributions ------------------------------------------------------------------------------------------------------------------------------ From net investment income (0.59) (0.71) ------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $14.98 $15.30 ------------------------------------------------------------------------------------------------------------------------------ Total return 3 (%) 4.30 (4) 7.02 ------------------------------------------------------------------------------------------------------------------------------ RATIOS AND SUPPLEMENTAL DATA ------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in millions) -- 5 -- 5 ------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%) 1.38 (6) 1.12 ------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 4.40 (6) 4.44 ------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 241 139 |
1 Class R shares began operations on 8-5-03.
2 Based on the average of the shares outstanding.
3 Assumes dividend reinvestment and does not reflect the effect of sales charges.
4 Not annualized.
5 Less than $500,000.
6 Annualized.
28 FUND DETAILS
Classic Value Fund
Figures audited by PricewaterhouseCoopers LLP.
CLASS R SHARES PERIOD ENDED 12-31-03 (1) 12-31-04 12-31-05
------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $17.20 $20.27 $23.02
------------------------------------------------------------------------------------------------------------------------------
Net investment income (2) 0.05 0.07 0.08
------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 3.24 2.75 1.86
------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.29 2.82 1.94
------------------------------------------------------------------------------------------------------------------------------
Less distributions
------------------------------------------------------------------------------------------------------------------------------
From net investment income (0.10) -- (0.03)
------------------------------------------------------------------------------------------------------------------------------
From net realized gain (0.12) (0.07) (0.30)
------------------------------------------------------------------------------------------------------------------------------
(0.22) (0.07) (0.33)
------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $20.27 $23.02 $24.63
------------------------------------------------------------------------------------------------------------------------------
Total return (3,4) (%) 19.21 (5) 13.91 8.44
------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) -- (6) $2 $12
------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.55 (7) 1.72 1.65
------------------------------------------------------------------------------------------------------------------------------
Ratio of adjusted expenses to average net assets (8) (%) 1.91 (7) 1.82 1.69
------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 0.69 (7) 0.35 0.34
------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 25 16 27
1 Class R shares began operations 8-5-03.
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 Less than $500,000.
7 Annualized.
8 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, the returns for Class R for the years
ended December 31, 2003 and 2004 would have been 19.06%
and 13.81%, respectively.
|
29 FUND DETAILS
Large Cap Select Fund
Figures audited by PricewaterhouseCoopers LLP.
CLASS R SHARES PERIOD ENDED 12-31-03 (1) 12-31-04 12-31-05
------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $17.10 $17.79 $18.45
------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (2) (0.02) 0.07 (0.06)
------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.80 0.81 (0.48)
------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.78 0.88 (0.54)
------------------------------------------------------------------------------------------------------------------------------
Less distributions
------------------------------------------------------------------------------------------------------------------------------
From net investment income -- (0.01) --
------------------------------------------------------------------------------------------------------------------------------
From net realized gain (0.09) (0.21) (0.37)
------------------------------------------------------------------------------------------------------------------------------
(0.09) (0.22) (0.37)
------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.79 $18.45 $17.54
------------------------------------------------------------------------------------------------------------------------------
Total return (3,4) (%) 4.56 (5) 4.98 (2.96)
------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) -- (6 ) -- (6) -- (6)
------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.88 (7) 1.44 1.98
------------------------------------------------------------------------------------------------------------------------------
Ratio of adjusted expenses to average net assets 8 (%) 2.77 (7) 1.54 2.09
------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (%) (0.27)(7) 0.40 (0.36)
------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 22 13 23
1 Class R shares began operations on 11-3-03.
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 Less than $500,000.
7 Annualized.
8 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, the returns for Class R for the years
ended December 31, 2003 and 2004 would have been 4.42%
and 4.88%, respectively.
|
30 FUND DETAILS
Small Cap Equity Fund
Figures audited by PricewaterhouseCoopers LLP.
CLASS R SHARES PERIOD ENDED 10-31-03 (1) 10-31-04 10-31-05 ------------------------------------------------------------------------------------------------------------------------------ PER SHARE OPERATING PERFORMANCE ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $13.51 $15.60 $17.35 ------------------------------------------------------------------------------------------------------------------------------ Net investment loss (2) (0.03) (0.16) (0.20) ------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain on investments 2.12 1.91 2.81 ------------------------------------------------------------------------------------------------------------------------------ Total from investment operations 2.09 1.75 2.61 ------------------------------------------------------------------------------------------------------------------------------ Less distributions ------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $15.60 $17.35 $19.96 ------------------------------------------------------------------------------------------------------------------------------ Total return (3) (%) 15.47 (4) 11.22 15.04 ------------------------------------------------------------------------------------------------------------------------------ RATIOS AND SUPPLEMENTAL DATA ------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in millions) -- (5) -- (5) $2 ------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%) 1.66 (6) 1.62 1.44 ------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment loss to average net assets (%) (0.86) (6) (0.96) (1.07) ------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 52 54 38 |
1 Class R shares began operations on 8-5-03.
2 Based on the average of the shares outstanding.
3 Assumes dividend reinvestment and does not reflect the effect of sales charges.
4 Not annualized.
5 Less than $500,000.
6 Annualized.
31 FUND DETAILS
Sovereign Investors Fund
Figures audited by Deloitte & Touche LLP.
CLASS R SHARES PERIOD ENDED 12-31-03 (1) 12-31-04 12-31-05
------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $16.63 $18.75 $19.54
------------------------------------------------------------------------------------------------------------------------------
Net investment income (2) 0.02 0.19 0.07
------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 2.11 0.79 0.28
------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.13 0.98 0.35
------------------------------------------------------------------------------------------------------------------------------
Less distributions
------------------------------------------------------------------------------------------------------------------------------
From net investment income (0.01) (0.19) (0.14)
------------------------------------------------------------------------------------------------------------------------------
From net realized gain -- -- (1.30)
------------------------------------------------------------------------------------------------------------------------------
(0.01) (0.19) (1.44)
------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.75 $19.54 $18.45
------------------------------------------------------------------------------------------------------------------------------
Total return (3) (%) 12.84 (4) 5.22 1.75
------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) -- (5) -- (5) --5
------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.69 (6) 1.13 1.74
------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 0.27 (6) 1.00 0.37
------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 47 20 30
|
1 Class R shares began operations on 12-1-03 and 8-5-03, respectively.
2 Based on the average of the shares outstanding.
3 Assumes dividend reinvestment and does not reflect the effect of sales charges.
4 Not annualized.
5 Less than $500,000.
6 Annualized.
32 FUND DETAILS
Strategic Income Fund
Figures audited by PricewaterhouseCoopers LLP.
CLASS R SHARES PERIOD ENDED 5-31-04 (1) 5-31-05
------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $6.83 $6.69
------------------------------------------------------------------------------------------------------------------------------
Net investment income (2) 0.26 0.29
------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 0.05 0.39
------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.31 0.68
------------------------------------------------------------------------------------------------------------------------------
Less distributions
------------------------------------------------------------------------------------------------------------------------------
From net investment income (0.30) (0.34)
------------------------------------------------------------------------------------------------------------------------------
From net realized gain (0.15) (0.04)
------------------------------------------------------------------------------------------------------------------------------
(0.45) (0.38)
------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.69 $6.99
------------------------------------------------------------------------------------------------------------------------------
Total return (3) (%) 4.42 (4) 10.36
------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) -- (5) $1
------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.38 (6) 1.08
------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 4.66 (6) 4.29
------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 42 29
|
1 Class R shares began operations on 8-5-03.
2 Based on the average of the shares outstanding.
3 Assumes dividend reinvestment and does not reflect the effect of sales charges.
4 Not annualized.
5 Less than $500,000.
6 Annualized.
33 FUND DETAILS
U.S. Global Leaders Growth Fund
Figures audited by PricewaterhouseCoopers LLP.
CLASS R SHARES PERIOD ENDED 12-31-03 (1) 12-31-04 12-31-05 ------------------------------------------------------------------------------------------------------------------------------ PER SHARE OPERATING PERFORMANCE ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $23.02 $25.68 $27.77 ------------------------------------------------------------------------------------------------------------------------------ Net investment income (loss) (2) (0.04) 0.16 (0.12) ------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain on investments 2.70 1.95 0.70 ------------------------------------------------------------------------------------------------------------------------------ Total from investment operations 2.66 2.11 0.58 ------------------------------------------------------------------------------------------------------------------------------ Less distributions ------------------------------------------------------------------------------------------------------------------------------ From net investment income -- (0.02) -- ------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $25.68 $27.77 $28.35 ------------------------------------------------------------------------------------------------------------------------------ Total return (3) (%) 11.56 (4) 8.20 2.09 7 ------------------------------------------------------------------------------------------------------------------------------ RATIOS AND SUPPLEMENTAL DATA ------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in millions) -- 5 $2 $5 ------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%) 1.75 (6) 1.53 1.54 ------------------------------------------------------------------------------------------------------------------------------ Ratio of adjusted expenses to average net assets (7) (%) -- -- 1.59 ------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income (loss) to average net assets (%) (0.42) (6) 0.60 (0.42) ------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 15 16 288 |
1 Class R shares began on 8-5-03.
2 Based on the average of the shares outstanding.
3 Assumes dividend reinvestment and does not reflect the effect of sales charges.
4 Not annualized.
5 Less than $500,000.
6 Annualized.
7 Does not take into consideration expense reductions during the periods shown.
8 Excludes merger activity.
34 FUND DETAILS
For more information
Two documents are available that offer further information on the 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: 1-888-972-8696
By EASI-Line: 1-800-597-1897
By TDD: 1-800-554-6713
In addition, you may visit the funds' Web site at www.jhfunds.com to obtain a free copy of a prospectus, SAI, annual or semiannual report or to request other information.
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]2006 JOHN HANCOCK FUNDS, LLC MFRPN 3/06
[JOHN HANCOCK LOGO OMITTED]
John Hancock Funds, LLC
MEMBER NASD
601 Congress Street
Boston, MA 02210-2805
www.jhfunds.com
Now available: electronic delivery
www.jhfunds.com/edelivery
JOHN HANCOCK BALANCED FUND
Class A, Class B, Class C and Class I Shares
Statement of Additional Information
March 1, 2006
This Statement of Additional Information provides information about John Hancock Balanced Fund (the "Fund") in addition to the information that is contained in the combined Equity Funds' current Prospectus for Class A, B and C shares and in the Fund's current Prospectus for Class I shares, (the "Prospectuses"). The Fund is a diversified series of John Hancock Investment Trust (the "Trust").
This Statement of Additional Information is not a prospectus. It should be read in conjunction with the Prospectus. This Statement of Additional Information incorporates by reference the Fund's Annual Report. A copy of the Prospectus or Annual Report can be obtained free of charge by writing or telephoning:
John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1000 Boston, Massachusetts 02217-1000 1-800-225-5291
TABLE OF CONTENTS
Page
Organization of the Fund.................................................... 2
Investment Objective and Policies........................................... 2
Investment Restrictions..................................................... 16
Those Responsible for Management............................................ 18
Investment Advisory and Other Services...................................... 28
Additional Information About the Fund's Portfolio Managers.................. 31
Distribution Contracts...................................................... 34
Sales Compensation.......................................................... 36
Net Asset Value............................................................. 39
Initial Sales Charge on Class A Shares...................................... 40
Deferred Sales Charge on Class B and Class C Shares......................... 43
Special Redemptions......................................................... 47
Additional Services and Programs............................................ 47
Purchase and Redemptions through Third Parties.............................. 48
Description of the Fund's Shares............................................ 49
Tax Status.................................................................. 50
Brokerage Allocation........................................................ 55
Transfer Agent Services..................................................... 58
Custody of Portfolio........................................................ 58
Independent Registered Public Accounting Firm............................... 58
Appendix A- Description of Investment Risk.................................. A-1
Appendix B- Description of Bond Ratings..................................... B-1
Appendix C- Proxy Voting Summary............................................ C-1
Appendix D- Policy Regarding Disclosure of Portfolio Holdings............... D-1
Financial Statements........................................................ F-1
|
ORGANIZATION OF FUND
The Fund is a series of the Trust, an open-end investment management company organized as a Massachusetts business trust under the laws of The Commonwealth of Massachusetts. Prior to December 2, 1996, the Fund was a diversified series of John Hancock Sovereign Investors Fund, Inc.
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.
John Hancock is a unit of Manulife Financial Corporation, 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$372 billion (US$319 billion) as of December 31, 2005.
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.
The Fund is sub-advised by Sovereign Asset Management LLC ("Sovereign" or the "Sub-Adviser") which is also a subsidiary of John Hancock Financial Services, Inc., a subsidiary of Manulife Financial Corporation. Sovereign is responsible for providing investment advice to the Fund subject to the review of the Trustees and the overall supervision of the Adviser.
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the discussion of the Fund's investment objective and policies discussed in the Prospectus. Appendix A contains further information describing investment risks. The investment objective of the Fund is non-fundamental. There is no assurance that the Fund will achieve its investment objective.
The investment objectives of the Fund are to provide current income, long-term growth of capital and income and preservation of capital without assuming what the Adviser believes to be undue market risks. At times, however, because of market conditions, the Fund may invest primarily for current income. The Fund will allocate its investments among different types and classes of securities in accordance with the Adviser's and/or Sub-Adviser's appraisal of economic and market conditions. Shareholder approval is not required to effect changes in the Fund's investment objectives.
The Fund may invest in any type or class of security. The Fund normally invests at least 25% of assets in equity securities and at least 25% of the value of the Fund's total assets will be invested in fixed income senior securities. Fixed income securities may include both convertible and non-convertible debt securities and preferred stock, and only that portion of their value attributed to their fixed income characteristics, as determined by the Adviser and/or Sub-Adviser, can be used in applying the 25% test. The balance of the Fund's total assets may consist of cash or (i) equity securities of established companies, (ii) equity and fixed income securities of foreign corporations, governments or other issuers meeting applicable quality standards as determined
by the Fund's investment adviser, (iii) foreign currencies, (iv) securities that are issued or guaranteed as to interest and principal by the U.S. Government, its agencies, authorities or instrumentalities, (v) obligations and equity securities of banks or savings and loan associations (including certificates of deposit and bankers' acceptances); and (vi) to the extent available and permissible, options and futures contracts on securities, currencies and indices. Each of these investments is more fully described below. The distribution or mix of various types of investments is based on general market conditions, the level of interest rates, business and economic conditions and the availability of investments in the equity or fixed income markets.
Equity securities, for purposes of the Fund's investment policy, are limited to common stocks, preferred stocks, investment grade convertible securities and warrants.
The Fund's investments in fixed income securities (other than commercial paper) will be rated primarily within the four highest grades as determined by Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa, A or Baa) or Standard & Poor's Ratings Group ("S&P") (AAA, AA, A or BBB). Fixed income securities rated Baa or BBB are considered medium grade obligations with speculative characteristics; and adverse economic conditions or changing circumstances may weaken their issuers' capacity to pay interest and repay principal.
Up to 20% of the Fund's assets may be in high yielding, fixed income securities (junk bonds) rated as low as C by Moody's or S&P and unrated securities deemed of equivalent quality by the Adviser or Sub-Adviser. These lower rated securities are speculative to a high degree and often have very poor prospects of attaining real investment standing.
The Fund diversifies its investments among a number of industry groups without concentrating more than 25% of its assets in any particular industry. The Fund's investments are subject to market fluctuation and the risks inherent in all securities.
Assuming relatively stable economic conditions, it is anticipated that the annual portfolio turnover rate will not usually exceed 100%. However, under certain economic conditions, a higher turnover may be advisable to achieve the Fund's objectives.
Investment in Foreign Securities. The Fund may invest up to 35% of its total assets in securities of foreign companies. 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. These securities may not necessarily be denominated in the same currency as the securities into which they may be converted but rather in the currency of the market in which they are traded. ADRs are receipts typically issued by a United States 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. Issuers of unsponsored ADRs are not required to disclose material information in the United States. Generally, ADRs, in registered form, are designed for use in U.S. securities markets and EDRs, in bearer form, are designed for use in European securities markets.
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 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 and/or Sub-Adviser.
If the Fund purchases a forward contract, the Fund will segregate cash or liquid securities in a separate account of the Fund in an amount equal to the value of the Fund's total assets committed to the consummation of such forward contract. The assets in the segregated account will be valued at market daily and if the value of the securities in the separate account declines, additional cash or securities will be placed in the account so that the value of the account will be equal the amount of the Fund's commitment with respect to such contracts.
Hedging against a decline in the value of a currency does not eliminate fluctuations in the prices of portfolio securities or prevent losses if the prices of such securities decline. Such transactions also preclude the opportunity for gain if the value of the hedged currency rises. Moreover, it may not be possible for the Fund to hedge against a devaluation that is so generally anticipated that the Fund is not able to contract to sell the currency at a price above the devaluation level it anticipates.
Risks of Foreign Securities. Investments in foreign securities may involve a greater degree of risk than those in domestic securities. There is generally less publicly available information about foreign companies in the form of reports and ratings similar to those that are published about issuers in the United States. Also, foreign issuers are generally not subject to uniform accounting, auditing and financial reporting requirements comparable to those applicable to United States issuers.
Because foreign securities may be denominated in currencies other than the U.S. dollar, changes in foreign currency exchange rates will affect the Fund's net asset value, the value of dividends and interest earned, gains and losses realized on the sale of securities, and any net investment income and gains that the Fund distributes to shareholders. Securities transactions undertaken in some foreign markets may not be settled promptly, so that the Fund's investments on foreign exchanges may be less liquid and subject to the risk of fluctuating currency exchange rates pending settlement.
Foreign securities will be purchased in the best available market whether through over-the-counter markets or exchanges located in the countries where principal offices of the issuers are located. Foreign securities markets are generally not as developed or efficient as those in the United States. While growing in volume, they usually have substantially less volume than the New York Stock Exchange, and securities of some foreign issuers are less liquid and more volatile than securities of comparable United States issuers. Fixed commissions on foreign exchanges are generally higher than negotiated commissions on United States exchanges. although the Fund will endeavor to achieve the most favorable net results on its portfolio transactions. There is generally less government supervision and regulation of securities exchanges, brokers and listed issuers than in the United States.
With respect to certain foreign countries, there is the possibility of adverse changes in investment or exchange control regulations, expropriation, nationalization or confiscatory taxation, limitation 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.
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 it enters into repurchase agreements.
The Fund has established a procedure providing that the securities serving as collateral for each repurchase agreement must be delivered to the Fund's custodian either physically or in book-entry form and that the collateral must be marked to market daily to ensure that each repurchase agreement is fully collateralized at all times. In the event of bankruptcy or other default by a seller of a repurchase agreement, the Fund could experience delays in or be prevented from liquidating the underlying securities and could experience losses, including the possible decline in the value of the underlying securities during the period while the Fund seeks to enforce its rights thereto, possible subnormal levels of income and decline in value of the underlining securities or of access to income during this period as well as 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. To minimize various risks associated with reverse repurchase agreements, the Fund will establish a separate account consisting of liquid securities, of any type or maturity in an amount at least equal to the repurchase prices of these securities (plus any accrued interest thereon) under such agreements. 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. In addition, the Fund will not
enter into reverse repurchase agreements and other borrowings exceeding in the aggregate 33% of the market value of its total assets. The Fund will enter into reverse repurchase agreements only with federally insured banks which are approved in advance as being creditworthy by the Trustees. Under procedures established by the Trustees, the Adviser and/or Sub-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 on 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 delegated 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 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 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 and/or Sub-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 and/or Sub-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, the Fund may purchase and sell interest rate 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) and securities indices. All futures contracts entered into by the Fund are traded on U.S. or foreign exchanges or boards of trade that are licensed, regulated or approved by the Commodity Futures Trading Commission ("CFTC").
Futures Contracts. A futures contract may generally be described as an agreement between two parties to buy and sell particular financial instruments for an agreed price during a designated month (or to deliver the final cash settlement price, in the case of a contract relating to an index or otherwise not calling for physical delivery at the end of trading in the contract).
Positions taken in the futures markets are not normally held to maturity but are instead liquidated through offsetting transactions which may result in a profit or a loss. While futures contracts on securities 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. When securities prices are falling, the Fund can seek to offset a decline in the value of its current portfolio securities through the sale of futures contracts. When securities prices are rising, the Fund, through the purchase of futures contracts, can attempt to secure better rates or prices than might later be available in the market when it effects anticipated purchases. The Fund may seek to offset anticipated changes in the value of a currency in which its portfolio securities, or securities that it intends to purchase, are quoted or denominated by purchasing and selling futures contracts on such currencies.
The Fund may, for example, take a "short" position in the futures market by selling futures contracts in an attempt to hedge against an anticipated decline in market prices or foreign
currency rates that would adversely affect the dollar value of the Funds 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 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 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.
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 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 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 qualification as a regulated investment company for federal income tax purposes.
Transactions in futures contracts and options on futures involve brokerage costs, require margin deposits and, in the case of contracts and options obligating the Fund to purchase securities, require the Fund to establish a segregated account consisting of cash or liquid securities in an amount equal to the underlying value of such contracts and options.
While transactions in futures contracts and options on futures may reduce certain risks, these transactions themselves entail certain other risks. For example, unanticipated changes in interest rates, 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 fluctuation.
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.
Government Securities. Certain U.S. Government securities, including U.S. Treasury bills, notes and bonds, and Government National Mortgage Association certificates ("Ginnie Maes"), are
supported by the full faith and credit of the United States. Certain other U.S. Government securities, issued or guaranteed by Federal agencies or government sponsored enterprises, are not supported by the full faith and credit of the United States, but may be supported by the right of the issuer to borrow from the U.S. Treasury. These securities include obligations of the Federal Home Loan Mortgage Corporation ("Freddie Macs"), and obligations supported by the credit of the instrumentality, such as Federal National Mortgage Association Bonds ("Fannie Maes"). No assurance can be given that the U.S. Government will provide financial support to such Federal agencies, authorities, instrumentalities and government sponsored enterprises in the future.
Ginnie Maes, Freddie Macs and Fannie Maes are mortgage-backed securities which provide monthly payments which are, in effect, a "pass-through" of the monthly interest and principal payments (including any prepayments) made by the individual borrowers on the pooled mortgage loans. Collateralized mortgage obligations ("CMOs") in which the Fund may invest are securities issued by a U.S. Government instrumentality that are collateralized by a portfolio of mortgages or mortgage-backed securities. Mortgage-backed securities may be less effective than traditional debt obligations of similar maturity at maintaining yields during periods of declining interest rates. The Fund will not invest more than 50% of its assets in mortgage-backed securities.
Ratings as Investment Criteria. In general, the ratings of Moody's and S&P represent the opinions of these agencies as to the quality of the securities which they rate. It should be emphasized however, that ratings are relative and subjective and are not absolute standards of quality. These ratings will be used by the Funds as initial criteria for the selection of 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.
Lower Rated High Yield "High Risk" Securities. Up to 20% of the Fund's assets may be invested in high yielding, fixed-income securities rated as low as C by Moody's or S&P and unrated securities deemed of equivalent quality by the Adviser and or Sub-Adviser. Lower rated securities are generally referred to as junk bonds. Ratings are based largely on the historical financial condition of the issuer.
Securities rated lower than Baa by Moody's or BBB by Standard & Poor's are sometimes referred to as junk bonds. See the Appendix attached to this Statement of Additional Information which describes the characteristics of the securities in the various ratings categories. The Fund is not obligated to dispose of securities whose issuers subsequently are in default or which are downgraded below the above-stated ratings. The credit ratings of Moody's and Standard & Poor's such as those ratings described here, may not be changed by Moody's and Standard & Poor's in a timely fashion to reflect subsequent economic events. The credit ratings of securities do not reflect an evaluation of market risk. Debt obligations rated in the lower ratings categories, or which are unrated, involve greater volatility of price and risk of loss of principal and income. In addition, lower ratings reflect a greater possibility of an adverse change in financial condition affecting the issuer's ability to make payments of interest and principal. The market price and liquidity of lower rated fixed income securities generally respond more to short-term corporate and market developments than do those of higher rated securities, because these developments are perceived to have a more direct relationship to the ability of an issuer of lower rated securities to meet its ongoing debt obligations. The Adviser seeks to minimize these risks through diversification, investment analysis and attention to current developments in interest rates and economic conditions.
Reduced volume and liquidity in the high yield high risk bond market, or the reduced availability of market quotations, will make it more difficult to dispose of the bonds and to value accurately the Fund's assets. The reduced availability of reliable, objective data may increase the Fund's reliance on management's judgment in valuing high yield high risk bonds. In addition, the Fund's investments in high yield high risk securities may be susceptible to adverse publicity and investor perceptions, whether or not justified by fundamental factors. The Fund's investments, and consequently its net asset value, will be subject to the market fluctuations and risk inherent in all securities. Increasing rate note securities are typically refinanced by the issuers within a short period of time.
The market value of debt securities which carry no equity participation usually reflects yields generally available on securities of similar quality and type. When such yields decline, the market value of a portfolio already invested at higher yields can be expected to rise if such securities are protected against early call. In general, in selecting securities for its portfolio, the Fund intends to seek protection against early call. Similarly, when such yields increase, the market value of a portfolio already invested at lower yields can be expected to decline. The Fund's portfolio may include debt securities which sell at substantial discounts from par. These securities are low coupon bonds which, during periods of high interest rates, because of their lower acquisition cost tend to sell on a yield basis approximating current interest rates.
Investments in corporate fixed income securities may be in bonds, convertible debentures and convertible or non-convertible preferred stock. 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 value of fixed income securities varies inversely with interest rates.
Mortgage "Dollar Roll" Transactions. The Fund may enter into mortgage "dollar roll" transactions with selected banks and broker-dealers pursuant to which the Fund sells mortgage-backed securities and simultaneously contracts to repurchase substantially similar (same type, coupon and maturity) securities on a specified future date. The Fund will only enter into covered rolls. A "covered roll" is a specific type of dollar roll for which there is an offsetting cash position or a cash equivalent security position which matures on or before the forward settlement date of the dollar roll transaction. Covered rolls are not treated as a borrowing or other senior security and will be excluded from the calculation of the Fund's borrowing and other senior securities. For financial reporting and tax purposes, the Fund treats mortgage dollar rolls as two separate transactions; one involving the purchase of a security and a separate transaction involving a sale. The Fund does not currently intend to enter into mortgage dollar roll transactions that are accounted for as a financing.
Asset-Backed Securities. The Fund may invest a portion of its assets in asset-backed securities. Asset-backed securities are often subject to more rapid repayment than their stated maturity date would indicate as a result of the pass-through of prepayments of principal on the underlying loans. During periods of declining interest rates, prepayment of loans underlying asset-backed securities can be expected to accelerate. Accordingly, the Fund's ability to maintain positions in these securities will be affected by reductions in the principal amount of such securities resulting from prepayments, and its ability to reinvest the returns of principal at comparable yields is subject to generally prevailing interest rates at that time.
Credit card receivables are generally unsecured and the debtors on such receivables are entitled to the protection of a number of state and federal consumer credit laws, many of which give such debtors the right to set-off certain amounts owed on the credit cards, thereby reducing the balance due. Automobile receivables generally are secured, but by automobiles rather than residential real property. Most issuers of automobile receivables permit the loan services to retain possession of the underlying obligations. If the service were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest superior to that of the holders of the asset-backed securities. In addition, because of the large number of vehicles involved in a typical issuance and technical requirements under state laws, the trustee for the holders of the automobile receivables may not have a proper security interest in the underlying automobiles. Therefore, there is the possibility that, in some cases, recoveries on repossessed collateral may not be available to support payments on these securities.
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. As a result, the Fund may incur a loss or in the event of the borrower's bankruptcy 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% 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 Fundamental 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.
Structured or Hybrid Notes. The Fund may invest in "structured" or "hybrid" notes. The distinguishing feature of a structured or hybrid note is that the amount of interest and/or principal payable on the note is based on the performance of a benchmark asset or market other than fixed income securities or interest rates. Examples of these benchmark include stock prices, currency exchange rates and physical commodity prices. Investing in a structured note allows the Fund to gain exposure to the benchmark market while fixing the maximum loss that the Fund may experience in the event that market does not perform as expected. Depending on the terms of the note, the Fund may forego all or part of the interest and principal that would be payable on a comparable conventional note; the Fund's loss cannot exceed this foregone interest and/or principal. An investment in structured or hybrid notes involves risks similar to those associated with a direct investment in the benchmark asset.
Swaps, Caps, Floor and Collars. As one way of managing its exposure to different types of investments, the Fund may enter into interest rate swaps, currency swaps, and other types of swap agreements such as caps, collars and floors. In a typical interest rate swap, one party agrees to make regular payments equal to a floating interest rate times a "notional principal amount", in return for payments equal to a fixed rate times the same amount, for a specified period of time. If a swap agreement provides for payment in different currencies, the parties
might agree to exchange the notional principal amount as well. Swaps may also depend on other prices or rates, such as the value of an index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. For example, the buyer of an interest rate cap obtains the right to receive payments to the extent that a specified interest rate exceeds an agreed-upon level, while the seller of an interest rate floor is obligated to make payments to the extent that a specified interest rate falls below an agreed-upon level. An interest rate collar combines elements of buying a cap and selling a floor.
Swap agreements will tend to shift the Fund's investment exposure from one type of investment to another. For example, if the Fund agreed to exchange payments in dollars for payments in a foreign currency, the swap agreement would tend to decrease the Fund's exposure to U.S. interest rates and increase its exposure to foreign currency and interest rates. Caps and floors have an effect similar to buying or writing options. Depending on how they are used, swap agreements may increase or decrease the overall volatility of a Fund's investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a small investment of cash relative to the magnitude of risks assumed. As a result, swaps can be highly volatile and may have a considerable impact on the Fund's performance. Swap agreements are subject to risks related to the counterpart's ability to perform, and may decline in value if the counterpart's credit worthiness deteriorates. The Fund may also suffer losses if it is unable to terminate outstanding swap agreements or reduce its exposure through offsetting transactions. The Fund will maintain in a segregated account with its custodian, cash or liquid, high grade debt securities equal to the net amount, if any, of the excess of the Fund's obligations over its entitlement with respect to swap, cap, collar or floor transactions.
Participation Interests. Participation interests, which may take the form of interests in, or assignments of certain loans, are acquired from banks who have made these loans or are members of a lending syndicate. The Fund's investments in participation interests are subject to its 15% limitation on investments in liquid securities.
Pay-In-Kind, Delayed and Zero Coupon Bonds. The Fund may invest in pay- in-kind, delayed and zero coupon bonds. These are securities issued at a discount from their face value because interest payments are typically postponed until maturity. The amount of the discount rate varies depending on factors including the time remaining until maturity, prevailing interest rates, the security's liquidity and the issuer's credit quality. These securities also may take the form of debt securities that have been stripped of their interest payments. A portion of the discount with respect to stripped tax-exempt securities or their coupons may be taxable. The market prices in pay-in-kind, delayed and zero coupon bonds generally are more volatile than the market prices of interest-bearing securities and are likely to respond to a grater degree to changes in interest rates than interest-bearing securities having similar maturities and credit quality. The Fund's investments in pay-in-kind, delayed and zero coupon bonds may require the Fund to sell certain of its portfolio securities to generate sufficient cash to satisfy certain income distribution requirements. See "Tax Status".
Brady Bonds. The Fund may invest in Brady Bonds and other sovereign debt securities of countries that have restructured or are in the process of restructuring sovereign debt pursuant to the Brady Plan. Brady Bonds are debt securities issued by U.S. Treasury Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations to restructure their outstanding external indebtedness (generally, commercial bank debt). In restructuring its external debt under the Brady Plan framework, a debtor nation negotiates with its existing bank lenders as well as multilateral institutions such as the World Bank and the International Monetary Fund (the
"IMF"). The Brady Plan facilitates the exchange of commercial bank debt for newly issued bonds known as Brady Bonds. The World Bank and the IMF provide funds pursuant to loan agreements or other arrangements which enable the debtor nation to collateralize the new Brady Bonds or to repurchase outstanding bank debt at a discount. Under these arrangements IMF, debtor nations are required to agree implement domestic monetary and fiscal reforms. These reforms have included the liberalization of trade and foreign investment, the privatization of state-owned enterprises and the setting of targets for public spending and borrowing. These policies and programs promote the debtor country's ability to service its external obligations and promote its economic growth and development. The Brady Plan only sets forth general guiding principles for economic reform and debt reduction, emphasizing that solutions must be negotiated on a case-by-case basis between debtor nations and their creditors. The Adviser believes that economic reforms undertaken by countries in connection with the issuance of Brady Bonds make the debt of countries which have issued or have announced plans to issue Brady Bonds an attractive opportunity for investment.
Brady Bonds have been issued by Argentina, Brazil, Bulgaria, Costa Rica, Dominican Republic, Ecuador, Jordan, Mexico, Nigeria, Poland, the Philippines, Uruguay and Venezuela and may be issued by other countries. Brady Bonds may involve a high degree of risk, may be in default or present the risk of default. Agreements implemented under the Brady Plan to date are designed to achieve debt and debt-service reduction through specific options negotiated by a debtor nation with its creditors. As a result, the financial packages offered by each country differ. The types of options have included the exchange of outstanding commercial bank debt for bonds issued at 100% of face value of such debt, bonds issued at a discount of face value of such debt, bonds bearing an interest rate which increases over time and bonds issued in exchange for the advancement of new money by existing lenders. Certain Brady Bonds have been collateralized as to principal due at maturity by U.S. Treasury zero coupon bonds with a maturity equal to the final maturity of such Brady Bonds, although the collateral is not available to investors until the final maturity of the Brady Bonds. Collateral purchases are financed by the IMF, the World Bank and the debtor nations' reserves. In addition, the first two or three interest payments on certain types of Brady Bonds may be collateralized by cash or securities agreed upon by creditors. Although Brady Bonds may be collateralized by U.S. Government securities, repayment of principal and interest is not guaranteed by the U.S. Government.
Forward Commitment and When-Issued Securities. The Fund may purchase securities on a when-issued or forward commitment basis. "When-issued" refers to securities whose terms are available and for which a market exists, but which have not been issued. The Fund will engage in when-issued transactions with respect to securities purchased for its portfolio in order to obtain what is considered to be an advantageous price and yield at the time of the transaction. For when-issued transactions, no payment is made until delivery is due, often a month or more after the purchase. In a forward commitment transaction, the Fund contracts to purchase securities for a fixed price at a future date beyond customary settlement time.
When the Fund engages in forward commitment and when-issued transactions, it relies on the seller to consummate the transaction. The failure of the issuer or seller to consummate the transaction may result in the Fund's losing the opportunity to obtain a price and yield considered to be advantageous. The purchase of securities on a when-issued or forward commitment basis also involves a risk of loss if the value of the security to be purchased declines prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on a when-issued or forward commitment basis, the Fund will segregate in a separate account cash or liquid securities of any type or maturity equal in value to the Fund's commitment. These assets will be valued daily at market, and additional cash or securities will be segregated in a separate account to the extent that the total value of the assets in the account declines below the amount of the when-
issued commitments. Alternatively, the Fund may enter into offsetting contracts for the forward sale of other securities that it owns.
Short Term Trading and Portfolio Turnover. Short-term trading means the purchase and subsequent sale of a security after it has been held for a relatively brief period of time. The Fund may engage in short-term trading in response to stock market conditions, changes in interest rates or other economic trends and developments, or to take advantage of yield disparities between various fixed income securities in order to realize capital gains or improve income. Short term trading may have the effect of increasing portfolio turnover rate. A high rate of portfolio turnover (100% or greater) involves correspondingly greater brokerage expenses. The Fund's portfolio turnover rate is set forth in the table under the caption "Financial Highlights" in the Prospectus.
Defensive Investments. For temporary defensive purposes, the Fund may invest some or all of its assets in investment grade short-term securities.
Portfolio Holdings Dissemination Policy. The Fund's portfolio holding disclosure policy is attached to this Statement of Additional Information as Appendix D.
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 paragraph (2) below. For purposes of this restriction, the issuance of shares in multiple classes or series, the purchase or sale of options, futures contracts and options on futures contracts, forward foreign currency exchange 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 in amounts exceeding 33% of the Fund's total assets (including the amount borrowed) taken at market value. Interest paid on borrowings will reduce income available to shareholders.
(3) Pledge, mortgage or hypothecate its assets, except to secure indebtedness permitted by paragraph (2) above and then only if the assets subject to such pledging, mortgaging or hypothecation do not exceed 33% 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, including real estate limited partnerships, 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 for collateralized loans of portfolio securities in accordance with the Fund's investment policies. The Fund does not, for this purpose, consider the purchase of all or a portion of an issue of bonds, bank certificates of deposit, bankers' acceptances, debentures or other securities, whether or not the purchase is made upon the original issuance of the securities, to be the making of a loan.
(7) Buy or sell commodities, commodity contracts, puts, calls or combinations thereof, except futures contracts and options on securities, securities indices, currency and other financial instruments, options on such futures contracts, forward foreign currency exchange contracts, forward commitments, interest rate or currency swaps, securities index put or call warrants and repurchase agreements entered into in accordance with the Fund's investment policies.
(8) Purchase the securities of issuers conducting their principal business activity in the same industry if, immediately after such purchase, the value of its investments in such industry would exceed 25% of its total assets taken at market value at the time of each investment. This limitation does not apply to investments in obligations of the U.S. Government or any of its agencies or instrumentalities.
(9) Purchase securities of an issuer (other than the U.S. Government, its agencies or instrumentalities), if, with respect to 75% of the Fund's total assets,
(i) more than 5% of the Fund's total assets taken at market value would be invested in the securities of such issuer, or,
(ii) such purchase would at the time result in more than 10% of the outstanding voting securities of such issuer being held by the Fund.
In connection with the lending of portfolio securities under item (6) above, such loans must at all times be fully collateralized and the Fund's custodian must take possession of the collateral either physically or in book entry form. Securities used as collateral must be marked to market daily.
Non-fundamental Investment Restrictions. The following investment restrictions are designated as non-fundamental and may be changed by the Trustees without shareholders' approval.
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 purchase 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 result in a joint securities trading account.
(b) Purchase securities on margin (except that it may obtain such short-term credits as may be necessary for the clearance of transactions in securities and forward foreign currency exchange contracts and may make margin payments in connection with transactions in futures contracts and options on futures) or make short sales of securities unless by virtue of its ownership of other securities, the Fund has the right to obtain, without the payment of any additional consideration, securities equivalent in kind and amount to the securities sold and, if the right is conditional, the sale is made upon the same conditions.
(c) Purchase a security if, as a result, (i) more than 10% of the Fund's total assets would be invested in the securities of other investment companies, (ii) the Fund would hold more than 3% of the total outstanding voting securities of any one investment company, or (iii) more than 5% of the Fund's total assets would be invested in the securities of any one
investment company. These limitations 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/Trustees, purchase securities of other investment companies within the John Hancock Group of Funds.
(d) Invest for the purpose of exercising control over or management of any company.
(e) Invest more than 15% of its net assets in illiquid securities.
Except with respect to borrowing money, if a percentage restriction on investment or utilization of assets as set forth above is adhered to at the time an investment is made, a later change in percentage resulting from changes in the value of the Fund's assets will not be considered a violation of the restriction.
The Funds will invest only in countries on the Adviser's Approved Country Listing. The Approved Country Listing is a list maintained by the Adviser 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" or the "Distributor").
---------------------------------------------------------------------------------------------------------------------
Number of John
Position(s) Trustee/ Hancock Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Fund since (2) Directorships During Past 5 Years Trustee
---------------------------------------------------------------------------------------------------------------------
Independent Trustees
---------------------------------------------------------------------------------------------------------------------
James F. Carlin Trustee 1992 Director and Treasurer, Alpha Analytical 53
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. (until 2005);
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)
---------------------------------------------------------------------------------------------------------------------
Richard P. Chapman, Jr. Trustee 2005 President and Chief Executive Officer, 53
Born: 1935 Brookline Bancorp., Inc. (lending) (since
1972); Chairman and Director, Lumber
Insurance Co. (insurance) (until 2000);
Chairman and Director, Northeast Retirement
Services, Inc. (retirement administration)
(since 1998).
---------------------------------------------------------------------------------------------------------------------
|
(1) Business address for independent and non-independent Trustees and officers
is 601 Congress Street, Boston, Massachusetts 02210-2805.
(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.
---------------------------------------------------------------------------------------------------------------------
Number of John
Position(s) Trustee/ Hancock Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Fund since (2) Directorships During Past 5 Years Trustee
---------------------------------------------------------------------------------------------------------------------
Independent Trustees
---------------------------------------------------------------------------------------------------------------------
William H. Cunningham Trustee 1996 Former Chancellor, University of Texas 143
Born: 1944 System and former President of the
University of Texas, Austin, Texas;
Chairman and CEO, IBT Technologies
(until 2001); Director of the following:
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), AskRed.com (until
2001), Southwest Airlines, Introgen and
Viasystems, Group, Inc. (electronic
manufacturer) (until 2003); Advisory
Director, Interactive Bridge, Inc.
(college fundraising) (until 2001);
Advisory Director, Q Investments (until
2003); Advisory Director, JP Morgan
Chase Bank (formerly Texas Commerce Bank
- Austin), LIN Television (since 2002),
WilTel Communications (until 2003) and
Hayes Lemmerz International, Inc.
(diversified automotive parts supply
company) (since 2003).
---------------------------------------------------------------------------------------------------------------------
|
(1) Business address for independent and non-independent Trustees and officers
is 601 Congress Street, Boston, Massachusetts 02210-2805.
(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.
----------------------------------------------------------------------------------------------------------------------
Number of John
Position(s) Trustee/ Hancock Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Fund since (2) Directorships During Past 5 Years Trustee
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
Ronald R. Dion Chairman 2005 Chairman and Chief Executive Officer, 53
Born: 1946 and Trustee 1998 R.M. 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;
Director, Boston
Municipal Research
Bureau; Member of the
Advisory Board, Carroll
Graduate School of
Management at Boston
College.
----------------------------------------------------------------------------------------------------------------------
Charles L. Ladner Trustee 2004 Chairman and Trustee, Dunwoody Village, 143
Born: 1938 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).
----------------------------------------------------------------------------------------------------------------------
John A. Moore Trustee 2005 President and Chief Executive Officer, 53
Born: 1939 Institute for Evaluating Health Risks,
(nonprofit institution)
(until 2001); Senior
Scientist, Sciences
International (health
research)(until 2003);
Former Assistant
Administrator & Deputy
Administrator,
Environmental
Protection Agency;
Principal, Hollyhouse
(consulting)(since
2000); Director, CIIT
Center for Health
Science Research
(nonprofit research)
(since 2002).
----------------------------------------------------------------------------------------------------------------------
|
(1) Business address for independent and non-independent Trustees and officers
is 601 Congress Street, Boston, Massachusetts 02210-2805.
(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.
----------------------------------------------------------------------------------------------------------------------
Number of John
Position(s) Trustee/ Hancock Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Fund since (2) Directorships During Past 5 Years Trustee
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
Patti McGill Peterson Trustee 2005 Executive Director, Council for 53
Born: 1943 International 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 1992 Chairman and Chief Executive Officer, 53
Born: 1944 Greenscapes of Southwest Florida, Inc.
(since 2000); Director and President,
Greenscapes of Southwest Florida, 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).
----------------------------------------------------------------------------------------------------------------------
Non-Independent Trustees
----------------------------------------------------------------------------------------------------------------------
James R. Boyle (3) Trustee 2005 Chairman and Director, John Hancock 184
Born: 1959 Advisers, LLC (the "Adviser"), The
Berkeley Financial
Group, LLC ("The
Berkeley Group")
(holding company) and
John Hancock Funds,
LLC. ("John Hancock
Funds"); President,
John Hancock
Annuities; Executive
Vice President, John
Hancock Life
Insurance Company
(since June, 2004);
President U.S.
Annuities; Senior
Vice President, The
Manufacturers Life
Insurance Company
(U.S.A) (prior to
2004).
----------------------------------------------------------------------------------------------------------------------
|
(1) Business address for independent and non-independent Trustees and officers
is 601 Congress Street, Boston, Massachusetts 02210-2805.
(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.
----------------------------------------------------------------------------------------------------------------------
Number of John
Position(s) Trustee/ Hancock Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Fund since (2) Directorships During Past 5 Years Trustee
----------------------------------------------------------------------------------------------------------------------
Principal Officers who
are not Trustees
----------------------------------------------------------------------------------------------------------------------
Keith F. Hartstein President and 2005 Senior Vice President, Manulife N/A
Born: 1956 Chief Financial Corporation (since 2004);
Executive Director, President and Chief Executive
Officer 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);
Chairman, Investment
Company Institute
Sales Force Marketing
Committee (since
2003); Executive Vice
President, John
Hancock Funds, LLC
(until 2005).
----------------------------------------------------------------------------------------------------------------------
William H. King Vice President 1992 Vice President and Assistant Treasurer, N/A
Born: 1952 and Treasurer the Adviser; Vice President and
Treasurer of each of
the John Hancock
funds advised by the
Adviser; Assistant
Treasurer of each of
the John Hancock
funds advised by the
Adviser (until 2001).
----------------------------------------------------------------------------------------------------------------------
|
(1) Business address for independent and non-independent Trustees and officers
is 601 Congress Street, Boston, Massachusetts 02210-2805.
(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.
----------------------------------------------------------------------------------------------------------------------
Number of John
Position(s) Trustee/ Hancock Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Fund since (2) Directorships During Past 5 Years Trustee
----------------------------------------------------------------------------------------------------------------------
Francis V. Knox, Jr. Vice President 2005 Vice President and Chief Compliance N/A
Born: 1947 and Chief Officer for John Hancock Investment
Compliance Company, John Hancock Life Insurance
Officer Company (U.S.A.), John Hancock Life
Insurance Company and
John Hancock Funds
(since 2005);
Fidelity Investments
- Vice President and
Assistant Treasurer,
Fidelity Group of
Funds (until 2004);
Fidelity Investments
- Vice President and
Ethics & Compliance
Officer (until 2001).
----------------------------------------------------------------------------------------------------------------------
John G. Vrysen Executive Vice 2005 Executive Vice President and Chief N/A
Born: 1955 President and Financial Officer, the Adviser,
Chief Sovereign Asset Management Corp., the
Financial Berkeley Financial Group, LLC and John
Officer Hancock Funds, LLC (since 2005);Vice
President and General Manager, Fixed
Annuities, U.S. Wealth Management
(until 2005).
Vice President, Operations Manulife
Wood Logan 7/00-9/04.
----------------------------------------------------------------------------------------------------------------------
|
(1) Business address for independent and non-independent Trustees and officers
is 601 Congress Street, Boston, Massachusetts 02210-2805.
(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 Contracts/Operations Committee, the Governance Committee and the Investment Performance Committee. Each Committee is comprised of Independent Trustees who are not "interested persons" of the Fund.
The Audit Committee members are Messrs. Chapman, Ladner, Moore and Ms. McGill Peterson. All of the members of the Audit Committee are independent 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 December 31, 2005.
The Governance Committee members are all of the independent Trustees. The Governance Committee makes recommendations to the Board on issues related to corporate governance applicable to the Independent Trustees and to the composition and operation of the Board and to
assume duties, responsibilities and functions to nominate candidates to the
Board, together with such addition duties, responsibilities and functions as are
delegated to it from time to time. Among other things, the Governance Committee
acts as a nominating committee of the Board. In reviewing a potential nominee
and in evaluating the renomination of current Independent Trustees, the
Governance Committee will generally apply the following criteria: (i) the
nominee's reputation for integrity, honesty and adherence to high ethical
standards, (ii) the nominee's 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 Governance Committee
does not necessarily place the same emphasis on each criteria and each nominee
may not have each of these qualities. The Governance Committee does not
discriminate on the basis of race, religion, national origin, sex, sexual
orientation, disability or any other basis proscribed by law. The Governance
Committee is a new committee and held four meetings during the fiscal year ended
December 31, 2005. (The nominating function of the Governance Committee was
previously carried out by the Administration Committee.)
As long as an existing Independent Trustee continues, in the opinion of the Governance 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 Governance Committee will consider nominees recommended by shareholders to serve as trustees, the Governance 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 Governance Committee will, in addition to any shareholder recommendations, consider candidates identified by other means, including candidates proposed by members of the Governance Committee. While it has not done so in the past, the Governance 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 Governance Committee. In evaluating a nominee recommended by a shareholder, the Governance 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 Governance 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: 601 Congress Street, Boston, MA 02210-2805. 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, Cunningham, Dion and Pruchansky. The Contracts/Operations Committee oversees the initiation, operation, and renewal
of contracts between the Fund and other entities. These contracts include advisory and subadvisory agreements, custodial and transfer agency agreements and arrangements with other service providers. The Contracts/Operations Committee held five meetings during the fiscal year ended December 31, 2005.
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 December 31, 2005.
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 funds in the John Hancock Fund Complex overseen by the Trustee, as of December 31, 2005.
-----------------------------------------------------------------------------------------------------------------------
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 $100,00
-----------------------------------------------------------------------------------------------------------------------
Richard P. Chapman, Jr. $1-10,000 Over $100,000
-----------------------------------------------------------------------------------------------------------------------
William H. Cunningham None $10,001-50,000
-----------------------------------------------------------------------------------------------------------------------
Ronald R. Dion $1-10,000 Over $100,000
-----------------------------------------------------------------------------------------------------------------------
Charles L. Ladner $1-10,000 Over $100,000
-----------------------------------------------------------------------------------------------------------------------
Dr. John A. Moore $1-10,000 Over $100,000
-----------------------------------------------------------------------------------------------------------------------
Patti McGill Peterson Over $100,000 Over $100,000
-----------------------------------------------------------------------------------------------------------------------
Steven R. Pruchansky $1-10,000 Over $100,000
-----------------------------------------------------------------------------------------------------------------------
Non-Independent Trustees
-----------------------------------------------------------------------------------------------------------------------
James R. Boyle none $10,001-50,000
-----------------------------------------------------------------------------------------------------------------------
|
(1) This Fund does participate in the John Hancock Deferred Compensation Plan for Independent Trustees (the "Plan"). Under the Plan, an Independent Trustee may defer his fees by electing to have the Adviser invest his fees in one of the funds in the John Hancock complex that participates in the Plan. Under these circumstances, the Trustee is not the legal owner of the underlying shares, but does participate in any positive or negative return on those shares to the same extent as all other shareholders. With regard to Trustees participating in the Plan, if a Trustee was deemed to own the shares used in computing the value of his deferred compensation, as of December 31, 2005, 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, none and over $100,000 for Mr. Cunningham, $1-$10,000 and over $100,000 for Mr. Dion, $1-10,000 and over $100,000 for Dr. Moore and $1-$10,000 and over $100,000 for Mr. Pruchansky.
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 who are interested persons of the Adviser, and/or affiliates are compensated by the Adviser and receive no compensation from the Fund for their services.
Aggregate Total Compensation From the
Compensation Fund and John Hancock Fund
Independent Trustees from the Fund (1) Complex to Trustees (2)
-------------------- ---------------- -------------------------
James F. Carlin $ 795 $ 103,703
Richard P. Chapman* 236 103,953
William J. Cosgrove+ 142 95,203
William H. Cunningham* 823 109,171
Ronald R. Dion*++ 1,035 151,399
Charles L. Ladner++ 1,079 149,790
Dr. John A. Moore* 296 115,703
Patti McGill Peterson 217 100,203
Steven R. Pruchansky* 853 115,203
Norman H. Smith* + 721 88,953
------- ----------
Total $ 6,197 $1,133,281
|
(1) Compensation is for the fiscal year ending December 31, 2005.
(2) Total compensation paid by the John Hancock Funds Complex to the Independent Trustees is as of December 31, 2005. As of this date, Messrs. Carlin, Chapman, Dion, Moore, Pruchansky and Ms. Peterson served on fifty-three funds in the John Hancock Fund Complex: Messrs. Ladner and Cunningham served on one-hundred-forty- three funds.
* As of December 31, 2005, the value of the aggregate accrued deferred compensation amount from all funds in the John Hancock Funds Complex for Mr. Chapman was $76,421, Mr. Cunningham was $125,996, Mr. Dion was $325,086, Mr. Glavin was $243,554, Dr. Moore was $283,070, Mr. Pruchansky was $246,371 and Mr. Smith was $382,371 under the John Hancock Group of Funds Deferred Compensation Plan for Independent Trustees (the "Plan").
+ Mr. Cosgrove retired as of March 31, 2005. Mr. Smith retired as of June 30, 2005.
++ As of September 12, 2005, the Independent Trustees elected Mr. Dion as Independent Chairman of the Board. As of June 16, 2004, and until September 12, 2005, Mr. Ladner was the 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 and/or directors and/or Trustees of one or more of the other funds for which the Adviser serves as investment adviser.
As of February 1, 2006 officers and Trustees of the Fund as a group beneficially owned less than 1% of the outstanding shares of the Fund. As of that date, the following shareholders of record beneficially owned 5% or more of the outstanding shares of each class of the Fund:
-------------------------------------------------------------------------------------------------------- Name and Address of Owners of More than 5% of Shares Class B Class C Class I -------------------------------------------------------------------------------------------------------- MLPF&S For The Sole Benefit of Its Customers 5.90% 11.43% -- Attn: Fund Administration 4800 Deer Lake Drive E 2nd Flr Jacksonville FLA 32246-6484 -------------------------------------------------------------------------------------------------------- Citigroup Global Markets Inc. 5.84% 14.13% -- 333 West 34th Street New York, New York 10001-2402 -------------------------------------------------------------------------------------------------------- MCB Trust Services Custodian -- 27.27% FBO ACP-ASIM A 700 17th St STE 150 Denver Co. 80202-3502 -------------------------------------------------------------------------------------------------------- MCB Trust Services Custodian -- -- 24.02% FBO Cape Ann Local Lodge 700 17th St STE 150 Denver Co. 80202-3502 -------------------------------------------------------------------------------------------------------- MCB Trust Services Custodian -- 22.63% FBO Derlan Precision Gear Vol Savings 700 17th St STE 150 Denver Co. 80202-3502 -------------------------------------------------------------------------------------------------------- MCB Trust Services Custodian -- -- 12.70% FBO Manistique Papers Inc. 401k 700 17th St STE 150 Denver Co. 80202-3502 -------------------------------------------------------------------------------------------------------- MCB Trust Services Custodian -- -- 8.77% FBO ACP-ASIM B 700 17th St STE 150 Denver Co. 80202-3502 -------------------------------------------------------------------------------------------------------- |
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 601 Congress Street, Boston, Massachusetts 02210-2805, a
premier investment management company, managed approximately $28 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, 2005.
Additional information about John Hancock Advisers can be found on the website:
www.jhfunds.com.
The Sub-Adviser, Sovereign, located at 101 Huntington Avenue, Boston, Massachusetts 02199, was organized in 1979 and as of December 31, 2005 approximately $25 billion in assets. The Sub-Adviser is a wholly-owned indirect subsidiary of John Hancock Financial Services, Inc.(an indirect wholly-owned subsidiary of Manulife Financial Corporation).
The Board of Trustees appointed Sovereign as Sub-Adviser to the Fund effective December 31, 2005. As of that date, the investment personnel of the Adviser were reassigned to Sovereign. The Adviser will continue to serve as investment adviser to the Fund and will be responsible for the supervision of Sovereign's services to the Fund.
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, in conjunction with the Sub-Adviser, will: (a) furnish continuously an investment program for the Fund and determine, subject to the overall supervision and review of the Trustees, which investments should be purchased, held, sold or exchanged, and (b) provide supervision over all aspects of the Fund's operations except those which are delegated to a custodian, transfer agent or other agent.
The Adviser and the Fund have entered into a Sub-Advisory Agreement with the Sub-Adviser under which the Sub-Adviser, subject to the review of the Trustees and the overall supervision of the Adviser, is responsible for managing the investment operations of the Fund and the composition of the Fund's portfolio and furnishing the Fund with advice and recommendations with respect to investments, investment policies and the purchase and sale of securities.
The Fund bears all costs of its organization and operation, including but not limited to expenses of preparing, printing and mailing all shareholders' reports, notices, prospectuses, proxy statements and reports to regulatory agencies; expenses relating to the issuance, registration and qualification of shares; government fees; interest charges; expenses of furnishing to shareholders their account statements; taxes; expenses of redeeming shares; brokerage and other expenses connected with the execution of portfolio securities transactions; expenses pursuant to the Fund's plan of distribution; fees and expenses of custodians including those for keeping books and accounts, maintaining a committed line of credit and calculating the net asset value of shares; fees and expenses of transfer agents and dividend disbursing agents; legal, accounting, financial, management, tax and auditing fees and expenses of the Fund (including an allocable portion of the cost of the Adviser's employees rendering such services to the Fund; the compensation and expenses of Trustees who are not otherwise affiliated with the Trust, the Adviser or any of their affiliates; expenses of Trustees' and shareholders' meetings; trade association membership; insurance premiums; and any extraordinary expenses.
As compensation for its services under the Advisory Agreement, the Fund pays the Adviser monthly a fee based on a stated percentage of the average of the daily net assets of the Fund as follows:
Average Daily Net Assets Annual Rate ------------------------- ----------- First $2,000,000,000 0.60% Amount over $2,000,000,000* 0.55% *Breakpoint added as of the close of business on June 30, 2005 |
From time to time, the Adviser may reduce its fee or make other arrangements to limit the Fund's expenses to a specified percentage of average net assets. The Adviser retains the right to re-impose a fee and recover other payments to the extent that, at the end of any fiscal year, the Fund's actual expenses at year end fall below this limit.
For the fiscal years ended December 31, 2003, 2004 and 2005, the Fund paid the Adviser fees of $732,091, $753,281 and $740,415, respectively.
As compensation for its services under the Sub-Advisory Agreement, the Adviser (not the Fund) pays the Sub-Adviser monthly a fee based on a stated percentage of the average of the daily net assets of the Fund as follows:
Average Daily Net Assets Annual Rate ------------------------ ----------- First $2,000,000,000 0.30% Amount over $2,000,000,000 0.25% |
Securities held by the Fund may also be held by other funds or investment advisory clients for which the Adviser, the Sub-Adviser or their respective affiliates provides investment advice. Because of different investment objectives or other factors, a particular security may be bought for one or more funds or clients when one or more other funds or clients are selling the same security. If opportunities for purchase or sale of securities by the Adviser or Sub-Adviser for the Fund or for other funds or clients for which the Adviser or Sub-Adviser renders investment advice arise for consideration at or about the same time, transactions in such securities will be made, insofar as feasible, for the respective funds or clients in a manner deemed equitable to all of them. To the extent that transactions on behalf of more than one client of the Adviser, the Sub-Adviser or their respective affiliates may increase the demand for securities being purchased or the supply of securities being sold, there may be an adverse effect on price.
Pursuant to the Advisory Agreement and Sub-Advisory Agreement, the Adviser and Sub-Adviser are not liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the matters to which their respective Agreements relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the Adviser or Sub-Adviser in the performance of their duties or from their reckless disregard of the obligations and duties under the applicable Agreements.
Under the Advisory Agreement, the Fund may use the name "John Hancock" or any name derived from or similar to it only for so long as the Advisory Agreement or any extension, renewal or amendment thereof remains in effect. If the Advisory Agreement is no longer in effect, the Fund (to the extent that it lawfully can) will cease to use such a name or any other name indicating that it is advised by or otherwise connected with the Adviser. In addition, the Adviser or the John Hancock Life Insurance Company (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 continuation of the Advisory Agreement and Distribution Agreement (discussed below) and the initial approval of the Sub-Advisory Agreement were approved by all Trustees. The Advisory Agreement, Sub-Advisory Agreement and the Distribution Agreement will continue in effect from year to year, provided that its continuance is approved annually both (i) by the holders of a majority of the outstanding voting securities of the Trust or by the Trustees, and (ii) by a majority of the Trustees who are not parties to the Agreement or "interested persons" of any such parties. Both Agreements may be terminated on 60 days written notice by any party or by vote of a majority to the outstanding voting securities of the Fund and will terminate automatically if assigned. The Sub-Advisory Agreement terminates automatically upon the termination of the Advisory Agreement.
Accounting and Legal Services Agreement. The Trust on behalf of the Fund, is a party to an Accounting and Legal Services Agreement with the Adviser. Pursuant to this Agreement the Adviser provides the Fund with certain tax, accounting and legal services. For the fiscal years ending December 31, 2003, 2004 and 2005, the Fund paid the Adviser $34,565, $33,007 and $29,263, 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 who in turn has made contractual arrangements for the Fund's sub-adviser to vote proxies relating to securities held by the Fund. A summary of the Sub-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, 2005 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, Sub-Adviser, principal underwriter and the Fund have adopted a code of ethics which restricts the trading activity of those personnel.
ADDITIONAL INFORMATION ABOUT THE PORTFOLIO MANAGERS
Other Accounts the Portfolio Managers are Managing. The table below indicates for each portfolio manager 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 December 31, 2005. 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 MANAGERS
-------------------------------------------------------------------------------------------------------------
Roger C. Hamilton Other Registered Investment Companies: One (1) fund with total net assets
of approximately $517.7 million.
Other Pooled Investment Vehicles: None
Other Accounts: Seventeen (17) accounts with total net assets of
approximately $10.6 million.
-------------------------------------------------------------------------------------------------------------
Timothy E. Keefe Other Registered Investment Companies: Three (3) funds with total assets
of approximately $526.8 million.
Other Pooled Investment Vehicles: None
Other Accounts: Eighteen (18) accounts with total net assets of
approximately $16.5 million.
-------------------------------------------------------------------------------------------------------------
|
The Adviser and Sub-Adviser do not receive a fee based upon the investment performance of any of the accounts included under "Other Accounts Managed by the Portfolio Managers" 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 and the Sub-Adviser have 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 Sub-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.
o 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 Sub-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.
o 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 Sub-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 Sub-Adviser will place the order in a manner intended to result in as favorable a price as possible for such client.
o 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. Neither the Adviser nor the Sub-Adviser receives a performance-based fee with respect to one of the other accounts managed by a portfolio manager.
o 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 Sub-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.
o If the different accounts have materially and potentially conflicting investment objectives or strategies, a conflict of interest may arise. In making portfolio manager assignments, the Sub-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 Sub-Adviser has adopted a system of compensation for portfolio managers and others involved in the investment process that is applied systematically among investment professionals. At the Sub-Adviser, the structure of compensation of investment professionals is currently comprised of the following basic components: base salary, and an annual investment bonus plan, as well as customary benefits that are offered generally to all full-time employees of the Sub-Adviser. A limited number of senior portfolio managers, who serve as officers of both the Sub-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.
o Base salary. Base compensation is fixed and normally reevaluated on an annual basis. The Sub-Adviser seeks to set compensation at market rates, taking into account the experience and responsibilities of the investment professional.
o 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 Sub-Adviser and the investment professional. Any bonus under the plan is completely discretionary, with a maximum annual bonus that may be well 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:
o 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 Morningstar 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.
o The Profitability of the Adviser: The profitability of the Sub-Adviser and its parent company are also considered in determining bonus awards, with greater emphasis placed upon the profitability of the Adviser.
o Non-Investment Performance: The more intangible contributions of an investment professional to the Sub-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.
o 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 Sub-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 Sub-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 Portfolio Managers. The following table indicates as of December 31, 2005 the value, within the indicated range, of shares beneficially owned by the portfolio managers 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 -------------------------------------------------------------- Roger C. Hamilton A -------------------------------------------------------------- Timothy E. Keefe A -------------------------------------------------------------- |
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 charge) for sales of the Fund's Class A shares for the fiscal years ended December 31, 2003, 2004 and 2005 were $84,228, $84,747 and $123,441, respectively. Of such amounts, $10,424, $11,959 and $18,924, were retained by John Hancock Funds in 2003, 2004 and 2005, respectively. Total underwriting commissions (sales charge) for sales of the Fund's Class C shares for the fiscal years ended December 31, 2003, 2004 and 2005 were $14,953, $18,370 and $0, respectively. No Class C commissions were retained by John Hancock Fund; 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 fees are 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 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. For the fiscal year ended December 31, 2005, an aggregate of $1,026,094 of Distribution Expenses or 3.80% of the average net assets of the Fund's Class B shares was not reimbursed or recovered by John Hancock Funds through the receipt of deferred sales charges or Rule 12b-1 fees in prior periods. For the fiscal year ended December 31, 2005 an aggregate of $134,532 of Distribution Expenses or 2.49% of the average net assets of the Fund's Class C shares was not reimbursed or recovered by John Hancock Funds through the receipt of deferred sales charges or Rule 12b-1 fees.
The Plans were approved by a majority of the voting securities of the Fund. The Plans and all amendments were approved by the Trustees, including a majority of the Trustees who are not interested persons of the Fund and who have no direct or indirect financial interest in the operation of the Plans (the "Independent Trustees"), by votes cast in person at meetings called for the purpose of voting on such Plans.
Pursuant to the Plans, at least quarterly, John Hancock Funds provides the Fund with a written report of the amounts expended under the Plans and the purpose for which the expenditures were made. The Trustees review these reports on a quarterly basis to determine their continued appropriateness.
The Plans provide that they will continue in effect only so long as their continuance is approved at least annually by a majority of both the Trustees and Independent Trustees. The Plans provide that they may be terminated without penalty (a) by a vote of a majority of the Independent Trustees (b) by a vote of a majority of the Fund's outstanding shares of the applicable class upon 60 days' written notice to John Hancock Funds, and (c) automatically in the event of assignment. The Plans further provide that they may not be amended to increase the maximum amount of the
fees for the services described therein without the approval of a majority of the outstanding shares of the class of the Fund which has voting rights with respect to the Plan. Each Plan provides, that no material amendment to the Plans will be effective unless it is approved by a majority vote of the Trustees and the Independent Trustees of the Fund. The holders of Class A, Class B and Class C shares have exclusive voting rights with respect to the Plan applicable to their respective class of shares. In adopting the Plans, the Trustees concluded that, in their judgment, there is a reasonable likelihood that the Plans will benefit the holders of the applicable class of shares of the Fund.
Class I shares of the Fund are not subject to any distribution plan. Expenses associated with the obligation of John Hancock Funds to use its best efforts to sell Class I shares will be paid by the Adviser or by John Hancock Funds and will not be paid from the fees paid under Class A, Class B or Class C Plans.
Amounts paid to John Hancock Funds by any class of shares of the Fund will not be used to pay the expenses incurred with respect to any other class of shares of the Fund; provided, however, that expenses attributable to the Fund as a whole will be allocated, to the extent permitted by law, according to a formula based upon gross sales dollars and/or average daily net assets of each such class, as may be approved from time to time by vote of a majority of Trustees. From time to time, the Fund may participate in joint distribution activities with other Funds and the costs of those activities will be borne by each Fund in proportion to the relative net asset value of the participating Fund.
During the fiscal year ended December 31, 2005, 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 Compensation Interest Carrying
Prospectus to New to Expenses of John or Other Finance
Shares Advertising Shareholders Selling Firms Hancock Funds Charges
------ ----------- ------------ ------------- ----- -------
Class A $ 7,996 $214 $122,271 $127,738 $ - 0 -
Class B 28,243 145 68,236 163,456 $ - 0 -
Class C 3,016 28 20,882 22,252 $ - 0 -
|
SALES COMPENSATION
As part of their business strategies, the Fund, along with the Distributor 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 and Class C are (1) the 12 b-1 fees that are paid out of the fund's assets and
(2) sales charges paid by investors. The sales charges and 12b-1 fees are
detailed in the prospectus and under "Distribution Contracts", "Initial Sales
Charge on Class A Shares" and "Deferred Sales Charge on Class B and Class C
shares" 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, the Distributor 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.
Additional compensation. The Distributor, at its expense, and without additional cost to the Fund or its shareholders, may provide additional compensation to a Selling Firm in connection with their promotion of the Fund or sale of shares of the Fund. The Distributor may make payments to selling firms for marketing support and/or shareholder administrative services. These marketing support payments may include 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, the Distributor may provide expense reimbursements for special training of a Selling Firm's registered representatives and other employees in group meetings. Non-cash compensation may also take the form of occasional gifts, meals, tickets or other entertainment as limited by NASD requirements. Payments may 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. The Distributor compensates Selling Firms differently depending upon, among other factors, the level and/or type of marketing support provided by the Selling Firm. The level of payments made to a Selling Firm in any given year will vary and may be substantial. These payments may provide an incentive to a Selling Firm to actively promote the Funds or cooperate with the Distributor promotional efforts. Depending on the arrangements in place at any particular time, Selling Firms may have a financial incentive to recommend a particular fund or a share class. You should ask your Selling Firm for more information about any services it provides, as well as about fees, commissions and/or marketing support payments.
First Year Broker or Other Selling Firm Compensation
Investor pays
sales charge Selling Firm Selling Firm Total Selling
(% of offering receives receives 12b-1 Firm compensation
Class A investments price) commission (1) service fee (2) (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%
Class I investments
All amounts -- 0.00% 0.00% 0.00%(6)
|
(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, LLC 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, LLC may take recent redemptions into account in determining if an investment qualifies as a new investment
(6) John Hancock Funds, LLC may make a one-time payment at time of initial purchase out of its own resources to a Selling Firm that sells Class I shares of the fund. This payment may be up to 0.15% of the amount invested.
NET ASSET VALUE
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.
For purposes of calculating the net asset value ("NAV") of the Fund's shares, the following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished by a principal market maker or a pricing service, both of which generally utilize electronic data processing techniques to determine valuations for normal institutional size trading units of debt securities without exclusive reliance upon quoted prices. 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 there 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 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.
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 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 "Combination and Accumulation Privileges" 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 living in the same household (see "Combination and Accumulation 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. John Hancock Signature Services, Inc. will automatically link certain accounts registered in the same client name, with the same taxpayer identification number, for the purpose of qualifying you for lower initial sales charge rates. You must notify John Hancock Signature Services, Inc. and your broker-dealer (financial adviser) at the time of purchase of any eligible accounts held by your spouse or children under 21, living in the same household in order to insure these assets are linked to your accounts.
Without Sales Charges. Class A shares may be offered without a front-end sales charge or contingent deferred sales charge ("CDSC") to various individuals and institutions as follows:
o A Trustee or officer of the Trust; a Director or officer of the Adviser and its affiliates, 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.
o A broker, dealer, financial planner, consultant or registered investment advisor that has entered into a signed agreement with John Hancock Funds providing specifically for the use of Fund shares in fee-based investment products or services made available to their clients.
o Individuals transferring assets held in a SIMPLE IRA, SEP, or SARSEP invested in John Hancock Funds directly to an IRA.
o Individuals converting assets held in an IRA, SIMPLE IRA, SEP, or SARSEP invested in John Hancock Funds directly to a ROTH IRA.
NOTE: Rollover investments to Class A shares from assets withdrawn from SIMPLE
401(k), TSA, 457, 403(b), 401(k), Money Purchase Pension Plan, Profit-Sharing
Plan and any other qualified plans as described in the Internal Revenue Codes
401(a), 403(b), 457 and not specified above as waiver eligible, will be subject
to applicable sales charges.
o A member of a class action lawsuit against insurance companies who is investing settlement proceeds.
o Certain retirement plans participating in Merrill Lynch servicing programs offered in Class A shares, including transferee recording arrangements, Merrill Lynch Connect Arrangements and third party administrator recordkeeping arrangements. See your Merrill Lynch Financial Consultant for further information.
o Retirement plans investing through PruSolutionssm program.
o 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.
o 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 initial sales charge is imposed on Class C shares.
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.
In Kind Re-registrations. A shareholder who withdraws funds via a tax reportable transaction, from one John Hancock fund account, that has previously paid a sales charge, and reregisters those assets directly to another John Hancock Fund account, without the assets ever leaving John Hancock Funds, may do so without paying a sales charge. The beneficial owner must remain the same, i.e., in kind.
Note: Rollover investments to Class A shares from assets withdrawn from SIMPLE
401(k), TSA, 457, 403(b), 401(k), Money Purchase Pension Plan, Profit-Sharing
Plan and any other qualified plans as described in the Internal Revenue Codes
401(a), 403(b), 457 are not eligible for this provision, and will be subject to
applicable sales charges.
Reducing Your Class A Sales Charges
Combination and Accumulation Privileges. 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 living in the same household, 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. 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 his or her spouse and their children under the age of 21 living in the same household. Further information about combined purchases, including certain restrictions on combined group purchases, is available from Signature Services or a Selling Firm's representative.
