-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H2AXPkjpiyjI19FMdpsglf4Z1o1ZTcJhpyRN+LDJBBiwvslhQ0mjp33n7SpU1Up5 d8gsu42nZFqapqnTFrrdpw== 0001010521-03-000296.txt : 20030828 0001010521-03-000296.hdr.sgml : 20030828 20030828170835 ACCESSION NUMBER: 0001010521-03-000296 CONFORMED SUBMISSION TYPE: N-14 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20030828 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANCOCK JOHN INVESTMENT TRUST /MA/ CENTRAL INDEX KEY: 0000022370 IRS NUMBER: 746035056 STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-14 SEC ACT: 1933 Act SEC FILE NUMBER: 333-108328 FILM NUMBER: 03871790 BUSINESS ADDRESS: STREET 1: 101 HUNTINGTON AVENUE CITY: BOSTON STATE: MA ZIP: 02199 BUSINESS PHONE: 7137512400 MAIL ADDRESS: STREET 1: 101 HUNTINGTON AVENUE STREET 2: 1000 LOUISIANA, SUITE 6100 CITY: BOSTON STATE: MA ZIP: 02199 FORMER COMPANY: FORMER CONFORMED NAME: TRANSAMERICA INVESTMENT TRUST DATE OF NAME CHANGE: 19950131 FORMER COMPANY: FORMER CONFORMED NAME: CRITERION INCOME TRUST DATE OF NAME CHANGE: 19890820 FORMER COMPANY: FORMER CONFORMED NAME: COMMERCE INCOME SHARES INC DATE OF NAME CHANGE: 19860924 N-14 1 invment.txt JOHN HANCOCK INVESTMENT TRUST SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-14 ---- REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /_X__/ ---- Pre-Effective Amendment No. __ /____/ ---- Post-Effective Amendment No. ___ /____/ (Check appropriate box or boxes) JOHN HANCOCK INVESTMENT TRUST - -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 101 Huntington Avenue, Boston, Massachusetts 02199-7603 - -------------------------------------------------------------------------------- (Address of principal executive office) Zip Code (617) 375-1702 - -------------------------------------------------------------------------------- (Registrant's Telephone Number, including Area Code) Susan S. Newton, Esq. John Hancock Advisers, LLC 101 Huntington Avenue Boston, MA 02199 - -------------------------------------------------------------------------------- (Name and address of agent for service) Title of Securities Being Registered: shares of beneficial interest of John Hancock Investment Trust. Approximate Date of Proposed Public Offering: As soon as practicable after the effectiveness of the registration statement. No filing fee is required because an indefinite number of shares has previously been registered pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended. This Registration Statement relates to shares previously registered on Form N-1A (File Nos. 2-10156 and 811-0560). It is proposed that this filing will become effective on September 28, 2003 pursuant to Rule 488 under the Securities Act of 1933. IMPORTANT INFORMATION Dear Fellow Shareholder: I am writing to ask for your vote on an important matter that will affect your investment in John Hancock Large Cap Spectrum Fund and/or John Hancock Dividend Performers Fund. The enclosed proxy statement contains information about proposals to approve the reorganizations of each of these funds into another John Hancock fund, John Hancock Sovereign Investors Fund. If the reorganization of your Fund is approved, shareholders of your Fund will become shareholders of Sovereign Investors Fund upon the closing of the reorganizations and will receive shares of Sovereign Investors Fund in proportion to the value of your shares in Large Cap Spectrum Fund and/or Dividend Performers Fund. Each reorganization is a separate proposal and will not be affected by the result of the other reorganization. Why are the reorganizations being proposed? The reorganizations are intended to consolidate each of these equity funds that focus on large capitalization issuers into one fund pursing a core, large cap strategy. The surviving fund, Sovereign Investors Fund, is an established large capitalization equity fund. Sovereign Investors Fund holds similar securities to Large Cap Spectrum Fund and Dividend Performers Fund and follows an investment approach that is slightly different than Large Cap Spectrum Fund's investment approach and substantially similar to Dividend Performers Fund's investment approach. Sovereign Investors Fund also has a long-term track record and a substantially larger asset size than either Large Cap Spectrum or Dividend Performers Fund. The combined fund may be better positioned in the market to increase asset size and achieve economies of scale. Each fund incurs substantial operating costs for insurance, accounting, legal, and custodial services. The combination of these funds resulting from the reorganization may enable you to benefit from the ability to achieve better net prices on securities trades and spread fixed expenses in a manner that may contribute to a lower expense ratio in the long term than each fund would achieve separately. Impact on Fund Expenses It is important to note that your fund expenses will not increase as a result of either reorganization. In fact, expenses of the Sovereign Investors Fund after the reorganization are expected to be lower than both Large Cap Spectrum Fund's and Dividend Performers Fund's operating expenses before and after fee reductions. Your Vote Matters After careful consideration, your fund's trustees have unanimously approved the reorganization of each of John Hancock Large Cap Spectrum Fund and John Hancock Dividend Performers Fund into John Hancock Sovereign Investors Fund. The enclosed proxy statement contains further explanation and important details of the reorganizations, which I strongly encourage you to read before voting. If approved by the shareholders, the reorganizations are scheduled to take place at the close of business on December 5, 2003. Your vote makes a difference, no matter what the size of your investment. Please review the enclosed proxy materials and submit your vote promptly to help us avoid the need for additional mailings. For your convenience, you may vote one of three ways: via telephone by calling 1-866-241-6192; via mail by returning the enclosed voting card; or via the Internet by visiting www.jhfunds.com and selecting the shareholder entryway. If you have any questions or need additional information, please contact a John Hancock Funds Customer Service Representative at 1-800-225-5291 between 8:00 A.M. and 8:00 P.M. Eastern Time. I thank you for your prompt vote on this matter. Sincerely, Maureen Ford Goldfarb Chairman and Chief Executive Officer JOHN HANCOCK Dividend Performers Fund (a series of John Hancock Institutional Series Trust) JOHN HANCOCK LARGE CAP SPECTRUM FUND (a series of John Hancock Equity Trust) (each a "fund") 101 Huntington Avenue Boston, MA 02199 Notice of Joint Special Meeting of Shareholders Scheduled for December 3, 2003 This is the formal agenda for each fund's shareholder meeting. It tells you what matters will be voted on and the time and place of the meeting, in case you want to attend in person. To the shareholders of each fund: A joint shareholder meeting for the funds will be held at 101 Huntington Avenue, Boston, Massachusetts on Wednesday, December 3, 2003, at 9:00 A.M., Eastern Time, to consider the following: 1. A proposal to approve an Agreement and Plan of Reorganization between John Hancock Large Cap Spectrum Fund ("your fund" or "Large Cap Spectrum Fund") and John Hancock Sovereign Investors Fund ("Sovereign Investors Fund"). Under this agreement, your fund would transfer all of its assets to Sovereign Investors Fund in exchange for Class A, B and C shares of Sovereign Investors Fund. These shares would be distributed proportionately to you and the other shareholders of Large Cap Spectrum Fund. Sovereign Investors Fund would also assume Large Cap Spectrum Fund's liabilities. Large Cap Spectrum Fund's board of trustees recommends that you vote FOR this proposal. 2. A proposal to approve an Agreement and Plan of Reorganization between John Hancock Dividend Performers Fund ("your fund" or "Dividend Performers Fund") and John Hancock Sovereign Investors Fund ("Sovereign Investors Fund"). Under this agreement, your fund would transfer all of its assets to Sovereign Investors Fund in exchange for Class I shares of Sovereign Investors Fund. These shares would be distributed proportionately to you and the other shareholders of Dividend Performers Fund. Sovereign Investors Fund would also assume Dividend Performers Fund's liabilities. Dividend Performers Fund's board of trustees recommends that you vote FOR this proposal. 3. Any other business that may properly come before the meeting. Shareholders of record as of the close of business on October 6, 2003 are entitled to vote at the meeting and any related follow-up meetings. Whether or not you expect to attend the meeting, please complete and return the enclosed proxy card. If shareholders do not return their proxies in sufficient numbers, it may result in additional shareholder solicitation. By order of the board of trustees, Susan S. Newton Secretary October 8, 2003 PROXY STATEMENT of John Hancock Dividend Performers Fund a series of John Hancock Institutional Series Trust ("Dividend Performers Fund," an "Acquired Fund," or "your fund") John Hancock Large Cap Spectrum Fund a series of John Hancock Equity Trust ("Large Cap Spectrum Fund," an "Acquired Fund" or "your fund") PROSPECTUS for John Hancock Sovereign Investors Fund a series of John Hancock Investment Trust (the "Acquiring Fund" or "Sovereign Investors Fund") The address of each Acquired Fund and the Acquiring Fund is 101 Huntington Avenue, Boston, Massachusetts 02199. * * * * * * This proxy statement and prospectus contains the information shareholders should know before voting on the proposed reorganizations. Please read it carefully and retain it for future reference.
Acquired Fund Acquiring Fund Shareholders Entitled to Vote Proposal 1 Large Cap Sovereign Large Cap Spectrum Fund Spectrum Fund Investors Fund shareholders Proposal 2 Dividend Sovereign Dividend Performers Fund Performers Fund Investors Fund shareholders
How Each Reorganization Will Work o Each Acquired Fund will transfer all of its assets to the Acquiring Fund. The Acquiring Fund will assume the Acquired Fund's liabilities. o The Acquiring Fund will issue Class A, Class B and Class C shares to Large Cap Spectrum Fund in amounts equal to the value of its net assets attributable to its Class A, Class B and Class C shares, respectively. These shares will be distributed to each shareholder of Large Cap Spectrum Fund in proportion to their holdings of the respective Class of shares on the reorganization date. o The Acquiring Fund will issue Class I shares to Dividend Performers Fund in an amount equal to the value of Dividend Performers Fund's net assets. These shares will be distributed to Dividend Performers Fund's shareholders in proportion to their holdings on the reorganization date. o Each Acquired Fund will be terminated and fund shareholders will become shareholders of the Acquiring Fund. o The reorganization is intended to result in no income, gain or loss for federal income tax purposes to the Acquiring Fund, the Acquired Fund or the shareholders of the Acquired Fund. Rationale for the Reorganizations The reorganizations are intended to consolidate each of these equity funds that focus on large capitalization issuers into one fund pursuing a large cap, core strategy. The Acquiring Fund is an established large capitalization equity fund. Sovereign Investors Fund holds similar securities but follows a slightly different investment approach than either Acquired Fund. The Acquiring Fund also has a long-term track record and a larger asset size than either Acquired Fund. 1 The combined fund may be better positioned in the market to increase asset size and achieve economies of scale. Each fund incurs substantial operating costs for insurance, accounting, legal, and custodial services. The combination of these funds resulting from the reorganization may enable you to benefit from the ability to achieve better net prices on securities trades and spread fixed expenses in a manner that may contribute to a lower expense ratio in the long term than each fund would achieve separately. Shares of the Acquiring Fund are not deposits or obligations of, or guaranteed or endorsed by, any bank or other depository institution. These shares are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. Shares of the Acquiring Fund have not been approved or disapproved by the Securities and Exchange Commission. The Securities and Exchange Commission has not passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense. Where to Get More Information Large Cap Spectrum Fund Shareholders: Class A, B, and C prospectus In the same envelope as this proxy of Sovereign Investors Fund dated statement and prospectus. These March 1, 2003 as revised documents are incorporated by reference October 1, 2003. into (and therefore legally part of) this proxy statement and prospectus. Dividend Performers Fund Shareholders: Class I prospectus of Sovereign Investors Fund dated March 1, 2003 as revised October 1, 2003. The annual report to shareholders dated December 31, 2002 and the semiannual report to shareholders dated June 30, 2003 of Sovereign Investors Fund. Prospectus of Dividend Performers Fund, dated July 1, 2003. Prospectus of Large Cap Spectrum Fund, dated March 1, 2003 as revised October 1, 2003. The annual report to On file with the Securities and shareholders dated February 28, Exchange Commission ("SEC") or 2003 of Dividend Performers Fund. available at no charge by calling our toll-free number: 1-800-225-5291. The annual report to Incorporated by reference into (and shareholders dated October 31, therefore legally part of) this proxy 2002 and semi-annual report to statement and prospectus. shareholders dated April 30, 2003 of Large Cap Spectrum Fund. A combined statements of additional information dated October 8, 2003. They contain additional information about the Acquired Funds and the Acquiring Fund. To ask questions about this Call our toll-free telephone number: proxy statement and prospectus. 1-800-225-5291 The date of this proxy statement and prospectus is October 8, 2003. 2 TABLE OF CONTENTS Page INTRODUCTION PROPOSAL 1-- LARGE CAP SPECTRUM FUND Summary Comparison of Investment Risks Comparison of Investment Performance Proposal to Approve the Agreement and Plan of Reorganization PROPOSAL 2-- DIVIDEND PERFORMERS FUND Summary Comparison of Investment Risks Comparison of Investment Performance Proposal to Approve the Agreement and Plan of Reorganization PAST PERFORMANCE OF EACH FUND FURTHER INFORMATION ON EACH REORGANIZATION CAPITALIZATION ADDITIONAL INFORMATION ABOUT THE FUNDS' BUSINESSES BOARDS' EVALUATION AND RECOMMENDATION VOTING RIGHTS AND REQUIRED VOTE INFORMATION CONCERNING THE MEETING OWNERSHIP OF SHARES OF THE FUNDS EXPERTS AVAILABLE INFORMATION EXHIBIT A-- Form of Agreement and Plan of Reorganization 3 INTRODUCTION This proxy statement and prospectus is being used by the Acquired Funds' boards of trustees to solicit proxies to be voted at a special meeting of each Acquired Fund's shareholders. This meeting will be held at 101 Huntington Avenue, Boston, Massachusetts on Wednesday, December 3, 2003 at 9:00 A.M., Eastern Time. The purpose of the meeting is to consider proposals to approve Agreements and Plans of Reorganization (each an "Agreement") providing for the reorganization of the Acquired Funds into the Acquiring Fund (each, a "Reorganization"). This proxy statement and prospectus is being mailed to your fund's shareholders on or about October 8, 2003. For each proposal, this proxy statement and prospectus includes information that is specific to that proposal, including a comparison summary. You should read the entire proxy statement carefully, including Exhibit A and the enclosed prospectus and annual and semiannual reports of Sovereign Investors Fund, because they contain details that are not in the summary. Who is Eligible to Vote? Shareholders of record on October 6, 2003 are entitled to attend and vote at the meeting or any adjourned meeting. Each share is entitled to one vote. Shares represented by properly executed proxies, unless revoked before or at the meeting, will be voted according to shareholders' instructions. If you sign a proxy but do not fill in a vote, your shares will be voted to approve the Agreements. If any other business comes before the meeting, your shares will be voted at the discretion of the persons named as proxies. 4 PROPOSAL 1 Approval of Agreement and Plan of Reorganization Between Large Cap Spectrum Fund and Sovereign Investors Fund A proposal to approve an Agreement and Plan of Reorganization between Large Cap Spectrum Fund and Sovereign Investors Fund. Under this Agreement, Large Cap Spectrum Fund would transfer all of its assets to Sovereign Investors Fund in exchange for Class A, B and C shares of Sovereign Investors Fund. These shares would be distributed proportionately to the shareholders of Large Cap Spectrum Fund. Sovereign Investors Fund would also assume Large Cap Spectrum Fund's liabilities. Large Cap Spectrum Fund's board of trustees recommends that shareholders vote FOR this proposal. SUMMARY Comparison of Large Cap Spectrum Fund to Sovereign Investors Fund COMPARISON OF FUNDS AND INVESTMENT OBJECTIVES, STRATEGIES AND POLICIES Large Cap Spectrum Fund Sovereign Investors Fund Business A non-diversified series of A diversified series of John Hancock Equity Trust, John Hancock Investment an open-end investment Trust, an open-end management company organized investment management as a Massachusetts business company organized as a trust. Massachusetts business trust. Net assets as $17.5 million $1,252.0 million of June 30, 2003 Investment Investment Adviser: Investment Adviser: adviser, John Hancock Advisers, LLC John Hancock Advisers, LLC subadviser and -Responsible for the core portfolio portion of the fund and Portfolio managers: managers supervising the subadvisers John F. Snyder, III for the growth and value -Joined fund team in 1983 portions of the fund -Joined Adviser in 1991 -Began business career in Subadviser: 1971 Alliance Capital Management L.P. Barry H. Evans, CFA -Responsible for growth -Joined fund team in 1996 portion of fund -Joined Adviser in 1986 -Provides investment -Began business career in advisory services to 1986 individual and institutional investors Peter M. Schofield, CFA -Supervised by the Adviser -Joined fund team in 1996 -Founded in 1971 -Joined Adviser in 1996 -Began business career in Bernstein Investment 1984 Research & Management Unit -Responsible for value portion of fund -Unit of Alliance Capital Management L.P. -Supervised by the Adviser Portfolio managers: U.S.-based team including members of the Adviser and each subadviser responsible for day-to-day investment management Investment The fund seeks long-term The fund seeks long-term objective growth of capital. growth of capital and income without assuming This objective is undue market risks. non-fundamental and can be changed without shareholder This objective is approval. fundamental and can only be changed with shareholder approval. Primary The fund normally invests at The fund normally invests investments least 80% of its assets in at least 80% of its stock stocks of investments in a large-capitalization diversified portfolio of companies (companies in the companies with market capitalization range of the capitalizations within the Standard & Poor's 500 index, range of the Standard & which was $______ million to Poor's 500 Index, which was $_____ billion on August 31, $______ million to $______ 2003). billion as of August 31, 2003. 5 COMPARISON OF FUNDS AND INVESTMENT OBJECTIVES, STRATEGIES AND POLICIES Large Cap Spectrum Fund Sovereign Investors Fund At least 65% of the fund's stock investments are "dividend performers" (companies whose dividend payments have increased steadily for ten years). Historically, these companies have tended to have large or medium capitalizations. The fund may invest in bonds of any maturity, with up to 5% of assets in junk bonds rated as low as C and their unrated equivalents. Under normal circumstances, the fund may not invest more than 10% of assets in cash or cash equivalents. Investment The fund's assets are In managing the portfolio, Strategies managed according to three the managers use separate investment fundamental financial strategies: growth, core analysis to identify and value. The fund's individual companies with assets are allocated to high-quality income reflect an optimal statements, substantial combination as determined by cash reserves and the Adviser's: (1) identifiable catalysts for assessment of three growth, which may be new strategies' historical risk, products or benefits from return and correlation, and industry-wide growth. The (2) long-term strategic view managers generally visit of the relative companies to evaluate the attractiveness of the three strength and consistency of strategies. their management strategy. Finally, the managers look Growth strategy. In for stocks that are managing the growth portion reasonably priced relative of the portfolio, the to their earnings and managers seek to identify industry. companies with above-average earnings growth prospects that are not fully reflected in current market valuations. They emphasize stock selection, relying heavily upon the fundamental analysis and research of their internal research staff. They favor companies with strong management, superior industry positions and excellent balance sheets. Core strategy. In managing the core portion of the portfolio, the managers look for companies that are undervalued and/or offer the potential for above-average earnings growth. The managers employ a combination of proprietary financial models and bottom-up, fundamental financial research to identify companies that are selling at what appear to be substantial discounts to their long-term intrinsic value. These companies often have identifiable catalysts for growth, such as new products, business reorganizations or mergers. Value strategy. The managers of the value portion of the fund look for companies that they believe are undervalued. They employ a fundamental value approach, focusing on the relationship between a security's current price and its intrinsic economic value, as measured by earnings power and dividend paying capability. Foreign The fund may invest up to The fund typically invests Securities 20% of assets in foreign in U.S. companies but may securities. invest in dollar-denominated or traded foreign securities. Diversification The fund is non-diversified The fund is diversified, and may invest up to 10% of which means that, with assets in securities of respect to 75% of total individual companies. assets, the fund cannot invest (i) more than 5% of total assets in securities of a single issuer or (ii) in securities representing more than 10% of the outstanding voting securities of an issuer. In addition, the fund may not invest more than 5% of its assets in any one security. Active Trading Each fund may trade securities actively. 6 COMPARISON OF FUNDS AND INVESTMENT OBJECTIVES, STRATEGIES AND POLICIES Large Cap Spectrum Fund Sovereign Investors Fund Derivatives The fund may make limited The fund may make limited use of certain derivatives use of certain derivatives (investments whose value is (investments whose value is based on indexes, securities based on indexes). or currencies). Temporary In abnormal circumstances, For temporary defensive defensive the fund purposes, the fund may positions may temporarily invest more invest some or all of its than 20% assets in investment grade of its assets in short-term securities. investment-grade short-term securities, cash and cash equivalents. In deciding whether to approve the Reorganization, you should consider the similarities and differences between your fund and Sovereign Investors Fund. In particular, you should consider whether the amount and character of investment risk involved in the authorized investments of Sovereign Investors Fund is commensurate with the amount of risk involved in the authorized investments of your fund. Both funds seek growth of capital. Sovereign Investors Fund also seeks income, whereas your fund's investment objective does not include an income component. Although both funds invest in companies that are considered large-cap within the same capitalization range, they have different investment strategies. Your fund's assets are allocated among and managed according to three separate investment strategies: growth, core and value. Sovereign Investors Fund is managed as a single investment portfolio with an emphasis on investments in "dividend performers", companies whose dividend payments have increased steadily for ten years, have identifiable catalysts for growth and are reasonably priced relative to their earnings and industry. If the Reorganization between your fund and Sovereign Investors Fund takes place, you will continue to hold shares of a fund that invests in large-cap stocks, but the investment strategy will be focused upon dividend growth rather than a blend of growth, core and value strategies. In addition, Sovereign Investors Fund has no stated limit on investments in fixed income securities, although this has not been a principal investment strategy of the fund historically. COMPARISON OF CLASSES OF SHARES Class A The Class A shares of both funds have the same sales characteristics and fee structure. charges and o Class A shares are offered with front-end sales charges 12b-1 fees ranging from 2% to 5% of the fund's offering price, depending on the amount invested. o Class A shares are subject to a 12b-1 distribution fee equal to 0.30% annually of average net assets. o There is no front-end sales charge for investments of $1 million or more, but there is a contingent deferred sales charge ranging from 0.25% to 1.00% on shares sold within one year of purchase. o Investors can combine multiple purchases of Class A shares to take advantage of breakpoints in the sales charge schedule. o Sales charges are waived for the categories of investors listed in the funds' prospectuses. Class B The Class B shares of both funds have the same sales characteristics and fee structure. charges o Class B shares are offered without a front-end sales and 12b-1 charge, but are subject to a contingent deferred sales fees charge (CDSC) if sold within six years after purchase. The CDSC ranges from 1.00% to 5.00% depending on how long the shares are held. No CDSC is imposed on shares held more than six years. o Class B shares are subject to 12b-1 distribution and service fees equal to 1.00% annually of average net assets. o CDSCs are waived for the categories of investors listed in the funds' prospectus. o Class B shares automatically convert to Class A shares after eight years. Class C The Class C shares of both funds have the same sales characteristics and fee structure. charges and o Class C shares are offered with a front-end sales charge 12b-1 fees equal to 1.00% of the fund's offering price. o Class C shares are subject to a contingent deferred sales charge of 1.00% on shares sold within one year of purchase. o Class C shares are subject to 12b-1 distribution and service fees equal to 1.00% annually of 7 COMPARISON OF CLASSES OF SHARES average net assets. o No automatic conversion to Class A shares, so annual expenses continue at the Class C level throughout the life of the investment. 12b-1 fees o These fees are paid out of a fund's assets on an ongoing basis. Over time these fees will increase the cost of investments and may cost more than other types of sales charges. COMPARISON OF BUYING, SELLING AND EXCHANGING SHARES Buying shares Investors may buy shares at their public offering price through a financial representative or the funds' transfer agent, John Hancock Signature Services, Inc. After October 6, 2003, investors will not be allowed to open new accounts in Large Cap Spectrum Fund but can add to existing accounts. Minimum initial Class A, Class B and Class C Shares: $1,000 for investment non-retirement accounts and $250 for retirement accounts and group investments. Exchanging Shareholders may exchange their shares at net asset shares value with no sales charge for shares of the same class of any other John Hancock fund. Selling shares Shareholders may sell their shares by submitting a proper written or telephone request to John Hancock Signature Services, Inc. Net asset value All purchases, exchanges and sales are made at a price based on the next determined net asset value (NAV) per share of the fund. Both funds' NAVs are determined at the close of regular trading on the New York Stock Exchange, which is normally 4:00 P.M. Eastern Time. The Funds' Expenses Shareholders of both funds pay various expenses, either directly or indirectly. The following expense tables show the expenses for Sovereign Investors Fund for the twelve month period ended June 30, 2003. Future expenses for all share classes may be greater or less. The tables also show the hypothetical ("pro forma") expenses of Sovereign Investors Fund assuming the reorganization with Large Cap Spectrum Fund occurred on June 30, 2002. The expenses shown in the tables are based on fees and expenses incurred during the twelve month period ended June 30, 2003. As described in Proposal 2, the board of trustees of another John Hancock fund, John Hancock Dividend Performers Fund, has recommended that Dividend Performers Fund also reorganize into Sovereign Investors Fund. The Reorganization of Large Cap Spectrum Fund with Sovereign Investors Fund, however, does not depend upon whether the Reorganization involving Dividend Performers Fund occurs. 8 Sovereign Investors Fund (Pro Forma for the 12 months ended 6/30/03) (Assuming Large Cap Sovereign reorganization Spectrum Investors with Large Cap Fund Fund Spectrum Fund) Shareholder transaction expenses Class A Class A Class A Maximum sales charge (load) imposed 5.00% 5.00% 5.00% on purchases (as a % of purchase price) Maximum sales charge imposed on none none None reinvested dividends Maximum deferred sales charge none none none (load) as a % of purchase or sale price, whichever is less (1) Redemption fee (2) none none none Exchange fee none none none Annual fund operating expenses Class A Class A Class A (as a % of average net assets) Management fee 0.85% 0.58% 0.58% Distribution and service (12b-1) fee 0.30% 0.30% 0.30% Other expenses 1.34% 0.34% 0.35% Total fund operating expenses 2.49% 1.22% 1.23% Expense reimbursement (0.99%)(3) n/a n/a Net fund operating expenses 1.50% 1.22% 1.23% - ---------- (1) Except for investments of $1 million or more. (2) Does not include wire redemption fee (currently $4.00). (3) At least until February 28, 2004. 9 Sovereign Investors Fund (Pro Forma for the 12 months ended 6/30/03) (Assuming reorganization with Large Cap Sovereign Large Cap Spectrum Investors Spectrum Fund Fund Fund) Shareholder transaction expenses Class B Class B Class B Maximum sales charge (load) imposed on none none none purchases (as a % of purchase price) Maximum sales charge imposed on none none none reinvested dividends Maximum deferred sales charge (load) 5.00% 5.00% 5.00% as a % of purchase or sale price, whichever is less Redemption fee(1) none none none Exchange fee none none none Annual fund operating expenses Class B Class B Class B (as a % of average net assets) Management fee 0.85% 0.58% 0.58% Distribution and service (12b-1) fee 1.00% 1.00% 1.00% Other expenses 1.34% 0.34% 0.35% Total fund operating expenses 3.19% 1.92% 1.93% Expense reduction (0.99%)(2) n/a n/a Net fund operating expenses 2.20% 1.92% 1.93% - ---------- (1) Does not include wire redemption fee (currently $4.00). (2) At least until February 28, 2004. 10 Sovereign Investors Fund (Pro Forma for the 12 months ended 6/30/03) (Assuming reorganization with Large Large Cap Sovereign Cap Spectrum Investors Spectrum Fund Fund Fund) Shareholder transaction expenses Class C Class C Class C Maximum sales charge (load) imposed on 1.00% 1.00% 1.00% purchases (as a % of purchase price) Maximum sales charge imposed on none none none reinvested dividends Maximum deferred sales charge (load) 1.00% 1.00% 1.00% as a % of purchase or sale price, whichever is less Redemption fee (1) none none none Exchange fee none none none Annual fund operating expenses Class C Class C Class C (as a % of average net assets) Management fee 0.85% 0.58% 0.58% Distribution and service (12b-1) fee 1.00% 1.00% 1.00% Other expenses 1.34% 0.34% 0.35% Total fund operating expenses 3.19% 1.92% 1.93% Expense reduction (0.99%)(2) n/a n/a Net fund operating expenses 2.20% 1.92% 1.93% - ---------- (1) Does not include wire redemption fee (currently $4.00). (2) At least until February 28, 2004. 11 Examples The hypothetical examples below show what your expenses would be if you invested $10,000 over different time periods for your fund and Sovereign Investors Fund, based on fees and expenses incurred during the twelve month period ended June 30, 2003. Pro forma expenses are included assuming a reorganization with your fund and Sovereign Investors Fund. Each example assumes that you reinvested all dividends and that the average annual return was 5%. For Large Cap Spectrum Fund, the example assumes the expense limitation is in place through February 2004. The pro forma examples are for comparison purposes only and are not a representation of Sovereign Investors Fund's actual expenses or returns, either past or future. Sovereign Investors Fund (Pro Forma) (Assuming reorganization Large Cap Spectrum Sovereign Investors with Large Cap Class A Fund Fund Spectrum Fund) Year 1 $716 $618 $619 Year 3 $1,214 $868 $871 Year 5 $1,738 $1,137 $1,142 Year 10 $3,167 $1,903 $1,914 Class B-- assuming redemption at end of period Year 1 $797 $695 $696 Year 3 $1,260 $903 $906 Year 5 $1,847 $1,237 $1,242 Year 10 $3,316 $2,061 $2,072 Class B-- assuming no redemption Year 1 $297 $195 $196 Year 3 $960 $603 $606 Year 5 $1,647 $1,037 $1,042 Year 10 $3,316 $2,061 $2,072 Class C-- assuming redemption at end of period Year 1 $493 $392 $393 Year 3 $1,050 $697 $700 Year 5 $1,731 $1,126 $1,131 Year 10 $3,542 $2,321 $2,331 Class C-- assuming no redemption Year 1 $394 $293 $294 Year 3 $1,050 $697 $700 Year 5 $1,731 $1,126 $1,131 Year 10 $3,542 $2,321 $2,331 12 Advisory Fees Each fund pays monthly advisory fees equal to the following annual percentage of its average daily net assets: Large Cap Spectrum Fund Fee Rate (all asset levels) 0.85% Sovereign Investors Fund Fund Asset Breakpoints Fee Rate First $750 million 0.60% Next $750 million to $1.5 billion 0.55% Next $1.5 billion to $2.5 billion 0.50% Amount over $2.5 billion 0.45% Your fund's subadviser is Alliance Capital Management, L.P. ("Alliance"). Alliance is responsible for providing investment advice to the fund with respect to the fund's growth investment strategies, subject to the review of the Trustees and overall supervision of the Adviser. Bernstein Investment Research & Management Unit ("Bernstein," and together with Alliance, the "Subadvisers") is responsible for the value investment strategies portion of the fund, subject to the review of the Trustees and overall supervision of the Adviser. Alliance and Bernstein receive their compensation directly from the Adviser, not the fund. For the first year, beginning on the date the fund commenced operations, the Adviser paid the Subadvisers a subadvisory fee at an annual rate of 0.500% of the average net assets. Thereafter, the fee is calculated at the following annual rates: 0.900% on the first $20 million of average net assets managed by the Subadvisers; 0.750% on the next $20 million of average net assets managed by the Subadvisers; 0.600% on the next $20 million of average net assets managed by the Subadvisers; 0.400% on the next $40 million of average net assets managed by the Subadvisers; and 0.300% on the next average net assets in excess of $100 million managed by the Subadvisers. Summary of Expense Comparison The pro forma expenses of Sovereign Investors Fund are lower than your fund's expenses, both before and after your fund's expense reimbursement, for all share classes. In addition, Sovereign Investors Fund's pro forma management fee rate is lower than your fund's management fee rate of at all asset levels and both funds have the same 12b-1 fee rate for each share class. Sovereign Investors Fund's pro forma other expenses are also lower than your fund's other expenses. COMPARISON OF INVESTMENT RISKS The funds are exposed to various risks that could cause shareholders to lose money on their investments in the funds. The following table compares the risks affecting each fund. Large Cap Spectrum Fund Sovereign Investors Fund Stock The value of securities in the fund may go down in response market risk to overall stock market movements. Markets tend to move in cycles, with periods of rising prices and periods of falling prices. Stocks tend to go up and down in value more than bonds. If the fund concentrates in certain sectors, its performance could be worse than that of the overall stock market. Large Large capitalization stocks as a group could fall out of capitalization favor with the market, causing the fund to underperform stocks investments that focus on small or medium capitalization stocks. Dividend Not applicable. The stocks of "dividend Performers performers" (companies whose dividend payments have increased steadily for ten years), which generally are large or medium capitalization stocks, as a group could fall out of favor 13 with the market, causing the fund to underperform investments that focus on smaller or non-dividend paying stocks. Management The fund's management strategy may fail to produce the risk intended results. The fund could underperform its peers or lose money if the investment strategy (or the asset allocation strategy in the case of Large Cap Spectrum Fund), does not perform as expected. Foreign Foreign investments are more Foreign investments, even if securities risky than domestic the U.S. dollar denominated risk investments. Investments in or traded, may be more risky foreign securities may be than domestic investments. affected by fluctuations in Investments in foreign currency exchange rates, securities may be affected by incomplete or inaccurate incomplete or inaccurate financial information on financial information on companies, social instability companies, social instability and political actions ranging and political actions ranging from tax code changes to from tax code changes to governmental collapse. governmental collapse. Derivatives Certain derivative instruments can produce disproportionate risk gains or losses and are riskier than direct investments. Also, in a down market derivatives could become harder to value or sell at a fair price. Bond risk Not applicable. Any bonds held by the fund could be downgraded in credit rating or go into default. Bond prices generally fall when interest rates rise and longer maturity will increase volatility. Junk bond prices can fall on bad news about the economy, an industry or a company. Issuer If the fund invests heavily Not applicable because the concentration in a single issuer, its fund is limited to 5% in any risk performance could suffer one issuer. significantly from adverse events affecting that issuer. Active Active trading could increase the fund's transaction costs trading (thus lowering performance) and increase your taxable distributions. COMPARISON OF FUND PERFORMANCE Past performance records of each fund through June 30, 2003, including (1) calendar year total returns (without sales charges) and (2) average annual total returns (including imposition of sales charges) are set forth under "Past Performance of Each Fund" on page __ of this proxy statement and prospectus. PROPOSAL TO APPROVE THE AGREEMENT AND PLAN OF REORGANIZATION Description of Reorganization You are being asked to approve an Agreement and Plan of Reorganization, a form of which is attached to this proxy statement as Exhibit A. Additional information about the Reorganization and the Agreement is set forth below under "Further Information on Each Reorganization." The Agreement provides for a reorganization on the following terms: o The Reorganization is scheduled to occur at 5:00 P.M., Eastern Time, on December 5, 2003, but may occur on any later date before December 31, 2003. Large Cap Spectrum Fund will transfer all of its assets to Sovereign Investors Fund and Sovereign Investors Fund will assume all of Large Cap Spectrum Fund's liabilities. This will result in the addition of Large Cap Spectrum Fund's assets to Sovereign Investors Fund's portfolio. The net asset value of both funds will be computed as of 4:00 P.M., Eastern Time, on the Reorganization date. o Sovereign Investors Fund will issue to Large Cap Spectrum Fund Class A shares in an amount equal to the net assets attributable to Large Cap Spectrum Fund's Class A shares. As part of the liquidation of Large Cap Spectrum Fund, these shares will immediately be distributed to Class A shareholders of record of Large Cap Spectrum Fund in proportion to their holdings on the Reorganization date. As a result, Class A shareholders of Large Cap Spectrum Fund will end up as Class A shareholders of Sovereign Investors Fund. 14 o Sovereign Investors Fund will issue to Large Cap Spectrum Fund Class B shares in an amount equal to the net assets attributable to Large Cap Spectrum Fund's Class B shares. As part of the liquidation of Large Cap Spectrum Fund, these shares will immediately be distributed to Class B shareholders of record of Large Cap Spectrum Fund in proportion to their holdings on the Reorganization date. As a result, Class B shareholders of Large Cap Spectrum Fund will end up as Class B shareholders of Sovereign Investors Fund. o Sovereign Investors Fund will issue to Large Cap Spectrum Fund Class C shares in an amount equal to the net assets attributable to Large Cap Spectrum Fund's Class C shares. As part of the liquidation of Large Cap Spectrum Fund, these shares will immediately be distributed to Class C shareholders of record of Large Cap Spectrum Fund in proportion to their holdings on the Reorganization date. As a result, Class C shareholders of Large Cap Spectrum Fund will end up as Class C shareholders of Sovereign Investors Fund. o After the shares are issued, the existence of Large Cap Spectrum Fund will be terminated. Reasons for the Proposed Reorganization The board of trustees of Large Cap Spectrum Fund believes that the proposed Reorganization will be advantageous to the shareholders of Large Cap Spectrum Fund for several reasons. The board of trustees considered the following matters, among others, in approving