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 Combination and Accumulation Privilege are also applicable to investments made pursuant to a Letter of Intention (LOI), which should be read carefully prior to its execution by an investor. The Fund offers two options regarding the specified period for making investments under the LOI. All investors have the option of making their investments over a period of thirteen (13) months. Investors who are using the Fund as a funding medium for a retirement plan, however, may opt to make the necessary investments called for by the LOI over a forty-eight (48) month period. These retirement plans include traditional, Roth IRAs and Coverdell ESAs IRAs, 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 plans 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 and his/her financial adviser of these holdings. Such an investment (including accumulations, combinations and reinvested dividends) must aggregate $50,000 or more invested during the specified period from the date of the LOI or from a date within ninety (90) days prior thereto, upon written request to Signature Services. Purchases made within 90 days prior to the signing of an LOI will be counted towards fulfillment of the LOI, however, the original sales charge will not be recalculated for these previous purchases. The sales charge applicable to all amounts invested after an LOI is signed is computed as if the aggregate amount intended to be invested had been invested immediately. If such aggregate amount is not actually invested, the difference in the sales charge actually paid and the sales charge payable had the LOI not been in effect is due from the investor. However, for the purchases actually made within the specified period (either 13 or 48 months), the sales charge applicable will not be higher than that which would have been applied (including accumulations and combinations) had the LOI been for the amount actually invested.
The LOI authorizes Signature Services to hold in escrow sufficient Class A shares (approximately 5% of the aggregate) to make up any difference in sales charges on the amount intended to be invested and the amount actually invested, until such investment is completed within the 13-month 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.
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, including all 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:
o Proceeds of 50 shares redeemed at $12 per shares (50 x 12) $600.00
o *Minus Appreciation ($12 - $10) x 100 shares (200.00)
o Minus proceeds of 10 shares not subject to CDSC (dividend reinvestment) (120.00)
-------
o Amount subject to CDSC $280.00
|
*The appreciation is based on all 100 shares in the account not just the shares being redeemed.
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or in part by John Hancock Funds to defray its expenses related to providing distribution-related services to the Fund in connection with the sale of the Class B and Class C shares, such as the payment of compensation to select Selling 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 CDSC, unless indicated otherwise, in the circumstances defined below:
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your account if you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition transactions involving other investment companies or personal holding companies.
* Redemptions due to death or disability. (Does not apply to Trust accounts unless Trust is being dissolved.)
* Redemptions made under the Reinstatement Privilege, as described in "Sales Charge Reductions and Waivers" of the Prospectus.
* Redemptions of Class B and Class C shares made under a periodic withdrawal plan, or redemptions for fees charged by planners or advisors for advisory services, as long as your annual redemptions do not exceed 12% of your account value, including reinvested dividends, at the time you established your periodic withdrawal plan and 12% of the
value of subsequent investments (less redemptions) in that account at the time you notify 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 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.
* 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.
----------------------------------------------------------------------------------------------------------------------
Type of 401 (a) Plan 403 (b) 457 IRA, IRA Non-retirement
Distribution (401 (k), MPP, Rollover
PSP) 457 & 408
(SEPs & Simple
IRAs)
----------------------------------------------------------------------------------------------------------------------
Death or Disability Waived Waived Waived Waived Waived
----------------------------------------------------------------------------------------------------------------------
Over 70 1/2 Waived Waived Waived Waived for 12% of account
required value annually
minimum in periodic
distributions* payments
or 12% of
account value
annually in
periodic
payments.
----------------------------------------------------------------------------------------------------------------------
Between 59 1/2 and 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 payments annuity value annually
payments (72t) payments (72t) (72t) or 12% of payments (72t) in periodic
or 12% of or 12% of account value or 12% of payments
account value account value annually in account value
annually in annually in periodic annually in
periodic periodic payments. periodic
payments. payments. payments.
----------------------------------------------------------------------------------------------------------------------
Loans Waived Waived N/A N/A N/A
----------------------------------------------------------------------------------------------------------------------
Termination of Plan Not Waived Not Waived Not Waived Not Waived N/A
----------------------------------------------------------------------------------------------------------------------
Hardships Waived Waived Waived N/A N/A
----------------------------------------------------------------------------------------------------------------------
Qualified Domestic Waived Waived Waived N/A N/A
Relations Orders
----------------------------------------------------------------------------------------------------------------------
Termination of Employment Waived Waived Waived N/A N/A
Before Normal Retirement
Age
----------------------------------------------------------------------------------------------------------------------
Return of Excess Waived Waived Waived Waived N/A
----------------------------------------------------------------------------------------------------------------------
|
*Required minimum distributions based on John Hancock Mutual Fund IRA assets only.
If you qualify for a CDSC waiver under one of these situations, you must notify Signature Services at the time you make your redemption. The waiver will be granted once Signature Services has confirmed that you are entitled to the waiver.
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 for shares of the same class in any other John Hancock fund offering that same class. The registration for both accounts involved must be identical. Identical registration is determined by having the same beneficial owner on both accounts involved in the exchange.
Investors may exchange Class I shares for Class I shares of other John Hancock funds or Class A shares of John Hancock Money Market Fund. If an investor exchanges Class I shares for Class A shares of Money Market Fund, any future exchanges out of the Money Market Fund Class A must be to another Class I fund.
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 as a Systematic Withdrawal Plan is in effect. The Fund reserves the right to modify or discontinue the Systematic Withdrawal Plan of any shareholder on 30 days' prior written notice to such shareholder, or to discontinue the availability of such plan in the future. The shareholder may terminate the plan at any time by giving proper notice to Signature Services.
Monthly Automatic Accumulation Program (MAAP). The program is explained in the Class A, Class B and Class C Prospectus. The program, as it relates to automatic investment checks, is subject to the following conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the MAAP may be revoked by Signature Services without prior notice if any investment is not honored by the shareholder's bank. The bank shall be under no obligation to notify the shareholder as to the non-payment of any checks.
The program may be discontinued by the shareholder either by calling Signature Services or upon written notice to Signature Services which is received at least five (5) business days prior to the order date of any investment.
Reinstatement or Reinvestment Privilege. If Signature Services and your financial adviser are notified prior to reinvestment, a shareholder who has redeemed shares of the Fund may, within 120 days after the date of redemption, reinvest without payment of a sales charge any part of the redemption proceeds in shares back into the same share class of the same John Hancock Fund and account from which it was removed, 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. 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 same class and fund and account 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 shares is a taxable transaction for Federal income tax purposes even if the reinvestment privilege is exercised, and any gain or loss realized by a shareholder on the redemption or other disposition of shares will be treated for tax purposes as described 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 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 four other series. The Trustees have also authorized the issuance of four classes of shares of the Fund, designated as Class A, Class B, Class C and Class I.
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. The fund no longer issues share certificates. Shares are electronically recorded.
Dividends paid by the Fund, if any, with respect to each class of shares will be calculated in the same manner, at the same time and on the same day and will be in the same amount, except for differences resulting from the facts that (i) the distribution and service fees relating to each class of shares will be borne exclusively by that class; (ii) Class B and Class C shares will pay higher distribution and service fees than Class A shares, and (iii) each class of shares will bear any other class expenses properly allocable to that class of shares, subject to the conditions the Internal Revenue Service imposes with respect to 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 request for a special meeting of shareholders. However, at any time that less than a majority of the Trustees holding office were elected by the shareholders, the Trustees will call a special meeting of shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust could, under certain circumstances, be held personally liable for acts or obligations of the Trust. However, the Fund's Declaration of Trust contains an express disclaimer of shareholder liability for acts, obligations and affairs of the Fund. The Declaration of Trust also provides for indemnification
out of the Fund's assets for all losses and expenses of any shareholder held personally liable by reason of being or having been a shareholder. The Declaration of Trust also provides that no series of the Trust shall be liable for the liabilities of any other series. Furthermore, no fund included in this Fund's prospectus shall be liable for the liabilities of any 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 generally may be sold only to U.S. citizens, U.S. residents, and U.S. Domestic corporations, partnerships, trusts and 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 distribution requirements.
Distributions from the Fund's current or accumulated earnings and profits ("E&P") will be taxable under the Code for investors who are subject to tax. If these distributions are paid from the Fund's "investment company taxable income", they will be taxable as ordinary income; and if they are paid from the Fund's "net capital gain", they will be taxable as long-term capital gain. (Net capital gain is the excess (if any) of net long-term capital gain over net short-term capital loss, and investment company taxable income is all taxable income and capital gains, other than those gains and losses included in computing net capital gain, after reduction by deductible expenses.) Some distributions may be paid in January but may be taxable to shareholders as if they had been received on December 31 of the previous year. The tax treatment described above will apply without regard to whether distributions are received in cash or reinvested in additional shares of the Fund.
Distributions, if any, in excess of E&P will constitute a return of capital under the Code, which will first reduce an investor's federal tax basis in Fund shares and then, to the extent such basis is exceeded, will generally give rise to capital gains. Shareholders who have chosen automatic reinvestment of their distributions will have a federal tax basis in each share received pursuant to such a reinvestment equal to the amount of cash they would have received had they elected to receive the distribution in cash, divided by the number of shares received in the reinvestment.
If the Fund invests stock (including an option to acquire stock such as is inherent in a convertible bond) in certain foreign corporations that receive at least 75% of their annual gross income from passive sources (such as interest, dividends, certain rents and royalties or capital gain) or hold at least 50% of their assets in investments producing such passive income ("passive foreign investment companies"), the Fund could be subject to Federal income tax and additional interest charges on "excess distributions" received from such companies or gain from the sale of stock in such companies, even if all income or gain actually received by the Fund is timely distributed to its shareholders. 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 there 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 from these investments.
Foreign exchange gains and losses realized by the Fund in connection with certain transactions involving foreign currency-denominated debt securities, certain foreign currency options, foreign currency forward contracts, foreign currencies, or payables or receivables denominated in a foreign currency are subject to Section 988 of the Code, which generally causes such gains and losses to be treated as ordinary income and losses and may affect the amount, timing and character of distributions to shareholders. Transactions in foreign currencies that are not directly related to the Fund's investment in stock or securities, including certain currency positions or could under future Treasury regulations produce income not among the types of "qualifying income" from which the Fund must derive at least 90% of its gross income for each taxable year. If the net foreign exchange loss for a year treated as ordinary loss under Section 988 were to exceed the Fund's investment company taxable income computed without regard to such loss, the resulting overall ordinary loss for such year would not be deductible by the Fund or its shareholders in future years.
The Fund may be subject to withholding and other taxes imposed by foreign countries with respect to its investments in foreign securities. Some tax conventions between certain countries and the U.S. may reduce or eliminate such taxes. Investors may be entitled to claim U.S. foreign tax credits or deductions with respect to foreign income taxes or certain other foreign taxes ("qualified foreign taxes") paid by the Fund, subject to certain provisions and limitations contained in the Code, only if, among other things, 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 anticipates that it normally will not satisfy this 50% requirement and that, consequently, investors will not be entitled to any foreign tax credits or deductions with respect to their investments in the Fund.
The amount of the Fund's net realized capital gains, if any, in any given year will result from sales of securities or transactions in options or futures made with a view to the maintenance of a portfolio believed by the Fund's management to be most likely to attain the Fund's objective. Such sales, and any resulting gains or losses, may therefore vary considerably from year to year. At the time of an investor's purchase of shares of the Fund, a portion of the purchase price is often attributable to realized or unrealized appreciation in the Fund's portfolio or undistributed taxable income of the Fund. Consequently, subsequent distributions on these shares from such
appreciation or income may be taxable to such investor even if the net asset value of the investor's shares is, as a result of the distributions, reduced below the investor's cost for such shares and the distributions in reality represent a return of a portion of the purchase price.
Upon a redemption or other disposition of shares of the Fund (including by exercise of the exchange privilege) in a transaction that is treated as a sale for tax purposes, a shareholder will ordinarily realize a taxable gain or loss depending upon the amount of the proceeds and the investor's basis in his shares. Such gain or loss will be treated as capital gain or loss if the shares are capital assets in the shareholder's hands and will be long-term or short-term, depending upon the shareholder's tax holding period for the shares and subject to the special rules described below. A sales charge paid in purchasing shares of the Fund cannot be taken into account for purposes of determining gain or loss on the redemption or exchange of such shares within 90 days after their purchase to the extent shares of the Fund or another John Hancock fund are subsequently acquired without payment of a sales charge pursuant to the reinvestment or exchange privilege. This disregarded charge will result in an increase in the shareholder's tax basis in the shares subsequently acquired.
Also, any loss realized on a redemption or exchange may be disallowed to the extent the shares disposed of are replaced with other shares of the Fund within a period of 61 days beginning 30 days before and ending 30 days after the shares are disposed of, such as pursuant to automatic dividend 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 the Fund's 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 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 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 an $11,323,565 capital loss carryforward available, to the extent provided by regulations, to offset future net realized capital gains. The Fund's entire carryforward expires on December 31, 2010.
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.
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 requirement 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, if any. 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 extent such basis would be reduced below zero, that current recognition of income would be required.
Different tax treatment, including penalties on certain excess contributions and deferrals, certain pre-retirement and post-retirement distributions and certain prohibited transactions, is accorded to accounts maintained as qualified retirement plans. Shareholders should consult their tax advisers for more information.
The Fund is required to accrue income on any debt securities that have more than a de minimis amount of original issue discount (or debt securities acquired at a market discount, if the Fund elects to include market discount in income currently) prior to the receipt of the corresponding cash payments. The mark to market or constructive sale rules applicable to certain options, futures, forwards, short sales or other transactions may also require the Fund to recognize income or gain without a concurrent receipt of cash. Additionally, some countries restrict repatriation which may make it difficult or impossible for the Fund to obtain cash corresponding to its earnings or assets in those countries. However, the Fund must distribute to shareholders for each taxable year substantially all of its net income and net capital gains, including such income or gain, to qualify as a regulated investment company and avoid liability for any federal income or excise tax. Therefore, the Fund may have to dispose of its portfolio securities under disadvantageous circumstances to generate cash, or borrow the cash, to satisfy these distribution requirements.
A state income (and possibly local income and/or intangible property) tax exemption is generally available to the extent (if any) the Fund's distributions are derived from interest on (or, in the case of intangible 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.
Investments 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 invests in such securities, in order to reduce the risk of distributing insufficient income to preserve its status as a regulated investment company and seek to avoid becoming subject to Federal income or excise tax.
Certain options, futures, and forward foreign currency contracts undertaken by the Fund may cause the Fund to recognize gains or losses from marking to market even though its positions have not been sold or terminated and affect the character as long-term or short-term (or, in the case of certain foreign currency contracts, 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, it an option, short sales or other transaction is treated as a constructive sale of an appreciated financial position in the Fund's portfolio. Also, certain of the Fund's losses on its transactions involving options, futures or forward contracts and/or offsetting or successor portfolio positions may be deferred rather than being taken into account currently in calculating the Fund's taxable income or gains. Certain of these transactions may also cause the Fund to dispose of investments sooner than would otherwise have occurred. These transactions may therefore affect the amount, timing and character of the Fund's distributions to shareholders. The Fund will take into account the special tax rules (including consideration of any available elections) applicable to options, futures or forward contracts in order to minimize any potential adverse tax consequences.
The foregoing discussion relates solely to U.S. Federal income tax law as applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic corporations, partnerships, trusts or estates) subject to tax under such law. The discussion does not address special tax rules applicable to certain types of investors, such as tax exempt entities, insurance companies and financial institutions. Dividends, capital gain distributions, and ownership of or gains realized on the redemption (including an exchange) of 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, Form W-8BEN or other authorized withholding certificate is on file and to backup withholding on certain other payments from the Fund. Non-U.S. investors should consult their tax advisers regarding such treatment and the application of foreign taxes to an investment in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise taxes. The Fund anticipates that, provided that the Fund qualifies as a regulated investment company under the Code, it will not be required to pay any Massachusetts income tax.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the allocation of brokerage commissions are made by the Adviser's or Sub-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 Sub-Adviser's Senior Investment Policy Committee and its Brokerage Practices Committee which consists of officers of the Sub-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 that also sell shaes of John Hancock funds. However, the Adviser and Sub-Adviser do 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 and Sub-Adviser of the Fund. The Adviser and Sub-Adviser have 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 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 December 31, 2005, the Fund paid $0 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 or Sub-Adviser's own research (and the research of its affiliates), and may include the following types of information: statistical and background information on the U.S. and foreign economies, industry groups and individual companies; forecasts and interpretations with respect to the U.S. and foreign economies, securities, markets, specific industry groups and individual companies; information on federal, state, local and foreign political developments; portfolio management strategies; performance information on securities, indexes and investment accounts; and information concerning prices and ratings of securities. Broker-dealers may communicate such information electronically, orally, in written form or on computer software. Research services may also include the providing of electronic communication of trade information and, the providing of specialized consultations with the Adviser's or Sub-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 or Sub-Adviser since the broker-dealers used by the Adviser or Sub-Adviser tend to follow a broader universe of securities and other matters than the Adviser's or Sub-Adviser's staff can follow. In addition, the research provides the Adviser or Sub-Adviser with a diverse perspective on financial markets. Research services provided to the Adviser or Sub-Adviser by broker-dealers are available for the benefit of all accounts managed or advised by the Adviser or by its affiliates, or by the Sub-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 or Sub-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 and Sub-Adviser believe that the research services are beneficial in supplementing the Adviser's research and analysis and that they improve the quality of the Adviser's or Sub-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 or Sub-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 and Sub-Adviser. However, to the extent that the Adviser or Sub-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 or Sub-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 or Sub-Adviser, and conversely, brokerage commissions and spreads paid by other advisory clients of the Adviser or Sub-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 or Sub-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 and/or the Sub-Adviser will be primarily responsible for its allocation of the Fund's brokerage business, the policies and practices of the Adviser or Sub-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 December 31, 2003, 2004 and 2005, the Fund paid negotiated brokerage commissions of $83,373, $146,163 and $206,411, 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 and/or the Sub-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, the Sub-Adviser, or the Affiliated Broker. Because the Adviser or Sub-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 December 31, 2003, 2004 and 2005, the Fund paid no brokerage commissions to any Affiliated Broker.
Other investment advisory clients advised by the Adviser or Sub-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 or Sub-Adviser may average the transactions as to price and allocate the amount of available investments in a manner which the Adviser or Sub-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 or Sub-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 for Class A, B and C shares are aggregated and allocated to each class on the basis of their relative net asset values. Signature Services agreed to voluntarily reduce the asset-based portion of the Fund's transfer agent fee for Class A, B and C shares if the total transfer agent fee exceeds the Lipper Inc. median transfer agency fee for comparable mutual funds by greater than 0.05%. The Fund pays Signature Services monthly a fee which is based on an annual rate of 0.05% of average daily net assets attributable to Class I shares. 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, 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. Until December 31, 2005, the independent registered public accounting firm of the Fund was Deloitte & Touche LLP, 200 Berkeley Street, Boston, Massachusetts 02116.
APPENDIX-A
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's principal securities and investment practices. You may find the most concise description of the fund's risk profile in the prospectus.
A fund is permitted to utilize -- within limits established by the trustees -- certain other securities and investment practices that have higher risks and opportunities associated with them. To the extent that the fund utilizes these securities or practices, its overall performance may be affected, either positively or negatively. On the following pages are brief definitions of certain associated risks with them, with examples of related securities and investment practices included in brackets. See the "Investment Objectives and Policies" and "Investment Restrictions" sections of this Statement of Additional Information for a description of this Fund's investment policies. The fund follows certain policies that may reduce these risks.
As with any mutual fund, there is no guarantee that the fund will earn income or show a positive total return over any period of time -- days, months or years.
TYPES OF INVESTMENT RISK
Correlation risk. The risk that changes in the value of a hedging instrument will not match those of the asset being hedged (hedging is the use of one investment to offset the effects of another investment). (e.g. short sales, financial futures and options; securities and index options, currency contracts).
Credit risk. The risk that the issuer of a security, or the counterparty to a contract, will default or otherwise become unable to honor a financial obligation. (e.g. Borrowing; reverse repurchase agreements, repurchase agreements, securities lending, non-investment-grade debt securities, financial futures and options; securities and index options).
Currency risk. The risk that fluctuations in the exchange rates between the U.S. dollar and foreign currencies may negatively affect an investment. (e.g. Foreign securities, financial futures and options; securities and index options, currency contracts).
Extension risk. The risk that an unexpected rise in interest rates will extend the life of a mortgage-backed security beyond the expected prepayment time, typically reducing the security's value.
Information risk. The risk that key information about a security or market is inaccurate or unavailable. (e.g. non-investment-grade debt securities, foreign securities).
Interest rate risk. The risk of market losses attributable to changes in interest rates. With fixed-rate securities, a rise in interest rates typically causes a fall in values, while a fall in rates typically causes a rise in values. (e.g. Non investment-grade debt securities, financial futures and options; securities and index options).
Leverage risk. Associated with securities or practices (such as borrowing) that multiply small index or market movements into large changes in value. (e.g. Borrowing; reverse repurchase agreements, short-sales, when-issued securities and forward commitments; financial futures and options; securities and index options, currency contracts).
o Hedged. When a derivative (a security whose value is based on another security or index) is used as a hedge against an opposite position that the fund also holds, any loss generated by the derivative should be substantially offset by gains on the hedged investment, and vice versa. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains.
o Speculative. To the extent that a derivative is not used as a hedge, the fund is directly exposed to the risks of that derivative. Gains or losses from speculative positions in a derivative may be substantially greater than the derivative's original cost.
Liquidity risk. The risk that certain securities may be difficult or impossible to sell at the time and the price that the seller would like. (e.g. short sales, non-investment-grade debt securities; restricted and illiquid securities, financial futures and options; securities and index options, currency contracts).
Management risk. The risk that a strategy used by a fund's management may fail to produce the intended result. Common to all mutual funds.
Market risk. The risk that the market value of a security may move up and down, sometimes rapidly and unpredictably. Common to all stocks and bonds and the mutual funds that invest in them. (e.g. Short sales, short-term trading, when-issued securities and forward commitments, non-investment-grade securities, foreign securities, financial futures and options; securities and index options, restricted and illiquid securities).
Natural event risk. The risk of losses attributable to natural disasters, crop failures and similar events. (e.g. Foreign securities).
Opportunity risk. The risk of missing out on an investment opportunity because the assets necessary to take advantage of it are tied up in less advantageous investments. (e.g. Short sales, when -issued securities and forward commitments, financial futures and options; securities and index options, currency contracts).
Political risk. The risk of losses directly attributable to government or political actions of any sort. (e.g. Foreign securities)
Prepayment risk. The risk that unanticipated prepayments may occur during periods of falling interest rates, reducing the value of mortgage-backed securities.
Valuation risk. The risk that a fund has valued certain of its securities at a higher price than it can sell them for. (e.g. Non-investment-grade debt securities, restricted and illiquid securities).
APPENDIX B
Moody's describes its ratings for fixed income securities as follows:
Fixed income securities 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.
Fixed income securities which are rated "Aa" are judged to be of high quality by all standards. Together with the Aaa group they are generally referred to as "high grade" obligations. They are rated lower than the best fixed income securities 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.
Fixed income securities 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 some time in the future.
Fixed income securities 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 fixed income securities lack outstanding investment characteristics and in fact have speculative characteristics as well.
Fixed income securities 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 fixed income securities in this class.
Fixed income securities 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.
Fixed income securities 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.
Fixed income securities which are rated "Ca" represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
Fixed income securities which are rated "C" are the lowest rated class of fixed income securities and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
Moody's describes its three highest ratings for commercial paper as follows:
Issuers rated "P-1" (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. "P-1" repayment capacity will normally be evidenced by the following characteristics: (1) leading market positions in well- established industries; (2) high rates of return on funds employed; (3) conservative capitalization structures with moderate reliance on debt and ample asset protections; (4) broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and (5) well established access to a range of financial markets and assured sources of alternate liquidity.
Issuers rated "P-2" (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternative liquidity is maintained.
Issuers rated "P-3" (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained.
S&P describes its ratings for fixed income securities as follows:
Fixed income securities rated "AAA" have the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong.
Fixed income securities rated "AA" have a very strong capacity to pay interest and repay principal and differs from the higher rated issues only in small degree.
Fixed income securities rated "A" have a strong capacity to pay interest and repay principal although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than fixed income securities in higher rated categories.
Fixed income securities rated "BBB" are regarded as having an adequate capacity to pay interest and repay principal. Whereas such securities normally exhibit 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 fixed income securities in this category than in higher rated categories.
Fixed income securities rated "BB", "B", "CCC", "CC" and "C" are regarded, on balance, as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligations. "BB" indicates the lowest degree of speculation and "C" the highest degree of speculation. While such fixed income securities will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions.
S&P describes its three highest ratings for commercial paper as follows:
A-1: This designation indicates that the degree of safety regarding timely payment is very strong.
A-2: Capacity for timely payment on issues with this designation is strong. However, the relative degree of safety is not as overwhelming as for issues designated "A-1".
A-3: Issues carrying this designation have a satisfactory capacity for timely payment. They are, however, somewhat more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations.
APPENDIX C
John Hancock Advisers, LLC
Sovereign Asset Management, LLC
Proxy Voting Summary
We believe in placing our clients' interests first. 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, LLC ("Sovereign") manage open-end funds, closed-end funds and portfolios for institutions and high-net-worth investors. Occasionally, we utilize the expertise of an outside asset manager by means of a subadvisory agreement. In all cases, JHA or Sovereign makes the final decision as to how to vote our clients' proxies. There is one exception, however, and that pertains to our international accounts. The investment management team for international investments votes the proxies for the accounts they manage. Unless voting is specifically retained by the named fiduciary of the client, JHA and Sovereign will vote proxies for ERISA clients.
In order to ensure a consistent, balanced approach across all our investment teams, we have established a proxy oversight group comprised of associates from our investment, operations and legal teams. The group has developed a set of policies and procedures that detail the standards for how JHA and Sovereign vote proxies. The guidelines of JHA have been approved and adopted by each fund client's board of trustees who have voted to delegate proxy voting authority to their investment adviser, JHA. JHA and Sovereign's other clients have granted us the authority to vote proxies in our advisory contracts or comparable documents.
JHA and Sovereign have hired a third party proxy voting service which has been instructed to vote all proxies in accordance with our established guidelines except as otherwise instructed.
In evaluating proxy issues, our proxy oversight group may consider information from many sources, including the portfolio manager, management of a company presenting a proposal, shareholder groups, and independent proxy research services. Proxies for securities on loan through securities lending programs will generally not be voted, however a decision may be made to recall a security for voting purposes if the issue is material.
Below are the guidelines we adhere to when voting proxies. Please keep in mind that these are purely guidelines. Our actual votes will be driven by the particular circumstances of each proxy. From time to time votes may ultimately be cast on a case-by-case basis, taking into consideration relevant facts and circumstances at the time of the vote. Decisions on these matters (case-by-case, abstention, recall) will normally be made by a portfolio manager under the supervision of the chief investment officer and the proxy oversight group. We may abstain from voting a proxy if we conclude that the effect on our clients' economic interests or the value of the portfolio holding is indeterminable or insignificant.
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.
Corporate Structure and Shareholder Rights
In general, we support proposals that foster good corporate governance
procedures and that provide shareholders with voting power equal to their equity
interest in the company.
To preserve shareholder rights, we will vote against a management proposal to restrict shareholders' right to: call a special meeting and to eliminate a shareholders' right to act by written consent. In addition, we will not support a management proposal to adopt a supermajority vote requirement to change certain by-law or charter provisions or a non-technical amendment to by-laws or a charter that reduces shareholder rights.
Equity-based compensation
Equity-based compensation is designed to attract, retain and motivate talented executives and independent directors, but should not be so significant as to materially dilute shareholders' interests.
We will vote against the adoption or amendment of a stock option plan if the:
o the compensation committee is not fully independent;
o plan dilution is more than 10% of outstanding common stock;
o the 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;
o 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:
o the plan allows stock to be purchased at less than 85% of fair market
value;
o this plan dilutes outstanding common equity greater than 10%;
o all stock purchase plans, including the proposed plan, exceed 15% of
outstanding common equity;
o 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:
o the minimum vesting period for options or time lapsing restricted stock is
les than one year;
o 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:
o change the company name;
o approve other business;
o adjourn meetings;
o make technical amendments to the by-laws or charters;
o approve financial statements;
o approve an employment agreement or contract.
Shareholder Proposals
Shareholders are permitted per SEC regulations to submit proposals for inclusion in a company's proxy statement. We will generally vote against shareholder proposals and in accordance with the recommendation of management except as follows where we will vote for proposals:
o calling for shareholder ratification of auditors;
o calling for auditors to attend annual meetings;
o seeking to increase board independence;
o requiring minimum stock ownership by directors;
o seeking to create a nominating committee or to increase the independence of
the
o nominating committee;
o seeking to increase the independence of the audit committee.
Corporate and social policy issues
We believe that "ordinary business matters" are primarily the responsibility of management and should be approved solely by the corporation's board of directors.
Proposals in this category, initiated primarily by shareholders, typically request that the company disclose or amend certain business practices. We generally vote against business practice proposals and abstain on social policy issues, though we may make exceptions in certain instances where we believe a proposal has substantial economic implications.
John Hancock Advisers, LLC Sovereign Asset Management, LLC Proxy Voting Procedures
The role of the proxy voting service
John Hancock Advisers, LLC ("JHA") and Sovereign Asset Management, LLC ("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.
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.
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.
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.
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.
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.
Proxy Voting Services. Nonpublic Information regarding portfolio holdings may be provided to ISS, 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 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 ISS 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.
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 Persons. Nonpublic Information regarding portfolio holdings may be provided to other persons or entities if approved by the Chief Compliance Officer of the Fund or his or her designee (collectively, the "CCO"). In determining whether to approve such disclosure the CCO shall consider: (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. In the case of a conflict between (a) the interests of the shareholders of the Fund, on the one hand, and (b) the interests of any affiliated person of the Fund, the Fund's investment adviser (including any subadviser), the Fund's principal underwriter or any of their affiliated persons, on the other, the procedures set forth under "Resolution of Conflicts of Interest" below shall be followed.
The CCO shall report to the Board of Trustees whenever additional disclosures of portfolio holdings are approved. This report shall be at the board meeting following such approval.
Disclosure of Portfolio Holdings to Affiliated Persons
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. The CCO must pre-approve the provision of any Nonpublic Information regarding portfolio holdings to any Affiliated Persons (other than those listed in Appendix A) and report such approval to the Board of Trustees at the board meeting following such approval. The persons listed in Appendix A have been exempt from such pre-approval. In the case of persons listed in Section II, III and IV of Appendix A, their employers shall provide the CCO reasonable assurances that Nonpublic Information will be kept confidential and that such employees are prohibited from trading on such information.
In determining whether to approve such disclosure of Nonpublic Information
regarding portfolio holdings to any Affiliated Persons the CCO shall consider:
(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. In the case of a conflict between (a) the interests of the
shareholders of the Fund, on the one hand, and (b) the interests of any
affiliated person of the Fund, the Fund's investment adviser (including any
subadviser), the Fund's principal underwriter or any of their affiliated
persons, on the other, the procedures set forth under "Resolution of Conflicts
of Interest" below shall be followed.
Resolution of Conflicts of Interest
If the Fund or its adviser or principal underwriter or any of its subadviser (or any of their affiliates) desire to provide Nonpublic Information regarding Fund portfolio holdings to a Nonaffiliated Person and the CCO believes there is a potential conflict between (a) the interests of the shareholders of the Fund, on the one hand, and (b) the interests of any affiliated person of the Fund, the Fund's investment adviser (including any subadviser), the Fund's principal underwriter or any of their affiliated persons, on the other, the CCO shall refer the conflict to the Board of Trustees of the Fund who shall only permit such disclosure of the Nonpublic Information if in their reasonable business judgment they conclude such disclosure will be in the best interests of Fund shareholders.
Changes to Policy
Any material changes to this policy must be approved by the Fund's Board of Trustees.
Reports to the Trust's Board of Trustees
The CCO shall report any material issues that may arise under this policy to the Board of Trustees no later than the Board meeting following the arising of the issue.
Applicability of Policy to a Fund's Adviser and Subadvisers
This policy shall apply to the Fund's Adviser and each of its subadvisers as applicable.
Appendix A
I. Employees* of John Hancock Advisers, LLC who are subject to the Code of Ethics of the Fund, the Funds' investment adviser, or the Fund's principal underwriter, John Hancock Funds, LLC.
II. Employees* of a Subadviser or any Affiliate of a Subadviser who provide services to a Fund.
III. Employees* of the Funds' custodian who provide services to the Funds.
IV. Employees* and partners of a Fund's certified public accounting firm who provide services to the Fund.
V. Employees* and partners of a Fund's legal counsel who provides services to the Fund.
*Includes temporary employees
FINANCIAL STATEMENTS
The financial statements listed below are included in the Fund's 2005 Annual Report to Shareholders for the year ended December 31, 2005 (filed electronically on March 1, 2006 accession number 0000928816-06-000242 and are included in and incorporated by reference into Part B of the Registration Statement for John Hancock Balanced Fund (file nos. 811-00560 and 2-10156).
John Hancock Investment Trust
John Hancock Balanced Fund
Statement of Assets and Liabilities as of December 31, 2005. Statement of
Operations for the year ended December 31, 2005.
Statement of Changes in Net Asset for each of the two years ended December
31, 2005. Notes to Financial Statements. Financial Highlights for each of
the five years in the period ended December 31, 2005. Schedule of
Investments as of December 31, 2005.
Report of Independent Auditors.
JOHN HANCOCK LARGE CAP EQUITY FUND
Class A, Class B, Class C and Class I Shares
Statement of Additional Information
March 1, 2006
This Statement of Additional Information provides information about John Hancock Large Cap Equity Fund (the "Fund"), in addition to the information that is contained in the combined Equity Funds' current prospectus for Class A, B and C shares and in the Fund's current Prospectus for Class I shares (the "Prospectuses"). The Fund is a diversified series of John Hancock Investment Trust (the "Trust").
This Statement of Additional Information is not a prospectus. It should be read in conjunction with the Prospectus. This Statement of Additional Information incorporates by reference the Fund's Annual Report. A copy of the Prospectus or Annual Report can be obtained free of charge by writing or telephoning:
John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1000 Boston, MA 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
Investment Advisory and Other Services................................ 26
Additional Information About the Fund's Portfolio Managers........... 28
Distribution Contracts................................................ 32
Sales Compensation.................................................... 34
Net Asset Value....................................................... 37
Initial Sales Charge on Class A Shares................................ 38
Deferred Sales Charge on Class B and Class C Shares................... 41
Special Redemptions................................................... 45
Additional Services and Programs...................................... 45
Purchase and Redemptions through Third Parties........................ 46
Description of the Fund's Shares...................................... 47
Tax Status............................................................ 48
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 Ratings............................... B-1
Appendix C- Proxy Voting Summary...................................... C-1
Appendix D- Policy Regarding Disclosure of Portfolio Holdings........ D-1
Financial Statements ................................................. F-1
|
ORGANIZATION OF THE FUND
The Fund is a series of the Trust, an open-end investment management company organized as a Massachusetts business trust under a Declaration of Trust dated December 12, 1984. Prior to March 1, 2002, the Fund was called John Hancock Large Cap Value 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.
John Hancock is a unit of Manulife Financial Corporation, 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$372 billion (US$319 billion) as of December 31, 2005.
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.
The Fund is sub-advised by Sovereign Asset Management LLC ("Sovereign" or the "Sub-Adviser") which is also a subsidiary of John Hancock Financial Services, Inc., a subsidiary of Manulife Financial Corporation. Sovereign is responsible for providing investment advice to the Fund subject to the review of the Trustees and the overall supervision of the Adviser.
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the discussion of the Fund's investment objective and policies discussed in the Prospectus. Appendix A contains further information describing investment 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 to seek long-term capital appreciation. Under normal circumstances, the Fund invests at least 80% of Assets in equity securities of large capitalization companies (companies in the capitalization range of the S&P 500 Index). For this purpose, equity securities include common and preferred stocks and their equivalents (including warrants to purchase and securities convertible into such stocks). The Fund may invest in fixed-income securities, including money market instruments. The Fund does not intend to concentrate its investments in any particular industry.
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.
With respect to the Fund's investment policy of investing at least 80% of its Assets in equity securities of large capitalization companies, "Assets" is defined as net assets plus the amount of any borrowings for investment purposes.
The Fund will notify shareholders at least 60 days prior to any change in this policy.
The Fund may invest in U.S. Government and Agency securities, mortgage backed securities and corporate bonds, notes and other debt securities of any maturity.
Each of the investment practices described in the following section, unless otherwise specified, is deemed to be a fundamental policy and may not be changed without the approval of the holders of a majority of the Fund's outstanding voting securities.
Investment in Foreign Securities. As a matter of non-fundamental policy the Fund may invest up to 35% of assets in securities of foreign issuers including securities in the form of sponsored or unsponsored American Depository Receipts ("ADRs"), European Depository Receipts ("EDRs") or other securities convertible into securities of foreign issuers. These securities may include debt and equity securities of corporate and governmental issuers in countries with emerging economies or securities markets. ADRs are receipts typically issued by an American bank or trust company which evidence ownership of underlying securities issued by a foreign corporation. EDRs are receipts issued in Europe which evidence a similar ownership arrangement. Issuers of unsponsored 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.
Foreign Currency Transactions. The Fund's foreign currency transactions may be conducted on a spot (i.e., cash) basis at the spot rate for purchasing or selling currency prevailing in the foreign exchange market.
The Fund may also enter into forward foreign currency exchange contracts to enhance return, to hedge against fluctuations in currency exchange rates affecting a particular transaction or portfolio position, or as a substitute for the purchase or sale of a currency or assets denominated in that currency. Forward contracts are agreements to purchase or sell a specified currency at a specified future date and price set at the time of the contract. Transaction hedging is the purchase or sale of forward foreign currency contracts with respect to specific receivables or payables of the Fund accruing in connection with the purchase and sale of its portfolio securities quoted or denominated in the same or related foreign currencies. Portfolio hedging is the use of forward foreign currency contracts to offset portfolio security positions denominated or quoted in the same or related foreign currencies. The Fund may elect to hedge less than all of its foreign portfolio positions as deemed appropriate by the Adviser.
If the Fund purchases a forward contract or sells a forward contract for non-hedging purposes, the Fund will segregate cash or liquid securities in a separate account of the Fund in an amount equal to the value of the Fund's total assets committed to the consummation of such forward contract. The assets in the segregated account will be valued at market daily and if the value of the securities in the separate account declines, additional cash or securities will be placed in the account so that the value of the account will be equal the amount of the Fund's commitment with respect to such contracts.
Hedging against a decline in the value of a currency does not eliminate fluctuations in the prices of portfolio securities or prevent losses if the prices of such securities decline. Such transactions also preclude the opportunity for gain if the value of the hedged currency rises. Moreover, it may not be possible for the Fund to hedge against a devaluation that is so generally anticipated that the Fund is not able to contract to sell the currency at a price above the devaluation level it anticipates.
Risks of Foreign Securities. Investments in foreign securities may involve a greater degree of risk than those in domestic securities. There is generally less publicly available information about foreign companies in the form of reports and ratings similar to those that are published about issuers in the United States. Also, foreign issuers are generally not subject to uniform accounting, auditing and financial reporting requirements comparable to those applicable to United States issuers.
Because foreign securities may be denominated in currencies other than the U.S. dollar, changes in foreign currency exchange rates will affect the fund's net asset value, the value of dividends and interest earned, gains and losses realized on the sale of securities, and any net investment income and gains that the Fund distributes to shareholders. Securities transactions undertaken in some foreign markets may not be settled promptly, so that the Fund's investments on foreign exchanges may be less liquid and subject to the risk of fluctuating currency exchange rates pending settlement.
Foreign securities will be purchased in the best available market whether through over-the-counter markets or exchanges located in the countries where principal offices of the issuers are located. Foreign securities markets are generally not as developed or efficient as those in the United States. While growing in volume, they usually have substantially less volume than the New York Stock Exchange, and securities of some foreign issuers are less liquid and more volatile than securities of comparable United States issuers. Fixed commissions on foreign exchanges are generally higher than negotiated commissions on United States exchanges, although the Fund will endeavor to achieve the most favorable net results on its portfolio transactions. There is generally less government supervision and regulation of securities exchanges, brokers and listed issuers than in the United States.
With respect to certain foreign countries, there is the possibility of adverse changes in investment or exchange control regulations, expropriation, nationalization or confiscatory taxation, limitations on the removal of funds or other assets of the Fund, political or social instability, or diplomatic developments which could affect United States investments in those countries. Moreover, individual foreign economies may differ favorably or unfavorably from the United State's economy in terms of growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiently and balance of payments position.
The dividends in some cases, capital gains and interest payable on certain of the Fund's foreign portfolio securities may be subject to foreign withholding or other foreign taxes, thus reducing the net amount of income or gains available for distribution to the Fund's shareholders.
These risks may be intensified in the case of investments in emerging markets or countries with limited or developing capital markets. These countries are located in the Asia-Pacific region, Eastern Europe, Latin and South America and Africa. Security prices in these markets can be significantly more volatile than in more developed countries, reflecting the greater uncertainties of investing less established markets and economies. Political, legal and economic structure in many of these emerging market countries may be undergoing significant evolution and rapid development, and they may lack the social, political, legal and economic stability characteristic of more developed countries. Emerging market countries may have failed in the past to recognize private property rights. They may have relatively unstable governments, present the risk of nationalization of businesses, restrictions on foreign ownership, or prohibitions on repatriation of assets, and may have less protection of property rights than more developed countries. Their economies may be predominantly based on only a few industries, may be highly vulnerable to changes in local or global trade conditions, and may suffer from extreme and volatile debt burdens or inflation rates. Local securities markets may trade a small number of securities and may be unable to respond effectively to increases in trading volume, potentially making prompt liquidation of substantial holdings difficult or impossible at times. The Fund may be required to establish special custodial or
other arrangements before making certain investments in those countries. Securities of issuers located in these countries may have limited marketability and may be subject to more abrupt or erratic price movements.
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 opinions of these agencies as to the quality of the securities which they rate. It should be emphasized, however, that such 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.
Lower Rated High Yield "High Risk" Debt Obligations. As a matter of nonfundamental policy, the Fund may invest up to 15% of its net assets in high yielding, fixed income instruments below investment grade; that is, securities rated as low as Ca by Moody's Investors Service, Inc. ("Moody's") or CC by Standard & Poor's Ratings Group S&P.
Securities rated lower than Baa by Moody's or BBB by Standard & Poor's are sometimes referred to as junk bonds. The Fund is not obligated to dispose of securities whose issuers subsequently are in default or which are downgraded below the above-stated ratings. The credit ratings of Moody's and Standard & Poor's, such as those ratings described here, may not be changed by Moody's and Standard & Poor's in a timely fashion to reflect subsequent economic events. The credit ratings or securities do not reflect an evaluation of market risk. Debt obligations rated in the lower ratings categories, or which are unrated, involve greater volatility of price and risk of loss of principal and income. In addition, lower ratings reflect a greater possibility of an adverse change in financial condition affecting the issuer's ability to make payments of interest and principal. The market price and liquidity of lower rated fixed income securities generally respond more to short-term corporate and market developments than do those of higher rated securities, because these developments are perceived to have a more direct relationship to the ability of an issuer of lower rated securities to meet its on going debt obligations. The Sub-Adviser seeks to minimize these risks through diversification, investment analysis and attention to current developments in interest rates and economic conditions.
Reduced volume and liquidity in the high yield high risk bond market, or the reduced availability of market quotations, will make it more difficult to dispose of the bonds and to value accurately the Fund's assets. The reduced availability of reliable, objective data may increase the Fund's reliance on management's judgment in valuing high yield high risk bonds. In addition, the Fund's investment in high yield high risk securities may be susceptible to adverse publicity and investor perceptions, whether or not justified by fundamental factors. The Fund's investments, and consequently its net asset value, will be subject to the market fluctuations and risk inherent in all securities. Increasing rate note securities are typically refinanced by the issuers within a short period of time. The Fund may invest in pay-in-kind (PIK) securities, which pay interest in either cash or additional securities, at the issuer's option, for a specified period. The Fund also may invest in zero coupon bonds, which have a determined interest rate, but payment of the interest is deferred until maturity of the bonds. Both types of bonds may be more speculative and subject to greater fluctuations in value than securities which pay interest periodically and in cash, due to changes in interest rates.
The market value of debt securities which carry no equity participation usually reflects yields generally available on securities of similar quality and type. When such yields decline, the market value of a portfolio already invested at higher yields can be expected to rise if such securities are protected against
early call. In general, in selecting securities for its portfolio, the Fund intends to seek protection against early call. Similarly, when such yields increase, the market value of a portfolio already invested at lower yields can be expected to decline. The Fund's portfolio may include debt securities which sell at substantial discounts from par. These securities are low coupon bonds which, during periods of high interest rates, because of their lower acquisition cost tend to sell on a yield basis approximating current interest rates.
Government Securities. As a matter of nonfundamental policy, the Fund's investments in fixed income securities may include U.S. Government securities, which are obligations issued or guaranteed by the U.S. Government and its agencies, authorities or instrumentalities. Certain U.S. Government securities, including U.S. Treasury bills, notes and bonds, and Government National Mortgage Association certificates ("Ginnie Maes"), are supported by the full faith and credit of the United States. Certain other U.S. Government securities issued or guaranteed by Federal agencies or government sponsored enterprises, are not supported by the full faith and credit of the United States, but may be supported by the right of the issuer to borrow from the U.S. Treasury. These securities include obligations of the Federal Home Loan Mortgage Corporation ("Freddie Macs"), and obligations supported by the credit of the instrumentality, such as Federal National Mortgage Association bonds ("Fannie Maes"). No assurance can be given that the U.S. Government will provide financial support to such Federal agencies, authorities, instrumentalities and government sponsored enterprises in the future.
Short-Term Bank and Corporate Obligations. As a matter of nonfundamental policy, the Fund's investments in short-term investment grade securities may include 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.
Repurchase Agreements. In a repurchase agreement the Fund buy a security for a relatively short period (usually not more than seven 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 and could experience losses, including the possible decline in the value of 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. The Fund will not invest in a repurchase agreement maturing in more than seven days, if such investment, together with other illiquid securities held by the Fund (including restricted securities) would exceed 10% of the Fund's net assets.
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, an amount at least equal to the repurchase process of the securities (plus any accrued interest thereon) under such agreements. The Fund will not enter into reverse repurchase agreements exceeding in the aggregate 33 1/3% of the market value of its total net assets. In addition, the Fund will not purchase additional securities while any borrowings are outstanding. The Fund will enter into reverse repurchase agreements only with federally insured banks or savings and loan associations 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 will not invest more than 10% of its total assets in securities that are not registered ("restricted securities") under the Securities Act of 1933 (the "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 10% 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 are liquid, they will not be subject to the 10% limit on illiquid investments. The Trustees have adopt guidelines and delegate 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, or on any securities index based on securities in which it may invest or 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 or securities and securities indices 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. The Fund may purchase and write currency options only for hedging purposes.
The Fund will not purchase a call or put option if as a result the premium paid for the option, together with premiums paid for all other stock options and options on stock indexes then held by the Fund, exceed 10% of the Fund's total |
net assets. In addition, the Fund may not write put options on securities or securities indices with aggregate exercise prices in excess of 50% of the Fund's total net assets measured at the Fund's net asset value at the time the option is written.
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.
The Fund may not write uncovered options. The Fund will write listed and
over-the-counter call options only if they are covered, which means that the
Fund owns or has the immediate right to acquire the securities underlying the
options without additional cash consideration upon conversion or exchange of
other securities held in its portfolio. A call option written by the Fund may
also be "covered" if the Fund holds in a share-for-share basis a covering call
on the same securities where (i) the exercise price of the covering call held is
(a) equal to the exercise price of the call written or (b) greater than the
exercise price of the call written, if the difference is maintained by the Fund
in cash, U.S. Treasury bills or high grade liquid debt obligations in a
segregated account with the Fund's custodian, and (ii) the covering call expires
at the same time as the call written.
The Fund will write put options on indices only if they are covered by segregating with the Fund's custodian an amount of cash or short-term investments equal to the aggregate exercise prices of such put options or an offsetting option. In additional, the Fund will write call options on indices only if, on the date on which any such options is written, it holds securities qualified to serve as "cover" under the applicable rules of national securities exchanges or maintains in a segregated account an amount of cash or short-term investments equal to the aggregate exercise price of such call options with a value at least equal to the value of the index times the multiplier or an offsetting option.
The Fund may terminate its obligations under an exchange traded call or put option by purchasing an option identical to the one it has written. Obligations
under over-the-counter options may be terminated only by entering into an offsetting transaction with the counterparty to such option. Such purchases are referred to as "closing purchase transactions".
Purchasing Options. The Fund would normally purchase call options in anticipation of an increase, or put options in anticipation of a decrease ("protective puts") in the market value of securities or currencies of the type in which it may invest. The Fund may also sell call and put options to close out its purchased options.
The purchase of a call option would entitle the Fund, in return for the premium paid, to purchase specified securities or currency at a specified price during the option period. The Fund would ordinarily realize a gain on the purchase of a call option if, during the option period, the value of such securities or currency exceeded the sum of the exercise price, the premium paid and transaction costs; otherwise the Fund would realize either no gain or a loss on the purchase of the call option.
The purchase of a put option would entitle the Fund, in exchange for the premium paid, to sell specified securities or currency at a specified price during the option period. The purchase of protective puts is designed to offset or hedge against a decline in the market value of the Fund's portfolio securities or the currencies in which they are denominated. Put options may also be purchased by the Fund for the purpose of affirmatively benefiting from a decline in the price of securities or currencies which it does not own. The Fund would ordinarily realize a gain if, during the option period, the value of the underlying securities or currency decreased below the exercise price sufficiently to cover the premium and transaction costs; otherwise the Fund would realize either no gain or a loss on the purchase of the put option. Gains and losses on the purchase of put options may be offset by countervailing changes in the value of the Fund's portfolio securities.
The Fund's options transactions will be subject to limitations established by each of the exchanges, boards of trade or other trading facilities on which such options are traded. These limitations govern the maximum number of options in each class which may be written or purchased by a single investor or group of investors acting in concert, regardless of whether the options are written or purchased on the same or different exchanges, boards of trade or other trading facilities or are held or written in one or more accounts or through one or more brokers. Thus, the number of options which the Fund may write or purchase may be affected by options written or purchased by other investment advisory clients of the Adviser. An exchange, board of trade or other trading facility may order the liquidation of positions found to be in excess of these limits, and it may impose certain other sanctions.
Risks Associated with Options Transactions. There is no assurance that a liquid secondary market on a domestic or foreign options exchange will exist for any particular exchange-traded option or at any particular time. If the Fund is unable to effect a closing purchase transaction with respect to covered options it has written, the Fund will not be able to sell the underlying securities or currencies or dispose of assets held in a segregated account until the options expire or are exercised. Similarly, if the Fund is unable to effect a closing sale transaction with respect to options it has purchased, it would have to exercise the options in order to realize any profit and will incur transaction costs upon the purchase or sale of underlying securities or currencies.
Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to 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), in which event 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. In addition, the Fund will acquire only those OTC options for which management believes the Fund can receive on each business day two separate bids or offers (one of which will be from an entity other than a party to the option) or those options valued by an independent pricing service. Each Fund will write and purchase OTC options only with member banks of the Federal Reserve System and primary dealers in U.S. Government securities or their affiliates which have capital of at least $50 million or whose obligations are guaranteed by an entity having capital of at least $50 million.
The 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 securities prices are falling, the Fund can seek to offset a decline in the value of its current portfolio securities through the sale of futures contracts. When securities prices are rising, the Fund, through the purchase of futures contracts, can attempt to secure better rates or prices than might later be available in the market when it effects anticipated purchases. The Fund may seek to offset anticipated changes in the value of a currency in which its portfolio securities, or securities that it intends to purchase, are
quoted or denominated by purchasing and selling futures contracts on such currencies.
The Fund may, for example, take a "short" position in the futures market by selling futures contracts in an attempt to hedge against an anticipated decline in market prices or foreign currency rates that would adversely affect the 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.
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.
Transactions in futures contracts and options on futures involve brokerage costs, require margin deposits and, in the case of contracts and options obligating the Fund to purchase securities or currencies, require the Fund to establish a segregated account consisting of cash or liquid securities in an amount equal to the underlying value of such contracts and options.
While transactions in futures contracts and options on futures may reduce certain risks, these transactions themselves entail certain other risks. For example, unanticipated changes in interest rates, securities prices or currency exchange rates may result in a poorer overall performance for the Fund than if it had not entered into any futures contracts or options transactions.
Perfect correlation between the Fund's futures positions and portfolio positions will be impossible to achieve. In the event of an imperfect correlation between a futures position and a portfolio position which is intended to be protected, the desired protection may not be obtained and the Fund may be exposed to risk of loss. In addition, it is not possible to hedge fully or protect against currency fluctuations affecting the value of securities denominated in foreign currencies because the value of such securities is likely to fluctuate as a result of independent factors not related to currency fluctuations.
Some futures contracts or options on futures may become illiquid under adverse market conditions. In addition, during periods of market volatility, a commodity exchange may suspend or limit trading in a futures contract or related option, which may make the instrument temporarily illiquid and difficult to price. Commodity exchanges may also establish daily limits on the amount that the price of a futures contract or related option can vary from the previous day's settlement price. Once the daily limit is reached, no trades may be made that day at a price beyond the limit. This may prevent the Fund from closing out positions and limiting its losses.
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. The Fund may not lend portfolio securities having a total value exceeding 33% 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 increase 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. No such purchase will be made by the Fund, however, if the Fund's holdings of warrants (valued at lower of cost or market) would exceed 5% of the value of the Fund's net assets as a result of the purchase. In addition, the Fund will not purchase rights or warrants which is not listed on the New York or American Stock Exchange of the purchase would result in the Fund's only unlisted warrants on an amount exceed of 2% of its net assets.
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. As a matter of nonfundamental policy, 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 the Fund's portfolio turnover rate. A high rate of portfolio turnover (100% or greater) involves correspondingly greater brokerage expenses. The Fund's portfolio turnover rate is set forth in the table under the caption "Financial Highlights" in the Prospectus.
Portfolio Holdings Disclosure Policy. The Fund's portfolio holding disclosure policy is attached to this Statement of Additional Information as Appendix D.
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 by 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. Invest in real estate (including interests in real estate investment trusts).
2. Invest in a company having a record of less than three years' continuous operation, which may include the operations of any predecessor company or enterprise to which the company has succeeded by merger, consolidation, reorganization or purchase of assets.
3. Invest in commodities or in commodity contracts or in puts, calls, or combinations of both except options on securities, securities indices, currency and other financial instruments, futures contracts on securities, securities indices, currency and other financial instruments, options on such futures contracts, forward commitments, forward foreign currency exchange contracts, interest rate or currency swaps, securities index put or call warrants and repurchase agreements entered into in accordance with the Fund's investment policies.
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. Buy securities on margin or sell short.
6. Purchase securities of a company in which any officer or trustee of the Trust or the Adviser owns beneficially more than of 1% of the securities of such company and all such officers and trustees own beneficially in the aggregate more than 5% of the securities of such company.
7. Borrow money except for temporary or emergency purposes, and then not in excess of 10% of its gross assets taken at cost. Assets taken at market may not be pledged to an extent greater than 15% of gross assets taken at cost (although this would permit the Fund to pledge, mortgage or hypothecate its portfolio securities to the extent that the percentage of pledged securities would exceed 10% of the offering price of the Fund's shares, it will not do so as a matter of operating policy in order to comply with certain state statutes or investment restrictions); any such loan must be from a bank and the value of the Fund's assets, including the proceeds of the loan, less other liabilities of the Fund, must be at least three times the amount of the loan. The borrowing restriction set forth above does not
prohibit the use of reverse repurchase agreements, in an amount (including any borrowings) not to exceed 33 1/3% of total assets.
8. Make loans to any of its officers or trustees, or to any firms, corporations or syndicates in which officers or trustees of the Trust have an aggregate interest of 10% or more. It is the intention of the Trust not to make loans of any nature, except the Fund may enter into repurchase agreements and lend its portfolio securities (as permitted by the Investment Company Act of 1940) as referred to under "Investment Objectives and Policies" above. In addition, the purchase of a portion of an issue of a publicly issued corporate debt security is not considered to be the making of a loan.
9. Purchase any securities, other than obligations of domestic banks or of the U.S. Government, or its agencies or instrumentalities, if as a result of such purchase more than 25% of the value of the Fund's total assets would be invested in the securities of issuers in any one industry.
10. Issue senior securities as defined in the Investment Company Act of 1940, as amended (the "1940 Act"), and the rules thereunder; except insofar as the Fund may be deemed to have issued a senior security by reason of entering into a repurchase agreement or engaging in permitted borrowings.
11. Purchase securities which will result in the Fund's holdings of the issuer thereof to be more than 5% of the value of the Fund's total assets (exclusive of U.S. Government securities).
12. Purchase more than 10% of the voting securities of any class of securities of any one issuer.
Nonfundamental Investment Restriction. The following restrictions are designated as nonfundamental and may be changed by the Trustees without the shareholder approval.
The Fund may not:
(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 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) Purchase securities while outstanding borrowings exceed 5% of the fund's total assets.
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 that outlines all countries, including the United States, that have been approved for investment by Funds managed by the Adviser.
If allowed by the Fund's other investment policies and restrictions, the Fund may invest up to 5% of its total assets in Russian equity securities and up to 10% of its total assets in Russian fixed income securities. All Russian securities must be: (1) denominated in U.S. or Canadian dollars, euros, sterling, or yen; (2) traded on a major exchange; and (3) held physically outside of Russia.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by its Trustees, including certain Trustees who are not "interested persons" of the Fund or the Trust (as defined by the Investment Company Act of 1940) (the "Independent Trustees"), who elect officers who are responsible for the day-to-day operations of the Fund and who execute policies formulated by the Trustees. Several of the officers and Trustees of the Fund are also officers or Directors of the Adviser, or officers and Directors of the Fund's principal distributor, John Hancock Funds, LLC (prior to February 1, 2002, John Hancock Funds, Inc.) ("John Hancock Funds" or the "Distributor").
---------------------------- ------------- ----------- ---------------------------------------------- ----------------
Number of John
Position(s) Trustee/ Hancock Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Fund since (2) Directorships During Past 5 Years Trustee
---------------------------- ------------- ----------- ---------------------------------------------- ----------------
Independent Trustees
---------------------------- ------------- ----------- ---------------------------------------------- ----------------
James F. Carlin Trustee 1994 Director and Treasurer, Alpha Analytical 53
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. (until 2005);
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)
---------------------------- ------------- ----------- ---------------------------------------------- ----------------
Richard P. Chapman, Jr. Trustee 2005 President and Chief Executive Officer, 53
Born: 1935 Brookline Bancorp., Inc. (lending) (since
1972); Chairman and Director, Lumber
Insurance Co. (insurance) (until 2000);
Chairman and Director, Northeast Retirement
Services, Inc. (retirement administration)
(since 1998).
---------------------------- ------------- ----------- ---------------------------------------------- ----------------
|
(1) Business address for independent and non-independent Trustees and officers
is 601 Congress Street, Boston, Massachusetts 02210-2805.
(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.
---------------------------- ------------- ------------- ------------------------------------------- -----------------
Number of John
Position(s) Trustee/ Hancock Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Fund since (2) Directorships During Past 5 Years Trustee
---------------------------- ------------- ------------- ------------------------------------------- -----------------
Independent Trustees
---------------------------- ------------- ------------- ------------------------------------------- -----------------
William H. Cunningham Trustee 1996 Former Chancellor, University of Texas 143
Born: 1944 System and former President of the
University of Texas, Austin, Texas;
Chairman and CEO, IBT Technologies (until
2001); Director of the following:
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), AskRed.com (until
2001), Southwest Airlines, Introgen and
Viasystems, Group, Inc. (electronic
manufacturer) (until 2003); Advisory
Director, Interactive Bridge, Inc.
(college fundraising) (until 2001);
Advisory Director, Q Investments (until
2003); Advisory Director, JP Morgan
Chase Bank (formerly Texas Commerce Bank
- Austin), LIN Television (since 2002),
WilTel Communications (until 2003) and
Hayes Lemmerz International, Inc.
(diversified automotive parts supply
company) (since 2003).
--------------------------- ------------- ------------- ------------------------------------------- -----------------
|
(1) Business address for independent and non-independent Trustees and officers
is 601 Congress Street, Boston, Massachusetts 02210-2805.
(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.
---------------------------- ------------- ------------- ------------------------------------------- -----------------
Number of John
Position(s) Trustee/ Hancock Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Fund since (2) Directorships During Past 5 Years Trustee
---------------------------- ------------- ------------- ------------------------------------------- -----------------
---------------------------- ------------- ------------- ------------------------------------------- -----------------
Ronald R. Dion Chairman 2005 Chairman and Chief Executive Officer, 53
Born: 1946 and Trustee 1998 R.M. 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;
Director, Boston Municipal Research
Bureau; Member of the Advisory
Board, Carroll Graduate School of
Management at Boston College.
---------------------------- ------------- ------------- ------------------------------------------- -----------------
Charles L. Ladner Trustee 2004 Chairman and Trustee, Dunwoody Village, 143
Born: 1938 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).
---------------------------- ------------- ------------- ------------------------------------------- -----------------
John A. Moore Trustee 2005 President and Chief Executive Officer, 53
Born: 1939 Institute for Evaluating Health Risks,
(nonprofit institution) (until 2001);
Senior Scientist, Sciences International
(health research)(until 2003); Former
Assistant Administrator & Deputy
Administrator, Environmental Protection
Agency; Principal, Hollyhouse
(consulting)(since 2000); Director, CIIT
Center for Health Science Research
(nonprofit research) (since 2002).
---------------------------- ------------- ------------- ------------------------------------------- -----------------
|
(1) Business address for independent and non-independent Trustees and officers
is 601 Congress Street, Boston, Massachusetts 02210-2805.
(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.
---------------------------- ------------- ------------- --------------------------------------- -----------------
Number of John
Position(s) Trustee/ Hancock Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Fund since (2) Directorships During Past 5 Years Trustee
---------------------------- ------------- ------------- --------------------------------------- -----------------
Patti McGill Peterson Trustee 2005 Executive Director, Council for 53
Born: 1943 International 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 1994 Chairman and Chief Executive Officer, 53
Born: 1944 Greenscapes of Southwest Florida, Inc.
(since 2000); Director and President,
Greenscapes of Southwest Florida, 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).
---------------------------- ------------- ------------- --------------------------------------- -----------------
Non-Independent Trustees
---------------------------- ------------- ------------- --------------------------------------- -----------------
James R. Boyle (3) Trustee 2005 Chairman and Director, John Hancock 184
Born: 1959 Advisers, LLC (the "Adviser"), The
Berkeley Financial Group, LLC ("The
Berkeley Group") (holding company) and
John Hancock Funds, LLC. ("John Hancock
Funds"); President, John Hancock
Annuities; Executive Vice President,
John Hancock Life Insurance Company
(since June, 2004); President U.S.
Annuities; Senior Vice President, The
Manufacturers Life Insurance Company
(U.S.A) (prior to 2004).
---------------------------- ------------- ------------- --------------------------------------- -----------------
|
(1) Business address for independent and non-independent Trustees and officers
is 601 Congress Street, Boston, Massachusetts 02210-2805.
(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.
---------------------------- ------------- ------------- --------------------------------------- -----------------
Number of John
Position(s) Trustee/ Hancock Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Fund since (2) Directorships During Past 5 Years Trustee
---------------------------- ------------- ------------- --------------------------------------- -----------------
Principal Officers who are
not Trustees
---------------------------- ------------- ------------- --------------------------------------- -----------------
Keith F. Hartstein President and 2005 Senior Vice President, Manulife N/A
Born: 1956 Chief Financial Corporation (since 2004);
Executive Director, President and Chief Executive
Officer Officer, the Adviser and The Berkeley
Group (holding company); Director,
President and Chief Executive Officer,
John Hancock Funds; Director, President
and Chief Executive Officer, Sovereign
Asset Management LLC ("Sovereign");
Director, John Hancock Signature
Services, Inc.; Director, Chairman and
President, NM Capital Management, Inc.
(NM Capital); Chairman, Investment
Company Institute Sales Force Marketing
Committee (since 2003); Executive Vice
President, John Hancock Funds, LLC
(until 2005).
---------------------------- ------------- ------------- --------------------------------------- -----------------
William H. King Vice President 1994 Vice President and Assistant Treasurer, N/A
Born: 1952 and Treasurer the Adviser; Vice President and
Treasurer of each of the John Hancock
funds advised by the Adviser; Assistant
Treasurer of each of the John Hancock
funds advised by the Adviser (until
2001).
---------------------------- ------------- ------------- --------------------------------------- -----------------
|
(1) Business address for independent and non-independent Trustees and officers
is 601 Congress Street, Boston, Massachusetts 02210-2805.
(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.
---------------------------- --------------- ------------ --------------------------------------- -----------------
Number of John
Position(s) Trustee/ Hancock Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Fund since (2) Directorships During Past 5 Years Trustee
---------------------------- --------------- ------------ --------------------------------------- -----------------
Francis V. Knox, Jr. Vice President 2005 Vice President and Chief Compliance N/A
Born: 1947 and Chief Officer for John Hancock Investment
Compliance Company, John Hancock Life Insurance
Officer Company (U.S.A.), John Hancock Life
Insurance Company and John Hancock
Funds (since 2005); Fidelity
Investments - Vice President and
Assistant Treasurer, Fidelity Group of
Funds (until 2004); Fidelity
Investments - Vice President and Ethics
& Compliance Officer (until 2001).
---------------------------- ------------- ------------- --------------------------------------- -----------------
John G. Vrysen Executive Vice 2005 Director, Executive Vice President and N/A
Born: 1955 President and Chief Financial Officer, the Adviser,
Chief Sovereign, the Berkeley Group (holding
Financial company) and John Hancock Funds (since
Officer 2005);Vice President and General
Manager, Fixed Annuities, U.S. Wealth
Management (until 2005).Vice President,
Operations Manulife Wood Logan
7/00-9/04.
---------------------------- ------------- ------------- --------------------------------------- -----------------
|
(1) Business address for independent and non-independent Trustees and officers
is 601 Congress Street, Boston, Massachusetts 02210-2805.
(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 Contracts/Operations Committee, the Governance Committee and the Investment Performance Committee. Each Committee is comprised of Independent Trustees who are not "interested persons" of the Fund.
The Audit Committee members are Messrs. Chapman, Ladner, Moore and Ms. McGill Peterson. All of the members of the Audit Committee are independent 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 December 31, 2005.
The Governance Committee members are all of the independent Trustees. The Governance Committee makes recommendations to the Board on issues related to corporate governance applicable to the Independent Trustees and to the composition and operation of the Board and to assume duties, responsibilities and functions to nominate candidates to the Board, together with such addition
duties, responsibilities and functions as are delegated to it from time to time. Among other things, the Governance Committee acts as a nominating committee of the Board. In reviewing a potential nominee and in evaluating the renomination of current Independent Trustees, the Governance Committee will generally apply the following criteria: (i) the nominee's reputation for integrity, honesty and adherence to high ethical standards, (ii) the nominee's 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 Governance Committee does not necessarily place the same emphasis on each criteria and each nominee may not have each of these qualities. The Governance Committee does not discriminate on the basis of race, religion, national origin, sex, sexual orientation, disability or any other basis proscribed by law. The Governance Committee is a new committee and held four meetings during the fiscal year ended December 31, 2005. (The nominating function of the Governance Committee was previously carried out by the Administration Committee.)
As long as an existing Independent Trustee continues, in the opinion of the Governance 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 Governance Committee will consider nominees recommended by shareholders to serve as trustees, the Governance 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 Governance Committee will, in addition to any shareholder recommendations, consider candidates identified by other means, including candidates proposed by members of the Governance Committee. While it has not done so in the past, the Governance 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 Governance Committee. In evaluating a nominee recommended by a shareholder, the Governance 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 Governance 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: 601 Congress Street, Boston, MA 02210-2805. 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, Cunningham, Dion and Pruchansky. The Contracts/Operations Committee oversees the initiation, operation, and renewal of contracts between the Fund and other entities. These contracts include advisory and subadvisory agreements, custodial and transfer
agency agreements and arrangements with other service providers. The Contracts/Operations Committee held five meetings during the fiscal year ended December 31, 2005.
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 December 31, 2005.
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, 2005.
---------------------------------------- -------------------------------------- --------------------------------------
Name of Trustee Dollar Range of Fund shares Owned by Aggregate Dollar Range of holdings
in John Hancock funds overseen by
Trustee (1) Trustee (1)
---------------------------------------- -------------------------------------- --------------------------------------
Independent Trustees
---------------------------------------- -------------------------------------- --------------------------------------
James F. Carlin $1-10,000 Over $100,000
---------------------------------------- -------------------------------------- --------------------------------------
Richard P. Chapman, Jr. $1-10,000 Over $100,000
---------------------------------------- -------------------------------------- --------------------------------------
William H. Cunningham None $10,001-50,000
---------------------------------------- -------------------------------------- --------------------------------------
Ronald R. Dion $1-10,000 Over $100,000
---------------------------------------- -------------------------------------- --------------------------------------
Charles L. Ladner $1-10,000 Over $100,000
---------------------------------------- -------------------------------------- --------------------------------------
Dr. John A. Moore $10,001-50,000 Over $100,000
---------------------------------------- -------------------------------------- --------------------------------------
Patti McGill Peterson $1-$10,000 Over $100,000
---------------------------------------- -------------------------------------- --------------------------------------
Steven R. Pruchansky $1-$10,000 Over $100,000
---------------------------------------- -------------------------------------- --------------------------------------
Non-Independent Trustees
---------------------------------------- -------------------------------------- --------------------------------------
James R. Boyle None $10,001-50,000
---------------------------------------- -------------------------------------- --------------------------------------
|
(1) This Fund does participate in the John Hancock Deferred Compensation Plan for Independent Trustees (the "Plan"). Under the Plan, an Independent Trustee may defer his fees by electing to have the Adviser invest his fees in one of the funds in the John Hancock complex that participates in the Plan. Under these circumstances, the Trustee is not the legal owner of the underlying shares, but does participate in any positive or negative return on those shares to the same extent as all other shareholders. With regard to Trustees participating in the Plan, if a Trustee was deemed to own the shares used in computing the value of his deferred compensation, as of December 31, 2005, 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 for Mr. Chapman and over $100,000, $50,001-100,000 and over $100,000 for Mr. Cunningham, $1-$10,000 and over $100,000 for Mr. Dion, $10,001-$50,000 and over $100,000 for Dr. Moore, $10,001-50,000 and over $100,000 for Mr. Pruchansky.
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 who are interested persons of the Adviser, and/or affiliates are compensated by the Adviser and receive no compensation from the Fund for their services.
Aggregate Compensation Total Compensation From the
from the Fund (1) Fund and John Hancock Fund Complex to
Independent Trustees Trustees (2)
James F. Carlin $ 3,397 $ 103,703
Richard P. Chapman* 964 103,953
William J. Cosgrove+ 585 95,203
William H. Cunningham* 3,514 109,171
Ronald R. Dion*++ 4,348 151,399
Charles L. Ladner++ 4,594 149,790
Dr. John A. Moore* 1,207 115,703
Patti McGill Peterson 891 100,203
Steven R. Pruchansky* 3,634 115,203
Norman H. Smith* + 3,097 88,953
Total $26,231 $1,133,281
|
(1) Compensation is for the fiscal year ending December 31, 2005.
(2) Total compensation paid by the John Hancock Funds Complex to the Independent Trustees is as of December 31, 2005. As of this date, Messrs. Carlin, Chapman, Dion, Moore, Pruchansky and Ms. Peterson served on fifty-three funds in the John Hancock Fund Complex: Messrs. Ladner and Cunningham served on one-hundred-forty-three funds.