the proposal. First, although your fund and Sovereign Investors Fund both focus on large cap stocks and pursue similar investment strategies, Sovereign Investors Fund has performed better than your fund for the brief period during which your fund has been in operation. In addition to having a favorable long-term record, Sovereign Investors Fund offers an investment focus, like your fund, on large cap equity securities. Second, the reorganization should reduce the per share expenses incurred by Large Cap Spectrum Fund Shareholders. The management fee of Sovereign Investors Fund is lower at all asset levels than the management fee of your fund. In addition, the historical total expenses of Sovereign Investors Fund for each class of shares are lower than your fund's historical expenses, even with the benefit of expense limitation by the Adviser. The expense limitation is in effect only until February 28, 2004 and may be discontinued at any time thereafter. If the Adviser were to discontinue limiting your fund, the expenses of your fund will be substantially higher than the expenses of Sovereign Investors Fund. Third, the combined fund may be better positioned to attract assets than your fund. Sovereign Investors Fund's greater asset size may allow it, relative to your fund, to (i) obtain better net prices on securities trades, (ii) achieve greater diversification of portfolio holdings and (iii) reduce per share expenses as fixed expenses are shared over a larger asset base. Fourth, a combined fund offers economies of scale that may lead to further reductions in per share expenses. Both funds incur substantial costs for accounting, legal, transfer agency services, insurance, and custodial and administrative services. Many of these expenses are duplicative and there may be an opportunity to reduce Sovereign Investors Fund's expense ratio over time because of economies of scale if the funds are combined. The board of trustees of Sovereign Investors Fund considered that the Reorganization presents an excellent opportunity for Sovereign Investors Fund to acquire substantial investment assets without the obligation to pay commissions or other transaction costs that a fund normally incurs when purchasing securities. This opportunity provides an economic benefit to Sovereign Investors Fund and its shareholders. The boards of both funds also considered that the Adviser will benefit from the Reorganization. After the Reorganization, the Adviser would be the sole investment adviser with respect to all of the assets of Sovereign Investors Fund, including all of the assets of Large Cap Spectrum Fund acquired in the Reorganization. The Adviser would no longer be obligated to pay a subadviser with respect to any portion of those assets. In addition, Advisers would no longer be required to reimburse fund expenses of the Acquired Fund if the Reorganization were to occur and the Acquiring Fund is not subject to any expense reimbursement arrangements. The boards of both funds also considered other benefits that the Adviser and the funds' distributor may receive from the Reorganization. For example, the Adviser might achieve cost savings from managing one 15 larger fund compared to managing more than one fund following similar investment policies. The boards believe, however, that these savings will not amount to a significant economic benefit to the Adviser or distributor. Unreimbursed Distribution and Shareholder Service Expenses The boards of trustees of Large Cap Spectrum Fund and Sovereign Investors Fund have determined that, if the Reorganization occurs, unreimbursed distribution and shareholder service expenses incurred under Large Cap Spectrum Fund's Rule 12b-1 Plans will be reimbursable expenses under Sovereign Investors Fund's Rule 12b-1 Plans. However, the maximum amounts payable annually under Sovereign Investors Fund's Rule 12b-1 Plans (0.30%, 1.00% and 1.00% of average daily net assets attributable to Class A shares, Class B shares and Class C shares, respectively) will not increase. The following table shows the actual and pro forma unreimbursed distribution and shareholder service expenses of shares of Large Cap Spectrum Fund and Sovereign Investors Fund. The table shows both the dollar amount of these expenses and the percentage of each class' average net assets that they represent. Class I shares of Sovereign Investors Fund are not included in the table because this class does not have a Rule 12b-1 Plan. Rule 12b-1 Payments and Unreimbursed Expenses
Aggregate Dollar Amount of 12b-1 Fees Unreimbursed Unreimbursed Paid (for the Rule 12b-1 Expenses as % 12 months ended Expenditures of Each Class' June 30, (as of June 30, Average Net Name of Fund 2003) 2003) Assets Large Cap Spectrum Fund $17,556 (A) $5,175 (A) 0.01% (A) $79,559 (B) $(27,407)(B) (0.34)% (B) $52,072 (C) $132,111 (C) 2.54% (C) Sovereign Investors Fund $2,761,953 (A) $12,272 (A) 0.00% (A) $3,348,782 (B) $12,521,250 (B) 3.74% (B) $232,343 (C) $351,125 (C) 1.51% (C) Pro Forma (Sovereign Investors Fund): $2,779,509 (A) $17,447 (A) 0.00% (A) Assuming reorganization $3,428,341 (B) $12,493,843 (B) 3.64% (B) with Large Cap Spectrum Fund $284,415 (C) $483,246 (C) 1.70% (C)
If the Reorganization had taken place on June 30, 2002, the pro forma combined unreimbursed expenses of Sovereign Investors Fund's Class A and Class C shares would have been higher than if no Reorganization had occurred. Nevertheless, Sovereign Investors Fund's assumption of Large Cap Spectrum Fund's unreimbursed Rule 12b-1 expenses will have no immediate effect upon the payments made under Sovereign Investors Fund's Rule 12b-1 Plans. These payments will continue to be 0.30%, 1.00% and 1.00% of average daily net assets attributable to Class A, Class B and Class C shares, respectively. John Hancock Funds, LLC may recover unreimbursed distribution and shareholder service expenses for Class B and Class C shares in future years. However, if Sovereign Investors Fund's board terminates either class' Rule 12b-1 Plan, that class will not be obligated to reimburse these distribution and shareholder service expenses. Accordingly, until they are paid or accrued, unreimbursed distribution and shareholder service expenses do not and will not appear as an expense or liability in the financial statements of either fund. In addition, unreimbursed expenses are not reflected in a fund's net asset value or the formula for 16 calculating Rule 12b-1 payments. The staff of the SEC has not approved or disapproved the treatment of the unreimbursed distribution and shareholder service expenses described in this proxy statement. 17 PROPOSAL 2 Approval of Agreement and Plan of Reorganization Between Dividend Performers Fund and Sovereign Investors Fund A proposal to approve an Agreement and Plan of Reorganization between Dividend Performers Fund and Sovereign Investors Fund. Under this Agreement, Dividend Performers Fund would transfer all of its assets to Sovereign Investors Fund in exchange for Class I shares of Sovereign Investors Fund. These shares would be distributed proportionately to the shareholders of Dividend Performers Fund. Sovereign Investors Fund would also assume Dividend Performers Fund's liabilities. Dividend Performers Fund's board of trustees recommends that shareholders vote FOR this proposal. SUMMARY Comparison of Dividend Performers Fund to Sovereign Investors Fund COMPARISON OF FUNDS AND INVESTMENT OBJECTIVES, STRATEGIES AND POLICIES Dividend Performers Fund Sovereign Investors Fund Business A diversified series of John A diversified series of John Hancock Institutional Series Hancock Investment Trust, an Trust, an open-end investment open-end investment management company organized as management company organized a Massachusetts business trust. as a Massachusetts business trust. Net $3.2 million $1,252.0 million assets as of June 30, 2003 Investment Investment Adviser: Investment Adviser: adviser John Hancock Advisers, LLC John Hancock Advisers, LLC and portfolio Portfolio managers: Portfolio managers: managers John F. Snyder, III John F. Snyder, III -Joined fund team in 1995 -Joined fund team in 1983 -Joined adviser in 1991 -Joined adviser in 1991 -Began business career in 1971 -Began business career in 1971 Peter M. Schofield, CFA Barry H. Evans, CFA -Joined fund team in 1996 -Joined fund team in 1996 -Joined adviser in 1996 -Joined adviser in 1986 -Began business career in 1984 -Began business career in 1986 Peter M. Schofield, CFA -Joined fund team in 1996 -Joined adviser in 1996 -Began business career in 1984 Investment The fund seeks long-term growth The fund seeks long-term objective of capital with income as a growth of capital and income secondary objective. without assuming undue market risks. This objective is non-fundamental and can be This objective is fundamental changed without shareholder and can only be changed with approval. shareholder approval. Primary The fund normally invests at The fund normally invests at investments least 80% of its assets in a least 80% of its stock diversified portfolio of U.S. investments in a diversified stocks with market portfolio of companies with capitalizations within the market capitalizations within range of the Standard & Poor's the range of the Standard & 500 Index, which was $______ Poor's 500 Index, which was million to $______ billion as $______ million to $______ of August 31, 2003. billion as of August 31, 2003. The managers normally invest at At least 65% of the fund's least 80% of assets in stock investments are "dividend performers." These "dividend performers" are dividend-paying companies (companies whose dividend that have typically increased payments have increased their dividend payments over steadily for ten years). time, or which the managers Historically, these companies believe demonstrate the have tended to have large or potential to increase their medium capitalizations. dividend payments. The fund may invest in bonds The fund does not normally of any maturity, with up to invest in debt securities. 5% of assets in junk bonds rated as low as C and 18 COMPARISON OF FUNDS AND INVESTMENT OBJECTIVES, STRATEGIES AND POLICIES Dividend Performers Fund Sovereign Investors Fund their unrated equivalents. Under normal circumstances, the fund may not invest more than Under normal circumstances, 10% of assets in cash or cash the fund may not invest more equivalents. than 10% of assets in cash or cash equivalents. Investment In managing the funds' portfolio, the managers use fundamental Strategy financial analysis to identify individual companies with high-quality income statements, substantial cash reserves and identifiable catalysts for growth, which may be new products or benefits from industry-wide growth. The managers generally visit companies to evaluate the strength and consistency of their management strategy. Finally, the managers look for stocks that are reasonably priced relative to their earnings and industry. Foreign Each fund typically invests in U.S. companies but may invest Securities in dollar-denominated or traded foreign securities. Active Each fund may trade securities actively. Trading Derivatives Each fund may make limited use of certain derivatives (investments whose value is based on indexes). Diversification Each fund is diversified, which means that, with respect to 75% of total assets, the fund cannot invest (i) more than 5% of total assets in securities of a single issuer or (ii) in securities representing more than 10% of the outstanding voting securities of an issuer. In addition, each fund may not invest more than 5% of its assets in any one security. Temporary In abnormal circumstances, the In abnormal circumstances, the defensive fund may temporarily invest fund may temporarily invest positions extensively in U.S. government extensively in securities with maturities of investment-grade short-term up to three years and more securities, cash and cash than 10% of its assets in cash equivalents. and cash equivalents. In deciding whether to approve the Reorganization, you should consider the similarities and differences between Dividend Performers Fund and Sovereign Investors Fund. In particular, you should consider whether the amount and character of investment risk involved in the authorized investments of Sovereign Investors Fund is commensurate with the amount of risk involved in the authorized investments of Dividend Performers Fund. As described above, the funds are managed using substantially similar investment strategy and policies. It should be noted, however, that the definition of "dividend performers" used by Dividend Performers Fund is broader than the definition used by Sovereign Investors Fund. In addition, Sovereign Investors Fund may invest to a greater extent in fixed income securities. COMPARISON OF CLASSES OF SHARES Sales Dividend Performers Fund offers only one class of shares which charges has no sales charge or Rule 12b-1 fee. Class I shares of the and 12b-1 Acquiring Fund also have no sales charge or Rule 12b-1 fee. fees With regard to characteristics other than sales charges and Rule 12b-1 fees, the Acquired Fund share and the Acquiring Fund Class I share have substantially identical characteristics. COMPARISON OF BUYING, SELLING AND EXCHANGING SHARES Buying Investors may buy shares at their public offering price shares through a financial representative or the funds' transfer agent, John Hancock Signature Services, Inc. After October 6, 2003, investors will not be allowed to open new accounts in Dividend Performers Fund but can add to existing accounts. Minimum $10,000. No minimum investment for retirement plans with at initial least 350 eligible employees. investment Exchanging Shareholders may exchange their shares for Class I shares of shares other John Hancock funds, or for shares of any John Hancock institutional fund. Selling Shareholders may sell their shares by submitting a proper shares written or telephone request to John 19 COMPARISON OF BUYING, SELLING AND EXCHANGING SHARES Hancock Signature Services, Inc. Net asset All purchases, exchanges and sales are made at a price based value on the next determined net asset value (NAV) per share of the fund. Both funds' NAVs are determined at the close of regular trading on the New York Stock Exchange, which is normally 4:00 P.M. Eastern Time. The Funds' Expenses Shareholders of both funds pay various expenses, either directly or indirectly. The following expense tables show expenses of each fund for the twelve month period ended June 30, 2003. Future expenses for all classes may be greater or less. The tables also show the hypothetical ("pro forma") expenses of Class I shares of Sovereign Investors Fund assuming the reorganization with Dividend Performers Fund occurred on June 30, 2002. The expenses shown in the tables are based on fees and expenses incurred during the twelve month period ended June 30, 2003. Class I shares of Sovereign Investors Fund are not yet operational, and therefore expenses are estimated based on those of other classes. Both funds' expenses were adjusted to reflect a subsequent contractual change in institutional class transfer agent fees. Sovereign Investors Fund's actual expenses after the Reorganization may be greater or less than those shown. As described in Proposal 1, the board of trustees of another John Hancock fund, John Hancock Large Cap Spectrum Fund, has recommended that Large Cap Spectrum Fund also reorganize into Sovereign Investors Fund. The Reorganization of Dividend Performers Fund with Sovereign Investors Fund, however, does not depend upon whether the Reorganization involving Large Cap Spectrum Fund occurs. Sovereign Investors Fund Class I (Pro Forma for the 12 months ended 6/30/03) (Assuming Sovereign reorganization Dividend Investors with Dividend Performers Fund - Performers Fund Class I Fund) Shareholder transaction expenses Maximum sales charge (load) none none none imposed on purchases (as a % of purchase price) Maximum sales charge imposed on none none none reinvested dividends Maximum deferred sales charge none none none (load) as a % of purchase or sale price, whichever is less Redemption fee none none none Exchange fee none none none Annual fund operating expenses (as a % of average net assets) Management fee 0.60% 0.58% 0.58% Distribution and service (12b-1) none none none fee Other expenses 1.51% 0.13% 0.13% Total fund operating expenses 2.11% 0.71% 0.71% Expense reduction (1.11%)(1) n/a n/a Net fund operating expenses 1.00% 0.71% 0.71% - ---------- (1) Until at least June 30, 2004. 20 Examples The hypothetical examples below show what your expenses would be if you invested $10,000 over different time periods for your fund and Sovereign Investors Fund, based on fees and expenses incurred during the twelve month period ended June 30, 2003. The pro forma example assumes a reorganization with Sovereign Investors Fund. Each example assumes that you reinvested all dividends and that the average annual return was 5%. The pro forma example is for comparison purposes only and is not a representation of Sovereign Investors Fund's actual expenses or returns, either past or future. Sovereign Investors Fund Class I (PRO FORMA) Sovereign (Assuming Dividend sInvestors reorganization with Performer Fund - Dividend Fund Class I Performers Fund) Year 1 $149 $73 $73 Year 3 $598 $227 $227 Year 5 $1,074 $395 $395 Year 10 $2,390 $883 $883 Advisory Fees Each fund pays monthly advisory fees equal to the following annual percentage of its average daily net assets. Fund Asset Breakpoints Fee Rate Dividend Performers Fund First $500 million 0.60% Amount over $500 million 0.55% Sovereign Investors Fund First $750 million 0.60% Next $750 million to $1.5 billion 0.55% Next $1.5 billion to $2.5 billion 0.50% Amount over $2.5 billion 0.45% Each fund's investment adviser is John Hancock Advisers, LLC (the "Adviser"), an indirect, wholly-owned subsidiary of John Hancock Financial Services, Inc. The Adviser is responsible for providing investment advice to the funds, subject to the review of the Trustees. Summary of Expense Comparison The pro forma expenses of Sovereign Investors Fund's Class I shares are lower than your fund's gross and net expenses. In addition, Sovereign Investors Fund's pro forma management fee rate is the same or lower than your fund's management fee rate at all asset levels except that for assets between $500 million and $750 million, where your fund's management fee value is 0.05% lower. Sovereign Investors Fund's pro forma other expenses are also lower than your fund's other expenses. 21 COMPARISON OF INVESTMENT RISKS The funds are exposed to various risks that could cause shareholders to lose money on their investments in the funds. Because the funds have substantially similar investment objectives, policies and strategies, they are subject to the similar risks, as set forth below. Stock The value of securities in the fund may go down in response market risk to overall stock market movements. Markets tend to move in cycles, with periods of rising prices and periods of falling prices. Stocks tend to go up and down in value more than bonds. If the fund concentrates in certain sectors, its performance could be worse than that of the overall stock market. Large Large capitalization stocks as a group could fall out of capitalization favor with the market, causing the fund to underperform stocks investments that focus on small or medium capitalization stocks. Dividend The stocks of "dividend performers" (as defined for each Performers fund under "Summary"), which generally are large or medium capitalization stocks, as a group could fall out of favor with the market, causing the fund to underperform investments that focus on smaller or non-dividend paying stocks. Management The fund's management strategy may fail to produce the risk intended results. The fund could underperform its peers or lose money if the investment strategy, including industry or security selection, does not perform as expected. Derivatives Certain derivative instruments can produce disproportionate risk gains or losses and are riskier than direct investments. Also, in a down market derivatives could become harder to value or sell at a fair price. Bond risk Not applicable. Any bonds held by the fund could be downgraded in credit rating or go into default. Bond prices generally fall when interest rates rise and longer maturity will increase volatility. Junk bond prices can fall on bad news about the economy, an industry or a company. Foreign Foreign investments are more risky than domestic securities investments. Investments in foreign securities may be risk affected by fluctuations in currency exchange rates, incomplete or inaccurate financial information on companies, social instability and political actions ranging from tax code changes to governmental collapse. Active Active trading could increase the fund's transaction costs trading (thus lowering performance) and increase your taxable distributions. COMPARISON OF FUND PERFORMANCE Past performance records of each fund through June 30, 2003, including (1) calendar year total returns (without sales charges) and (2) average annual total returns (including imposition of sales charges) are set forth under "Past Performance of Each Fund" on page 23 of this proxy statement and prospectus. PROPOSAL TO APPROVE THE AGREEMENT AND PLAN OF REORGANIZATION Description of Reorganization You are being asked to approve an Agreement and Plan of Reorganization, a form of which is attached to this proxy statement as Exhibit A. Additional information about the Reorganization and the Agreement is set forth below under "Further Information on Each Reorganization." The Agreement provides for a reorganization on the following terms: o The Reorganization is scheduled to occur at 5:00 P.M., Eastern Time, on December 5, 2003, but may occur on any later date before December 31, 2003. Dividend Performers Fund will transfer all of its assets to Sovereign Investors Fund and Sovereign Investors Fund will assume all of Dividend Performers Fund's liabilities. This will result in the addition of Dividend Performers Fund's assets to Sovereign Investors Fund's portfolio. The net asset value of both funds will be computed as of 4:00 P.M., Eastern Time, on the Reorganization date. 22 o Sovereign Investors Fund will issue Class I shares to Dividend Performers Fund in an amount equal to the net assets of Dividend Performers Fund. As part of the liquidation of Dividend Performers Fund, these shares will immediately be distributed shareholders of record of Dividend Performers Fund in proportion to their holdings on the Reorganization date. As a result, shareholders of Dividend Performers Fund will end up as Class I shareholders of Sovereign Investors Fund. o After the shares are issued, the existence of Dividend Performers Fund will be terminated. Reasons for the Proposed Reorganization The board of trustees of Dividend Performers Fund believes that the proposed Reorganization will be advantageous to the shareholders of Dividend Performers Fund for several reasons. The board of trustees considered the following matters, among others, in approving the proposal. First, the funds have similar investment objectives, policies and strategies. Second, the reorganization should reduce the per share expenses incurred by Dividend Performers Fund Shareholders both before and after expense reductions currently in place. The management fee of Sovereign Investors Fund is lower at nearly all asset levels than the management fee of your fund. In addition, the estimated other expenses of Sovereign Investors Fund for Class I shares are substantially lower than your fund's other expenses, resulting in lower overall expenses. Third, by combining the funds into a single fund pursuing a core large capitalization strategy, the combined fund may be better positioned to attract additional assets than Dividend Performers Fund. Sovereign Investors Fund's greater asset size may allow it, relative Dividend Performers Fund, to (i) obtain better net prices on securities trades, (ii) achieve greater diversification of portfolio holdings and (iii) reduce per share expenses as fixed expenses are shared over a larger asset base. Fourth, a combined fund offers economies of scale that may lead to further reductions in per share expenses. Both funds incur substantial costs for accounting, legal, transfer agency services, insurance, and custodial and administrative services. Many of these expenses are duplicative and there may be an opportunity to reduce Sovereign Investors Fund's expense ratio over time because of economies of scale if the funds are combined. The board of trustees of Sovereign Investors Fund considered that the Reorganization presents an excellent opportunity for Sovereign Investors Fund to acquire substantial investment assets without the obligation to pay commissions or other transaction costs that a fund normally incurs when purchasing securities. This opportunity provides an economic benefit to Sovereign Investors Fund and its shareholders. The boards of both funds also considered that the Adviser and the funds' distributor will benefit from the Reorganization. For example, the Adviser might achieve cost savings from managing one larger fund compared to managing more than one fund following similar investment policies. In addition, the Adviser would no longer be required to reimburse fund expenses of the Acquired Fund if the Reorganization were to occur, and the Acquiring Fund is not subject to any expense reimbursement arrangements. The boards believe, however, that these savings will not amount to a significant economic benefit to the Adviser or distributor. Comparative Fees and Expense Ratios. As discussed above, Sovereign Investors Fund's pro forma management fees and annual operating expenses would be lower than your fund's management fees and gross and net operating expenses. A full comparison of advisory fee rates and expense ratios is included above. 23 PAST PERFORMANCE OF EACH FUND Set forth below is past performance information for each fund, which indicates some of the risks of investing in each fund. The bar charts under "Calendar Year Total Returns" show how each fund's total return (not including any deduction for sales charges) has varied from year to year for each full calendar year. The tables under "Average Annual Total Returns" shows average annual total return for each fund over time, for each class of shares (including deductions for sales charges) compared with a broad-based securities market index. Class A performance is shown both before and after taxes for Sovereign Investors Fund and Large Cap Spectrum Fund and for shares of Dividend Performers Fund. In addition, because Sovereign Investors Fund does not currently have any outstanding Class I shares, the tables show performance of Sovereign Investors Fund's Class A shares not including any reduction for sales charges. Past performance before and after taxes does not indicate future results. Calendar Year Total Returns*
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Sovereign Investors Fund 5.71 -1.85 29.15 17.57 29.14 15.62 5.91 4.08 -6.06 -18.68 Dividend Performers Fund 18.56 34.33 17.95 13.38 0.62 -9.86 -24.66
*Returns for Sovereign Investors Fund are Class A shares without sales charges. Calendar year returns are not available for Large Cap Spectrum Fund because it commenced operations in February 2002. Year-To-Date and Quarterly Returns Sovereign Investors Fund's year-to-date return as of June 30, 2003 for Class A shares was 6.73%. During the period shown in the bar chart, the fund's highest quarterly return was 15.56% for the quarter ended December 31, 1998 and the lowest quarterly return was -13.87% for the quarter ended September 30, 2002. Dividend Performers Fund's year-to-date return as of as of June 30, 2003 was 8.28%. During the period shown in the bar chart, the fund's highest quarterly return was 20.75% for the quarter ended December 31, 1998 and the lowest quarterly return was -17.51% for the quarter ended September 30, 2002. Large Cap Spectrum Fund's year-to-date return for Class A shares as of June 30, 2003 was 10.16%. 24 Average Annual Total Returns as of June 30, 2003 10 Years 1 Year 5 Years (or life of Class/Fund*) Sovereign Investors Fund Class A - Before Taxes (7.57)% (1.88)% 7.11% Class A - After Taxes on (8.15)% (3.39)% 5.35% Distributions (1) Class A - After Taxes on (4.87)% (2.07)% 5.41% Distributions and Sale of Fund Shares (1) Class B (8.14)% (1.86)% 6.98%* Class C (5.29)% (1.75)% (1.88)%* Sovereign Investors Fund Class A - Before Taxes and Sales (2.68)% (0.87)% 7.67% Load (2) Large Cap Spectrum Fund Class A - Before Taxes (9.35)% n/a (16.70)%* Class A - After Taxes on (9.35)% n/a (16.70)%* Distribution Class A - After Taxes on (6.08)% n/a (14.12)%* Distributions and Sale of Fund Shares Class B (9.97)% n/a (16.63)%* Class C (7.14)% n/a (14.69)%* Dividend Performers Fund Before Taxes (4.18)% (2.40)% 7.68%* After Taxes on Distributions (1) (4.55)% (5.25)% 5.13%* After Taxes on Distributions and (2.75)% (2.52)% 6.00%* Sale of Fund Shares (1) S&P 500 Index (3) 0.25% (1.61)% 10.04%* - ---------- (1) After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on your situation and may differ from those shown. Furthermore, the after-tax returns shown are not relevant to investors who hold their shares through tax-deferred arrangements such as 401(k) plans or IRAs. (2) "Class A - Before Sales Load" reflects the performance of Class A shares not including any deduction for sales charges. Class I shares, which will be issued in the reorganization with Dividend Performers Fund, will not be subject to any sales charges. Nevertheless, performance of Class I shares would differ to the extent of Rule 12b-1 fees and other differences in class expenses. (3) The S&P 500 Index is the Standard & Poor's Composite Index of 500 Stocks, which is a commonly recognized unmanaged price index of 500 widely held common stocks. Unlike the fund's returns, index returns do not reflect any fees, expenses or taxes. * Inception dates for each class/fund that have fewer than 10 calendar years performance are as follows: Sovereign Investors Fund: Class B- January 3, 1994; Class C- May 1, 1998; Large Cap Spectrum: Class A, B and C shares - February 25, 2002; Dividend Performers Fund: March 30, 1995. The corresponding S&P 500 Index returns for periods since these dates were as follows: Since January 3, 1994, [__]%; since May 1, 1998, [__]%; since February 25, 2002, [__]%; and since March 30, 1995, [__]%. 25 FURTHER INFORMATION ON EACH REORGANIZATION Tax Status of Each Reorganization Each Reorganization is intended to result in no income, gain or loss for federal income tax purposes to the Acquiring Fund, the Acquired Fund or the shareholders of the Acquired Fund and will not take place unless the funds receive a satisfactory opinion from Hale and Dorr LLP, substantially to the effect that the Reorganization will be a "reorganization" within the meaning of Section 368(a) of the Code. As a result, with respect to each Reorganization, for federal income tax purposes: o No gain or loss will be recognized by the Acquired Fund upon (1) the transfer of all of its assets to the Acquiring Fund as described above or (2) the distribution by the Acquired Fund of the Acquiring Fund shares to the Acquired Fund's shareholders; o No gain or loss will be recognized by the Acquiring Fund upon the receipt of the Acquired Fund's assets solely in exchange for the issuance of the Acquiring Fund shares to the Acquired Fund and the assumption of the Acquired Fund's liabilities by the Acquiring Fund; o The basis of the assets of the Acquired Fund acquired by the Acquiring Fund will be the same as the basis of those assets in the hands of the Acquired Fund immediately before the transfer; o The tax holding period of the assets of the Acquired Fund in the hands of the Acquiring Fund will include the Acquired Fund's tax holding period for those assets; o You will not recognize gain or loss upon the exchange of your shares of the Acquired Fund solely for the Acquiring Fund shares as part of the Reorganization; o The basis of the Acquiring Fund shares received by you in the Reorganization will be the same as the basis of your shares of the Acquired Fund surrendered in exchange; and o The tax holding period of the Acquiring Fund shares you receive will include the tax holding period of the shares of the Acquired Fund that you surrender in the exchange, provided that the shares of the Acquired Fund were held by you as capital assets on the date of the exchange. In rendering such opinions, counsel shall rely upon, among other things, reasonable assumptions as well as representations of each Acquired Fund and the Acquiring Fund. No tax ruling has been or will be received from the Internal Revenue Service ("IRS") in connection with the Reorganization. An opinion of counsel is not binding on the IRS or a court, and no assurance can be given that the IRS would not assert, or a court would not sustain, a contrary position. You should consult your tax adviser for the particular tax consequences to you of the transaction, including the applicability of any state, local or foreign tax laws. Additional Terms of each Agreement and Plan of Reorganization Certain terms of each Agreement and Plan of Reorganization are described above. The following is a summary of certain additional terms of each Agreement and Plan of Reorganization. This summary and any other description of the terms of the Agreement and Plan of Reorganization contained in this proxy statement and prospectus are qualified in their entirety by Exhibit A, which is the Form of Agreement and Plan of Reorganization in its entirety, that is proposed for each Reorganization. Surrender of Share Certificates. If your shares are represented by one or more share certificates before the Reorganization date, you must either surrender the certificates to your fund(s) or deliver to your fund(s) a lost certificate affidavit, in the form and accompanied by the surety bonds that your fund(s) may require (collectively, an "Affidavit"). On the Reorganization date, all certificates that have not been surrendered will be canceled, will no longer evidence ownership of your fund's shares and will evidence ownership of Sovereign Investors Fund shares. Shareholders may not redeem or transfer Sovereign Investors Fund shares received in the Reorganization until they have surrendered their fund share certificates or delivered an Affidavit. Sovereign Investors Fund will not issue share certificates in the Reorganization. 26 Conditions to Closing each Reorganization. The obligation of each Acquired Fund to consummate the Reorganization is subject to the satisfaction of certain conditions, including the performance by the Acquiring Fund of all its obligations under the Agreement and the receipt of all consents, orders and permits necessary to consummate the Reorganization (see Agreement, paragraph 6). The obligation of the Acquiring Fund to consummate the Reorganization is subject to the satisfaction of certain conditions, including the Acquired Funds' performance of all of its obligations under the Agreement, the receipt of certain documents and financial statements from each respective Acquired Fund and the receipt of all consents, orders and permits necessary to consummate the Reorganization (see Agreement, paragraph 7). The obligations of each respective Acquired Fund and the Acquiring Fund are subject to approval of the Agreement by the necessary vote of the outstanding shares of the Acquired Fund, in accordance with the provisions of Acquired Funds' declaration of trust and by-laws. The funds' obligations are also subject to the receipt of a favorable opinion of Hale and Dorr LLP as to the federal income tax consequences of the Reorganization (see Agreement, paragraph 8). Termination of Agreement. The board of trustees of each respective Acquired Fund or the Acquiring Fund may terminate the Agreement (even if the shareholders of an Acquired Fund have already approved it) at any time before the Reorganization date, if that board believes that proceeding with the Reorganization would no longer be advisable. Expenses of the Reorganization. Whether or not a Reorganization occurs, each fund will pay its own expenses in connection with the Reorganization, including the costs of printing, mailing, legal fees, audit fees and solicitation expenses. The estimated expenses associated with each Reorganization of each Acquired Fund are as follows: $15,900 for Dividend Performers Fund, and $43,500 for Large Cap Spectrum Fund. CAPITALIZATION With respect to each Proposal, the following tables set forth the capitalization of each fund as of June 30, 2003 and the pro forma combined capitalization of both funds as if each Reorganization had occurred on that date. If a Reorganization is consummated, the actual exchange ratios on the Reorganization date may vary from the exchange ratios indicated. This is due to changes in the market value of the portfolio securities of both funds between June 30, 2003 and the Reorganization date, changes in the amount of undistributed net investment income and net realized capital gains of both funds during that period resulting from income and distributions, and changes in the accrued liabilities of both funds during the same period. It is impossible to predict how many shares of the Acquiring Fund will actually be received and distributed by each respective Acquired Fund on the Reorganization date. The tables should not be relied upon to determine the amount of Acquiring Fund shares that will actually be received and distributed. If the Reorganization of your fund(s) had taken place on June 30, 2003:
Large Cap Spectrum Sovereign Investors Pro Pro Proposal 1 Fund Fund Forma(1) Forma(2) Net Assets (millions) $17.5 $1,252.0 $1,269.5 $1,272.7 Net Asset Value Per Share Class A $8.24 $16.78 $16.78 $16.78 Class B $8.16 $16.76 $16.76 $16.76 Class C $8.16 $16.78 $16.78 $16.78 Class I N/A N/A N/A $16.78 Shares Outstanding Class A 661,739 54,924,905 55,249,830 55,249,830 Class B 878,591 18,344,119 18,772,068 18,772,068 Class C 601,663 1,384,964 1,677,690 1,677,690 Class I -0- -0- -0- 191,644
27 (1) Assuming the Reorganization of Dividend Performers Fund into Sovereign Investors Fund does not occur. If the Reorganization of your fund only had taken place on June 30, 2003, approximately 0.491, 0.487 and 0.487 Sovereign Investors Fund Class A, B and C shares would have been issued for each share of Large Cap Spectrum Fund Class A, B and C shares, respectively. (2) Assuming the Reorganization of Dividend Performers Fund into Sovereign Investors Fund occurs.
Dividend Performers Sovereign Investors Pro Pro Proposal 2 Fund Fund Forma(1) Forma(2) Net Assets (millions) $3.2 $1,252.0 $1,255.2 $1,272.7 Net Asset Value Per Share Class A N/A $16.78 $16.78 $16.78 Class B N/A $16.76 $16.76 $16.76 Class C N/A $16.78 $16.78 $16.78 Class I $6.58 N/A $16.78 $16.78 Shares Outstanding Class A -0- 54,924,905 54,924,905 55,249,830 Class B -0- 18,344,119 18,344,119 18,772,068 Class C -0- 1,384,964 1,384,964 1,677,644 Class I 488,353 -0- 191,644 191,644
(1) Assuming the Reorganization of Large Cap Spectrum Fund into Sovereign Investors Fund does not occur. If the reorganization of your fund only had taken place on June 30, 2003, and the opening NAV of Sovereign Investors Fund Class I shares was based on the Class A NAV, approximately 0.392 Sovereign Investors Fund Class I shares would have been issued for each share of Dividend Performers Fund. (2) Assuming the Reorganization of Large Cap Spectrum Fund into Sovereign Investors Fund occurs. ADDITIONAL INFORMATION ABOUT THE FUNDS' BUSINESSES The following table shows where in each fund's prospectus you can find additional information about the business of each fund. Type of Information Headings in Each Prospectus Investment objective Goal and Strategy / Main Risks and policies Portfolio management Portfolio Managers / Subadviser Expenses Your Expenses Custodian Business Structure Shares of beneficial Your Account: Choosing a Share Class interest Purchase of shares Your Account: Choosing a Share Class, How Sales Charges are Calculated, Sales Charge Reductions and Waivers, Opening an Account, Buying Shares, Transaction Policies, Additional Investor Services Redemption of sales of Your Account: Selling Shares, How Sales Charges are shares Calculated, Transaction Policies Dividends, Dividends and Account Policies distributions and taxes 28 BOARDS' EVALUATION AND RECOMMENDATION For the reasons described above, the board of trustees of each Acquired Fund, including the trustees who are not "interested persons" of either fund in each respective Reorganization or the Adviser ("independent trustees"), approved the Reorganizations. In particular, the trustees determined that each Reorganization is in the best interests of each respective Acquired Fund and that the interests of Acquired Fund shareholders would not be diluted as a result of either Reorganization. Similarly, the board of trustees of Sovereign Investors Fund, including the independent trustees, approved each Reorganization. They also determined that each Reorganization is in the best interests of Sovereign Investors Fund and that the interests of Sovereign Investors Fund's shareholders would not be diluted as a result of either Reorganization. The trustees of each Acquired Fund recommend that shareholders of the Acquired Funds vote FOR each proposal to approve an Agreement and Plan of Reorganization. VOTING RIGHTS AND REQUIRED VOTE Each Acquired Fund share is entitled to one vote. Approval of each proposal described above requires the affirmative vote of a majority of the shares of each Acquired Fund outstanding and entitled to vote on each respective proposal. For this purpose, a majority of the outstanding shares of your fund means the vote of the lesser of: (1) 67% or more of the shares present at the meeting, if the holders of more than 50% of the shares of the fund are present or represented by proxy, or (2) more than 50% of the outstanding shares of the fund.
Shares Quorum Voting In General All shares Shares "present" in person will be voted in "present" in person at the meeting. Shares present by person or by proxy proxy will be voted in accordance with are counted instructions. toward a quorum. Proxy with no Voting Considered Voted "for" a proposal. Instruction (other "present" at than meeting. Broker Non-Vote) Broker Non-Vote Considered Not voted. Same effect as a vote "against" a "present" at proposal. meeting. Vote to Abstain Considered Not voted. Same effect as a vote "against" a "present" at proposal. meeting.