* As of December 31, 2005, the value of the aggregate accrued deferred compensation amount from all funds in the John Hancock Funds Complex for Mr. Chapman was $76,421, Mr. Cunningham was $125,996, Mr. Dion was $325,086, Mr. Glavin was $243,554, Dr. Moore was $283,070, Mr. Pruchansky was $246,371 and Mr. Smith was $382,371 under the John Hancock Group of Funds Deferred Compensation Plan for Independent Trustees (the "Plan").
+ Mr. Cosgrove retired as of March 31, 2005. Mr. Smith retired as of June 30, 2005.
++ As of September 12, 2005, the Independent Trustees elected Mr. Dion as Independent Chairman of the Board. As of June 16, 2004, and until September 12, 2005, Mr. Ladner was the 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 and/or directors and/or Trustees of one or more of the other funds for which the Adviser serves as investment adviser.
As of February 1, 2006, officers and Trustees of the Fund as a group beneficially owned less than 1% of the outstanding shares of the Fund. As of that date, the following shareholders of record beneficially owned 5% or more of the outstanding shares of each class of the Fund:
---------------------------------------------------------------- ------------- ------------ ------------- Name and Address of Owners of More than 5% of Shares Class B Class C Class I ---------------------------------------------------------------- ------------- ------------ ------------- MLPF&S For The Sole Benefit Of Its Customers 6.15% 7.66% -- Attn: Fund Administration 4800 Deerlake Drive East 2nd Fl. Jacksonville FL 32246-6484 ---------------------------------------------------------------- ------------- ------------ ------------- Citigroup Global Markets Inc. -- 7.65% -- 333 West 34th Street New York, NY 10001 ---------------------------------------------------------------- ------------- ------------ ------------- John Hancock Advisers LLC -- -- 100.0% 101 Huntington Avenue Boston, MA ---------------------------------------------------------------- ------------- ------------ ------------- |
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 601 Congress Street, Boston, Massachusetts 02210-2805, a
premier investment management company, managed approximately $28 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, 2005.
Additional information about John Hancock Advisers can be found on the website:
www.jhfunds.com.
The Sub-Adviser, Sovereign, located at 101 Huntington Avenue, Boston, Massachusetts 02199, was organized in 1979 and as of December 31, 2005 approximately $25 billion in assets. The Sub-Adviser is a wholly-owned indirect subsidiary of John Hancock Financial Services, Inc. (an indirect wholly-owned subsidiary of Manulife Financial Corporation).
The Board of Trustees appointed Sovereign as Sub-Adviser to the Fund effective December 31, 2005. As of that date, the investment personnel of the Adviser were reassigned to Sovereign. The Adviser will continue to serve as investment adviser to the Fund and will be responsible for the supervision of Sovereign's services to the Fund.
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, in conjunction with the Sub-Adviser, will: (a) furnish continuously an investment program for the Fund and determine, subject to the overall supervision and review of the Trustees, which investments should be purchased, held sold or exchanged and (b) provide supervision over all aspects of the Fund's operations except those which are delegated to a custodian, transfer agent or other agent.
The Adviser and the Fund have entered into a Sub-Advisory Agreement with the Sub-Adviser under which the Sub-Adviser, subject to the review of the Trustees and the overall supervision of the Adviser, is responsible for managing the investment operations of the Fund and the composition of the Fund's portfolio and furnishing the Fund with advice and recommendations with respect to investments, investment policies and the purchase and sale of securities.
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 custodian 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 of the daily net assets of the Fund as follows:
Average Daily Net Assets Annual Rate First $3,000,000,000 0.625% Amount over $3,000,000,000* 0.60% |
*Breakpoint added as of the close of business on June 30, 2005.
From time to time, the Adviser may reduce its fee or make other arrangements to limit the Fund's expenses to a specified percentage of average daily net assets. The Adviser retains the right to reimpose a fee and recover any other payments to the extent that, at the end of any fiscal year, the Fund's annual expenses fall below this limit.
For the fiscal years ended December 31, 2003, 2004 and 2005, the advisory fee paid by the Fund to the Adviser amounted to $4,163,438, $3,772,113 and $3,181,863, respectively. |
Securities held by the Fund may also be held by other funds or investment advisory clients for which the Adviser, the Sub-Adviser or their respective affiliates provide investment advice. Because of different investment objectives or other factors, a particular security may be bought for one or more funds or clients when one or more other funds or clients are selling the same security. If opportunities for purchase or sale of securities by the Adviser or Sub-Adviser for the Fund or for other funds or clients for which the Adviser or Sub-Adviser renders investment advice arise for consideration at or about the same time, transactions in such securities will be made, insofar as feasible, for the respective funds or clients in a manner deemed equitable to all of them. To the extent that transactions on behalf of more than one client of the Adviser, the Sub-Adviser or their respective affiliates may increase the demand for securities being purchased or the supply of securities being sold, there may be an adverse effect on price.
Pursuant to the Advisory Agreement and Sub-Advisory Agreement, the Adviser and Sub-Adviser are not liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the matters to which their respective Agreements relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the Adviser or Sub-Adviser in the performance of their duties or from their reckless disregard of the obligations and duties under the applicable Agreements.
Under the Advisory Agreement, the Fund may use the name "John Hancock" or any name derived from or similar to it only for so long as the Advisory Agreement or any extension, renewal or amendment thereof remains in effect. If the Fund's Advisory Agreement is no longer in effect, the Fund (to the extent that it lawfully can) will cease to use such name or any other name indicating that it is advised by or otherwise connected with the Adviser. In addition, the Adviser or the John Hancock Life Company (the "Life Company") may grant the non-exclusive right to use the name "John Hancock" or any similar name to any other corporation or entity, including but not limited to any investment company of which the Life Company or any subsidiary or affiliate thereof or any successor to the business of any subsidiary or affiliate thereof shall be the investment adviser.
The continuation of the Advisory Agreement and Distribution Agreement (discussed below) and the initial approval of the Sub-Advisory Agreement were last approved by all Trustees. The Advisory Agreement, Sub-Advisory Agreement and the Distribution Agreement will continue in effect from year to year, provided that its continuance is approved annually both (I) by the holders of a majority of the outstanding voting securities of the Trust or by the Trustees, and (ii) by a majority of the Trustees who are no parties to the Agreement or "interested persons" of any such parties. Both agreements may be terminated on 60 days written notice by any party or by vote of a majority to the outstanding voting securities of the Fund and will terminate automatically if assigned. The Sub-Advisory Agreement terminates automatically upon the termination of the Advisory Agreement.
As compensation for its services under the Sub-Advisory Agreement, the Adviser (not the Fund) pays the Sub-Adviser monthly a fee based on a stated percentage of the average of the daily net assets of the Fund as follows:
Average Daily Net Assets Annual Rate First $3,000,000,000 0.325% Amount over $3,000,000,000 0.20% |
Accounting and Legal Services Agreement. The Trust, on behalf of the Fund, is a party to an Accounting and Legal Services Agreement with the Adviser. Pursuant to this Agreement, the Adviser provides the Fund with certain tax, accounting and legal services. For the fiscal years ended December 31, 2003, 2004 and 2005, the Fund paid the Adviser $191,854, $159,288 and $119,288, 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 who in turn has made contractual arrangements for the Fund's sub-adviser to vote proxies relating to securities held by the Fund. A summary of the Sub-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, 2005 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 Funds. The Fund also may hold, or may be buying or selling, the same securities. To prevent the Fund from being disadvantaged, the Adviser, Sub-Adviser, principal underwriter and the Fund have adopted a code of ethics which restricts the trading activity of those personnel.
ADDITIONAL INFORMATION ABOUT THE PORTFOLIO MANAGERS
Other Accounts the Portfolio Managers are Managing. The table below indicates for each portfolio manager 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 December 31, 2005. 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 MANAGERS
------------------------------------- -------------------------------------------------------------------------------
Timothy E. Keefe Other Registered Investment Companies: Three (3) funds with total net assets
of approximately $139.1 million.
Other Pooled Investment Vehicles: None
Other Accounts: Eighteen (18) accounts with total net assets of
approximately $65.5 million.
------------------------------------- -------------------------------------------------------------------------------
Roger C. Hamilton Other Registered Investment Companies: One (1) fund with total net assets of
approximately $132.0 million.
Other Pooled Investment Vehicles: None
Other Accounts: Seventeen (17) accounts with total net assets of
approximately $10.6 million.
------------------------------------- -------------------------------------------------------------------------------
Robert C. Junkin Other Registered Investment Companies: two (2) funds with total net assets
of approximately $421.9 million.
Other Pooled Investment Vehicles: None
Other Accounts: Seventeen (17) accounts with total net asses of
approximately $10.6 million.
------------------------------------- -------------------------------------------------------------------------------
|
The Adviser and Sub-Adviser do not receive a fee based upon the investment performance of any of the accounts included under "Other Accounts Managed by the Portfolio Managers" 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 and the Sub-Adviser have 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 Sub-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.
o 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 Sub-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.
o 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 Sub-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 Sub-Adviser will place the order in a manner intended to result in as favorable a price as possible for such client.
o 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. Neither the Adviser nor the Sub-Adviser receives a performance-based fee with respect to one of the other accounts managed by a portfolio manager.
o 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 Sub-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.
o If the different accounts have materially and potentially conflicting investment objectives or strategies, a conflict of interest may arise. In making portfolio manager assignments, the Sub-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 Sub-Adviser has adopted a system of compensation for portfolio managers and others involved in the investment process that is applied systematically among investment professionals. At the Sub-Adviser, the structure of compensation of investment professionals is currently comprised of the following basic components: base salary, and an
annual investment bonus plan, as well as customary benefits that are offered generally to all full-time employees of the Sub-Adviser. A limited number of senior portfolio managers, who serve as officers of both the Sub-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.
o Base salary. Base compensation is fixed and normally reevaluated on an annual basis. The Sub-Adviser seeks to set compensation at market rates, taking into account the experience and responsibilities of the investment professional.
o 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 Sub-Adviser and the investment professional. Any bonus under the plan is completely discretionary, with a maximum annual bonus that may be well 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:
o 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 Morningstar 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.
o The Profitability of the Adviser: The profitability of the Sub-Adviser and its parent company are also considered in determining bonus awards, with greater emphasis placed upon the profitability of the Adviser.
o Non-Investment Performance: The more intangible contributions of an investment professional to the Sub-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.
o 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 Sub-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 Sub-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 Portfolio Managers. The following table indicates as of December 31, 2005 the value, within the indicated range, of shares beneficially owned by the portfolio managers 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
------------------------------------ ---------------------------------
Timothy E. Keefe A
------------------------------------ ---------------------------------
Roger Hamilton A
------------------------------------ ---------------------------------
Robert C. Junkin A
------------------------------------ ---------------------------------
|
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 December 31, 2003, 2004 and 2005 were $269,213, $243,009 and $166,182, respectively. Of such amounts $24,951, $29,746 and $20,453 were retained by John Hancock Funds. Total underwriting commissions (sales charges) for sales of the Fund's Class C shares for the fiscal period ended December 31, 2003, 2004 and 2005 were $15,170, $15,227, and $0 respectively. No Class C commissions were retained by John Hancock Funds; 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 25% for Class A and 1.00% for Class B and Class C of the Fund's average daily net assets attributable to shares of that class. However, the service fee will not exceed 0.25% of the Fund's average daily net
assets attributable to each class of shares. The distribution fees will be used to reimburse John Hancock Funds for their 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 for providing personal and account maintenance services to shareholders. In the event the 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 Class B and Class C Plans as a liability of the Fund, because the Trustees may terminate the Class B and/or Class C Plans at any time. For the fiscal year ended December 31, 2005, an aggregate of $2,160,003 of distribution expenses or 1.24% of the average net assets of the Class B shares of the Fund, was not reimbursed or recovered by John Hancock Funds through the receipt of deferred sales charges or Rule 12b-1 fees in prior periods. For the fiscal year ended December 31, 2005, an aggregate of $312,694, of distribution expenses or 1.38% of the average net assets of the Class C shares of the Fund, was not reimbursed or recovered by John Hancock Funds through the receipt of deferred sales charges or Rule 12b-1 fees in prior periods.
The Plans were approved by a majority of the voting securities of the Fund. The Plans and all amendments were approved by the Trustees, including a majority of the Trustees who are not interested persons of the Fund and who have no direct or indirect financial interest in the operation of the Plans (the "Independent Trustees"), by votes cast in person at meetings called for the purpose of voting on such Plans.
Pursuant to the Plans, at least quarterly, John Hancock Funds provides the Fund with a written report of the amounts expended under the Plans and the purpose for which the expenditures were made. The Trustees review these reports on a quarterly basis to determine their continued appropriateness.
The Plans provide that they will continue in effect only so long as their continuance is approved at least annually by a majority of both the Trustees and Independent Trustees. The Plans provide that they may be terminated without penalty, (a) by vote of a majority of the Independent Trustees, (b) by a vote of a majority of the Fund's outstanding shares of the applicable class upon 60 days' written notice to John Hancock Funds, and (c) automatically in the event of assignment. The Plans further provide that they may not be amended to increase the maximum amount of the fees for the services described therein without the approval of a majority of the outstanding shares of the class of the Fund which has voting rights with respect to that Plan. Each Plan provides, that no material amendment to the Plans will be effective unless it is approved by a majority vote of the Trustees and the Independent Trustees of the Fund. The holders of Class A, Class B and Class C shares have exclusive voting rights with respect to the Plan applicable to their respective class of shares. In adopting the Plans, the Trustees concluded that, in their judgment, these is a reasonable likelihood that the Plans will benefit the holders of the applicable class of shares of the Fund.
Class I shares of the Fund are not subject to any distribution plan. Expenses associated with the obligation of John Hancock Funds to use its best efforts to sell Class I shares will be paid by the Adviser or by John Hancock Funds and will not be paid from the fees paid under Class A, Class B or Class C Plans.
Amounts paid to John Hancock Funds by any class of shares of the Fund will not be used to pay the expenses incurred with respect to any other class of shares of the Fund; provided, however, that expenses attributable to the Fund as a
whole will be allocated, to the extent permitted by law, according to a formula based upon gross sales dollars and/or average daily net assets of each such class, as may be approved from time to time by vote of a majority of Trustees. From time to time, the Fund may participate in joint distribution activities with other Funds and the costs of those activities will be borne by each Fund in proportion to the relative net asset value of the participating Funds.
During the fiscal year ended December 31, 2005, the Funds paid John Hancock Funds the following amounts of expenses in connection with their services of the Fund.
Expense Items
Printing and Interest
Mailing of Expenses of Carrying or Other
Prospectus to New Compensation John Hancock Finance
Shares Advertising Shareholders to Selling Firms Funds Charges
Class A $24,286 $362 $ 581,091 $191,901 $ - 0 -
Class B 51,326 766 1,228,077 405,562 $ - 0 -
Class C 6,533 97 156,321 51,629 $ - 0 -
|
SALES COMPENSATION
As part of their business strategies, the Fund, along with the Distributor, pays 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 and Class C are (1) the 12 b-1 fees that are paid out of the fund's assets and
(2) sales charges paid by investors. The sales charges and 12b-1 fees are
detailed in the prospectus and under "Distribution Contracts", "Initial Sales
Charge on Class A Shares" and "Deferred Sales Charge on Class B and Class C
shares" 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, the Distributor 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.
Additional compensation. The Distributor, at its expense, and without additional cost to the Fund or its shareholders, may provide additional compensation to a Selling Firm in connection with their promotion of the Fund or sale of shares of the Fund. The Distributor, may make payments to selling firms for marketing support and/or shareholder administrative services. These marketing support payments may include 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, the Distributor may provide expense reimbursements for special training of a Selling Firm's registered representatives and other employees in group meetings. Non-cash compensation may also take the form of occasional gifts, meals, tickets or other entertainment as limited by NASD requirements. Payments may 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. The Distributor compensates Selling Firms differently depending upon, among other factors, the level and/or type of marketing support provided by the Selling Firm. The level of payments made to a Selling Firm in any given year will vary and may be substantial. These payments may provide an incentive to a Selling Firm to actively promote the Funds or cooperate with the Distributor promotional efforts. Depending on the arrangements in place at any particular time, Selling Firms may have a financial incentive to recommend a particular fund or a share class. You should ask your Selling Firm for more information about any services it provides, as well as about fees, commissions and/or marketing support payments.
First Year Broker or Other Selling Firm Compensation
Investor pays
sales charge Selling Firm Selling Firm Total Selling Firm
(% of offering receives receives 12b-1 Compensation
Class A investments price) commission (1) service fee (2) (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%
Class I investments
All amounts -- 0.00% 0.00% 0.00% (6)
Class R investments
All amounts -- 0.00% 0.50% 0.50%
|
(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 Fund, LLC 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, LLC may take recent redemptions into account in determining if an investment qualifies as a new investment
(6) John Hancock Funds, LLC may make a one-time payment at time of initial purchase out of its own resources to a Selling Firm that sells Class I shares of the fund. This payment may be up to 0.15% of the amount invested.
CDSC revenues collected by John Hancock Funds, LLC may be used to pay Selling Firm commissions when there is no initial sales charge.
NET ASSET VALUE
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.
For purposes of calculating the net asset value ("NAV") of the Fund's shares, the following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished by a principal market maker or a pricing service, both of which generally utilize electronic data processing techniques to determine valuations for normal institutional size trading units of debt securities without exclusive reliance upon quoted prices. In addition, because of the amount of time required to collect and process trading information for a 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 there 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 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.
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 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 "Combination and Accumulation Privileges" 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 living in the same household (see "Combination and Accumulation 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. John Hancock Signature Services, Inc. will automatically link certain accounts registered in the same client name, with the same taxpayer identification number, for the purpose of qualifying you for lower initial sales charge rates. You must notify John Hancock Signature Services,
Inc. and your broker-dealer (financial adviser) at the time of purchase of any eligible accounts held by your spouse or children under 21, living in the same household in order to insure these assets are linked to your accounts.
Without Sales Charges. Class A shares may be offered without a front-end sales charge or contingent deferred sales charge ("CDSC") to various individuals and institutions as follows:
o A Trustee or officer of the Trust; a Director or officer of the Adviser and its affiliates, 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.
o A broker, dealer, financial planner, consultant or registered investment advisor that has entered into a signed agreement with John Hancock Funds providing specifically for the use of Fund shares in fee-based investment products or services made available to their clients.
o Individuals transferring assets held in a SIMPLE IRA, SEP, or SARSEP invested in John Hancock Funds directly to an IRA.
o Individuals converting assets held in an IRA, SIMPLE IRA, SEP, or SARSEP invested in John Hancock Funds directly to a ROTH IRA.
NOTE: Rollover investments to Class A shares from assets withdrawn from SIMPLE
401(k), TSA, 457, 403(b), 401(k), Money Purchase Pension Plan, Profit-Sharing
Plan and any other qualified plans as described in the Internal Revenue Codes
401(a), 403(b), 457 and not specified above as waiver eligible, will be subject
to applicable sales charges.
o A member of a class action lawsuit against insurance companies who is investing settlement proceeds.
o Certain retirement plans participating in Merrill Lynch servicing programs offered in Class A shares, including transferee recording arrangements, Merrill Lynch Connect Arrangements and third party administrator recordkeeping arrangements. See your Merrill Lynch Financial Consultant for further information.
o Retirement plans investing through the PruSolutions(sm) program.
o 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.
o 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 initial sales charge is imposed on Class C shares.
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.
In Kind Re-registrations. A shareholder who withdraws funds via a tax reportable transaction, from one John Hancock fund account, that has previously paid a sales charge, and reregisters those assets directly to another John Hancock Fund account, without the assets ever leaving John Hancock Funds, may do so without paying a sales charge. The beneficial owner must remain the same, i.e., in kind.
Note: Rollover investments to Class A shares from assets withdrawn from SIMPLE
401(k), TSA, 457, 403(b), 401(k), Money Purchase Pension Plan, Profit-Sharing
Plan and any other qualified plans as described in the Internal Revenue Codes
401(a), 403(b), 457 are not eligible for this provision, and will be subject to
applicable sales charges.
Reducing Your Class A Sales Charges
Combination and Accumulation Privileges. 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, living in the same household, 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. 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 his or her spouse and their children under the age of 21 living in the same household. Further information about combined purchases, including certain restrictions on combined group purchases, is available from Signature Services or a Selling Firm's representative.
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 Combination and Accumulation Privileges are also applicable to investments made pursuant to a Letter of Intention (LOI), which should be read carefully prior to its execution by an investor. The Fund offers two options regarding the specified period for making investments under the LOI. All investors have the option of making their investments over a period of thirteen (13) months. Investors who are using the Fund as a funding medium for a retirement plan, however, may opt to make the necessary investments called for by the LOI over a forty-eight (48) month period. These retirement plans include traditional, Roth IRAs and Coverdell ESAs, SEP, SARSEP, 401(k), 403(b) (including TSAs), SIMPLE IRA, SIMPLE 401(k), Money Purchase Pension, Profit Sharing and Section 457 plans. An individual's non-qualified and qualified retirement plan investments 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 and his/her financial adviser of these holdings. Such an investment (including accumulations, combinations and reinvested dividends) must aggregate $50,000 or more invested during the specified period from the date of the LOI or from a date within ninety (90) days prior thereto, upon written request to Signature Services. Purchases made within 90 days prior to the signing of an LOI will be counted towards fulfillment of the LOI, however, the original sales charge will not be recalculated for these previous purchases. The sales charge applicable to all amounts invested after an LOI is signed 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 charges as may be due. By signing the LOI, the investor authorizes Signature Services to act as his or her attorney-in-fact to redeem any escrowed Class A shares and adjust the sales charge, if necessary. A LOI does not constitute a binding commitment by an investor to purchase, or by the Fund to sell, any additional Class A shares and may be terminated at any time.
DEFERRED SALES CHARGE ON CLASS B AND 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 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 and Class C shares being redeemed. No CDSC will be imposed on increases in account value above the initial purchase prices, including all shares derived from reinvestment of dividends or capital gains distributions.
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 regarded as a share exempt from CDSC. Thus, when a share that has appreciated in value is redeemed during the CDSC period, a CDSC is assessed only on its initial purchase price.
When requesting a redemption for a specific dollar amount please indicate if you require the proceeds to equal the dollar amount requested. If not indicated, only the specified dollar amount will be redeemed from your account and the proceeds will be less any applicable CDSC.
Example:
You have purchased 100 Class B shares at $10 per share. The second year after your purchase, your investment's net asset value per share has increased by $2 to $12, and you have gained 10 additional shares through dividend reinvestment. If you redeem 50 shares at this time your CDSC will be calculated as follows:
o Proceeds of 50 shares redeemed at $12 per shares (50 x 12) $600.00
o *Minus Appreciation ($12 - $10) x 100 shares (200.00)
o Minus proceeds of 10 shares not subject to CDSC (dividend reinvestment) (120.00)
-------
o Amount subject to CDSC $280.00
|
*The appreciation is based on all 100 shares in the account not just the shares being redeemed.
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or in part by John Hancock Funds to defray its expenses related to providing distribution-related services to the Fund in connection with the sale of the Class B and Class C shares, such as the payment of compensation to select Selling 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 shares and Class C shares and Class A shares that are subject to CDSC, unless indicated otherwise, in the circumstances defined below:
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your account if you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition transactions involving other investment companies or personal holding companies.
* Redemptions due to death or disability. (Does not apply to trust accounts unless Trust is being dissolved.)
* Redemptions made under the Reinstatement Privilege, as described in "Sales Charge Reductions and Waivers" of the Prospectus.
* Redemptions of Class B and Class C shares made under a periodic withdrawal plan, or redemptions for fees charged by planners or advisors for advisory services, as long as your annual redemptions do not exceed 12% of your account value, including reinvested dividends, at the time you established your periodic withdrawal plan and 12% of the value of subsequent investments (less redemptions) in that account at the time you notify Signature Services. (Please note that this waiver does not apply to periodic withdrawal plan redemptions of Class A shares that are subject to a CDSC).
* Certain retirement plans participating in Merrill Lynch servicing programs offered in Class A, Class B 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.
* 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.
----------------------- --------------- -------------- -------------- -------------------------- ---------------------
Type of 401 (a) Plan 403 (b) 457 IRA, IRA Rollover Non-retirement
Distribution (401 (k),
MPP, PSP) 457
& 408 (SEPs &
Simple IRAs)
----------------------- --------------- -------------- -------------- -------------------------- ---------------------
Death or Disability Waived Waived Waived Waived Waived
----------------------- --------------- -------------- -------------- -------------------------- ---------------------
Over 70 1/2 Waived Waived Waived Waived for required 12% of account
minimum distributions* value annually in
or 12% of account value periodic payments
annually in periodic
payments.
----------------------- --------------- -------------- -------------- -------------------------- ---------------------
Between 59 1/2 Waived Waived Waived Waived for Life 12% of account
and 70 1/2 Expectancy or 12% of value annually in
account value annually periodic payments
in periodic payments.
----------------------- --------------- -------------- -------------- -------------------------- ---------------------
Under 59 1/2 Waived for Waived for Waived for Waived for annuity 12% of account
(Class B and Class C annuity annuity annuity payments (72t) or 12% of value annually in
only) payments payments payments account value annually periodic payments
(72t) or 12% (72t) or 12% (72t) or 12% in periodic payments.
of account of account of account
value annually value annually value
in periodic in periodic annually
payments. payments. in periodic
payments.
----------------------- --------------- -------------- -------------- -------------------------- ---------------------
Loans Waived Waived N/A N/A N/A
----------------------- --------------- -------------- -------------- -------------------------- ---------------------
Termination of Plan Not Waived Not Waived Not Waived Not Waived N/A
----------------------- --------------- -------------- -------------- -------------------------- ---------------------
Hardships Waived Waived Waived N/A N/A
----------------------- --------------- -------------- -------------- -------------------------- ---------------------
Qualified Domestic Waived Waived Waived N/A N/A
Relations Orders
----------------------- --------------- -------------- -------------- -------------------------- ---------------------
Termination of Waived Waived Waived N/A N/A
Employment Before
Normal Retirement Age
----------------------- --------------- -------------- -------------- -------------------------- ---------------------
Return of Excess Waived Waived Waived Waived N/A
----------------------- --------------- -------------- -------------- -------------------------- ---------------------
|
* Required minimum distributions based on John Hancock Mutual Fund IRA assets only.
If you qualify for a CDSC waiver under one of these situations, you must notify Signature Services at the time you make your redemption. The waiver will be granted once Signature Services has confirmed that you are entitled to the waiver.
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 shares for cash except to the extent that the redemption payment 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 same class. The registration for both accounts involved must be identical. Identical registration is determined by having the same beneficial owner on both accounts involved in the exchange.
Investors may exchange Class I shares for Class I shares of other John Hancock funds or Class A shares of John Hancock Money Market Fund. If an investor exchanges Class I shares for Class A shares of Money Market Fund, any future exchanges out of the Money Market Fund Class A must be to another Class I fund.
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 Class A, Class B and Class C Prospectus. The program, as it relates to automatic investment checks, is subject to the following conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the MAAP may be revoked by Signature Services without prior notice if any investment is not honored by the shareholder's bank. The bank shall be under no obligation to notify the shareholder as to the non-payment of any checks.
The program may be discontinued by the shareholder either by calling Signature Services or upon written notice to Signature Services which is received at least five (5) business days prior to the due date of any investment.
Reinstatement or Reinvestment Privilege. If Signature Services and your financial adviser are notified prior to reinvestment, a shareholder who has redeemed shares of the Fund may, within 120 days after the date of redemption, reinvest without payment of a sales charge any part of the redemption proceeds in shares back into the same share class of the same John Hancock Fund and account from which it was removed, 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. 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 same class and fund and account 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 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 four other series. Additional series may be added in the future. The Trustees have authorized the issuance of four classes of shares of the Fund, designated as Class A, Class B, Class C and Class I.
The shares of each class of the Fund represent an equal proportionate interest in the aggregate net assets attributable to that class of the Fund. Holders of each class of shares have certain exclusive voting rights on 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. The fund no longer issues share certificates. Shares are electronically recorded.
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 other class expenses properly allocable to that class of shares, subject to the conditions the Internal Revenue Service imposes with respect to the multiple-class structures. Similarly, the net asset value per share may vary depending on which class of shares are purchased. No interest will be paid on uncashed dividend or redemption checks.
In the event of liquidation, shareholders of each class are entitled to share pro rata in the net assets of the Fund available for distribution to these shareholders. Shares entitle their holders to one vote per share, are freely transferable and have no preemptive, subscription or conversion rights. When issued shares are fully paid and non-assessable, except as set forth below.
Unless otherwise required by the Investment Company Act or the Declaration of Trust, the Fund has no intention of holding annual meetings of shareholders. Fund shareholders may remove a Trustee by the affirmative vote of at least two-thirds of the Trust's outstanding shares and the Trustees shall promptly call a meeting for such purpose when requested to do so in writing by the record holders of not less than 10% of the outstanding shares of the Trust. Shareholders may, under certain circumstances, communicate with other shareholders in connection with a request for a special meeting of shareholders. However, at 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 and affairs of the Fund. The Declaration of Trust also provides for indemnification out of the
Fund's assets for all losses and expenses of any shareholder held personally liable by reason of being or having been a shareholder. The Declaration of Trust also provides that no series of the Trust shall be liable for the liabilities of any other series. Furthermore, no Fund included in this Fund's prospectus shall be liable for the liabilities of any other John Hancock 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 loss 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 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 as a "regulated investment company" under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), and intends to continue to so qualify in 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% non-deductible Federal excise tax on certain amounts not distributed (and not treated as having been distributed) on a timely basis in accordance with annual minimum distribution requirements. The Fund intends under normal circumstances to seek to avoid or minimize liability for such tax by satisfying such distribution requirements.
Distributions from the Fund's current or accumulated earnings and profits ("E&P") will be taxable under the Code for investors who are subject to tax. If these distributions are paid from the Fund's "investment company taxable income", they will be taxable as ordinary income; and if they are paid from the Fund's "net capital gain", they will be taxable as long term capital gain. (Net capital gain is the excess (if any) of net long-term capital gain over net short-term capital loss, and investment company taxable income is all taxable income and capital gains, other than those gains and losses included in computing net capital gain, after reduction by deductible expenses.) Some distributions may be paid in January but may be taxable to shareholders as if they had been received on December 31 of the previous year. The tax treatment described above will apply without regard to whether distributions are received in cash or reinvested in additional shares of the Fund.
Distributions, if any, in excess of E&P will constitute a return of capital under the Code, which will first reduce an investor's federal tax basis in Fund shares and then, to the extent such basis is exceeded, will generally give rise to capital gains. Shareholders who have chosen automatic reinvestment of their distributions will have a federal tax basis in each share received pursuant to such a reinvestment equal to the amount of cash they would have received had they elected to receive the distribution in cash, divided by the number of shares received in the reinvestment.
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 such companies or gain from the sale of stock in such companies, even if all income or gain actually received by the Fund is timely distributed to its shareholders. These investments could also result in the treatment of associated capital gains as ordinary income. The Fund would not be able to pass through to its shareholders any credit or deduction for such a tax. An election may be available to ameliorate these adverse tax consequences, but any such election would require the Fund to recognize taxable income or gain without the concurrent receipt of cash. The Fund may limit and/or manage its holdings in passive foreign investment companies or make an available election to minimize its tax liability or maximize its return from these investments.
Foreign exchange gains and losses realized by the Fund in connection with certain transactions involving foreign currency-denominated debt securities, certain foreign currency options, foreign currency forward contracts, foreign currencies, or payables or receivables denominated in a foreign currency are subject to Section 988 of the Code, which generally causes such gains and losses to be treated as ordinary income and losses and may affect the amount, timing and character of distributions to shareholders. Transactions in foreign currencies that are not directly related to the Fund's investment in stock or securities, including speculative currency positions, could under future Treasury regulations produce income not among the types of "qualifying income" from which the Fund must derive at least 90% of its gross income for each taxable year. If the net foreign exchange loss for a year treated as ordinary loss under Section 988 were to exceed the Fund's investment company taxable income computed without regard to such loss, the resulting overall ordinary loss for such year would not be deductible by the Fund or its shareholders in future years. The Fund may be subject to withholding and other taxes imposed by foreign countries with respect to its investments in foreign securities. Some tax conventions between certain countries and the U.S. may reduce or eliminate such taxes. The Fund does not expect to qualify to pass such taxes through to its shareholders, who consequently will not take such taxes into account on their own tax returns. However, the Fund will deduct such taxes in determining the amount it has available for distribution to shareholders.
The amount of the Fund's 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 from such appreciation or income may be taxable to such investor even if the net asset value of the investor's shares is, as a result of the distributions, reduced below the investor's cost for such shares, and the distributions in reality represent a return of a portion of the purchase price.
Upon a redemption or other disposition of shares of the Fund (including by exercise of the exchange privilege) in a transaction that is treated as a sale for tax purposes, a shareholder may realize a taxable gain or loss depending upon the amount of the proceeds and the investor's basis in his shares. Such gain or loss will be treated as capital gain or loss if the shares are capital assets in the shareholder's hands and will be long-term or short-term, depending upon the shareholder's tax holding period for the shares and subject to the special rules described below. A sales charge paid in purchasing shares of the Fund cannot be taken into account for purposes of determining gain or loss on the redemption or exchange of such shares within 90 days after their purchase to the extent shares of the Fund or another John Hancock Fund are subsequently acquired without payment of a sales charge pursuant to the reinvestment or exchange privilege. This disregarded charge will result in an increase in the shareholder's tax basis in the shares subsequently acquired. Also, any loss realized on a redemption or exchange may be disallowed to the extent the shares disposed of are replaced with other shares of the Fund within a period of 61 days beginning 30 days before and ending 30 days after the shares are disposed of, such as pursuant to an election to reinvest dividends in additional shares. 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 capital gain income in his return for his taxable year in which the last day of the Fund's taxable year falls, (b) be entitled either to a tax credit on his return for, or 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 its net capital gains, if any, during the eight years following the year of the loss. To the extent subsequent net capital gains are offset by such losses, they would not result in Federal income tax liability to the Fund and, as noted above, would not be distributed as such to shareholders. The Fund has a $628,652,291 capital loss carryforward available, to the extent provided by regulations, to offset future net realized capital gains. The Fund's entire carryforward expires on December 31, 2010.
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.
For purposes of the dividends received deduction available to corporations, dividends received by the Fund, if any, from U.S. domestic corporations in respect of the stock of such corporations held by the Fund, for U.S. Federal income tax purposes, for at least 46 days (91 days in the case of certain preferred stock) during a prescribed period extending before and after each dividend and distributed and properly designated by the Fund may be treated as qualifying dividends. Corporate shareholders must meet the minimum holding period requirement stated above (46 or 91 days) with respect to their shares of the Fund for each dividend in order to qualify for the deduction and, if they have any debt that is deemed under the Code directly attributable to such shares, may be denied a portion of the dividends received deduction. The entire qualifying dividend, including the otherwise deductible amount, will be included in determining the excess (if any) of a corporate shareholder's adjusted current earnings over its alternative minimum taxable income, which may increase its alternative minimum tax liability, if any. Additionally, any corporate shareholder should consult its tax adviser regarding the possibility that its basis in its shares may be reduced, for Federal income tax purposes, by reason of "extraordinary dividends" received with respect to the shares, for the purpose of computing its gain or loss on redemption or other disposition of the shares and, to the extent such basis would be reduced to 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 payment. The mark to market rules or constructive sale applicable to certain options and forward contracts 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 may have to leverage itself by borrowing the cash, to satisfy these distribution requirements.
A state income (and possibly local income and/or intangible property) tax exemption is generally available to the extent (if any) the Fund's distributions are derived from interest on (or, in the case of intangible 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 a Fund with their correct taxpayer identification number and certain certifications required by the IRS or if the IRS or a broker notifies the Fund that the number furnished by the shareholder is incorrect or that the shareholder is subject to backup withholding as a result of failure to report interest or dividend income. A 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.
Certain options, futures and forward foreign currency transactions undertaken by the Fund may cause the Fund to recognize gains or losses from marking to market even though its positions have not been sold or terminated and affect the character as long-term or short-term (or, in the case of certain foreign currency contracts, as ordinary income or loss) and timing of some capital gains and losses realized by the Fund. Additionally, the Fund may be required to recognize gain, but not loss, if an option or other transactions 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. These transactions may therefore affect the amount, timing and character of the Fund's distributions to shareholders. Certain of such transactions may also cause the Fund to dispose of investments sooner than would otherwise have occurred. The Fund will take into account the special tax rules (including consideration of available elections) applicable to options, futures and forward contracts in order to seek to minimize any potential adverse tax consequences.
The foregoing discussion relates solely to U.S. Federal income tax law as applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic corporations, partnerships, trusts or estates) subject to tax under such law. The discussion does not address special tax rules applicable to certain types of investors, such as tax-exempt entities, insurance companies, and financial institutions. Dividends, capital gain distributions, and ownership of or gains realized on the redemption (including an exchange) of Fund shares may also be subject to state and local taxes. Shareholders should consult their own tax advisers as to the Federal, state or local tax consequences of ownership of shares of, and receipt of distributions from, the Fund in their particular circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their investment in the Fund is effectively connected will be subject to U.S. Federal income tax treatment that is different from that described above. These investors may be subject to non-resident alien withholding tax at the rate of 30% (or a lower rate under an applicable tax treaty) on amounts treated as ordinary dividends from the Fund and, unless an effective IRS Form W-8, Form W-8BEN or other authorized withholding certificate is on file and to backup withholding on certain other payments from the Fund. Non-U.S. investors should consult their tax advisers regarding such treatment and the application of foreign taxes to an investment in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise taxes. The Fund anticipates that, provided that the Fund qualifies as a regulated investment company under the Code, it will also not be required to pay any Massachusetts income tax.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the allocation of brokerage commissions are made by the Adviser's Sub-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 Sub-Adviser's Senior Investment Policy Committee and its Brokerage Practices Committee which consists of officers of the Sub-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 that also sell shares of John Hancock funds. However, the Adviser and Sub-Adviser do 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 and Sub-Adviser of the Fund. The Adviser and Sub-Adviser have 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 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 December 31, 2005, the Fund paid $0 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 or Sub-Adviser's own research (and the research of its affiliates), and may include the following types of information: statistical and background information on the U.S. and foreign economies, industry groups and individual companies; forecasts and interpretations with respect to the U.S. and foreign economies, securities, markets, specific industry groups and individual companies; information on federal, state, local and foreign political developments; portfolio management strategies; performance information on securities, indexes and investment accounts; and information concerning prices and ratings of securities. Broker-dealers may communicate such information electronically, orally, in written form or on computer software. Research services may also include the providing of electronic communication of trade information and, the providing of specialized consultations with the Adviser's or Sub-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 or Sub-Adviser since the broker-dealers used by the Adviser or Sub-Adviser tend to follow a broader universe of securities and other matters than the Adviser's or Sub-Adviser's staff can follow. In addition, the research provides the Adviser or Sub-Adviser with a diverse perspective on financial markets. Research services provided to the Adviser or Sub-Adviser by broker-dealers are available for the benefit of all accounts managed or advised by the Adviser or by its affiliates, or by the Sub-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 or Sub-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 and Sub-Adviser believe that the research services are beneficial in supplementing the Adviser's research and analysis and that they improve the quality of the Adviser's or Sub-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 or Sub-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 and Sub-Adviser. However, to the extent that the Adviser or Sub-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 or Sub-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 or Sub-Adviser, and conversely, brokerage commissions and spreads paid by other advisory clients of the Adviser or Sub-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 or Sub-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 and/or the Sub-Adviser will be primarily responsible for its allocation of the Fund's brokerage business, the policies and practices of the Adviser or Sub-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 December 31, 2003, 2004 and 2005, the Fund paid negotiated brokerage commissions of $3,076,043, $2,216,759 and $1,261,418, 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 and/or the Sub-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, the Sub-Adviser or the Affiliated Broker. Because the Adviser or Sub-Adviser that is affiliated with the Affiliated Broker has, as an investment adviser to the Fund, the obligation to provide investment management services, which includes elements of research and related investment skills such research and related skills will not be used by the Affiliated Broker as a basis for negotiating commissions at a rate higher than that determined in accordance with the above criteria.
The Adviser's indirect parent, the Life Company, is the indirect sole shareholder of Signator Investors, Inc., a broker dealer (until January 1, 1999, John Hancock Distributors, Inc.) ("Signator" or "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 December 31, 2003, 2004 and 2005, the Fund paid no brokerage commissions to any Affiliated Broker.
Other investment advisory clients advised by the Adviser or Sub-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 or Sub-Adviser may average the transactions as to price and allocate the amount of available investments in a manner which the Adviser or Sub-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 or Sub-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 for Class A, B and C shares are aggregated and allocated to each class on the basis of their relative net asset values. Signature Services agreed to voluntarily reduce the asset-based portion of the Fund's transfer agent fee for Class A, B and C shares if the total transfer agent fee exceeds the Lipper Inc. median transfer agency fee for comparable mutual funds by greater than 0.05%. The Fund pays Signature Services monthly a fee which is based on an annual rate of 0.05% of average daily net assets attributable to Class I shares. 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, 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. Until December 31, 2005, the independent registered public accounting firm of the Fund was Deloitte & Touche LLP, 200 Berkeley Street, Boston, Massachusetts 02116.
APPENDIX A
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's principal securities and investment practices. You may find the most concise description of the fund's risk profile in the prospectus.
A fund is permitted to utilize -- within limits established by the trustees -- certain other securities and investment practices that have higher risks and opportunities associated with them. To the extent that the fund utilizes these securities or practices, its overall performance may be affected, either positively or negatively. On the following pages are brief definitions of certain associated risks with them, with examples of related securities and investment practices included in brackets. See the "Investment Objectives and Policies" and "Investment Restrictions" sections of this Statement of Additional Information for a description of this Fund's investment policies. The fund follows certain policies that may reduce these risks.
As with any mutual fund, there is no guarantee that the fund will earn income or show a positive total return over any period of time -- days, months or years.
TYPES OF INVESTMENT RISK
Correlation risk. The risk that changes in the value of a hedging instrument will not match those of the asset being hedged (hedging is the use of one investment to offset the effects of another investment). (e.g. short sales, financial futures and options; securities and index options, currency contracts).
Credit risk. The risk that the issuer of a security, or the counterparty to a contract, will default or otherwise become unable to honor a financial obligation. (e.g. Borrowing; reverse repurchase agreements, repurchase agreements, securities lending, non-investment-grade debt securities, financial futures and options; securities and index options).
Currency risk. The risk that fluctuations in the exchange rates between the U.S. dollar and foreign currencies may negatively affect an investment. (e.g. Foreign securities, financial futures and options; securities and index options, currency contracts).
Extension risk. The risk that an unexpected rise in interest rates will extend the life of a mortgage-backed security beyond the expected prepayment time, typically reducing the security's value.
Information risk. The risk that key information about a security or market is inaccurate or unavailable. (e.g. non-investment-grade debt securities, foreign securities).
Interest rate risk. The risk of market losses attributable to changes in interest rates. With fixed-rate securities, a rise in interest rates typically causes a fall in values, while a fall in rates typically causes a rise in values. (e.g. Non investment-grade debt securities, financial futures and options; securities and index options).
Leverage risk. Associated with securities or practices (such as borrowing) that multiply small index or market movements into large changes in value. (e.g. Borrowing; reverse repurchase agreements, short-sales, when-issued securities and forward commitments; financial futures and options; securities and index options, currency contracts).
o Hedged When a derivative (a security whose value is based on another security or index) is used as a hedge against an opposite position that the fund also holds, any loss generated by the derivative should be substantially offset by gains on the hedged investment, and vice versa. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains.
o Speculative To the extent that a derivative is not used as a hedge, the fund is directly exposed to the risks of that derivative. Gains or losses from speculative positions in a derivative may be substantially greater than the derivative's original cost.
Liquidity risk. The risk that certain securities may be difficult or impossible to sell at the time and the price that the seller would like. (e.g. short sales, non-investment-grade debt securities; restricted and illiquid securities, financial futures and options; securities and index options, currency contracts).
Management risk. The risk that a strategy used by a fund's management may fail to produce the intended result. Common to all mutual funds.
Market risk. The risk that the market value of a security may move up and down, sometimes rapidly and unpredictably. Common to all stocks and bonds and the mutual funds that invest in them. (e.g. Short sales, short-term trading, when-issued securities and forward commitments, non-investment-grade securities, foreign securities, financial futures and options; securities and index options, restricted and illiquid securities).
Natural event risk. The risk of losses attributable to natural disasters, crop failures and similar events. (e.g. Foreign securities).
Opportunity risk. The risk of missing out on an investment opportunity because the assets necessary to take advantage of it are tied up in less advantageous investments. (e.g. Short sales, when -issued securities and forward commitments, financial futures and options; securities and index options, currency contracts).
Political risk. The risk of losses directly attributable to government or political actions of any sort. (e.g. Foreign securities).
Prepayment risk. The risk that unanticipated prepayments may occur during periods of falling interest rates, reducing the value of mortgage-backed securities.
Valuation risk. The risk that a fund has valued certain of its securities at a higher price than it can sell them for. (e.g. Non-investment-grade debt securities, restricted and illiquid securities).
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.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
Ca: 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.
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.
APPENDIX C
SUMMARY OF PROXY VOTING
John Hancock Advisers, LLC
Sovereign Asset Management, LLC
Proxy Voting Summary
We believe in placing our clients' interests first. 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, LLC ("Sovereign") manage open-end funds, closed-end funds and portfolios for institutions and high-net-worth investors. Occasionally, we utilize the expertise of an outside asset manager by means of a subadvisory agreement. In all cases, JHA or Sovereign makes the final decision as to how to vote our clients' proxies. There is one exception, however, and that pertains to our international accounts. The investment management team for international investments votes the proxies for the accounts they manage. Unless voting is specifically retained by the named fiduciary of the client, JHA and Sovereign will vote proxies for ERISA clients.
In order to ensure a consistent, balanced approach across all our investment teams, we have established a proxy oversight group comprised of associates from our investment, operations and legal teams. The group has developed a set of policies and procedures that detail the standards for how JHA and Sovereign vote proxies. The guidelines of JHA have been approved and adopted by each fund client's board of trustees who have voted to delegate proxy voting authority to their investment adviser, JHA. JHA and Sovereign's other clients have granted us the authority to vote proxies in our advisory contracts or comparable documents.
JHA and Sovereign have hired a third party proxy voting service which has been instructed to vote all proxies in accordance with our established guidelines except as otherwise instructed.
In evaluating proxy issues, our proxy oversight group may consider information from many sources, including the portfolio manager, management of a company presenting a proposal, shareholder groups, and independent proxy research services. Proxies for securities on loan through securities lending programs will generally not be voted, however a decision may be made to recall a security for voting purposes if the issue is material.
Below are the guidelines we adhere to when voting proxies. Please keep in mind that these are purely guidelines. Our actual votes will be driven by the particular circumstances of each proxy. From time to time votes may ultimately be cast on a case-by-case basis, taking into consideration relevant facts and circumstances at the time of the vote. Decisions on these matters (case-by-case, abstention, recall) will normally be made by a portfolio manager under the supervision of the chief investment officer and the proxy oversight group. We may abstain from voting a proxy if we conclude that the effect on our clients' economic interests or the value of the portfolio holding is indeterminable or insignificant.
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.
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:
o the compensation committee is not fully independent;
o plan dilution is more than 10% of outstanding common stock;
o 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;
o 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:
o the plan allows stock to be purchased at less than 85% of fair market
value;
o this plan dilutes outstanding common equity greater than 10%;
o all stock purchase plans, including the proposed plan, exceed 15% of
outstanding common equity;
o 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:
o the minimum vesting period for options or time lapsing restricted
stock is les than one year;
o 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:
o change the company name;
o approve other business;
o adjourn meetings;
o make technical amendments to the by-laws or charters;
o approve financial statements;
o approve an employment agreement or contract.
Shareholder Proposals
Shareholders are permitted per SEC regulations to submit proposals for inclusion in a company's proxy statement. We will generally vote against shareholder proposals and in accordance with the recommendation of management except as follows where we will vote for proposals:
o calling for shareholder ratification of auditors;
o calling for auditors to attend annual meetings;
o seeking to increase board independence;
o requiring minimum stock ownership by directors;
o seeking to create a nominating committee or to increase the
independence of the nominating committee;
o seeking to increase the independence of the audit committee.
Corporate and social policy issues
We believe that "ordinary business matters" are primarily the responsibility of management and should be approved solely by the corporation's board of directors. |
Proposals in this category, initiated primarily by shareholders, typically request that the company disclose or amend certain business practices. We generally vote against business practice proposals and abstain on social policy issues, though we may make exceptions in certain instances where we believe a proposal has substantial economic implications.
John Hancock Advisers, LLC Sovereign Asset Management, LLC Proxy Voting Procedures
The role of the proxy voting service
John Hancock Advisers, LLC ("JHA") and Sovereign Asset Management, LLC ("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.
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.
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 ISS, 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 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 ISS 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 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.
o 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.
o 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.
o 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.
o 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.
FINANCIAL STATEMENTS
The financial statements listed below are included in the Fund's 2005 Annual Report to Shareholders for the year ended December 31, 2005 (filed electronically on March 1, 2006 accession number 0000928816-06-000242) and are included in and incorporated by reference into Part B of the Registration Statement for John Hancock Large Cap Equity Fund (file nos. 811-00560 and 2-10156).
John Hancock Investment Trust
John Hancock Large Cap Equity Fund
Statement of Assets and Liabilities as of December 31, 2005.
Statement of Operations for the year ended December 31, 2005.
Statement of Changes in Net Asset for each of the two years in the period
ended December 31, 2005.
Notes to Financial Statements.
Financial Highlights for each of the five years in the period ended
December 31, 2005.
Schedule of Investments as of December 31, 2005.
Report of Independent Auditors.
JOHN HANCOCK SOVEREIGN INVESTORS FUND
Class A, Class B, Class C, Class I and Class R Shares
Statement of Additional Information
March 1, 2006
This Statement of Additional Information provides information about John Hancock Sovereign Investors Fund (the "Fund") in addition to the information that is contained in the combined John Hancock Equity Funds current Prospectus for Class A, B and C shares and in the Fund's current Class I share and Class R share prospectuses (the "Prospectuses"). The Fund is a diversified series of John Hancock Investment Trust (the "Trust").
This Statement of Additional Information is not a prospectus. It should be read in conjunction with the Prospectus. This Statement of Additional Information incorporates by reference the Fund's Annual Report. A copy of the Prospectus or Annual Report can be obtained free of charge by writing or telephoning:
John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1000 Boston, Massachusetts 02217-1000 1-800-225-5291
TABLE OF CONTENTS
Page
Organization of the Fund............................................................................... 2
Investment Objective and Policies...................................................................... 2
Investment Restrictions................................................................................ 9
Those Responsible for Management.......................................................................11
Investment Advisory and Other Services.................................................................21
Additional Information About the Fund's Portfolio Managers.............................................23
Distribution Contracts.................................................................................27
Sales Compensation.....................................................................................30
Net Asset Value........................................................................................33
Initial Sales Charge on Class A Shares.................................................................34
Deferred Sales Charge on Class B and Class C Shares....................................................37
Eligible Investors for Class R Shares..................................................................41
Special Redemptions....................................................................................41
Additional Services and Programs.......................................................................41
Purchase and Redemptions through Third Parties.........................................................43
Description of the Fund's Shares.......................................................................43
Tax Status.............................................................................................45
Brokerage Allocation...................................................................................49
Transfer Agent Services................................................................................53
Custody of Portfolio...................................................................................53
Independent Registered Public Accounting Firm .........................................................53
Appendix A- Description of Investment Risk.............................................................A-1
Appendix B- Description of Bond Ratings................................................................B-1
Appendix C- Proxy Voting Summary.......................................................................C-1
Appendix D- Description of Portfolio Holdings Disclosure Policy........................................D-1
Financial Statements...................................................................................F-1
|
ORGANIZATION OF THE FUND
The Fund is a series of the Trust, an open-end investment management company organized as a Massachusetts business trust under the laws of The Commonwealth of Massachusetts.
John Hancock Advisers, LLC (prior to February 1, 2002, John Hancock Advisers, Inc.) (the "Adviser") is the Fund's investment adviser. The Adviser is 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.
John Hancock is a unit of Manulife Financial Corporation, 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$372 billion (US$319 billion) as of December 31, 2005.
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.
The Fund is sub-advised by Sovereign Asset Management LLC ("Sovereign" or the "Sub-Adviser") which is also a subsidiary of John Hancock Financial Services, Inc., a subsidiary of Manulife Financial Corporation. Sovereign is responsible for providing investment advice to the Fund subject to the review of the Trustees and the overall supervision of the Adviser.
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the discussion of the Fund's investment objective and policies discussed in the Prospectus. Appendix A contains further information describing investment risks. The investment objective of the Fund is fundamental and may only be changed with shareholder approval. There is no assurance that the Fund will achieve its investment objective.
The Fund's investment objective is to provide long-term growth of capital and of income without assuming undue market risks. At times, however, because of market conditions, the Fund may invest primarily for current income. The Fund will make investments in different types and classes of securities in accordance with the Trustees' and the Adviser's and/or Sub-Adviser's appraisal of economic and market conditions. The Fund's portfolio securities are selected mainly for their investment character based upon generally accepted elements of intrinsic value, including industry position, management, financial strength, earning power, marketability and prospects for future growth. The distribution or mix of various types of investments is based on general market conditions, the level of interest rates, business and economic conditions, and the availability of investments in the equity and fixed income markets. The amount of the Fund's assets that may be invested in either equity or fixed income securities is not restricted and is based upon management's judgment of what might best achieve the Fund's investment objectives. The Fund normally invests at least 80% of its stock investments in a diversified portfolio of companies with market capitalizations within the range of the Standard & Poor's 500
Stock Index. The securities held by the Fund are under continuous study by the Adviser. They are selected because they are considered by the management team to contribute to the possible achievement of the Fund's objective. They are held or disposed of in accordance with the results of a continuing examination of their merit.
The Fund currently uses a strategy of investing at least 65% of stock investments in companies which have a record of having increased their dividend payout in each of the preceding ten or more years. This dividend performers strategy can be changed at any time.
By investing primarily in these companies, the portfolio management team focuses on investments with characteristics such as: a strong management team that has demonstrated leadership through changing market cycles; financial soundness as evidenced by consistently rising dividends and profits, strong cash flows, high return on equity and a balance sheet showing little debt; and strong brand recognition and market acceptance, backed by proven products and a well-established, often global, distribution network.
Subject to the Fund's policy of investing primarily in common stocks, the Fund may invest without limit in investment grade debt securities or investment grade preferred stocks (equivalent to the top four bond rating categories of an NRSRO). For temporary defensive purposes, the Fund may invest some or all of its assets in investment grade short-term securities.
The investment policy of the Fund is to purchase and hold securities for capital appreciation and investment income, although there may be a limited number of short- term transactions incidental to the pursuit of its investment objective. The Fund may make portfolio purchases and sales to the extent that in its Board's opinion, relying on the Adviser or independently, such transactions are in the interest of shareholders.
The Fund endeavors to achieve its objective by utilizing experienced management and generally investing in securities of seasoned companies in sound financial condition. The Fund has not purchased securities of real estate investment trusts and has no present intention of doing so in the future.
The Fund may not invest more than 5% of its total assets at time of purchase in any one security (other than U.S. Government Securities). Under normal conditions the Fund may not invest more than 10% of total assets in cash and/or cash equivalents (except cash segregated in relation to futures, forward and option contracts).
Diversification. The Fund's investments are diversified in a broad list of issues, representing many different industries. Although diversification does not eliminate market risk, it may tend to reduce it. At the same time, holdings of a large number of shares in any one company are avoided. Thus, during periods when general economic and political conditions are subject to rapid changes, it may be appropriate to effect rapid changes in the Fund's investments. This can be more readily accomplished by limiting the amount of any one investment.
As is common to all securities investments, securities of this managed diversified Fund is subject to fluctuation in value; its portfolio will not necessarily prove a defense in periods of declining prices or lead the advance in rising markets. The Fund's management will endeavor to reduce the risks encountered in the use of any single investment by investing the assets of the Fund in a widely diversified group of securities. Diversification, however, will not necessarily reduce inherent market risks. Securities are selected mainly for their investment character, based upon generally accepted elements of intrinsic value including industry position, management, financial strength, earning power, ready marketability and prospects for future growth.
Concentration. The Fund's policy is not to concentrate its investments in any one industry, but investments of up to 25% of its total assets at market value may be made in a single industry. This limitation may not be changed without the affirmative vote of a majority of the Fund's outstanding voting securities, as defined in the Investment Company Act of 1940, as amended (the "Investment Company Act").
Ratings as Investment Criteria. In general, the ratings of Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Ratings Group ("S&P") represent the opinions of these agencies as to the quality of the securities which they rate. It should be emphasized however, that ratings are relative and subjective and are not absolute standards of quality. These ratings will be used by the Funds as initial criteria for the selection of portfolio securities. Among the factors which will be considered are the long-term ability of the issuer to pay principal and interest and general economic trends. Appendix B contains further information concerning the rating of Moody's and S&P and their significance. Subsequent to its purchase by the Fund, an issue of securities may cease to be rated or its rating may be reduced below the minimum required for purchase by the Fund. Neither of these events will require the sale of the securities by the Fund.
Lower Rated High-Yield "High Risk" Debt Obligations. The Fund may invest up to 5% of its net assets in debt securities rated as low as C by Moody's or S&P and unrated securities deemed of equivalent quality by the Adviser. These securities are speculative to a high degree and often have very poor prospects of attaining real investment standing. Lower rated securities are generally referred to as junk bonds. See the Appendix attached to this Statement of Additional Information which describes the characteristics of the securities in the various rating categories.
Securities rated lower than Baa by Moody's or BBB by Standard & Poor's are sometimes referred to as junk bonds. See the Appendix attached to this Statement of Additional Information which describes the characteristics of the securities in the various ratings categories. The Fund is not obligated to dispose of securities whose issuers subsequently are in default or which are downgraded below the above-stated ratings. The credit ratings of Moody's and Standard & Poor's in a timely fashion to reflect subsequent economic events. The credit ratings of securities do not reflect an evaluation of market risk. Debt obligations rated in the lower ratings categories, or which are unrated, involve greater volatility of price and risk of loss of principal and income. In addition, lower ratings reflect a greater possibility of an adverse change in financial condition affecting the issuer's ability to make payments of interest and principal. The market price and liquidity of lower rated fixed income securities generally respond more to short-term corporate and market developments than do those of higher rated securities, because these developments are perceived to have a more direct relationship to the ability of an issuer of lower rated securities to meet its ongoing debt obligations. The Adviser and/or Sub-Adviser seeks to minimize these risks through diversification, investment analysis and attention to current developments in interest rates and economic conditions.
Reduced volume and liquidity in the high yield high risk bond market, or the reduced availability of market quotations, will make it more difficult to dispose of the bonds and to value accurately the Fund's assets. The reduced availability of reliable, objective data may increase the Fund's reliance on management's judgment in valuing high yield high risk bonds. In addition, the Fund's investments in high yield high risk securities may be susceptible to adverse publicity and investor perceptions, whether or not justified by fundamental factors. The Fund's investment, and consequently its net asset value, will be subject to the market fluctuations and risk inherent in all securities. Increasing rate note securities are typically refinanced by the issuers within a short period of time.
The market value of debt securities which carry no equity participation usually reflects yields generally available on securities of similar quality and type. When such yields decline, the market value of a portfolio already invested at higher yields can be expected to rise if such securities are protected against early call. In general, in selecting securities for its portfolio, the Fund intends to seek protection against early call. Similarly, when such yields increase, the market value of a portfolio already invested at lower yields can be expected to decline. The Fund's portfolio may include debt securities which sell at substantial discounts from par. These securities are low coupon bonds which, during periods of high interest rates, because of their lower acquisition cost tend to sell on a yield basis approximating current interest rates.
Options and Futures. The Fund may not invest in futures contracts or sell call or put options. The Fund has authority to purchase put and call options.
Options on Securities Indices. The Fund may purchase call and put options on any securities index based on securities in which it may invest. These options may be listed on national domestic securities exchanges or foreign securities exchanges or traded in the over-the-counter market. The Fund may purchase put and call options for any non-speculative purpose. These include using options as a substitute for the purchase or sale of securities or to protect against declines in the value of portfolio securities and against increases in the cost of securities to be acquired.
Purchasing Options. The Fund would normally purchase index call options in anticipation of an increase, or index put options in anticipation of a decrease ("protective puts") in the market value of securities of the type in which it may invest. The Fund may also sell call and put options to close out its purchased options.
The purchase of an index call option would entitle the Fund, in return for the premium paid, to receive a cash payment reflecting any increase in the index above a specified level upon exercising the option during the option period. The Fund would ordinarily realize a gain on the purchase of a call option if the amount of this cash payment exceeded the premium paid and transaction costs; otherwise the Fund would realized either no gain or a loss on the purchase of the call option.
The purchase of an index put option would entitle the Fund, in exchange for the premium paid, to receive a cash payment reflecting any decrease in the index below a specified level upon exercising the option during the option period. The purchase of protective puts is designed to offset or hedge against a decline in the market value of the Fund's portfolio securities. The Fund would ordinarily realize a gain if, during the option period, the level of the index decreased below the exercise price sufficiently to cover the premium and transaction costs; otherwise the Fund would realize either no gain or a loss on the purchase of the put option. Gains and losses on the purchase of put options may be offset by countervailing changes in the value of the Fund's portfolio securities.
The Fund's options transactions will be subject to limitations established by each of the exchanges, boards of trade or other trading facilities on which such options are traded. These limitations govern the maximum number of options in each class which may be written or purchased by a single investor or group of investors acting in concert, regardless of whether the options are written or purchased on the same or different exchanges, boards of trade or other trading facilities or are held or written in one or more accounts or through one or more brokers. Thus, the number of options which the Fund may purchase may be affected by options written or purchased by other investment advisory clients of the Adviser and/or Sub-Adviser. An
exchange, board of trade or other trading facility may order the liquidation of positions found to be in excess of these limits, and it may impose certain other sanctions.
Risks Associated with Options Transactions. There is no assurance that a liquid secondary market on an options exchange will exist for any particular exchange-traded option or at any particular time. If the Fund is unable to effect a closing sale transaction with respect to options it has purchased, it would have to exercise the options in order to realize any profit and will incur transaction costs upon the purchase or sale of underlying securities.
Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options). If trading were discontinued, the
secondary market on that exchange ( or in that class or series of options) would
cease to exist. However, outstanding options on that exchange that had been
issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
The Fund's ability to terminate over-the-counter options is more limited than with exchange-traded options and may involve the risk that broker-dealers participating in such transactions will not fulfill their obligations. The Adviser and/or Sub-Adviser will determine the liquidity of each over-the-counter option in accordance with guidelines adopted by the Trustees.
The purchase of options is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. The successful use of options depends in part on the Adviser's and/or Sub-Adviser's ability to predict future price fluctuations and, for hedging transactions, the degree of correlation between the options and securities markets.
Government Securities. Certain U.S. Government securities, including U.S. Treasury bills notes and bonds, and Government National Mortgage Association certificates ("Ginnie Maes"), are supported by the full faith and credit of the United States. Certain other U.S. Government securities issued or guaranteed by Federal agencies or government sponsored enterprises, are not supported by the full faith and credit of the United States, but may be supported by the right of the issuer to borrow from the U.S. Treasury. These securities include obligations of the Federal Home Loan Mortgage Corporation ("Freddie Macs"), and obligations supported by the credit of the instrumentality, such as Federal National Mortgage Association Bonds ("Fannie Maes"). No assurance can be given that the U.S. Government will provide financial support to such Federal agencies, authorities, instrumentalities and government sponsored enterprises in the future.
Ginnie Maes, Freddie Macs, Fannie Maes and Sallie Maes are mortgage-backed securities which provide monthly payments which are, in effect, a "pass-through" of the monthly interest and principal payments (including any prepayments) made by the individual borrowers on the pooled mortgage loans. Collateralized Mortgage Obligations ("CMOs") in which the Fund may invest are securities issued by a U.S. Government instrumentality that are collateralized by a portfolio of mortgages or mortgage-backed securities. Mortgage-backed securities may be less effective
than traditional debt obligations of similar maturity at maintaining yields during periods of declining interest rates.
Mortgage-backed securities have stated maturities of up to thirty years when they are issued depending upon the length of the mortgages underlying the securities. In practice, however, unscheduled or early payments of principal and interest on the underlying mortgages may make the securities' effective maturity shorter than this and the prevailing interest rates may be higher or lower than the current yield of the Fund's portfolio at the time such payments are received by the Fund for reinvestment. Mortgage-backed securities may have less potential for capital appreciation than comparable fixed-income securities due to the likelihood of increased prepayments of mortgages as interest rates decline. If the Fund buys mortgage-backed securities at a premium, mortgage foreclosures and prepayments of principal by mortgagors (which may be made at any time without penalty) may result in some loss of the Fund's principal investment to the extent of the premium paid.
Restricted Securities. The Fund may purchase securities that are not registered ("restricted securities") under the Securities Act of 1933 ("1933 Act"), including commercial paper issued in reliance on Section 4(2) of the 1933 act and securities offered and sold to "qualified institutional buyers" under Rule 144A under the 1933 Act. The Fund will not invest more than 15% of its net assets in illiquid investments. If the Trustees determine, based upon a continuing review of the trading markets for specific Section 4(2) paper or Rule 144A securities, that they are liquid, they will not be subject to the 15% limit on illiquid investments. The Trustees have adopt guidelines and delegated to the Adviser the daily function of determining, the monitoring and liquidity of restricted securities. The Trustees, however, will retain sufficient oversight and be ultimately responsible for the determinations. The Trustees will carefully monitor the Fund's investments in these securities, focusing on such important factors, among others, as valuation, liquidity and availability of information. This investment practice could have the effect of increasing the level of illiquidity in the Fund if qualified institutional buyers become for a time uninterested in purchasing these restricted securities. The Fund does not intend to invest more than 5% of its net assets in Rule 144A securities.
Repurchase Agreements. In a repurchase agreement the Fund buys a security for a relatively short period (usually not more than 7 days) subject to the obligation to sell it back to the issuer at a fixed time and price plus accrued interest. The Fund will enter into repurchase agreements only with member banks of the Federal Reserve System and with "primary dealers" in U.S. Government securities. The Adviser will continuously monitor the creditworthiness of the parties with whom the Fund enters into repurchase agreements.
The Fund has established a procedure providing that the securities serving as collateral for each repurchase agreement must be delivered to the Fund's custodian either physically or in book-entry form and that the collateral must be marked to market daily to ensure that each repurchase agreement is fully collateralized at all times. In the event of bankruptcy or other default by a seller of a repurchase agreement, the Fund could experience delays in liquidating the underlying securities during the period in which the Fund seeks to enforce its rights thereto, possible subnormal levels of income decline in value of the underlining securities or lack of access to income during this period, as well as, the expense of enforcing its rights.
Reverse Repurchase Agreements. The Fund may also enter into reverse repurchase agreements which involve the sale of U.S. Government securities held in its portfolio to a bank with an agreement that the Fund will buy back the securities at a fixed future date at a fixed price plus an agreed amount of "interest" which may be reflected in the repurchase price. Reverse repurchase agreements are considered to be borrowings by the Fund. Reverse repurchase agreements
involve the risk that the market value of securities purchased by the Fund with proceeds of the transaction may decline below the repurchase price of the securities sold by the Fund which it is obligated to repurchase. The Fund will also continue to be subject to the risk of a decline in the market value of the securities sold under the agreements because it will reacquire those securities upon effecting their repurchase. To minimize various risks associated with reverse repurchase agreements, the Fund will establish a separate account consisting of liquid securities, of any type or maturity in an amount at least equal to the repurchase prices of these securities (plus any accrued interest thereon) under such agreements. In addition, the Fund may not borrow money except in connection with the sale or resale of its shares. The Fund will not enter into reverse repurchase agreements and other borrowings exceeding in the aggregate 33 1/3% of the market value of its total assets. The Fund will enter into reverse repurchase agreements only with federally insured banks which are approved in advance as being creditworthy by the Trustees. Under procedures established by the Trustees, the Adviser will monitor the creditworthiness of the firms involved.
Lending of Securities. The Fund may lend portfolio securities to brokers, dealers, and financial institutions if the loan is collateralized by cash or U.S. Government securities according to applicable regulatory requirements. The Fund may reinvest any cash collateral in short-term securities and money market funds. When the Fund lends portfolio securities, there is a risk that the borrower may fail to return the securities involved in the transaction. As a result, the Fund may incur a loss or, in the event of the borrower's bankruptcy, the Fund may be delayed in or prevented from liquidating the collateral. It is a fundamental policy of the Fund not to lend portfolio securities having a total value exceeding 33 1/3% of its total assets.
Rights and Warrants. The Fund may purchase warrants and rights which are securities permitting, but not obligating, their holder to purchase the underlying securities at a predetermined price. Generally, warrants and stock purchase rights do not carry with them the right to receive dividends or exercise voting rights with respect to the underlying securities, and they do not represent any rights in the assets of the issuer. As a result, an investment in warrants and rights may be considered to entail greater investment risk than certain other types of investments. In addition, the value of warrants and rights does not necessarily change with the value of the underlying securities, and they cease to have value if they are not exercised on or prior to their expiration date. Investment in warrants and rights increases the potential profit or loss to be realized from the investment of a given amount of the Fund's assets as compared with investing the same amount in the underlying stock.
Short-Sales. The Fund may not engage in short sales.
Forward Commitment and When-Issued Securities. The Fund may purchase securities on a when-issued or forward commitment basis. "When-issued" refers to securities whose terms are available and for which a market exists, but which have not been issued. The Fund will engage in when-issued transactions with respect to securities purchased for its portfolio in order to obtain what is considered to be an advantageous price and yield at the time of the transaction. For when-issued transactions, no payment is made until delivery is due, often a month or more after the purchase. In a forward commitment transaction, the Fund contracts to purchase securities for a fixed price at a future date beyond customary settlement time.
When the Fund engages in forward commitment and when-issued transactions, it relies on the seller to consummate the transaction. The failure of the issuer or seller to consummate the transaction may result in the Fund's losing the opportunity to obtain a price and yield considered to be advantageous. The purchase of securities on a when- issued or forward commitment basis
also involves a risk of loss if the value of the security to be purchased declines prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on a when- issued or forward commitment basis, the Fund will segregate in a separate account cash or liquid securities, of any type or maturity, equal in value to the Fund's commitment. These assets will be valued daily at market, and additional cash or securities will be segregated in a separate account to the extent that the total value of the assets in the account declines below the amount of the when-issued commitments. Alternatively, the Fund may enter into offsetting contracts for the forward sale of other securities that it owns.
Short-Term Trading and Portfolio Turnover. Short-term trading means the purchase and subsequent sale of a security after it has beeen held for a relatively brief period of time. The Fund may engage in short-term trading in response to stock market conditions, changes in interest rates or other economic trends and developments, or to take advantage of yield disparities between various fixed income securities in order to realize capital gains or improve income. Short term trading may have the effect of increasing portfolio turnover rate. A high rate of portfolio turnover (100% or greater) involves correspondingly higher brokerage expenses. The Fund's portfolio turnover rate is set forth in the table under the caption "Financial Highlights" in the Prospectus.
Portfolio Holdings Disclosure Policy. The Fund's portfolio holding disclosure policy is attached to this Statement of Additional Information as Appendix D.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions will not be changed without the approval of a majority of the Fund's outstanding voting securities which, as used in the Prospectus and this Statement of Additional Information means the approval by the lesser of (1) the holders of 67% or more of the Fund's shares represented at a meeting if more than 50% of the Fund's outstanding shares are present in person or by proxy at that meeting or (2) more than 50% of the Fund's outstanding shares.
The Fund may not:
(1) The Fund may not, with respect to 75% of its total assets, purchase any security (other than securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities and repurchase agreements collateralized by such securities) if, as a result: (a) more than 5% of its total assets would be invested in the securities of any one issuer, or (b) the Fund would own more than 10% of the voting securities of any one issuer. [see nonfundamental investment restriction (h)]
(2) The Fund may not issue senior securities, except as permitted by paragraphs (3) and (7) below. For purposes of this restriction, the issuance of shares of common stock in multiple classes, the purchase or sale of options, futures contracts and options on futures contracts, forward commitments, and repurchase agreements entered into in accordance with the Fund's investment policies, and the pledge, mortgage or hypothecation of the Fund's assets are not deemed to be senior securities.