If the required approval of shareholders is not obtained with respect to a proposal, the Acquired Fund subject to the proposal will continue to engage in business as a separate mutual fund and the board of trustees will consider what further action may be appropriate. This action could include, among other things, terminating a fund's expense limitation or closing the fund. 29 INFORMATION CONCERNING THE MEETING Solicitation of Proxies In addition to the mailing of these proxy materials, proxies may be solicited by telephone, by fax or in person by the trustees, officers and employees of your fund; by personnel of your fund's investment adviser, John Hancock Advisers, LLC and its transfer agent, John Hancock Signature Services, Inc.; or by broker-dealer firms. [Signature Services, together with a third party solicitation firm, has agreed to provide proxy solicitation services to each Acquired Fund at a cost of approximately $_______ per fund.] Revoking Proxies Each Acquired Fund shareholder signing and returning a proxy has the power to revoke it at any time before it is exercised: o By filing a written notice of revocation with the Acquired Funds' transfer agent, John Hancock Signature Services, Inc., 1 John Hancock Way, Suite 1000, Boston, Massachusetts 02217-1000, or o By returning a duly executed proxy with a later date before the time of the meeting, or o If a shareholder has executed a proxy but is present at the meeting and wishes to vote in person, by notifying the secretary of your fund (without complying with any formalities) at any time before it is voted. Being present at the meeting alone does not revoke a previously executed and returned proxy. Outstanding Shares and Quorum As of October 6, 2003 (the "record date"), the number of shares of beneficial interest of each Acquired Fund's outstanding were as follows: FUND SHARES OUTSTANDING Large Cap Spectrum Fund Class A _______ Class B _______ Class C _______ Dividend Performers Fund _______ Only shareholders of record on the record date are entitled to notice of and to vote at the meeting. A majority of the outstanding shares of each Acquired Fund that are entitled to vote will be considered a quorum for the transaction of business. Other Business Each Acquired Fund's board of trustees knows of no business to be presented for consideration at the meeting other than the proposals. If other business is properly brought before the meeting, proxies will be voted according to the best judgment of the persons named as proxies. Adjournments If a quorum is not present in person or by proxy at the time any session of the meeting is called to order, the persons named as proxies may vote those proxies that have been received to adjourn the meeting to a later date. If a quorum is present but there are not sufficient votes in favor of a proposal, the persons named as proxies may propose one or more adjournments of the meeting to permit further solicitation of proxies concerning the proposal. Any adjournment will require the affirmative vote of a majority of an Acquired Fund's shares at the session of the meeting to be adjourned. If an adjournment of the meeting is proposed because there are not sufficient votes in favor of a proposal, the persons named as proxies will vote those proxies favoring the proposal in favor of adjournment, and will vote those proxies against the Reorganization against adjournment. 30 Telephone Voting In addition to soliciting proxies by mail, by fax or in person, your fund(s) may also arrange to have votes recorded by telephone by officers and employees of your fund(s) or by personnel of the Adviser or transfer agent or a third party solicitation firm. The telephone voting procedure is designed to verify a shareholder's identity, to allow a shareholder to authorize the voting of shares in accordance with the shareholder's instructions and to confirm that the voting instructions have been properly recorded. If these procedures were subject to a successful legal challenge, these telephone votes would not be counted at the meeting. Your fund has not obtained an opinion of counsel about telephone voting, but is currently not aware of any challenge. o A shareholder will be called on a recorded line at the telephone number in a fund's account records and will be asked to provide the shareholder's social security number or other identifying information. o The shareholder will then be given an opportunity to authorize proxies to vote his or her shares at the meeting in accordance with the shareholder's instructions. o To ensure that the shareholder's instructions have been recorded correctly, the shareholder will also receive a confirmation of the voting instructions by mail. o A toll-free number will be available in case the voting information contained in the confirmation is incorrect. o If the shareholder decides after voting by telephone to attend the meeting, the shareholder can revoke the proxy at that time and vote the shares at the meeting. Internet Voting You will also have the opportunity to submit your voting instructions via the Internet by utilizing a program provided through a vendor. Voting via the Internet will not affect your right to vote in person if you decide to attend the meting. Do not mail the proxy card if you are voting via the Internet. To vote via the Internet, you will need the "control number" that appears on your proxy card. These Internet voting procedures are designed to authenticate shareholder identities, to allow shareholders give their voting instructions, and to confirm that shareholders instructions have been recorded properly. If you are voting via the Internet you should understand that there may be costs associated with electronic access, such as usage charges from Internet access providers and telephone companies, that must be borne to you. o Read the proxy statement and have your proxy card(s) at hand. o Go to the Web site on the proxy card. o Enter the "control number" found on your proxy card. o Follow the instructions on the Web site. Please call us at 1-800-225-5291 if you have any problems. o To insure that your instructions have been recorded correctly, you will receive a confirmation of your voting instructions immediately after your submission and also by e-mail if chosen. Shareholders' Proposals The funds are not required, and do not intend, to hold meetings of shareholders each year. Instead, meetings will be held only when and if required. Any shareholders desiring to present a proposal for consideration at the next meeting for shareholders of their respective funds must submit the proposal in writing, so that it is received by the appropriate fund at 101 Huntington Avenue, Boston, Massachusetts 02199 within a reasonable time before any meeting. OWNERSHIP OF SHARES OF THE FUNDS To the knowledge of each fund, as of October 6, 2003, the following persons owned of record or beneficially 5% or more of the outstanding shares of a class of each fund, respectively: 31 Large Cap Spectrum Fund Names and Addresses of Owners of Class A Class B Class C More Than 5% of Shares [John Hancock Advisers, LLC ___% ___% ___% 101 Huntington Avenue Boston, MA. 02199-7603] [ ] ___% ___% ___% [ ] ___% ___% ___% Sovereign Investors Fund Names and Addresses of Owners of Class A Class B Class C Class I* More Than 5% of Shares [ ] ___% ___% ___% ___ [ ] ___% ___% ___% ___ [ ] ___% ___% ___% ___ [ ] ___% ___% ___% ___ *No Class I shares were outstanding on October 6, 2003. Dividend Performers Fund Names and Addresses of Owners of More Than 5% of Shares [ ] ___% [ ] ___% As of October 6, 2003, the trustees and officers of each fund owned in the aggregate less than 1% of the outstanding shares of their respective funds. EXPERTS The financial highlights and financial statements of (i) Sovereign Investors Fund, for the periods ended December 31, 2002 and June 30, 2003, (ii) Large Cap Spectrum Fund, for the periods ended October 31, 2002 and April 30, 2003 and (iii) Dividend Performers Fund for the period ended February 28, 2003 are incorporated by reference into this proxy statement and prospectus. The financial statements for each fund's most recent fiscal year (but not for semi-annual periods) and financial highlights have been independently audited by the following independent auditors: PricewaterhouseCoopers LLP for the Large Cap Spectrum Fund; Ernst & Young for Sovereign Investors Fund; and Deloitte & Touche LLP for Dividend Performers Fund, as stated in their reports appearing in the statement of additional information. These financial statements and financial highlights have been included in reliance on their reports given on their authority as experts in accounting and auditing. AVAILABLE INFORMATION Each fund is subject to the informational requirements of the Securities Exchange Act of 1934, as amended and the Investment Company Act of 1940, as amended and files reports, proxy statements and other information with the SEC. These reports, proxy statements and other information filed by the funds can be inspected and copied (for a duplication fee) at the public reference facilities of the SEC at 450 Fifth Street, 32 N.W., Washington, D.C., and at the Midwest Regional Office (500 West Madison Street, Suite 1400, Chicago, Illinois). Copies of these materials can also be obtained by mail from the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, copies of these documents may be viewed on-screen or downloaded from the SEC's Internet site at http://www.sec.gov. 33 EXHIBIT A FORM OF AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made this ____ day of ________, 2003, by and between John Hancock Investment Trust, a Massachusetts business trust (the "Trust"), on behalf of its series, John Hancock Sovereign Investors Fund (the "Acquiring Fund") and John Hancock __________ Trust, a Massachusetts business trust (the "Trust II") on behalf of its series, John Hancock _______________ Fund (the "Acquired Fund"), each with their principal place of business at 101 Huntington Avenue, Boston, Massachusetts 02199. The Acquiring Fund and the Acquired Fund are sometimes referred to collectively herein as the "Funds" and individually as a "Fund." This Agreement is intended to be and is adopted as a plan of "reorganization," as such term is used in Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). The reorganization will consist of: (1) the transfer of all of the assets of the Acquired Fund to the Acquiring Fund in exchange solely for (A) the issuance of [Class A, Class B, and Class C shares of beneficial interest of the Acquiring Fund (the "Acquiring Fund Shares") to the Acquired Fund and (B) the assumption by the Acquiring Fund of all of the liabilities of the Acquired Fund, followed by (2) the distribution by the Acquired Fund, on or promptly after the Closing Date hereinafter referred to, of the Acquiring Fund Shares to the shareholders of the Acquired Fund in liquidation and termination of the Acquired Fund as provided herein, all upon the terms and conditions set forth in this Agreement. In consideration of the premises of the covenants and agreements hereinafter set forth, the parties hereto covenant and agree as follows: 1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR ASSUMPTION OF LIABILITIES AND ISSUANCE OF ACQUIRING FUND SHARES; LIQUIDATION OF THE ACQUIRED FUND 1.1 The Acquired Fund will transfer all of its assets (consisting, without limitation, of portfolio securities and instruments, dividends and interest receivables, cash and other assets), as set forth in the statement of assets and liabilities referred to in Paragraph 7.2 hereof (the "Statement of Assets and Liabilities"), to the Acquiring Fund free and clear of all liens and encumbrances, except as otherwise provided herein, in exchange for (i) the assumption by the Acquiring Fund of the known and unknown liabilities of the Acquired Fund, including the liabilities set forth in the Statement of Assets and Liabilities (the "Acquired Fund Liabilities"), which shall be assigned and transferred to the Acquiring Fund by the Acquired Fund and assumed by the Acquiring Fund, and (ii) delivery by the Acquiring Fund to the Acquired Fund, for distribution pro rata by the Acquired Fund to its shareholders in proportion to their respective ownership of[Class A, Class B and Class C] shares of beneficial interest of the Acquired Fund, as of the close of business on [December 5], 2003 (the "Closing Date"), of a number of the Acquiring Fund Shares having an aggregate net asset value equal, in the case of each class of Acquiring Fund Shares, to the value of the assets, less such liabilities (herein referred to as the "net value of the assets") attributable to the applicable class, assumed, assigned and delivered, all determined as provided in Paragraph 2.1 hereof and as of a date and time as specified therein. Such transactions shall take place at the Closing, as defined in Paragraph 3.1 hereof. All computations shall be provided by The Bank of New York (the "Custodian"), as custodian and pricing agent for the Acquiring Fund and the Acquired Fund. 1.2 The Acquired Fund has provided the Acquiring Fund with a list of the current securities holdings of the Acquired Fund as of the date of execution of this Agreement. The Acquired Fund reserves the right to sell any of these securities (except to the extent sales may be limited by representations made in connection with issuance of the tax opinion provided for in paragraph 8.6 hereof) but will not, without the prior approval of the Acquiring Fund, acquire any additional securities other than securities of the type in which the Acquiring Fund is permitted to invest. 34 1.3 The Acquiring Fund and the Acquired Fund will each bear its own expenses in connection with the transactions contemplated by this Agreement, whether or not the transactions contemplated hereby are consummated 1.4 On or as soon after the Closing Date as is conveniently practicable (the "Liquidation Date"), the Acquired Fund will liquidate and distribute pro rata to shareholders of record (the "Acquired Fund shareholders"), determined as of the close of regular trading on the New York Stock Exchange on the Closing Date, the Acquiring Fund Shares received by the Acquired Fund pursuant to Paragraph 1.1 hereof. Such liquidation and distribution will be accomplished by the transfer of the Acquiring Fund Shares then credited to the account of the Acquired Fund on the books of the Acquiring Fund, to open accounts on the share records of the Acquiring Fund in the names of the Acquired Fund shareholders and representing the respective pro rata number and class of Acquiring Fund Shares due such shareholders. [Acquired Fund shareholders who own Class A shares of the Acquired Fund will receive Class A Acquiring Fund Shares, Acquired Fund shareholders who own Class B shares of the Acquired Fund will receive Class B Acquiring Fund Shares. Acquired Fund shareholders who own Class C shares of the Acquired Fund will receive Class C Acquiring Fund Shares.] The Acquiring Fund shall not issue certificates representing Acquiring Fund Shares in connection with such exchange. 1.5 The Acquired Fund shareholders holding certificates representing their ownership of shares of beneficial interest of the Acquired Fund shall surrender such certificates or deliver an affidavit with respect to lost certificates in such form and accompanied by such surety bonds as the Acquired Fund may require (collectively, an "Affidavit"), to John Hancock Signature Services, Inc. prior to the Closing Date. Any Acquired Fund share certificate which remains outstanding on the Closing Date shall be deemed to be canceled, shall no longer evidence ownership of shares of beneficial interest of the Acquired Fund and shall evidence ownership of Acquiring Fund Shares. Unless and until any such certificate shall be so surrendered or an Affidavit relating thereto shall be delivered, dividends and other distributions payable by the Acquiring Fund subsequent to the Liquidation Date with respect to Acquiring Fund Shares shall be paid to the holder of such certificate(s), but such shareholders may not redeem or transfer Acquiring Fund Shares received in the reorganization. The Acquiring Fund will not issue share certificates in the reorganization. 1.6 Any transfer taxes payable upon issuance of Acquiring Fund Shares in a name other than the registered holder of the Acquired Fund Shares on the books of the Acquired Fund as of that time shall, as a condition of such issuance and transfer, be paid by the person to whom such Acquiring Fund Shares are to be issued and transferred. 1.7 The existence of the Acquired Fund shall be terminated as promptly as practicable following the Liquidation Date. 1.8 Any reporting responsibility of the Acquired Fund, including, but not limited to, the responsibility for filing of regulatory reports, tax returns, or other documents with the Securities and Exchange Commission (the "Commission"), any state securities commissions, and any federal, state or local tax authorities or any other relevant regulatory authority, is and shall remain the responsibility of the Acquired Fund. 2. VALUATION 2.1 The net asset value[s] of the [Class A, Class B and Class C] Acquiring Fund Shares and the net value[s] of the assets and liabilities of the Acquired Fund attributable to its [Class A, Class B and Class C] shares to be transferred shall, in each case, be determined as of the close of business (4:00 p.m. Eastern Time) on the Closing Date. The net asset value[s] of the [Class A, Class B and Class C] Acquiring Fund Shares shall be computed by the Custodian in the manner set forth in the Acquiring Fund's Declaration of Trust as amended and restated (the "Declaration"), or By-Laws and the Acquiring Fund's then-current prospectus and statement of additional information and shall be computed in each case to not fewer than four decimal places. The net value[s] of the assets of the Acquired Fund attributable to its [Class A, Class B and Class C] shares to be transferred shall be computed by the Custodian by calculating the value of the assets of each class transferred by the Acquired Fund and by subtracting therefrom the amount of the liabilities of each 35 class assigned and transferred to and assumed by the Acquiring Fund on the Closing Date, said assets and liabilities to be valued in the manner set forth in the Acquired Fund's then current prospectus and statement of additional information and shall be computed in each case to not fewer than four decimal places. 2.2 The number of shares of each class of Acquiring Fund Shares to be issued (including fractional shares, if any) in exchange for the Acquired Fund's assets shall be determined by dividing the value of the Acquired Fund's assets attributable to a class, less the liabilities attributable to that class assumed by the Acquiring Fund, by the Acquiring Fund's net asset value per share of the same class, all as determined in accordance with Paragraph 2.1 hereof. 2.3 All computations of value shall be made by the Custodian in accordance with its regular practice as pricing agent for the Funds. 3. CLOSING AND CLOSING DATE 3.1 The Closing Date shall be [December 5], 2003 or such other date on or before December 31, 2003 as the parties may agree. The closing of the reorganization (the "Closing") shall be held as of 5:00 p.m. at the offices of the Trust and the Trust II, 101 Huntington Avenue, Boston, Massachusetts 02199, or at such other time and/or place as the parties may agree. 3.2 Portfolio securities that are not held in book-entry form in the name of the Custodian as record holder for the Acquired Fund shall be presented by the Acquired Fund to the Custodian for examination no later than three business days preceding the Closing Date. Portfolio securities which are not held in book-entry form shall be delivered by the Acquired Fund to the Custodian for the account of the Acquiring Fund on the Closing Date, duly endorsed in proper form for transfer, in such condition as to constitute good delivery thereof in accordance with the custom of brokers, and shall be accompanied by all necessary federal and state stock transfer stamps or a check for the appropriate purchase price thereof. Portfolio securities held of record by the Custodian in book-entry form on behalf of the Acquired Fund shall be delivered to the Acquiring Fund by the Custodian by recording the transfer of beneficial ownership thereof on its records. The cash delivered shall be in the form of currency or by the Custodian crediting the Acquiring Fund's account maintained with the Custodian with immediately available funds. 3.3 In the event that on the Closing Date (a) the New York Stock Exchange shall be closed to trading or trading thereon shall be restricted or (b) trading or the reporting of trading on said Exchange or elsewhere shall be disrupted so that accurate appraisal of the value of the net assets of the Acquiring Fund or the Acquired Fund is impracticable, the Closing Date shall be postponed until the first business day after the day when trading shall have been fully resumed and reporting shall have been restored; provided that if trading shall not be fully resumed and reporting restored on or before December 31, 2003, this Agreement may be terminated by the Acquiring Fund or by the Acquired Fund upon the giving of written notice to the other party. 3.4 The Acquired Fund shall deliver at the Closing a list of the names, addresses, federal taxpayer identification numbers and backup withholding and nonresident alien withholding status of the Acquired Fund shareholders and the number of outstanding shares of each class of beneficial interest of the Acquired Fund owned by each such shareholder, all as of the close of business on the Closing Date, certified by its Treasurer, Secretary or other authorized officer (the "Shareholder List"). The Acquiring Fund shall issue and deliver to the Acquired Fund a confirmation evidencing the Acquiring Fund Shares to be credited on the Closing Date, or provide evidence satisfactory to the Acquired Fund that such Acquiring Fund Shares have been credited to the Acquired Fund's account on the books of the Acquiring Fund. At the Closing, each party shall deliver to the other such bills of sale, checks, assignments, stock certificates, receipts or other documents as such other party or its counsel may reasonably request. 