(3) The Fund may not borrow money except in connection with the sale or resale of its shares.
(4) The Fund may not act as an underwriter, except to the extent that, in connection with the disposition of portfolio investments, the Fund may be deemed to be an underwriter for purposes of the Securities Act of 1933.
(5) The Fund may not purchase or sell real estate, or any interest therein, including real estate mortgage loans, except that the Fund may: (i) hold and sell real estate acquired as the result of its ownership of securities, or (ii) invest in securities of corporate or governmental entities secured by real estate or marketable interests therein or securities issued by companies (other that real estate limited partnerships) that invest in real estate or interests therein.
(6) The Fund may not make loans, except that the Fund (1) may lend portfolio securities in accordance with the Fund's investment policies in an amount up to 33 1/3% of the Fund's total assets taken at market value, (2) enter into repurchase agreements, and (3) purchase all or a portion of an issue of debt securities, bank loan participation interests, bank certificates of deposit, bankers' acceptances, debentures or other securities, whether or not the purchase is made upon the original issuance of the securities.
(7) The Fund may not purchase or sell commodities or commodity contracts; except that the Fund may purchase and sell options on securities, securities indices, currency and other financial instruments, futures contracts on securities, securities indices, currency and other financial instruments and options on such futures contracts, forward commitments, interest rate swaps, caps and floors, securities index put or call warrants and repurchase agreements entered into in accordance with the Fund's investment policies.
(8) The Fund may not purchase securities of an issuer conducting its principal activity in any particular industry if immediately after such purchase the value of the Fund's investments in all issuers in this industry would exceed 25% of its total assets taken at market value.
Non-fundamental Investment Restrictions. The following restrictions are designated as non-fundamental and may be changed by the Trustees without shareholder approval.
The Fund may not:
(a) Participate on a joint-and-several basis in any securities trading account. The "bunching" of orders for the sale or purchase of marketable portfolio securities with other accounts under the management of any investment adviser to the Fund in order to save commissions or to average prices among the accounts, and the participation of the Fund as a part of a group bidding for the purchase of tax exempt bonds shall not be deemed to result in participation in a securities trading account.
(b) Purchase securities on margin or make short sales.
(c) Purchase a security if, as a result, (i) more than 10% of the Fund's total assets would be invested in the securities of other investment companies, (ii) the Fund would hold more than 3% of the total outstanding voting securities of any one investment company, or (iii) more than 5% of the Fund's total assets would be invested in the securities of any one investment company. These limitations do not apply to (a) the investment of cash collateral, received by the Fund in connection with lending the Fund's portfolio securities, in the securities of open-end investment companies or (b) the purchase of shares of any investment company in connection with a merger, consolidation, reorganization or purchase of substantially all of the assets of another investment
company. Subject to the above percentage limitations, the Fund may, in connection with the John Hancock Group of Funds Deferred Compensation Plan for Independent Trustees/Directors, purchase securities of other investment companies within the John Hancock Group of Funds.
(d) Invest for the purpose of exercising control over or management of any company.
(e) Invest more than 15% of its net assets in illiquid securities.
(f) Write put or call options.
In addition:
(g) No officer or Trustee of the Fund may take a short position in the shares of the Fund, withhold orders or buy shares in anticipation of orders.
(h) The Fund may not invest more than 5% of its total assets at time of purchase in any one securitiy (other than US Government securities).
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 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" or the "Distributor").
------------------------------------------------------------------------------------------------------------------
Number of John
Position(s) Trustee/ Hancock Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Fund since (2) Directorships During Past 5 Years Trustee
------------------------------------------------------------------------------------------------------------------
Independent Trustees
------------------------------------------------------------------------------------------------------------------
James F. Carlin Trustee 1992 Director and Treasurer, Alpha Analytical 53
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. (until 2005);
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)
------------------------------------------------------------------------------------------------------------------
Richard P. Chapman, Jr. Trustee 2005 President and Chief Executive Officer, 53
Born: 1935 Brookline Bancorp., Inc. (lending) (since
1972); Chairman and Director, Lumber
Insurance Co. (insurance) (until 2000);
Chairman and Director, Northeast Retirement
Services, Inc. (retirement administration)
(since 1998).
------------------------------------------------------------------------------------------------------------------
|
(1) Business address for independent and non-independent Trustees and officers
is 601 Congress Street, Boston, Massachusetts 02210-2805.
(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.
------------------------------------------------------------------------------------------------------------------
Number of John
Position(s) Trustee/ Hancock Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Fund since (2) Directorships During Past 5 Years Trustee
------------------------------------------------------------------------------------------------------------------
Independent Trustees
------------------------------------------------------------------------------------------------------------------
William H. Cunningham Trustee 1994 Former Chancellor, University of Texas 143
Born: 1944 System and former President of the
University of Texas, Austin, Texas;
Chairman and CEO, IBT Technologies
(until 2001); Director of the following:
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), AskRed.com (until
2001), Southwest Airlines, Introgen and
Viasystems, Group, Inc. (electronic
manufacturer) (until 2003); Advisory
Director, Interactive Bridge, Inc.
(college fundraising) (until 2001);
Advisory Director, Q Investments (until
2003); Advisory Director, JP Morgan
Chase Bank (formerly Texas Commerce Bank
- Austin), LIN Television (since 2002),
WilTel Communications (until 2003) and
Hayes Lemmerz International, Inc.
(diversified automotive parts supply
company) (since 2003).
------------------------------------------------------------------------------------------------------------------
|
(1) Business address for independent and non-independent Trustees and officers
is 601 Congress Street, Boston, Massachusetts 02210-2805.
(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.
---------------------------------------------------------------------------------------------------------------------
Number of John
Position(s) Trustee/ Hancock Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Fund since (2) Directorships During Past 5 Years Trustee
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
Ronald R. Dion Chairman 2005 Chairman and Chief Executive Officer, 53
Born: 1946 and Trustee 1998 R.M. 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; Director, Boston Municipal
Research Bureau; Member of the Advisory
Board, Carroll Graduate School of Management
at Boston College.
---------------------------------------------------------------------------------------------------------------------
Charles L. Ladner Trustee 1979 Chairman and Trustee, Dunwoody Village, 143
Born: 1938 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).
---------------------------------------------------------------------------------------------------------------------
John A. Moore Trustee 2005 President and Chief Executive Officer, 53
Born: 1939 Institute for Evaluating Health Risks,
(nonprofit institution) (until
2001); Senior Scientist, Sciences
International (health
research)(until 2003); Former
Assistant Administrator & Deputy
Administrator, Environmental
Protection Agency; Principal,
Hollyhouse (consulting)(since
2000); Director, CIIT Center for
Health Science Research (nonprofit
research) (since 2002).
---------------------------------------------------------------------------------------------------------------------
|
(1) Business address for independent and non-independent Trustees and officers
is 601 Congress Street, Boston, Massachusetts 02210-2805.
(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.
---------------------------------------------------------------------------------------------------------------------
Number of John
Position(s) Trustee/ Hancock Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Fund since (2) Directorships During Past 5 Years Trustee
---------------------------------------------------------------------------------------------------------------------
Patti McGill Peterson Trustee 2005 Executive Director, Council for 53
Born: 1943 International 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 1991 Chairman and Chief Executive Officer, 53
Born: 1944 Greenscapes of Southwest Florida, Inc.
(since 2000); Director and President,
Greenscapes of Southwest Florida, 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).
---------------------------------------------------------------------------------------------------------------------
Non-Independent Trustees
---------------------------------------------------------------------------------------------------------------------
James R. Boyle (3) Trustee 2005 Chairman and Director, John Hancock 184
Born: 1959 Advisers, LLC (the "Adviser"), The
Berkeley Financial Group, LLC ("The
Berkeley Group") (holding company)
and John Hancock Funds, LLC. ("John
Hancock Funds"); President, John
Hancock Annuities; Executive Vice
President, John Hancock Life
Insurance Company (since June,
2004); President U.S. Annuities;
Senior Vice President, The
Manufacturers Life Insurance
Company (U.S.A) (prior to 2004).
---------------------------------------------------------------------------------------------------------------------
|
(1) Business address for independent and non-independent Trustees and officers
is 601 Congress Street, Boston, Massachusetts 02210-2805.
(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.
---------------------------------------------------------------------------------------------------------------------
Number of John
Position(s) Trustee/ Hancock Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Fund since (2) Directorships During Past 5 Years Trustee
---------------------------------------------------------------------------------------------------------------------
Principal Officers who are
not Trustees
---------------------------------------------------------------------------------------------------------------------
Keith F. Hartstein President and 2005 Senior Vice President, Manulife N/A
Born: 1956 Chief Financial Corporation (since 2004);
Executive Director, President and Chief Executive
Officer 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); Chairman, Investment
Company Institute Sales Force Marketing
Committee (since 2003); Executive Vice
President, John Hancock Funds, LLC
(until 2005).
---------------------------------------------------------------------------------------------------------------------
William H. King Vice President 1992 Vice President and Assistant Treasurer, N/A
Born: 1952 and Treasurer the Adviser; Vice President and
Treasurer of each of the John Hancock
funds advised by the Adviser; Assistant
Treasurer of each of the John Hancock
funds advised by the Adviser (until
2001).
---------------------------------------------------------------------------------------------------------------------
|
(1) Business address for independent and non-independent Trustees and officers
is 601 Congress Street, Boston, Massachusetts 02210-2805.
(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.
---------------------------------------------------------------------------------------------------------------------
Number of John
Position(s) Trustee/ Hancock Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Fund since (2) Directorships During Past 5 Years Trustee
---------------------------------------------------------------------------------------------------------------------
Francis V. Knox, Jr. Vice President 2005 Vice President and Chief Compliance N/A
Born: 1947 and Chief Officer for John Hancock Investment
Compliance Company, John Hancock Life Insurance
Officer Company (U.S.A.), John Hancock Life
Insurance Company and John Hancock
Funds (since 2005); Fidelity
Investments - Vice President and
Assistant Treasurer, Fidelity Group
of Funds (until 2004); Fidelity
Investments - Vice President and
Ethics & Compliance Officer
(until 2001).
---------------------------------------------------------------------------------------------------------------------
John G. Vrysen Executive Vice 2005 Executive Vice President and Chief N/A
Born: 1955 President and Financial Officer, the Adviser,
Chief Sovereign Asset Management Corp., the
Financial Berkeley Financial Group, LLC and John
Officer Hancock Funds, LLC (since 2005);Vice
President and General Manager, Fixed
Annuities, U.S. Wealth Management
(until 2005).
Vice President, Operations Manulife
Wood Logan 7/00-9/04.
---------------------------------------------------------------------------------------------------------------------
|
(1) Business address for independent and non-independent Trustees and officers
is 601 Congress Street, Boston, Massachusetts 02210-2805.
(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 Contracts/Operations Committee, the Governance Committee and the Investment Performance Committee. Each Committee is comprised of Independent Trustees who are not "interested persons" of the Fund.
The Audit Committee members are Messrs. Chapman, Ladner, Moore and Ms. McGill Peterson. All of the members of the Audit Committee are independent 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 December 31, 2005.
The Governance Committee members are all of the independent Trustees. The Governance Committee makes recommendations to the Board on issues related to corporate governance applicable to the Independent Trustees and to the composition and operation of the Board and to assume duties, responsibilities and functions to nominate candidates to the Board, together with such addition duties, responsibilities and functions as are delegated to it from time to time. Among other things, the Governance Committee acts as a nominating committee of the Board. In reviewing a potential nominee and in evaluating the renomination of current Independent Trustees, the Governance Committee will generally apply the following criteria: (i) the nominee's reputation for integrity, honesty and adherence to high ethical standards, (ii) the nominee's 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 Governance Committee does not necessarily place the same emphasis on each criteria and each nominee may not have each of these qualities. The Governance Committee does not discriminate on the basis of race, religion, national origin, sex, sexual orientation, disability or any other basis proscribed by law. The Governance Committee is a new committee and held four meetings during the fiscal year ended December 31, 2005. (The nominating function of the Governance Committee was previously carried out by the Administration Committee.)
As long as an existing Independent Trustee continues, in the opinion of the Governance 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 Governance Committee will consider nominees recommended by shareholders to serve as trustees, the Governance 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 Governance Committee will, in addition to any shareholder recommendations, consider candidates identified by other means, including candidates proposed by members of the Governance Committee. While it has not done so in the past, the Governance 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 Governance Committee. In evaluating a nominee recommended by a shareholder, the Governance 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 Governance 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: 601 Congress Street, Boston, MA 02210-2805. 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, Cunningham, Dion and Pruchansky. The Contracts/Operations Committee oversees the initiation, operation, and renewal of contracts between the Fund and other entities. These contracts include advisory and subadvisory agreements, custodial and transfer agency agreements and arrangements with other service providers. The Contracts/Operations Committee held five meetings during the fiscal year ended December 31, 2005.
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 December 31, 2005.
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, 2005.
--------------------------------------------------------------------------------------------------------------------
Aggregate Dollar Range of holdings
Dollar Range of Fund shares Owned by in John Hancock funds overseen by
Name of Trustee Trustee Trustee
--------------------------------------------------------------------------------------------------------------------
Independent Trustees
--------------------------------------------------------------------------------------------------------------------
James F. Carlin Over $100,000 Over $100,000
--------------------------------------------------------------------------------------------------------------------
Richard P. Chapman, Jr. None Over $100,000
--------------------------------------------------------------------------------------------------------------------
William H. Cunningham None $10,001-50,000
--------------------------------------------------------------------------------------------------------------------
Ronald R. Dion $1-10,000 Over $100,000
--------------------------------------------------------------------------------------------------------------------
Charles L. Ladner $1-10,000 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
--------------------------------------------------------------------------------------------------------------------
Non-Independent Trustees
--------------------------------------------------------------------------------------------------------------------
James R. Boyle none $10,001-50,000
--------------------------------------------------------------------------------------------------------------------
|
(1) This Fund does participate in the John Hancock Deferred Compensation Plan for Independent Trustees (the "Plan"). Under the Plan, an Independent Trustee may defer his fees by electing to have the Adviser invest his fees in one of the funds in the John Hancock complex that participates in the Plan. Under these circumstances, the Trustee is not the legal owner of the underlying shares, but does participate in any positive or negative return on those shares to the same extent as all other shareholders. With regard to Trustees participating in the Plan, if a Trustee was deemed to own the shares used in computing the value of his deferred compensation, as of December 31, 2005, 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. Cunningham, over $100,000 and over $100,000 for Mr. Dion, $1-$10,000 and over $100,000 for Dr. Moore and $1-$10,000 and over $100,000 for Mr. Pruchansky.
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 who are interested persons of the Adviser, and/or affiliates are compensated by the Adviser and receive no compensation from the Fund for their services.
Aggregate Total Compensation From the
Compensation from Fund and John Hancock Fund
Independent Trustees the Fund (1) Complex to Trustees (2)
-------------------- ------------ -----------------------
James F. Carlin $ 7,477 $ 103,703
Richard P. Chapman* 2,096 103,953
William J. Cosgrove+ 1,285 95,203
William H. Cunningham* 7,723 109,171
Ronald R. Dion*++ 9,414 151,399
Charles L. Ladner++ 10,068 149,790
Dr. John A. Moore* 2,597 115,703
Patti McGill Peterson 1,938 100,203
Steven R. Pruchansky* 7,968 115,203
Norman H. Smith* + 6,844 88,953
----- ------
Total $57,410 $1,133,281
|
(1) Compensation is for the fiscal year ending December 31, 2005.
(2) Total compensation paid by the John Hancock Funds Complex to the Independent Trustees is as of December 31, 2005. As of this date, Messrs. Carlin, Chapman, Dion, Moore, Pruchansky and Ms. Peterson served on fifty-three funds in the John Hancock Fund Complex: Messrs. Ladner and Cunningham served on one-hundred-forty-three funds.
* As of December 31, 2005, the value of the aggregate accrued deferred compensation amount from all funds in the John Hancock Funds Complex for Mr. Chapman was $76,421, Mr. Cunningham was $125,996, Mr. Dion was $325,086, Mr. Glavin was $243,554, Dr. Moore was $283,070, Mr. Pruchansky was $246,371 and Mr. Smith was $382,371 under the John Hancock Group of Funds Deferred Compensation Plan for Independent Trustees (the "Plan").
+ Mr. Toolan retired as of December 31, 2004. Mr. Cosgrove retired as of March 31, 2005. Mr. Smith retired as of June 30, 2005.
++ As of September 12, 2005, the Independent Trustees elected Mr. Dion as Independent Chairman of the Board. As of June 16, 2004, and until September 12, 2005, Mr. Ladner was the 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 and/or directors and/or Trustees of one or more of the other funds for which the Adviser serves as investment adviser.
As of February 1, 2006, 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 shreholders of record beneficially owned 5% or more of the outstanding shares of each class of the Fund:
----------------------------------------------------------------------------------------- Name and Address of Owners of More than 5% of Shares Class C Class I Class R ----------------------------------------------------------------------------------------- Citigroup Global Markets Inc 6.92% -- -- 333 West 34th Street New York, New York 10001 ----------------------------------------------------------------------------------------- MLPF&S For The 7.42% -- -- Sole Benefit of Its Customers Attn: Fund dministration 4800 Deer Lake Drive East 2nd Fl Jacksonville FL 32246-6484 ----------------------------------------------------------------------------------------- MG Trust Services Custodian -- 89.93% -- FBO The Investment Incentive Plan 700 17TH St STE 150 Denver CO 80202-3503 ----------------------------------------------------------------------------------------- John Hancock Advisers LLC -- -- 95.82% 101 Huntington Avenue Boston, MA 02199-7603 ----------------------------------------------------------------------------------------- |
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 601 Congress Street, Boston, Massachusetts 02210-2805, a
premier investment management company, managed approximately $28 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, 2005.
Additional information about John Hancock Advisers can be found on the website:
www.jhfunds.com.
The Sub-Adviser, Sovereign, located at 101 Huntington Avenue, Boston, Massachusetts 02199, was organized in 1979 and as of December 31, 2005 approximately $25 billion in assets. The Sub-Adviser is a wholly-owned indirect subsidiary of John Hancock Financial Services, Inc.(an indirect wholly-owned subsidiary of Manulife Financial Corporation).
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, in conjunction with the Sub-Adviser, will: (a) furnish continuously an investment program for the Fund and determine, subject to the overall supervision and review of the Trustees, which investments should be purchased, held, sold or exchanged, and (b) provide supervision over all aspects of the Fund's operations except those which are delegated to a custodian, transfer agent or other agent.
The Adviser and Fund have entered into a Sub-Advisory Agreement with the Sub-Adviser under which the Sub-Adviser, subject to the review of the Trustees and the overall supervision of the Adviser, is responsible for managing the investment operations of the Fund and the composition of the Fund's portfolio and furnishing the Fund with advice and recommendations with respect to investments, investment policies and the purchase and sale of securities.
The Fund bears all costs of its organization and operation, including but not limited to expenses of preparing, printing and mailing all shareholders' reports, notices, prospectus, proxy statements and reports to regulatory agencies, expenses relating to the issuance, registration and qualification of shares; government fees; interest charges; expenses of furnishing to shareholders their account statements; taxes; expenses of redeeming shares; brokerage and other expenses connected with the execution of portfolio securities transactions; expenses pursuant to the Fund's plan of distribution; fees and expenses of custodians including those for keeping books
and accounts, maintaining a committed line of credit and calculating the net asset value of shares; fees and expenses of transfer agents and dividend disbursing agents; legal, accounting, financial, management, tax and auditing fees and expenses of the Fund (including an allocable portion of the cost of the Adviser's employees rendering such services to the Fund; the compensation and expenses of Trustees who are not otherwise affiliated with the Trust, the Adviser or any of their affiliates; expenses of Trustees' and shareholders' meetings; trade association membership; insurance premiums; and any extraordinary expenses.
As compensation for its services under the Advisory Agreement, the Fund pays the Adviser quarterly a fee based on a stated percentage of the average of the daily net assets of the Fund as follows:
Average Daily Net Assets Annual Rates ------------------------ ------------ First $750 million 0.60% Next $750 million to 1.5 billion 0.55% Next $1.0 billion to 2.5. billion 0.50% Amount over $2.5 billion and over 0.45% |
From time to time, the Adviser may reduce its fee or make other arrangements to limit the Fund's expenses to a specified percentage of average daily net assets. The Adviser retains the right to re-impose a fee and recover any other payments to the extent that, at the end of any fiscal year, the Fund's annual expenses fall below this limit.
For the fiscal years ended December 31, 2003, 2004 and 2005, the Fund paid the Adviser fees of $7,261,991, $7,269,202 and $6,299,714, respectively.
Securities held by the Fund may also be held by other funds or investment advisory clients for which the Adviser, the Sub-Adviser or their respective affiliates provide investment advice. Because of different investment objectives or other factors, a particular security may be bought for one or more funds or clients when one or more other funds or clients are selling the same security. If opportunities for purchase or sale of securities by the Adviser or Sub-Adviser for the Fund or for other funds or clients for which the Adviser or Sub-Adviser renders investment advice arise for consideration at or about the same time, transactions in such securities will be made, insofar as feasible, for the respective funds or clients in a manner deemed equitable to all of them. To the extent that transactions on behalf of more than one client of the Adviser, the Sub-Adviser or their respective affiliates may increase the demand for securities being purchased or the supply of securities being sold, there may be an adverse effect on price.
Pursuant to the Advisory Agreement and Sub-Advisory Agreement, the Adviser and Sub-Adviser are not liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the matters to which their respective Agreements relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the Adviser or Sub-Adviser in the performance of their duties or from their reckless disregard of the obligations and duties under the applicable Agreements.
Under the Advisory Agreement, the Fund may use the name "John Hancock" or any name derived from or similar to it only for so long as the Advisory Agreement or any extension, renewal or amendment thereof remains in effect. If the Advisory Agreement is no longer in effect, the Fund (to the extent that it lawfully can) will cease to use such a name or any other name indicating that it is advised by or otherwise connected with the Adviser. In addition, the Adviser or the Life Company may grant the non-exclusive right to use the name "John Hancock" or any similar name to any other corporation or entity, including but not limited to any
investment company of which the Life Company or any subsidiary or affiliate thereof or any successor to the business of any subsidiary or affiliate thereof shall be the investment adviser.
The continuation of the Advisory Agreement and Distribution Agreement (discussed below) and the initial approval of the Sub-Advisory Agreement were approved by all Trustees. The Advisory Agreement, Sub-Advisory Agreement and the Distribution Agreement will continue in effect from year to year, provided that its continuance is approved annually both (i) by the holders of a majority of the outstanding voting securities of the Trust or by the Trustees, and (ii) by a majority of the Trustees who are not parties to the Agreement or "interested persons" of any such parties. Both Agreements may be terminated on 60 days written notice by any party or by vote of a majority to the outstanding voting securities of the Fund and will terminate automatically if assigned.
As compensation for its services under the Sub-Advisory Agreement, the Adviser (not the Fund) pays the Sub-Adviser monthly a fee based on a stated percentage of the average of the daily net assets of the Fund as follows:
Average Daily Net Assets Annual Rate ------------------------ ----------- First $750,000,000 0.325% Next $1,750,000 billion 0.25% Amount over $2,500,000,000 0.20% |
Accounting and Legal Services Agreement. The Trust, on behalf of the Fund, is a party to an Accounting and Legal Services Agreement with the Adviser. Pursuant to this Agreement, the Adviser provides the Fund with certain tax, accounting and legal services. For the fiscal years ended December 31, 2003, 2004 and 2005, the Fund paid the Adviser $357,016, $330,005 and $252,619, respectively, for the services under this Agreement.
Proxy Voting. The Fund's Trustees have delegated to the Adviser the authority to vote proxies on behalf of the Fund who in turn has made contractual arrangements for the Fund's sub-adviser to vote proxies relating to securities held by the Fund. A summary of the Sub-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, 2005 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, Sub-Adviser, principal underwriter and the Fund have adopted a code of ethics which restricts the trading activity of those personnel.
ADDITIONAL INFORMATION ABOUT THE PORTFOLIO MANAGERS
Other Accounts the Portfolio Managers are Managing. The table below indicates for each portfolio manager 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 December 31, 2005. 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 MANAGERS
--------------------------------------------------------------------------------------------------------------------
John F. Snyder, III Other Registered Investment Companies: None
Other Pooled Investment Vehicles: None
Other Accounts: Four thousand one hundred seventy-nine (4,179) accounts
with toatal assets of approximately $1.3 billion.
--------------------------------------------------------------------------------------------------------------------
Barry H. Evans Other Registered Investment Companies: Twelve (12) funds with total net
assets of approximately $4.8 billion.
Other Pooled Investment Vehicles: One (1) account with total net assets of
approximately $41.7 million.
Other Accounts: One thousand sixty (1,060) accounts with total assets of
approximately $5.4 billion
--------------------------------------------------------------------------------------------------------------------
|
The Adviser and Sub-Adviser do not receive a fee based upon the investment performance of any of the accounts included under "Other Accounts Managed by the Portfolio Managers" in the table above, except that, with respect to Mr. Evans, the Sub-Adviser receives a performance-based fee with respect to one (1) Other Account with total assets of approximately $404.0 million as of December 31, 2005.
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 and the Sub-Adviser have 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 Sub-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.
o 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 Sub-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.
o 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 Sub-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 Sub-Adviser will place the order in a manner intended to result in as favorable a price as possible for such client.
o 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. Neither the Adviser nor the Sub-Adviser receives a performance-based fee with respect to one of the other accounts managed by a portfolio manager.
o 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 Sub-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.
o If the different accounts have materially and potentially conflicting investment objectives or strategies, a conflict of interest may arise. In making portfolio manager assignments, the Sub-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 Sub-Adviser has adopted a system of compensation for portfolio managers and others involved in the investment process that is applied systematically among investment professionals. At the Sub-Adviser, the structure of compensation of investment professionals is currently comprised of the following basic components: base salary, and an annual investment bonus plan, as well as customary benefits that are offered generally to all full-time employees of the Sub-Adviser. A limited number of senior portfolio managers, who serve as officers of both the Sub-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.
o Base salary. Base compensation is fixed and normally reevaluated on an annual basis. The Sub-Adviser seeks to set compensation at market rates, taking into account the experience and responsibilities of the investment professional.
o 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 Sub-Adviser and the investment professional. Any bonus under the plan is completely discretionary, with a maximum annual bonus that may be well 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:
o 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 Morningstar 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.
o The Profitability of the Adviser: The profitability of the Sub-Adviser and its parent company are also considered in determining bonus awards, with greater emphasis placed upon the profitability of the Adviser.
o Non-Investment Performance: The more intangible contributions of an investment professional to the Sub-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.
o 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 Sub-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 Sub-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 Portfolio Managers. The following table indicates as of December 31, 2005 the value, within the indicated range, of shares beneficially owned by the portfolio managers 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 ---------------------------------------------------------------- John F. Snyder, III E ---------------------------------------------------------------- Barry H. Evans E ---------------------------------------------------------------- |
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 charge) for sales of the Fund's Class A shares for the fiscal period ended December 31, 2003, 2004 and 2005 were $666,879, $594,191 and $382,840, respectively. Of such amounts $96,538, $90,479 and $57,531 were retained by John Hancock Funds in 2002, 2003 and 2004, respectively. Total underwriting commissions (sales charge) for sales of the Fund's Class C shares for the fiscal period ended December 31, 2003, 2004 and 2005 were $112,902, $30,815 and $0, respectively. No Class C commissions were retained by John Hancock Funds; the underwriting commissions were reallowed to dealers.
The Fund's Trustees adopted Distribution Plans with respect to each class of shares (the "Plans"), pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plans, the Fund will pay distribution and service fees at an aggregate annual rate of up to 0.30% for Class A, 1.00% for Class B and Class C shares and 0.50% for Class R shares of the Fund's average daily net assets attributable to the respective class of shares. However, the service fee
will not exceed 0.25% of the Fund's average daily net assets attributable to each class of shares. The distribution fees will be used to reimburse John Hancock Funds for its distribution expenses, including but not limited to: (i) initial and ongoing sales compensation to Selling 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 it incurs under the Class A Plan, these expenses will not be carried beyond twelve months from the date they were incurred. Unreimbursed expenses under the Class B and Class C Plans will be carried forward together with interest on the balance of these unreimbursed expenses. Unreimbursed expenses under the Class R Plan will be carried forward to subsequent fiscal years. The Fund does not treat unreimbursed expenses under the Class B, Class C and Class R Plans as a liability of the Fund because the Trustees may terminate Class B, Class C and/or Class R Plans at any time. For the fiscal year ended December 31, 2005, an aggregate of $(103,206) of Distribution Expenses or (0.05%) of the average net assets of the Fund's Class B shares was not reimbursed or recovered by John Hancock Funds through the receipt of deferred sales charges or Rule 12b-1 fees in prior periods. For the fiscal year ended December 31, 2005, an aggregate of $(39,352) of Distribution Expenses or (0.18%) 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. For the fiscal year ended December 31, 2005, an aggregate of $(814) of distribution expenses, or (0.05%) of the average net assets of the Class R shares of the Fund was not reimbursed or recovered by John Hancock Funds through the receipt of deferred sales charges or 12b-1 fees in prior periods.
The Fund has also adopted a separate Class R shares Service Plan ("the Service
Plan"). The Service Plan authorizes the Fund to pay securities dealers, plan
administrators or other service organizations who agree to provide certain
services to retirement plans or plan participants holding shares of the Fund a
service fee of up to 0.25% of the Fund's average daily net assets attributable
to Class R shares held by such plan participants. These services may include (a)
acting, directly or through an agent, as the shareholder and nominee for all
plan participants; (b) maintaining account records for each plan participant
that beneficially owns Class R shares; (c) processing orders to purchase, redeem
and exchange Class R shares on behalf of plan participants, and handling the
transmission of funds representing the purchase price or redemption proceeds;
(d) addressing plan participant questions regarding their accounts and the Fund;
and (e) other services related to servicing such retirement plans.
The Plans were approved by a majority of the voting securities of the Fund. The Plans and all amendments were approved by the Trustees, including a majority of the Trustees who are not interested persons of the Fund and who have no direct or indirect financial interest in the operation of the Plans (the "Independent Trustees"), by votes cast in person at meetings called for the purpose of voting on such Plans.
Pursuant to the Plans, at least quarterly, John Hancock Funds provides the Fund with a written report of the amounts expended under the Plans and the purpose for which the expenditures were made. The Trustees review these reports on a quarterly basis to determine their continued appropriateness.
The Plans provide that they will continue in effect only so long as their continuance is approved at least annually by a majority of both the Trustees and by the Independent Trustees. The Plans provide that they may be terminated without penalty (a) by a vote of a majority of the
Independent Trustees, (b) by a vote of a majority of the Fund's outstanding shares of the applicable class upon 60 days' written notice to John Hancock Funds, and (c) automatically in the event of assignment. The Plans further provide that they may not be amended to increase the maximum amount of the fees for the services described therein without the approval of a majority of the outstanding shares of the class of the Fund which has voting rights with respect to the Plan. Each Plan provides, that no material amendment to the Plans will be effective unless it is approved by a majority vote of the Trustees and the Independent Trustees of the Fund. The holders of Class A, Class B, Class C and Class R shares have exclusive voting rights with respect to the Plan applicable to their respective class of shares. In adopting the Plans, the Trustees concluded that, in their judgment, there is a reasonable likelihood that the Plans will benefit the holders of the applicable class of shares of the Fund.
Class I shares of the Fund are not subject to any distribution plan. Expenses associated with the obligation of John Hancock Funds to use its best efforts to sell Class I shares will be paid by the Adviser or by John Hancock Funds and will not be paid from the fees paid under Class A, Class B, Class C or Class R Plans.
Amounts paid to John Hancock Funds by any class of shares of the Fund will not be used to pay the expenses incurred with respect to any other class of shares of the Fund; provided, however, that expenses attributable to the Fund as a whole will be allocated, to the extent permitted by law, according to a formula based upon gross sales dollars and/or average daily net assets of each such class, as may be approved from time to time by vote of a majority of the Trustees. From time to time the Fund may participate in joint distribution activities with other Funds and the costs of those activities will be borne by each Fund in proportion to the relative net asset value of the participating Funds.
During the fiscal year ended December 31, 2005, 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 to Compensation Expenses of Carrying or
New to Selling John Hancock Other Finance
Shares Advertising Shareholders Firms Funds Charges
------ ----------- ------------ ----- ----- -------
Class A $ 36,829 $ 592 $2,263,990 $ 299,216 $ - 0 -
Class B 88,581 562 1,311,027 472,280 $ - 0 -
Class C 2,840 46 174,582 23,073 $ - 0 -
Class R 30 0 54 216 $ - 0 -
|
SALES COMPENSATION
As part of their business strategies, the Fund, along with the Distributor, pays 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 and Class C are (1) the 12 b-1 fees that are paid out of the fund's assets and
(2) sales charges paid by investors. The sales charges and 12b-1 fees are
detailed in the prospectus and under "Distribution Contracts", "Initial Sales
Charge on Class A Shares" and "Deferred Sales Charge on Class B and Class C
shares" 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, the Distributor 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.
For Class R shares of the Fund, beginning with the first year an investment is made, the Selling Firm receives an annual 12b-1 service fee of 0.25% of its average daily net assets. In addition, the Distributor will pay the Selling Firm a distribution fee in an amount not to exceed 0.25% of the average daily net assets. These service and distribution fees are paid quarterly in arrears.
Additional compensation. The Distributor, at its expense, and without additional cost to the Fund or its shareholders, may provide additional compensation to a Selling Firm in connection with their promotion of the Fund or sale of shares of the Fund. The Distributor, may make payments to selling firms for marketing support and/or shareholder administrative services. These marketing support payments may include 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, the Distributor may provide expense reimbursements for special training of a Selling Firm's registered representatives and other employees in group meetings. Non-cash compensation may also take the form of occasional gifts, meals, tickets or other entertainment as limited by NASD requirements. Payments may 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. The Distributor compensates Selling Firms differently depending upon, among other factors, the level and/or type of marketing support provided by the Selling Firm. The level of payments made to a Selling Firm in any given year will vary and may be substantial. These payments may provide an incentive to a Selling Firm to actively promote the Funds or cooperate with the Distributor promotional efforts. Depending on the arrangements in place at any particular time, Selling Firms may have a financial incentive to recommend a particular fund or a share class. You should ask your Selling Firm for more information about any services it provides, as well as about fees, commissions and/or marketing support payments.
First Year Broker or Other Selling Firm Compensation
Investor pays
sales charge Selling Firm Selling Firm Total Selling Firm
(% of offering receives receives 12b-1 compensation
--------------- ------------
Class A investments price) commission (1) service fee (2) (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%
Class I investments
All amounts -- 0.00% 0.00% 0.00% (6)
Class R investments
All amounts -- 0.00% 0.50% 0.50%
|
(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, LLC 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. For Class R shares, the Selling Firm receives 12b-1 fees effective at time of purchase as a % of average daily assets (paid quarterly in arrears) See "Distribution Contracts" for description of Class R Service Plan charges and payments.
(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, LLC may take recent redemptions into account in determining if an investment qualifies as a new investment.
(6) John Hancock Funds, LLC may make a one-time payment at time of initial purchase out of its own resources to a Selling Firm that sells Class I shares of the fund. This payment may be up to 0.15% of the amount invested.
CDSC revenues collected by John Hancock Funds, LLC may be used to pay Selling Firm commissions when there is no initial sales charge.
NET ASSET VALUE
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.
For purposes of calculating the net asset value ("NAV") of the Fund's shares, the following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished by a principal market maker or a pricing service, both of which generally utilize electronic data processing techniques to determine valuations for normal institutional size trading units of debt securities without exclusive reliance upon quoted prices. 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 there 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 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.
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 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 "Combination and Accumulation Privileges" 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 living in the same household (see "Combination and Accumulation 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. John Hancock Signature Services, Inc. will automatically link certain accounts regitered in the same client name, with the same taxpayer identification number, for the Signature Services, Inc. and your broker-dealer (financial adviser) at the time of purchase of any eligible account held by your spouse or children under 21, living in the same household in order to insure these asset are linked to your accounts.
Without Sales Charges. Class A shares may be offered without a front-end sales charge or contingent deferred sales charge ("CDSC") to various individuals and institutions as follows:
o A Trustee or officer of the Trust; a Director or officer of the Adviser and its affiliates, 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.
o A broker, dealer, financial planner, consultant or registered investment advisor that has entered into a signed agreement with John Hancock Funds providing specifically for the use of Fund shares in fee-based investment products or services made available to their clients.
o Individuals transferring assets held in a SIMPLE IRA, SEP or SARSEP invested in John Hancock Funds directly to an IRA.
o Individuals converting assets held in an IRA, SIMPLE IRA, SEP or SARSEP invested in John Hancock Funds directly to a ROTH IRA.
NOTE: Rollover investments to Class A shares from assets withdrawn from SIMPLE
401(k), TSA, 457, 403(b), 401(k), Money Purchase Pension Plan, Profit-Sharing
Plan and any other qualified plans as described in the Internal Revenue Codes
401(a), 403(b), 457 and not specified above as waiver eligible, will be subject
to applicable sales charges.
o A member of a class action lawsuit against insurance companies who is investing settlement proceeds.
o Certain retirement plans participating in Merrill Lynch servicing programs offered in Class A shares, including transferee recording arrangements, Merrill Lynch Connect Arrangements and third party administrator recordkeeping arrangements. See your Merrill Lynch Financial Consultant for further information.
o Retirement plans investing through PruSolutionssm program.
o 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.
o 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 initial sales charge is imposed on Class C shares.
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.
In Kind Re-registrations. A shareholder who withdraws funds via a tax reportable transaction, from one John Hancock fund account, that has previously paid a sales charge, and reregisters those assets directly to another John Hancock Fund account, without the assets ever leaving John Hancock Funds, may do so without paying a sales charge. The beneficial owner must remain the same, i.e., in kind.
Note: Rollover investments to Class A shares from assets withdrawn from SIMPLE
401(k), TSA, 457, 403(b), 401(k), Money Purchase Pension Plan, Profit-Sharing
Plan and any other qualified plans as described in the Internal Revenue Codes
401(a), 403(b), 457 are not eligible for this provision, and will be subject to
applicable sales charges.
Reducing Your Class A Sales Charges
Combination and Accumulation Privileges. 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 living in the same household, 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. 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 or her spouse and their children under the age of 21 living in the same household. Further information about combined purchases, including certain restrictions on combined group purchases, is available from Signature Services or a Selling Firm's representative.
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 Combination and
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 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 and his/her
financial adviser of these holdings. Such an investment (including
accumulations, combinations and reinvested dividends) must aggregate $50,000 or
more invested during the specified period from the date of the LOI or from a
date within ninety (90) days prior thereto, upon written request to Signature
Services. Purchases made within 90 days prior to the signing of an LOI will be
counted towards fulfillment of the LOI, however, the original sales charge will
not be calculated for these previous purchases. The sales charge applicable to
all amounts invested after an LOI is signed is computed as if the aggregate
amount intended to be invested had been invested immediately. If such aggregate
amount is not actually invested, the difference in the sales charge actually
paid and the sales charge payable had the LOI not been in effect is due from the
investor. However, for the purchases actually made within the specified period
(either 13 or 48 months) the sales charge applicable will not be higher than
that which would have been applied (including accumulations and combinations)
had the LOI been for the amount actually invested.
The LOI authorizes Signature Services to hold in escrow sufficient Class A shares (approximately 5% of the aggregate) to make up any difference in sales charges on the amount intended to be invested and the amount actually invested, until such investment is completed within the specified period, at which time the escrowed Class A shares will be released. If the total investment specified in the LOI is not completed, the Class A shares held in escrow may be redeemed and the proceeds used as required to pay such sales charge as may be due. By signing the LOI, the investor authorizes Signature Services to act as his or her attorney-in-fact to redeem any escrowed Class A shares and adjust the sales charge, if necessary. A LOI does not constitute a binding commitment by an investor to purchase, or by the Fund to sell, any additional Class A shares and may be terminated at any time.
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 Class A, Class B and Class C Prospectus as a percentage of the dollar amount subject to the CDSC. The charge will be assessed on an amount equal to the lesser of the current market value or the original purchase cost of the Class B or Class C shares being redeemed. No CDSC will be imposed on increases in account value above the initial
purchase prices, including all shares derived from reinvestment of dividends or capital gains distributions.
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 purchase of both Class B and Class C shares, all payments during a month will be aggregated and deemed to have been made on the first day of the month.
In determining whether a CDSC applies to a redemption, the calculation will be determined in a manner that results in the lowest possible rate being charged. It will be assumed that your redemption comes first from shares you have held beyond the six-year CDSC redemption period for Class B or one year CDSC redemption period for Class C or those you acquired through dividend and capital gain reinvestment, and next from the shares you have held the longest during the six-year period for Class B shares. For this purpose, the amount of any increase in a share's value above its initial purchase price is not regarded as a share exempt from CDSC. Thus, when a share that has appreciated in value is redeemed during the CDSC period, a CDSC is assessed only on its initial purchase price.
When requesting a redemption for a specific dollar amount, please indicate if you require the proceeds to equal the dollar amount requested. If not indicated, only the specified dollar amount will be redeemed from your account and the proceeds will be less any applicable CDSC.
Example:
You have purchased 100 Class B shares at $10 per share. The second year after your purchase, your investment's net asset value per share has increased by $2 to $12, and you have gained 10 additional shares through dividend reinvestment. If you redeem 50 shares at this time your CDSC will be calculated as follows:
o Proceeds of 50 shares redeemed at $12 per shares (50 x 12) $600.00
o *Minus Appreciation ($12 - $10) x 100 shares (200.00)
o Minus proceeds of 10 shares not subject to CDSC (dividend reinvestment) (120.00)
-------
o Amount subject to CDSC $280.00
|
*The appreciation is based on all 100 shares in the account not just the shares being redeemed.
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or in part by John Hancock Funds to defray its expenses related to providing distribution-related services to the Fund in connection with the sale of the Class B and Class C shares, such as the payment of compensation to select Selling 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 CDSC, unless indicated otherwise, in the circumstances defined below:
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your account if you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition transactions involving other investment companies or personal holding companies.
* Redemptions due to death or disability. (Does not apply to Trust accounts unless Trust is being dissolved.)
* Redemptions made under the Reinstatement Privilege, as described in "Sales Charge Reductions and Waivers" of the Prospectus.
* Redemptions of Class B and Class C shares made under a periodic withdrawal plan, or redemptions for fees charged by planners or advisors for advisory services, as long as your annual redemptions do not exceed 12% of your account value, including reinvested dividends, at the time you established your periodic withdrawal plan and 12% of the value of subsequent investments (less redemptions) in that account at the time you notify Signature Services. (Please note that this waiver does not apply to periodic withdrawal plan redemptions of Class A shares that are subject to a CDSC.)
* Certain retirement plans participating in Merrill Lynch servicing programs offered in Class A, Class B, Class C and Class R shares, including transferee recording arrangements, Merrill Lynch Connect Arrangements and third party administrator recordkeeping arrangements. See your Merrill Lynch Financial Consultant for further information.
* Redemptions of Class A shares by retirement plans that invested through PruSolutionssm 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 of 1986, as amended (the "Code")) unless otherwise noted.
* Redemptions made to effect mandatory or life expectancy distributions under the Internal Revenue Code. (Waiver based on required minimum distribution calculations for John Hancock Mutual Fund IRA assets only.)
* Returns of excess contributions made to these plans.
* Redemptions made to effect 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 Plan/401(k) Plans),
403(b), 457 and 408 (SEPs and SIMPLE IRAs) of the Internal Revenue
Code.
Please see matrix for some examples.
-----------------------------------------------------------------------------------------------------------------
Type of 401 (a) Plan 403 (b) 457 IRA, IRA Non-retirement
Distribution (401 (k), MPP, Rollover
PSP) 457 & 408
(SEPs & Simple
IRAs)
-----------------------------------------------------------------------------------------------------------------
Death or Disability Waived Waived Waived Waived Waived
-----------------------------------------------------------------------------------------------------------------
Over 70 1/2 Waived Waived Waived Waived for 12% of account
required value annually
minimum in periodic
distributions* payments
or 12% of
account value
annually in
periodic
payments.
-----------------------------------------------------------------------------------------------------------------
Between 59 1/2 and 70 1/2 Waived Waived Waived Waived for Lie 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 Waived Waived Waived N/A N/A
Orders
-----------------------------------------------------------------------------------------------------------------
Termination of Employment Waived Waived Waived N/A N/A
Before Normal Retirement Age
-----------------------------------------------------------------------------------------------------------------
Return of Excess Waived Waived Waived Waived N/A
-----------------------------------------------------------------------------------------------------------------
|
*Required minimum distributions based on John Hancock Mutual Fund IRA assets
only.
If you qualify for a CDSC waiver under one of these situations, you must notify
Signature Services at the time you make your redemption. The waiver will be
granted once Signature Services has confirmed that you are entitled to the
waiver.
ELIGIBLE INVESTORS FOR CLASS R SHARES
Class R shares are available only to 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit sharing and money purchase pension plans, defined benefit plans and non-qualified deferred compensation plans (eligible retirement plans). Class R shares are also available for Rollover IRA accounts for participants whose plans are invested in Class R shares funds. Class R shares are not available to retail non-retirement accounts, traditional and Roth IRAs, Coverdell Educational Savings Accounts, SEPs, SAR-SEPs SIMPLE IRAs and individual 403(b) plans.
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the redemption price of shares of the Fund in whole or in part in portfolio securities as prescribed by the Trustees. When the shareholder sells portfolio securities received in this fashion, the shareholder will incur a brokerage charge. Any such securities would be valued for the purposes of making such payment at the same value as used in determining net asset value. The Fund has, however, elected to be governed by Rule 18f-1 under the Investment Company Act. Under that rule, the Fund must redeem its shares for cash except to the extent that the redemption payments to any shareholder during any 90-day period would exceed the lesser of $250,000 or 1% of the Fund's net asset value at the beginning of such period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. The Fund permits exchanges of shares of any class for shares of the same class in any other John Hancock fund offering that same class. The registration for both accounts involved must be identical. Identical registration is determined by having the same beneficial owner on both accounts involved in the exchange.
Investors may exchange Class I shares for Class I shares of other John Hancock funds or Class A shares of John Hancock Money Market Fund. If an investor exchanges Class I shares for Class A shares of Money Market Fund, any future exchanges out of the Money Market Fund Class A must be to another Class I fund.
Investors may exchange Class R shares for Class R shares of other John Hancock funds or Class A shares of John Hancock Money Market Fund. If an investor exchanges Class R shares for Class A shares of Money Market Fund, any future exchanges out of the Money Market Fund Class A must be to another Class R fund.
Exchanges between funds 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 as a Systematic Withdrawal Plan is in effect. The Fund reserves the right to modify or discontinue the Systematic Withdrawal Plan of any shareholder on 30 days' prior written notice to such shareholder, or to discontinue the availability of such plan in the future. The shareholder may terminate the plan at any time by giving proper notice to Signature Services.
Monthly Automatic Accumulation Program (MAAP). The program is explained in the Class A, Class B and Class C Prospectus. The program, as it relates to automatic investment checks, is subject to the following conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the MAAP may be revoked by Signature Services without prior notice if any investment is not honored by the shareholder's bank. The bank shall be under no obligation to notify the shareholder as to the non-payment of any checks.
The program may be discontinued by the shareholder either by calling Signature Services or upon written notice to Signature Services which is received at least five (5) business days prior to the order date of any investment.
Reinstatement and Reinvestment Privilege. If Signature Services and your financial adviser are notified prior to reinvestment, a shareholder who has redeemed shares of the Fund may, within 120 days after the date of redemption, reinvest without payment of a sales charge any part of the redemption proceeds in shares back into the same share class of the same John Hancock Fund and account from which it was removed, 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. 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 same class and fund and account 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 shares will be treated for tax purposes as described below under the caption "TAX STATUS".
Retirement plans participating in Merrill Lynch's servicing programs:
Class A and R shares are available at net asset value for Merrill Lynch retirement plans, including transferee recording arrangements, Merrill Lynch Connect Arrangements and third party administrator recordkeeping arrangements. See your Merrill Lynch Financial Consultant for further information.
For participating retirement plans investing in Class B shares, shares will convert to Class A shares after eight years, or sooner if the plan attains assets of $5 million (by means of a CDSC-free redemption/purchase at net asset value).
PURCHASES AND REDEMPTIONS THROUGH THIRD PARTIES
Shares of the Fund may be purchased or redeemed through certain 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 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 FUND'S SHARES
The Trustees of the Trust are responsible for the management and supervision of the Fund. The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest of the Fund, without par value. Under the Declaration of Trust, the Trustees have the authority to create and classify shares of beneficial interest in separate series and classes, without further action by shareholders. As of the date of this Statement of Additional Information, the Trustees have authorized shares of the Fund and four other series. The Trustees have also authorized the issuance of five classes of shares of the Fund, designated as Class A, Class B, Class C, Class I and Class R.
The shares of each class of the Fund represent an equal proportionate interest in the aggregate net assets attributable to that class of the Fund. Holders of Class A, Class B and Class C shares have certain exclusive voting rights on matters relating to their respective distribution plans. The different classes of the Fund may bear different expenses relating to the cost of holding shareholder meetings necessitated by the exclusive voting rights of any class of shares. The fund no longer issues share certificates. Shares are electronically recorded.
Dividends paid by the Fund, if any, with respect to each class of shares will be calculated in the same manner, at the same time and on the same day and will be in the same amount, except for differences resulting from the facts that (i) the distribution and service fees relating to each class of shares will be borne exclusively by that class, (ii) Class B and Class C shares will pay higher distribution and service fees than Class A and Class R shares and Class R shares will pay higher distribution and service fees than Class A shares(iii) each class of shares will bear any other class expenses properly allocable to such class of shares, subject to the conditions the Internal Revenue Service imposes with respect to the multiple-class structures. Similarly, the net asset
value per share may vary depending on which class of shares are purchased. No interest will be paid on uncashed dividend or redemption checks.
In the event of liquidation, shareholders of each class are entitled to share pro rata in the net assets of the Fund available for distribution to these shareholders. Shares entitle their holders to one vote per share, are freely transferable and have no preemptive, subscription or conversion rights. When issued, shares are fully paid and non-assessable, except as set forth below.
Unless otherwise required by the Investment Company Act or the Declaration of Trust, the Fund has no intention of holding annual meetings of shareholders. Fund shareholders may remove a Trustee by the affirmative vote of at least two-thirds of the Trust's outstanding shares and the Trustees shall promptly call a meeting for such purpose when requested to do so in writing by the record holders of not less than 10% of the outstanding shares of the Trust. Shareholders may, under certain circumstances, communicate with other shareholders in connection with a request for a special meeting of shareholders. However, at any time that less than a majority of the Trustees holding office were elected by the shareholders, the Trustees will call a special meeting of shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust could, under certain circumstances, be held personally liable for acts or obligations of the Trust. However, the Declaration of Trust contains an express disclaimer of shareholder liability for acts, obligations and affairs of the Fund. The Declaration of Trust also provides for indemnification out of the Fund's assets for all losses and expenses of any shareholder held personally liable by reason of being or having been a shareholder. The Declaration of Trust also provides that no series of the Trust shall be liable for the liabilities of any other series. Furthermore, no fund included in this Fund's prospectus shall be liable for the liabilities of any other John Hancock Funds. Liability is therefore limited to circumstances in which the Fund itself would be unable to meet its obligations, and the possibility of this occurrence is remote.
The Fund reserves the right to reject any application which conflicts with the Fund's internal policies or the policies of any regulatory authority. John Hancock Funds does not accept starter, credit card or third party checks. All checks returned by the post office as undeliverable will be reinvested at net asset value in the fund or funds from which a redemption was made or dividend paid. Information provided on the account application may be used by the Fund to verify the accuracy of the information or for background or financial history purposes. A joint account will be administered as a joint tenancy with right of survivorship, unless the joint owners notify Signature Services of a different intent. A shareholder's account is governed by the laws of The Commonwealth of Massachusetts. For telephone transactions, the transfer agent will take measures to verify the identity of the caller, such as asking for name, account number, Social Security or other taxpayer ID number and other relevant information. If appropriate measures are taken, the transfer agent is not responsible for any losses that may occur to any account due to an unauthorized telephone call. Also for your protection telephone 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 gernerally may 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 so qualify for each taxable year. As such and by complying with the applicable provisions of the Code regarding the sources of its income, the timing of its distributions and the diversification of its assets, the Fund will not be subject to Federal income tax on taxable income (including net realized capital gains) distributed to shareholders in accordance with the timing requirements of the Code.
The Fund will be subject to a 4% nondeductible Federal excise tax on certain amounts not distributed (and not treated as having been distributed) on a timely basis in accordance with annual minimum distribution requirements. The Fund intends under normal circumstances to seek to avoid or minimize liability for such tax by satisfying such distribution requirements.
Distributions from the Fund's current or accumulated earnings and profits ("E&P") will be taxable under the Code for investors who are subject to tax. If these distributions are paid from the Fund's "investment company taxable income," they will be taxable as ordinary income; and if they are paid from the Fund's "net capital gain," they will be taxable as long-term capital gain. (Net capital gain is the excess (if any) of net long-term capital gain over net short-term capital loss, and investment company taxable income is all taxable income and capital gains, other than those gains and losses included in computing net capital gain, after reduction by deductible expenses.). Some distributions may be paid in January but may be taxable to shareholders as if they had been received on December 31 of the previous year. The tax treatment described above will apply without regard to whether distributions are received in cash or reinvested in additional shares of the Fund.
Distributions, if any, in excess of E&P will constitute a return of capital under the Code, which will first reduce an investor's federal tax basis in Fund shares and then, to the extent such basis is exceeded, will generally give rise to capital gains. Shareholders who have chosen automatic reinvestment of their distributions will have a federal tax basis in each share received pursuant to such a reinvestment equal to the amount of cash they would have received had they elected to receive the distribution in cash, divided by the number of shares received in the reinvestment.
The amount of net realized capital gains, if any, in any given year will result from sales of securities made with a view to the maintenance of a portfolio believed by the Fund's management to be most likely to attain the Fund's objective. Such sales, and any resulting gains or losses, may therefore vary considerably from year to year. At the time of an investor's purchase of shares of the Fund, a portion of the purchase price is often attributable to realized or unrealized appreciation in the Fund's portfolio. Consequently, subsequent distributions on these shares from such appreciation or income may be taxable to such investor even if the net asset value of the investor's shares is, as a result of the distributions, reduced below the investor's cost for such shares and the distributions in reality represent a return of a portion of the purchase price.
If the Fund invests in stock (including an option to acquire stock as is inherent in a convertible bond) of certain foreign corporations that receive at least 75% of their annual gross income from passive sources (such as interest, dividends certain rents and royalties or capital gain) or hold at least 50% of their assets in investments producing such passive income ("passive foreign investment companies"), the Fund could be subject to federal income tax and additional interest charges on "excess distributions" received from such companies or gain from the sale of stock in such companies, even if all income or gain actually received by the Fund is timely distributed to its shareholders. These investments could also result in the treatment of associated capital gains as ordinary income. The Fund would not be able to pass through to its shareholders any credit or deduction for such a tax. An election may be available to ameliorate these adverse tax consequences, but could require the Fund to recognize taxable income or gain without the
concurrent receipt of cash. The Fund may limit and/or manage its holdings in passive foreign investment companies or make an available election to minimize its tax liability or maximize its return from these investments.
The Fund may be subject to foreign taxes on its income from investments in certain foreign securities, if any. Some tax conventions between certain countries and the U.S. may reduce or eliminate such taxes. Because more than 50% of the Fund's assets at the close of any taxable year will generally not consist of stocks or securities of foreign corporations, the Fund will generally be unable to pass such taxes through to shareholders, who will therefore generally not be entitled to any foreign tax credit or deduction with respect to their investment in the Fund. The Fund will deduct the foreign taxes it pays in determining the amount it has available for distribution to shareholders.
Foreign exchange gains and losses realized by the Fund in connection with certain transactions involving foreign currency-denominated debt securities, foreign currencies, or payable or receivables denominated in foreign currency are subject to Section 988 of the Code, which generally causes such gains and losses to be treated as ordinary income and losses and may affect the amount, timing and character of distributions to shareholders.
Certain of these transactions may cause the Fund to recognize gains or losses from marking to market even though its positions have not been sold or terminated and affect the character as long-term or short-term and timing of some capital gains and losses realized by the Fund. Additionally, certain of the Fund's losses on its transactions involving options and any offsetting or successor portfolio positions may be deferred rather than being taking into account currently in calculating the Fund's taxable income or gains. Certain of such transactions may also cause the Fund to dispose of investments sooner than would otherwise have occurred. These transactions may therefore affect the amount, timing and character of the Fund's distributions to shareholders. The Fund will take into account the special tax rules (including consideration of available elections) applicable to options in order to minimize any potential adverse tax consequences.
Upon a redemption of shares of the Fund (including by exercise of the exchange privilege) in a transaction that is treated as a sale for tax purposes, a shareholder will ordinarily realize a taxable gain or loss depending upon the amount of the proceeds and the investor's basis in his shares. Such gain or loss will be treated as capital gain or loss if the shares are capital assets in the shareholder's hands and will be long-term or short-term, depending upon the shareholder's tax holding period for the shares and subject to the special rules described below. A sales charge paid in purchasing shares of the Fund cannot be taken into account for purposes of determining gain or loss on the redemption or exchange of such shares within 90 days after their purchase to the extent shares of the Fund or another John Hancock fund are subsequently acquired without payment of a sales charge pursuant to the reinvestment or exchange privilege. This disregarded charge will result in an increase in the shareholder's tax basis in the shares subsequently acquired. Also, any loss realized on a redemption or exchange may be disallowed to the extent the shares disposed of are replaced with other shares of the Fund within a period of 61 days beginning 30 days before and ending 30 days after the shares are disposed of, such as pursuant to automatic dividend reinvestment. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss.
Any loss realized upon the redemption of shares with a tax holding period of six months or less will be treated as a long-term capital loss to the extent of any amounts treated as distributions of long- term capital gain with respect to such shares. Shareholders should consult their own tax
advisers regarding their particular circumstances to determine whether a disposition of Fund shares is properly treated as a sale for tax purposes, as is assumed in the foregoing discussion.
Although the present intention is to distribute, at least annually, all net capital gain, if any, the Fund reserves the right to retain and reinvest all or any portion of the excess, as computed for Federal income tax purposes, of net gain over net short- term capital loss in any year. The Fund will not in any event distribute net capital gain realized in any year to the extent that a capital loss is carried forward from prior years against such gain. To the extent such excess was retained and not exhausted by the carryforward of prior years' capital losses, it would be subject to Federal income tax in the hands of the Fund. Upon proper designation of this amount by the Fund, each shareholder would be treated for Federal income tax purposes as if the Fund had distributed to him on the last day of its taxable year his pro rata share of such excess, and he had paid his pro rata share of the taxes paid by the Fund and reinvested the remainder in the Fund. Accordingly, each shareholder would (a) include his pro rata share of such excess as long-term capital gain in his return for his taxable year in which the last day of the Fund's taxable year falls, (b) be entitled either to a tax credit on his return for, or to a refund of, his pro rata share of the taxes paid by the Fund, and (c) be entitled to increase the adjusted tax basis for his shares in the Fund by the difference between his pro rata share of such excess and his pro rata share of these taxes.
For Federal income tax purposes, the Fund is permitted to carry forward a net capital loss in any year to offset net capital gains, if any, during the eight years following the year of the loss. To the extent subsequent net capital gains are offset by such losses, they would not result in Federal income tax liability to the Fund and as noted above would not be distributed as such to shareholders. The Fund has a $3,585,268 capital loss carryforward available, to the extent provided by regulations, to offset future net realized capital gains. The Fund's carryforwards expire as follows: $2,395,515 on December 31, 2008, $1,199,819 on December 31, 2009 and $146,087 on December 31, 2010.
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.
For purposes of the dividends received deduction available to corporations, dividends received by the Fund, if any, from U.S. domestic corporations in respect of the stock of such corporations held by the Fund, for U.S. Federal income tax purposes, for at least 46 days (91 days in the case of certain preferred stock) during a prescribed period extending before and after each dividend and distributed and properly designated by the Fund may be treated a qualifying dividends. Corporate shareholders must meet the minimum holding period requirement stated above (46 or 91 days) with respect to their shares of the Fund for each dividend in order to qualify for the deduction and, if they have any debt that is deemed under the Code directly attributable to such shares, may be denied a portion of the dividends received deduction. The entire qualifying dividend, including the otherwise deductible amount, will be included in determining the excess (if any) of a corporate shareholder's adjusted current earnings over its alternative minimum taxable income, which may increase its alternative minimum tax liability, if any. Additionally,
any corporate shareholder should consult its tax adviser regarding the possibility that its tax basis in its shares may be reduced, for Federal income tax purposes, by reason of "extraordinary dividends" received with respect to the shares, for the purpose of computing its gain or loss on redemption or other disposition of the shares.
The Fund is required to accrue income on any debt securities that have more than a de minimus amount of original issue discount (or debt securities acquired at a market discount, if the Fund elects to include market discount in income currently) prior to the receipt of the corresponding cash payments. The mark to market rules applicable to certain options and futures contracts may also require the Fund to recognize gain within a concurrent receipt of cash. However, the Fund must distribute to shareholders for each taxable year substantially all of its net income and net capital gains, including such income or liability for any federal income or excise tax. Therefore, the Fund may have to dispose of its portfolio securities under disadvantageous circumstances to generate cash, or may have to leverage itself by borrowing the cash, to satisfy these distribution requirements.
A state income (and possibly local income and/or intangible property) tax exemption is generally available to the extent (if any) the Fund's distributions are derived from interest on (or, in the case of intangible taxes, the value of its assets is attributable to) certain U.S. Government obligations, provided in some states that certain thresholds for holdings of such obligations and/or reporting requirements are satisfied. The Fund will not seek to satisfy any threshold or reporting requirements that may apply in particular taxing jurisdictions, although the Fund may in its sole discretion provide relevant information to shareholders.
The Fund will be required to report to the Internal Revenue Service (the "IRS") all taxable distributions to shareholders, as well as gross proceeds from the redemption or exchange of Fund shares, except in the case of certain exempt recipients, i.e., corporations and certain other investors distributions to which are exempt from the information reporting provisions of the Code. Under the backup withholding provisions of the Code, Section 3406, and applicable Treasury regulations, all such reportable distributions and proceeds may be subject to backup withholding of federal income tax in the case of non-exempt shareholders who fail to furnish the Fund with their correct taxpayer identification number and certain certifications required by the IRS or if the IRS or a broker notifies the Fund that the number furnished by the shareholder is incorrect or that the shareholder is subject to backup withholding as a result of failure to report interest or dividend income. The Fund may refuse to accept an application that does not contain any required taxpayer identification number or certification that the number provided is correct. If the backup withholding provisions are applicable, any such distributions and proceeds, whether taken in cash or reinvested in shares, will be reduced by the amounts required to be withheld. Any amounts withheld may be credited against a shareholder's U.S. federal income tax liability. Investors should consult their tax advisers about the applicability of the backup withholding provisions.
Different tax treatment, including penalties on certain excess contributions and deferrals, certain pre-retirement and post-retirement distributions and certain prohibited transactions, is accorded to accounts maintained as qualified retirement plans. Shareholders should consult their tax advisers for more information.
Investments in debt obligations that are at risk of or in default may present special tax issues for the Fund. Tax rules are not entirely clear about issues such as when the Fund may cease to accrue interest, original issue discount, or market discount; when and to what extent deductions may be taken for bad debts or worthless securities; how payments received on obligations in default should be allocated between principal and income; and whether exchanges of debt
obligations in a workout context are taxable. These and other issues will be addressed by the Fund, in the event it invests in such securities, in order to reduce the risk of distributing insufficient income to preserve its status as a regulated investment company and seek to avoid becoming subject to Federal income or excise tax.
The foregoing discussion relates solely to U.S. Federal income tax laws applicable to the U.S. persons (i.e., U.S. citizens or residents and U.S. domestic corporations, partnerships, trusts or estates) subject to tax under such law. The discussion does not address special tax rules applicable to certain types of investors, such as tax-exempt entities, insurance companies and financial institutions. Dividends, capital gain distributions, and ownership of or gains realized on the redemption (including an exchange) of shares of the Fund may also be subject to state and local taxes. The foregoing discussion related to U.S. investors that are not exempt from U.S. Federal income tax. Different tax consequences will apply to plan participants, tax-exempt investors and investors that are subject to tax deferral. You should consult your tax adviser for specific advice. Under the Code, a tax-exempt investor in the Fund will not generally recognize unrelated business taxable income from its investment in the Fund unless the tax-exempt investor incurred indebtedness to acquire or continue to hold Fund shares and such indebtedness remains unpaid. Shareholders should consult their own tax advisers as to the Federal, state or local tax consequences of ownership of shares of, and receipt of distributions from, the Fund in their particular circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their investment in the Fund is effectively connected will be subject to U.S. Federal income tax treatment that is different from that described above. These investors may be subject to non-resident alien withholding tax at the rate of 30% (or a lower rate under an applicable tax treaty) on amounts treated as ordinary dividends from the Fund and, unless an effective IRS Form W-8, Form W-8BEN or other authorized withholding certificate is on file and to backup withholding on certain other payments from the Fund. Non-U.S. investors should consult their tax advisers regarding such treatment and the application of foreign taxes to an investment in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise taxes. The Fund anticipates that, provided that the Fund qualifies as a regulated investment company under the Code, it will not be required to pay Massachusetts income taxes.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the allocation of brokerage commissions are made by the Adviser's or Sub-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 Sub-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 that also sell shares of John Hancock funds. However, the Adviser and Sub-Adviser do 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 and Sub-Adviser of the Fund. The Adviser and Sub-Adviser have 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 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 December 31, 2005, the Fund paid $0 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 or Sub-Adviser's own research (and the research of its affiliates), and may include the following types of information: statistical and background information on the U.S. and foreign economies, industry groups and individual companies; forecasts and interpretations with respect to the U.S. and foreign economies, securities, markets, specific industry groups and individual companies; information on federal, state, local and foreign political developments; portfolio management strategies; performance information on securities, indexes and investment accounts; and information concerning prices and ratings of securities. Broker-dealers may communicate such information electronically, orally, in written form or on computer software. Research services may also include the providing of electronic communication of trade information and, the providing of specialized consultations with the Adviser's or Sub-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 or Sub-Adviser since the broker-dealers used by the Adviser or Sub-Adviser tend to follow a broader universe of securities and other matters than the Adviser's or Sub-Adviser's staff can follow. In addition, the research provides the Adviser or Sub-Adviser with a diverse perspective on financial markets. Research services provided to the Adviser or Sub-Adviser by broker-dealers are available for the benefit of all accounts managed or advised by the Adviser or by its affiliates, by the Sub-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 or Sub-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 and Sub-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 or Sub-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 or Sub-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 and Sub-Adviser. However, to the extent that the Adviser or Sub-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 and Sub-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 or Sub-Adviser, and conversely, brokerage commissions and spreads paid by other advisory clients of the Adviser or Sub-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 and/or Sub-Adviser will be primarily responsible for its allocation of the Fund's brokerage business, the policies and practices of the Adviser or Sub-Adviser in this regard must be consistent with the foregoing and at all times be subject to review by the Trustees. For the fiscal years ended Deember 31, 2003, 2004 and 2005, the Fund paid negotiated brokerage commissions of $1,262,169, $747,185 and $799,551, 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 and/or the Sub-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, the Sub-Adviser or the Affiliated Broker. Because the Adviser or Sub-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, John Hancock Distributors, LLC (until December 31, 2004, Manulife Financial Securities, LLC) ("JH Distributors" or "Affiliated Broker"). For the fiscal years ended December 31, 2003, 2004 and 2005, the Fund paid no brokerage commissions to any Affiliated Broker.
Other investment advisory clients advised by the Adviser or Sub-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 or Sub-Adviser may average the transactions as to price and allocate the amount of available investments in a manner which the Adviser or Sub-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 or Sub-Adviser may aggregate securities to be sold or purchased for the Fund with those to be sold or purchased for other clients managed by it in order to obtain best execution.
TRANSFER AGENT SERVICES
John Hancock Signature Services, Inc., 1 John Hancock Way, Suite 1000, Boston, MA 02217-1000, a wholly owned indirect subsidiary of the Life Company, is the transfer and dividend paying agent for the Fund. The Fund pays Signature Services monthly a fee which is based on an annual rate of $16.00 for each Class A shareholder account, $18.50 for each Class B shareholder account, $17.50 for each Class C shareholder account and $20.00 for each Class R shareholder account. The Fund also pays Signature Services monthly a fee which is based on an annual rate of 0.05% of average daily net asets attributable to Class A, Class B, Class C, Class I and Class R shares. For Class A, Class B, Class C and Class R shares, the Fund also pays certain out-of pocket expenses. Expenses for Class A, B and C shares are aggregated and allocated to each class on the basis of their relative net asset values. Signature Services agreed to voluntarily reduce the asset-based portion of the Fund's transfer agent fee for Class A, B and C shares if the total transfer agent fee exceeds the Lipper Inc. median transfer agency fee for comparable mutual funds by greater than 0.05%. For shares held on record in omnibus or other 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, 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. Until December 31, 2005, the independent registered public accounting firm of the Fund was Deloitte & Touche LLP, 200 Berkeley Street, Boston, Massachusetts 02116.
APPENDIX A
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's principal securities and investment practices. You may find the most concise description of the fund's risk profile in the prospectus.
A fund is permitted to utilize -- within limits established by the trustees -- certain other securities and investment practices that have higher risks and opportunities associated with them. To the extent that the fund utilizes these securities or practices, its overall performance may be affected, either positively or negatively. On the following pages are brief definitions of certain associated risks with them, with examples of related securities and investment practices included in brackets. See the "Investment Objectives and Policies" and "Investment Restrictions" sections of this Statement of Additional Information for a description of this Fund's investment policies. The fund follows certain policies that may reduce these risks.
As with any mutual fund, there is no guarantee that the fund will earn income or show a positive total return over any period of time -- days, months or years.
TYPES OF INVESTMENT RISK
Correlation risk. The risk that changes in the value of a hedging instrument will not match those of the asset being hedged (hedging is the use of one investment to offset the effects of another investment). (e.g. short sales, financial futures and options; securities and index options, currency contracts).
Credit risk. The risk that the issuer of a security, or the counterparty to a contract, will default or otherwise become unable to honor a financial obligation. (e.g. Borrowing; reverse repurchase agreements, repurchase agreements, securities lending, non-investment-grade debt securities, financial futures and options; securities and index options).
Currency risk. The risk that fluctuations in the exchange rates between the U.S. dollar and foreign currencies may negatively affect an investment. (e.g. Foreign securities, financial futures and options; securities and index options, currency contracts).
Extension risk. The risk that an unexpected rise in interest rates will extend the life of a mortgage-backed security beyond the expected prepayment time, typically reducing the security's value.
Information risk. The risk that key information about a security or market is inaccurate or unavailable. (e.g. non-investment-grade debt securities, foreign securities).
Interest rate risk. The risk of market losses attributable to changes in interest rates. With fixed-rate securities, a rise in interest rates typically causes a fall in values, while a fall in rates typically causes a rise in values. (e.g. Non investment-grade debt securities, financial futures and options; securities and index options).
Leverage risk. Associated with securities or practices (such as borrowing) that multiply small index or market movements into large changes in value. (e.g. Borrowing; reverse repurchase agreements, short-sales, when-issued securities and forward commitments; financial futures and options; securities and index options, currency contracts).
o Hedged. When a derivative (a security whose value is based on another security or index) is used as a hedge against an opposite position that the fund also holds, any loss generated by the derivative should be substantially offset by gains on the hedged investment, and vice versa. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains.
o Speculative. To the extent that a derivative is not used as a hedge, the fund is directly exposed to the risks of that derivative. Gains or losses from speculative positions in a derivative may be substantially greater than the derivative's original cost.