4. REPRESENTATIONS AND WARRANTIES 4.1 The Trust II on behalf of the Acquired Fund represents, warrants and covenants to the Acquiring Fund as follows: 36 (a) The Trust II is a business trust, duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts and has the power to own all of its properties and assets and, subject to approval by the shareholders of the Acquired Fund, to carry out the transactions contemplated by this Agreement. Neither the Trust II nor the Acquired Fund is required to qualify to do business in any jurisdiction in which it is not so qualified or where failure to qualify would subject it to any material liability or disability. The Trust II has all necessary federal, state and local authorizations to own all of its properties and assets and to carry on its business as now being conducted; (b) The Trust II is a registered investment company classified as a management company and its registration with the Commission as an investment company under the Investment Company Act of 1940, as amended (the "1940 Act"), is in full force and effect. The Acquired Fund is a [non-]diversified series of the Trust II; (c) The Trust II and the Acquired Fund are not, and the execution, delivery and performance of their obligations under this Agreement will not result, in violation of any provision of the Trust II's Declaration of Trust, as amended and restated (the "Trust II's Declaration"), or By-Laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Trust II or the Acquired Fund is a party or by which it is bound; (d) Except as otherwise disclosed in writing and accepted by the Acquiring Fund, no material litigation or administrative proceeding or investigation of or before any court or governmental body is currently pending or threatened against the Trust II or the Acquired Fund or any of the Acquired Fund's properties or assets. The Trust II knows of no facts which might form the basis for the institution of such proceedings, and neither the Trust II nor the Acquired Fund is a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects the Acquired Fund's business or its ability to consummate the transactions herein contemplated; (e) The Acquired Fund has no material contracts or other commitments (other than this Agreement or agreements for the purchase of securities entered into in the ordinary course of business and consistent with its obligations under this Agreement) which will not be terminated without liability to the Acquired Fund at or prior to the Closing Date; (f) The audited statement of assets and liabilities, including the schedule of investments, of the Acquired Fund as of _______, 200__ [and the unaudited statement of assets and liabilities of the Acquired Fund as of _______, 2003] and the related statement of operations [for each such period] (copies of which have been furnished to the Acquired Fund), present fairly in all material respects the financial condition of the Acquired Fund as of _______, 200__ and [and _______, 200__ respectively] the results of its operations for the period then ended in accordance with generally accepted accounting principles consistently applied, and there were no known actual or contingent liabilities of the Acquired Fund as of the respective dates thereof not disclosed therein; (g) Since _______, 2003, there has not been any material adverse change in the Acquired Fund's financial condition, assets, liabilities, or business other than changes occurring in the ordinary course of business, or any incurrence by the Acquired Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as otherwise disclosed to and accepted by the Acquiring Fund; (h) At the date hereof and by the Closing Date, all federal, state and other tax returns and reports, including information returns and payee statements, of the Acquired Fund required by law to have been filed or furnished by such dates shall have been filed or furnished, and all federal, state and other taxes, interest and penalties shall have been paid so far as due, or provision shall have been made for the payment thereof, and to the best of the Acquired Fund's knowledge no such return is currently under audit and no assessment has been asserted with respect to such returns or reports; (i) The Acquired Fund has qualified as a regulated investment company for each taxable year of its operation and the Acquired Fund will qualify as such as of the Closing Date with respect to its taxable year ending on the Closing Date; 37 (j) The authorized capital of the Acquired Fund consists of an unlimited number of shares of beneficial interest, no par value. All issued and outstanding shares of beneficial interest of the Acquired Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and nonassessable by the Trust II. All of the issued and outstanding shares of beneficial interest of the Acquired Fund will, at the time of Closing, be held by the persons and in the amounts and classes set forth in the Shareholder List submitted to the Acquiring Fund pursuant to Paragraph 3.4 hereof. The Acquired Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any of its shares of beneficial interest, nor is there outstanding any security convertible into any of its shares of beneficial interest; (k) At the Closing Date, the Acquired Fund will have good and marketable title to the assets to be transferred to the Acquiring Fund pursuant to Paragraph 1.1 hereof, and full right, power and authority to sell, assign, transfer and deliver such assets hereunder, and upon delivery and payment for such assets, the Acquiring Fund will acquire good and marketable title thereto subject to no restrictions on the full transfer thereof, including such restrictions as might arise under the Securities Act of 1933, as amended (the "1933 Act"); (l) The execution, delivery and performance of this Agreement have been duly authorized by all necessary action on the part of the Trust II on behalf of the Acquired Fund, and this Agreement constitutes a valid and binding obligation of the Acquired Fund enforceable in accordance with its terms, subject to the approval of the Acquired Fund's shareholders; (m) The information to be furnished by the Acquired Fund to the Acquiring Fund for use in applications for orders, registration statements, proxy materials and other documents which may be necessary in connection with the transactions contemplated hereby shall be accurate and complete and shall comply in all material respects with federal securities and other laws and regulations thereunder applicable thereto; (n) The proxy statement of the Acquired Fund (the "Proxy Statement") to be included in the Registration Statement referred to in Paragraph 5.7 hereof (other than written information furnished by the Acquiring Fund for inclusion therein, as covered by the Acquiring Fund's warranty in Paragraph 4.2(m) hereof), on the effective date of the Registration Statement, on the date of the meeting of the Acquired Fund shareholders and on the Closing Date, shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading; (o) No consent, approval, authorization or order of any court or governmental authority is required for the consummation by the Acquired Fund of the transactions contemplated by this Agreement; (p) All of the issued and outstanding shares of beneficial interest of the Acquired Fund have been offered for sale and sold in conformity with all applicable federal and state securities laws; (q) The [Class A, Class B, and Class C] prospectus of the Acquired Fund, dated _______, 2003, (the "Acquired Fund Prospectus"), furnished to the Acquiring Fund, does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; and (r) The Acquired Fund Tax Representation Certificate to be delivered by the Acquired Fund to the Acquiring Fund at Closing pursuant to Section 7.5 (the "Acquired Fund Tax Representation Certificate") will not on the Closing Date contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading. 4.2 The Trust on behalf of the Acquiring Fund represents, warrants and covenants to the Acquired Fund as follows: (a) The Trust is a business trust duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts and has the power to own all of its properties and assets and to carry out the Agreement. Neither the Trust nor the Acquiring Fund is required to qualify to do business in any jurisdiction in which it is not so qualified or where failure to qualify would subject it 38 to any material liability or disability. The Trust has all necessary federal, state and local authorizations to own all of its properties and assets and to carry on its business as now being conducted; (b) The Trust is a registered investment company classified as a management company and its registration with the Commission as an investment company under the 1940 Act is in full force and effect. The Acquiring Fund is a diversified series of the Trust; (c) The [Class A, Class B, and Class C shares] prospectus of the Acquiring Fund dated _______, 2003 (the "Acquiring Fund Prospectus") and statement of additional information for [Class A, Class B, Class C shares of] the Acquiring Fund, dated _______, 2003, and any amendments or supplements thereto on or prior to the Closing Date, and the Registration Statement on Form N-14 filed in connection with this Agreement (the "Registration Statement") (other than written information furnished by the Acquired Fund for inclusion therein, as covered by the Acquired Fund's warranty in Paragraph 4.1(m) hereof) will conform in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations of the Commission thereunder, the Acquiring Fund Prospectus does not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and the Registration Statement will not include any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (d) At the Closing Date, the Trust on behalf of the Acquiring Fund will have good and marketable title to the assets of the Acquiring Fund; (e) The Trust and the Acquiring Fund are not, and the execution, delivery and performance of their obligations under this Agreement will not result in a violation of any provisions of the Trust's Declaration, or By-Laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Trust or the Acquiring Fund is a party or by which the Trust or the Acquiring Fund is bound; (f) Except as otherwise disclosed in writing and accepted by the Acquired Fund, no material litigation or administrative proceeding or investigation of or before any court or governmental body is currently pending or threatened against the Trust or the Acquiring Fund or any of the Acquiring Fund's properties or assets. The Trust knows of no facts which might form the basis for the institution of such proceedings, and neither the Trust nor the Acquiring Fund is a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects the Acquiring Fund's business or its ability to consummate the transactions herein contemplated; (g) The audited statement of assets and liabilities, including the schedule of investments, of the Acquiring Fund as of _______, 200__ [and the unaudited statement of assets and liabilities of the Acquiring Fund as of _______, 2003] and the related statement of operations [for each such period] (copies of which have been furnished to the Acquired Fund), present fairly in all material respects the financial condition of the Acquiring Fund as of _______, 200__ and [and _______, 2003, respectively] the results of its operations for the period then ended in accordance with generally accepted accounting principles consistently applied, and there were no known actual or contingent liabilities of the Acquiring Fund as of the respective dates thereof not disclosed therein; (h) Since _______, 2003, there has not been any material adverse change in the Acquiring Fund's financial condition, assets, liabilities or business other than changes occurring in the ordinary course of business, or any incurrence by the Trust on behalf of the Acquiring Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as disclosed to and accepted by the Acquired Fund; (i) Each of the Acquiring Fund and its predecessors has qualified as a regulated investment company for each taxable year of its operation and the Acquiring Fund will qualify as such as of the Closing Date; 39 (j) The authorized capital of the Trust consists of an unlimited number of shares of beneficial interest, no par value per share. All issued and outstanding shares of beneficial interest of the Acquiring Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and nonassessable by the Trust. The Acquiring Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any of its shares of beneficial interest, nor is there outstanding any security convertible into any of its shares of beneficial interest; (k) The execution, delivery and performance of this Agreement has been duly authorized by all necessary action on the part of the Trust on behalf of the Acquiring Fund, and this Agreement constitutes a valid and binding obligation of the Acquiring Fund enforceable in accordance with its terms; (l) The Acquiring Fund Shares to be issued and delivered to the Acquired Fund pursuant to the terms of this Agreement, when so issued and delivered, will be duly and validly issued shares of beneficial interest of the Acquiring Fund and will be fully paid and nonassessable by the Trust; (m) The information to be furnished by the Acquiring Fund for use in applications for orders, registration statements, proxy materials and other documents which may be necessary in connection with the transactions contemplated hereby shall be accurate and complete and shall comply in all material respects with federal securities and other laws and regulations applicable thereto; (n) No consent, approval, authorization or order of any court or governmental authority is required for the consummation by the Acquiring Fund of the transactions contemplated by the Agreement, except for the registration of the Acquiring Fund Shares under the 1933 Act and the 1940 Act; and (o) The Acquiring Fund Tax Representation Certificate to be delivered by the Acquiring Fund to the Acquired Fund at Closing pursuant to Section 6.3 (the "Acquiring Fund Tax Representation Certificate") will not on the Closing Date contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading. 5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND 5.1 Except as expressly contemplated herein to the contrary, the Trust II on behalf of the Acquired Fund and the Trust on behalf of the Acquiring Fund, will operate their respective businesses in the ordinary course between the date hereof and the Closing Date, it being understood that such ordinary course of business will include customary dividends and distributions and any other distributions necessary or desirable to avoid federal income or excise taxes. 5.2 The Trust II will call a meeting of the Acquired Fund shareholders to consider and act upon this Agreement and to take all other action necessary to obtain approval of the transactions contemplated herein. 5.3 The Acquired Fund covenants that the Acquiring Fund Shares to be issued hereunder are not being acquired by the Acquired Fund for the purpose of making any distribution thereof other than in accordance with the terms of this Agreement. 5.4 The Trust II on behalf of the Acquired Fund will provide such information within its possession or reasonably obtainable as the Trust on behalf of the Acquiring Fund requests concerning the beneficial ownership of the Acquired Fund's shares of beneficial interest. 5.5 Subject to the provisions of this Agreement, the Acquiring Fund and the Acquired Fund each shall take, or cause to be taken, all action, and do or cause to be done, all things reasonably necessary, proper or advisable to consummate the transactions contemplated by this Agreement. 5.6 The Trust II on behalf of the Acquired Fund shall furnish to the Trust on behalf of the Acquiring Fund on the Closing Date the Statement of Assets and Liabilities of the Acquired Fund as of the Closing Date, which statement shall be prepared in accordance with generally accepted accounting principles consistently applied and shall be certified by the Acquired Fund's Treasurer or Assistant Treasurer. As promptly as practicable but in any case within 60 days after the Closing Date, the Acquired Fund shall furnish to the Acquiring Fund, in such form as is reasonably satisfactory to the Trust, a statement of the earnings and profits of the Acquired Fund for federal income tax purposes and of any capital loss carryovers and other items that will be carried over to the 40 Acquiring Fund as a result of Section 381 of the Code, and which statement will be certified by the President of the Acquired Fund. 5.7 The Trust on behalf of the Acquiring Fund will prepare and file with the Commission the Registration Statement in compliance with the 1933 Act and the 1940 Act in connection with the issuance of the Acquiring Fund Shares as contemplated herein. 5.8 The Trust II on behalf of the Acquired Fund will prepare a Proxy Statement, to be included in the Registration Statement in compliance with the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act"), and the 1940 Act and the rules and regulations thereunder (collectively, the "Acts") in connection with the special meeting of shareholders of the Acquired Fund to consider approval of this Agreement. 5.9 Neither the Acquired Fund nor the Acquiring Fund shall take any action that is inconsistent with the representations set forth in, with respect to the Acquired Fund, the Acquired Fund Tax Representation Certificate, and with respect to the Acquiring Fund, the Acquiring Fund Tax Representation Certificate, to the extent such action would prevent the reorganization from qualifying as a "reorganization" under Section 368(a) of the Code. 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST II ON BEHALF OF THE ACQUIRED FUND The obligations of the Trust II on behalf of the Acquired Fund to complete the transactions provided for herein shall be, at its election, subject to the performance by the Trust on behalf of the Acquiring Fund of all the obligations to be performed by it hereunder on or before the Closing Date, and, in addition thereto, the following further conditions: 6.1 All representations and warranties of the Trust on behalf of the Acquiring Fund contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date with the same force and effect as if made on and as of the Closing Date; 6.2 The Trust on behalf of the Acquiring Fund shall have delivered to the Trust II on behalf of the Acquired Fund a certificate executed in its name by the Trust's President or Vice President and its Treasurer or Assistant Treasurer, in form and substance satisfactory to the Trust II on behalf of the Acquired Fund and dated as of the Closing Date, to the effect that the representations and warranties of the Trust on behalf of the Acquiring Fund made in this Agreement are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and as to such other matters as the Trust II on behalf of the Acquired Fund shall reasonably request; and 6.3 The Acquiring Fund shall have delivered to the Acquired Fund an Acquiring Fund Tax Representation Certificate in a form acceptable to Hale and Dorr LLP, the Acquired Fund and the Acquiring Fund concerning certain tax-related matters with respect to the Acquiring Fund. 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST ON BEHALF OF THE ACQUIRING FUND The obligations of the Trust on behalf of the Acquiring Fund to complete the transactions provided for herein shall be, at its election, subject to the performance by the Trust II on behalf of the Acquired Fund of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, the following conditions: 7.1 All representations and warranties of the Trust II on behalf of the Acquired Fund contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date with the same force and effect as if made on and as of the Closing Date; 7.2 The Trust II on behalf of the Acquired Fund shall have delivered to the Trust on behalf of the Acquiring Fund the Statement of Assets and Liabilities of the Acquired Fund, together with a list of its portfolio securities showing the federal income tax bases and holding periods of such 41 securities, as of the Closing Date, certified by the Treasurer or Assistant Treasurer of the Acquired Fund; 7.3 The Trust II on behalf of the Acquired Fund shall have delivered to the Trust on behalf of the Acquiring Fund on the Closing Date a certificate executed in the name of the Acquired Fund by a President or Vice President and a Treasurer or Assistant Treasurer of the Acquired Fund, in form and substance satisfactory to the Trust on behalf of the Acquiring Fund and dated as of the Closing Date, to the effect that the representations and warranties of the Acquired Fund in this Agreement are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and as to such other matters as the Trust on behalf of the Acquiring Fund shall reasonably request; 7.4 At or prior to the Closing Date, the Acquired Fund's investment adviser, or an affiliate thereof, shall have made all payments, or applied all credits, to the Acquired Fund required by any applicable contractual expense limitation; and 7.5 The Acquired Fund shall have delivered to the Acquiring Fund an Acquired Fund Tax Representation Certificate in a form acceptable to Hale and Dorr LLP, the Acquired Fund and the Acquiring Fund concerning certain tax-related matters with respect to the Acquired Fund. 8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST II ON BEHALF OF THE ACQUIRED FUND AND THE TRUST ON BEHALF OF THE ACQUIRING FUND The obligations hereunder of the Trust II on behalf of the Acquired Fund and the Trust on behalf of the Acquiring Fund are each subject to the further conditions that on or before the Closing Date: 8.1 The Agreement and the transactions contemplated herein shall have been approved by the requisite vote of the holders of the outstanding shares of beneficial interest of the Acquired Fund in accordance with the provisions of the Trust II's Declaration and By-Laws, and certified copies of the resolutions evidencing such approval by the Acquired Fund's shareholders shall have been delivered by the Acquired Fund to the Trust on behalf of the Acquiring Fund; 8.2 On the Closing Date no action, suit or other proceeding shall be pending before any court or governmental agency in which it is sought to restrain or prohibit, or obtain changes or other relief in connection with, this Agreement or the transactions contemplated herein; 8.3 All consents of other parties and all other consents, orders and permits of federal, state and local regulatory authorities (including those of the Commission and their "no-action" positions) deemed necessary by the Trust II or the Trust to permit consummation, in all material respects, of the transactions contemplated hereby shall have been obtained, except where failure to obtain any such consent, order or permit would not involve a risk of a material adverse effect on the assets or properties of the Acquiring Fund or the Acquired Fund, provided that either party hereto may waive any such conditions for itself; 8.4 The Registration Statement shall have become effective under the 1933 Act and the 1940 Act and no stop orders suspending the effectiveness thereof shall have been issued and, to the best knowledge of the parties hereto, no investigation or proceeding for that purpose shall have been instituted or be pending, threatened or contemplated under the 1933 Act or the 1940 Act; 8.5 The Acquired Fund shall have distributed to its shareholders, in a distribution or distributions qualifying for the deduction for dividends paid under Section 561 of the Code, all of its investment company taxable income (as defined in Section 852(b)(2) of the Code determined without regard to Section 852(b)(2)(D) of the Code) for its taxable year ending on the Closing Date, all of the excess of (i) its interest income excludable from gross income under Section 103(a) of the Code over (ii) its deductions disallowed under Sections 265 and 171(a)(2) of the Code for its taxable year ending on the Closing Date, and all of its net capital gain (as such term is used in Sections 852(b)(3)(A) and (C) of the Code) after reduction by any available capital loss carryforward, for its taxable year ending on the Closing Date; and 8.6 Each of the Acquired Fund and the Acquiring Fund shall have received an opinion of Hale and Dorr LLP, satisfactory to the Trust II on behalf of the Acquired Fund and the Trust on behalf of the Acquiring Fund, substantially to the 42 effect that for federal income tax purposes the acquisition by the Acquiring Fund of all of the assets of the Acquired Fund solely in exchange for the issuance of Acquiring Fund Shares to the Acquired Fund and the assumption of all of the Acquired Fund Liabilities by the Acquiring Fund, followed by the distribution by the Acquired Fund, in liquidation of the Acquired Fund, of Acquiring Fund Shares to the shareholders of the Acquired Fund in exchange for their shares of beneficial interest of the Acquired Fund and the termination of the Acquired Fund, will constitute a "reorganization" within the meaning of Section 368(a) of the Code. 9. BROKERAGE FEES AND EXPENSES 9.1 The Trust on behalf of the Acquiring Fund and the Trust II on behalf of the Acquired Fund each represent and warrant to the other that there are no brokers or finders entitled to receive any payments in connection with the transactions provided for herein. 9.2 The Acquiring Fund and the Acquired Fund shall each be liable solely for its own expenses incurred in connection with entering into and carrying out the provisions of this Agreement whether or not the transactions contemplated hereby are consummated. 10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES 10.1 The Trust on behalf of the Acquiring Fund and the Trust II on behalf of the Acquired Fund agree that neither party has made any representation, warranty or covenant not set forth herein or referred to in Paragraph 4 hereof and that this Agreement constitutes the entire agreement between the parties. 10.2 The representations, warranties and covenants contained in this Agreement or in any document delivered pursuant hereto or in connection herewith shall survive the consummation of the transactions contemplated hereunder. 11. TERMINATION 11.1 This Agreement may be terminated by the mutual agreement of the Trust on behalf of the Acquiring Fund and the Trust II on behalf of the Acquired Fund. In addition, either party may at its option terminate this Agreement at or prior to the Closing Date: (a) because of a material breach by the other of any representation, warranty, covenant or agreement contained herein to be performed at or prior to the Closing Date; (b) because of a condition herein expressed to be precedent to the obligations of the terminating party which has not been met and which reasonably appears will not or cannot be met; (c) by resolution of the Trust's Board of Trustees if circumstances should develop that, in the good faith opinion of such Board, make proceeding with the Agreement not in the best interests of the Acquiring Fund's shareholders; or (d) by resolution of the Trust II's Board of Trustees if circumstances should develop that, in the good faith opinion of such Board, make proceeding with the Agreement not in the best interests of the Acquired Fund's shareholders. 11.2 In the event of any such termination, there shall be no liability for damages on the part of the Trust, the Acquiring Fund, the Trust II, or the Acquired Fund, or the Trustees or officers of the Trust or the Trust II, but each party shall bear the expenses incurred by it incidental to the preparation and carrying out of this Agreement. 12. AMENDMENTS This Agreement may be amended, modified or supplemented in such manner as may be mutually agreed upon by the authorized officers of the Trust and the Trust II. However, following the meeting of shareholders of the Acquired Fund held pursuant to Paragraph 5.2 of this Agreement, no such amendment may have the effect of changing the provisions regarding the method for determining the number of Acquiring Fund Shares to be received by the Acquired Fund shareholders under this Agreement to the 43 detriment of such shareholders without their further approval; provided that nothing contained in this Article 12 shall be construed to prohibit the parties from amending this Agreement to change the Closing Date. 13. NOTICES Any notice, report, statement or demand required or permitted by any provisions of this Agreement shall be in writing and shall be given by prepaid telegraph, telecopy or certified mail addressed to the Acquiring Fund or to the Acquired Fund, each at 101 Huntington Avenue, Boston, Massachusetts 02199, Attention: President, and, in either case, with copies to Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109, Attention: David C. Phelan, Esq. 14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT 14.1 The article and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 14.2 This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. 14.3 This Agreement shall be governed by and construed in accordance with the laws of he Commonwealth of Massachusetts. 14.4 This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, but no assignment or transfer hereof or of any rights or obligations hereunder shall be made by any party without the prior written consent of the other party. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm or corporation, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement. 14.5 All persons dealing with the Trust or the Trust II must look solely to the property of the Trust or the Trust II, respectively, for the enforcement of any claims against the Trust or the Trust II as the Trustees, officers, agents and shareholders of the Trust or the Trust II assume no personal liability for obligations entered into on behalf of the Trust or the Trust II, respectively. None of the other series of the Trust or the Trust II shall be responsible for any obligations assumed by or on behalf of the Acquiring Fund or the Acquired Fund under this Agreement. 