Liquidity risk. The risk that certain securities may be difficult or impossible to sell at the time and the price that the seller would like. (e.g. short sales, non-investment-grade debt securities; restricted and illiquid securities, financial futures and options; securities and index options, currency contracts).
Management risk. The risk that a strategy used by a fund's management may fail to produce the intended result. Common to all mutual funds.
Market risk. The risk that the market value of a security may move up and down, sometimes rapidly and unpredictably. Common to all stocks and bonds and the mutual funds that invest in them. (e.g. Short sales, short-term trading, when-issued securities and forward commitments, non-investment-grade securities, foreign securities, financial futures and options; securities and index options, restricted and illiquid securities).
Natural event risk. The risk of losses attributable to natural disasters, crop failures and similar events. (e.g. Foreign securities).
Opportunity risk. The risk of missing out on an investment opportunity because the assets necessary to take advantage of it are tied up in less advantageous investments. (e.g. Short sales, when -issued securities and forward commitments, financial futures and options; securities and index options, currency contracts).
Political risk. The risk of losses directly attributable to government or political actions of any sort. (e.g. Foreign securities)
Prepayment risk. The risk that unanticipated prepayments may occur during periods of falling interest rates, reducing the value of mortgage-backed securities.
Valuation risk. The risk that a fund has valued certain of its securities at a higher price than it can sell them for. (e.g. Non-investment-grade debt securities, restricted and illiquid securities).
APPENDIX B
Moody's describes its lower ratings for corporate bonds as follows:
Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterized bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represented obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
Standard & Poor's describes its lower ratings for corporate bonds as follows:
Debt rated 'BBB' is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories.
Debt rated 'BB,' 'B,' 'CCC,' or 'CC' is regarded, on balance, as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligations. 'BB' indicates the lowest degree of speculation and 'CC' the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions.
Moody's describes its three highest ratings for commercial paper as follows:
Issuers rated P-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. P-1 repayment capacity will normally be evidenced by the following characteristics: (1) leading market positions in well- established industries; (2) high rates of return on funds employed; (3) conservative capitalization structures with moderate reliance on debt and ample asset protections; (4) broad margins in earnings coverage of fixed financial charges and high internal cash generation; and (5) well established access to a range of financial markets and assured sources of alternate liquidity.
Issuers rated P-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated P-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained.
Standard & Poor's describes its lower ratings for corporate bonds as follows:
BBB Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories.
BB, B, CCC, CC, C Debt rated 'BB', 'B', 'CCC', 'CC" and 'C' is regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. 'BB' indicates the lowest degree of speculation and 'C' the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions.
BB Debt rated 'BB' has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The 'BB' rating category is also used for debt subordinated to senior debt that is assigned an actual or implied 'BBB-' rating.
B Debt rated 'B' has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The 'B' rating category is also used for debt subordinated to senior debt that is assigned an actual or implied 'BB' or 'BB-' rating.
CCC Debt rated 'CCC' has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The 'CCC' rating category is also used for debt subordinated to senior debt that is assigned an actual or implied 'B' or 'B-' rating.
CC The rating 'CC' is typically applied to debt subordinated to senior debt that is assigned an actual or implied 'CCC' rating.
C The rating 'C' is typically applied to debt subordinated to senior debt which is assigned an actual or implied 'CCC-' debt rating. The 'C' rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued.
Standard & Poor's describes its three highest ratings for commercial paper as follows:
A-1. This designation indicated that the degree of safety regarding timely payment is very strong.
A-2. Capacity for timely payment on issues with this designation is strong. However, the relative degree of safety is not as overwhelming as for issues designated A-1.
A-3. Issues carrying this designation have a satisfactory capacity for timely payment. They are, however, somewhat more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations.
Issuers rated P-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated P-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained.
APPENDIX C
John Hancock Advisers, LLC
Sovereign Asset Management, LLC
Proxy Voting Summary
We believe in placing our clients' interests first. 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, LLC ("Sovereign") manage open-end funds, closed-end funds and portfolios for institutions and high-net-worth investors. Occasionally, we utilize the expertise of an outside asset manager by means of a subadvisory agreement. In all cases, JHA or Sovereign makes the final decision as to how to vote our clients' proxies. There is one exception, however, and that pertains to our international accounts. The investment management team for international investments votes the proxies for the accounts they manage. Unless voting is specifically retained by the named fiduciary of the client, JHA and Sovereign will vote proxies for ERISA clients.
In order to ensure a consistent, balanced approach across all our investment teams, we have established a proxy oversight group comprised of associates from our investment, operations and legal teams. The group has developed a set of policies and procedures that detail the standards for how JHA and Sovereign vote proxies. The guidelines of JHA have been approved and adopted by each fund client's board of trustees who have voted to delegate proxy voting authority to their investment adviser, JHA. JHA and Sovereign's other clients have granted us the authority to vote proxies in our advisory contracts or comparable documents.
JHA and Sovereign have hired a third party proxy voting service which has been instructed to vote all proxies in accordance with our established guidelines except as otherwise instructed.
In evaluating proxy issues, our proxy oversight group may consider information from many sources, including the portfolio manager, management of a company presenting a proposal, shareholder groups, and independent proxy research services. Proxies for securities on loan through securities lending programs will generally not be voted, however a decision may be made to recall a security for voting purposes if the issue is material.
Below are the guidelines we adhere to when voting proxies. Please keep in mind that these are purely guidelines. Our actual votes will be driven by the particular circumstances of each proxy. From time to time votes may ultimately be cast on a case-by-case basis, taking into consideration relevant facts and circumstances at the time of the vote. Decisions on these matters (case-by-case, abstention, recall) will normally be made by a portfolio manager under the supervision of the chief investment officer and the proxy oversight group. We may abstain from voting a proxy if we conclude that the effect on our clients' economic interests or the value of the portfolio holding is indeterminable or insignificant.
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.
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:
o the compensation committee is not fully independent;
o plan dilution is more than 10% of outstanding common stock;
o 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.;
o 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:
o the plan allows stock to be purchased at less than 85% of fair market
value;
o this plan dilutes outstanding common equity greater than 10%;
o all stock purchase plans, including the proposed plan, exceed 15% of
outstanding common equity;
o 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:
o the minimum vesting period for options or time lapsing restricted stock
is les than one year;
o 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:
o change the company name;
o approve other business;
o adjourn meetings;
o make technical amendments to the by-laws or charters;
o approve financial statements;
o approve an employment agreement or contract.
Shareholder Proposals
Shareholders are permitted per SEC regulations to submit proposals for inclusion in a company's proxy statement. We will generally vote against shareholder proposals and in accordance with the recommendation of management except as follows where we will vote for proposals:
o calling for shareholder ratification of auditors;
o calling for auditors to attend annual meetings;
o seeking to increase board independence;
o requiring minimum stock ownership by directors;
o seeking to create a nominating committee or to increase the
independence of the nominating committee;
o seeking to increase the independence of the audit committee.
Corporate and social policy issues
We believe that "ordinary business matters" are primarily the responsibility of management and should be approved solely by the corporation's board of directors.
Proposals in this category, initiated primarily by shareholders, typically request that the company disclose or amend certain business practices. We generally vote against business practice proposals and abstain on social policy issues, though we may make exceptions in certain instances where we believe a proposal has substantial economic implications.
John Hancock Advisers, LLC Sovereign Asset Management, LLC Proxy Voting Procedures
The role of the proxy voting service
John Hancock Advisers, LLC ("JHA") and Sovereign Asset Management, LLC ("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.
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.
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.
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.
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.
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.
Proxy Voting Services. Nonpublic Information regarding portfolio holdings may be provided to ISS, 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 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 ISS 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.
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 Persons. Nonpublic Information regarding portfolio holdings may be provided to other persons or entities if approved by the Chief Compliance Officer of the Fund or his or her designee (collectively, the "CCO"). In determining whether to approve such disclosure the CCO shall consider: (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. In the case of a conflict between (a) the interests of the shareholders of the Fund, on the one hand, and (b) the interests of any affiliated person of the Fund, the Fund's investment adviser (including any subadviser), the Fund's principal underwriter or any of their affiliated persons, on the other, the procedures set forth under "Resolution of Conflicts of Interest" below shall be followed.
The CCO shall report to the Board of Trustees whenever additional disclosures of portfolio holdings are approved. This report shall be at the board meeting following such approval.
Disclosure of Portfolio Holdings to Affiliated Persons
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. The CCO must pre-approve the provision of any Nonpublic Information regarding portfolio holdings to any Affiliated Persons (other than those listed in Appendix A) and report such approval to the Board of Trustees at the board meeting following such approval. The persons listed in Appendix A have been exempt from such pre-approval. In the case of persons listed in Section II, III and IV of Appendix A, their employers shall provide the CCO reasonable assurances that Nonpublic Information will be kept confidential and that such employees are prohibited from trading on such information.
In determining whether to approve such disclosure of Nonpublic Information
regarding portfolio holdings to any Affiliated Persons the CCO shall consider:
(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. In the case of a conflict between (a) the interests of the
shareholders of the Fund, on the one hand, and (b) the interests of any
affiliated person of the Fund, the Fund's investment adviser (including any
subadviser), the Fund's principal underwriter or any of their affiliated
persons, on the other, the procedures set forth under "Resolution of Conflicts
of Interest" below shall be followed.
Resolution of Conflicts of Interest
If the Fund or its adviser or principal underwriter or any of its subadviser (or any of their affiliates) desire to provide Nonpublic Information regarding Fund portfolio holdings to a Nonaffiliated Person and the CCO believes there is a potential conflict between (a) the interests of the shareholders of the Fund, on the one hand, and (b) the interests of any affiliated person of the Fund, the Fund's investment adviser (including any subadviser), the Fund's principal underwriter or any of their affiliated persons, on the other, the CCO shall refer the conflict to the Board of Trustees of the Fund who shall only permit such disclosure of the Nonpublic Information if in their reasonable business judgment they conclude such disclosure will be in the best interests of Fund shareholders.
Changes to Policy
Any material changes to this policy must be approved by the Fund's Board of Trustees.
Reports to the Trust's Board of Trustees
The CCO shall report any material issues that may arise under this policy to the Board of Trustees no later than the Board meeting following the arising of the issue.
Applicability of Policy to a Fund's Adviser and Subadvisers
This policy shall apply to the Fund's Adviser and each of its subadvisers as applicable.
Appendix A
I. Employees* of John Hancock Advisers, LLC who are subject to the Code of Ethics of the Fund, the Funds' investment adviser, or the Fund's principal underwriter, John Hancock Funds, LLC.
II. Employees* of a Subadviser or any Affiliate of a Subadviser who provide services to a Fund.
III. Employees* of the Funds' custodian who provide services to the Funds.
IV. Employees* and partners of a Fund's certified public accounting firm who provide services to the Fund.
V. Employees* and partners of a Fund's legal counsel who provides services to the Fund.
*Includes temporary employees
FINANCIAL STATEMENTS
The financial statements listed below are included in the Fund's 2005 Annual Report to Shareholders for the year ended December 31, 2005 (filed electronically on March 1, 2006 accession number 0000928816-06-000242 and are included in and incorporated by reference into Part B of the Registration Statement for John Hancock Sovereign Investors Fund (file nos. 811-00560 and 2-10156).
John Hancock Investment Trust
John Hancock Sovereign Investors Fund
Statement of Assets and Liabilities as of December 31, 2005.
Statement of Operations for the year ended December 31, 2005.
Statement of Changes in Net Assets for each of the two years in the period
ended December 31, 2005.
Notes to Financial Statements.
Financial Highlights for each of the five years in the period ended
December 31, 2005.
Schedule of Investments as of December 31, 2005.
Report of Independent Auditors.
JOHN HANCOCK LARGE CAP INTRINSIC VALUE FUND
Class A, Class B, Class C and Class I Shares
Statement of Additional Information
March 1, 2006
This Statement of Additional Information provides information about John Hancock Large Cap Intrinsic Value Fund (the "Fund") in addition to the information that is contained in the Fund's current Prospectus for Class A, B and C shares and in the Fund's current Class I share prospectus (the "Prospectuses"). The Fund is a diversified series of John Hancock Investment Trust (the "Trust").
This Statement of Additional Information is not a prospectus. It should be read in conjunction with the Prospectus. This Statement of Additional Information incorporates by reference the Fund's Annual Report. A copy of the Prospectus or Annual Report can be obtained free of charge by writing or telephoning:
John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1000 Boston, MA 02217-1000 1-800-225-5291
Table of Contents
Page
Organization of the Fund................................................................................. 2
Investment Objective and Policies........................................................................ 2
Investment Restrictions.................................................................................. 15
Those Responsible for Management......................................................................... 18
Investment Advisory and Other Services................................................................... 27
Additional Information About the Fund's Portfolio Managers............................................... 29
Distribution Contracts................................................................................... 33
Sales Compensation....................................................................................... 35
Net Asset Value.......................................................................................... 38
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
Purchases and Redemptions through Third Parties.......................................................... 48
Description of the Fund's Shares......................................................................... 48
Tax Status............................................................................................... 49
Brokerage Allocation..................................................................................... 54
Transfer Agent Services.................................................................................. 57
Custody of Portfolio..................................................................................... 58
Independent Registered Public Accounting Firm............................................................ 58
Appendix A- Description of Investment Risk............................................................... A-1
Appendix B- Description of Bond Ratings.................................................................. B-1
Appendix C- Proxy Voting Summary......................................................................... C-1
Appendix D- Policy Regarding Disclosure of Portfolio Holdings............................................ D-1
Financial Statement...................................................................................... F-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 1996 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.
John Hancock is a unit of Manulife Financial Corporation, 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$372 billion (US$319 billion) as of December 31, 2005.
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.
The Fund is sub-advised by Sovereign Asset Management LLC ("Sovereign" or the "Sub-Adviser") which is also a subsidiary of John Hancock Financial Services, Inc., a subsidiary of Manulife Financial Corporation. Sovereign is responsible for providing investment advice to the Fund subject to the review of the Trustees and the overall supervision of the Adviser.
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the discussion of the Fund's investment objective and policies discussed in the Prospectus. Appendix A contains further information describing investment risks. The investment objective is non-fundamental and may be changed by the Trustees without shareholder approval. There is no assurance that the Fund will achieve its investment objective.
The Fund seeks long-term capital appreciation. To pursue this goal, the Fund normally invests at least 80% of its assets in equity securities of large-capitalization companies (companies with market capitalizations in excess of $4.5 billion). Equity securities include common and preferred stocks and their equivalents.
With respect to the Fund's investment policy of investing at least 80% of its Assets in large capitalization companies, "Assets" is defined as net assets plus the amount of any borrowings for investment purposes. In addition, the Fund will notify shareholders at least 60 days prior to any change in this policy.
In managing the portfolio, the managers emphasize a value-oriented bottom-up approach to individual stock selection. With the aid of proprietary financial models, the management team looks for companies that are selling at what appear to be substantial discounts to their long-term
intrinsic values. These companies often have identifiable catalysts for growth, such as new products, business reorganizations or mergers.
The management team uses fundamental financial analysis to identify individual companies with substantial cash flows, reliable revenue streams, superior competitive positions and strong management. The fund may attempt to take advantage of short-term market volatility by investing in corporate restructurings or pending acquisitions.
The fund may also invest up to 25% of assets in foreign securities (35% during adverse U.S. market conditions).The fund may invest up to 20% of assets in bonds of any maturity rated as low as CC/Ca and their unrated equivalents (bonds below BBB/Baa are considered junk bonds). The fund may make limited use of certain derivatives (investments whose value is based on securities, indexes or currencies).
In abnormal circumstances, the fund may temporarily invest extensively in investment grade short-term securities. In these and other cases, the fund might not achieve its goal.
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 20% of its net assets in fixed income securities that, at the time of investment, are rated CC or higher by Standard & Poor's Ratings Group ("Standard & Poor's") or Ca or higher by Moody's Investors Service, Inc. ("Moody's") or their equivalent, and unrated fixed income securities of comparable quality as determined by the Adviser. These securities include convertible and nonconvertible bonds and debentures, zero coupon bonds, payment-in-kind securities, increasing rate note securities, participation interests, stripped debt securities and other derivative debt securities. The value of fixed income securities generally varies inversely with interest rate changes. Convertible issues, while influenced by the level of interest rates, are also subject to the changing value of the underlying common stock into which they are convertible.
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.
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.
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.
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 determine, based upon a continuing review of the trading markets for specific Section 4(2) paper or Rule 144A securities, that they are liquid, they will not be subject to the 15% limit on illiquid investments. The Trustees have adopted guidelines and delegated to the Adviser the daily function of determining the monitoring and liquidity of restricted securities. The Trustees, however, will retain sufficient oversight and be ultimately responsible for the determinations. The Trustees will carefully monitor the Fund's investments in these securities, focusing on such important factors, among others, as valuation, liquidity and availability of information. This investment practice could have the effect of increasing the level of illiquidity in the Fund if qualified institutional buyers become for a time uninterested in purchasing these restricted securities.
Real Estate Investment Trusts. The Fund may invest in shares of real estate investment trusts ("REITs"). REITs pool investors' funds for investment primarily in income producing real estate or real estate related loans or interests. A REIT is not taxed on income distributed to shareholders if it complies with various requirements relating to its organization, ownership, assets, income and distributions. REITs can generally be classified as Equity REITs, Mortgage REITs and Hybrid REITs. Equity REITs invest the majority of their assets directly in real property and derive their income primarily from rents. Equity REITs can also realize capital gains by selling property that has appreciated in value. Mortgage REITs invest the majority of their assets in real estate mortgages and derive their income primarily from interest payments. Hybrid REITs combine the characteristics of both Equity REITs and Mortgage REITs.
Risks of Investment in Real Estate Securities. The Fund will not invest in real estate directly, but only in securities issued by real estate companies. However, the Fund may be subject to risks similar to those associated with the direct ownership of real estate (in addition to securities markets risks) because of its policy of concentration in the securities of companies in the real estate industry. These include declines in the value of real estate, risks related to general and local economic conditions, dependency on management skill, heavy cash flow dependency, possible lack of availability of mortgage funds, overbuilding, extended vacancies of properties, increased competition, increases in property taxes and operating expenses, changes in zoning laws, losses due to costs resulting from the clean-up of environmental problems, casualty or condemnation losses, limitations on rents, changes in neighborhood values and the appeal of properties to tenants and changes in interest rates.
In addition to these risks, Equity REITs may be affected by changes in the value of the underlying property owned by the trusts, while Mortgage REITs may be affected by the quality of any credit extended. Further, Equity and Mortgage REITs are dependent upon management skills and generally may not be diversified. Equity and Mortgage REITs are also subject to heavy cash flow dependency, defaults by borrowers and self-liquidation. In addition, Equity and Mortgage REITs could possibly fail to qualify for tax free pass-through of income under the Internal Revenue Code of 1986, as amended (the "Code"), or to maintain their exemptions from registration under the Investment Company Act of 1940 (the "1940 Act"). The above factors may also adversely affect a borrower's or a lessee's ability to meet its obligations to the REIT. In the event of a default by a borrower or lessee, the REIT may experience delays in enforcing its rights as a mortgagee or lessor and may incur substantial costs associated with protecting its investments.
Options on Securities, Securities Indices and Currency. The Fund may purchase and write (sell) call and put options on any securities in which it may invest, on any securities index based on securities in which it may invest or on any currency in which Fund investments may be denominated. These options may be listed on national domestic securities exchanges or foreign securities exchanges or traded in the over-the-counter market. The Fund may write covered put and call options and purchase put and call options as a substitute for the purchase or sale of securities or currency or to protect against declines in the value of portfolio securities and against increases in the cost of securities to be acquired.
Writing Covered Options. A call option on securities or currency written by the Fund obligates the Fund to sell specified securities or currency to the holder of the option at a specified price if the option is exercised at any time before the expiration date. A put option on securities or currency written by the Fund obligates the Fund to purchase specified securities or currency from the option holder at a specified price if the option is exercised at any time before the expiration date. Options on securities indices are similar to options on securities, except that the exercise of securities index options requires cash settlement payments and does not involve the actual purchase or sale of securities. In addition, securities index options are designed to reflect price fluctuations in a group of securities or segment of the securities market rather than price fluctuations in a single security. Writing covered call options may deprive the Fund of the opportunity to profit from an increase in the market price of the securities or foreign currency assets in its portfolio. Writing covered put options may deprive the Fund of the opportunity to profit from a decrease in the market price of the securities or foreign currency assets to be acquired for its portfolio.
All call and put options written by the Fund are covered. A written call option or put option may be covered by (i) maintaining cash or liquid securities, either of which may be quoted or denominated in any currency, in a segregated account with a value at least equal to the Fund's
obligation under the option, (ii) entering into an offsetting forward commitment and/or (iii) purchasing an offsetting option or any other option which, by virtue of its exercise price or otherwise, reduces the Fund's net exposure on its written option position. A written call option on securities is typically covered by maintaining the securities that are subject to the option in a segregated account. The Fund may cover call options on a securities index by owning securities whose price changes are expected to be similar to those of the underlying index.
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 and/or Sub-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 and/or Sub-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 and/or Sub-Adviser's ability to predict future price fluctuations and, for hedging transactions, the degree of correlation between the options and securities or currency markets.
Futures Contracts and Options on Futures Contracts. The Fund may purchase and sell futures contracts based on various securities (such as U.S. Government securities) and securities indices, foreign currencies and any other financial instruments and indices and purchase and write call and put options on these futures contracts. The Fund may purchase and sell futures and options on futures for hedging or other non-speculative purposes. The Fund may also enter into closing purchase and sale transactions with respect to any of these contracts and options. All futures contracts entered into by a Fund are traded on U.S. or foreign exchanges or boards of trade that are licensed, regulated or approved by the Commodity Futures Trading Commission ("CFTC").
Futures Contracts. A futures contract may generally be described as an agreement between two parties to buy and sell particular financial instruments or currencies for an agreed price during a designated month (or to deliver the final cash settlement price, in the case of a contract relating to an index or otherwise not calling for physical delivery at the end of trading in the contract).
Positions taken in the futures markets are not normally held to maturity but are instead liquidated through offsetting transactions which may result in a profit or a loss. While futures contracts on securities or currency will usually be liquidated in this manner, the Fund may instead make, or take, delivery of the underlying securities or currency whenever it appears economically advantageous to do so. A clearing corporation associated with the exchange on which futures contracts are traded guarantees that, if still open, the sale or purchase will be performed on the settlement date.
Hedging and Other Strategies. Hedging is an attempt to establish with more certainty than would otherwise be possible the effective price or rate of return on portfolio securities or securities that a Fund proposes to acquire or the exchange rate of currencies in which the portfolio securities are quoted or denominated. When securities prices are falling, a Fund can seek to offset a decline in the value of its current portfolio securities through the sale of futures contracts. When securities prices are rising, a Fund, through the purchase of futures contracts, can attempt to secure better rates or prices than might later be available in the market when it effects anticipated purchases. A Fund may seek to offset anticipated changes in the value of a currency in which its portfolio securities, or securities that it intends to purchase, are quoted or denominated by purchasing and selling futures contracts on such currencies.
A Fund may, for example, take a "short" position in the futures market by selling futures contracts in an attempt to hedge against an anticipated decline in market prices or foreign currency rates that would adversely affect the value of the Fund's portfolio securities. Such futures contracts may include contracts for the future delivery of securities held by a Fund or securities with characteristics similar to those of the Fund's portfolio securities. Similarly, a Fund may sell futures contracts on any currencies in which its portfolio securities are quoted or denominated or in one currency to hedge against fluctuations in the value of securities denominated in a different currency if there is an established historical pattern of correlation between the two currencies.
If, in the opinion of the Adviser, there is a sufficient degree of correlation between price trends for the Fund's portfolio securities and futures contracts based on other financial instruments, securities indices or other indices, the Fund may also enter into such futures contracts as part of its hedging strategy. Although under some circumstances prices of securities in the Fund's portfolio may be more or less volatile than prices of such futures contracts, the Adviser will attempt to estimate the extent of this volatility difference based on historical patterns and compensate for any differential by having the Fund enter into a greater or lesser number of futures contracts or by attempting to achieve only a partial hedge against price changes affecting the Fund's portfolio securities.
When a short hedging position is successful, any depreciation in the value of portfolio securities will be substantially offset by appreciation in the value of the futures position. On the other hand, any unanticipated appreciation in the value of the Fund's portfolio securities would be substantially offset by a decline in the value of the futures position.
On other occasions, a Fund may take a "long" position by purchasing futures contracts. This would be done, for example, when the Fund anticipates the subsequent purchase of particular securities when it has the necessary cash, but expects the prices or currency rates then available in the applicable market to be less favorable than prices that are currently available. Subject to the limitations imposed on the funds, as described above, a Fund may also purchase futures contracts as a substitute for transactions in securities or foreign currency, to alter the investment characteristics of or currency exposure associated with portfolio securities or to gain or increase its exposure to a particular securities market or currency.
Options on Futures Contracts. The purchase of put and call options on futures contracts will give a Fund the right (but not the obligation) for a specified price to sell or to purchase, respectively, the underlying futures contract at any time during the option period. As the purchaser of an option on a futures contract, a Fund obtains the benefit of the futures position if prices move in a favorable direction but limits its risk of loss in the event of an unfavorable price movement to the loss of the premium and transaction costs.
The writing of a call option on a futures contract generates a premium which may partially offset a decline in the value of a Fund's assets. By writing a call option, a Fund becomes obligated, in exchange for the premium (upon exercise of the option) to sell a futures contract if the option is exercised, which may have a value higher than the exercise price. Conversely, the writing of a put option on a futures contract generates a premium which may partially offset an increase in the price of securities that the Fund intends to purchase. However, a Fund becomes obligated (upon exercise of the option) to purchase a futures contract if the option is exercised, which may have a value lower than the exercise price. The loss incurred by each Fund in writing options on futures is potentially unlimited and may exceed the amount of the premium received.
The holder or writer of an option on a futures contract may terminate its position by selling or purchasing an offsetting option of the same series. There is no guarantee that such closing transactions can be effected. A Fund's ability to establish and close out positions on such options will be subject to the development and maintenance of a liquid market.
Other Considerations. The Fund will engage in futures and related options transactions either for bona fide hedging or for other non-speculative purposes as permitted by the CFTC. These purposes may include using futures and options on futures as substitute for the purchase or sale of securities or currencies to increase or reduce exposure to particular markets. To the extent that a Fund is using futures and related options for hedging purposes, futures contracts will be sold to protect against a decline in the price of securities (or the currency in which they are quoted or denominated) that the Fund owns or futures contracts will be purchased to protect the Fund against an increase in the price of securities or the currency in which they are quoted or denominated) it intends to purchase. The Fund will determine that the price fluctuations in the futures contracts and options on futures used for hedging purposes are substantially related to price fluctuations in securities held by the Fund or securities or instruments which it expects to purchase. As evidence of its hedging intent, the Fund expects that on 75% or more of the occasions on which it takes a long futures or option position (involving the purchase of futures contracts), the Fund will have purchased, or will be in the process of purchasing, equivalent amounts of related securities in the cash market at the time when the futures or option position is closed out. However, in particular cases, when it is economically advantageous for the Fund to do so, a long futures position may be terminated or an option may expire without the corresponding purchase of securities or other assets.
To the extent that the Fund engages in nonhedging transactions in futures contracts and options on futures, the aggregate initial margin and premiums required to establish these nonhedging positions will not exceed 5% of the net asset value of the Fund's portfolio, after taking into account unrealized profits and losses on any such positions and excluding the amount by which such options were in-the-money at the time of purchase.
Transactions in futures contracts and options on futures involve brokerage costs, require margin deposits and, in the case of contracts and options obligating a Fund to purchase securities or currencies, require the Fund to establish a segregated account consisting of cash or liquid securities in an amount equal to the underlying value of such contracts and options.
While transactions in futures contracts and options on futures may reduce certain risks, these transactions themselves entail certain other risks. For example, unanticipated changes in interest rates, securities prices or currency exchange rates may result in a poorer overall performance for a Fund than if it had not entered into any futures contracts or options transactions.
Perfect correlation between a Fund's futures positions and portfolio positions will be impossible to achieve. In the event of an imperfect correlation between a futures position and a portfolio
position which is intended to be protected, the desired protection may not be obtained and the Fund may be exposed to risk of loss. In addition, it is not possible to hedge fully or protect against currency fluctuations affecting the value of securities denominated in foreign currencies because the value of such securities is likely to fluctuate as a result of independent factors not related to currency fluctuations.
Some futures contracts or options on futures may become illiquid under adverse market conditions. In addition, during periods of market volatility, a commodity exchange may suspend or limit trading in a futures contract or related option, which may make the instrument temporarily illiquid and difficult to price. Commodity exchanges may also establish daily limits on the amount that the price of a futures contract or related option can vary from the previous 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 of portfolio securities to attempt to limit its exposure to, or hedge, a possible market decline in the value of its portfolio securities. The Fund may also sell short securities that are not in the Fund's portfolio, but which the Adviser believes possess volatility characteristics similar to those portfolio securities being hedged. To effect such a transaction, the Fund must borrow the security sold short to make delivery to the buyer. The Fund is then 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 or interest 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 security being hedged.
Under applicable guidelines of the staff of the SEC, if the Fund engages in short sales, it must put in a segregated account (not with the broker) an amount of cash or liquid securities, of any type or maturity, equal to the difference between (a) the market value of the securities sold short at the time they were sold short and (b) any cash or 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.
There may be certain holding period and gain/loss adjustments due to tax rules regarding short sales. Some long term capital gains may be recognized as short term and some short term capital losses may be recognized as long term for tax. There may be losses realized on a short sale that may not be recognized for tax if there is appreciated substantially identical property still held.
Short selling may produce higher than normal portfolio turnover which may result in increased transaction costs to the Fund.
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 the securities sold short exceeds the value of 15% 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 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.
Portfolio Holdings Disclosure Policy. The Fund's portfolio holding disclosure policy is attached to this Statement of Additional Information as Appendix D.
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 paragraphs 2, 5 and 6 below and as otherwise permitted under the 1940 Act. For purposes of this restriction, the issuance of shares of beneficial interest in multiple classes or series, the deferral of trustees' fees, the purchase or sale of options, futures contracts and options on futures contracts, forward commitments, forward foreign exchange contracts and repurchase agreements entered into in accordance with the Fund's investment policies are not deemed to be senior securities.
2. Borrow money, except: (i) for temporary or short-term purposes or for the clearance of transactions in amounts not to exceed 33 1/3% of the value of the fund's total assets (including the amount borrowed) taken at market value; (ii) in connection with the redemption of fund shares or to finance failed settlements of portfolio trades without immediately liquidating portfolio securities or other assets, (iii) in order to fulfill commitments or plans to purchase additional securities pending the anticipated sale of other portfolio securities or assets; (iv) in connection with entering into reverse repurchase agreements and dollar rolls, but only if after each such borrowing there is asset coverage of at least 300% as defined in the 1940 Act; and (v) as otherwise permitted under the 1940 Act. For purposes of this investment restriction, the deferral of trustees' fees and transactions in short sales, futures contracts, options on futures contracts, securities or indices and forward commitment transactions shall not constitute borrowing.
3. Act as an underwriter, except to the extent that in connection with the disposition of portfolio securities, the Fund may be deemed to be an underwriter for purposes of the Securities Act of 1933.
4. Purchase, sell or invest in real estate, but subject to its other investment policies and restrictions may invest in securities of companies that deal in real estate or are engaged in the real estate business. These companies include real estate investment trusts and securities secured by real estate or interests in real estate. The fund may hold and sell real
estate acquired through default, liquidation or other distributions of an interest in real estate as a result of the fund's ownership of securities.
5. Invest in commodities or commodity futures contracts, except for transactions in financial derivative contracts. Financial derivatives include forward currency contracts; financial futures contracts and options on financial futures contracts; options and warrants on securities, currencies and financial indices; swaps, caps, floors, collars and swaptions; and repurchase agreements entered into in accordance with the fund's investment policies.
6. Make loans, except that the fund may (i) lend portfolio securities in accordance with the fund's investment policies up to 33 1/3% of the fund's total assets taken at market value, (ii) enter into repurchase agreements, and (iii) purchase all or a portion of an issue of publicly distributed debt securities, bank loan participation interests, bank certificates of deposit, bankers' acceptances, debentures or other securities, whether or not the purchase is made upon the original issuance of the securities.
7. Purchase the securities of issuers conducting their principal activity in the same industry if, immediately after such purchase, the value of its investments in such industry would exceed 25% of its total assets taken at market value at the time of such investment. This limitation does not apply to investments in obligations of the U.S. Government or any of its agencies, instrumentalities or authorities.
8. With respect to 75% of the fund's total assets, the fund may not invest more than 5% of the fund's total assets in the securities of any single issuer or own more than 10% of the outstanding voting securities of any one issuer, in each case other than (i) securities issued or guaranteed by the U.S. Government, its agencies or its instrumentalities or (ii) securities of other investment companies.
Non-Fundamental Investment Restrictions. The following investment restrictions are designated as non-fundamental and may be changed by the Trustees without shareholder approval.
The Fund may not:
1. Purchase a security if, as a result, (i) more than 10% of the fund's total
assets would be invested in the securities of other investment companies,
(ii) the fund would hold more than 3% of the total outstanding voting
securities of any one investment company, or (iii) more than 5% of the
Fund's total assets would be invested in the securities of any one
investment company. These limitations do not apply to (a) the investment of
cash collateral, received by the fund in connection with lending of the
fund's portfolio securities, in the securities of open-end investment
companies or (b) the purchase of shares of any investment company in
connection with a merger, consolidation, reorganization or purchase of
substantially all of the assets of another investment company. Subject to
the above percentage limitations, the fund may, in connection with the John
Hancock Group of Funds Deferred Compensation Plan for Independent
Trustees/Directors, purchase securities of other investment companies
within the John Hancock Group of Funds.
2. Invest in the securities of an issuer for the purpose of exercising control or management.
3. Purchase securities on margin, except that the Fund may obtain such short-term credits as may be necessary for the clearance of securities transactions.
4. Invest more than 15% of its net assets in securities which are illiquid.
Except with respect to borrowing money, if a percentage restriction on investment or utilization of assets as set forth above is adhered to at the time an investment is made, a later change in percentage resulting from changes in the value of the Fund's assets will not be considered a violation of the restriction.
The Funds will invest only in countries on the Adviser's Approved Country Listing. The Approved Country Listing is a list maintained by the Adviser 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").
---------------------------- ------------- ----------- ---------------------------------------------- ----------------
Number of John
Position(s) Trustee/ Hancock Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Fund since (2) Directorships During Past 5 Years Trustee
---------------------------- ------------- ----------- ---------------------------------------------- ----------------
Independent Trustees
---------------------------- ------------- ----------- ---------------------------------------------- ----------------
James F. Carlin Trustee 2005 Director and Treasurer, Alpha Analytical 53
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. (until 2005);
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)
---------------------------- ------------- ----------- ---------------------------------------------- ----------------
Richard P. Chapman, Jr. Trustee 2005 President and Chief Executive Officer, 53
Born: 1935 Brookline Bancorp., Inc. (lending) (since
1972); Chairman and Director, Lumber
Insurance Co. (insurance) (until 2000);
Chairman and Director, Northeast Retirement
Services, Inc. (retirement administration)
(since 1998).
---------------------------- ------------- ----------- ---------------------------------------------- ----------------
|
(1) Business address for independent and non-independent Trustees and officers
is 601 Congress Street, Boston, Massachusetts 02210-2805.
(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.
---------------------------- ------------- ------------- ------------------------------------------- -----------------
Number of John
Position(s) Trustee/ Hancock Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Fund since (2) Directorships During Past 5 Years Trustee
---------------------------- ------------- ------------- ------------------------------------------- -----------------
Independent Trustees
---------------------------- ------------- ------------- ------------------------------------------- -----------------
William H. Cunningham Trustee 2005 Former Chancellor, University of Texas 143
Born: 1944 System and former President of the
University of Texas, Austin, Texas;
Chairman and CEO, IBT Technologies (until
2001); Director of the following:
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), AskRed.com (until
2001), Southwest Airlines, Introgen and
Viasystems, Group, Inc. (electronic
manufacturer) (until 2003); Advisory
Director, Interactive Bridge, Inc.
(college fundraising) (until 2001);
Advisory Director, Q Investments (until
2003); Advisory Director, JP Morgan
Chase Bank (formerly Texas Commerce Bank
- Austin), LIN Television (since 2002),
WilTel Communications (until 2003) and
Hayes Lemmerz International, Inc.
(diversified automotive parts supply
company) (since 2003).
--------------------------- ------------- ------------- ------------------------------------------- -----------------
|
(1) Business address for independent and non-independent Trustees and officers
is 601 Congress Street, Boston, Massachusetts 02210-2805.
(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.
---------------------------- ------------- ------------- ------------------------------------------- -----------------
Number of John
Position(s) Trustee/ Hancock Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Fund since (2) Directorships During Past 5 Years Trustee
---------------------------- ------------- ------------- ------------------------------------------- -----------------
---------------------------- ------------- ------------- ------------------------------------------- -----------------
Ronald R. Dion Chairman 2005 Chairman and Chief Executive Officer, 53
Born: 1946 and Trustee R.M. 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;
Director, Boston Municipal Research
Bureau; Member of the Advisory
Board, Carroll Graduate School of
Management at Boston College.
---------------------------- ------------- ------------- ------------------------------------------- -----------------
Charles L. Ladner Trustee 2005 Chairman and Trustee, Dunwoody Village, 143
Born: 1938 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).
---------------------------- ------------- ------------- ------------------------------------------- -----------------
John A. Moore Trustee 2005 President and Chief Executive Officer, 53
Born: 1939 Institute for Evaluating Health Risks,
(nonprofit institution) (until 2001);
Senior Scientist, Sciences International
(health research)(until 2003); Former
Assistant Administrator & Deputy
Administrator, Environmental Protection
Agency; Principal, Hollyhouse
(consulting)(since 2000); Director, CIIT
Center for Health Science Research
(nonprofit research) (since 2002).
---------------------------- ------------- ------------- ------------------------------------------- -----------------
|
(1) Business address for independent and non-independent Trustees and officers
is 601 Congress Street, Boston, Massachusetts 02210-2805.
(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.
---------------------------- ------------- ------------- --------------------------------------- -----------------
Number of John
Position(s) Trustee/ Hancock Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Fund since (2) Directorships During Past 5 Years Trustee
---------------------------- ------------- ------------- --------------------------------------- -----------------
Patti McGill Peterson Trustee 2005 Executive Director, Council for 53
Born: 1943 International 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, 53
Born: 1944 Greenscapes of Southwest Florida, Inc.
(since 2000); Director and President,
Greenscapes of Southwest Florida, 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).
---------------------------- ------------- ------------- --------------------------------------- -----------------
Non-Independent Trustees
---------------------------- ------------- ------------- --------------------------------------- -----------------
James R. Boyle (3) Trustee 2005 Chairman and Director, John Hancock 184
Born: 1959 Advisers, LLC (the "Adviser"), The
Berkeley Financial Group, LLC ("The
Berkeley Group") (holding company) and
John Hancock Funds, LLC. ("John Hancock
Funds"); President, John Hancock
Annuities; Executive Vice President,
John Hancock Life Insurance Company
(since June, 2004); President U.S.
Annuities; Senior Vice President, The
Manufacturers Life Insurance Company
(U.S.A) (prior to 2004).
---------------------------- ------------- ------------- --------------------------------------- -----------------
|
(1) Business address for independent and non-independent Trustees and officers
is 601 Congress Street, Boston, Massachusetts 02210-2805.
(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.
---------------------------- ------------- ------------- --------------------------------------- -----------------
Number of John
Position(s) Trustee/ Hancock Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Fund since (2) Directorships During Past 5 Years Trustee
---------------------------- ------------- ------------- --------------------------------------- -----------------
Principal Officers who are
not Trustees
---------------------------- ------------- ------------- --------------------------------------- -----------------
Keith F. Hartstein President and 2005 Senior Vice President, Manulife N/A
Born: 1956 Chief Financial Corporation (since 2004);
Executive Director, President and Chief Executive
Officer Officer, the Adviser and The Berkeley
Group (holding company); Director,
President and Chief Executive Officer,
John Hancock Funds; Director, President
and Chief Executive Officer, Sovereign
Asset Management LLC ("Sovereign");
Director, John Hancock Signature
Services, Inc.; Director, Chairman and
President, NM Capital Management, Inc.
(NM Capital); Chairman, Investment
Company Institute Sales Force Marketing
Committee (since 2003); Executive Vice
President, John Hancock Funds, LLC
(until 2005).
---------------------------- ------------- ------------- --------------------------------------- -----------------
William H. King Vice President 2005 Vice President and Assistant Treasurer, N/A
Born: 1952 and Treasurer the Adviser; Vice President and
Treasurer of each of the John Hancock
funds advised by the Adviser; Assistant
Treasurer of each of the John Hancock
funds advised by the Adviser (until
2001).
---------------------------- ------------- ------------- --------------------------------------- -----------------
|
(1) Business address for independent and non-independent Trustees and officers
is 601 Congress Street, Boston, Massachusetts 02210-2805.
(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.
---------------------------- --------------- ------------ --------------------------------------- -----------------
Number of John
Position(s) Trustee/ Hancock Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Fund since (2) Directorships During Past 5 Years Trustee
---------------------------- --------------- ------------ --------------------------------------- -----------------
Francis V. Knox, Jr. Vice President 2005 Vice President and Chief Compliance N/A
Born: 1947 and Chief Officer for John Hancock Investment
Compliance Company, John Hancock Life Insurance
Officer Company (U.S.A.), John Hancock Life
Insurance Company and John Hancock
Funds (since 2005); Fidelity
Investments - Vice President and
Assistant Treasurer, Fidelity Group of
Funds (until 2004); Fidelity
Investments - Vice President and Ethics
& Compliance Officer (until 2001).
---------------------------- ------------- ------------- --------------------------------------- -----------------
John G. Vrysen Executive Vice 2005 Director, Executive Vice President and N/A
Born: 1955 President and Chief Financial Officer, the Adviser,
Chief Sovereign, the Berkeley Group (holding
Financial company) and John Hancock Funds (since
Officer 2005);Vice President and General
Manager, Fixed Annuities, U.S. Wealth
Management (until 2005).Vice President,
Operations Manulife Wood Logan
7/00-9/04.
---------------------------- ------------- ------------- --------------------------------------- -----------------
|
(1) Business address for independent and non-independent Trustees and officers
is 601 Congress Street, Boston, Massachusetts 02210-2805.
(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 Contracts/Operations Committee, the Governance Committee and the Investment Performance Committee. Each Committee is comprised of Independent Trustees who are not "interested persons" of the Fund.
The Audit Committee members are Messrs. Chapman, Ladner, Moore and Ms. McGill Peterson. All of the members of the Audit Committee are independent 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 December 31, 2005.
The Governance Committee members are all of the independent Trustees. The Governance Committee makes recommendations to the Board on issues related to corporate governance applicable to the Independent Trustees and to the composition and operation of the Board and to assume duties, responsibilities and functions to nominate candidates to the Board, together with such addition duties, responsibilities and functions as are delegated to it from time to time. Among other things, the Governance Committee acts as a nominating committee of the Board. In reviewing a potential nominee and in evaluating the renomination of current Independent Trustees, the Governance Committee will generally apply the following criteria: (i) the nominee's reputation for integrity, honesty and adherence to high ethical standards, (ii) the nominee's 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 Governance Committee does not necessarily place the same emphasis on each criteria and each nominee may not have each of these qualities. The Governance Committee does not discriminate on the basis of race, religion, national origin, sex, sexual orientation, disability or any other basis proscribed by law. The Governance Committee is a new committee and held four meetings during the fiscal year ended December 31, 2005. (The nominating function of the Governance Committee was previously carried out by the Administration Committee.)
As long as an existing Independent Trustee continues, in the opinion of the Governance 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 Governance Committee will consider nominees recommended by shareholders to serve as trustees, the Governance 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 Governance Committee will, in addition to any shareholder recommendations, consider candidates identified by other means, including candidates proposed by members of the Governance Committee. While it has not done so in the past, the Governance 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 Governance Committee. In evaluating a nominee recommended by a shareholder, the Governance 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 Governance 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: 601 Congress Street, Boston, MA 02210-2805. 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, Cunningham, Dion and Pruchansky. The Contracts/Operations Committee oversees the initiation, operation, and renewal of contracts between the Fund and other entities. These contracts include advisory and subadvisory agreements, custodial and transfer agency agreements and arrangements with other service providers. The Contracts/Operations Committee held five meetings during the fiscal year ended December 31, 2005.
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 December 31, 2005.
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, 2005.
---------------------------------------- -------------------------------------- --------------------------------------
Aggregate Dollar Range of holdings
Dollar Range of Fund Shares Owned by in John Hancock funds overseen by
Name of Trustee Trustee (1) Trustee (1)
---------------------------------------- -------------------------------------- --------------------------------------
Independent Trustees
---------------------------------------- -------------------------------------- --------------------------------------
James F. Carlin None Over 100,000
---------------------------------------- -------------------------------------- --------------------------------------
Richard P. Chapman, Jr. None Over 100,000
---------------------------------------- -------------------------------------- --------------------------------------
William H. Cunningham None $10,001-50,000
---------------------------------------- -------------------------------------- --------------------------------------
Ronald R. Dion None Over 100,000
---------------------------------------- -------------------------------------- --------------------------------------
Charles L. Ladner None Over 100,000
---------------------------------------- -------------------------------------- --------------------------------------
Dr. John A. Moore None Over 100,000
---------------------------------------- -------------------------------------- --------------------------------------
Patti McGill Peterson None Over 100,000
---------------------------------------- -------------------------------------- --------------------------------------
Steven R. Pruchansky None Over 100,000
---------------------------------------- -------------------------------------- --------------------------------------
Non-Independent Trustees
---------------------------------------- -------------------------------------- --------------------------------------
James R. Boyle None $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, 2005, 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. Cunningham, none and over $100,000 for Mr. Dion, none and over $100,000 for Dr. Moore and none and over $100,000 for Mr. Pruchansky.
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 receive no compensation from the Fund for their services.
Total Compensation From the
Aggregate Compensation Fund and John Hancock Fund
Independent Trustees from the Fund (1) Complex to Trustees (2)
-------------------- --------------------- ---------------------------
James F. Carlin $ 6 $ 103,703
Richard P. Chapman* 6 103,953
William J. Cosgrove+ 4 95,203
William H. Cunningham* 7 109,171
Ronald R. Dion*++ 12 151,399
Charles L. Ladner++ 11 149,790
Dr. John A. Moore* 8 115,703
Patti McGill Peterson 6 100,203
Steven R. Pruchansky* 7 115,203
Norman H. Smith* + 4 88,953
---- ----------
Total $ 71 $1,133,281
|
(1) Compensation is for the fiscal year ending December 31, 2005.
(2) Total compensation paid by the John Hancock Funds Complex to the Independent Trustees is as of December 31, 2005. As of this date, Messrs. Carlin, Chapman, Dion, Moore, Pruchansky and Ms. Peterson served on fifty-three funds in the John Hancock Fund Complex: Messrs. Ladner and Cunningham served on one-hundred-forty-three funds.
* As of December 31, 2005, the value of the aggregate accrued deferred compensation amount from all funds in the John Hancock Funds Complex for Mr. Chapman was $76,421, Mr. Cunningham was $125,996, Mr. Dion was $325,086, Mr. Glavin was $243,554, Dr. Moore was $283,070, Mr. Pruchansky was $246,371 and Mr. Smith was $382,371 under the John Hancock Group of Funds Deferred Compensation Plan for Independent Trustees (the "Plan").
+ Mr. Cosgrove retired as of March 31, 2005. Mr. Smith retired as of June 30, 2005.
++ As of September 12, 2005, the Independent Trustees elected Mr. Dion as Independent Chairman of the Board. As of June 16, 2004, and until September 12, 2005, Mr. Ladner was the 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 1, 2006, 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 the Fund.
--------------------------------------------------------- -------------- --------------- -------------- -------------- Name and Address of Owners of More than 5% of Shares Class A Class B Class C Class I --------------------------------------------------------- -------------- --------------- -------------- -------------- John Hancock Advisers, LLC 100.0% 100.0% 100.0% 100.0% 601 Congress Street Boston MA --------------------------------------------------------- -------------- --------------- -------------- -------------- |
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 601 Congress Street, Boston, Massachusetts 022100-2805,
a premier investment management company, managed approximately $28 billion in
open-end funds, closed-end funds, private accounts, retirement plans and related
party assets for individual and institutional investors as of March 31, 2005.
Additional information about John Hancock Advisers can be found on the website:
www.jhfunds.com.
The Sub-Adviser, Sovereign, located at 101 Huntington Avenue, Boston, Massachusetts 02199, was organized in 1979 and as of December 31, 2005 approximately $25 billion in assets. The Sub-Adviser is a wholly-owned indirect subsidiary of John Hancock Financial Services, Inc.(an indirect wholly-owned subsidiary of Manulife Financial Corporation).
The Board of Trustees appointed Sovereign as Sub-Adviser to the Fund effective December 31, 2005. As of that date, the investment personnel of the Adviser were reassigned to Sovereign. The Adviser will continue to serve as investment adviser to the Fund and will be responsible for the supervision of Sovereign's services to the Fund.
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, in conjunction with the Sub-Adviser, will: (a) furnish continuously an investment program for the Fund and determine, subject to the overall supervision and review of the Trustees, which investments should be purchased, held sold or exchanged and (b) provide supervision over all aspects of the Fund's operations except those which are delegated to a custodian, transfer agent or other agent.
The Adviser and the Fund have entered into a Sub-Advisory Agreement with the Sub-Adviser under which the Sub-Adviser, subject to the review of the Trustees and the overall supervision of the Adviser, is responsible for managing the investment operations of the Fund and the composition of the Fund's portfolio and furnishing the Fund with advice and recommendations with respect to investments, investment policies and the purchase and sale of securities.
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 custodian 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, equal on an annual basis to 0.75% of the Fund.
From time to time, the Adviser may reduce its fee or make other arrangements to limit the Fund's expenses to a specified percentage of average daily net assets. The Adviser retains the right to reimpose a fee and recover any other payments to the extent that, at the end of any fiscal year, the Fund's annual expenses fall below this limit.
The Adviser has agreed to limit the Fund's expenses (excluding 12b-1 and transfer agent fees) to 1.05% of the Fund's average daily net assets. The Adviser reserves the right to terminate this limitation in the future.
For the period from February 28, 2005 through December 31, 2005, advisory fee payable to the Fund's Adviser amounted to $20,203, respectively, prior to the expense reduction by the Adviser until April 30, 2007. After the expense reduction, the fund paid no advisory fees.
Securities held by the Fund may also be held by other funds or investment advisory clients for which the Adviser, the Sub-Adviser or their respective affiliates provide investment advice. Because of different investment objectives or other factors, a particular security may be bought for one or more funds or clients when one or more are selling the same security. If opportunities for purchase or sale of securities by the Adviser or Sub-Adviser for the Fund or for other funds or clients for which the Adviser or Sub-Adviser renders investment advice arise for consideration at or about the same time, transactions in such securities will be made, insofar as feasible, for the respective funds or clients in a manner deemed equitable to all of them. To the extent that transactions on behalf of more than one client of the Adviser, the Sub-Adviser or their respective affiliates may increase the demand for securities being purchased or the supply of securities being sold, there may be an adverse effect on price.
Pursuant to the Advisory Agreement and Sub-Advisory Agreement, the Adviser and Sub-Adviser are not liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the matters to which their respective Agreements relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the Adviser or Sub-Adviser in the performance of their duties or from their reckless disregard of the obligations and duties under the applicable Agreements.
Under the Advisory Agreement, the Fund may use the name "John Hancock" or any name derived from or similar to it only for so long as the Advisory Agreement or any extension, renewal or amendment thereof remains in effect. If the Fund's Advisory Agreement is no longer in effect, the Fund (to the extent that it lawfully can) will cease to use such name or any other name indicating that it is advised by or otherwise connected with the Adviser. In addition, the Adviser or the John Hancock Life Company (the "John Hancock") may grant the non-exclusive right to use the name "John Hancock" or any similar name to any other corporation or entity, including but not limited to any investment company of which the Life Company or any subsidiary or affiliate thereof or any successor to the business of any subsidiary or affiliate thereof shall be the investment adviser.
The Advisory Agreement and the Distribution Agreement (discussed below) and the initial approval of the Sub-Advisory Agreement were approved by all Trustees. The Advisory Agreement, Sub-Advisory Agreement and the Distribution Agreement will continue in effect from year to year, provided that its continuance is approved annually both (I) by the holders of a majority of the outstanding voting securities of the Trust or by the Trustees, and (ii) by a
majority of the Trustees who are no parties to the Agreement or "interested persons" of any such parties. Both agreements may be terminated on 60 days written notice by any party or by vote of a majority to the outstanding voting securities of the Fund and will terminate automatically if assigned. The Sub-Advisory Agreement terminates automatically upon the termination of the Advisory Agreement.
As compensation for its services under the Sub-Advisory Agreement, the Adviser (not the Fund) pays the Sub-Adviser monthly a fee based on a stated percentage of the average daily net assets, equal on an annual basis to 0.325% of the Fund.
Accounting and Legal Services Agreement. The Trust, on behalf of the Fund, is a party to an Accounting and Legal Services Agreement with the Adviser. Pursuant to this Agreement, the Adviser provides the Fund with certain tax, accounting and legal services. For the period from February 28, 2005 through December 31, 2005, the Fund paid Adviser $673, 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 who in turn has made contractual arrangements for the Fund's sub-adviser to vote proxies relating to securities held by the Fund. A summary of the Sub-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 for the 12-month period ending June 30, 2005 will be 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 Funds. The Fund also may hold, or may be buying or selling, the same securities. To prevent the Fund from being disadvantaged, the Adviser, Sub-Adviser, principal underwriter and the Fund have adopted a code of ethics which restricts the trading activity of those personnel.
ADDITIONAL INFORMATION ABOUT THE PORTFOLIO MANAGERS
Other Accounts the Portfolio Managers are Managing. The table below indicates for each portfolio manager 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 December 31, 2005. 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 MANAGERS
------------------------------ --------------------------------------------------------------------------------------
Timothy E. Keefe Other Registered Investment Companies: Three (3) fund with total net assets of
approximately $625.5 million.
Other Pooled Investment Vehicles: None
Other Accounts: Eighteen (18) accounts with total net assets of approximately $65.5
million.
------------------------------ --------------------------------------------------------------------------------------
Timothy M. Malloy Other Registered Investment Companies: One (1) fund with total net assets of
approximately $3.5 million.
Other Pooled Investment Vehicles: None
Other Accounts: One (1) account with total net assets of approximately $54.8 million.
------------------------------ --------------------------------------------------------------------------------------
|
The Adviser and Sub-Adviser do not receive a fee based upon the investment performance of any of the accounts included under "Other Accounts Managed by the Portfolio Managers" 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 and the Sub-Adviser have 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 Sub-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.
o 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 Sub-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.
o 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 Sub-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 Sub-Adviser will place the order in a manner intended to result in as favorable a price as possible for such client.
o 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. Neither the Adviser nor the Sub-Adviser receives a performance-based fee with respect to one of the other accounts managed by a portfolio manager.
o 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 Sub-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.
o If the different accounts have materially and potentially conflicting investment objectives or strategies, a conflict of interest may arise. In making portfolio manager assignments, the Sub-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 Sub-Adviser has adopted a system of compensation for portfolio managers and others involved in the investment process that is applied systematically among investment professionals. At the Sub-Adviser, the structure of compensation of investment professionals is currently comprised of the following basic components: base salary, and an annual investment bonus plan, as well as customary benefits that are offered generally to all full-time employees of the Sub-Adviser. A limited number of senior portfolio managers, who serve as officers of both the Sub-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.
o Base salary. Base compensation is fixed and normally reevaluated on an annual basis. The Sub-Adviser seeks to set compensation at market rates, taking into account the experience and responsibilities of the investment professional.
o 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 Sub-Adviser and the investment professional. Any bonus under the plan is completely discretionary, with a maximum annual bonus that may be well 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:
o 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 Morningstar 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.
o The Profitability of the Sub-Adviser: The profitability of the Sub-Adviser and its parent company are also considered in determining bonus awards, with greater emphasis placed upon the profitability of the Adviser.
o Non-Investment Performance: The more intangible contributions of an investment professional to the Sub-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.
o 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 Sub-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 Sub-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 Portfolio Managers. The following table indicates as of December 31, 2005 the value, within the indicated range, of shares beneficially owned by the portfolio managers 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 ---------------------------------------- -------------------------------------- Timothy E. Keefe A ---------------------------------------- -------------------------------------- Timothy M. Malloy A ---------------------------------------- -------------------------------------- |
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. In the case of Class B and Class C shares, the Selling Firm receives compensation immediately but John Hancock Funds is compensated on a deferred basis.
There were no underwriting commission for sales of the Fund's Class A shares or Class C shares for the period from February 29, 2005 through December 31, 2005.
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 30% for Class A and 1.00% for Class B and Class C of the Fund's average daily net assets attributable to shares of that class. However, the service fee will not exceed 0.25% of the Fund's average daily net assets attributable to each class of shares. The distribution fees will be used to reimburse John Hancock Funds for their 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 for providing personal and account maintenance services to shareholders. In the event the 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 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. The Fund does not treat unreimbursed expenses under 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 December 31, 2005, an aggregate of $3,748 of distribution expenses or 6.33% of the average net assets of the Class B shares of the Fund, were not reimbursed or recovered by John Hancock Funds through the receipt of deferred sales charges or Rule 12b-1 fees in the prior periods. For the fiscal year ended December 31, 2005, an aggregate of $3,707 of distribution expenses or 6.27% of the average net assets of the Class C shares of the Fund, were not reimbursed or recovered by John Hancock Funds through the receipt of deferred sales charges or Rule 12b-1 fees in the prior periods.
The Plans were approved by a majority of the voting securities of the Fund. The Plans and all amendments were approved by the Trustees, including a majority of the Trustees who are not interested persons of the Fund and who have no direct or indirect financial interest in the operation of the Plans (the "Independent Trustees"), by votes cast in person at meetings called for the purpose of voting on such Plans.
Pursuant to the Plans, at least quarterly, John Hancock Funds provides the Fund with a written report of the amounts expended under the Plans and the purpose for which the expenditures were made. The Trustees review these reports on a quarterly basis to determine their continued appropriateness.
The Plans provide that they will continue in effect only so long as their continuance is approved at least annually by a majority of both the Trustees and Independent Trustees. The Plans provide that they may be terminated without penalty, (a) by vote of a majority of the Independent Trustees, (b) by a vote of a majority of the Fund's outstanding shares of the applicable class upon 60 days' written notice to John Hancock Funds, and (c) automatically in the event of assignment. The Plans further provide that they may not be amended to increase the maximum amount of the fees for the services described therein without the approval of a majority of the outstanding shares of the class of the Fund which has voting rights with respect to that Plan. Each Plan provides, that no material amendment to the Plans will be effective unless it is approved by a majority vote of the Trustees and the Independent Trustees of the Fund. The holders of Class A, Class B and Class C shares have exclusive voting rights with respect to the Plan applicable to their respective class of shares. In adopting the Plans, the Trustees concluded that, in their judgment, these is a reasonable likelihood that the Plans will benefit the holders of the applicable class of shares of the Fund.
Class I shares of the Fund are not subject to any distribution plan. Expenses associated with the obligation of John Hancock Funds to use its best efforts to sell Class I shares will be paid by the Adviser or by John Hancock Funds and will not be paid from the fees paid under Class A, Class B or Class C Plans.
Amounts paid to John Hancock Funds by any class of shares of the Fund will not be used to pay the expenses incurred with respect to any other class of shares of the Fund; provided, however, that expenses attributable to the Fund as a whole will be allocated, to the extent permitted by law, according to a formula based upon gross sales dollars and/or average daily net assets of each such class, as may be approved from time to time by vote of a majority of Trustees. From
time to time, the Fund may participate in joint distribution activities with other Funds and the costs of those activities will be borne by each Fund in proportion to the relative net asset value of the participating Funds.
Expense Items
Interest,
Printing and Carrying or
Mailing of Expenses of Other
Prospectuses to John Hancock Compensation Finance
Shares Advertising New Shareholders Funds to Selling Firms Charges
------ ---------- ---------------- ------------ ---------------- -------
Class A $ 39 0 0 $ 7,235 0
Class B 4 0 0 710 0
Class C 4 0 0 710 0
|
SALES COMPENSATION
As part of their business strategies, the Fund, along with the Distributor, pays 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 and Class C are (1) the 12 b-1 fees that are paid out of the fund's assets and
(2) sales charges paid by investors. The sales charges and 12b-1 fees are
detailed in the prospectus and under "Distribution Contracts", "Initial Sales
Charge on Class A Shares" and "Deferred Sales Charge on Class B and Class C
shares" 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, the Distributor 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.
Additional compensation. The Distributor, at its expense, and without additional cost to the Fund or its shareholders, may provide additional compensation to a Selling Firm in connection with their promotion of the Fund or sale of shares of the Fund. The Distributor, may make
payments to selling firms for marketing support and/or shareholder administrative services. These marketing support payments may include 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, the Distributor may provide expense reimbursements for special training of a Selling Firm's registered representatives and other employees in group meetings. Non-cash compensation may also take the form of occasional gifts, meals, tickets or other entertainment as limited by NASD requirements. Payments may 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. The Distributor compensates Selling Firms differently depending upon, among other factors, the level and/or type of marketing support provided by the Selling Firm. The level of payments made to a Selling Firm in any given year will vary and may be substantial. These payments may provide an incentive to a Selling Firm to actively promote the Funds or cooperate with the Distributor promotional efforts. Depending on the arrangements in place at any particular time, Selling Firms may have a financial incentive to recommend a particular fund or a share class. You should ask your Selling Firm for more information about any services it provides, as well as about fees, commissions and/or marketing support payments.
First Year Broker or Other Selling Firm Compensation
Investor pays
sales charge Selling Firm Selling Firm Total Selling Firm
(% of offering receives receives 12b-1 Compensation
Class A investments price) commission (1) service fee (2) (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%
Class I investments
All amounts -- 0.00% 0.00% 0.00% (6)
|
(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, LLC 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, LLC may take recent redemptions into account in determining if an investment qualifies as a new investment.
(6) John Hancock Funds, LLC may make a one-time payment at time of initial purchase out of its own resources to a Selling Firm that sells Class I shares of the fund. This payment may be up to 0.15% of the amount invested.
CDSC revenues collected by John Hancock Funds, LLC may be used to pay Selling Firm commissions when there is no initial sales charge.
NET ASSET VALUE
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.
For purposes of calculating the net asset value ("NAV") of the Fund's shares, the following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished by a principal market maker or a pricing service, both of which generally utilize electronic data processing techniques to determine valuations for normal institutional size trading units of debt securities without exclusive reliance upon quoted prices. 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 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.
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 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 "Combination" and "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 living in the same household (see "Combination and Accumulation 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. John Hancock Signature Services, Inc. will automatically link certain accounts registered in the same client name, with the same taxpayer identification number, for the purpose of qualifying you for lower initial sales charge rates. You must notify John Hancock Signature Services Inc. and your broker-dealer (financial adviser) at the time of purchase of any eligible accounts held by your spouse or children under 21, living in the same household in order to insure these assets are linked to your accounts.
Without Sales Charges. Class A shares may be offered without a front-end sales charge or contingent deferred sales charge ("CDSC") to various individuals and institutions as follows:
o A Trustee or officer of the Trust; a Director or officer of the Adviser and its affiliates, 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.
o A broker, dealer, financial planner, consultant or registered investment advisor that has entered into a signed agreement with John Hancock Funds providing specifically for the use of Fund shares in fee-based investment products or services made available to their clients.
o Individuals transferring assets held in a SIMPLE IRA, SEP, or SARSEP invested in John Hancock Funds directly to an IRA.
o Individuals converting assets held in an IRA, SIMPLE IRA, SEP, or SARSEP invested in John Hancock Funds directly to a ROTH IRA.
NOTE: Rollover investments to Class A shares from assets withdrawn from SIMPLE
401(k), TSA, 457, 403(b), 401(k), Money Purchase Pension Plan, Profit-Sharing
Plan and any other qualified plans as described in the Internal Revenue Codes
401(a), 403(b), 457 and not specified above as waiver eligible, will be subject
to applicable sales charges.
o A member of a class action lawsuit against insurance companies who is investing settlement proceeds.
o Certain retirement plans participating in Merrill Lynch servicing programs offered in Class A shares, including transferee recording arrangements, Merrill Lynch Connect Arrangements and third party administrator recordkeeping arrangements. See your Merrill Lynch Financial Consultant for further information.
o Retirement plans investing through the PruSolutions(sm) program.
o 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.
o 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% |
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.
In Kind Re-registrations. A shareholder who withdraws funds via a tax reportable transaction, from one John Hancock fund account, that has previously paid a sales charge, and reregisters those assets directly to another John Hancock Fund account, without the assets ever leaving John Hancock Funds, may do so without paying a sales charge. The beneficial owner must remain the same, i.e., in kind.
Note: Rollover investments to Class A shares from assets withdrawn from SIMPLE
401(k), TSA, 457, 403(b), 401(k), Money Purchase Pension Plan, Profit-Sharing
Plan and any other qualified plans as described in the Internal Revenue Codes
401(a), 403(b), 457 are not eligible for this provision, and will be subject to
applicable sales charges.
Reducing Your Class A Sales Charges
Combination and Accumulation Privileges. 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 living in the same household, 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. 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 his or her spouse and their children under the age of 21 living in the same household. Further information about combined purchases, including certain restrictions on combined group purchases, is available from Signature Services or a Selling Firm's representative.
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 Combination and 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 and his/her financial adviser 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. Purchases made within 90 days prior to
the signing of an LOI will be counted towards fulfillment of the LOI, however,
the original sales charge will not be recalculated for these previous purchase.
The sales charge applicable to all amounts invested after an LOI is signed 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 charges as may be due. By signing the LOI, the investor authorizes Signature Services to act as his or her attorney-in-fact to redeem any escrowed Class A shares and adjust the sales charge, if necessary. A LOI does not constitute a binding commitment by an investor to purchase, or by the Fund to sell, any additional Class A shares and may be terminated at any time.
DEFERRED SALES CHARGE ON CLASS B AND C SHARES
Investments in Class B and Class C shares are purchased at net asset value per share without the imposition of a initial sales charge so the Fund will receive the full amount of the purchase payment.
Contingent Deferred Sales Charge. Class B and Class C shares which are redeemed within six years or one year of purchase, respectively, will be subject to a CDSC at the rates set forth in the Prospectus as a percentage of the dollar amount subject to the CDSC. The charge will be assessed on an amount equal to the lesser of the current market value or the original purchase cost of the Class B and Class C shares being redeemed. No CDSC will be imposed on increases in account value above the initial purchase prices, including all shares derived from reinvestment of dividends or capital gains distributions.
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 regarded as a share exempt from CDSC. Thus, when a share that has appreciated in value is redeemed during the CDSC period, a CDSC is assessed only on its initial purchase price.
When requesting a redemption for a specific dollar amount please indicate if you require the proceeds to equal the dollar amount requested. If not indicated, only the specified dollar amount will be redeemed from your account and the proceeds will be less any applicable CDSC.
Example:
You have purchased 100 Class B shares at $10 per share. The second year after your purchase, your investment's net asset value per share has increased by $2 to $12, and you have gained 10 additional shares through dividend reinvestment. If you redeem 50 shares at this time your CDSC will be calculated as follows:
o Proceeds of 50 shares redeemed at $12 per shares (50 x 12) $600.00
o *Minus Appreciation ($12 - $10) x 100 shares (200.00)
o Minus proceeds of 10 shares not subject to CDSC (dividend reinvestment) (120.00)
-------
o Amount subject to CDSC $280.00
|
*The appreciation is based on all 100 shares in the account not just the shares being redeemed.
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or in part by John Hancock Funds to defray its expenses related to providing distribution-related services to the Fund in connection with the sale of the Class B and Class C shares, such as the payment of compensation to select Selling 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 shares and Class C shares and Class A shares that are subject to CDSC, unless indicated otherwise, in the circumstances defined below:
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your account if you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition transactions involving other investment companies or personal holding companies.
* Redemptions due to death or disability. (Does not apply to trust accounts unless Trust is being dissolved.)
* Redemptions made under the Reinstatement Privilege, as described in "Sales Charge Reductions and Waivers" of the Prospectus.
* Redemptions of Class B and Class C shares made under a periodic withdrawal plan, or redemptions for fees charged by planners or advisors for advisory services, as long as your annual redemptions do not exceed 12% of your account value, including reinvested dividends, at the time you established your periodic withdrawal plan and 12% of the value of subsequent investments (less redemptions) in that account at the time you notify Signature Services. (Please note that this waiver does not apply to periodic withdrawal plan redemptions of Class A shares that are subject to a CDSC).
* Certain retirement plans participating in Merrill Lynch servicing programs offered in Class A, Class B 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.
* 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.
----------------------- --------------- -------------- -------------- -------------------------- ---------------------
Type of 401 (a) Plan 403 (b) 457 IRA, IRA Rollover Non-retirement
Distribution (401 (k),
MPP, PSP) 457
& 408 (SEPs &
Simple IRAs)
----------------------- --------------- -------------- -------------- -------------------------- ---------------------
Death or Disability Waived Waived Waived Waived Waived
----------------------- --------------- -------------- -------------- -------------------------- ---------------------
Over 70 1/2 Waived Waived Waived Waived for required 12% of account
minimum distributions* value annually in
or 12% of account value periodic payments
annually in periodic
payments.
----------------------- --------------- -------------- -------------- -------------------------- ---------------------
Between 59 1/2 Waived Waived Waived Waived for Life 12% of account
and 70 1/2 Expectancy or 12% of value annually in
account value annually periodic payments
in periodic payments.
----------------------- --------------- -------------- -------------- -------------------------- ---------------------
Under 59 1/2 Waived for Waived for Waived for Waived for annuity 12% of account
(Class B and Class C annuity annuity annuity payments (72t) or 12% of value annually in
only) payments payments payments account value annually periodic payments
(72t) or 12% (72t) or 12% (72t) or 12% in periodic payments.
of account of account of account
value annually value annually value
in periodic in periodic annually
payments. payments. in periodic
payments.
----------------------- --------------- -------------- -------------- -------------------------- ---------------------
Loans Waived Waived N/A N/A N/A
----------------------- --------------- -------------- -------------- -------------------------- ---------------------
Termination of Plan Not Waived Not Waived Not Waived Not Waived N/A
----------------------- --------------- -------------- -------------- -------------------------- ---------------------
Hardships Waived Waived Waived N/A N/A
----------------------- --------------- -------------- -------------- -------------------------- ---------------------
Qualified Domestic Waived Waived Waived N/A N/A
Relations Orders
----------------------- --------------- -------------- -------------- -------------------------- ---------------------
Termination of Waived Waived Waived N/A N/A
Employment Before
Normal Retirement Age
----------------------- --------------- -------------- -------------- -------------------------- ---------------------
Return of Excess Waived Waived Waived Waived N/A
----------------------- --------------- -------------- -------------- -------------------------- ---------------------
|
* Required minimum distributions based on John Hancock Mutual Fund IRA assets only.
If you qualify for a CDSC waiver under one of these situations, you must notify Signature Services at the time you make your redemption. The waiver will be granted once Signature Services has confirmed that you are entitled to the waiver.
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 shares for cash except to the extent that the redemption payment 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 same class. The registration for both accounts involved must be identical. Identical registration is determined by having the same beneficial owner on both accounts involved in the exchange.
Investors may exchange Class I shares for Class I shares of other John Hancock funds, shares of any John Hancock institutional fund, or Class A shares of John Hancock Money Market Fund. If an investor exchanges Class I shares for Class A shares of Money Market Fund, any future exchanges out of the Money Market Fund Class A must be to another Class I fund.
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.
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 due date of any investment.
Reinstatement or Reinvestment Privilege. If Signature Services and your financial adviser are 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 back into the same share class of the same John Hancock Fund and account from which it was removed, 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. 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 same class and fund and account 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 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 four other series. . Additional series may be added in the future. The Trustees have authorized the issuance of four classes of shares of the Fund, designated as Class A, Class B, Class C and Class I.
The shares of each class of the Fund represent an equal proportionate interest in the aggregate net assets attributable to that class of the Fund. Holders of each class of shares have certain exclusive voting rights on 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. The fund no longer issues share certificates. Shares are electronically recorded.
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 a request for a special meeting of shareholders. However, at any time that less than a majority of the Trustees holding office were elected by the shareholders, the Trustees will call a special meeting of shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business Trust could under certain circumstances, be held personally liable for acts or obligations of the Trust. However, the Fund's Declaration of Trust contains an express disclaimer of shareholder liability for acts, obligations and affairs of the Fund. The Declaration of Trust also provides for indemnification out of the Fund's assets for all losses and expenses of any shareholder held personally liable by reason of being or having been a shareholder. The Declaration of Trust also provides that no series of the Trust shall be liable for the liabilities of any other series. Furthermore, no Fund included in this Fund's prospectus shall be liable for the liabilities of any other John Hancock 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 loss 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 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 as a "regulated investment company" under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), and intends to continue to so qualify in 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% non-deductible Federal excise tax on certain amounts not distributed (and not treated as having been distributed) on a timely basis in accordance with annual minimum distribution requirements. The Fund intends under normal circumstances to seek to avoid or minimize liability for such tax by satisfying such distribution requirements.
Distributions from the Fund's current or accumulated earnings and profits ("E&P") will be taxable under the Code for investors who are subject to tax. If these distributions are paid from
the Fund's "investment company taxable income," they will be taxable as ordinary income; and if they are paid from the Fund's "net capital gain," they will be taxable as long term capital gain. (Net capital gain is the excess (if any) of net long-term capital gain over net short-term capital loss, and investment company taxable income is all taxable income and capital gains, other than those gains and losses included in computing net capital gain, after reduction by deductible expenses.) Some distributions may be paid in January but may be taxable to shareholders as if they had been received on December 31 of the previous year. The tax treatment described above will apply without regard to whether distributions are received in cash or reinvested in additional shares of the Fund.
Distributions, if any, in excess of E&P will constitute a return of capital under the Code, which will first reduce an investor's federal tax basis in Fund shares and then, to the extent such basis is exceeded, will generally give rise to capital gains. Shareholders who have chosen automatic reinvestment of their distributions will have a federal tax basis in each share received pursuant to such a reinvestment equal to the amount of cash they would have received had they elected to receive the distribution in cash, divided by the number of shares received in the reinvestment.
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 such companies or gain from the sale of stock in such companies, even if all income or gain actually received by the Fund is timely distributed to its shareholders. These investments could also result in the treatment of associated capital gains as ordinary income. The Fund would not be able to pass through to its shareholders any credit or deduction for such a tax. An election may be available to ameliorate these adverse tax consequences, but any such election would require the Fund to recognize taxable income or gain without the concurrent receipt of cash. The Fund may limit and/or manage its holdings in passive foreign investment companies or make an available election to minimize its tax liability or maximize its return from these investments.
Foreign exchange gains and losses realized by the Fund in connection with certain transactions involving foreign currency-denominated debt securities, certain foreign currency options, foreign currency forward contracts, foreign currencies, or payables or receivables denominated in a foreign currency are subject to Section 988 of the Code, which generally causes such gains and losses to be treated as ordinary income and losses and may affect the amount, timing and character of distributions to shareholders. Transactions in foreign currencies that are not directly related to the Fund's investment in stock or securities, including speculative currency positions, could under future Treasury regulations produce income not among the types of "qualifying income" from which the Fund must derive at least 90% of its gross income for each taxable year. If the net foreign exchange loss for a year treated as ordinary loss under Section 988 were to exceed the Fund's investment company taxable income computed without regard to such loss, the resulting overall ordinary loss for such year would not be deductible by the Fund or its shareholders in future years.
The Fund may be subject to withholding and other taxes imposed by foreign countries with respect to its investments in foreign securities. Some tax conventions between certain countries and the U.S. may reduce or eliminate such taxes. The Fund does not expect to qualify to pass such taxes through to its shareholders, who consequently will not take such taxes into account on their own tax returns. However, the Fund will deduct such taxes in determining the amount it has available for distribution to shareholders.
The amount of the Fund's 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 from such appreciation or income may be taxable to such investor even if the net asset value of the investor's shares is, as a result of the distributions, reduced below the investor's cost for such shares, and the distributions in reality represent a return of a portion of the purchase price.
Upon a redemption or other disposition of shares of the Fund (including by exercise of the exchange privilege) in a transaction that is treated as a sale for tax purposes, a shareholder may realize a taxable gain or loss depending upon the amount of the proceeds and the investor's basis in his shares. Such gain or loss will be treated as capital gain or loss if the shares are capital assets in the shareholder's hands and will be long-term or short-term, depending upon the shareholder's tax holding period for the shares and subject to the special rules described below. A sales charge paid in purchasing shares of the Fund cannot be taken into account for purposes of determining gain or loss on the redemption or exchange of such shares within 90 days after their purchase to the extent shares of the Fund or another John Hancock Fund are subsequently acquired without payment of a sales charge pursuant to the reinvestment or exchange privilege. This disregarded charge will result in an increase in the shareholder's tax basis in the shares subsequently acquired. Also, any loss realized on a redemption or exchange may be disallowed to the extent the shares disposed of are replaced with other shares of the Fund within a period of 61 days beginning 30 days before and ending 30 days after the shares are disposed of, such as pursuant to an election to reinvest dividends in additional shares. 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 capital gain income in his return for his taxable year in which the last day of the Fund's taxable year falls, (b) be entitled either to a tax credit on his return for, or 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 its net capital gains, if any, during the eight years following the year of
the loss. To the extent subsequent net capital gains are offset by such losses, they would not result in Federal income tax liability to the Fund and, as noted above, would not be distributed as such to shareholders.
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.
For purposes of the dividends received deduction available to corporations, dividends received by the Fund, if any, from U.S. domestic corporations in respect of the stock of such corporations held by the Fund, for U.S. Federal income tax purposes, for at least 46 days (91 days in the case of certain preferred stock) during a prescribed period extending before and after each dividend and distributed and properly designated by the Fund may be treated as qualifying dividends. Corporate shareholders must meet the minimum holding period requirement stated above (46 or 91 days) with respect to their shares of the Fund for each dividend in order to qualify for the deduction and, if they have any debt that is deemed under the Code directly attributable to such shares, may be denied a portion of the dividends received deduction. The entire qualifying dividend, including the otherwise deductible amount, will be included in determining the excess (if any) of a corporate shareholder's adjusted current earnings over its alternative minimum taxable income, which may increase its alternative minimum tax liability, if any. Additionally, any corporate shareholder should consult its tax adviser regarding the possibility that its basis in its shares may be reduced, for Federal income tax purposes, by reason of "extraordinary dividends" received with respect to the shares, for the purpose of computing its gain or loss on redemption or other disposition of the shares and, to the extent such basis would be reduced to 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 payment. The mark to market rules or constructive sale applicable to certain options and forward contracts 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 may have to leverage itself by borrowing the cash, to satisfy these distribution requirements.
A state income (and possibly local income and/or intangible property) tax exemption is generally available to the extent (if any) the Fund's distributions are derived from interest on (or, in the case of intangible 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 a Fund with their correct taxpayer identification number and certain certifications required by the IRS or if the IRS or a broker notifies the Fund that the number furnished by the shareholder is incorrect or that the shareholder is subject to backup withholding as a result of failure to report interest or dividend income. A 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.
Certain options, futures and forward foreign currency transactions undertaken by the Fund may cause the Fund to recognize gains or losses from marking to market even though its positions have not been sold or terminated and affect the character as long-term or short-term (or, in the case of certain foreign currency contracts, as ordinary income or loss) and timing of some capital gains and losses realized by the Fund. Additionally, the Fund may be required to recognize gain, but not loss, if an option or other transactions 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. These transactions may therefore affect the amount, timing and character of the Fund's distributions to shareholders. Certain of such transactions may also cause the Fund to dispose of investments sooner than would otherwise have occurred. The Fund will take into account the special tax rules (including consideration of available elections) applicable to options, futures and forward contracts in order to seek to minimize any potential adverse tax consequences.
The foregoing discussion relates solely to U.S. Federal income tax law as applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic corporations, partnerships, trusts or estates) subject to tax under such law. The discussion does not address special tax rules applicable to certain types of investors, such as tax-exempt entities, insurance companies, and financial institutions. Dividends, capital gain distributions, and ownership of or gains realized on the redemption (including an exchange) of Fund shares may also be subject to state and local taxes. Shareholders should consult their own tax advisers as to the Federal, state or local tax consequences of ownership of shares of, and receipt of distributions from, the Fund in their particular circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their investment in the Fund is effectively connected will be subject to U.S. Federal income tax treatment that is different from that described above. These investors may be subject to non-resident alien withholding tax at the rate of 30% (or a lower rate under an applicable tax treaty) on amounts treated as ordinary dividends from the Fund and, unless an effective IRS Form W-8, Form W-8BEN or other authorized withholding certificate is on file and to backup withholding on certain other payments from the Fund. Non-U.S. investors should consult their tax advisers regarding such treatment and the application of foreign taxes to an investment in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise taxes. The Fund anticipates that, provided that the Fund qualifies as a regulated investment company under the Code, it will also not be required to pay any Massachusetts income tax.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the allocation of brokerage commissions are made by the Adviser's or Sub-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 Sub-Adviser's Senior Investment Policy Committee and its Brokerage Practices Committee which consists of officers of the Sub-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 that also sell shares of John Hancock funds. However, the Adviser and Sub-Adviser do 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 and Sub-Adviser of the Fund. The Adviser and Sub-Advisers have 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 case, 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 December 31, 2005, the Fund paid $0 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 or Sub-Adviser's own research (and the research of its affiliates), and may include the following types of information: statistical and background information on the U.S. and foreign economies, industry groups and individual companies; forecasts and interpretations with respect to the U.S. and foreign economies, securities, markets, specific industry groups and individual companies; information on federal, state, local and foreign political developments; portfolio management strategies; performance information on securities, indexes and investment accounts; and information concerning prices and ratings of securities. Broker-dealers may communicate such information electronically, orally, in written form or on computer software. Research services may also include the providing of electronic communication of trade information and, the providing of specialized consultations with the Adviser's or Sub-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 or Sub-Adviser since the broker-dealers used by the Adviser or Sub-Adviser tend to follow a broader universe of securities and other matters than the Adviser's or Sub-Adviser's staff can follow. In addition, the research provides the Adviser or Sub-Adviser with a diverse perspective on financial markets. Research services provided to the Adviser or Sub-Adviser by broker-dealers are available for the benefit of all accounts managed or advised by the Adviser or by its affiliates, or by the Sub-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 or Sub-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 and Sub-Adviser believe that the research services are beneficial in supplementing the Adviser's research and analysis and that they improve the quality of the Adviser's or Sub-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 or Sub-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 and Sub-Adviser. However, to the extent that the Adviser or Sub-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 or Sub-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 or Sub-Adviser, and conversely, brokerage commissions and spreads paid by other advisory clients of the Adviser or Sub-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.
For the period from February 28, 2005 through December 31, 2005 the Fund paid negotiated brokerage commissions of $7,602.
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 and/or Sub-Adviser will be primarily responsible for its allocation of the Fund's brokerage business, the policies and practices of the Adviser or Sub-Adviser in this regard must be consistent with the foregoing and at all times be subject to review by the Trustees.
Pursuant to procedures determined by the Trustees and consistent with the above policy of obtaining best net results, the Fund may execute portfolio transactions with or through brokers affiliated with the Adviser and/or Sub-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, the Sub-Adviser, or the Affiliated Broker. Because the Adviser or Sub-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 December 31, 2005, the Fund paid no brokerage commissions to any Affiliated Broker.
Other investment advisory clients advised by the Adviser or Sub-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 or Sub-Adviser may average the transactions as to price and allocate the amount of available investments in a manner which the Adviser or Sub-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 or Sub-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 for Class A, B and C shares are aggregated and allocated to each class on the basis of their relative net asset values. The Fund pays Signature Services monthly a fee which is based on an annual rate of 0.05% of average daily net assets attributable to Class I shares. For the period from February 28, 2005 through December 3, 2005, the Transfer Agent waived its fee to the Fund. 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. The transfer agent has agreed to waive the asset based portion of its fee until further notice.
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement between the Fund and The Bank of New York, One Wall Street, New York, New York 10286. Under the custodian agreement, The Bank of New York is performing custody, Foreign Custody Manager and fund accounting services.
INDEPENDENT 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. Until December 31, 2005, the independent registered public accounting firm of the Fund was Deloitte & Touche LLP, 200 Berkeley Street, Boston, Massachusetts 02116.
APPENDIX A
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's principal securities and investment practices. You may find the most concise description of the fund's risk profile in the prospectus.
A fund is permitted to utilize -- within limits established by the trustees -- certain other securities and investment practices that have higher risks and opportunities associated with them. To the extent that the fund utilizes these securities or practices, its overall performance may be affected, either positively or negatively. On the following pages are brief definitions of certain associated risks with them, with examples of related securities and investment practices included in brackets. See the "Investment Objectives and Policies" and "Investment Restrictions" sections of this Statement of Additional Information for a description of this Fund's investment policies. The fund follows certain policies that may reduce these risks.
As with any mutual fund, there is no guarantee that the fund will earn income or show a positive total return over any period of time -- days, months or years.
TYPES OF INVESTMENT RISK
Correlation risk. The risk that changes in the value of a hedging instrument will not match those of the asset being hedged (hedging is the use of one investment to offset the effects of another investment). (e.g. short sales, financial futures and options; securities and index options, currency contracts).
Credit risk. The risk that the issuer of a security, or the counterparty to a contract, will default or otherwise become unable to honor a financial obligation. (e.g. Borrowing; reverse repurchase agreements, repurchase agreements, securities lending, non-investment-grade debt securities, financial futures and options; securities and index options).
Currency risk. The risk that fluctuations in the exchange rates between the U.S. dollar and foreign currencies may negatively affect an investment. (e.g. Foreign securities, financial futures and options; securities and index options, currency contracts).
Extension risk. The risk that an unexpected rise in interest rates will extend the life of a mortgage-backed security beyond the expected prepayment time, typically reducing the security's value.
Information risk. The risk that key information about a security or market is inaccurate or unavailable. (e.g. non-investment-grade debt securities, foreign securities).
Interest rate risk. The risk of market losses attributable to changes in interest rates. With fixed-rate securities, a rise in interest rates typically causes a fall in values, while a fall in rates typically causes a rise in values. (e.g. Non investment-grade debt securities, financial futures and options; securities and index options).
Leverage risk. Associated with securities or practices (such as borrowing) that multiply small index or market movements into large changes in value. (e.g. Borrowing; reverse repurchase agreements, short-sales, when-issued securities and forward commitments; financial futures and options; securities and index options, currency contracts).
o Hedged. When a derivative (a security whose value is based on another security or index) is used as a hedge against an opposite position that the fund also holds, any loss generated by the derivative should be substantially offset by gains on the hedged investment, and vice versa. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains.
o Speculative. To the extent that a derivative is not used as a hedge, the fund is directly exposed to the risks of that derivative. Gains or losses from speculative positions in a derivative may be substantially greater than the derivative's original cost.
Liquidity risk. The risk that certain securities may be difficult or impossible to sell at the time and the price that the seller would like. (e.g. short sales, non-investment-grade debt securities; restricted and illiquid securities, financial futures and options; securities and index options, currency contracts).
Management risk. The risk that a strategy used by a fund's management may fail to produce the intended result. Common to all mutual funds.
Market risk. The risk that the market value of a security may move up and down, sometimes rapidly and unpredictably. Common to all stocks and bonds and the mutual funds that invest in them. (e.g. Short sales, short-term trading, when-issued securities and forward commitments, non-investment-grade securities, foreign securities, financial futures and options; securities and index options, restricted and illiquid securities).
Natural event risk. The risk of losses attributable to natural disasters, crop failures and similar events. (e.g. Foreign securities).
Opportunity risk. The risk of missing out on an investment opportunity because the assets necessary to take advantage of it are tied up in less advantageous investments. (e.g. Short sales, when -issued securities and forward commitments, financial futures and options; securities and index options, currency contracts).
Political risk. The risk of losses directly attributable to government or political actions of any sort. (e.g. Foreign securities)
Prepayment risk. The risk that unanticipated prepayments may occur during periods of falling interest rates, reducing the value of mortgage-backed securities.
Valuation risk. The risk that a fund has valued certain of its securities at a higher price than it can sell them for. (e.g. Non-investment-grade debt securities, restricted and illiquid securities).
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.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
Ca: 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.
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.
APPENDIX C
SUMMARY OF PROXY VOTING
John Hancock Advisers, LLC
Sovereign Asset Management, LLC
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, LLC ("Sovereign") manage open-end funds, closed-end funds and portfolios for institutions and high-net-worth investors. Occasionally, we utilize the expertise of an outside asset manager by means of a subadvisory agreement. In all cases, JHA or Sovereign makes the final decision as to how to vote our clients' proxies. There is one exception, however, and that pertains to our international accounts. The investment management team for international investments votes the proxies for the accounts they manage. Unless voting is specifically retained by the named fiduciary of the client, JHA and Sovereign will vote proxies for ERISA clients.
In order to ensure a consistent, balanced approach across all our investment teams, we have established a proxy oversight group comprised of associates from our investment, operations and legal teams. The group has developed a set of policies and procedures that detail the standards for how JHA and Sovereign vote proxies. The guidelines of JHA have been approved and adopted by each fund client's board of trustees who have voted to delegate proxy voting authority to their investment adviser, JHA. JHA and Sovereign's other clients have granted us the authority to vote proxies in our advisory contracts or comparable documents.
JHA and Sovereign have hired a third party proxy voting service which has been instructed to vote all proxies in accordance with our established guidelines except as otherwise instructed.
In evaluating proxy issues, our proxy oversight group may consider information from many sources, including the portfolio manager, management of a company presenting a proposal, shareholder groups, and independent proxy research services. Proxies for securities on loan through securities lending programs will generally not be voted, however a decision may be made to recall a security for voting purposes if the issue is material.
Below are the guidelines we adhere to when voting proxies. Please keep in mind that these are purely guidelines. Our actual votes will be driven by the particular circumstances of each proxy. From time to time votes may ultimately be cast on a case-by-case basis, taking into consideration relevant facts and circumstances at the time of the vote. Decisions on these matters (case-by-case, abstention, recall) will normally be made by a portfolio manager under the supervision of the chief investment officer and the proxy oversight group. We may abstain from voting a proxy if we conclude that the effect on our clients' economic interests or the value of the portfolio holding is indeterminable or insignificant.
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.
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:
o the compensation committee is not fully independent;
o plan dilution is more than 10% of outstanding common stock;
o 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;
o 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:
o the plan allows stock to be purchased at less than 85% of fair market
value;
o this plan dilutes outstanding common equity greater than 10%;
o all stock purchase plans, including the proposed plan, exceed 15% of
outstanding common equity;
o 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:
o the minimum vesting period for options or time lapsing restricted
stock is les than one year;
o 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:
o change the company name;
o approve other business;
o adjourn meetings;
o make technical amendments to the by-laws or charters;
o approve financial statements;
o approve an employment agreement or contract.
Shareholder Proposals
Shareholders are permitted per SEC regulations to submit proposals for inclusion in a company's proxy statement. We will generally vote against shareholder proposals and in accordance with the recommendation of management except as follows where we will vote for proposals:
o calling for shareholder ratification of auditors;
o calling for auditors to attend annual meetings;
o seeking to increase board independence;
o requiring minimum stock ownership by directors;
o seeking to create a nominating committee or to increase the
independence of the nominating committee;
o seeking to increase the independence of the audit committee.
Corporate and social policy issues
We believe that "ordinary business matters" are primarily the responsibility of management and should be approved solely by the corporation's board of directors.
Proposals in this category, initiated primarily by shareholders, typically request that the company disclose or amend certain business practices. We generally vote against business practice proposals and abstain on social policy issues, though we may make exceptions in certain instances where we believe a proposal has substantial economic implications.
John Hancock Advisers, LLC Sovereign Asset Management, LLC Proxy Voting Procedures
The role of the proxy voting service
John Hancock Advisers, LLC ("JHA") and Sovereign Asset Management, LLC ("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.
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.
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.
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:
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
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
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.
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.
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.
Proxy Voting Services. Nonpublic Information regarding portfolio holdings may be
provided to ISS, 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 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 ISS
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.
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 Persons. Nonpublic Information regarding portfolio holdings may be provided to other persons or entities if approved by the Chief Compliance Officer of the Fund or his or her designee (collectively, the "CCO"). In determining whether to approve such disclosure the CCO shall consider: (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. In the case of a conflict between (a) the interests of the shareholders of the Fund, on the one hand, and (b) the interests of any affiliated person of the Fund, the Fund's investment adviser (including any subadviser), the Fund's principal underwriter or any of their affiliated persons, on the other, the procedures set forth under "Resolution of Conflicts of Interest" below shall be followed.
The CCO shall report to the Board of Trustees whenever additional disclosures of portfolio holdings are approved. This report shall be at the board meeting following such approval.
Disclosure of Portfolio Holdings to Affiliated Persons
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. The CCO must pre-approve the provision of any Nonpublic Information regarding portfolio holdings to any Affiliated Persons (other than those listed in Appendix A) and report such approval to the Board of Trustees at the board meeting following such approval. The persons listed in Appendix A have been exempt from such pre-approval. In the case of persons listed in Section II, III and IV of Appendix A, their employers shall provide the CCO reasonable assurances that Nonpublic Information will be kept confidential and that such employees are prohibited from trading on such information.
In determining whether to approve such disclosure of Nonpublic Information
regarding portfolio holdings to any Affiliated Persons the CCO shall consider:
(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. In the case of a conflict between (a) the interests of the
shareholders of the Fund, on the one hand, and (b) the interests of any
affiliated person of the Fund, the Fund's investment adviser (including any
subadviser), the Fund's principal underwriter or any of their affiliated
persons, on the other, the procedures set forth under "Resolution of Conflicts
of Interest" below shall be followed.
Resolution of Conflicts of Interest
If the Fund or its adviser or principal underwriter or any of its subadviser (or any of their affiliates) desire to provide Nonpublic Information regarding Fund portfolio holdings to a Nonaffiliated Person and the CCO believes there is a potential conflict between (a) the interests of the shareholders of the Fund, on the one hand, and (b) the interests of any affiliated person of the Fund, the Fund's investment adviser (including any subadviser), the Fund's principal underwriter or any of their affiliated persons, on the other, the CCO shall refer the conflict to the Board of Trustees of the Fund who shall only permit such disclosure of the Nonpublic Information if in their reasonable business judgment they conclude such disclosure will be in the best interests of Fund shareholders.
Changes to Policy
Any material changes to this policy must be approved by the Fund's Board of Trustees.
Reports to the Trust's Board of Trustees
The CCO shall report any material issues that may arise under this policy to the Board of Trustees no later than the Board meeting following the arising of the issue.
Applicability of Policy to a Fund's Adviser and Subadvisers
This policy shall apply to the Fund's Adviser and each of its subadvisers as applicable.
Appendix A
I. Employees* of John Hancock Advisers, LLC who are subject to the Code of Ethics of the Fund, the Funds' investment adviser, or the Fund's principal underwriter, John Hancock Funds, LLC.
II. Employees* of a Subadviser or any Affiliate of a Subadviser who provide services to a Fund.
III. Employees* of the Funds' custodian who provide services to the Funds.
IV. Employees* and partners of a Fund's certified public accounting firm who provide services to the Fund.
V. Employees* and partners of a Fund's legal counsel who provides services to the Fund.
*Includes temporary employees
FINANCIAL STATEMENTS
The financial statements listed below are included in the Fund's 2005 Annual Report to Shareholders for the year ended December 31, 2005 (filed electronically on March 1, 2006 accession number 0000928816-06-000242 and are included in and incorporated by reference into Part B of the Registration Statement for John Hancock Large Cap Intrinsic Value Fund (file nos. 811-00560 and 2-10156).
John Hancock Investment Trust
John Hancock Large Cap Intrinsic Value Fund
Statement of Assets and Liabilities as of December 31, 2005.
Statement of Operations for the year ended December 31, 2005.
Statement of Changes in Net Assets for each of the two years in the period
ended December 31, 2005.
Notes to Financial Statements.
Financial Highlights for each of the five years in the period ended
December 31, 2005.
Schedule of Investments as of December 31, 2005.
Report of Independent Auditors.
JOHN HANCOCK SMALL CAP INTRINSIC VALUE FUND
Class A, Class B, Class C and Class I
Statement of Additional Information
March 1, 2006
This Statement of Additional Information provides information about John Hancock Small Cap Intrinsic Value Fund (the "Fund") in addition to the information that is contained in the Fund's current Prospectus for Class A, B and C and in the Fund's current Class I share prospectus (the "Prospectuses"). The Fund is a diversified series of John Hancock Investment Trust (the "Trust").
This Statement of Additional Information is not a prospectus. It should be read in conjunction with the Prospectus. This Statement of Additional Information incorporates by reference the Fund's Annual Report. A copy of the Prospectus or Annual Report can be obtained free of charge by writing or telephoning:
John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1000 Boston, Massachusetts 02217-1000 1-800-225-5291
TABLE OF CONTENTS
Page
Organization of the Fund.............................................. 2
Investment Objective and Policies..................................... 2
Investment Restrictions............................................... 14
Those Responsible for Management...................................... 16
Investment Advisory and Other Services................................ 26
Additional Information About the Fund's Portfolio Managers........... 28
Distribution Contracts................................................ 32
Sales Compensation.................................................... 34
Net Asset Value....................................................... 37
Initial Sales Charge on Class A Shares................................ 38
Deferred Sales Charge on Class B and Class C Shares................... 41
Special Redemptions................................................... 45
Additional Services and Programs...................................... 45
Purchase and Redemptions through Third Parties........................ 46
Description of the Fund's Shares...................................... 47
Tax Status............................................................ 48
Brokerage Allocation.................................................. 53
Transfer Agent Services............................................... 56
Custody of Portfolio.................................................. 56
Independent Registered Public Accounting Firm......................... 57
Appendix A- Description of Investment Risk........................... A-1
Appendix B-Description of Bond Ratings................................ B-1
Appendix C-Proxy Voting Summary....................................... C-1
Appendix D-Policy Regarding Disclosure of Portfolio Holdings......... D-1
Financial Statements ................................................. F-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 1996 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.
John Hancock is a unit of Manulife Financial Corporation, 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$372 billion (US$319 billion) as of December 31, 2005.
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.
The Fund is sub-advised by Sovereign Asset Management LLC ("Sovereign" or the "Sub-Adviser") which is also a subsidiary of John Hancock Financial Services, Inc., a subsidiary of Manulife Financial Corporation. Sovereign is responsible for providing investment advice to the Fund subject to the review of the Trustees and the overall supervision of the Adviser.
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the discussion of the Fund's investment objective and policies discussed in the Prospectus. Appendix A contains further information describing investment risks. The investment objective is non-fundamental and may be changed by the Trustees without shareholder approval. There is no assurance that the Fund will achieve its investment objective.
The Fund seeks long-term capital appreciation. To pursue this goal, the Fund normally invests at least 80% of its assets in equity securities of small-capitalization companies (companies in the capitalization range of the Russell 2000 Index, which was $26 million to $4.9 billion as of January 31, 2006). Equity securities include common and preferred stocks and their equivalents.
With respect to the Fund's investment policy of investing at least 80% of its Assets in small-capitalization 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 managing the portfolio, the managers emphasize a value-oriented bottom-up approach to individual stock selection. With the aid of proprietary financial models, the management team looks for companies that are selling at what appear to be substantial discounts to their long-term intrinsic values. These companies often have identifiable catalysts for growth, such as new products, business reorganizations or mergers.
The management team uses fundamental financial analysis of individual companies to identify those with substantial cash flows, reliable revenue streams, strong competitive positions and strong management. The fund may attempt to take advantage of short-term market volatility by investing in corporate restructuring or pending acquisitions.
The fund may invest up to 25% of assets in foreign securities (35% during adverse U.S. market conditions). The fund may invest up to 20% of assets in bonds of any maturity rated as low as CC/Ca and their unrated equivalents (bonds below BBB/Baa are considered junk bonds). The fund may make limited use of certain derivatives (investments whose value is based on securities, indexes or currencies).
In abnormal circumstances, the fund may temporarily invest extensively in investment grade short-term securities. In these and other cases, the fund might not achieve its goal.
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 20% of its net assets in fixed income securities that, at the time of investment, are rated CC or higher by Standard & Poor's Ratings Group ("Standard & Poor's") or Ca or higher by Moody's Investors Service, Inc. ("Moody's") or their equivalent, and unrated fixed income securities of comparable quality as determined by the Adviser. These securities include convertible and nonconvertible bonds and debentures, zero coupon bonds, payment-in-kind securities, increasing rate note securities, participation interests, stripped debt securities and other derivative debt securities. The value of fixed income securities generally varies inversely with interest rate changes. Convertible issues, while influenced by the level of interest rates, are also subject to the changing value of the underlying common stock into which they are convertible.
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.
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 and/or Sub-Adviser. The Fund will not engage in speculative forward foreign currency exchange transactions.
If the Fund purchases a forward contract, the Fund will segregate cash or liquid securities in a separate account in an amount equal to the value of the Fund's total assets committed to the consummation of such forward contract. The assets in the segregated account will be valued at market daily and if the value of the securities in the separate account declines, additional cash or securities will be placed in the account so that the value of the account will be equal to the amount of the Fund's commitment in forward contracts.
Hedging against a decline in the value of a currency does not eliminate fluctuations in the prices of portfolio securities or prevent losses if the prices of such securities decline. Such transactions also preclude the opportunity for gain if the value of the hedged currency rises. Moreover, it may not be possible for the Fund to hedge against a devaluation that is so generally anticipated that the Fund is not able to contract to sell the currency at a price above the devaluation level it anticipates.
Risks of Foreign Securities. Investments in foreign securities may involve a greater degree of risk than those in domestic securities. There is generally less publicly available information about foreign companies in the form of reports and ratings similar to those that are published about issuers in the United States. Also, foreign issuers are generally not subject to uniform accounting, auditing and financial reporting requirements comparable to those applicable to United States issuers.
Because foreign securities may be denominated in currencies other than the U.S. dollar, changes in foreign currency exchange rates will affect the Fund's net asset value, the value of dividends and interest earned, gains and losses realized on the sale of securities, and any net investment income and gains that the Fund distributes to shareholders. Securities transactions undertaken in some foreign markets may not be settled promptly so that the Fund's investments on foreign exchanges may be less liquid and subject to the risk of fluctuating currency exchange rates pending settlement.
Foreign securities will be purchased in the best available market, whether through over-the-counter markets or exchanges located in the countries where principal offices of the issuers are located. Foreign securities markets are generally not as developed or efficient as those in the United States. While growing in volume, they usually have substantially less volume than the New York Stock Exchange, and securities of some foreign issuers are less liquid and more volatile than securities of comparable United States issuers. Fixed commissions on foreign exchanges are generally higher than negotiated commissions on United States exchanges, although the Fund will endeavor to achieve the most favorable net results on its portfolio transactions. There is generally less government supervision and regulation of securities exchanges, brokers and listed issuers than in the United States.
With respect to certain foreign countries, there is the possibility of adverse changes in investment or exchange control regulations, expropriation, nationalization or confiscatory taxation limitations on the removal of funds or other assets of the Fund, political or social instability, or diplomatic developments which could affect United States investments in those countries. Moreover, individual foreign economies may differ favorably or unfavorably from the United States' economy in terms of growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position.
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.
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.
securities") under the Securities Act of 1933 ("1933 Act"), including commercial paper issued in reliance on Section 4(2) of the 1933 act and securities offered and sold to "qualified institutional buyers" under Rule 144A under the 1933 Act. The Fund will not invest more than 15% of its net assets in illiquid investments. If the Trustees determine, based upon a continuing review of the trading markets for specific Section 4(2) paper or Rule 144A securities, that they are liquid, they will not be subject to the 15% limit on illiquid investments. The Trustees have adopted guidelines and delegated to the Adviser the daily function of determining the monitoring and liquidity of restricted securities. The Trustees, however, will retain sufficient oversight and be ultimately responsible for the determinations. The Trustees will carefully monitor the Fund's investments in these securities, focusing on such important factors, among others, as valuation, liquidity and availability of information. This investment practice could have the effect of increasing the level of illiquidity in the Fund if qualified institutional buyers become for a time uninterested in purchasing these restricted securities.
Real Estate Investment Trusts. The Fund may invest in shares of real estate investment trusts ("REITs"). REITs pool investors' funds for investment primarily in income producing real estate or real estate related loans or interests. A REIT is not taxed on income distributed to shareholders if it complies with various requirements relating to its organization, ownership, assets, income and distributions. REITs can generally be classified as Equity REITs, Mortgage REITs and Hybrid REITs. Equity REITs invest the majority of their assets directly in real property and derive their income primarily from rents. Equity REITs can also realize capital gains by selling property that has appreciated in value. Mortgage REITs invest the majority of their assets in real estate mortgages and derive their income primarily from interest payments. Hybrid REITs combine the characteristics of both Equity REITs and Mortgage REITs.
Risks of Investment in Real Estate Securities. The Fund will not invest in real estate directly, but only in securities issued by real estate companies. However, the Fund may be subject to risks similar to those associated with the direct ownership of real estate (in addition to securities markets risks) because of its policy of concentration in the securities of companies in the real estate industry. These include declines in the value of real estate, risks related to general and local economic conditions, dependency on management skill, heavy cash flow dependency, possible lack of availability of mortgage funds, overbuilding, extended vacancies of properties, increased competition, increases in property taxes and operating expenses, changes in zoning laws, losses due to costs resulting from the clean-up of environmental problems, casualty or condemnation losses, limitations on rents, changes in neighborhood values and the appeal of properties to tenants and changes in interest rates.
In addition to these risks, Equity REITs may be affected by changes in the value of the underlying property owned by the trusts, while Mortgage REITs may be affected by the quality
of any credit extended. Further, Equity and Mortgage REITs are dependent upon management skills and generally may not be diversified. Equity and Mortgage REITs are also subject to heavy cash flow dependency, defaults by borrowers and self-liquidation. In addition, Equity and Mortgage REITs could possibly fail to qualify for tax free pass-through of income under the Internal Revenue Code of 1986, as amended (the "Code"), or to maintain their exemptions from registration under the Investment Company Act of 1940 (the "1940 Act"). The above factors may also adversely affect a borrower's or a lessee's ability to meet its obligations to the REIT. In the event of a default by a borrower or lessee, the REIT may experience delays in enforcing its rights as a mortgagee or lessor and may incur substantial costs associated with protecting its investments.
Options on Securities, Securities Indices and Currency. The Fund may purchase and write (sell) call and put options on any securities in which it may invest, on any securities index based on securities in which it may invest or on any currency in which Fund investments may be denominated. These options may be listed on national domestic securities exchanges or foreign securities exchanges or traded in the over-the-counter market. The Fund may write covered put and call options and purchase put and call options as a substitute for the purchase or sale of securities or currency or to protect against declines in the value of portfolio securities and against increases in the cost of securities to be acquired.
Writing Covered Options. A call option on securities or currency written by the Fund obligates the Fund to sell specified securities or currency to the holder of the option at a specified price if the option is exercised at any time before the expiration date. A put option on securities or currency written by the Fund obligates the Fund to purchase specified securities or currency from the option holder at a specified price if the option is exercised at any time before the expiration date. Options on securities indices are similar to options on securities, except that the exercise of securities index options requires cash settlement payments and does not involve the actual purchase or sale of securities. In addition, securities index options are designed to reflect price fluctuations in a group of securities or segment of the securities market rather than price fluctuations in a single security. Writing covered call options may deprive the Fund of the opportunity to profit from an increase in the market price of the securities or foreign currency assets in its portfolio. Writing covered put options may deprive the Fund of the opportunity to profit from a decrease in the market price of the securities or foreign currency assets to be acquired for its portfolio.
All call and put options written by the Fund are covered. A written call option
or put option may be covered by (i) maintaining cash or liquid securities,
either of which may be quoted or denominated in any currency, in a segregated
account with a value at least equal to the Fund's obligation under the option,
(ii) entering into an offsetting forward commitment and/or (iii) purchasing an
offsetting option or any other option which, by virtue of its exercise price or
otherwise, reduces the Fund's net exposure on its written option position. A
written call option on securities is typically covered by maintaining the
securities that are subject to the option in a segregated account. The Fund may
cover call options on a securities index by owning securities whose price
changes are expected to be similar to those of the underlying index.
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 and/or Sub-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 and/or Sub-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 and/or Sub-Adviser's ability to predict future price fluctuations and, for hedging transactions, the degree of correlation between the options and securities or currency markets.
Futures Contracts and Options on Futures Contracts. The Fund may purchase and sell futures contracts based on various securities (such as U.S. Government securities) and securities indices, foreign currencies and any other financial instruments and indices and purchase and write call and put options on these futures contracts. The Fund may purchase and sell futures and options on futures for hedging or other non-speculative purposes. The Fund may also enter into closing purchase and sale transactions with respect to any of these contracts and options. All futures contracts entered into by a Fund are traded on U.S. or foreign exchanges or boards of trade that are licensed, regulated or approved by the Commodity Futures Trading Commission ("CFTC").
Futures Contracts. A futures contract may generally be described as an agreement between two parties to buy and sell particular financial instruments or currencies for an agreed price during a designated month (or to deliver the final cash settlement price, in the case of a contract relating to an index or otherwise not calling for physical delivery at the end of trading in the contract).
Positions taken in the futures markets are not normally held to maturity but are instead liquidated through offsetting transactions which may result in a profit or a loss. While futures contracts on securities or currency will usually be liquidated in this manner, the Fund may instead make, or take, delivery of the underlying securities or currency whenever it appears economically advantageous to do so. A clearing corporation associated with the exchange on which futures contracts are traded guarantees that, if still open, the sale or purchase will be performed on the settlement date.
Hedging and Other Strategies. Hedging is an attempt to establish with more certainty than would otherwise be possible the effective price or rate of return on portfolio securities or securities that a Fund proposes to acquire or the exchange rate of currencies in which the portfolio securities are quoted or denominated. When securities prices are falling, a Fund can seek to offset a decline in the value of its current portfolio securities through the sale of futures contracts. When securities prices are rising, a Fund, through the purchase of futures contracts, can attempt to secure better rates or prices than might later be available in the market when it effects anticipated purchases. A Fund may seek to offset anticipated changes in the value of a currency in which its portfolio securities, or securities that it intends to purchase, are quoted or denominated by purchasing and selling futures contracts on such currencies.
A Fund may, for example, take a "short" position in the futures market by selling futures contracts in an attempt to hedge against an anticipated decline in market prices or foreign currency rates that would adversely affect the value of the Fund's portfolio securities. Such futures contracts may include contracts for the future delivery of securities held by a Fund or securities with characteristics similar to those of the Fund's portfolio securities. Similarly, a Fund may sell futures contracts on any currencies in which its portfolio securities are quoted or denominated or in one currency to hedge against fluctuations in the value of securities denominated in a different currency if there is an established historical pattern of correlation between the two currencies.
If, in the opinion of the Adviser, there is a sufficient degree of correlation between price trends for the Fund's portfolio securities and futures contracts based on other financial instruments, securities indices or other indices, the Fund may also enter into such futures contracts as part of its hedging strategy. Although under some circumstances prices of securities in the Fund's portfolio may be more or less volatile than prices of such futures contracts, the Adviser will attempt to estimate the extent of this volatility difference based on historical patterns and compensate for any differential by having the Fund enter into a greater or lesser number of futures contracts or by attempting to achieve only a partial hedge against price changes affecting the Fund's portfolio securities.
When a short hedging position is successful, any depreciation in the value of portfolio securities will be substantially offset by appreciation in the value of the futures position. On the other hand, any unanticipated appreciation in the value of the Fund's portfolio securities would be substantially offset by a decline in the value of the futures position.
On other occasions, a Fund may take a "long" position by purchasing futures contracts. This would be done, for example, when the Fund anticipates the subsequent purchase of particular securities when it has the necessary cash, but expects the prices or currency rates then available in the applicable market to be less favorable than prices that are currently available. Subject to the limitations imposed on the funds, as described above, a Fund may also purchase futures contracts as a substitute for transactions in securities or foreign currency, to alter the investment characteristics of or currency exposure associated with portfolio securities or to gain or increase its exposure to a particular securities market or currency.
Options on Futures Contracts. The purchase of put and call options on futures contracts will give a Fund the right (but not the obligation) for a specified price to sell or to purchase, respectively, the underlying futures contract at any time during the option period. As the purchaser of an option on a futures contract, a Fund obtains the benefit of the futures position if prices move in a favorable direction but limits its risk of loss in the event of an unfavorable price movement to the loss of the premium and transaction costs.
The writing of a call option on a futures contract generates a premium which may partially offset a decline in the value of a Fund's assets. By writing a call option, a Fund becomes obligated, in exchange for the premium (upon exercise of the option) to sell a futures contract if the option is exercised, which may have a value higher than the exercise price. Conversely, the writing of a put option on a futures contract generates a premium which may partially offset an increase in the price of securities that the Fund intends to purchase. However, a Fund becomes obligated (upon exercise of the option) to purchase a futures contract if the option is exercised, which may have a value lower than the exercise price. The loss incurred by each Fund in writing options on futures is potentially unlimited and may exceed the amount of the premium received.
The holder or writer of an option on a futures contract may terminate its position by selling or purchasing an offsetting option of the same series. There is no guarantee that such closing transactions can be effected. A Fund's ability to establish and close out positions on such options will be subject to the development and maintenance of a liquid market.
Other Considerations. The Fund will engage in futures and related options transactions either for bona fide hedging or for other non-speculative purposes as permitted by the CFTC. These purposes may include using futures and options on futures as substitute for the purchase or sale of securities or currencies to increase or reduce exposure to particular markets. To the extent that a Fund is using futures and related options for hedging purposes, futures contracts will be sold to protect against a decline in the price of securities (or the currency in which they are quoted or
denominated) that the Fund owns or futures contracts will be purchased to protect the Fund against an increase in the price of securities or the currency in which they are quoted or denominated) it intends to purchase. The Fund will determine that the price fluctuations in the futures contracts and options on futures used for hedging purposes are substantially related to price fluctuations in securities held by the Fund or securities or instruments which it expects to purchase. As evidence of its hedging intent, the Fund expects that on 75% or more of the occasions on which it takes a long futures or option position (involving the purchase of futures contracts), the Fund will have purchased, or will be in the process of purchasing, equivalent amounts of related securities in the cash market at the time when the futures or option position is closed out. However, in particular cases, when it is economically advantageous for the Fund to do so, a long futures position may be terminated or an option may expire without the corresponding purchase of securities or other assets.
To the extent that the Fund engages in nonhedging transactions in futures contracts and options on futures, the aggregate initial margin and premiums required to establish these nonhedging positions will not exceed 5% of the net asset value of the Fund's portfolio, after taking into account unrealized profits and losses on any such positions and excluding the amount by which such options were in-the-money at the time of purchase.
Transactions in futures contracts and options on futures involve brokerage costs, require margin deposits and, in the case of contracts and options obligating a Fund to purchase securities or currencies, require the Fund to establish a segregated account consisting of cash or liquid securities in an amount equal to the underlying value of such contracts and options.
While transactions in futures contracts and options on futures may reduce certain risks, these transactions themselves entail certain other risks. For example, unanticipated changes in interest rates, securities prices or currency exchange rates may result in a poorer overall performance for a Fund than if it had not entered into any futures contracts or options transactions.
Perfect correlation between a Fund's futures positions and portfolio positions will be impossible to achieve. In the event of an imperfect correlation between a futures position and a portfolio position which is intended to be protected, the desired protection may not be obtained and the Fund may be exposed to risk of loss. In addition, it is not possible to hedge fully or protect against currency fluctuations affecting the value of securities denominated in foreign currencies because the value of such securities is likely to fluctuate as a result of independent factors not related to currency fluctuations.
Some futures contracts or options on futures may become illiquid under adverse market conditions. In addition, during periods of market volatility, a commodity exchange may suspend or limit trading in a futures contract or related option, which may make the instrument temporarily illiquid and difficult to price. Commodity exchanges may also establish daily limits on the amount that the price of a futures contract or related option can vary from the previous 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 of portfolio securities to attempt to limit its exposure to, or hedge, a possible market decline in the value of its portfolio securities. The Fund may also sell short securities that are not in the Fund's portfolio, but which the Adviser believes possess volatility characteristics similar to those portfolio securities being hedged. To effect such a transaction, the Fund must borrow the security sold short to make delivery to the buyer. The Fund is then 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 or interest 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 security being hedged.
Under applicable guidelines of the staff of the SEC, if the Fund engages in short sales, it must put in a segregated account (not with the broker) an amount of cash or liquid securities, of any type or maturity, equal to the difference between (a) the market value of the securities sold short at the time they were sold short and (b) any cash or 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.
There may be certain holding period and gain/loss adjustments due to tax rules regarding short sales. Some long term capital gains may be recognized as short term and some short term capital losses may be recognized as long term for tax. There may be losses realized on a short sale that may not be recognized for tax if there is appreciated substantially identical property still held.
Short selling may produce higher than normal portfolio turnover which may result in increased transaction costs to the Fund.
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 the securities sold short exceeds the value of 15% 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 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.
Portfolio Holdings Disclosure Policy. The Fund's portfolio holding disclosure policy is attached to this Statement of Additional Information as Appendix D.
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 paragraphs 2, 5 and 6 below and as otherwise permitted under the 1940 Act. For purposes of this restriction, the issuance of shares of beneficial interest in multiple classes or series, the deferral of trustees' fees, the purchase or sale of options, futures contracts and options on futures contracts, forward commitments, forward foreign exchange contracts and repurchase agreements entered into in accordance with the Fund's investment policies are not deemed to be senior
securities.
2. Borrow money, except: (i) for temporary or short-term purposes or for the clearance of transactions in amounts not to exceed 33 1/3% of the value of the fund's total assets (including the amount borrowed) taken at market value; (ii) in connection with the redemption of fund shares or to finance failed settlements of portfolio trades without immediately liquidating portfolio securities or other assets, (iii) in order to fulfill commitments or plans to purchase additional securities pending the anticipated sale of other portfolio securities or assets; (iv) in connection with entering into reverse repurchase agreements and dollar rolls, but only if after each such borrowing there is asset coverage of at least 300% as defined in the 1940 Act; and (v) as otherwise permitted under the 1940 Act. For purposes of this investment restriction, the deferral of trustees' fees and transactions in short sales, futures contracts, options on futures contracts, securities or indices and forward commitment transactions shall not constitute borrowing.
3. Act as an underwriter, except to the extent that in connection with the disposition of portfolio securities, the Fund may be deemed to be an underwriter for purposes of the Securities Act of 1933.
4. Purchase, sell or invest in real estate, but subject to its other investment policies and restrictions may invest in securities of companies that deal in real estate or are engaged in the real estate business. These companies include real estate investment trusts and securities secured by real estate or interests in real estate. The fund may hold and sell real estate acquired through default, liquidation or other distributions of an interest in real estate as a result of the fund's ownership of securities.
5. Invest in commodities or commodity futures contracts, except for transactions in financial derivative contracts. Financial derivatives include forward currency contracts; financial futures contracts and options on financial futures contracts; options and warrants on securities, currencies and financial indices; swaps, caps, floors, collars and swaptions; and repurchase agreements entered into in accordance with the fund's investment policies.
6. Make loans, except that the fund may (i) lend portfolio securities in accordance with the fund's investment policies up to 33 1/3% of the fund's total assets taken at market value, (ii) enter into repurchase agreements, and (iii) purchase all or a portion of an issue of publicly distributed debt securities, bank loan participation interests, bank certificates of deposit, bankers' acceptances, debentures or other securities, whether or not the purchase is made upon the original issuance of the securities.
7. Purchase the securities of issuers conducting their principal activity in the same industry if, immediately after such purchase, the value of its investments in such industry would exceed 25% of its total assets taken at market value at the time of such investment. This limitation does not apply to investments in obligations of the U.S. Government or any of its agencies, instrumentalities or authorities.
8. With respect to 75% of the fund's total assets, the fund may not invest more than 5% of the fund's total assets in the securities of any single issuer or own more than 10% of the outstanding voting securities of any one issuer, in each case other than (i) securities issued or guaranteed by the U.S. Government, its agencies or its instrumentalities or (ii) securities of other investment companies.
Non-Fundamental Investment Restrictions. The following investment restrictions are designated as non-fundamental and may be changed by the Trustees without shareholder approval.
The Fund may not:
1. Purchase a security if, as a result, (i) more than 10% of the fund's total assets would be invested in the securities of other investment companies, (ii) the fund would hold more than 3% of the total outstanding voting securities of any one investment company, or (iii) more than 5% of the Fund's total assets would be invested in the securities of any one investment company. These limitations do not apply to (a) the investment of cash collateral, received by the fund in connection with lending of the fund's portfolio securities, in the securities of open-end investment companies or (b) the purchase of shares of any investment company in connection with a merger, consolidation, reorganization or purchase of substantially all of the assets of another investment company. Subject to the above percentage limitations, the fund may, in connection with the John Hancock Group of Funds Deferred Compensation Plan for Independent Trustees/Directors, purchase securities of other investment companies within the John Hancock Group of Funds.
2. Invest in the securities of an issuer for the purpose of exercising control or management.
3. Purchase securities on margin, except that the Fund may obtain such short-term credits as may be necessary for the clearance of securities transactions.
4. Invest more than 15% of its net assets in securities which are illiquid.
Except with respect to borrowing money, if a percentage restriction on investment or utilization of assets as set forth above is adhered to at the time an investment is made, a later change in percentage resulting from changes in the value of the Fund's assets will not be considered a violation of the restriction.
The Funds will invest only in countries on the Adviser's Approved Country Listing. The Approved Country Listing is a list maintained by the Adviser 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" or the "Distributor").
----------------------------------------------------------------------------------------------------------------------
Number of John
Position(s) Trustee/ Hancock Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Fund since (2) Directorships During Past 5 Years Trustee
----------------------------------------------------------------------------------------------------------------------
Independent Trustees
----------------------------------------------------------------------------------------------------------------------
James F. Carlin Trustee 1992 Director and Treasurer, Alpha Analytical 53
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. (until 2005);
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).
----------------------------------------------------------------------------------------------------------------------
Richard P. Chapman, Jr. Trustee 2005 President and Chief Executive Officer, 53
Born: 1935 Brookline Bancorp., Inc. (lending) (since
1972); Chairman and Director, Lumber
Insurance Co. (insurance) (until 2000);
Chairman and Director, Northeast Retirement
Services, Inc. (retirement administration)
(since 1998).
----------------------------------------------------------------------------------------------------------------------
|
(1) Business address for independent and non-independent Trustees and officers
is 601 Congress Street, Boston, Massachusetts 02210-2805.
(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.
----------------------------------------------------------------------------------------------------------------------
Number of John
Position(s) Trustee/ Hancock Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Fund since (2) Directorships During Past 5 Years Trustee
----------------------------------------------------------------------------------------------------------------------
Independent Trustees
----------------------------------------------------------------------------------------------------------------------
William H. Cunningham Trustee 1996 Former Chancellor, University of Texas System 143
Born: 1944 and former President of the University of
Texas, Austin, Texas; Chairman and CEO, IBT
Technologies (until 2001); Director of the
following: 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), AskRed.com (until
2001), Southwest Airlines, Introgen and
Viasystems, Group, Inc. (electronic
manufacturer) (until 2003); Advisory
Director, Interactive Bridge, Inc. (college
fundraising) (until 2001); Advisory Director,
Q Investments (until 2003); Advisory
Director, JP Morgan Chase Bank (formerly
Texas Commerce Bank - Austin), LIN Television
(since 2002), WilTel Communications (until
2003) and Hayes Lemmerz International, Inc.
(diversified automotive parts supply company)
(since 2003).
----------------------------------------------------------------------------------------------------------------------
|
(1) Business address for independent and non-independent Trustees and officers
is 601 Congress Street, Boston, Massachusetts 02210-2805.
(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.
----------------------------------------------------------------------------------------------------------------------
Number of John
Position(s) Trustee/ Hancock Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Fund since (2) Directorships During Past 5 Years Trustee
----------------------------------------------------------------------------------------------------------------------
Ronald R. Dion Chairman 2005 Chairman and Chief Executive Officer, 53
Born: 1946 and Trustee 1998 R.M. 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;
Director, Boston
Municipal Research
Bureau; Member of the
Advisory Board, Carroll
Graduate School of
Management at Boston
College.
----------------------------------------------------------------------------------------------------------------------
Charles L. Ladner Trustee 2004 Chairman and Trustee, Dunwoody Village, 143
Born: 1938 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).
----------------------------------------------------------------------------------------------------------------------
John A. Moore Trustee 2005 President and Chief Executive Officer, 53
Born: 1939 Institute for Evaluating Health Risks,
(nonprofit institution)
(until 2001); Senior
Scientist, Sciences
International (health
research)(until 2003);
Former Assistant
Administrator & Deputy
Administrator,
Environmental
Protection Agency;
Principal, Hollyhouse
(consulting)(since
2000); Director, CIIT
Center for Health
Science Research
(nonprofit research)
(since 2002).
----------------------------------------------------------------------------------------------------------------------
|
(1) Business address for independent and non-independent Trustees and officers
is 601 Congress Street, Boston, Massachusetts 02210-2805.
(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.
----------------------------------------------------------------------------------------------------------------------
Number of John
Position(s) Trustee/ Hancock Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Fund since (2) Directorships During Past 5 Years Trustee
----------------------------------------------------------------------------------------------------------------------
Patti McGill Peterson Trustee 2005 Executive Director, Council for 53
Born: 1943 International 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 1992 Chairman and Chief Executive Officer, 53
Born: 1944 Greenscapes of Southwest Florida, Inc.
(since 2000); Director and President,
Greenscapes of Southwest Florida, 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).
----------------------------------------------------------------------------------------------------------------------
Non-Independent Trustees
----------------------------------------------------------------------------------------------------------------------
James R. Boyle (3) Trustee 2005 Chairman and Director, John Hancock 184
Born: 1959 Advisers, LLC (the "Adviser"), The
Berkeley Financial
Group, LLC ("The
Berkeley Group")
(holding company) and
John Hancock Funds,
LLC. ("John Hancock
Funds"); President,
John Hancock
Annuities; Executive
Vice President, John
Hancock Life
Insurance Company
(since June, 2004);
President U.S.
Annuities; Senior
Vice President, The
Manufacturers Life
Insurance Company
(U.S.A) (prior to
2004).
----------------------------------------------------------------------------------------------------------------------
|
(1) Business address for independent and non-independent Trustees and officers
is 601 Congress Street, Boston, Massachusetts 02210-2805.
(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.
----------------------------------------------------------------------------------------------------------------------
Number of John
Position(s) Trustee/ Hancock Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Fund since (2) Directorships During Past 5 Years Trustee
----------------------------------------------------------------------------------------------------------------------
Principal Officers who
are not Trustees
----------------------------------------------------------------------------------------------------------------------
Keith F. Hartstein President and 2005 Senior Vice President, Manulife N/A
Born: 1956 Chief Financial Corporation (since 2004);
Executive Director, President and Chief Executive
Officer Officer, the Adviser and The Berkeley
Group (holding company); Director,
President and Chief Executive Officer,
John Hancock Funds; Director, President
and Chief Executive Officer, Sovereign
Asset Management LLC ("Sovereign");
Director, John Hancock Signature
Services, Inc.; Director, Chairman
and President, NM Capital Management,
Inc. (NM Capital); Chairman, Investment
Company Institute Sales Force Marketing
Committee (since 2003); Executive Vice
President, John Hancock Funds, LLC
(until 2005).
----------------------------------------------------------------------------------------------------------------------
William H. King Vice President 1992 Vice President and Assistant Treasurer, N/A
Born: 1952 and Treasurer the Adviser; Vice President and
Treasurer of each of the John Hancock
funds advised by the Adviser; Assistant
Treasurer of each of the John Hancock
funds advised by the Adviser (until 2001).
----------------------------------------------------------------------------------------------------------------------
|
(1) Business address for independent and non-independent Trustees and officers
is 601 Congress Street, Boston, Massachusetts 02210-2805.
(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.
----------------------------------------------------------------------------------------------------------------------
Number of John
Position(s) Trustee/ Hancock Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Fund since (2) Directorships During Past 5 Years Trustee
----------------------------------------------------------------------------------------------------------------------
Francis V. Knox, Jr. Vice President 2005 Vice President and Chief Compliance N/A
Born: 1947 and Chief Officer for John Hancock Investment
Compliance Company, John Hancock Life Insurance
Officer Company (U.S.A.), John Hancock Life
Insurance Company and John Hancock Funds
(since 2005); Fidelity Investments
- Vice President and Assistant Treasurer,
Fidelity Group of Funds (until 2004);
Fidelity Investments - Vice President and
Ethics & Compliance Officer (until 2001).
----------------------------------------------------------------------------------------------------------------------
John G. Vrysen Executive Vice 2005 Director, Executive Vice President and N/A
Born: 1955 President and Chief Financial Officer, the Adviser,
Chief Sovereign, the Berkeley Group (holding
Financial company) and John Hancock Funds (since
Officer 2005);Vice President and General
Manager, Fixed Annuities, U.S. Wealth
Management (until 2005).Vice President,
Operations Manulife Wood Logan
7/00-9/04.
----------------------------------------------------------------------------------------------------------------------
|
(1) Business address for independent and non-independent Trustees and officers
is 601 Congress Street, Boston, Massachusetts 02210-2805.
(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 Contracts/Operations Committee, the Governance Committee and the Investment Performance Committee. Each Committee is comprised of Independent Trustees who are not "interested persons" of the Fund.
The Audit Committee members are Messrs. Chapman, Ladner, Moore and Ms. McGill Peterson. All of the members of the Audit Committee are independent 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 December 31, 2005.
The Governance Committee members are all of the independent Trustees. The Governance Committee makes recommendations to the Board on issues related to corporate governance applicable to the Independent Trustees and to the composition and operation of the Board and to assume duties, responsibilities and functions to nominate candidates to the Board, together with such addition duties, responsibilities and functions as are delegated to it from time to time. Among other things, the Governance Committee acts as a nominating committee of the Board. In reviewing a potential nominee and in evaluating the renomination of current Independent Trustees, the Governance Committee will generally apply the following criteria: (i) the nominee's reputation for integrity, honesty and adherence to high ethical standards, (ii) the nominee's 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 Governance Committee does not necessarily place the same emphasis on each criteria and each nominee may not have each of these qualities. The Governance Committee does not discriminate on the basis of race, religion, national origin, sex, sexual orientation, disability or any other basis proscribed by law. The Governance Committee is a new committee and held four meetings during the fiscal year ended December 31, 2005. (The nominating function of the Governance Committee was previously carried out by the Administration Committee.)
As long as an existing Independent Trustee continues, in the opinion of the Governance 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 Governance Committee will consider nominees recommended by shareholders to serve as trustees, the Governance 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 Governance Committee will, in addition to any shareholder recommendations, consider candidates identified by other means, including candidates proposed by members of the Governance Committee. While it has not done so in the past, the Governance 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 Governance Committee. In evaluating a nominee recommended by a shareholder, the Governance 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 Governance 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: 601 Congress Street, Boston, MA 02210-2805. 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, Cunningham, Dion and Pruchansky. The Contracts/Operations Committee oversees the initiation, operation, and renewal of contracts between the Fund and other entities. These contracts include advisory and subadvisory agreements, custodial and transfer agency agreements and arrangements with other service providers. The Contracts/Operations Committee held five meetings during the fiscal year ended December 31, 2005.
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 December 31, 2005.
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, 2005.
-------------------------------------------------------------------------------------------------------------------
Aggregate Dollar Range of holdings
Dollar Range of Fund Shares Owned by in John Hancock funds overseen by
Name of Trustee Trustee (1) Trustee (1)
-------------------------------------------------------------------------------------------------------------------
Independent Trustees
-------------------------------------------------------------------------------------------------------------------
James F. Carlin None Over 100,000
-------------------------------------------------------------------------------------------------------------------
Richard P. Chapman, Jr. None Over 100,000
-------------------------------------------------------------------------------------------------------------------
William H. Cunningham None $10,001-50,000
-------------------------------------------------------------------------------------------------------------------
Ronald R. Dion None Over 100,000
-------------------------------------------------------------------------------------------------------------------
Charles L. Ladner None Over 100,000
-------------------------------------------------------------------------------------------------------------------
Dr. John A. Moore None Over 100,000
-------------------------------------------------------------------------------------------------------------------
Patti McGill Peterson None Over 100,000
-------------------------------------------------------------------------------------------------------------------
Steven R. Pruchansky None Over 100,000
-------------------------------------------------------------------------------------------------------------------
Non-Independent Trustees
-------------------------------------------------------------------------------------------------------------------
James R. Boyle None $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, 2005, 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. Cunningham, none and over $100,000 for Mr. Dion, none and over $100,000 for Dr. Moore and none and over $100,000 for Mr. Pruchansky.
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 receive no compensation from the Fund for their services.
Total Compensation From the
Aggregate Compensation Fund and John Hancock Fund Complex to
Independent Trustees from the Fund (1) Trustees (2)
-------------------- ----------------- ------------
James F. Carlin $ 6 $ 103,703
Richard P. Chapman* 6 103,953
William J. Cosgrove+ 4 95,203
William H. Cunningham* 7 109,171
Ronald R. Dion*++ 12 151,399
Charles L. Ladner++ 11 149,790
Dr. John A. Moore* 7 115,703
Patti McGill Peterson 5 100,203
Steven R. Pruchansky* 7 115,203
Norman H. Smith* + 4 88,953
Total $ 69 $1,133,281
|
(1) Compensation is for the fiscal year ending December 31, 2005.
(2) Total compensation paid by the John Hancock Funds Complex to the Independent Trustees is as of December 31, 2005. As of this date, Messrs. Carlin, Chapman, Dion, Moore, Pruchansky and Ms. Peterson served on fifty-three funds in the John Hancock Fund Complex: Messrs. Ladner and Cunningham served on one-hundred-forty-three funds.
* As of December 31, 2005, the value of the aggregate accrued deferred compensation amount from all funds in the John Hancock Funds Complex for Mr. Chapman was $76,421, Mr. Cunningham was $125,996, Mr. Dion was $325,086, Mr. Glavin was $243,554, Dr. Moore was $283,070, Mr. Pruchansky was $246,371 and Mr. Smith was $382,371 under the John Hancock Group of Funds Deferred Compensation Plan for Independent Trustees (the "Plan").
+ Mr. Cosgrove retired as of March 31, 2005. Mr. Smith retired as of June 30,
2005.
++ As of September 12, 2005, the Independent Trustees elected Mr. Dion as
Independent Chairman of the Board. As of June 16, 2004, and until September 12,
2005, Mr. Ladner was the 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 1, 2006, 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 the Fund.
---------------------------------------------------------------------------------------------------------------------- Name and Address of Owners of More than 5% of Shares Class A Class B Class C Class I ---------------------------------------------------------------------------------------------------------------------- John Hancock Advisers LLC 99.26% 89.19% 98.99% 92.50% 601 Congress St Boston MA ---------------------------------------------------------------------------------------------------------------------- Nanyang Commercial Bank 401k Plan -- 5.66% -- -- FBO Kenneth C. NG 50 California St San Francisco CA ---------------------------------------------------------------------------------------------------------------------- Andrew W. Vernon -- -- -- 7.50% 1215 Deter Ave Seattle WA ---------------------------------------------------------------------------------------------------------------------- |
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 601 Congress Street, Boston, Massachusetts 02210-2805, a
premier investment management company, managed approximately $28 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, 2005.
Additional information about John Hancock Advisers can be found on the website:
www.jhfunds.com.
The Sub-Adviser, Sovereign, located at 101 Huntington Avenue, Boston, Massachusetts 02199, was organized in 1979 and as of December 31, 2005 approximately $25 billion in assets. The Sub-Adviser is a wholly-owned indirect subsidiary of John Hancock Financial Services, Inc. (an indirect wholly-owned subsidiary of Manulife Financial Corporation).
The Board of Trustees appointed Sovereign as Sub-Adviser to the Fund effective December 31, 2005. As of that date, the investment personnel of the Adviser were reassigned to Sovereign. The Adviser will continue to serve as investment adviser to the Fund and will be responsible for the supervision of Sovereign's services to the Fund.
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, in conjunction with the Sub-Adviser, will: (a) furnish continuously an investment program for the Fund and determine, subject to the overall supervision and review of the Trustees, which investments should be purchased, held, sold or exchanged, and (b) provide supervision over all aspects of the Fund's operations except those which are delegated to a custodian, transfer agent or other agent.
The Adviser and the Fund have entered into a Sub-Advisory Agreement with the Sub-Adviser under which the Sub-Adviser, subject to the review of the Trustees and the overall supervision of the Adviser, is responsible for managing the investment operations of the Fund and the composition of the Fund's portfolio and furnishing the Fund with advice and recommendations with respect to investments, investment policies and the purchase and sale of securities.
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 a monthly fee based on a stated percentage of the average of the daily net assets of the Fund as follows:
Average Daily Net Assets Annual Rate ------------------------- ----------- First $1,000,000,000 0.90% Amount over $1,000,000,000* 0.85% Breakpoint added as of the close of business on January 3, 2006 |
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.
The Adviser agreed to limit the Fund's expenses (excluding 12b-1 and transfer agent fees) to 1.15% of the Fund's average daily net assets of each respective Class' average daily net assets. The Adviser has agree not to terminate this limitation until April 30, 2007.
Securities held by the Fund may also be held by other funds or investment advisory clients for which the Adviser, the Sub-Adviser or their respective affiliates provide investment advice. Because of different investment objectives or other factors, a particular security may be bought for one or more funds or clients when one or more other funds or clients are selling the same security. If opportunities for purchase or sale of securities by the Adviser or Sub-Adviser for the Fund or for other funds or clients for which the Adviser or Sub-Adviser renders investment advice arise for consideration at or about the same time, transactions in such securities will be made, insofar as feasible, for the respective funds or clients in a manner deemed equitable to all of them. To the extent that transactions on behalf of more than one client of the Adviser, the Sub-Adviser or their respective affiliates may increase the demand for securities being purchased or the supply of securities being sold, there may be an adverse effect on price.
Pursuant to the Advisory Agreement and Sub-Advisory Agreement, the Adviser and Sub-Adviser are not liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the matters to which the Advisory Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the Adviser or Sub-Adviser in the performance of their duties or from their reckless disregard of the obligations and duties under the applicable Agreements.
Under the Advisory Agreement, the Fund may use the name "John Hancock" or any name derived from or similar to it only for so long as the Advisory Agreement or any extension, renewal or amendment thereof remains in effect. If the Advisory Agreement is no longer in effect, the Fund (to the extent that it lawfully can) will cease to use such a name or any other name indicating that it is advised by or otherwise connected with the Adviser. In addition, the Adviser or the John Hancock Life Insurance Company (the "Life Company") may grant the non-exclusive right to use the name "John Hancock" or any similar name to any other
corporation or entity, including but not limited to any investment company of which the Life Company or any subsidiary or affiliate thereof or any successor to the business of any subsidiary or affiliate thereof shall be the investment adviser.
The Advisory Agreement and the Distribution Agreement (discussed below) and the initial approval of the Sub-Advisory Agreement were approved by all Trustees. The Advisory Agreement, Sub-Advisory Agreement and the Distribution Agreement, will continue in effect from year to year, provided that its continuance is approved annually both (i) by the holders of a majority of the outstanding voting securities of the Trust or by the Trustees, and (ii) by a majority of the Trustees who are not parties to the Agreement or "interested persons" of any such parties. Both agreements may be terminated on 60 days written notice by any party or by vote of a majority to the outstanding voting securities of the Fund and will terminate automatically if assigned. The Sub-Advisory Agreement terminates automatically upon the termination of the Advisory Agreement.
As compensation for its services under the Sub-Advisory Agreement, the Adviser (not the Fund) pays the Sub-Adviser monthly a fee based on a stated percentage of the average of the daily net assets of the Fund as follows:
Average Daily Net Assets Annual Rate ------------------------ ----------- First $500,000,000 0.50% Next $500,000,000 0.45% Amount over $1,000,000,000 0.40% |
Accounting and Legal Services Agreement. The Trust, on behalf of the Fund, is a party to an Accounting and Legal Services Agreement with the Adviser. Pursuant to this agreement, the Adviser provides the Fund with certain tax, accounting and legal services. For the period from February 28, 2005 through December 31, 2005, the Fund paid Adviser $664, 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 who in turn has made contractual arrangements for the Fund's sub-adviser to vote proxies relating to securities held by the Fund. A summary of the Sub-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, 2005 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, Sub-Adviser, principal underwriter and the Fund have adopted a code of ethics which restricts the trading activity of those personnel.
ADDITIONAL INFORMATION ABOUT THE PORTFOLIO MANAGERS
Other Accounts the Portfolio Managers are Managing. The table below indicates for each portfolio manager 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 December 31, 2005. 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 MANAGERS
--------------------------------------------------------------------------------------------------------------------
Timothy E. Keefe Other Registered Investment Companies: Three (3) fund with total net
assets of approximately $653.3 million.
Other Pooled Investment Vehicles: None
Other Accounts: Eighteen (18) accounts with total net assets of
approximately $65.5 million.
--------------------------------------------------------------------------------------------------------------------
Timothy M. Malloy Other Registered Investment Companies: One (1) fund with total net assets
of approximately $3.5 million.
Other Pooled Investment Vehicles: None
Other Accounts: One (1) account with total net assets of approximately
$54.8 million.
--------------------------------------------------------------------------------------------------------------------
|
The Adviser and Sub-Adviser do not receive a fee based upon the investment performance of any of the accounts included under "Other Accounts Managed by the Portfolio Managers" 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 and the Sub-Adviser have 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 Sub-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.
o 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 Sub-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.
o 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 Sub-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 Sub-Adviser will place the order in a manner intended to result in as favorable a price as possible for such client.
o 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. Neither the Adviser nor the Sub-Adviser receives a performance-based fee with respect to one of the other accounts managed by a portfolio manager.
o 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 Sub-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.
o If the different accounts have materially and potentially conflicting investment objectives or strategies, a conflict of interest may arise. In making portfolio manager assignments, the Sub-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 Sub-Adviser has adopted a system of compensation for portfolio managers and others involved in the investment process that is applied systematically among investment professionals. At the Sub-Adviser, the structure of compensation of investment professionals is currently comprised of the following basic components: base salary, and an annual investment bonus plan, as well as customary benefits that are offered generally to all full-time employees of the Sub-Adviser. A limited number of senior portfolio managers, who serve as officers of both the Sub-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.
o Base salary. Base compensation is fixed and normally reevaluated on an annual basis. The Sub-Adviser seeks to set compensation at market rates, taking into account the experience and responsibilities of the investment professional.
o 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 Sub-Adviser and the investment professional. Any bonus under the plan is completely discretionary, with a maximum annual bonus that may be well 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:
o 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 Morningstar 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.
o The Profitability of the Sub-Adviser: The profitability of the Sub-Adviser and its parent company are also considered in determining bonus awards, with greater emphasis placed upon the profitability of the Adviser.
o Non-Investment Performance: The more intangible contributions of an investment professional to the Sub-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.
o 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 Sub-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 Sub-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 Portfolio Managers. The following table indicates as of December 31, 2005 the value, within the indicated range, of shares beneficially owned by the portfolio
managers 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 -------------------------------------------------------------------- Timothy E. Keefe A -------------------------------------------------------------------- Timothy M. Malloy A -------------------------------------------------------------------- |
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. In the case of Class B and Class C shares, the Selling Firm receives compensation immediately but John Hancock Funds is compensated on a deferred basis.
There were no underwriting commission for sales of the Fund's Class A shares or Class C shares for the period from February 29, 2005 through December 31, 2005.