44 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed as of the date first set forth above by its President or Vice President and has caused its corporate seal to be affixed hereto. JOHN HANCOCK INVESTMENT TRUST on behalf of JOHN HANCOCK SOVEREIGN INVESTORS FUND By:________________________________________ Maureen R. Ford Chairman, President and Chief Executive Officer [ ] TRUST on behalf of [ ] FUND By:________________________________________ Susan S. Newton Senior Vice President and Secretary 45 Thank You for mailing your proxy card promptly! John Hancock Funds, LLC Mutual Funds MEMBER NASD Institutional Services 101 Huntington Avenue Private Managed Accounts Boston, MA 02199-7603 Retirement Plans 1-888-972-8696 1-800-554-6713 TDD 1-800-597-1897 EASI-Line www.jhfunds.com 46 VOTE THIS PROXY CARD TODAY! YOUR PROMPT RESPONSE WILL SAVE YOUR FUND THE EXPENSE OF ADDITIONAL MAILINGS JOHN HANCOCK LARGE CAP SPECTRUM FUND SPECIAL MEETING OF SHAREHOLDERS -DECEMBER 3, 2003 PROXY SOLICITATION BY THE BOARD OF TRUSTEES The undersigned, revoking previous proxies, hereby appoint(s) Maureen Ford Goldfarb, Susan S. Newton and William H. King, with full power of substitution in each, to vote all the shares of beneficial interest of John Hancock Large Cap Spectrum Fund ("Large Cap Spectrum Fund") which the undersigned is (are) entitled to vote at the Special Meeting of Shareholders (the "Meeting") of Large Cap Spectrum Fund to be held at 101 Huntington Avenue, Boston, Massachusetts, on December 3, 2003 at 9:00 a.m., Boston time, and at any adjournment(s) of the Meeting. All powers may be exercised by a majority of all proxy holders or substitutes voting or acting, or, if only one votes and acts, then by that one. Receipt of the Proxy Statement dated October 8, 2003 is hereby acknowledged. If not revoked, this proxy shall be voted for the proposal. Date , 2003 -------------------- PLEASE SIGN, DATE AND RETURN PROMPTLY IN ENCLOSED ENVELOPE ------------------------------------ ------------------------------------ Signature(s) NOTE: Signature(s) should agree with the name(s) printed herein. When signing as attorney, executor, administrator ,trustee or guardian, please give your full name as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized person. VOTE THIS PROXY CARD TODAY! YOUR PROMPT RESPONSE WILL SAVE YOUR FUND THE EXPENSE OF ADDITIONAL MAILINGS SPECIFY YOUR DESIRED ACTION BY A CHECK MARK IN THE APPROPRIATE SPACE. THIS PROXY WILL BE VOTED IN FAVOR OF (FOR) PROPOSAL 1 IF NO SPECIFICATION IS MADE BELOW. AS TO ANY OTHER MATTER, THE PROXY OR PROXIES WILL VOTE IN ACCORDANCE WITH THEIR BEST JUDGEMENT. PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW. (1) To approve an Agreement and Plan of Reorganization between John Hancock Large Cap Spectrum Fund ("Large Cap Spectrum Fund") and John Hancock Sovereign Investors Fund ("Sovereign Investors Fund"). Under this Agreement, Large Cap Spectrum Fund would transfer all of its assets to Sovereign Investors Fund in exchange for shares of Sovereign Investors Fund. These shares will be distributed proportionately to you and the other shareholders of Sovereign Investors Fund. Sovereign Investors Fund will also assume Large Cap Spectrum Fund's liabilities. FOR |_| AGAINST |_| ABSTAIN |_| PLEASE DO NOT FORGET TO SIGN THE REVERSE SIDE OF THIS CARD. VOTE THIS PROXY CARD TODAY! YOUR PROMPT RESPONSE WILL SAVE YOUR FUND THE EXPENSE OF ADDITIONAL MAILINGS JOHN HANCOCK DIVIDEND PERFORMERS FUND SPECIAL MEETING OF SHAREHOLDERS -DECEMBER 3, 2003 PROXY SOLICITATION BY THE BOARD OF TRUSTEES The undersigned, revoking previous proxies, hereby appoint(s) Maureen Ford Goldfarb, Susan S. Newton and William H. King, with full power of substitution in each, to vote all the shares of beneficial interest of John Hancock Dividend Performers Fund ("Dividend Performers Fund") which the undersigned is (are) entitled to vote at the Special Meeting of Shareholders (the "Meeting") of Dividend Performers Fund to be held at 101 Huntington Avenue, Boston, Massachusetts, on December 3, 2003 at 9:00 a.m., Boston time, and at any adjournment(s) of the Meeting. All powers may be exercised by a majority of all proxy holders or substitutes voting or acting, or, if only one votes and acts, then by that one. Receipt of the Proxy Statement dated October 8, 2003 is hereby acknowledged. If not revoked, this proxy shall be voted for the proposal. Date , 2003 ---------------------------------------- PLEASE SIGN, DATE AND RETURN PROMPTLY IN ENCLOSED ENVELOPE ------------------------------------------------ ------------------------------------------------ Signature(s) NOTE: Signature(s) should agree with the name(s) printed herein. When signing as attorney, executor, administrator, trustee or guardian, please give your full name as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized person. VOTE THIS PROXY CARD TODAY! YOUR PROMPT RESPONSE WILL SAVE YOUR FUND THE EXPENSE OF ADDITIONAL MAILINGS SPECIFY YOUR DESIRED ACTION BY A CHECK MARK IN THE APPROPRIATE SPACE. THIS PROXY WILL BE VOTED IN FAVOR OF (FOR) PROPOSAL 1 IF NO SPECIFICATION IS MADE BELOW. AS TO ANY OTHER MATTER, THE PROXY OR PROXIES WILL VOTE IN ACCORDANCE WITH THEIR BEST JUDGEMENT. PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW. (1) To approve an Agreement and Plan of Reorganization between John Hancock Dividend Performers Fund ("Dividend Performers Fund") and John Hancock Sovereign Investors Fund ("Sovereign Investors Fund"). Under this Agreement, Dividend Performers Fund would transfer all of its assets to Sovereign Investors Fund in exchange for Class I shares of Sovereign Investors Fund. These shares will be distributed proportionately to you and the other shareholders of Dividend Performers Fund. Sovereign Investors Fund will also assume Dividend Performers Fund's liabilities. FOR |_| AGAINST |_| ABSTAIN |_| PLEASE DO NOT FORGET TO SIGN THE REVERSE SIDE OF THIS CARD. --------------- Shareholder Login PROXY DIRECT TM - -------------------------------------------------------------------------------- Back to Home Contact Us Security - -------------------------------------------------------------------------------- You can now submit your voting instructions online. To do so, please enter your Proxy Control Number in the area below. Your Internet Voting Control Number is located on your voting instruction card and is identified as Control Number or Internet Control Number. If you have received multiple voting instruction cards, each card has its own control number; you will need to login and provide your voting instructions separately for each such distinct Control Number. - -------------------------------------------------------------------------------- Enter Control Number here: [ ] [ ] [ ] [ ] Continue - -------------------------------------------------------------------------------- Your browser must support JavaScript 1.1 or higher and be able to accept cookies in order to continue. Click on HELP button at the top for more information and navigation tips. If you are unable to vote yor proxy using this service because of technical difficulties, you should refer to your Proxy Package for other voting options. VeriSign Secure Site Click to verify C 2001 PROXY DIRECT TM - Service of ALAMO Direct Mail Svcs, Inc. All rights reserved. John Hancock Funds Proxy PROXY DIRECT TM - -------------------------------------------------------------------------------- Back to Home Contact Us Security - -------------------------------------------------------------------------------- John Hancock ------------------ JOHN HANCOCK FUNDS i Below is the list of your holdings. Text next to each holding's name indicates whether you wish to vote as the Board recommends or to submit your individual instructions. To change between board recommended and individual instructions, click on the name of the holding; then follow the additional instructions. Unless you click on the name of the holding and the vote of your choice, your vote will automatically be recorded on the proposal as recommended by the Board. YOU MUST CLICK VOTE NOW! BUTTON TO COMPLETE YOUR SESSION - -------------------------------------------------------------------------------- List of Your Holdings Voting instructions - -------------------------------------------------------------------------------- John Hancock Large Cap Spectrum Fund as recommended by the Board - -------------------------------------------------------------------------------- Click on arrow to modify voting instructions - -------------------------------------------- Help me... Cancel Vote Now! - ---------- ------ --------- If you need help navigating You can quit Internet Once you have the site or experience problems voting at any time. However, completed during your online session, your voting instructions set selection of your this page may provide you with up during this session will voting answers be disregarded instructions and are ready to submit them for processing, click the Vote Now! button - -------------------------------------------------------------------------------- Back to Home Contact Us Security C 2000 PROXY DIRECT TM - -------------------------------------------------------------------------------- John Hancock Funds Proxy PROXY DIRECT TM - -------------------------------------------------------------------------------- Back to Home Contact Us Security - -------------------------------------------------------------------------------- Shareholder: John P. Sample ALAMO Direct Mail Services, Inc. 23-10 Square Circle Lane Someoldtown, TS 12345- 6789 Acount: ALAMO-TST01 / 271-XXXX- John Hancock XXXX-123 ------------------ JOHN HANCOCK FUNDS Previous vote: None-Testing APPS/TR Setup John Hancock Large Cap Spectrum Fund - -------------------------------------------------------------------------------- Applicable Campaign Proposals Mark All For Against Board - -------------------------------------------------------------------------------- 1 A proposal to approve an agreement and ( ) For ( ) Against ( ) Board Plan of Reorganization between John Hancock Large Cap Spectrum Fund ("Large Cap Spectrum Fund") and John Hancock Sovereign Investors Fund ("Sovereign Investors Fund"). Under this Agreement, your fund would transfer all of its assets to Sovereign Investors Fund in exchange for shares of Sovereign Investors Fund. These shares would be distributed proportionately to you and the other shareholders of Large Cap Spectrum Fund. Sovereign Investors Fund would also assume Large Cap Spectrum Fund's liabilities. - -------------------------------------------------------------------------------- Any other business that may properly come before the meeting. - -------------------------------------------------------------------------------- Voting Instructions ------------------- i Answers have been marked according to the Board's recommendations. Please change responses as appropriate before submission. [ ] Cancel [ ] Continue - -------------------------------------------------------------------------------- Back to Home Contact Us Security C 2000 PROXY DIRECT TM - -------------------------------------------------------------------------------- John Hancock Funds Proxy PROXY DIRECT TM - -------------------------------------------------------------------------------- Back to Home Contact Us Security - -------------------------------------------------------------------------------- John Hancock ------------------ JOHN HANCOCK FUNDS Thank you. Your voting instructions have been submitted for processing. If necessary, you can revisit Internet Voting site any time before the Meeting Date on Wednesday, December 3, 2003 at 9:00 AM [ET] to submit new voting instructions. This is the summary of your voting instructions delivered to John Hancock Funds. It is not a receipt or vote confirmation. You may print this page for your records. Instructions submitted on _________, 2003 Transaction Code: __________________ John Hancock Large Cap Spectrum Fund - -------------------------------------------------------------------------------- 1 Approve an Agreement and Plan of Reorganization Voted For If you wish to vote another card, please click here. - -------------------------------------------------------------------------------- Back to Home Contact Us Security C 2000 PROXY DIRECT TM - -------------------------------------------------------------------------------- --------------- Shareholder Login PROXY DIRECT TM - -------------------------------------------------------------------------------- Back to Home Contact Us Security - -------------------------------------------------------------------------------- You can now submit your voting instructions online. To do so, please enter your Proxy Control Number in the area below. Your Internet Voting Control Number is located on your voting instruction card and is identified as Control Number or Internet Control Number. If you have received multiple voting instruction cards, each card has its own control number; you will need to login and provide your voting instructions separately for each such distinct Control Number. - -------------------------------------------------------------------------------- Enter Control Number here: [ ] [ ] [ ] [ ] Continue - -------------------------------------------------------------------------------- Your browser must support JavaScript 1.1 or higher and be able to accept cookies in order to continue. Click on HELP button at the top for more information and navigation tips. If you are unable to vote yor proxy using this service because of technical difficulties, you should refer to your Proxy Package for other voting options. VeriSign Secure Site Click to verify C 2001 PROXY DIRECT TM - Service of ALAMO Direct Mail Svcs, Inc. All rights reserved. John Hancock Funds Proxy PROXY DIRECT TM - -------------------------------------------------------------------------------- Back to Home Contact Us Security - -------------------------------------------------------------------------------- John Hancock ------------------ JOHN HANCOCK FUNDS i Below is the list of your holdings. Text next to each holding's name indicates whether you wish to vote as the Board recommends or to submit your individual instructions. To change between board recommended and individual instructions, click on the name of the holding; then follow the additional instructions. Unless you click on the name of the holding and the vote of your choice, your vote will automatically be recorded on the proposal as recommended by the Board. YOU MUST CLICK VOTE NOW! BUTTON TO COMPLETE YOUR SESSION - -------------------------------------------------------------------------------- List of Your Holdings Voting instructions - -------------------------------------------------------------------------------- John Hancock Dividend Performers Fund as recommended by the Board - -------------------------------------------------------------------------------- Click on arrow to modify voting instructions - -------------------------------------------- Help me... Cancel Vote Now! - ---------- ------ --------- If you need help navigating You can quit Internet Once you have the site or experience problems voting at any time. However, completed during your online session, your voting instructions set selection of your this page may provide you with up during this session will voting answers be disregarded instructions and are ready to submit them for processing, click the Vote Now! button - -------------------------------------------------------------------------------- Back to Home Contact Us Security C 2000 PROXY DIRECT TM - -------------------------------------------------------------------------------- John Hancock Funds Proxy PROXY DIRECT TM - -------------------------------------------------------------------------------- Back to Home Contact Us Security - -------------------------------------------------------------------------------- Shareholder: John P. Sample ALAMO Direct Mail Services, Inc. 23-10 Square Circle Lane Someoldtown, TS 12345- 6789 Acount: ALAMO-TST01 / 271-XXXX- John Hancock XXXX-123 ------------------ JOHN HANCOCK FUNDS Previous vote: None-Testing APPS/TR Setup John Hancock Dividend Performers Fund - -------------------------------------------------------------------------------- Applicable Campaign Proposals Mark All For Against Board - -------------------------------------------------------------------------------- 1 A proposal to approve an agreement and ( ) For ( ) Against ( ) Board Plan of Reorganization between John Hancock Dividend Performers Fund ("Dividend Performers Fund") and John Hancock Sovereign Investors Fund ("Sovereign Investors Fund"). Under this Agreement, your fund would transfer all of its assets to Sovereign Investors Fund in exchange for shares of Sovereign Investors Fund. These shares would be distributed proportionately to you and the other shareholders of Dividend Performers Fund. Sovereign Investors Fund would also assume Dividend Performers Fund's liabilities. - -------------------------------------------------------------------------------- Any other business that may properly come before the meeting. - -------------------------------------------------------------------------------- Voting Instructions ------------------- i Answers have been marked according to the Board's recommendations. Please change responses as appropriate before submission. [ ] Cancel [ ] Continue - -------------------------------------------------------------------------------- Back to Home Contact Us Security C 2000 PROXY DIRECT TM - -------------------------------------------------------------------------------- John Hancock Funds Proxy PROXY DIRECT TM - -------------------------------------------------------------------------------- Back to Home Contact Us Security - -------------------------------------------------------------------------------- John Hancock ------------------ JOHN HANCOCK FUNDS Thank you. Your voting instructions have been submitted for processing. If necessary, you can revisit Internet Voting site any time before the Meeting Date on Wednesday, December 3, 2003 at 9:00 AM [ET] to submit new voting instructions. This is the summary of your voting instructions delivered to John Hancock Funds. It is not a receipt or vote confirmation. You may print this page for your records. Instructions submitted on _________, 2003 Transaction Code: __________________ John Hancock Dividend Performers Fund - -------------------------------------------------------------------------------- 1 Approve an Agreement and Plan of Reorganization Voted For If you wish to vote another card, please click here. - -------------------------------------------------------------------------------- Back to Home Contact Us Security C 2000 PROXY DIRECT TM - -------------------------------------------------------------------------------- JOHN HANCOCK - -------------------------------------------------------------------------------- Prospectus 3.1.03 Sovereign Investors Fund as revised 10.1.03 290PN 3/03 Draft 8/20/03 [LOGO](R) - ------------------ JOHN HANCOCK FUNDS As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved this fund or determined whether the information in this prospectus is adequate and accurate. Anyone who indicates otherwise is committing a federal crime. Contents - -------------------------------------------------------------------------------- A summary of the fund's Sovereign Investors Fund 4 goals, strategies, risks, performance and expenses. Policies and instructions for Your account opening, maintaining and closing an account. Choosing a share class 6 How sales charges are calculated 6 Sales charge reductions and waivers 7 Opening an account 8 Buying shares 9 Selling shares 10 Transaction policies 12 Dividends and account policies 12 Additional investor services 13 Further information on the Fund details fund. Business structure 14 Management biographies 15 Financial highlights 16 For more information back cover 3 Sovereign Investors Fund GOAL AND STRATEGY [Clip Art] The fund seeks long-term growth of capital and income without assuming undue market risks. To pursue this goal, the fund normally invests at least 80% of stocks in a diversified portfolio of companies with market capitalizations within the range of the Standard & Poor's 500 Index. On July 31, 2003, that range was $284.9 million to $384.7 billion. At least 65% of the fund's stock investments are "dividend performers" -- companies whose dividend payments have increased steadily for ten years. In managing the portfolio, the managers use fundamental financial analysis to identify individual companies with high-quality income statements, substantial cash reserves and identifiable catalysts for growth, which may be new products or benefits from industrywide growth. The managers generally visit companies to evaluate the strength and consistency of their management strategy. Finally, the managers look for stocks that are reasonably priced relative to their earnings and industry. Historically, companies that meet these criteria have tended to have large or medium capitalizations. The fund may not invest more than 5% of assets in any one security. The fund may invest in bonds of any maturity, with up to 5% of assets in junk bonds rated as low as C and their unrated equivalents. The fund typically invests in U.S. companies but may invest in dollar-denominated foreign securities. It may also make limited use of certain derivatives (investments whose value is based on indexes). Under normal conditions, the fund may not invest more than 10% of assets in cash or cash equivalents. In abnormal market conditions, the fund may temporarily invest extensively in investment-grade short-term securities. In these and other cases, the fund might not achieve its goal. The fund may trade securities actively, which could increase its transaction costs (thus lowering performance) and increase your taxable distributions. ================================================================================ PAST PERFORMANCE [Clip Art] The graph shows how the fund's total return has varied from year to year, while the table shows performance over time (along with a broad-based market index for reference). This information may help provide an indication of the fund's risks. The average annual figures reflect sales charges; the year-by-year and index figures do not, and would be lower if they did. All figures assume dividend reinvestment. Past performance before and after taxes does not indicate future results. Class A, total returns 2003 return as of 6-30-03: 6.73% Best quarter: Q4 '98, 15.56% Worst quarter: Q3 `02, -13.87% After-tax returns After-tax returns are shown for Class A shares only and would be different for the other classes. They are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the impact of state and local taxes. Actual aftertax returns depend on the investor's tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. Index (reflects no fees or taxes) Standard & Poor's 500 Index, an unmanaged index of 500 stocks.
- ------------------------------------------------------------------------------------- Class A calendar year total returns (without sales charges) - ------------------------------------------------------------------------------------- 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 5.71% -1.85% 29.15% 17.57% 29.14% 15.62% 5.91% 4.08% -6.06% -18.68%
- ------------------------------------------------------------------------------------------------------ Average annual total returns (including sales charge) for periods ending 12-31-02 - ------------------------------------------------------------------------------------------------------ 1 year 5 year 10 year Life of Life of Class B Class C Class A before tax -22.76% -1.55% 6.53% -- -- Class A after tax on distributions -23.32% -3.07% 4.76% -- -- Class A after tax on distributions, with sale -13.85% -1.32% 4.97% -- -- Class B before tax (began 1-3-94) -23.26% -1.53% -- 6.52% -- Class C before tax (began 5-1-98) -20.86% -- -- -- -3.36% - ------------------------------------------------------------------------------------------------------ Standard & Poor's 500 Index -22.10% -0.59% 9.34% 9.30% -3.75%
4 MAIN RISKS [Clip Art] The value of your investment will fluctuate in response to stock and bond market movements. The fund's management strategy has a significant influence on fund performance. Large- or medium-capitalization stocks as a group could fall out of favor with the market, causing the fund to underperform funds that focus on small-capitalization stocks. Medium-capitalization stocks tend to be more volatile than stocks of larger companies. In addition, if the managers' securities selection strategies do not perform as expected, the fund could underperform its peers or lose money. To the extent that the fund makes investments with additional risks, these risks could increase volatility or reduce performance: o Certain derivatives could produce disproportionate losses. o In a down market, higher-risk securities and derivatives could become harder to value or to sell at a fair price. o Foreign investments carry additional risks, including inadequate or inaccurate financial information and social or political instability. o Any bonds held by the fund could be downgraded in credit rating or go into default. Bond prices generally fall when interest rates rise and longer maturity will increase volatility. Junk bond prices can fall on bad news about the economy, an industry or a company. Investments in the fund are not bank deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. You could lose money by investing in this fund. ================================================================================ YOUR EXPENSES [Clip Art] Transaction expenses are charged directly to your account. Operating expenses are paid from the fund's assets, and therefore are paid by shareholders indirectly.