The Fund's Trustees adopted Distribution Plans with respect to each class of shares (the "Plans"), pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plans, the Fund will pay distribution and service fees at an aggregate annual rate of up to 0.30% for Class A, 1.00% for Class B and Class C shares of the Fund's average daily net assets attributable to the respective class of shares. However, the service fee will not exceed 0.25% of the Fund's average daily net assets attributable to each class of shares. The distribution fees will be used to reimburse John Hancock Funds for its distribution expenses, including but not limited to: (i) initial and ongoing sales compensation to Selling 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 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 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 December 31,
2005, an aggregate of $4,024 of distribution expenses or 6.89% of the average net assets of the Class B shares of the Fund, were not reimbursed or recovered by John Hancock Funds through the receipt of deferred sales charges or Rule 12b-1 fees in the prior periods. For the fiscal year ended December 31, 2005, an aggregate of $3,730 of distribution expenses or 6.39% of the average net assets of the Class C shares of the Fund, were not reimbursed or recovered by John Hancock Funds through the receipt of deferred sales charges or Rule 12b-1 fees in the prior periods.
The Class A, Class B and Class C Plans were approved by a majority of the voting securities of the Fund. The Class A, Class B and Class C Plans have also been approved by a majority of 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 Plan (the "Independent Trustees"), by votes cast in person at meetings called for the purpose of voting on such Plans.
Pursuant to the Plans, at least quarterly, John Hancock Funds provides the Fund with a written report of the amounts expended under the Plans and the purpose for which these expenditures were made. The Trustees review these reports on a quarterly basis to determine their continued appropriateness.
The Plans provide that they continue in effect only so long as their 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 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 in each case upon 60 days' written notice to John Hancock Funds and (c) automatically in the event of assignment. The Plans further provide that they may not be amended to increase the maximum amount of the fees for the services described therein without the approval of a majority of the outstanding shares of the class of the Fund which has voting rights with respect to the Plan. Each Plan provides that no material amendment to the Plans will be effective unless it is approved by a majority vote of the Trustees and the Independent Trustees of the Fund. The holders of Class A, Class B or Class C shares have exclusive voting rights with respect to the Plan applicable to their respective class of shares. In adopting the Plans, the Trustees concluded that, in their judgment, there is a reasonable likelihood that the Plans will benefit the holders of the applicable class of shares of the Fund.
Class I shares of the Fund are not subject to any distribution plan. Expenses associated with the obligation of John Hancock Funds to use its best efforts to sell Class I shares will be paid by the Adviser or by John Hancock Funds and will not be paid from the fees paid under Class A, Class B or Class C Plans.
Amounts paid to John Hancock Funds by any class of shares of the Fund will not be used to pay the expenses incurred with respect to any other class of shares of the Fund; provided, however, that expenses attributable to the Fund as a whole will be allocated, to the extent permitted by law, according to a formula based upon gross sales dollars and/or average daily net assets of each such class, as may be approved from time to time, the Fund may participate in joint distribution activities with other Funds and the costs of those activities will be borne by each Fund in proportion to the relative net asset value of the participating Funds.
For the period from February 28, 2005 through December 31, 2005, the Fund paid John Hancock Funds the following amounts of expenses in connection with their services.
Expense Items
-------------
Interest,
Printing and Carrying or
Mailing of Expenses of Other
Prospectuses to John Hancock Compensation Finance
Shares Advertising New Shareholders Funds to Selling Firms Charges
------ ----------- ---------------- ----- ---------------- -------
Class A $ 38 0 $14 $ 7,121 0
Class B 3 0 40 661 0
Class C 4 0 2 698 0
|
SALES COMPENSATION
As part of their business strategies, the Fund, along with the Distributor, pays 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 and Class C are (1) the 12 b-1 fees that are paid out of the fund's assets and
(2) sales charges paid by investors. The sales charges and 12b-1 fees are
detailed in the prospectus and under "Distribution Contracts", "Initial Sales
Charge on Class A Shares" and "Deferred Sales Charge on Class B and Class C
shares" 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, the Distributor 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.
Additional compensation. The Distributor, at its expense, and without additional cost to the Fund or its shareholders, may provide additional compensation to a Selling Firm in connection with their promotion of the Fund or sale of shares of the Fund. The Distributor, may make payments to selling firms for marketing support and/or shareholder administrative services. These marketing support payments may include 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, the Distributor may provide expense reimbursements for special training of a Selling Firm's registered representatives and other employees in group meetings. Non-cash compensation may also take the form of occasional gifts, meals, tickets or other entertainment as limited by NASD requirements. Payments may 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. The Distributor compensates Selling Firms differently depending upon, among other factors, the level and/or type of marketing support provided by the Selling Firm. The level of payments made to a Selling Firm in any given year will vary and may be substantial. These payments may provide an incentive to a Selling Firm to actively promote the Funds or cooperate with the Distributor promotional efforts. Depending on the arrangements in place at any particular time, Selling Firms may have a financial incentive to recommend a particular fund or a share class. You should ask your Selling Firm for more information about any services it provides, as well as about fees, commissions and/or marketing support payments.
First Year Broker or Other Selling Firm Compensation
Selling Firm
Investor pays Selling Firm receives receives 12b-1 Total Selling Firm
Class A investments (% of offering 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%
Class I investments
All amounts
-- 0.00% 0.00% 0.00%(6)
|
(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, LLC, 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 a discussion on how to qualify for a reduced sales charge. John Hancock Funds, LLC may take recent redemptions into account in determining if an investment qualifies as a new investment.
(6) John Hancock Funds, LLC may make a one-time payment at the time of initial purchase out of its own resources to a Selling Firm that sells Class I shares of the fund. This payment may be up to 0.15% of the amount invested.
CDSC revenues collected by John Hancock Funds, LLC may be used to pay Selling Firm commissions when there is no initial sales charge.
NET ASSET VALUE
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.
For purposes of calculating the net asset value ("NAV") of the Fund's shares, the following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished by a principal market maker or a pricing service, both of which generally utilize electronic data processing techniques to determine valuations for normal institutional size trading units of debt securities without exclusive reliance upon quoted prices. 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 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.
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 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 "Combination" and "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 living in the same household (see "Combination and Accumulation 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. John Hancock Signature Services, Inc. will automatically link certain accounts registered in the same client name, with the same taxpayer identification number, for the purpose of qualifying you for lower initial sales charge rates. You must notify John Hancock Signature Services Inc. and your broker-dealer (financial adviser) at the time of purchase of any eligible accounts held by your spouse or children under 21, living in the same household in order to insure these assets are linked to your accounts.
Without Sales Charges. Class A shares may be offered without a front-end sales charge or contingent deferred sales charge ("CDSC") to various individuals and institutions as follows:
o A Trustee or officer of the Trust; a Director or officer of the Adviser and its affiliates, 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.
o A broker, dealer, financial planner, consultant or registered investment advisor that has entered into a signed agreement with John Hancock Funds providing specifically for the use of Fund shares in fee-based investment products or services made available to their clients.
o Individuals transferring assets held in a SIMPLE IRA, SEP, or SARSEP invested in John Hancock Funds directly to an IRA.
o Individuals converting assets held in an IRA, SIMPLE IRA, SEP, or SARSEP invested in John Hancock Funds directly to a ROTH IRA.
NOTE: Rollover investments to Class A shares from assets withdrawn from SIMPLE
401(k), TSA, 457, 403(b), 401(k), Money Purchase Pension Plan, Profit-Sharing
Plan and any other qualified plans as described in the Internal Revenue Codes
401(a), 403(b), 457 and not specified above as waiver eligible, will be subject
to applicable sales charges.
o A member of a class action lawsuit against insurance companies who is investing settlement proceeds.
o Certain retirement plans participating in Merrill Lynch servicing programs offered in Class A shares, including transferee recording arrangements, Merrill Lynch Connect Arrangements and third party administrator recordkeeping arrangements. See your Merrill Lynch Financial Consultant for further information.
o Retirement plans investing through the PruSolutionssm program.
o 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.
o 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% |
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.
In Kind Re-registrations. A shareholder who withdraws funds via a tax reportable transaction, from one John Hancock fund account, that has previously paid a sales charge, and reregisters those assets directly to another John Hancock Fund account, without the assets ever leaving John Hancock Funds, may do so without paying a sales charge. The beneficial owner must remain the same, i.e., in kind.
Note: Rollover investments to Class A shares from assets withdrawn from SIMPLE
401(k), TSA, 457, 403(b), 401(k), Money Purchase Pension Plan, Profit-Sharing
Plan and any other qualified plans as described in the Internal Revenue Codes
401(a), 403(b), 457 are not eligible for this provision, and will be subject to
applicable sales charges.
Reducing Your Class A Sales Charges
Combination and Accumulation Privileges. 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 living in the same household, 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. 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 his or her spouse and their children under the age of 21 living in the same household. Further information about combined purchases, including certain restrictions on combined group purchases, is available from Signature Services or a Selling Firm's representative.
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 Combination and 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 and his/her financial adviser 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. Purchases made within 90 days prior to the signing of an LOI will be counted towards fulfillment of the LOI, however, the original sales charge will not be recalculated for these previous purchase. The sales charge applicable to all amounts invested after an LOI is signed 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.
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 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 regarded as a share exempt from CDSC. Thus, when a share that has appreciated in value is redeemed during the CDSC period, a CDSC is assessed only on its initial purchase price.
When requesting a redemption for a specific dollar amount, please indicate if you require the proceeds to equal the dollar amount requested. If not indicated, only the specified dollar amount will be redeemed from your account and the proceeds will be less any applicable CDSC.
Example:
You have purchased 100 Class B shares at $10 per share. The second year after your purchase, your investment's net asset value per share has increased by $2 to $12, and you have gained 10 additional shares through dividend reinvestment. If you redeem 50 shares at this time your CDSC will be calculated as follows:
o Proceeds of 50 shares redeemed at $12 per shares (50 x 12) $600.00
o *Minus Appreciation ($12 - $10) x 100 shares (200.00)
o Minus proceeds of 10 shares not subject to CDSC (dividend reinvestment) (120.00)
-------
o Amount subject to CDSC $280.00
|
*The appreciation is based on all 100 shares in the account not just the shares being redeemed.
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or in part by John Hancock Funds to defray its expenses related to providing distribution-related services to the Fund in connection with the sale of the Class B and Class C shares, such as the payment of compensation to select Selling 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 CDSC, unless indicated otherwise, in these circumstances:
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your account if you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition transactions involving other investment companies or personal holding companies.
* Redemptions due to death or disability. (Does not apply to trust accounts unless trust is being dissolved.)
* Redemptions made under the Reinstatement Privilege, as described in "Sales Charge Reductions and Waivers" of the Prospectus.
* Redemptions of Class B and Class C shares made under a periodic withdrawal plan, or redemption 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.
* 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.
--------------------------------------------------------------------------------------------------------------
Type of 401 (a) Plan 403 (b) 457 IRA, IRA Non-retirement
Distribution (401 (k), MPP, Rollover
PSP) 457 & 408 (SEPs & Simple IRAs)
--------------------------------------------------------------------------------------------------------------
Death or Disability Waived Waived Waived Waived Waived
--------------------------------------------------------------------------------------------------------------
Over 70 1/2 Waived Waived Waived Waived for 12% of account
required value annually
minimum in periodic
distributions* payments
or 12% of
account value
annually in
periodic
payments.
--------------------------------------------------------------------------------------------------------------
Between 59 1/2 Waived Waived Waived Waived for Life 12% of account
and 70 1/2 Expectancy or value annually
12% of account in periodic
value annually payments
in periodic
payments.
--------------------------------------------------------------------------------------------------------------
Under 59 1/2 Waived for Waived for Waived for Waived for 12% of account
(Class B and Class C annuity payments annuity annuity annuity value annually
only) (72t) or 12% of payments (72t) payments (72t) payments (72t) in periodic
account value or 12% of or 12% of or 12% of payments
annually in account value account value account value
periodic annually in annually in annually in
payments. periodic periodic periodic
payments. payments. payments.
--------------------------------------------------------------------------------------------------------------
Loans Waived Waived N/A N/A N/A
--------------------------------------------------------------------------------------------------------------
Termination of Plan Not Waived Not Waived Not Waived Not Waived N/A
--------------------------------------------------------------------------------------------------------------
Hardships Waived Waived Waived N/A N/A
--------------------------------------------------------------------------------------------------------------
Qualified Domestic Waived Waived Waived N/A N/A
Relations Orders
--------------------------------------------------------------------------------------------------------------
Termination of Waived Waived Waived N/A N/A
Employment Before
Normal Retirement Age
--------------------------------------------------------------------------------------------------------------
Return of Excess Waived Waived Waived Waived N/A
--------------------------------------------------------------------------------------------------------------
|
*Required minimum distributions based on John Hancock Mutual Fund IRA assets only.
If you qualify for a CDSC waiver under one of these situations, you must notify Signature Services at the time you make your redemption. The waiver will be granted once Signature Services has confirmed that you are entitled to the waiver.
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 of 1940. 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 same class. The registration for both accounts involved must be identical. Identical registration is determined by having the same beneficial owner on both accounts involved in the exchange.
Investors may exchange Class I shares for Class I shares of other John Hancock funds, shares of any John Hancock institutional fund, or Class A shares of John Hancock Money Market Fund. If an investor exchanges Class I shares for Class A shares of Money Market Fund, any future exchanges out of the Money Market Fund Class A must be to another Class I fund.
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.
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 and your financial adviser are 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 back into the same share class of the same John Hancock Fund and account from which it was removed, 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. 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 same class and fund and account 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 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 Trust 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 two other series. Additional series may be added in the future. The Trustees have also authorized the issuance of five classes of shares of the Fund, designated as Class A, Class B, Class C and Class I.
The shares of each class of the Fund represent an equal proportionate interest in the aggregate net assets attributable to that class of the Fund. Holders of each class of shares have certain exclusive voting rights on 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. The fund no longer issues share certificates. Shares are electronically recorded.
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 will pay higher distribution and service fees than Class A shares(iii) each class of shares will bear any other class expenses properly allocable to such class of shares, subject to the conditions the Internal Revenue Service imposes with respect to the multiple-class structures. Similarly, the net asset value per share may vary depending on which class of shares are purchased. No interest will be paid on uncashed dividend or redemption checks.
In the event of liquidation, shareholders of each class are entitled to share pro rata in the net assets of the Fund available for distribution to these shareholders. Shares entitle their holders to one vote per share, are freely transferable and have no preemptive, subscription or conversion rights. When issued, shares are fully paid and non-assessable, except as set forth below.
Unless otherwise required by the Investment Company Act of 1940 or the Declaration of Trust, the Fund has no intention of holding annual meetings of shareholders. Fund shareholders may remove a Trustee by the affirmative vote of at least two-thirds of the Trust's outstanding shares and the Trustees shall promptly call a meeting for such purpose when requested to do so in writing by the record holders of not less than 10% of the outstanding shares of the Trust. Shareholders may, under certain circumstances, communicate with other shareholders in connection with requesting a special meeting of shareholders. However, at any time that less than a majority of the Trustees holding office were elected by the shareholders, the Trustees will call a special meeting of shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust could, under certain circumstances, be held personally liable for acts or obligations of the Trust. However, the Fund's Declaration of Trust contains an express disclaimer of shareholder liability for acts,
obligations or affairs of the Fund. The Declaration of Trust also provides for indemnification out of the Fund's assets for all losses and expenses of any shareholder held personally liable by reason of being or having been a shareholder. The Declaration of Trust also provides that no series of the Trust shall be liable for the liabilities of any other series. Furthermore, no fund included in this Fund's Prospectus shall be liable for the liabilities of any other John Hancock fund. Liability is therefore limited to circumstances in which the Fund itself would be unable to meet its obligations, and the possibility of this occurrence is remote.
The Fund reserves the right to reject any application which conflicts with the Fund's internal policies or the policies of any regulatory authority. John Hancock Funds does not accept starter, credit card, or third party checks. All checks returned by the post office as undeliverable will be reinvested at net asset value in the fund or funds from which a redemption was made or dividend paid. Information provided on the account application may be used by the Fund to verify the accuracy of the information or for background or financial history purposes. A joint account will be administered as a joint tenancy with right of survivorship, unless the joint owners notify Signature Services of a different intent. A shareholder's account is governed by the laws of The Commonwealth of Massachusetts. For telephone transactions, the transfer agent will take measures to verify the identity of the caller, such as asking for name, account number, Social Security or other taxpayer ID number and other relevant information. If appropriate measures are taken, the transfer agent is not responsible for any losses that may occur to any account due to an unauthorized telephone call. Also for your protection telephone 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 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 taxable income (including net realized capital gains) which is distributed to shareholders in accordance with the timing requirements of the Code.
The Fund will be subject to a 4% nondeductible Federal excise tax on certain amounts not distributed (and not treated as having been distributed) on a timely basis in accordance with annual minimum distribution requirements. The Fund intends under normal circumstances to seek to avoid or minimize liability for such tax by satisfying such distribution requirements.
Distribution from the Fund's current or accumulated earnings and profits ("E&P") will be taxable under the Code for investors who are subject to tax. If these distributions are paid from the Fund's "investment company taxable income," they will be taxable as ordinary income; and if they are paid from the Fund's "net capital gain" they will be taxable as capital gain. (Net capital gain is the excess (if any) of net long-term capital gain over net short-term capital loss, and investment company taxable income is all taxable income and capital gains, other than net capital gain, after reduction by deductible expenses). Some distributions may be paid in January but may be taxable to shareholders as if they had been received on December 31 of the previous year. The tax treatment described above will apply without regard to whether distributions are received in cash or reinvested in additional shares of the Fund.
Distributions, if any, in excess of E&P will constitute a return of capital under the Code, which will first reduce an investor's Federal tax basis in Fund shares and then, to the extent such basis is exceeded, will generally give rise to capital gains. Shareholders who have chosen automatic reinvestment of their distributions will have a Federal tax basis in each share received pursuant to such a reinvestment equal to the amount of cash they would have received had they elected to receive the distribution in cash, divided by the number of shares received in the reinvestment.
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 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 to minimize its tax liability or maximize its return from these investments.
Foreign exchange gains and losses realized by the Fund in connection with certain transactions involving foreign currency-denominated debt securities, certain foreign currency options and futures contracts, 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 certain currency positions or derivatives not used for hedging purposes, may under future Treasury regulations produce income not among the types of "qualifying income" from which the Fund must derive at least 90% of its 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 a loss but after considering the post-October loss regulations) the resulting overall ordinary loss for such a year would not be deductible by the Fund or its shareholders in future years.
The Fund may be subject to withholding and other taxes imposed by foreign countries with respect to its investments in foreign securities. Tax conventions between certain countries and the U.S. may reduce or eliminate such taxes. Investors may be entitled to claim U.S. foreign tax credits or deductions with respect to foreign income taxes or certain other foreign taxes ("qualified foreign taxes") paid by the Fund, subject to certain provisions and limitations contained in the Code, if the Fund so elects. If more than 50% of the value of the Fund's total assets at the close of any taxable year consists of stock or securities of foreign corporations, the Fund may file an election with the Internal Revenue Service pursuant to which shareholders of the Fund will be required to (i) include in ordinary gross income (in addition to taxable dividends and distributions actually received) their pro rata shares of qualified foreign taxes paid by the Fund even thought not actually received by them, and (ii) treat such respective pro rata portions as foreign taxes paid by them. The Fund anticipates that it normally will not satisfy this 50% requirement and that, consequently, investors will not be entitled to any foreign tax credits or deductions with respect to their investments in the Fund. If the Fund cannot or does not make this election it will deduct such taxes in computing its taxable income.
The amount of the Fund's net realized capital gains, if any, in any given year will vary depending upon the Advisers' current investment strategy and whether the Advisers believe it to be in the best interest of the Fund to dispose of portfolio securities or engage in certain other transactions or derivatives that will generate capital gains. At the time of an investor's purchase of shares of the Fund, a portion of the purchase price is often attributable to realized or unrealized appreciation in the Fund's portfolio or undistributed taxable income of the Fund. Consequently, subsequent distributions on these shares from such appreciation or income may be taxable to such investor even if the net asset value of the investor's shares is, as a result of the distributions, reduced below the investor's cost for such shares and the distributions in reality represent a return of a portion of the purchase price.
Upon a redemption or other disposition of shares of the Fund (including by exercise of the exchange privilege) in a transaction that is treated as a sale for tax purposes, a shareholder will ordinarily realize a taxable gain or loss depending upon the amount of the proceeds and the investor's basis in his shares. This gain or loss will be treated as capital gain or loss if the shares are capital assets in the shareholder's hands and will be long-term or short-term, depending upon the shareholder's tax holding period for the shares and subject to the special rules described below. A sales charge paid in purchasing shares of the Fund cannot be taken into account for purposes of determining gain or loss on the redemption or exchange of such shares within 90 days after their purchase to the extent shares of the Fund or another John Hancock fund are subsequently acquired without payment of a sales charge pursuant to the reinvestment or exchange privilege. This disregarded charge will result in an increase in the shareholder's tax basis in the shares subsequently acquired. Also, any loss realized on a redemption or exchange may be disallowed for tax purposes 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 tax 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 to shareholders.
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.
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 such dividend and distributed and properly designated by the Fund may be treated as qualifying dividends. Corporate shareholders must meet the minimum holding period requirement stated above (46 or 91 days) with respect to their shares of the Fund for each dividend in order to qualify for the deduction and, if they have any debt that is deemed under the Code directly attributable to such shares, may be denied a portion of the dividends received deduction. The entire qualifying dividend, including the otherwise-deductible amount, will be included in determining the excess (if any) of a corporate shareholder's adjusted current earnings over its alternative minimum taxable income, which may increase its alternative minimum tax liability, if any. Additionally, any corporate shareholder should consult its tax adviser regarding the possibility that its tax basis in its Fund shares may also be reduced, for Federal income tax purposes, by reason of "extraordinary dividends" received with respect to the shares, for the purpose of computing its gain or loss on redemption or other disposition of the shares.
If the Fund should have dividend income that qualifies as Qualified Dividend Income, as provided in the Jobs and Growth Tax Relief Reconciliation Act of 2003, the maximum amount allowable will be designated by the Fund. This amount will be reflected on Form 1099-DIV for the current calendar year.
The Fund is required to accrue income on any debt securities that have more than a de minimis amount of original issue discount (or debt securities acquired at a market discount, if the Fund elects to include market discount in income currently) prior to the receipt of the corresponding cash payments. The mark to market or constructive sale rules applicable to certain options, futures, forward 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.
Certain options, futures, and forward foreign currency contracts undertaken by the Fund may cause the Fund to recognize gains or losses from marking to market even though its positions have not been sold or terminated and affect the character as long-term or short-term (or, in the case of certain foreign currency forwards, options and futures, as ordinary income or loss) and timing of some gains and losses realized by the Fund. Additionally, the Fund may be required to recognized 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 or forward contracts and/or offsetting or successor portfolio positions may be deferred rather than being taken into account currently in calculating the Fund's taxable income or gains. Certain of these transactions may also cause the Fund to dispose of investments sooner than would otherwise have occurred. These transactions may therefore affect the amount, timing and character of the Fund's distributions to shareholders. Some of the applicable tax rules may be modified if the Fund is eligible and chooses to make one or more of certain tax elections that may be available. The Fund will take into account the special tax rules applicable to options, futures or forward contracts (including consideration of any available elections) in order to minimize any potential adverse tax consequences.
The foregoing discussion relates solely to U.S. Federal income tax laws 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 the laws. 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 nonresident alien withholding tax at the rate of 30% (or a lower rate under an applicable tax treaty) on amounts treated as ordinary dividends from the Fund and, unless an effective IRS Form W-8, Form W-8BEN or other authorized withholding certificate is on file and to backup withholding on certain other payments from the Fund. Non-U.S. investors should consult their tax advisers regarding such treatment and the application of foreign taxes to an investment in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise taxes. The Fund anticipates that, provided that the Fund qualifies as a regulated investment company under the Code, it will also not be required to pay any Massachusetts income tax.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the allocation of brokerage commissions are made by the Adviser's or Sub-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 Sub-Adviser's Senior Investment Policy Committee and its Brokerage Practices Committee which consists of officers of the Sub-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 that also sell shares of John Hancock funds. However, the Adviser and Sub-Adviser do 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 and Sub-Adviser of the Fund. The Adviser and Sub-Adviser have 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 to a broker which provides brokerage and research services to the Fund an amount of disclosed commission in excess of the commission which another broker would have charged for effecting that transaction. This practice is subject to a good faith determination by the Trustees that such price is reasonable in light of the services provided and to such policies as the Adviser may adopt from time to time. For the fiscal year ended December 31, 2005, the Fund paid $0 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 or Sub-Adviser's own research (and the research of its affiliates), and may include the following types of information: statistical and background information on the U.S. and foreign economies, industry groups and individual companies; forecasts and interpretations with respect to the U.S. and foreign economies, securities, markets, specific industry groups and individual companies; information on federal, state, local and foreign political developments; portfolio management strategies; performance information on securities, indexes and investment accounts; and information concerning prices and ratings of securities. Broker-dealers may communicate such information electronically, orally, in written form or on computer software. Research services may also include the providing of electronic communication of trade information and the providing of specialized consultations with the Adviser's or Sub-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 or Sub-Adviser since the broker-dealers used by the Adviser or Sub-Adviser tend to follow a broader universe of securities and other matters than the Adviser's or Sub-Adviser's staff can follow. In addition, the research provides the Adviser or Sub-Adviser with a diverse perspective on financial markets. Research services provided to the Adviser or Sub-Adviser by broker-dealers are available for the benefit of all accounts managed or advised by the Adviser or by its affiliates, or by the Sub-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 and Sub-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 and Sub-Adviser believe that the research services are beneficial in supplementing the Adviser's research and analysis and that they improve the quality of the Adviser's or Sub-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 or Sub-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 or Sub-Adviser. However, to the extent that the Adviser or Sub-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 or Sub-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 or Sub-Adviser, and conversely, brokerage commissions and spreads paid by other advisory clients of the Adviser or Sub-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 or Sub-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.
For the period from February 28, 2005 through December 31, 2005 the Fund paid negotiated brokerage commissions of $14,162.
While the Adviser and/or the Sub-Adviser will be primarily responsible for its allocation of the Fund's brokerage business, the policies and practices of the Adviser or Sub-Adviser in this regard must be consistent with the foregoing and at all times be subject to review by the Trustees.
Pursuant to procedures determined by the Trustees and consistent with the above policy of obtaining best net results, the Fund may execute portfolio transactions with or through brokers affiliated with the Adviser and/or Sub-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, the Sub-Adviser or the Affiliated Broker. Because the Adviser or Sub-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 December 31, 2005, the Fund paid no brokerage commissions to any Affiliated Broker.
Other investment advisory clients advised by the Adviser or Sub-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 or Sub-Adviser may average the transactions as to price and allocate
the amount of available investments in a manner which the Adviser or Sub-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 or Sub-Adviser may aggregate securities to be sold or purchased for the Fund with those to be sold or purchased for other clients managed by it in order to obtain best execution.
TRANSFER AGENT SERVICES
John Hancock Signature Services, Inc., 1 John Hancock Way, Suite 1000, Boston, MA 02217-1000, a wholly owned indirect subsidiary of the Life Company, is the transfer and dividend paying agent for the Fund. The Fund pays Signature Services monthly a fee which is based on an annual rate of $16.00 for each Class A shareholder account, $18.50 for each Class B shareholder account 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, Class C and Class I shares. For Class A, Class B and Class C shares, the Fund also pays certain out-of pocket expenses. Expenses for Class A, B and C shares are aggregated and allocated to each class on the basis of their relative net asset values. Signature Services agreed to voluntarily reduce the asset-based portion of the Fund's transfer agent fee for Class A, B and C shares if the total transfer agent fee exceeds the Lipper Inc. median transfer agency fee for comparable mutual funds by greater than 0.05%. For the period from February 28, 2005 through December 31, 2005 the Transfer Agent waived its fee to the Fund. For shares held of record in omnibus or other 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, 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. Until December 31, 2005, the independent registered public accounting firm of the Fund was Deloitte & Touche LLP, 200 Berkeley Street, Boston, Massachusetts 02116.
APPENDIX A
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's primary securities and investment practices. You may find the most concise description of the fund's risk profile in the prospectus.
A fund is permitted to utilize -- within limits established by the trustees -- certain other securities and investment practices that have higher risks and opportunities associated with them. To the extent that the Fund utilizes these securities or practices, its overall performance may be affected, either positively or negatively. On the following pages are brief definitions of certain associated risks with them with examples of related securities and investment practices included in brackets. See the "Investment Objective and Policies" and "Investment Restrictions" sections of this Statement of Additional Information for a description of this Fund's investment policies. The Fund follows certain policies that may reduce these risks.
As with any mutual fund, there is no guarantee that the Fund will earn income or show a positive return over any period of time -- days, months or years.
TYPES OF INVESTMENT RISK
Correlation risk The risk that changes in the value of a hedging instrument will not match those of the asset being hedged (hedging is the use of one investment to offset the effects of another investment). Incomplete correlation can result in unanticipated risks. (e.g., short sales, financial futures and options; securities and index options, currency contracts).
Credit risk The risk that the issuer of a security, or the counterparty to a contract, will default or otherwise become unable to honor a financial obligation. (e.g., borrowing; reverse repurchase agreements, repurchase agreements, securities lending, non-investment-grade securities, financial futures and options; securities and index options).
Currency risk The risk that fluctuations in the exchange rates between the U.S. dollar and foreign currencies may negatively affect an investment. Adverse changes in exchange rates may erode or reverse any gains produced by foreign currency denominated investments and may widen any losses. (e.g., foreign equities, financial futures and options; securities and index options, currency contracts).
Information risk The risk that key information about a security or market is inaccurate or unavailable. (e.g., non-investment-grade securities, foreign equities).
Interest rate risk The risk of market losses attributable to changes in interest rates. With fixed-rate securities, a rise in interest rates typically causes a fall in values, while a fall in rates typically causes a rise in values. (e.g., non-investment-grade securities, financial futures and options; securities and index options).
Leverage risk Associated with securities or practices (such as borrowing) that multiply small index or market movements into large changes in value. (e.g., borrowing; reverse repurchase agreements, when-issued securities and forward commitments).
o Hedged When a derivative (a security whose value is based on another security or index) is used as a hedge against an opposite position that the fund also holds, any loss generated by the derivative should be substantially offset by gains on the hedged investment, and vice
versa. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. (e.g., short sales, financial futures and options securities and index options; currency contracts).
o Speculative To the extent that a derivative is not used as a hedge, the fund is directly exposed to the risks of that derivative. Gains or losses from speculative positions in a derivative may be substantially greater than the derivative's original cost. (e.g., short sales, financial futures and options securities and index options; currency contracts).
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).
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.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
Ca: 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.
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.
APPENDIX C
SUMMARY OF PROXY VOTING
John Hancock Advisers, LLC
Sovereign Asset Management, LLC
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, LLC ("Sovereign") manage open-end funds, closed-end funds and portfolios for institutions and high-net-worth investors. Occasionally, we utilize the expertise of an outside asset manager by means of a subadvisory agreement. In all cases, JHA or Sovereign makes the final decision as to how to vote our clients' proxies. There is one exception, however, and that pertains to our international accounts. The investment management team for international investments votes the proxies for the accounts they manage. Unless voting is specifically retained by the named fiduciary of the client, JHA and Sovereign will vote proxies for ERISA clients.
In order to ensure a consistent, balanced approach across all our investment teams, we have established a proxy oversight group comprised of associates from our investment, operations and legal teams. The group has developed a set of policies and procedures that detail the standards for how JHA and Sovereign vote proxies. The guidelines of JHA have been approved and adopted by each fund client's board of trustees who have voted to delegate proxy voting authority to their investment adviser, JHA. JHA and Sovereign's other clients have granted us the authority to vote proxies in our advisory contracts or comparable documents.
JHA and Sovereign have hired a third party proxy voting service which has been instructed to vote all proxies in accordance with our established guidelines except as otherwise instructed.
In evaluating proxy issues, our proxy oversight group may consider information from many sources, including the portfolio manager, management of a company presenting a proposal, shareholder groups, and independent proxy research services. Proxies for securities on loan through securities lending programs will generally not be voted, however a decision may be made to recall a security for voting purposes if the issue is material.
Below are the guidelines we adhere to when voting proxies. Please keep in mind that these are purely guidelines. Our actual votes will be driven by the particular circumstances of each proxy. From time to time votes may ultimately be cast on a case-by-case basis, taking into consideration relevant facts and circumstances at the time of the vote. Decisions on these matters (case-by-case, abstention, recall) will normally be made by a portfolio manager under the supervision of the chief investment officer and the proxy oversight group. We may abstain from voting a proxy if we conclude that the effect on our clients' economic interests or the value of the portfolio holding is indeterminable or insignificant.
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.
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:
o the compensation committee is not fully independent;
o plan dilution is more than 10% of outstanding common stock;
o the 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;
o 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:
o the plan allows stock to be purchased at less than 85% of fair market
value;
o this plan dilutes outstanding common equity greater than 10%;
o all stock purchase plans, including the proposed plan, exceed 15% of
outstanding common equity;
o 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:
o the minimum vesting period for options or time lapsing restricted stock is
less than one year;
o 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:
o change the company name;
o approve other business;
o adjourn meetings;
o make technical amendments to the by-laws or charters;
o approve financial statements;
o approve an employment agreement or contract.
Shareholder Proposals
Shareholders are permitted per SEC regulations to submit proposals for inclusion in a company's proxy statement. We will generally vote against shareholder proposals and in accordance with the recommendation of management except as follows where we will vote for proposals:
o calling for shareholder ratification of auditors;
o calling for auditors to attend annual meetings;
o seeking to increase board independence;
o requiring minimum stock ownership by directors;
o seeking to create a nominating committee or to increase the independence of
the nominating committee;
o seeking to increase the independence of the audit committee.
Corporate and social policy issues
We believe that "ordinary business matters" are primarily the responsibility of management and should be approved solely by the corporation's board of directors.
Proposals in this category, initiated primarily by shareholders, typically request that the company disclose or amend certain business practices. We generally vote against business practice proposals and abstain on social policy issues, though we may make exceptions in certain instances where we believe a proposal has substantial economic implications.
John Hancock Advisers, LLC Sovereign Asset Management, LLC Proxy Voting Procedures
The role of the proxy voting service
John Hancock Advisers, LLC ("JHA") and Sovereign Asset Management, LLC ("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.
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.
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.
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.
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.
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.
Proxy Voting Services. Nonpublic Information regarding portfolio holdings may be provided to ISS, 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 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 ISS 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.
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 Persons. Nonpublic Information regarding portfolio holdings may be provided to other persons or entities if approved by the Chief Compliance Officer of the Fund or his or her designee (collectively, the "CCO"). In determining whether to approve such disclosure the CCO shall consider: (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. In the case of a conflict between (a) the interests of the shareholders of the Fund, on the one hand, and (b) the interests of any affiliated person of the Fund, the Fund's investment adviser (including any subadviser), the Fund's principal underwriter or any of their affiliated persons, on the other, the procedures set forth under "Resolution of Conflicts of Interest" below shall be followed.
The CCO shall report to the Board of Trustees whenever additional disclosures of portfolio holdings are approved. This report shall be at the board meeting following such approval.
Disclosure of Portfolio Holdings to Affiliated Persons
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. The CCO must pre-approve the provision of any Nonpublic Information regarding portfolio holdings to any Affiliated Persons (other than those listed in Appendix A) and report such approval to the Board of Trustees at the board meeting following such approval. The persons listed in Appendix A have been exempt from such pre-approval. In the case of persons listed in Section II, III and IV of Appendix A, their employers shall provide the CCO reasonable assurances that Nonpublic Information will be kept confidential and that such employees are prohibited from trading on such information.
In determining whether to approve such disclosure of Nonpublic Information
regarding portfolio holdings to any Affiliated Persons the CCO shall consider:
(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. In the case of a conflict between (a) the interests of the
shareholders of the Fund, on the one hand, and (b) the interests of any
affiliated person of the Fund, the Fund's investment adviser (including any
subadviser), the Fund's principal underwriter or any of their affiliated
persons, on the other, the procedures set forth under "Resolution of Conflicts
of Interest" below shall be followed.
Resolution of Conflicts of Interest
If the Fund or its adviser or principal underwriter or any of its subadviser (or any of their affiliates) desire to provide Nonpublic Information regarding Fund portfolio holdings to a Nonaffiliated Person and the CCO believes there is a potential conflict between (a) the interests of the shareholders of the Fund, on the one hand, and (b) the interests of any affiliated person of the Fund, the Fund's investment adviser (including any subadviser), the Fund's principal underwriter or any of their affiliated persons, on the other, the CCO shall refer the conflict to the Board of Trustees of the Fund who shall only permit such disclosure of the Nonpublic Information if in their reasonable business judgment they conclude such disclosure will be in the best interests of Fund shareholders.
Changes to Policy
Any material changes to this policy must be approved by the Fund's Board of Trustees.
Reports to the Trust's Board of Trustees
The CCO shall report any material issues that may arise under this policy to the Board of Trustees no later than the Board meeting following the arising of the issue.
Applicability of Policy to a Fund's Adviser and Subadvisers
This policy shall apply to the Fund's Adviser and each of its subadvisers as applicable.
Appendix A
I. Employees* of John Hancock Advisers, LLC who are subject to the Code of Ethics of the Fund, the Funds' investment adviser, or the Fund's principal underwriter, John Hancock Funds, LLC.
II. Employees* of a Subadviser or any Affiliate of a Subadviser who provide services to a Fund.
III. Employees* of the Funds' custodian who provide services to the Funds.
IV. Employees* and partners of a Fund's certified public accounting firm who provide services to the Fund.
V. Employees* and partners of a Fund's legal counsel who provides services to the Fund.
*Includes temporary employees
FINANCIAL STATEMENTS
The financial statements listed below are included in the Fund's 2005 Annual Report to Shareholders for the year ended December 31, 2005 (filed electronically on March 1, 2006 accession number 0000928816-06-000242) and are included and incorporated by reference into Part B of the Registration Statement for John Hancock Small Cap Intrinsic Value Fund file nos. 811-00560 and 2-10156).
John Hancock Investment Trust
John Hancock Small Cap Intrinsic Value Fund
Statement of Assets and Liabilities as of December 31, 2005.
Statement of Operations for the year ended December 31, 2005.
Statement of Changes in Net Assets for the period ended December 31, 2005.
Financial Highlights for each of the periods indicated therein.
Notes to Financial Statements.
Schedule of Investments as of December 31, 2005.
Report of Independent Auditors.
JOHN HANCOCK INVESTMENT TRUST
PART C.
OTHER INFORMATION
Item 23. Exhibits:
The exhibits to this Registration Statement are listed in the Exhibit Index hereto and are incorporated herein by reference.
Item 24. Persons Controlled by or under Common Control with Registrant.
No person is directly or indirectly controlled by or under common control with Registrant.
Item 25. Indemnification.
Indemnification provisions relating to the Registrant's Trustees, officers, employees and agents is set forth in Article IV of the Registrant's Declaration of Trust included as Exhibit 1 herein.
Under Section 12 of the Distribution Agreement, John Hancock Funds, LLC ("John Hancock Funds") has agreed to indemnify the Registrant and its Trustees, officers and controlling persons against claims arising out of certain acts and statements of John Hancock Funds.
Section 9(a) of the By-Laws of John Hancock Life Insurance Company ("the Insurance Company") provides, in effect, that the Insurance Company will, subject to limitations of law, indemnify each present and former director, officer and employee of the Insurance Company who serves as a Trustee or officer of the Registrant at the direction or request of the Insurance Company against litigation expenses and liabilities incurred while acting as such, except that such indemnification does not cover any expense or liability incurred or imposed in connection with any matter as to which such person shall be finally adjudicated not to have acted in good faith in the reasonable belief that his action was in the best interests of the Insurance Company. In addition, no such person will be indemnified by the Insurance Company in respect of any final adjudication unless such settlement shall have been approved as in the best interests of the Insurance Company either by vote of the Board of Directors at a meeting composed of directors who have no interest in the outcome of such vote, or by vote of the policyholders. The Insurance Company may pay expenses incurred in defending an action or claim in advance of its final disposition, but only upon receipt of an undertaking by the person indemnified to repay such payment if he should be determined not to be entitled to indemnification.
Article V of the Limited Liability Company Agreement of John Hancock Advisers, LLC ("the Adviser") provide as follows:
"Section 5.06. Indemnity."
(a) No Indemnitee, and no shareholder, director, officer, member, manager, partner, agent, representative, employee or Affiliate of an Indemnitee, shall have any liability to the Company or to any Member for any loss suffered by the Company (or the Corporation) which arises out of any action or inaction by such Indemnitee with respect to the Company (or the Corporation) if such Indemnitee so acted or omitted to act (i) in the good faith (A) belief that such course of conduct was in, or was not opposed to, the best interests of the Company (or the Corporation), or (B) reliance on the provisions of this Agreement, and (ii) such course of conduct did not constitute gross negligence or willful misconduct of such Indemnitee.
(b) The Company shall, to the fullest extent permitted by applicable law, indemnify each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was, or has agreed to become, a Director or Officer, or is or was serving, or has agreed to serve, at the request of the Company (or previously at the request of the Corporation), as a director, officer, manager or trustee of, or in a similar capacity with, another corporation, partnership, limited liability company, joint venture, trust or other enterprise (including any employee benefit plan) (all such persons being referred to hereafter as an "Indemnitee"), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by or on behalf of an Indemnitee in connection with such action, suit or proceeding and any appeal therefrom.
(c) As a condition precedent to his right to be indemnified, the Indemnitee must notify the Company in writing as soon as practicable of any action, suit, proceeding or investigation involving him for which indemnity hereunder will or could be sought. With respect to any action, suit, proceeding or investigation of which the Company is so notified, the Company will be entitled to participate therein at its own expense and/or to assume the defense thereof at its own expense, with legal counsel reasonably acceptable to the Indemnitee.
(d) In the event that the Company does not assume the defense of any action, suit, proceeding or investigation of which the Company receives notice under this Section 5.06, the Company shall pay in advance of the final disposition of such matter any expenses (including attorneys' fees) incurred by an Indemnitee in defending a civil or criminal action, suit, proceeding or investigation or any appeal therefrom; provided, however, that the payment of such expenses incurred by an Indemnitee in advance of the final disposition of such matter shall be made only upon receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts so advanced in the event that it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the Company as authorized in this Section 5.06, which undertaking shall be accepted without reference to the financial ability of the Indemnitee to make such repayment; and further provided that no such advancement of expenses shall be made if it is determined that (i) the Indemnitee did not act in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company, or (ii) with respect to any criminal action or proceeding, the Indemnitee had reasonable cause to believe his conduct was unlawful.
(e) The Company shall not indemnify an Indemnitee seeking indemnification in connection with a proceeding (or part thereof) initiated by such Indemnitee unless the initiation thereof was approved by the Board of Directors. In addition, the Company shall not indemnify an Indemnitee to the extent such Indemnitee is reimbursed from the proceeds of insurance, and in the event the Company makes any indemnification payments to an Indemnitee and such Indemnitee is subsequently reimbursed from the proceeds of insurance, such Indemnitee shall promptly refund such indemnification payments to the Company to the extent of such insurance reimbursement.
(f) All determinations hereunder as to the entitlement of an Indemnitee
to indemnification or advancement of expenses shall be made in each instance by
(a) a majority vote of the Directors consisting of persons who are not at that
time parties to the action, suit or proceeding in question ("Disinterested
Directors"), whether or not a quorum, (b) a majority vote of a quorum of the
outstanding Common Shares, which quorum shall consist of Members who are not at
that time parties to the action, suit or proceeding in question, (c) independent
legal counsel (who may, to the extent permitted by law, be regular legal counsel
to the Company), or (d) a court of competent jurisdiction.
(g) The indemnification rights provided in this Section 5.06 (i) shall not be deemed exclusive of any other rights to which an Indemnitee may be entitled under any law, agreement or vote of Members or Disinterested Directors or otherwise, and (ii) shall inure to the benefit of the heirs, executors and administrators of the Indemnitees. The Company may, to the extent authorized from time to time by its Board of Directors, grant indemnification rights to other employees or agents of the Company or other persons serving the Company and such rights may be equivalent to, or greater or less than, those set forth in this Section 5.06. Any indemnification to be provided hereunder may be provided although the person to be indemnified is no longer a Director or Officer.
Item 26. Business and Other Connections of Investment Advisers.
See "Fund Details" in the Prospectuses and "Investment Management Agreements" in the Statement of Additional Information for information regarding the business of the Adviser and the Subadviser. For information as to the business, profession, vocation or employment of a substantial nature of each director, officer or partner of the Adviser and the Subadviser, reference is made to the respective Form ADV, as amended, filed under the Investment Advisers Act of 1940, each of which is incorporated herein by reference.
Item 27. Principal Underwriters.
(a) John Hancock Funds acts as principal underwriter for the Registrant and also serves as principal underwriter or distributor of shares for John Hancock Bond Trust, John Hancock Current Interest, John Hancock Series Trust, John Hancock Municipal Securities Trust, John Hancock California Tax-Free Income Fund, John Hancock Capital Series, John Hancock Sovereign Bond Fund, John Hancock Tax-Exempt Series, John Hancock Strategic Series, John Hancock World Fund, John Hancock Investment Trust, John Hancock Institutional Series Trust, John Hancock Investment Trust II, John Hancock Equity Trust, John Hancock Investment Trust III, John Hancock Funds II and John Hancock Funds III.
(b) The following table lists, for each director and officer of John Hancock Funds, the information indicated.
Name and Principal Positions and Offices Positions and Offices Business Address with Underwriter with Registrant ---------------- ---------------- --------------- Keith F. Hartstein Director, President President and 601 Congress Street and Chief Executive Officer Chief Executive Officer Boston, Massachusetts John G. Vrysen Director, Executive Vice President Executive Vice President 601 Congress Street and Chief Financial Officer and Chief Financial Officer Boston, Massachusetts Peter Copestake Treasurer None 200 Bloor Street Toronto, Ontario William H. King Assistant Treasurer Vice President 601 Congress Street and Treasurer Boston, Massachusetts James R. Boyle Chairman and Director Trustee 601 Congress Street Boston, Massachusetts John T. Litzow Senior Vice President None 601 Congress Street Boston, Massachusetts Andrew G. Arnott Vice President None 601 Congress Street Boston, Massachusetts Carey Hoch Vice President None 601 Congress Street Boston, Massachusetts Kristine McManus Vice President None 601 Congress Street Boston, Massachusetts Mitchell A. Karman Chief Compliance Officer None 500 Boylston Street Boston, Massachusetts Jeffrey H. Long Vice President, Controller and None 601 Congress Street Assistant Treasurer Boston, Massachusetts Karen F. Walsh Vice President None 601 Congress Street Boston, Massachusetts Arthur E. Creel Senior Vice President None 601 Congress Street Boston, Massachusetts |
(c) None.
Item 28. Location of Accounts and Records
The Registrant maintains the records required to be maintained by it under Rules 31a-1 (a), 31a-a(b), and 31a-2(a) under the Investment Company Act of 1940 at its principal executive offices at 601 Congress Street, Boston Massachusetts 02210-2805 and by Sovereign Asset Management LLC at its principal executive offices at 101 Huntington Avenue, Boston, MA 02199. Certain records, including records relating to Registrant's shareholders and the physical possession of its securities, may be maintained pursuant to Rule 31a-3 at the main office of Registrant's Transfer Agent and Custodian.
Item 29. Management Services
Not applicable.
Item 30. Undertakings
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, the Registrant certifies that it meets all of the requirements for effectiveness of this Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Registration Statement to be signed on its behalf by the undersigned thereto duly authorized, in the City of Boston, and The Commonwealth of Massachusetts on the 1st day of March, 2006.
JOHN HANCOCK INVESTMENT TRUST
Pursuant to the requirements of the Securities Act of 1933, the Registration has been signed below by the following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
*
------------------------ President and March 1, 2006
Keith F. Hartstein Chief Executive Officer
*
------------------------ Executive Vice President
John G. Vrysen and Chief Financial Officer
/s/William H. King Vice President and Treasurer
------------------------ (Chief Accounting Officer)
William H. King
*
------------------------ Trustee
James R. Boyle
*
------------------------ Trustee
James F. Carlin
*
------------------------ Trustee
Richard P. Chapman, Jr.
*
------------------------ Trustee
William H. Cunningham
*
------------------------ Chairman and Trustee
Ronald R. Dion
*
------------------------ Trustee
Charles L. Ladner
*
------------------------ Trustee
John A. Moore
*
------------------------ Trustee
Patti McGill Peterson
*
------------------------ Trustee
Steven R. Pruchansky
By: /s/Alfred P. Ouellette March 1, 2006
----------------------
Alfred P. Ouellette
Attorney-in-Fact, under
Powers of Attorney dated January 1, 2005,
July 25, 2005 and September 13, 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 |
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
|
Open-End Funds: Closed-End Funds: John Hancock Bond Trust John Hancock Bank and Thrift Opportunity Fund John Hancock California Tax-Free Income Fund John Hancock Patriot Global Dividend Fund John Hancock Capital Series John Hancock Patriot Preferred Dividend Fund John Hancock Current Interest John Hancock Patriot Premium Dividend Fund I John Hancock Equity Trust John Hancock Income Securities John Hancock Institutional Series Trust John Hancock Investors Trust John Hancock Investment Trust John Hancock Patriot Premium Dividend Fund II John Hancock Investment Trust II John Hancock Patriot Select Dividend Trust John Hancock Investment Trust III John Hancock Preferred Income Fund John Hancock Municipal Securities Trust John Hancock Preferred Income Fund II John Hancock Series Trust John Hancock Preferred Income Fund III John Hancock Sovereign Bond Fund John Hancock Tax-Advantaged Dividend Income Fund John Hancock Strategic Series John Hancock Tax-Exempt Series Fund John Hancock World Fund |
POWER OF ATTORNEY
The undersigned Trustee of each of the above listed Trusts, each a Massachusetts business trust, does hereby severally constitute and appoint, WILLIAM H. KING, BRIAN LANGENFELD 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 25th day of July, 2005.
/s/ Keith F. Hartstein ---------------------- Keith F. Hartstein, as President and Chief Executive Officer |
Open-End Funds: Closed-End Funds: John Hancock Bond Trust John Hancock Bank and Thrift Opportunity Fund John Hancock California Tax-Free Income Fund John Hancock Patriot Global Dividend Fund John Hancock Capital Series John Hancock Patriot Preferred Dividend Fund John Hancock Current Interest John Hancock Patriot Premium Dividend Fund I John Hancock Equity Trust John Hancock Income Securities John Hancock Institutional Series Trust John Hancock Investors Trust John Hancock Investment Trust John Hancock Patriot Premium Dividend Fund II John Hancock Investment Trust II John Hancock Patriot Select Dividend Trust John Hancock Investment Trust III John Hancock Preferred Income Fund John Hancock Municipal Securities Trust John Hancock Preferred Income Fund II John Hancock Series Trust John Hancock Preferred Income Fund III John Hancock Sovereign Bond Fund John Hancock Tax-Advantaged Dividend Income Fund John Hancock Strategic Series John Hancock Tax-Exempt Series Fund John Hancock World Fund |
POWER OF ATTORNEY
The undersigned Trustee of each of the above listed Trusts, each a Massachusetts business trust, does hereby severally constitute and appoint, WILLIAM H. KING, BRIAN LANGENFELD 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 13th day of September, 2005.
/s/James R. Boyle ----------------- James R. Boyle Trustee |
Open-End Funds: Closed-End Funds: John Hancock Bond Trust John Hancock Bank and Thrift Opportunity Fund John Hancock California Tax-Free Income Fund John Hancock Patriot Global Dividend Fund John Hancock Capital Series John Hancock Patriot Preferred Dividend Fund John Hancock Current Interest John Hancock Patriot Premium Dividend Fund I John Hancock Equity Trust John Hancock Income Securities John Hancock Institutional Series Trust John Hancock Investors Trust John Hancock Investment Trust John Hancock Patriot Premium Dividend Fund II John Hancock Investment Trust II John Hancock Patriot Select Dividend Trust John Hancock Investment Trust III John Hancock Preferred Income Fund John Hancock Municipal Securities Trust John Hancock Preferred Income Fund II John Hancock Series Trust John Hancock Preferred Income Fund III John Hancock Sovereign Bond Fund John Hancock Tax-Advantaged Dividend Income Fund John Hancock Strategic Series John Hancock Tax-Exempt Series Fund John Hancock World Fund |
POWER OF ATTORNEY
The undersigned Trustee of each of the above listed Trusts, each a Massachusetts business trust, does hereby severally constitute and appoint, WILLIAM H. KING, BRIAN LANGENFELD 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 13th day of September, 2005.
/s/ John G. Vrysen ------------------ John G. Vrysen Executive Vice President and Chief Financial Officer |
John Hancock Investment Trust
(File no. 2-10156)
INDEX TO EXHIBITS
99.(a) Articles of Incorporation. Amended and Restated Declaration of
Trust dated March 8, 2005.######
99.(b) By-Laws. Amended and Restated By-Laws dated March 8, 2005.######
99.(c) Instruments Defining Rights of Securities Holders. See exhibits 99.(a)
and 99.(b).
99.(d) Investment Advisory Contracts. Investment Advisory Agreement between
John Hancock Large Cap Value Fund (formerly John Hancock Growth and
Income Fund) and John Hancock Advisers, Inc.*
|
99.(d).1 Investment Advisory Agreement between John Hancock Sovereign Investors Fund, John Hancock Sovereign Balanced Fund and John Hancock Advisers, LLC dated December 2, 1996.***
99.(d).2 Investment Advisory Contracts. Investment Advisory Agreement between John Hancock Large Cap Intrinsic Value Fund and John Hancock Advisers, LLC dated February 28, 2005.######
99.(d).3 Investment Advisory Agreement Contract between John Hancock Small Cap Intrinsic Value Fund and John Hancock Advisers, LLC dated February 28, 2005.######
99.(d).4 Amendment to Investment Management Contract between John Hancock Large Cap Equity Fund and John Hancock Advisers, LLC dated July 1, 2005.+
99.(d).5 Amendment to Investment Management Contract between John Hancock Balanced Fund and John Hancock Advisers, LLC dated July 1, 2005.+
99.(d).6 Amendment to Investment Management Contract between John Hancock Small Cap Intrinsic Value Fund and John Hancock Advisers, LLC dated January 3, 2006.+
99.(d).7 Sub-Investment Management Contract among John Hancock Balanced Fund,
John Hancock Large Cap Equity Fund, John Hancock Sovereign Investors
Fund, John Hancock Large Cap Intrinsic Value Fund, John Hancock Small
Cap Intrinsic Value Fund, Sovereign Asset Management, LLC and John
Hancock Advisers, LLC.+
99.(e) Underwriting Contracts. Distribution Agreement between John Hancock
Funds, Inc. (formerly named John Hancock Broker Distribution Services,
Inc. and the Registrant dated August 1, 1991.#####
|
99.(e).1 Amendment to Distribution Agreement between Registrant and John Hancock Funds, Inc. dated December 2, 1996.**
99.(e).2 Form of Soliciting Dealer Agreement between John Hancock Broker Distribution Services ,Inc. and Selected Dealers.######
99.(e).3 Form of Financial Institution Sales and Service Agreement between John Hancock Funds, Inc. and the John Hancock funds.*
99.(e).4 Amendment to Distribution Agreement between John Hancock Small Cap Intrinsic Value Fund and John Hancock Funds, LLC dated February 28, 2005.######
99.(e).5 Amendment to Distribution Agreement between John Hancock Large Cap Intrinsic Value Fund and John Hancock Funds, LLC dated February 28, 2005.######
99.(e).6 Form of the Amendment to John Hancock Funds, LLC Selling Agreement.+
99.(f) Bonus or Profit Sharing Contracts. Not Applicable.
99.(g) Custody Agreement between John Hancock Mutual Funds and Bank of New
York dated September 10, 2001.#
|
99.(g).1 Amendment to Custody Agreement between John Hancock Small Cap Intrinsic Value Fund and The Bank of New York dated February 28, 2005.######
99.(g).2 Amendment to Custody Agreement between John Hancock Large Cap Intrinsic Value Fund and The Bank of New York dated February 28, 2005.######
99.(h) Other Material Contracts. Amended and Restated Master Transfer Agency
and Service Agreement between John Hancock funds and John Hancock
Signature Services, Inc. dated June 1, 1998.****
|
99.(h).1 Amendment to Master Transfer Agency and Service Agreement dated September 30, 1998.****
99.(h).2 Service Agreement between Charles Schwab & Co., Inc. and John Hancock Large Cap Value Fund, Class A, John Hancock Funds, Inc. and John Hancock Signature Services, Inc.*****
99.(h).3 Amendment to the Amended and Restated Transfer Agency and Service Agreement between John Hancock Funds and John Hancock Signature Services, Inc. effective July 1, 2003.####
99.(h).4 Amendment to the Amended and Restated Transfer Agency and Service Agreement between John Hancock Funds and John Hancock Signature Services, Inc. effective July 1, 2004.######
99.(h).5 Amendment to the Amended and Restated Transfer Agency and Service Agreement between John Hancock Funds and John Hancock Signature Services, Inc. effective February 28, 2005.######
99.(h).6 Accounting and Legal Services Agreement between John Hancock Advisers LLC and Registrant as of January 1, 1996.+
99.(h).7 Amendment to Accounting and Legal Services Agreement dated March 8,
2005.+
99.(i) Legal Opinion.+
99.(j) Other Opinions. Auditor's Consents.+
99.(k) Omitted Financial Statements. Not Applicable.
99.(l) Initial Capital Agreements. Not Applicable.
99.(m) Rule 12b-1 Plans. Distribution Plan between John Hancock Sovereign
Investors Fund, Classes A and B and John Hancock Funds, Inc. dated
December 2, 1996.**
|
99.(m).1 Distribution Plan between John Hancock Sovereign Balanced Fund, Classes A and B and John Hancock Funds, Inc. dated December 2, 1996.**
99.(m).2 Classes A and B Distribution Plans between John Hancock Large Cap Value Fund (formerly John Hancock Growth and Income Fund) and John Hancock Funds, Inc. dated December 22, 1994.*
99.(m).3 Class C Distribution Plan between John Hancock Large Cap Value Fund (formerly John Hancock Growth and Income Fund) Sovereign Investors Fund and John Hancock Funds, Inc. dated May 1, 1998.***
99.(m).4 Distribution Plan between John Hancock Sovereign Balanced Fund, Class C and John Hancock Funds, Inc. dated May 1, 1999.****
99.(m).5 Distribution Plan between John Hancock Sovereign Investors Fund and John Hancock Funds, LLC for Class R shares dated August 1, 2003.###
99.(m).6 Service Plan between John Hancock Sovereign Investors Fund and John Hancock Funds, LLC for Class R shares dated August 1, 2003.###
99.(m).7 Classes A, B and C Distribution Plan between John Hancock Small Cap Intrinsic Value Fund and John Hancock Funds, LLC dated February 28, 2005.######
99.(m).8 Classes A, B and C Distribution Plan between John Hancock Large Cap Intrinsic Value Fund and John Hancock Funds, LLC dated February 28, 2005.######
99.(n) Rule 18f-3 Plan. John Hancock Funds Class A, Class B and Class C shares amended and restated Multiple Class Plan pursuant to Rule 18f-3.##
99.(n).1 John Hancock Funds Class A, Class B, Class C and Class I shares amended and restated Multiple Class Plan pursuant to Rule 18f-3.######
99.(n).2 John Hancock Funds Class A, Class B, Class C, Class I and Class R
shares amended and restated Multiple Class Plan pursuant to Rule
18f-3.######
99.(p) Revised Code of Ethics for John Hancock Advisers, LLC, Sovereign
Asset Management LLC and each of the John Hancock Funds dated
May 1, 2005.+
* Previously filed electronically with Registration Statement and/or
post-effective amendment no. 73 file nos. 811-0560 and 2-10156 on May
10, 1995, accession number 0000950135-95-001122.
** Previously filed electronically with Registration Statement and/or
post-effective amendment no. 78 file nos. 811-0560 and 2-10156 on
February 27, 1997, accession number 0001010521-97-000228.
*** Previously filed electronically with Registration Statement and/or
post-effective amendment no. 82, file nos. 811-0560 and 2-10156 on
July 15, 1998, accession number 0001010521-98-000292.
**** Previously filed electronically with Registration Statement and/or
post-effective amendment no. 84, file nos. 811-0560 and 2-10156 on
April 27, 1999, accession number 0001010521-00-000194.
***** Previously filed electronically with Registration Statement and/or
post-effective amendment no. 88, file nos. 811-0560 and 2-10156 on
March 15, 2001, accession number 0001010521-01-000199.
# Previously filed electronically with Registration Statement and/or
post-effective amendment no. 92, file nos. 811-0560 and 2-10156 on
December 27, 2001, accession number 0001010521-01-500301.
## Previously filed electronically with Registration Statement and/or
post-effective amendment no. 93, file nos. 811-0560 and 2-10156 on
February 27, 2002, accession number 0001010521-02-00012.
### Previously filed electronically with Registration Statement and/or
post-effective amendment no. 95, file nos. 811-0560 and 2-10156 on
August 5, 2003, accession number 0001010521-03-000256.
#### Previously filed electronically with Registration Statement and/or
post-effective amendment no. 96, file nos. 811-0560 and 2-10156 on
March 1, 2004, accession number 0001010521-04-000071.
##### Previously filed electronically with Registration Statement and/or
post-effective amendment no. 97, file nos. 811-0560 and 2-10156 on
December 15, 2004, accession number 0001010521-04-000305.
###### Previously filed electronically with Registration Statement and/or
post-effective amendment no. 98, file nos. 811-0560 and 2-10156 on
May 2, 2005, accession number 0001010521-05-000151.
+ Filed herewith.
|
JOHN HANCOCK INVESTMENT TRUST
On behalf of
JOHN HANCOCK LARGE CAP EQUITY FUND (formerly John Hancock Large Cap Value Fund and before that John Hancock Growth and Income Fund)
AMENDMENT TO INVESTMENT MANAGEMENT CONTRACT
It is hereby agreed that on June 7, 2005, the Board of Trustees of John
Hancock Large Cap Equity Fund (the "Fund") voted to amend the first paragraph of
Section 5 of the Fund's Investment Management Contract, effective July 1, 2005,
as follows:
5. COMPENSATION OF THE ADVISER. For all services to be rendered, facilities furnished and expenses paid or assumed by the Adviser as herein provided, the Adviser shall be entitled to a fee, paid monthly in arrears, at an annual rate equal to (i) 0.625% of the average daily net asset value of the Fund up to $3,000,000,000 of average daily net assets; and (ii) 0.60% of the amount over $3,000,000,000 of average daily net assets.
Executed this 1st day of July, 2005.
JOHN HANCOCK INVESTMENT TRUST,
On behalf of John Hancock Large Cap Equity Fund
By: /s/Alfred P. Ouellette
Alfred P. Ouellette
Assistant Vice President and Assistant Secretary
|
JOHN HANCOCK ADVISERS, LLC
By: /s/Brian E. Langenfeld
Brian E. Langenfeld
Assistant Vice President and Assistant Secretary
|
JOHN HANCOCK INVESTMENT TRUST
On behalf of
JOHN HANCOCK BALANCED FUND
(formerly John Hancock Sovereign Balanced Fund)
AMENDMENT TO INVESTMENT MANAGEMENT CONTRACT
It is hereby agreed that on June 7, 2005, the Board of Trustees of John Hancock Balanced Fund (the "Fund") voted to amend the first paragraph of Section 5 of the Fund's Investment Management Contract, effective July 1, 2005, as follows:
5. COMPENSATION OF THE ADVISER. For all services to be rendered, facilities furnished and expenses paid or assumed by the Adviser as herein provided, the Adviser shall be entitled to a fee, paid monthly in arrears, at an annual rate equal to (i) 0.60% of the average daily net asset value of the Fund up to $2,000,000,000 of average daily net assets; and (ii) 0.55% of the amount over $2,000,000,000 of average daily net assets.
Executed this 1st day of July, 2005.
JOHN HANCOCK INVESTMENT TRUST,
On behalf of John Hancock Balanced Fund
By: /s/Alfred P. Ouellette
Alfred P. Ouellette
Assistant Vice President and Assistant Secretary
|
JOHN HANCOCK ADVISERS, LLC
By: /s/Brian E. Langenfeld
Brian E. Langenfeld
Assistant Vice President and Assistant Secretary
|
JOHN HANCOCK INVESTMENT TRUST
On behalf of
JOHN HANCOCK SMALL CAP INTRINSIC VALUE FUND
AMENDMENT TO INVESTMENT MANAGEMENT CONTRACT
It is hereby agreed that on December 7, 2005, the Board of Trustees of John Hancock Small Cap Intrinsic Value Fund (the "Fund") voted to amend the first paragraph of Section 5 of the Fund's Investment Management Contract, effective January 3, 2006, as follows:
5. COMPENSATION OF THE ADVISER. For all services to be rendered, facilities furnished and expenses paid or assumed by the Adviser as herein provided, the Adviser shall be entitled to a fee, paid monthly in arrears, at an annual rate equal to (i) 0.900% of the average daily net asset value of the Fund up to $1,000,000,000 of average daily net assets; and (ii) 0.850% of the amount over $1,000,000,000 of average daily net assets.
Executed this 30th day of December, 2005.
JOHN HANCOCK INVESTMENT TRUST,
On behalf of
John Hancock Small Cap Intrinsic Value Fund
By: /s/Alfred P. Ouellette
Alfred P. Ouellette
Assistant Vice President and Assistant Secretary
|
JOHN HANCOCK ADVISERS, LLC
By: /s/Brian E. Langenfeld
Brian E. Langenfeld
Assistant Vice President and Assistant Secretary
|
Execution Copy
JOHN HANCOCK FUNDS
SUB-ADVISORY AGREEMENT
AGREEMENT made this 31st day of December, 2005, among John Hancock Advisers, LLC, a Delaware limited liability company (the "Adviser"), Sovereign Asset Management LLC, a Delaware limited liability company (the "Sub-adviser"), and each of the trusts that is a signatory hereto (each, a "Trust" and together, as applicable, the "Trusts"). In consideration of the mutual covenants contained herein, the parties agree as follows:
1. APPOINTMENT OF SUB-ADVISER
The Sub-adviser undertakes to act as investment sub-adviser to each of the Trusts and the series thereof (each a "Fund"), in each case listed on Appendix A to this Agreement, as such Appendix may be amended by the affected Trust(s), the Adviser and the Sub-adviser from time to time, and, subject to the supervision and control of the Trustees of each Trust and the terms of this Agreement, to manage the investment and reinvestment of the assets of the Funds. The Sub-adviser will be an independent contractor and will have no authority to act for or represent any Trust, any Fund or the Adviser in any way except as expressly authorized in this Agreement or another writing by the applicable Trust or the Adviser. The Sub-adviser and the Adviser are currently affiliates under the common control of Manulife Financial Corporation.
2. SERVICES TO BE RENDERED BY THE SUB-ADVISER TO THE TRUSTS AND THE FUNDS
a. Subject always to the direction and control of the Trustees of each Trust, the Sub-adviser shall have investment discretion over the assets of each Fund and will manage the investments and determine the composition of these assets in accordance with the applicable Trust's registration statement, as amended. In fulfilling its obligations to manage the investments and reinvestments of the assets of each Fund, the Sub-adviser will:
i. obtain and evaluate pertinent economic, statistical, financial and other information affecting the economy generally and individual companies or industries the securities of which are included in a Fund's portfolio or are under consideration for inclusion in a Fund's portfolio;
ii. formulate and implement a continuous investment program for each Fund that is consistent with the investment objectives and related investment policies for such Fund as described in the applicable Trust's registration statement, as amended, copies of which shall be furnished to the Sub-adviser promptly upon amendment;
iii. take whatever steps are necessary to implement these investment programs by the purchase and sale of securities, including the placing of orders for such purchases and sales;
iv. regularly report to the Trustees of each Trust and to the Adviser with respect to the implementation of these investment programs; and
v. provide assistance to each Trust's custodian regarding the fair value of securities held by each Fund for which market quotations are not readily available.
b. The Sub-adviser, at its expense, will furnish all necessary investment and management facilities, including salaries of personnel required for it to execute its duties faithfully.
c. The Sub-adviser will select brokers and dealers to effect all transactions subject to the following conditions: The Sub-adviser will place all necessary orders with brokers, dealers, or issuers and will negotiate brokerage commissions, if applicable. The Sub-adviser is directed at all times to seek to execute brokerage transactions for each Fund in accordance with such policies or practices as may be established by the Trustees and described in the applicable Trust's registration statement, as amended, and consistent with its fiduciary obligation to seek best execution. Subject to policies established from time to time by the Board of Trustees of the Trusts, the Sub-adviser may pay a broker-dealer which provides research and brokerage services a higher spread or commission for a particular transaction than otherwise might have been charged by another broker-dealer if the Sub-adviser determines that the higher spread or commission is reasonable in relation to the value of the brokerage and research services that such broker-dealer provides, viewed in terms of either the particular transaction or the Sub-adviser's overall responsibilities with respect to accounts managed by the Sub-adviser. The Sub-adviser may use for the benefit of the Sub-adviser's other clients, or make available to companies affiliated with the Sub-adviser or to its directors for the benefit of their clients, any such brokerage and research services that the Sub-adviser obtains from brokers or dealers.
d. On occasions when the Sub-adviser deems the purchase or sale of a security to be in the best interest of a Fund as well as other clients of the Sub-adviser, the Sub-adviser, to the extent permitted by applicable laws and regulations, may, but shall be under no obligation to, aggregate the securities to be purchased or sold to attempt to obtain a more favorable price or lower brokerage commissions and efficient execution. In such event, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction, will be made by the Sub-adviser in the manner the Sub-adviser considers to be the most equitable and consistent with its fiduciary obligations to each Fund and to its other clients.
e. The Sub-adviser will maintain all accounts, books and records with respect to each Fund as are required of an investment sub-adviser of a registered investment company pursuant to the Investment Company Act of 1940, as amended (the "Investment Company Act") and Investment Advisers Act of 1940, as amended (the "Investment Advisers Act") and the rules thereunder.
f. The Sub-adviser shall vote proxies relating to each Fund's investment securities in accordance with the applicable Trust's proxy voting policies and procedures, which provide that the Sub-adviser shall vote all proxies relating to securities held by a Fund and, subject to the applicable Trust's policies and procedures, shall use proxy voting policies and procedures adopted by the Sub-adviser in conformance with Rule 206(4)-6
under the Investment Advisers Act. The Sub-adviser shall review its proxy voting activities on a periodic basis with the Trustees and with the Adviser.
3. COMPENSATION OF SUB-ADVISER
The Adviser will pay the Sub-adviser with respect to each Fund the compensation specified in Appendix A to this Agreement.
4. LIABILITY OF SUB-ADVISER
Neither the Sub-adviser nor any of its directors, officers or employees shall be liable to the Adviser or any Trust or Fund for any error of judgment or mistake of law or for any loss suffered by the Adviser, Trust or Fund in connection with the matters to which this Agreement relates, except for losses resulting from willful misfeasance, bad faith or gross negligence in the performance of, or from the reckless disregard of, the duties of the Sub-adviser or any of its directors.
5. CONFLICTS OF INTEREST
It is understood that trustees, officers, agents, members and shareholders of the Trusts are or may be interested in the Sub-adviser as trustees, officers, partners, shareholders, members or otherwise; that employees, agents, shareholders, members and partners of the Sub-adviser are or may be interested in a Trust as trustees, officers, shareholders, members or otherwise; that the Sub-adviser may be interested in the Trusts; and that the existence of any such dual interest shall not affect the validity hereof or of any transactions hereunder, except as otherwise provided in the Agreement and Declaration of Trust of the applicable Trust and the limited liability company agreement of the Sub-adviser, respectively, or by specific provision of applicable law.
6. REGULATION
The Sub-adviser shall comply with all applicable laws and regulations in
providing the services contemplated hereunder. Without limiting the foregoing,
the Sub-adviser shall provide all information reasonably requested of it by the
Board of Trustees of the Trusts in accordance with its duty to do so under
Section 15(c) of the Investment Company Act and the Sub-adviser shall submit to
all regulatory and administrative bodies having jurisdiction over the services
provided pursuant to this Agreement any information, reports or other material
which any such body, by reason of this Agreement, may request or require
pursuant to applicable laws and regulations.
7. DURATION AND TERMINATION OF AGREEMENT
This Agreement shall become effective with respect to each Fund on the later of (i) its execution, (ii) the date of the meeting of the Board of Trustees of the applicable Trust, at which meeting this Agreement is approved as described below and (iii) immediately following the close of business on December 31, 2005. The Agreement will continue in effect with respect to a Fund for a period more than two years from its effective date only so long as such continuance is specifically approved at least annually either by the Trustees of the applicable Trust or by a majority of the outstanding voting securities of the applicable Fund, provided that in either event such continuance shall also be approved by the vote of a majority of the Trustees of the applicable Trust
who are not interested persons (as defined in the Investment Company Act) of any party to this Agreement cast in person at a meeting called for the purpose of voting on such approval. Any required shareholder approval of the Agreement or of any continuance of the Agreement shall be effective with respect to any Fund if a majority of the outstanding voting securities of the series (as defined in Rule 18f-2(h) under the Investment Company Act) of shares of that Fund votes to approve the Agreement or its continuance, notwithstanding that the Agreement or its continuance may not have been approved by a majority of the outstanding voting securities of any other Fund affected by the Agreement.
If any required shareholder approval of this Agreement or any continuance of the Agreement is not obtained, the Sub-adviser will continue to act as investment sub-adviser with respect to such Fund pending the required approval of the Agreement or its continuance or of a new contract with the Sub-adviser or a different adviser or sub-adviser or other definitive action; provided, that the compensation received by the Sub-adviser in respect of such Fund during such period is in compliance with Rule 15a-4 under the Investment Company Act.
This Agreement may be terminated at any time, without the payment of any penalty, as to a Fund by the Trustees of the applicable Trust or by the vote of a majority of the outstanding voting securities of the applicable Fund, on sixty days' written notice to the Adviser and the Sub-adviser, or by the Adviser or Sub-adviser on sixty days' written notice to the applicable Trust and the other party. This Agreement will automatically terminate, without the payment of any penalty, in the event of its assignment (as defined in the Investment Company Act) or in the event the advisory agreement between the Adviser and the applicable Trust terminates for any reason.
8. PROVISION OF CERTAIN INFORMATION BY SUB-ADVISER
The Sub-adviser will promptly notify the Adviser and the Trusts in writing of the occurrence of any of the following events:
a. the Sub-adviser fails to be registered as an investment adviser under the Investment Advisers Act or under the laws of any jurisdiction in which the Sub-adviser is required to be registered as an investment adviser in order to perform its obligations under this Agreement;
b. the Sub-adviser is served or otherwise receives notice of any action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, public board or body, involving the affairs of any Trust; and
c. any change in actual control or management of the Sub-adviser or the portfolio manager of any Fund.
9. SERVICES TO OTHER CLIENTS
The Adviser understands, and has advised each Trust's Board of Trustees, that the Sub-adviser now acts, or may in the future act, as an investment adviser to fiduciary and other managed accounts and as investment adviser or sub-adviser to other investment companies. Further, the Adviser understands, and has advised each Trust's Board of Trustees, that the Sub-adviser and its affiliates may give advice and take action for other accounts, including investment companies, which differs from advice given or the timing or nature of action taken for a Fund. The Sub-adviser is not obligated to initiate
transactions for a Fund in any security that the Sub-adviser, its partners, affiliates or employees may purchase or sell for their own accounts or other clients.
10. CONSULTATION WITH OTHER SUB-ADVISERS
As required by Rule 17a-10 under the Investment Company Act, the Sub-adviser is prohibited from consulting with the entities listed below concerning transactions for a Fund in securities or other assets:
1. other sub-advisers to the Fund
2. other sub-advisers to any other Fund
3. other sub-advisers to a Fund under common control with such Fund
provided, however, the Sub-adviser may consult with any entity listed above that is an affiliate of the Sub-adviser.
11. ONGOING RESPONSIBILITIES OF THE ADVISER
The Adviser understands, and has advised the Trustees of the Trusts, that
during the term of this Agreement the Adviser shall retain responsibility for
(i) providing the services set forth in Section 2 of this Agreement to the
Trusts in the event the Sub-adviser fails, for whatever reason, to provide such
services and (ii) ensuring that the services provided by the Sub-adviser to the
Trusts pursuant to this Agreement are rendered in a manner such that the nature
and quality of such services are at least comparable to the nature and quality
of the investment advisory services heretofore rendered to the Trusts by the
Adviser. Nothing in this Agreement is intended to limit or terminate the
Adviser's responsibilities under the Advisory Agreement, which obligations,
including the indemnification provisions thereof, shall remain in full force and
effect.
12. AMENDMENTS TO THE AGREEMENT
This Agreement (with the exception of Appendix A, which may be amended by the Adviser and the Sub-adviser from time to time) may be amended by the parties hereto only if such amendment is specifically approved by the vote of a majority of the Trustees of each affected Trust and by the vote of a majority of the Trustees of each affected Trust who are not interested persons of any party to this Agreement cast in person at a meeting called for the purpose of voting on such approval. Any required shareholder approval shall be effective with respect to any Fund if a majority of the outstanding voting securities of that Fund votes to approve the amendment, notwithstanding that the amendment may not have been approved by a majority of the outstanding voting securities of (a) any other Fund affected by the amendment or (b) all the Funds of the applicable Trust. No amendment shall be effective unless it is in writing and signed by all parties hereto.
13. ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement of the parties.
14. HEADINGS
The headings in the sections of this Agreement are inserted for convenience of reference only and shall not constitute a part hereof.
15. NOTICES
All notices required to be given pursuant to this Agreement shall be delivered or mailed to the last known business address of the affected Trusts or applicable party in person or by registered mail or a private mail or delivery service providing the sender with notice of receipt. Notice shall be deemed given on the date delivered or mailed in accordance with this paragraph.
16. SEVERABILITY
Should any portion of this Agreement for any reason be held to be void in law or in equity, this Agreement shall be construed, insofar as is possible, as if such portion had never been contained herein.
17. GOVERNING LAW
The provisions of this Agreement shall be construed and interpreted in accordance with the laws of The Commonwealth of Massachusetts, or any of the applicable provisions of the Investment Company Act. To the extent that the laws of The Commonwealth of Massachusetts, or any of the provisions in this Agreement, conflict with applicable provisions of the Investment Company Act, the latter shall control.
18. LIMITATION OF LIABILITY
The Agreement and Declaration of Trust of each Trust, a copy of which, together with all amendments thereto (the "Declaration"), is on file in the office of the Secretary of The Commonwealth of Massachusetts, provides that the name of the applicable Trust refers to the Trustees under the Declaration collectively as Trustees, but not as individuals or personally; and no Trustee, shareholder, officer, employee or agent of the Trust shall be held to any personal liability, nor shall resort be had to their private property, for the satisfaction of any obligation or claim, in connection with the affairs of the Trust or any Fund thereof, but only the assets belonging to the Trust, or to the particular Fund with respect to which such obligation or claim arose, shall be liable.
19. CONFIDENTIALITY OF FUND HOLDINGS
The Sub-adviser agrees to treat the portfolio security positions of each Fund as confidential information in accordance with the applicable Trust's "Policy Regarding Disclosure of Fund Holdings," as such policy may be amended from time to time, and to prohibit its employees from trading on any such confidential information. The policy and any such amendment shall not be binding upon the Sub-adviser until a copy has been provided to the Sub-adviser.
20. COMPLIANCE
Upon execution of this Agreement, the Sub-adviser shall provide the Adviser and the Trusts with the Sub-adviser's written policies and procedures ("Compliance Policies") as required by Rule 206(4)-7 under the Investment Advisers Act. Throughout the term of this Agreement, the Sub-adviser shall
promptly submit to the affected Trust and the Adviser: (i) any material changes to the Compliance Policies, (ii) notification of the commencement of any regulatory examination of the Sub-adviser and documentation describing the results of any such examination and of any periodic testing of the Compliance Policies, and (iii) notification of any material compliance matter that relates to the services provided by the Sub-adviser to any Trust, including but not limited to any material violation of the Compliance Policies or of the Sub-adviser's code of ethics. Throughout the term of this Agreement, the Sub-adviser shall provide the Adviser and the Trust with any certifications, information and access to personnel and resources (including those resources that will permit testing of the Compliance Policies by the Adviser) that the Trust and/or the Adviser may reasonably request to enable the Trusts to comply with Rule 38a-1 under the Investment Company Act.
(THE REMAINDER OF THIS SPACE HAS BEEN INTENTIONALLY LEFT BLANK)
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed under seal by their duly authorized officers as of the date first mentioned above.
JOHN HANCOCK ADVISERS, LLC
By: /s/John G. Vrysen
Name: John G. Vrysen
Title: Executive Vice President
and Chief Financial Officer
|
SOVEREIGN ASSET MANAGEMENT LLC
By: /s/Barry H. Evans
Name: Barry H. Evans
Title: Senior Vice President and
Chief Operating Officer
|
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed under seal by their duly authorized officers as of the date first mentioned above.
JOHN HANCOCK CURRENT INTEREST
on behalf of
John Hancock Money Market Fund
John Hancock U.S. Government Cash Reserve
JOHN HANCOCK SOVEREIGN BOND FUND
on behalf of
John Hancock Bond Fund
JOHN HANCOCK STRATEGIC SERIES
on behalf of
John Hancock Strategic Income Fund
JOHN HANCOCK BOND TRUST
on behalf of
John Hancock Government Income Fund
John Hancock High Yield Fund
John Hancock Investment Grade Bond Fund
JOHN HANCOCK TAX-EXEMPT SERIES FUND
on behalf of
John Hancock Massachusetts Tax-Free Income Fund
John Hancock New York Tax-Free Income Fund
JOHN HANCOCK CALIFORNIA TAX-FREE INCOME FUND
JOHN HANCOCK MUNICIPAL SERIES TRUST
on behalf of
John Hancock High Yield Municipal Bond Fund
John Hancock Tax-Free Bond Fund
JOHN HANCOCK EQUITY TRUST
on behalf of
John Hancock Growth Trends Fund
John Hancock Technology Leaders Fund
JOHN HANCOCK INVESTMENT TRUST II
on behalf of
John Hancock Financial Industries Fund
John Hancock Regional Bank Fund
John Hancock Small Cap Equity Fund
JOHN HANCOCK INVESTMENT TRUST III
on behalf of
John Hancock Mid Cap Growth Fund
JOHN HANCOCK WORLD FUND
on behalf of
John Hancock Health Sciences Fund
JOHN HANCOCK SERIES TRUST
on behalf of
John Hancock Focused Equity Fund
John Hancock Mid Cap Equity Fund
John Hancock Multi Cap Growth Fund
John Hancock Real Estate Fund
John Hancock Small Cap Growth Fund
John Hancock Technology Fund
JOHN HANCOCK INVESTMENT TRUST
on behalf of
John Hancock Balanced Fund
John Hancock Large Cap Equity Fund
John Hancock Large Cap Intrinsic Value Fund
John Hancock Small Cap Intrinsic Value Fund
John Hancock Sovereign Investors Fund
JOHN HANCOCK PATRIOT PREFERRED DIVIDEND FUND
JOHN HANCOCK PREFERRED INCOME FUND III
JOHN HANCOCK PATRIOT SELECT DIVIDEND TRUST
JOHN HANCOCK PATRIOT GLOBAL DIVIDEND FUND
JOHN HANCOCK PREFERRED INCOME FUND
JOHN HANCOCK PREFERRED INCOME FUND II
JOHN HANCOCK PATRIOT PREMIUM DIVIDEND FUND I
JOHN HANCOCK BANK AND THRIFT OPPORTUNITY FUND
JOHN HANCOCK PATRIOT PREMIUM DIVIDEND FUND II
JOHN HANCOCK INCOME SECURITIES TRUST
JOHN HANCOCK INVESTORS TRUST
JOHN HANCOCK TAX-ADVANTAGED DIVIDEND INCOME FUND
Executed on behalf of each Trust and its
relevant Series referenced above:
By: /s/Keith F. Hartstein Name: Keith F. Hartstein Title: President and Chief Executive Officer |
APPENDIX A
The Sub-adviser shall serve as investment sub-adviser for each Fund listed below. The Adviser will pay the Sub-adviser, as full compensation for all services provided under this Agreement with respect to each Fund, the fee computed separately for such Fund at an annual rate as follows (the "Sub-adviser Fee"):
Trust and Fund Percentage of Average Daily
Net Assets
(See attachment to Appendix A)
|
The Sub-adviser Fee for each Fund shall be accrued for each calendar day, and the sum of the daily fee accruals shall be paid monthly to the Sub-adviser within 30 calendar days of the end of each month. The daily fee accruals will be computed by multiplying the fraction of one over the number of calendar days in the year by the applicable Sub-adviser Fee, and multiplying this product by the net assets of the Fund. The Adviser shall provide the Sub-adviser with such information as the Sub-adviser may reasonably request supporting the calculation of the fees paid to it hereunder. Fees shall be paid either by wire transfer or check, as directed by the Sub-adviser.
If, with respect to any Fund, this Agreement becomes effective or terminates, or if the manner of determining the applicable Sub-adviser Fee changes, before the end of any month, the fee (if any) for the period from the effective date to the end of such month or from the beginning of such month to the date of termination or from the beginning of such month to the date of such change, as the case may be, shall be pro rated according to the proportion which such period bears to the full month in which such effectiveness or termination or change occurs.
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
Balanced Fund to $2 bil > $2 bil
Subadvisory 0.300% 0.250%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
Bond Fund to $1.5 $1.5 - $2.0 - > $2.5 bil
bil 2.0 bil 2.5 bil
Subadvisory 0.200% 0.125% 0.100% 0.100%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
California Tax-Free Income Fund to $500m next $500m > $1 bil
Subadvisory 0.200% 0.150% 0.150%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
Financial Industries Fund to $500m next $500m next bil > $2 bil
Subadvisory 0.400% 0.300% 0.250% 0.250%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
Focused Equity Fund to $800m > $800m
Subadvisory 0.350% 0.300%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
Government Income Fund to $300m next $300m >$600m
Subadvisory 0.200% 0.150% 0.100%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
Growth Trends Fund to $2.4 bil > $2.4 bil
Subadvisory 0.350% 0.250%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
Health Sciences Fund to $200m > $200m
Subadvisory 0.450% 0.400%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
High Yield Fund to $75m next $75m $150m-$2.5b $2.5b-$5.0b > $5 bil
Subadvisory 0.275% 0.275% 0.225% 0.150% 0.150%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
High Yield Municipal Bond Fund to $75m next $75m > $150m
Subadvisory 0.200% 0.200% 0.200%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
Investment Grade Bond Fund to $1.5 bil > $1.5 bil
Subadvisory 0.200% 0.100%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
Large Cap Equity Fund to $3 bil > $3 bil
Subadvisory 0.325% 0.200%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
Large Cap Intrinsic Value Fund All Assets
Subadvisory 0.325%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
|
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
MA Tax-Free Income Fund to $250m next $250m $500m-$1 bil next $250m > $1.25 bil
Subadvisory 0.200% 0.200% 0.150% 0.150% 0.150%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
Mid Cap Equity Fund to $500m next $500m > $1 bil
Subadvisory 0.350% 0.300% 0.250%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
Mid Cap Growth Fund to $500m next $500m > $1 bil
Subadvisory 0.350% 0.300% 0.250%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
Money Market Fund to $500m next $250m next $250m next $500m next $500m next $500m > $2.5 bil
Subadvisory 0.050% 0.020% 0.020% 0.020% 0.020% 0.020% 0.020%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
Multi Cap Growth Fund to $750m > $750m
Subadvisory 0.350% 0.250%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
New York Tax-Free Income Fund to $250m next $250m $500m-$1 bil next $250m > $1.25 bil
Subadvisory 0.200% 0.200% 0.150% 0.150% 0.150%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
Real Estate Fund to $1.5 bil > $1.5 bil
Subadvisory 0.350% 0.300%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
Regional Bank Fund to $500m next $500m next bil > $2 bil
Subadvisory 0.400% 0.300% 0.250% 0.250%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
Small Cap Equity Fund to $1 bil > $1 bil
Subadvisory 0.450% 0.400%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
Small Cap Growth Fund to $1.5 bil > $1.5 bil
Subadvisory 0.450% 0.400%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
Small Cap Intrinsic Value Fund to $500m next $500m > $1 bil
Subadvisory 0.500% 0.450% 0.400%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
Sovereign Investors Fund to $750m next $750m next bil > $2.5 bil
Subadvisory 0.325% 0.250% 0.250% 0.200%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
|
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
Strategic Income Fund to $100m $100-$250m $250-$500m $500-$650m $650m-$1bil >$1bil
Subadvisory 0.275% 0.275% 0.275% 0.200% 0.200% 0.150%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
Tax-Free Bond Fund to $500m next $500m > $1 bil
Subadvisory 0.200% 0.150% 0.100%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
Technology Fund to $100m next $700m > $800m
Subadvisory 0.450% 0.400% 0.350%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
Technology Leaders Fund All Assets
Subadvisory 0.400%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
US Gov't Cash Reserve to $500m next $250m next $250m next $500m next $500m next $500m > $2.5 bil
Subadvisory 0.050% 0.020% 0.020% 0.020% 0.020% 0.020% 0.020%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
Bank & Thrift Opportunity Fund All Assets
Subadvisory 0.400%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
Income Securities Trust to $150m next $50m next $100m > $300m
Subadvisory 0.200% 0.200% 0.200% 0.150%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
Investors Trust to $150m next $50m next $100m > $300m
Subadvisory 0.200% 0.200% 0.200% 0.150%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
JH Preferred Income Fund All Assets
Subadvisory 0.150%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
JH Preferred Income Fund II All Assets
Subadvisory 0.150%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
JH Preferred Income Fund III All Assets
Subadvisory 0.150%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
JH Tax-Advantaged Dividend Income All Assets
Fund
Subadvisory 0.150%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
Patriot Global Dividend Fund All Assets
Subadvisory 0.200%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
|
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
Patriot Preferred Dividend Fund All Assets
Subadvisory 0.200%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
Patriot Premium Dividend Fund I All Assets
Subadvisory 0.200%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
Patriot Premium Dividend Fund II All Assets
Subadvisory 0.200%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
Patriot Select Dividend Trust All Assets
Subadvisory 0.200%
--------------------------------- ------------ ----------- ---------- ----------- ----------- ---------- ----------- -----------
|
FORM OF THE AMENDMENT TO JOHN HANCOCK FUNDS, LLC SELLING AGREEMENT
(Broker/Dealer)
WHEREAS, John Hancock Funds, LLC and _________________ ("Participating Broker/Dealer") are parties ("the Parties") to a Selling Agreement dated _______________; and
WHEREAS, the Selling Agreement section entitled "Termination, Amendment, Assignment" permits amendment of the Selling Agreement by John Hancock Funds, LLC at any time upon written notice of such amendment and specifies that such amendment shall be deemed to have been accepted upon Participating Broker/Dealer's action of placing an order or accepting payments of any kind after the effective date and receipt of notice of any such amendment; and
WHEREAS, the Parties wish to conform to the requirements of the Investment Company Act of 1940, rule 22c-2;
NOW THEREFORE, in consideration of the foregoing and the mutual promises set forth below, the Parties agree as follows:
1. Effective October 16, 2006, the language in the Selling Agreement section entitled "Frequent Exchanges" shall be deleted and, in its place shall be substituted the following:
To the extent that you are an "Intermediary" within the meaning of Investment Company Act of 1940, rule 22c-2, the following shall apply:
1. Agreement to Provide Information. Intermediary agrees to provide the Fund, upon written request, the taxpayer identification number ("TIN"), if known, of any or all Shareholder(s) of the account and the amount, date, name or other identifier of any investment professional(s) associated with the Shareholder(s) or account (if known), and transaction type (purchase, redemption, transfer, or exchange) of every purchase, redemption, transfer, or exchange of Shares held through an account maintained by the Intermediary during the period covered by the request.
A) Period Covered by Request. Requests must set forth a specific period, not to exceed 90 days from the date of the request, for which transaction information is sought. The Fund may request transaction information older than 90 days from the date of the request as it deems necessary to investigate compliance with policies established by the Fund for the purpose of eliminating or reducing any dilution of the value of the outstanding shares issued by the Fund.
B) Form and Timing of Response. Intermediary agrees to transmit the requested information that is on its books and records to the Fund or its designee promptly, but in any event not later than three business days, after receipt of a request. If the requested information is not on the Intermediary's books and records, Intermediary agrees to use reasonable efforts to: (i) promptly obtain and transmit the requested information; (ii) obtain assurances from the accountholder that the requested information will be provided directly to the Fund promptly; or (iii) if directed by the Fund, block further purchases of Fund Shares from such accountholder. In such instance, Intermediary agrees to inform the Fund whether it plans to perform (i), (ii) or (iii). Responses required by this paragraph must be communicated in writing and in a format mutually agreed upon by the parties. To the extent practicable, the format for any transaction information provided to the Fund should be consistent with the NSCC Standardized Data Reporting Format.
C) Limitations on Use of Information. The Fund agrees not to use the information received for marketing or any other similar purpose without the prior written consent of the Intermediary.
2. Agreement to Restrict Trading. Intermediary agrees to execute written instructions from the Fund to restrict or prohibit further purchases or exchanges of Shares by a Shareholder that has been identified by the Fund as having engaged in transactions of the Fund's Shares (directly or indirectly through the Intermediary's account) that violate policies established by the Fund for the purpose of eliminating or reducing any dilution of the value of the outstanding Shares issued by the Fund.
A) Form of Instructions. Instructions must include the TIN, if known, and the specific restriction(s) to be executed. If the TIN is not known, the instructions must include an equivalent identifying number of the Shareholder(s) or account(s) or other agreed upon information to which the instruction relates.
B) Timing of Response. Intermediary agrees to execute instructions as soon as reasonably practicable, but not later than five business days after receipt of the instructions by the Intermediary.
C) Confirmation by Intermediary. Intermediary must provide written confirmation to the Fund that instructions have been executed. Intermediary agrees to provide confirmation as soon as reasonably practicable, but not later than ten business days after the instructions have been executed.
3. Definitions. For purposes of this paragraph:
A) The term "Fund" includes the fund's principal underwriter and transfer agent. The term not does include any excepted funds" as defined in SEC Rule 22c-2(b) under the Investment Company Act of 1940. *
* As defined in SEC Rule 22c-2(b), the term "excepted fund" means any: (1) money market fund; (2) fund that issues securities that are listed on a national exchange; and (3) fund that affirmatively permits short-term trading of its securities, if its prospectus clearly and prominently discloses that the fund permits short-term trading of its securities and that such trading may result in additional costs for the fund.
B) The term "Shares" means the interests of Shareholders corresponding to the redeemable securities of record issued by the Fund under the Investment Company Act of 1940 that are held by the Intermediary.
C) The term "Shareholder" means the beneficial owner of Shares, whether the Shares are held directly or by the Intermediary in nominee name.
D) The term "written" includes electronic writings and facsimile transmissions.
2. Except as specifically set forth herein, all other provisions of the Selling Agreement shall remain in full force and effect.
Dated: JOHN HANCOCK FUNDS, LLC
By: _________________________
Keith Hartstein, CEO
|
ICI/SIA
December 22, 2005
As of January 1, 1996
ACCOUNTING & LEGAL SERVICES AGREEMENT
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199
Dear Sir:
The John Hancock Funds listed on Schedule A (the "Funds") have selected John Hancock Advisers, Inc. (the "Administrator") to provide certain accounting and legal services for the Funds, as more fully set forth below, and you are willing to provide such services under the terms and conditions hereinafter set forth. Accordingly, the Funds agree with you as follows:
1. Services. Subject to the general supervision of the Board of Trustees/Directors of the Funds, you will provide certain tax, accounting and legal services (the "Services") to the Funds. You will, to the extent such services are not required to be performed by you pursuant to an investment advisory agreement, provide:
(A) such tax, accounting, recordkeeping and financial management services and functions as are reasonably necessary for the operation of each Fund. Such services shall include, but shall not be limited to, supervision, review and/or preparation and maintenance of the following books, records and other documents: (1) journals containing daily itemized records of all purchases and sales, and receipts and deliveries of securities and all receipts and disbursements of cash and all other debits and credits, in the form required by Rule 31a-1(b) (1) under the Act; (2) general and auxiliary ledgers reflecting all asset, liability, reserve, capital, income and expense accounts, in the form required by Rules 31a-1(b) (2) (i)-(iii) under the Act; (3) a securities record or ledger reflecting separately for each portfolio security as of trade date all "long" and "short" positions carried by each Fund for the account of the Funds, if any, and showing the location of all securities long and the off-setting position to all securities short, in the form required by Rule 31a-1(b) (3) under the Act; (4) a record of all portfolio purchases or sales, in the form required by Rule 31a-1(b) (6) under the Act; (5) a record of all puts, calls, spreads, straddles and all other options, if any, in which any Fund has any direct or indirect interest or which the Funds have granted or guaranteed, in the form required by Rule 31a-1(b) (7) under the Act; (6) a record of the proof of money balances in all ledger accounts maintained pursuant to this Agreement, in the form required by Rule 31a-1(b) (8) under the Act; (7) price make-up sheets and such records as are necessary to reflect the determination of each Funds' net asset value; and (8) arrange for, or participate in (a) the preparation for the Fund of all required tax returns, (b) the preparation and submission of reports to existing shareholders and (c) the preparation of financial data or reports required by the Securities and Exchange Commission and other regulatory authorities;
(B) certain legal services as are reasonably necessary for the operation of each Funds. Such services shall include, but shall not be limited to; (1) maintenance of each Fund's registration statement and federal and state registrations; (2) preparation of certain notices and proxy
materials furnished to shareholders of the Funds; (3) preparation of periodic reports of each Fund to regulatory authorities, including Form N-SAR and Rule 24f-2 legal opinions; (4) preparation of materials in connection with meetings of the Board of Trustees/Directors of the Funds; (5) preparation of written contracts, distribution plans, compliance procedures, corporate and trust documents and other legal documents; (6) research advice and consultation about certain legal, regulatory and compliance issues, (7) supervision, coordination and evaluation of certain services provided by outside counsel;
(C) provide the Funds with staff and personnel to perform such accounting, bookkeeping and legal services as are reasonably necessary to effectively service the Fund. Without limiting the generality of the foregoing, such staff and personnel shall be deemed to include officers of the Administrator, and persons employed or otherwise retained by the Administrator to provide or assist in providing of the services to the Fund;
(D) maintain all books and records relating to the foregoing services; and
(E) provide the Funds with all office facilities to perform tax, accounting and legal services under this Agreement.
2. Compensation of the Administrator The Funds shall reimburse the Administrator for: (1) a portion of the compensation, including all benefits, of officers and employees of the Administrator based upon the amount of time that such persons actually spend in providing or assisting in providing the Services to the Funds (including necessary supervision and review); and (2) such other direct and indirect expenses, including, but not limited to, those listed in paragraph (1) above, incurred on behalf of the Fund that are associated with the providing of the Services and (3) 10% of the reimbursement amount. In no event, however, shall such reimbursement exceed levels that are fair and reasonable in light of the usual and customary charges made by others for services of the same nature and quality. Compensation under this Agreement shall be calculated and paid monthly in a arrears.
3. No Partnership or Joint Venture. The Funds and you are not partners of or joint ventures with each other and nothing herein shall be construed so as to make you such partners or joint venturers or impose any liability as such on any of you.
4. Limitation of Liability of the Administrator. You shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Funds in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on your part in the performance of your duties or from reckless disregard by you of your obligations and duties under this Agreement. Any person, even though also employed by you, who may be or become an employee of and paid by the Funds shall be deemed, when acting within the scope of his or her employment by the Funds, to be acting in such employment solely for the Funds and not as your employee or agent.
5. Duration and Termination of this Agreement. This Agreement shall remain in force until the second anniversary of the date upon which this Agreement was executed by the parties hereto, and from year to year thereafter, but only so long as such continuance is specifically approved at least annually by a majority of the Trustees/Directors. This Agreement may, on 60 days' written notice, be terminated at any time without the payment of any penalty by the
Funds by vote of a majority of the Trustees/Directors, or by you. This Agreement shall automatically terminate in the event of its assignment.
6. Amendment of this Agreement. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver or termination is sought.
7. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts without regard to the choice of law provisions thereof.
8. Miscellaneous. The captions in this Agreement are included for convenience of reference only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. A copy of the Declaration of Trust of each Fund organized as Massachusetts business trusts is on file with the Secretary of State of the Commonwealth of Massachusetts. The obligations of each such Fund are not personally binding upon, nor shall resort be had to the private property of, any of the Trustees, shareholders, officers, employees or agents of the Fund, but only the Fund's property shall be bound.
Yours very truly,
JOHN HANCOCK FUNDS (See Schedule A)
By: /s/James B. Little
------------------
James B. Little
Senior Vice President
|
The foregoing contract is
hereby agreed to as of the
date hereof.
JOHN HANCOCK ADVISERS, INC.
By: /s/Anne C. Hodsdon
------------------
Anne C. Hosdon
President
|
ACCOUNTING AND LEGAL SERVICES AGREEMENT
AMENDMENT DATED MARCH 8, 2005
The Accounting and Legal Services Agreement dated January 1, 1996, as amended July 1, 2004, between the John Hancock Funds listed on Schedule A ("Funds") and John Hancock Advisers, LLC ("Administrator") is amended as follows, effective April 1, 2005:
1. (B) Services. Legal services shall include services of the John Hancock Life Insurance Company's JH Funds legal group and responses prepared by the John Hancock Life Insurance Company legal staff on behalf of the Funds to subpoenas and appropriate information requests for shareholder records.
JOHN HANCOCK FUNDS (See Schedule A)
JOHN HANCOCK ADVISERS, LLC
March 1, 2006
John Hancock Investment Trust
601 Congress Street
Boston, MA 02210
Ladies and Gentlemen:
In connection with the filing of Post Effective Amendment No. 99 under the Securities Act of 1933, as amended, and Amendment No. 51 under the Investment Company Act of 1940, as amended, for John Hancock Municipal Securities Trust (the "Trust") it is the opinion of the undersigned that the Trust's shares when sold will be legally issued, fully paid and nonassessable.
In connection with this opinion it should be noted that the Trust is an entity of the type generally known as a "Massachusetts business trust." The Trust has been duly organized and is validly existing under the laws of the Commonwealth of Massachusetts. Under Massachusetts law, shareholders of a Massachusetts business trust may be held personally liable for the obligations of the Trust. However, the Trust's Declaration of Trust disclaims shareholder liability for obligations of the Trust and indemnifies the shareholders of a Fund, with this indemnification to be paid solely out of the assets of that Fund. Therefore, the shareholder's risk is limited to circumstances in which the assets of a Fund are insufficient to meet the obligations asserted against that Fund's assets.
Sincerely,
/s/Alfred P. Ouellette ---------------------- Alfred P. Ouellette Senior Attorney and Assistant Secretary |
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in this Post-Effective Amendment Number 99 to the Registration Statement No. 2-10156 on Form N-1A of the John Hancock Investment Trust (comprised of John Hancock Balanced Fund, John Hancock Large Cap Equity Fund, John Hancock Large Cap Intrinsic Value Fund, John Hancock Small Cap Intrinsic Value Fund, and John Hancock Sovereign Investors Fund), of our reports dated February 16, 2006 on the financial statements and financial highlights in the Annual Reports to the Shareholders for the year ended December 31, 2005.
We also consent to the references to us under the headings "Financial Highlights" in the John Hancock Equity Funds Prospectus and "Independent Registered Public Accounting Firm" in the John Hancock Balanced Fund Class A, Class B, Class C, and Class I Shares Statement of Additional Information, the John Hancock Large Cap Equity Fund Class A, Class B, Class C, and Class I Shares Statement of Additional Information, the John Hancock Large Cap Intrinsic Value Fund Class A, Class B, Class C, and Class I Shares Statement of Additional Information, the John Hancock Small Cap Equity Fund Class A, Class B, Class C, and Class I Shares Statement of Additional Information, and the John Hancock Sovereign Investors Fund Class A, Class B, and Class C Shares Statement of Additional Information.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 28, 2006
Code of Ethics
May 1, 2005
This is the code of ethics of:
o John Hancock Advisers, LLC
o Sovereign Asset Management Co.
o each open-end and closed-end fund advised by John Hancock Advisers, LLC
o John Hancock Funds, LLC
(together, called "John Hancock Funds")
1. General Principles
Each person within the John Hancock Funds organization is responsible for maintaining the very highest ethical standards when conducting our business.
This means that:
o You have a fiduciary duty at all times to place the interests of our clients and fund investors first.
o All of your personal securities transactions must be conducted consistent with the provisions of this code of ethics that apply to you and in such a manner as to avoid any actual or potential conflict of interest or other abuse of your position of trust and responsibility.
o You should not take inappropriate advantage of your position or engage in any fraudulent or manipulative practice (such as front-running or manipulative market timing) with respect to our clients' accounts or fund investors.
o You must treat as confidential any information concerning the identity of security holdings and financial circumstances of clients or fund investors.
o You must comply with all applicable federal securities laws.
o You must promptly report any violation of this code of ethics that comes to your attention to the Chief Compliance Officer of your company.
The General Principles discussed above govern all conduct, whether or not the conduct is also covered by more specific standards and procedures in this code of ethics. As described below under the heading "Interpretation and Enforcement", failure to comply with the code of ethics may result in disciplinary action, including termination of employment.
2. To Whom Does This Code Apply?
This code of ethics applies to you if you are a trustee/director, officer or employee of John Hancock Advisers, LLC, Sovereign Asset Management Co., John Hancock Funds, LLC or a "John Hancock fund" (any fund advised by John Hancock Advisers, LLC or Sovereign Asset Management Co.). It also applies to you if you are an employee of John Hancock Life Insurance Co. or its subsidiaries who participates in making recommendations for, or receives information about, portfolio trades or holdings of the John Hancock funds or accounts. In some cases only a limited number of provisions will apply to you, based on your access category. For example, only a limited number of provisions apply to independent trustees/directors of the John Hancock mutual funds and closed-end funds--see Appendix C for more information.
Please note that if a policy described below applies to you, it also applies all accounts over which you have a beneficial interest. Normally, you will be deemed to have a beneficial interest in your personal accounts, those of a spouse, "significant other," minor children or family members sharing a household, as well as all accounts over which you have discretion or give advice or information. "Significant others" are defined for these purposes as two people who (1) share the same primary residence; (2) share living expenses; and (3) are in a committed relationship and intend to remain in the relationship indefinitely.
There are three main categories for persons covered by this code of ethics, taking into account their positions, duties and access to information regarding fund portfolio trades. You have been notified about which of these categories applies to you, based on the Investment Compliance Department's understanding of your current role. If you have a level of investment access beyond your assigned category, or if you are promoted or change duties and as a result should more appropriately be included in a different category, it is your responsibility to notify the Chief Compliance Officer of your company.
The basic definitions of the three main categories, with examples, are provided
below. The more detailed definitions of each category are attached as Appendix
A.
------------------------------------------------------------------------------------------------------------
"Regular Access" person
"Investment Access" person A person who regularly has access "Non-Access" person
to (1) fund portfolio trades or
(2) non-public information
regarding holdings or securities A person who does not regularly
A person who regularly participates recommendations to clients. participate in a fund's
in a fund's investment process or investment process or obtain
makes securities recommendations to examples: information regarding fund
clients. portfolio trades
o personnel in
Investment Operations or examples:
Compliance
examples: o most FFM personnel o wholesalers
o Technology personnel o inside wholesalers
o portfolio managers with access to who don't attend
o analysts investment systems investment "morning
o traders o attorneys and some meetings"
legal administration o certain administrative
personnel personnel
o investment admin.
personnel
------------------------------------------------------------------------------------------------------------
|
3. Which Accounts and Securities are Subject to the Code's Personal Trading Restrictions?
If this code of ethics describes "Personal Trading Requirements" (i.e. John Hancock Mutual Fund reporting requirement and holding period, the preclearance requirement, the ban on short-term profits, the ban on IPOs, the disclosure of private placement conflicts and the reporting requirements) that apply to your access category as described above, then the requirements apply to trades for any account over which you have a beneficial interest. Normally, this includes your personal accounts, those of a spouse, "significant other," minor children or family members sharing your household, as well as all accounts over which you have discretion or give advice or information. This includes all brokerage accounts that contain securities (including brokerage accounts that only contain securities exempt from reporting). Accounts over which you have no direct or indirect influence or control are exempt. To prevent potential violations of this code of ethics, you are strongly encouraged to request clarification for any accounts that are in question.
These personal trading requirements do not apply to the following securities:
o Direct obligations of the U.S. government (e.g., treasury securities);
o Bankers' acceptances, bank certificates of deposit, commercial paper, and high quality short-term debt obligations, including repurchase agreements;
o Shares of open-end mutual funds that are not advised or sub-advised by John Hancock Advisers or by John Hancock or Manulife entities;
o Shares issued by money market funds; and
o Securities in accounts over which you have no direct or indirect influence or control.
Except as noted above, the Personal Trading Requirements apply to all securities, including:
o stocks or bonds;
o government securities that are not direct obligations of the U.S. government, such as Fannie Mae or municipal securities;
o Shares of all closed-end funds;
o Options on securities, on indexes, and on currencies;
o All kinds of limited partnerships;
o Foreign unit trusts and foreign mutual funds;
o Private investment funds and hedge funds; and
o Futures, investment contracts or any other instrument that is considered a "security" under the Investment Advisers Act.
Different requirements apply to shares of open-end mutual funds that are advised or sub-advised by John Hancock Advisers or by John Hancock or Manulife entities--see the section below titled "John Hancock Mutual Funds Reporting Requirement and Holding Period".
4. Overview of Policies
-------------------------------------------------------------------------------------------------------------------------
Investment Access Regular Access Non-Access Person
Person Person
-------------------------------------------------------------------------------------------------------------------------
General principles yes yes yes
-------------------------------------------------------------------------------------------------------------------------
Policies outside the code
-------------------------------------------------------------------------------------------------------------------------
Conflict of interest policy yes yes yes
-------------------------------------------------------------------------------------------------------------------------
Inside information policy yes yes yes
-------------------------------------------------------------------------------------------------------------------------
Policy regarding dissemination of mutual fund yes yes yes
portfolio information
-------------------------------------------------------------------------------------------------------------------------
Policies in the code
-------------------------------------------------------------------------------------------------------------------------
Restriction on gifts yes yes yes
-------------------------------------------------------------------------------------------------------------------------
John Hancock mutual funds reporting requirement and yes yes yes
holding period
-------------------------------------------------------------------------------------------------------------------------
Pre-clearance requirement yes yes Limited
-------------------------------------------------------------------------------------------------------------------------
Heightened preclearance of securities transactions yes yes no
for "Significant Personal Positions"
-------------------------------------------------------------------------------------------------------------------------
Ban on short-term profits yes no no
-------------------------------------------------------------------------------------------------------------------------
Ban on IPOs yes no no
-------------------------------------------------------------------------------------------------------------------------
Disclosure of private placement conflicts yes no no
-------------------------------------------------------------------------------------------------------------------------
Seven day blackout period yes no no
-------------------------------------------------------------------------------------------------------------------------
|
------------------------------------------------------------------------------------------------------------------------- Reports and other disclosures outside the code ------------------------------------------------------------------------------------------------------------------------- Broker letter/duplicate confirms yes yes yes ------------------------------------------------------------------------------------------------------------------------- Reports and other disclosures in the code ------------------------------------------------------------------------------------------------------------------------- Annual recertification form yes yes yes ------------------------------------------------------------------------------------------------------------------------- Initial/annual holdings reports yes yes no ------------------------------------------------------------------------------------------------------------------------- Quarterly transaction reports yes yes no ------------------------------------------------------------------------------------------------------------------------- |
5. Policies Outside the Code of Ethics
John Hancock Funds has certain policies that are not part of the code of ethics, but are equally important. The two most important of these policies are (1) the Company Conflict and Business Practice Policy; and (2) the Inside Information Policy.
Company Conflict & Business Practice Policy
Applies to: Investment Access Persons
Regular Access Persons
Non-Access Persons
------------------------------------------------
|
A conflict of interest occurs when your private interests interfere or could potentially interfere with your responsibilities at work. You must not place yourself or the company in a position of actual or potential conflict.
This Policy for officers and employees covers a number of important issues. For example, you cannot serve as a director of any company without first obtaining the required written executive approval.
This Policy includes significant requirements to be followed if your personal securities holdings overlap with John Hancock Funds investment activity. For example, if you or a member of your family own:
o a 5% or greater interest in a company, John Hancock Funds and its affiliates may not make any investment in that company;
o a 1% or greater interest in a company, you cannot participate in any decision by John Hancock Funds and its affiliates to buy or sell that company's securities;
o ANY interest in a company, you cannot recommend or participate in a decision by John Hancock Funds and its affiliates to buy or sell that company's securities unless your personal interest is fully disclosed at all stages of the investment decision.
(This is just a summary of these requirement--please read Section IV of the Company Conflict and Business Practices Policy for more detailed information.)
Other important issues in this Policy include:
o personal investments or business relationships
o misuse of inside information
o receiving or giving of gifts, entertainment or favors
o misuse or misrepresentation of your corporate position
o disclosure of confidential or proprietary information
o antitrust activities
o political campaign contributions and expenditures on public officials
Inside Information Policy and Procedures
Applies to: Investment Access Persons
Regular Access Persons
Non-Access Persons
------------------------------------------------
|
The antifraud provisions of the federal securities laws generally prohibit persons with material non-public information from trading on or communicating the information to others. Sanctions for violations can include civil injunctions, permanent bars from the securities industry, civil penalties up to three times the profits made or losses avoided, criminal fines and jail sentences. While Investment Access persons are most likely to come in contact with material non-public information, the rules (and sanctions) in this area apply to all John Hancock Funds personnel and extend to activities both related and unrelated to your job duties.
The Inside Information Policy and Procedures covers a number of important issues, such as:
o The misuse of material non-public information
o The information barrier procedure
o The "restricted list" and the "watch list"
o broker letters and duplicate confirmation statements (see section 7 of this code of ethics)
Policy Regarding Dissemination of Mutual Fund Portfolio Information
Applies to: Investment Access Persons
Regular Access Persons
Non-Access Persons
------------------------------------------------
|
Information about securities held in a mutual fund cannot be disclosed except in accordance with this Policy, which generally requires time delays of approximately one month and public posting of the information to ensure that it uniformly enters the public domain.
6. Policies in the Code of Ethics
Restriction on Gifts
Applies to: Investment Access Persons
Regular Access Persons
|
Non-Access Persons
You and your family cannot accept preferential treatment or favors (for example, gifts) from securities brokers or dealers or other organizations with which John Hancock Funds might transact business, except in accordance with the Company Conflict and Business Practice Policy. For the protection of both you and John Hancock Funds, the appearance of a possible conflict of interest must be avoided. You should exercise caution in any instance in which business travel and lodging are paid for by someone other than John Hancock Funds. The purpose of this policy is to minimize the basis for any charge that you used your John Hancock Funds position to obtain for yourself opportunities which otherwise would not be offered to you. Please see the Company Conflict and Business Practice Policy's "Compensation and Gifts" section for additional details regarding restrictions on gifts and exceptions for "nominal value" gifts.
John Hancock Mutual Funds Reporting Requirement and Holding Period
Applies to: Investment Access Persons
Regular Access Persons
Non-Access Persons
------------------------------------------------
|
You must follow the reporting requirement and the holding period requirement specified below if you purchase either:
o a "John Hancock Mutual Fund" (i.e. a mutual fund that is advised by John Hancock Advisers or by John Hancock or Manulife entity); or
o a "John Hancock Variable Product" (i.e. contacts funded by insurance company separate accounts that use one or more portfolios of Manufacturers Investment Trust or John Hancock Variable Series Trust).
The John Hancock mutual funds reporting requirement and the holding period requirement are excluded for the money market funds and any dividend reinvestment, payroll deduction, systematic investment/withdrawal and other program trades.
Reporting Requirement: You must report your holdings and your trades in a John Hancock Mutual Fund or a John Hancock Variable Product. This is not a preclearance requirement--you can report your holdings after you trade by submitting duplicate confirmation statements to the Investment Compliance Department. If you are an Investment Access Person or a Regular Access Person, you must also make sure that your holdings in a John Hancock Mutual Fund are included in your Initial Holdings Report (upon hire) and Annual Holdings Report (each year end).
If you purchase a John Hancock Variable Product, you must notify the Investment Compliance Department. The Investment Compliance Department will then obtain directly from the contract administrators the personal trade and holdings information regarding the portfolios underlying the Manulife or John Hancock variable insurance contracts.
The Investment Compliance Department will obtain personal securities trade and holdings information in the 401(k) plans for John Hancock Funds or John Hancock employees directly from the plan administrators.
Holding Requirement: You cannot profit from the purchase and sale of a John Hancock Mutual Fund within 30 calendar days. The purpose of this policy is to address the risk, real or perceived, of manipulative market timing or other abusive practices involving short-term personal trading in the John Hancock Mutual Funds. Any profits realized on short-term trades must be surrendered by check payable to John Hancock Advisers, LLC and will be contributed by John Hancock Advisers, LLC to a charity, upon determination by the Compliance and Business Practices Committee. If you give away a security, it is considered a sale. You may request an exemption from this policy for involuntary sales due to unforeseen corporate activity (such as a merger), or for sales due to hardship reasons (such as unexpected medical expenses) by sending an e-mail to the Chief Compliance Officer of your company.
Preclearance of Securities Transactions
Applies to: Investment Access Persons
Regular Access Persons
Also, for a limited category of trades:
Non-Access Persons
Limited Category of Trades for Non-Access Persons: If you are a Non-Access person, you must preclear transactions in securities of any closed-end funds advised by John Hancock Advisers, LLC. A Non-Access person is not required to
preclear other trades. However, please keep in mind that a Non-Access person is required to report securities transactions after every trade (even those that are not required to be precleared) by requiring your broker to submit duplicate confirmation statements, as described in section 7 of this code of ethics.
Investment Access persons and Regular Access persons: If you are an Investment Access person or Regular Access person, you must "preclear" (i.e.: receive advance approval of) any personal securities transactions in the categories described above in the section "Which Accounts and Securities are Subject to the Code's Personal Trading Restrictions". Due to this preclearance requirement, participation in investment clubs is prohibited.
Preclearance of private placements requires some special considerations--the decision will take into account whether, for example: (1) the investment opportunity should be reserved for John Hancock Funds clients; and (2) it is being offered to you because of your position with John Hancock Funds.
How to preclear: You preclear a trade by following the steps outlined in the preclearance procedures, which are attached as Appendix B. Please note that:
o You may not trade until clearance is received.
o Clearance approval is valid only for the date granted (i.e. the preclearance date and the trade date should be the same).
o A separate procedure should be followed for requesting preclearance of a private placement or a derivative, as detailed in Appendix B. The Investment Compliance Department must maintain a five-year record of all clearances of private placement purchases by Investment Access persons, and the reasons supporting the clearances.
The preclearance policy is designed to proactively identify possible "problem trades" that raise front-running, manipulative market timing or other conflict of interest concerns (example: when an Investment Access person trades a security on the same day as a John Hancock fund).
Heightened Preclearance of Securities Transactions for "Significant Personal Positions"
Applies to: Investment Access Persons
Regular Access Persons
------------------------------------------------
|
If you are an Investment Access person or Regular Access person with a personal securities position that is worth $100,000 or more, this is deemed to be a "Significant Personal Position". This applies to any personal securities positions in the categories described above in the section "Which Accounts and Securities are Subject to the Code's Personal Trading Restrictions". Before you make personal trades to establish, increase or decrease a Significant Personal Position, you must notify either the Chief Fixed Income Officer or the Chief
Equity Officer that (1) you intend to trade in a Significant Personal Position and (2) confirm that you are not aware of any clients for whom related trades should be completed first. You must receive their pre-approval to proceed--their approval will be based on their conclusion that your personal trade in a Significant Personal Position will not "front-run" any action that John Hancock Funds should take for a client. This Heightened Preclearance requirement is in addition to, not in place of, the regular preclearance requirement described above--you must also receive the regular preclearance before you trade.
Ban on Short-Term Profits
Applies to: Investment Access Persons
If you are an Investment Access person, you cannot profit from the purchase and sale (or sale and purchase) of the same (or equivalent) securities within 60 calendar days. This applies to any personal securities trades in the categories described above in the section "Which Accounts and Securities are Subject to the Code's Personal Trading Restrictions".
You may invest in derivatives or sell short provided the transaction period exceeds the 60-day holding period. If you give away a security, it is considered a sale.
The purpose of this policy is to address the risk, real or perceived, of front-running, manipulative market timing or other abusive practices involving short-term personal trading. Any profits realized on short-term trades must be surrendered by check payable to John Hancock Advisers, LLC and will be contributed by John Hancock Advisers, LLC to a charity, upon determination by the Compliance and Business Practices Committee.
You may request an exemption from this policy for involuntary sales due to unforeseen corporate activity (such as a merger), or for sales due to hardship reasons (such as unexpected medical expenses) by sending an e-mail to the Chief Compliance Officer of your company.
Ban on IPOs
Applies to: Investment Access Persons
If you are an Investment Access person, you may not acquire securities in an initial public offering (IPO). You may not purchase any newly-issued securities until the next business (trading) day after the offering date. This applies to
any personal securities trades in the categories described above in the section "Which Accounts and Securities are Subject to the Code's Personal Trading Restrictions".
There are two main reasons for this prohibition: (1) these purchases may suggest that persons have taken inappropriate advantage of their positions for personal profit; and (2) these purchases may create at least the appearance that an investment opportunity that should have been available to the John Hancock funds was diverted to the personal benefit of an individual employee.
You may request an exemption for certain investments that do not create a potential conflict of interest, such as: (1) securities of a mutual bank or mutual insurance company received as compensation in a demutualization and other similar non-voluntary stock acquisitions; (2) fixed rights offerings; or (3) a family member's participation as a form of employment compensation in their employer's IPO.
Disclosure of Private Placement Conflicts
Applies to: Investment Access Persons
If you are an Investment Access person and you own securities purchased in a private placement, you must disclose that holding when you participate in a decision to purchase or sell that same issuer's securities for a John Hancock fund. This applies to any private placement holdings in the categories described above in the section "Which Accounts and Securities are Subject to the Code's Personal Trading Restrictions". Private placements are securities exempt from SEC registration under section 4(2), section 4(6) or rules 504 -506 of the Securities Act of 1933.
The investment decision must be subject to an independent review by investment personnel with no personal interest in the issuer.
The purpose of this policy is to provide appropriate scrutiny in situations in which there is a potential conflict of interest.
Seven Day Blackout Period
Applies to: Investment Access Persons
If you are a portfolio manager (or were identified to the Investment Compliance Department as part of a portfolio management team) you are prohibited from buying or selling a security within seven calendar days before and after that security is traded for a fund that you manage unless no conflict of interest exists in relation to that security (as determined by the Compliance and Ethics Committee).
In addition, all investment access persons are prohibited from knowingly buying or selling a security within seven calendar days before and after that security
is traded for a John Hancock fund unless no conflict of interest exists in relation to that security. This applies to any personal securities trades in the categories described above in the section "Which Accounts and Securities are Subject to the Code's Personal Trading Restrictions". If a John Hancock fund trades in a security within seven calendar days before or after you trade in that security, you may be required to demonstrate that you did not know that the trade was being considered for that John Hancock fund.
You will be required to sell any security purchased in violation of this policy unless it is determined that no conflict of interest exists in relation to that security (as determined by the Compliance and Ethics Committee). Any profits realized on trades determined by the Compliance and Ethics Committee to be in violation of this policy must be surrendered by check payable to John Hancock Advisers, LLC and will be contributed by John Hancock Advisers, LLC to a charity.
7. Reports and Other Disclosures Outside the Code of Ethics
Broker Letter/Duplicate Confirm Statements
Applies to: Investment Access Persons
Regular Access Persons
Non-Access Persons
------------------------------------------------
|
As required by the Inside Information Policy, you must inform your stockbroker that you are employed by an investment adviser or broker. Your broker is subject to certain rules designed to prevent favoritism toward your accounts. You may not accept negotiated commission rates that you believe may be more favorable than the broker grants to accounts with similar characteristics.
When a brokerage account is opened for which you have a beneficial interest, before any trades are made, you must:
o Notify the broker-dealer with which you are opening an account that you are a registered associate of JHF;
o Ask the firm in writing to have duplicate written confirmations of any trade, as well as statements or other information concerning the account, sent to the JHF Investment Compliance Department (contact: Fred Spring), 10th Floor, 101 Huntington Avenue, Boston, MA 02199; and
o Notify the JHF Investment Compliance Department, in writing, that you have an account before you place any trades.
This applies to any personal securities trades in the categories described above in the section "Which Accounts and Securities are Subject to the Code's Personal Trading Restrictions" as well as trades in John Hancock Mutual Funds and John Hancock Variable Products. The Investment Compliance Department may rely on
information submitted by your broker as part of your reporting requirements under this code of ethics.
8. Reports and Other Disclosures In the Code of Ethics
Initial Holdings Report and Annual Holdings Report
Applies to: Investment Access Persons
Regular Access Persons
------------------------------------------------
|
You must file an initial holdings report within 10 calendar days after becoming an Investment Access person or a Regular Access person. The information must be current as of a date no more than 45 days prior to your becoming an Investment Access person or a Regular Access person.
You must also file an annual holdings report (as of December 31st) within 45 calendar days after the calendar year end. This applies to any personal securities holdings in the categories described above in the section "Which Accounts and Securities are Subject to the Code's Personal Trading Restrictions" as well as holdings in John Hancock Mutual Funds and John Hancock Variable Products.
Your reports must include:
o the title and type of security, and as applicable the exchange ticker symbol or CUSIP number, number of shares, and principal amount of each reportable security;
o the name of any broker, dealer or bank with which you maintain an account; and
o the date that you submit the report.
Quarterly Transaction Reports
Applies to: Investment Access Persons
Regular Access Persons
------------------------------------------------
|
You must file a quarterly transaction report within 30 calendar days after the end of a calendar quarter if you are an Investment Access person or a Regular Access person. This report must cover all transactions during the past calendar quarter for any accounts and personal securities trades in the categories described above in the section "Which Accounts and Securities are Subject to the Code's Personal Trading Restrictions" as well as transactions in John Hancock Mutual Funds and John Hancock Variable Products. You must submit a quarterly report even if you have no transactions during the quarter.
Your quarterly transaction report must include the following information about these transactions:
o the date of the transaction, the title, and as applicable the exchange ticker symbol or CUSIP number, interest rate and maturity date, number of shares, and principal amount of each reportable security involved;
o the nature of the transaction (i.e. purchase, sale or any other type of acquisition or disposition);
o the price at which the transaction was effected;
o the name of the broker, dealer or bank with or through which the transaction was effected; and
o the date that you submit the report.
Annual Certification
Applies to: Investment Access Persons
Regular Access Persons
|
Non-Access Persons
At least annually (or additionally when the code of ethics has been significantly changed), you must provide a certification at a date designated by the Investment Compliance Department that:
(1) you have read and understood this code of ethics;
(2) you recognize that you are subject to its policies; and
(3) you have complied with its requirements.
You are required to make this certification to demonstrate that you understand the importance of these policies and your responsibilities under the code of ethics.
9. Limited Access Persons
There is an additional category of persons called "Limited Access" persons. This category consists only of directors of John Hancock Advisers, LLC or the John Hancock funds who:
(a) are not also officers of John Hancock Advisers, LLC; and
(b) do not ordinarily obtain information about fund portfolio trades.
A more detailed definition of Limited Access persons, and a list of the policies that apply to them, is attached as Appendix C.
10. Subadvisers
A subadviser to a John Hancock fund has a number of code of ethics responsibilities, as described in Appendix D.
11. Reporting Violations
If you know of any violation of our code of ethics, you have a responsibility to promptly report it to the Chief Compliance Officer of your company. You should also report any deviations from the controls and procedures that safeguard John Hancock Funds and the assets of our clients. You can request confidential treatment of your reporting action.
12. Interpretation and Enforcement
This code of ethics cannot anticipate every situation in which personal interests may be in conflict with the interests of our clients and fund investors. You should be responsive to the spirit and intent of this code of ethics as well as its specific provisions.
When any doubt exists regarding any code of ethics provision or whether a conflict of interest with clients or fund investors might exist, you should discuss the situation in advance with the Chief Compliance Officer of your company. The code of ethics is designed to detect and prevent fraud against clients and fund investors, and to avoid the appearance of impropriety. If you feel inequitably burdened by any policy, you should feel free to contact your Chief Compliance Officer or the Compliance and Business Practices Committee. Exceptions may be granted where warranted by applicable facts and circumstances. For example, exemption from some Personal Trading Requirements may be granted for transactions effected pursuant to an automatic investment plan.
To provide assurance that policies are effective, the Investment Compliance Department will monitor and check personal securities transaction reports and certifications against fund portfolio transactions. Additional administration and recordkeeping procedures are described in Appendix E.
The Chief Compliance Officer of your company has general administrative responsibility for this code of ethics as it applies to the access persons of your company; an appropriate Compliance Department will administer procedures to review personal trading reports. The Compliance and Business Practices Committee of John Hancock Funds approves amendments to the code of ethics and dispenses employee/officer sanctions for violations of the code of ethics. The Boards of Trustees/Directors of the mutual funds and closed-end funds also approve amendments to the code of ethics and dispenses sanctions for access persons of the Funds who are not employees/officers. Accordingly, the Investment Compliance Department will refer violations to the Compliance and Business Practices Committee and/or the Boards of Trustees/Directors of the John Hancock funds, respectively, for review and appropriate action. The following factors will be considered when determining a fine or other disciplinary action:
o the person's position and function (senior personnel may be held to a higher standard);
o the amount of the trade;
o whether the funds or accounts hold the security and were trading the same day;
o whether the violation was by a family member.
o whether the person has had a prior violation and which policy was involved.
o whether the employee self-reported the violation.
You can request reconsideration of any disciplinary action by submitting a written request.
No less frequently than annually, a written report of all material violations and sanctions, significant conflicts of interest and other related issues will be submitted to the boards of directors of the John Hancock funds for their review. Sanctions for violations could include (but are not limited to) fines, limitation of personal trading activity, suspension or termination of the violator's position with John Hancock Funds and/or a report to the appropriate regulatory authority.
13. Education of Employees
The Investment Compliance Department will provide a paper copy or electronic version of the code of ethics (and any amendments) to each person subject to this code of ethics. The Investment Compliance Department will also administer training of employees on the principles and procedures of the code of ethics.
Appendix A: Categories of Personnel
You have been notified about which of these categories applies to you, based on the Investment Compliance Department's understanding of your current role. If you have a level of investment access beyond that category, or if you are promoted or change duties and as a result should more appropriately be included in a different category, it is your responsibility to immediately notify the Chief Compliance Officer of your company.
1) Investment Access person: You are an Investment Access person if you are an employee of John Hancock Advisers, LLC, a John Hancock fund, or John Hancock Life Insurance Company or its subsidiaries who, in connection with your regular functions or duties, makes or participates in making recommendations regarding the purchase or sale of securities by a John Hancock fund.
(examples: portfolio managers, analysts, traders)
2) Regular Access person: You are a Regular Access person if you do not fit the definition of Investment Access Person, but you do fit one of the following two sub-categories:
o You are an officer (vice president and higher) or trustee/director of John Hancock Advisers, LLC or a John Hancock fund, unless you qualify as a Limited Access person--please see Appendix C for this definition.)
o You are an employee of John Hancock Advisers, LLC, a John Hancock fund or John Hancock Life Insurance Co. or its subsidiaries , or a director, officer (vice president and higher) or employee of John Hancock Funds, LLC who has access to nonpublic information
regarding any clients' purchase or sale of securities, or nonpublic information regarding the portfolio holdings of any reportable fund or who is involved in making securities recommendations to clients, or who has access to such recommendations that are nonpublic.
(examples: Investment Operations personnel, Investment Compliance Department personnel, most Fund Financial Management personnel, investment administrative personnel, Technology Resources personnel with access to investment systems, attorneys and some legal administration personnel)
3) Non-Access person: You are a non-access person if you are an employee of John Hancock Advisers, LLC, John Hancock Funds, LLC or a John Hancock fund who does not fit the definitions of any of the other three categories (Investment Access Person, Regular Access Person or Limited Access Person). To be a non-access person, you must not have access to information regarding the purchase or sale of securities by a John Hancock fund or nonpublic information regarding the portfolio holdings in connection with your regular functions or duties.
(examples: wholesalers, inside wholesalers, certain administrative staff)
4) Limited Access Person: Please see Appendix C for this definition.
Appendix B: Preclearance Procedures
You should read the Code of Ethics to determine whether you must obtain a preclearance before you enter into a securities transaction. If you are required to obtain a preclearance, you should follow the procedures detailed below.
1. Pre-clearance for Public Securities including Derivatives, Futures, Options and Selling Short:
A request to pre-clear should be entered into the John Hancock Personal Trading & Reporting System.
The John Hancock Personal Trading & Reporting System is located under your Start Menu on your Desktop. It can be accessed by going to Programs/Personal Trading & Reporting/ Personal Trading & Reporting and by entering your Web Security Services user id and password.
If the John Hancock Personal Trading & Reporting System is not on your Desktop, please contact the HELP Desk at (617) 572-6950 for assistance.
The Trade Request Screen:
At times you may receive a message like "System is currently unavailable". The system is scheduled to be offline from 8:00 PM until 7:00 AM each night.
[GRAPHIC OMITTED]
Ticker/Security Cusip: Fill in this one of these fields with the proper information of the security you want to buy or sell. Then click the [Lookup] button. Select one of the hyperlinks for the desired security, and the system will populate the proper fields Ticker, Security Cusip, Security Name and Security Type automatically on the Trade Request Screen.
If You Don't Know the Ticker, Cusip, or Security Name:
If you do not know the full ticker, you may type in the first few letters followed by an asterisk * and click the [Lookup] button. For example, let's say you want to buy some shares of Intel, but all you can remember of the ticker is that it begins with int, so you enter int* for Ticker. If any tickers beginning with int are found, they are displayed on a new screen. Select the hyperlink of the one you want, and the system will populate Security Cusip, Security Name and Security Type automatically on the Trade Request Screen. If you do not know the full cusip, you may type in the first few numbers followed by an asterisk * and click the [Lookup] button. For example, let's say you want to buy some shares of Microsoft, but all you can remember of the cusip is that it begins with 594918, so you enter 594918* for Ticker. If any cusips beginning with 594918 are found, they are displayed on a new screen. Select the hyperlink of the one you want, and the system will fill in Ticker, Security Name and Security Type automatically on the Trade Request Screen. If you do not know the Ticker but
have an idea of what the Security Name is, you may type in an asterisk, a few letters of the name and an asterisk * and click the [Lookup] button. For example, let's say you want to buy some shares of American Brands, so you enter *amer* for Security Name. Any securities whose names have amer in them are displayed on a new screen, where you are asked to select the hyperlink of the one you want, and the system will fill in Ticker, Cusip and Security Type automatically on the Trade Request Screen.
Other Items on the Trade Request Screen:
Brokerage Account: Click on the dropdown arrow to the right of the Brokerage Account field to choose the account to be used for the trade.
Transaction Type: Choose one of the values displayed when you click the dropdown arrow to the right of this field.
Trade Date: You may only submit trade requests for the current date.
Note: One or more of these fields may not appear on the Request Entry screen if the information is not required. Required fields are determined by the Investment Compliance Department.
Click the [Submit Request] button to send the trade request to your Investment Compliance department.
Once you click the [Submit Request] button, you will be asked to confirm the values you have entered. Review the information and click the [Confirm] button if all the information is correct. After which, you will receive immediate feedback in your web browser. (Note: We suggest that you print out this confirmation and keep it as a record of the trade you have made). After this, you can either submit another trade request or logout.
Attention Investment Access Persons: If the system identifies a potential violation of the Ban on Short Term Profits Rule, your request will be sent to the Investment Compliance Department for review and you will receive feedback via the e-mail system.
Starting Over:
To clear everything on the screen and start over, click the [Clear Screen] button.
Exiting Without Submitting the Trade Request:
If you decide not to submit the trade request before clicking the [Submit Request] button, simply exit from the browser by clicking the [X] button on the upper right or by pressing [Alt+F4], or by clicking the Logout hyperlink on the lower left side of the screen.
Ticker/Security Name Lookup Screen:
You arrive at this screen from the Trade Request Screen, where you've clicked the [Lookup] button (see above, "If You Don't Know the Ticker, Cusip, or Security Name"). If you see the security you want to trade, you simply select its corresponding hyperlink, and you will automatically return to the Trade Request Screen, where you finish making your trade request. If the security you want to trade is not shown, that means that it is not recognized by the system under the criteria you used to look it up. Keep searching under other names (click the [Return to Request] button) until you are sure that the security is not in the system. If you determine that the desired security is not in the system, please contact a member of the Investment Compliance department to add the security for you. Contacts are listed below:
Fred Spring x54987
Adding Brokerage Accounts:
To access this functionality, click on the Add Brokerage Account hyperlink on the left frame of your browser screen. You will be prompted to enter the Brokerage Account Number, Brokerage Account Name, Date Opened, and Broker. When you click the [Create New Brokerage Account] button, you will receive a message that informs you whether the account was successfully created.
[GRAPHIC OMITTED]
3. Pre-clearance for Private Placements and Initial Public Offerings:
You may request a preclearance of private placement securities or an Initial Public Offering by contacting Fred Spring via Microsoft Outlook (please "cc." Frank Knox on all such requests). Please keep in mind that the code of ethics prohibits Investment Access persons from purchasing securities in an initial public offering.
The request must include:
o the associate's name;
o the associate's John Hancock Funds' company;
o the complete name of the security;
o the seller (i.e the selling party if identified and/or the broker-dealer or placement agent) and whether or not the associate does business with those individuals or entities on a regular basis;
o any potential conflict, present or future, with fund trading activity and whether the security might be offered as inducement to later recommend publicly traded securities for any fund or to trade through a particular broker-dealer or placement agent; and
o the date of the request.
Clearance of private placements or initial public offerings may be denied for any appropriate reason, such as if the transaction could create the appearance of impropriety. Clearance of initial public offerings will also be denied if the transaction is prohibited for a person due to his or her access category under the code of ethics.
Appendix C: Limited Access Persons
There are two types of Limited Access Persons--(1) Certain directors of the Adviser and (2) the Independent Trustees/Directors of the Funds.
(1) Certain Directors of the Adviser:
You are a Limited Access person if you are a director of John Hancock Advisers, LLC or Sovereign Asset Management Co. and you meet the three following criteria:
(a) you are not also an officer of John Hancock Advisers, LLC, Sovereign Asset Management Co. or a John Hancock fund;
(b) you do not have access to nonpublic information regarding any clients' purchase or sale of securities, or nonpublic information regarding the portfolio holdings of any John Hancock fund or account; and
(c) you are not involved in making securities recommendations to clients and do not have access to such recommendations that are nonpublic.
(examples: directors of John Hancock Advisers, LLC or Sovereign Asset Management Co. who are not involved in the daily operations of the adviser)
If you are a Limited Access Person who fits this definition, the following policies apply to your category. These policies are described in detail in the code of ethics.
o General principles
o Inside information policy and procedures
o Broker letter/Duplicate Confirms*
o Initial/annual holdings reports*
o Quarterly transaction reports*
o Annual recertification
o Preclearance requirement LIMITED: You only need to preclear any direct or indirect acquisition of beneficial ownership in any security in an initial public offering (an IPO) or in a limited offering (i.e. a private placement). To request preclearance of these securities, contact Fredrick Spring at fspring@jhancock.com and/or Frank Knox at Frank_Knox@manulifeusa.com.
*A Limited Access Person may complete this requirement under the code of ethics of another Manulife/John Hancock adviser or fund by the applicable regulatory deadlines and arrange for copies of the required information to be sent to the John Hancock Funds Compliance Department.
(2) The Independent Trustees/Directors of the Funds: If you are an independent trustee/director to a John Hancock fund (i.e. not an "interested person" of the fund within the meaning of the Investment Company Act of 1940), the following policies apply to your category. These policies are described in detail in the code of ethics.
o General principles
o Annual recertification
o Quarterly transaction report, but only if you knew (or should have known)
that during the 15 calendar days before or after you trade a security,
either:
(i) a John Hancock fund purchased or sold the same security, or
(ii) a John Hancock fund or John Hancock Advisers, LLC considered purchasing or selling the same security.
This policy applies to holdings in your personal accounts, those of a spouse, "significant other" or family members sharing your household, as well as all accounts over which you have discretion or give advice or information. If this situation occurs, it is your responsibility to contact the Chief Compliance Officer of your company and he will assist you with the requirements of the quarterly transaction report.
This means that the independent trustees of the funds will not usually be required to file a quarterly transaction report--they are only required to file in the situation described above.
Appendix D: Subadvisers
Each subadviser to a John Hancock fund is subject to its own code of ethics, which must meet the requirements of Rule 17j-1 and Rule 204A-1.
Approval of Code of Ethics
Each subadviser to a John Hancock fund must provide a copy of its code of ethics to the trustees of the relevant John Hancock funds for approval initially and
within 60 calendar days of any material amendment. The trustees will give their approval if they determine that the code:
o contains provisions reasonably necessary to prevent the subadviser's Access Persons (as defined in Rule 17j-1) from engaging in any conduct prohibited by Rule 17j-1;
o requires the subadviser's Access Persons to make reports to at least the extent required in Rule 17j-1(d);
o requires the subadviser to institute appropriate procedures for review of these reports by management or compliance personnel (as contemplated by Rule 17j-1(d)(3));
o provides for notification of the subadviser's Access Persons in accordance with Rule 17j-1(d)(4); and
o requires the subadviser's Access Persons who are Investment Personnel to obtain the pre-clearances required by Rule 17j-1(e);
Reports and Certifications
Each subadviser must provide an annual report and certification to John Hancock Advisers, LLC and the fund's trustees in accordance with Rule 17j-1(c)(2)(ii). The subadviser must also provide other reports or information that John Hancock Advisers, LLC may reasonably request.
Recordkeeping Requirements
The subadviser must maintain all records for its Access Persons as required by Rule 17j-1(f).
Appendix E: Administration and Recordkeeping
Adoption and Approval
The trustees of a John Hancock fund must approve the code of ethics of an adviser, subadviser or affiliated principal underwriter before initially retaining its services.
Any material change to a code of ethics of a John Hancock fund, John Hancock Funds, LLC, John Hancock Advisers, LLC or a subadviser to a fund must be approved by the trustees of the John Hancock fund, including a majority of trustees who are not interested persons, no later than six months after adoption of the material change.
Administration
No less frequently than annually, John Hancock Funds, LLC, John Hancock Advisers, LLC, each subadviser and each John Hancock fund will furnish to the trustees of each John Hancock fund a written report that:
o describes issues that arose during the previous year under the code of ethics or the related procedures, including, but not limited to, information about material code or procedure violations, and
o certifies that each entity has adopted procedures reasonably necessary to prevent its access persons from violating its code of ethics.
Recordkeeping
The Investment Compliance Department will maintain:
o a copy of the current code of ethics for John Hancock Funds, LLC, John Hancock Advisers, LLC, and each John Hancock fund, and a copy of each code of ethics in effect at any time within the past five years.
o a record of any violation of the code of ethics, and of any action taken as a result of the violation, for six years.
o a copy of each report made by an Access person under the code of ethics, for six years (the first two years in a readily accessible place).
o a record of all persons, currently or within the past five years, who are or were required to make reports under the code of ethics. This record will also indicate who was responsible for reviewing these reports.
o a copy of each code of ethics report to the trustees, for six years (the first two years in a readily accessible place).
o a record of any decision, and the reasons supporting the decision, to approve the acquisition by an Investment Access person of initial public offering securities or private placement securities, for six years.