- --------------------------------------------------------------------------------------- Shareholder transaction expenses(1) Class A Class B Class C - --------------------------------------------------------------------------------------- Maximum sales charge (load) 5.00% 5.00% 2.00% Maximum front-end sales charge (load) on purchases as a % of purchase price 5.00% none 1.00% Maximum deferred sales charge (load) as a % of purchase or sale price, whichever is less none(2) 5.00% 1.00%
- --------------------------------------------------------------------------------------- Annual operating expenses Class A Class B Class C - --------------------------------------------------------------------------------------- Management fee 0.57% 0.57% 0.57% Distribution and service (12b-1) fees 0.30% 1.00% 1.00% Other expenses 0.30% 0.30% 0.30% Total fund operating expenses 1.17% 1.87% 1.87%
The hypothetical example below shows what your expenses would be if you invested $10,000 over the time frames indicated, assuming you reinvested all distributions and that the average annual return was 5%. The example is for comparison only, and does not represent the fund's actual expenses and returns, either past or future. - -------------------------------------------------------------------------------- Expenses Year 1 Year 3 Year 5 Year 10 - -------------------------------------------------------------------------------- Class A $613 $853 $1,111 $1,849 Class B with redemption $690 $888 $1,211 $2,008 Class B without redemption $190 $588 $1,011 $2,008 Class C with redemption $387 $682 $1,101 $2,268 Class C without redemption $288 $682 $1,101 $2,268 (1) A $4.00 fee will be charged for wire redemptions. (2) Except for investments of $1 million or more; see "How sales charges are calculated." ================================================================================ PORTFOLIO MANAGERS John F. Snyder, III Joined fund team in 1983 Barry H. Evans, CFA Joined fund team in 1996 Peter M. Schofield, CFA Joined fund team in 1996 See page 15 for the management biographies. FUND CODES Class A Ticker SOVIX CUSIP 47803P302 Newspaper SvInvA SEC number 811-0560 JH fund number 29 Class B Ticker SOVBX CUSIP 47803P401 Newspaper SvInvB SEC number 811-0560 JH fund number 129 Class C Ticker SOVCX CUSIP 47803P609 Newspaper -- SEC number 811-0560 JH fund number 529 5 Your account - -------------------------------------------------------------------------------- CHOOSING A SHARE CLASS Each share class has its own cost structure, including a Rule 12b-1 plan that allows it to pay fees for the sale, distribution and service of its shares. Your financial representative can help you decide which share class is best for you. - -------------------------------------------------------------------------------- Class A - -------------------------------------------------------------------------------- o A front-end sales charge, as described at right. o Distribution and service (12b-1) fees of 0.30%. - -------------------------------------------------------------------------------- Class B - -------------------------------------------------------------------------------- o No front-end sales charge; all your money goes to work for you right away. o Distribution and service (12b-1) fees of 1.00%. o A deferred sales charge, as described on following page. o Automatic conversion to Class A shares after eight years, thus reducing future annual expenses. - -------------------------------------------------------------------------------- Class C - -------------------------------------------------------------------------------- o A front-end sales charge, as described at right. o Distribution and service (12b-1) fees of 1.00%. o A 1.00% contingent deferred sales charge on shares sold within one year of purchase. o No automatic conversion to Class A shares, so annual expenses continue at the Class C level throughout the life of your investment. Because 12b-1 fees are paid on an ongoing basis, they may cost shareholders more than other types of sales charges. Investors purchasing $1 million or more of Class B or Class C shares may want to consider the lower operating expenses of Class A shares. Your broker/dealer receives a percentage of these sales charges and fees. In addition, John Hancock Funds may pay significant compensation out of its own resources to your broker/dealer. Your broker/dealer or agent may charge you a fee to effect transactions in fund shares. - -------------------------------------------------------------------------------- HOW SALES CHARGES ARE CALCULATED Class A and Class C Sales charges are as follows: - -------------------------------------------------------------------------------- Class A sales charges - -------------------------------------------------------------------------------- As a % of As a % of your Your investment offering price investment Up to $ 49,999 5.00% 5.26% $50,000 - $99,999 4.50% 4.71% $100,000 - $249,999 3.50% 3.63% $250,000 - $499,000 2.50% 2.56% $500,000 - $999,999 2.00% 2.04% $1,000,000 and over See below - -------------------------------------------------------------------------------- Class C sales charges - -------------------------------------------------------------------------------- As a % of As a % of your Your investment offering price investment Up to $1,000,000 1.00% 1.01% $1,000,000 and over none Investments of $1 million or more Class A and Class C shares are available with no front-end sales charge. However, there is a contingent deferred sales charge (CDSC) on any Class A shares sold within one year of purchase, as follows: - -------------------------------------------------------------------------------- CDSC on $1 million+ investments - -------------------------------------------------------------------------------- CDSC on shares Your investment being sold First $1M - $4,999,999 1.00% Next $1 - $5M above that 0.50% Next $1 or more above that 0.25% For purposes of this CDSC, all purchases made during a calendar month are counted as having been made on the first day of that month. 6 YOUR ACCOUNT The CDSC is based on the lesser of the original purchase cost or the current market value of the shares being sold, and is not charged on shares you acquired by reinvesting your dividends. To keep your CDSC as low as possible, each time you place a request to sell shares we will first sell any shares in your account that are not subject to a CDSC. Class B Shares are offered at their net asset value per share, without any initial sales charge. Class B and Class C A CDSC may be charged if you sell Class B or Class C shares within a certain time after you bought them, as described in the tables below. There is no CDSC on shares acquired through reinvestment of dividends. The CDSC is based on the original purchase cost or the current market value of the shares being sold, whichever is less. The CDSCs are as follows: - -------------------------------------------------------------------------------- Class B deferred charges - -------------------------------------------------------------------------------- Years after purchase CDSC on shares being sold 1st year 5.00% 2nd year 4.00% 3rd or 4th year 3.00% 5th year 2.00% 6th year 1.00% After 6th year none - -------------------------------------------------------------------------------- Class C deferred charges - -------------------------------------------------------------------------------- Years after purchase CDSC 1st year 1.00% After 1st year none For purposes of these CDSCs, all purchases made during a calendar month are counted as having been made on the first day of that month. CDSC calculations are based on the number of shares involved, not on the value of your account. To keep your CDSC as low as possible, each time you place a request to sell shares we will first sell any shares in your account that carry no CDSC. If there are not enough of these to meet your request, we will sell those shares that have the lowest CDSC. - -------------------------------------------------------------------------------- SALES CHARGE REDUCTIONS AND WAIVERS Reducing your Class A sales charges There are several ways you can combine multiple purchases of Class A shares of John Hancock funds to take advantage of the breakpoints in the sales charge schedule. The first three ways can be combined in any manner. o Accumulation Privilege -- lets you add the value of any Class A shares you already own to the amount of your next Class A investment for purposes of calculating the sales charge. Retirement plans investing $1 million in Class B shares may add that value to Class A purchases to calculate charges. o Letter of Intention -- lets you purchase Class A shares of a fund over a 13-month period and receive the same sales charge as if all shares had been purchased at once. o Combination Privilege -- lets you combine Class A shares of multiple funds for purposes of calculating the sales charge. To utilize: complete the appropriate section of your application, or contact your financial representative or Signature Services, or consult the SAI (see the back cover of this prospectus). Group Investment Program A group may be treated as a single purchaser under the accumulation and combination privileges. Each investor has an individual account, but the group's investments are lumped together for sales charge purposes, making the investors potentially eligible for reduced sales charges. There is no charge or obligation to invest (although initial investments must total at least $250) and individual investors may close their accounts at any time. To utilize: contact your financial representative or Signature Services to find out how to qualify, or consult the SAI (see the back cover of the prospectus). CDSC waivers As long as Signature Services is notified at the time you sell, the CDSC for each share class will generally be waived in the following cases: o to make payments through certain systematic withdrawal plans o to make certain distributions from a retirement plan o because of shareholder death or disability To utilize: If you think you may be eligible for a CDSC waiver, contact your financial representative or Signature Services, or consult the SAI (see the back cover of this prospectus). YOUR ACCOUNT 7 Reinstatement privilege If you sell shares of a John Hancock fund, you may reinvest some or all of the proceeds in the same share class of any John Hancock fund within 120 days without a sales charge, as long as Signature Services is notified before you reinvest. If you paid a CDSC when you sold your shares, you will be credited with the amount of the CDSC. All accounts involved must have the same registration. To utilize: contact your financial representative or Signature Services. Waivers for certain investors Class A shares may be offered without front-end sales charges or CDSCs to various individuals and institutions, including: o selling brokers and their employees and sales representatives o financial representatives utilizing fund shares in fee-based investment products under signed agreement with John Hancock Funds o fund trustees and other individuals who are affiliated with these or other John Hancock funds o individuals transferring assets from an employee benefit plan into a John Hancock fund o participants in certain retirement plans with at least 100 eligible employees (one-year CDSC applies) Class C shares may be offered without front-end sales charges to various individuals and institutions. To utilize: if you think you may be eligible for a sales charge waiver, contact Signature Services or consult the SAI (see the back cover of this prospectus). - -------------------------------------------------------------------------------- OPENING AN ACCOUNT 1 Read this prospectus carefully. 2 Determine how much you want to invest. The minimum initial investments for the John Hancock funds are as follows: o non-retirement account: $1,000 o retirement account: $250 o group investments: $250 o Monthly Automatic Accumulation Plan (MAAP): $25 to open; you must invest at least $25 a month o fee-based clients of selling brokers who have placed at least $2 billion in John Hancock funds: $250 3 Complete the appropriate parts of the account application, carefully following the instructions. You must submit additional documentation when opening trust, corporate or power of attorney accounts. You must notify your financial representative or Signature Services if this information changes. For more details, please contact your financial representative or call Signature Services at 1-800-225-5291. 4 Complete the appropriate parts of the account privileges application. By applying for privileges now, you can avoid the delay and inconvenience of having to file an additional application if you want to add privileges later. 5 Make your initial investment using the table on the next page. You and your financial representative can initiate any purchase, exchange or sale of shares. 8 YOUR ACCOUNT - -------------------------------------------------------------------------------- Buying shares - -------------------------------------------------------------------------------- Opening an account Adding to an account By check [Clip Art] o Make out a check for the o Make out a check for the investment amount, payable to investment amount payable to "John Hancock Signature "John Hancock Signature Services, Inc." Services, Inc." o Deliver the check and your o Fill out the detachable completed application to your investment slip from an financial representative, or account statement. If no slip mail them to Signature is available, include a note Services (address below). specifying the fund name, your share class, your account number and the name(s) in which the account is registered. o Deliver the check and your investment slip or note to your financial representative, or mail them to Signature Services (address below). By exchange [Clip Art] o Call your financial o Log on to www.jhfunds.com to representative or Signature process exchanges between Services to request an funds. exchange. o Call EASI-Line for automated service 24 hours a day using your touch-tone phone at 1-800-338-8080. o Call your financial representative or Signature Services to request an exchange. By wire [Clip Art] o Deliver your completed o Instruct your bank to wire the application to your financial amount of your investment to: representative, or mail it to First Signature Bank & Trust Signature Services. Account # 900000260 o Obtain your account number by Routing # 211475000 calling your financial Specify the fund name, your share representative or Signature class, your account number and Services. the name(s) in which the account o Instruct your bank to wire the is registered. Your bank may amount of your investment to: charge a fee to wire funds. First Signature Bank & Trust Account # 900000260 Routing # 211475000 Specify the fund name, your choice of share class, the new account number and the name(s) in which the account is registered. Your bank may charge a fee to wire funds. By Internet [Clip Art] See "By exchange" and "By wire." o Verify that your bank or credit union is a member of the Automated Clearing House (ACH) system. o Complete the "Bank Information" section on your account application. o Log on to www.jhfunds.com to initiate purchases using your authorized bank account. By phone [Clip Art] See "By exchange" and "By wire." o Verify that your bank or credit union is a member of the Automated Clearing House (ACH) system. o Complete the "Bank Information" section on your account application. o Call EASI-Line for automated service 24 hours a day using your touch-tone phone at 1-800-338-8080. o Call your financial representative or Signature Services between 8 A.M. and 4 P.M. Eastern Time on most business days. - -------------------------------------------------------------------------------- Address: John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1000 Boston, MA 02217-1000 Phone Number: 1-800-225-5291 Or contact your financial representative for instructions and assistance. - -------------------------------------------------------------------------------- YOUR ACCOUNT 9 - -------------------------------------------------------------------------------- Selling shares - -------------------------------------------------------------------------------- Designed for To sell some or all of your shares By letter [Clip Art] o Accounts of any type. o Write a letter of instruction o Sales of any amount. or complete a stock power indicating the fund name, your share class, your account number, the name(s) in which the account is registered and the dollar value or number of shares you wish to sell. o Include all signatures and any additional documents that may be required (see next page). o Mail the materials to Signature Services. o A check will be mailed to the name(s) and address in which the account is registered, or otherwise according to your letter of instruction. By Internet [Clip Art] o Most accounts. o Log on to www.jhfunds.com to o Sales of up to $100,000. initiate redemptions from your funds. By phone [Clip Art] o Most accounts. o Call EASI-Line for automated o Sales of up to $100,000. service 24 hours a day using your touch-tone phone at 1-800-338-8080. o Call your financial representative or Signature Services between 8 A.M. and 4 P.M. Eastern Time on most business days. By wire or electronic funds transfer (EFT) [Clip Art] o Requests by letter to sell any o To verify that the Internet or amount. telephone redemption privilege o Requests by Internet or phone is in place on an account, or to sell up to $100,000. to request the form to add it to an existing account, call Signature Services. o Amounts of $1,000 or more will be wired on the next business day. A $4 fee will be deducted from your account. o Amounts of less than $1,000 may be sent by EFT or by check. Funds from EFT transactions are generally available by the second business day. Your bank may charge a fee for this service. By exchange [Clip Art] o Accounts of any type. o Obtain a current prospectus o Sales of any amount. for the fund into which you are exchanging by Internet or by calling your financial representative or Signature Services. o Log on to www.jhfunds.com to process exchanges between your funds. o Call EASI-Line for automated service 24 hours a day using your touch-tone phone at 1-800-338-8080. o Call your financial representative or Signature Services to request an exchange. To sell shares through a systematic withdrawal plan, see "Additional investor services." 10 YOUR ACCOUNT Selling shares in writing In certain circumstances, you will need to make your request to sell shares in writing. You may need to include additional items with your request, unless they were previously provided to Signature Services and are still accurate. These items are shown in the table below. You may also need to include a signature guarantee, which protects you against fraudulent orders. You will need a signature guarantee if: o your address of record has changed within the past 30 days o you are selling more than $100,000 worth of shares o you are requesting payment other than by a check mailed to the address of record and payable to the registered owner(s) You will need to obtain your signature guarantee from a member of the Signature Guarantee Medallion Program. Most brokers and securities dealers are members of this program. A notary public CANNOT provide a signature guarantee. - -------------------------------------------------------------------------------- Seller Requirements for written requests - -------------------------------------------------------------------------------- [Clip Art] Owners of individual, joint or o Letter of instruction. UGMA/UTMA accounts (custodial accounts o On the letter, the signatures and for minors). titles of all persons authorized to sign for the account, exactly as the account is registered. o Signature guarantee if applicable (see above). Owners of corporate, sole o Letter of instruction. proprietorship, general partner or o Corporate business/organization association accounts. resolution, certified within the past 12 months, or a John Hancock Funds business/ organization certification form. o On the letter and the resolution, the signature of the person(s) authorized to sign for the account. o Signature guarantee if applicable (see above). Owners or trustees of trust accounts. o Letter of instruction. o On the letter, the signature(s) of the trustee(s). o Copy of the trust document certified within the past 12 months or a John Hancock Funds trust certification form. o Signature guarantee if applicable (see above). Joint tenancy shareholders with rights o Letter of instruction signed by of survivorship whose co-tenants are surviving tenant. deceased. o Copy of death certificate. o Signature guarantee if applicable (see above). Executors of shareholder estates. o Letter of instruction signed by executor. o Copy of order appointing executor, certified within the past 12 months. o Signature guarantee if applicable (see above). Administrators, conservators, o Call 1-800-225-5291 for guardians and other sellers or account instructions. types not listed above. - -------------------------------------------------------------------------------- Address: John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1000 Boston, MA 02217-1000 Phone Number: 1-800-225-5291 Or contact your financial representative for instructions and assistance. - -------------------------------------------------------------------------------- YOUR ACCOUNT 11 - -------------------------------------------------------------------------------- TRANSACTION POLICIES Valuation of shares The net asset value (NAV) per share for each class of the fund is determined each business day at the close of regular trading on the New York Stock Exchange (typically 4 P.M. Eastern Time). The fund uses market prices in valuing portfolio securities, but may use fair-value estimates if reliable market prices are unavailable. The fund may also value securities at fair value if the value of these securities has been materially affected by events occurring after the close of a foreign market. Foreign stock or other portfolio securities held by the fund may trade on U.S. holidays and weekends, even though the fund's shares will not be priced on those days. This may change the fund's NAV on days when you cannot buy or sell shares. Buy and sell prices When you buy shares, you pay the NAV plus any applicable sales charges, as described earlier. When you sell shares, you receive the NAV minus any applicable deferred sales charges. Execution of requests The fund is open on those days when the New York Stock Exchange is open, typically Monday through Friday. Buy and sell requests are executed at the next NAV to be calculated after Signature Services receives your request in good order. At times of peak activity, it may be difficult to place requests by phone. During these times, consider using EASI-Line, accessing www.jhfunds.com, or sending your request in writing. In unusual circumstances, the fund may temporarily suspend the processing of sell requests, or may postpone payment of proceeds for up to three business days or longer, as allowed by federal securities laws. Telephone transactions For your protection, telephone requests may be recorded in order to verify their accuracy. Also for your protection, telephone redemption transactions are not permitted on accounts whose names or addresses have changed within the past 30 days. Proceeds from telephone transactions can only be mailed to the address of record. Exchanges You may exchange shares of one John Hancock fund for shares of the same class of any other, generally without paying any additional sales charges. The registration for both accounts involved must be identical. Class B and Class C shares will continue to age from the original date and will retain the same CDSC rate. However, if the new fund's CDSC rate is higher, then the rate will increase. A CDSC rate that has increased will drop again with a future exchange into a fund with a lower rate. To protect the interests of other investors in the fund, the fund may cancel the exchange privileges of any parties who, in the opinion of the fund, are using market timing strategies or making more than seven exchanges per owner or controlling party per calendar year. The fund may also refuse any exchange order. The fund may change or cancel its exchange policies at any time, upon 60 days' notice to its shareholders. Account Information John Hancock Funds is required by law to obtain information for verifying an account holder's identity. If you do not provide the required information, we may not be able to open your account. If verification is unsuccessful, John Hancock Funds may close your account, redeem your shares at the next NAV minus any applicable sales charges, and take other steps that it deems reasonable. Certificated shares The fund nolonger issues share certificates. Shares are electronically recorded. Any existing certifcated shares can only be sold by returning the certificated shares to Signature Services, along with a letter of instruction or a stock power and a signature guarantee. Sales in advance of purchase payments When you place a request to sell shares for which the purchase money has not yet been collected, the request will be executed in a timely fashion, but the fund will not release the proceeds to you until your purchase payment clears. This may take up to ten business days after the purchase. - -------------------------------------------------------------------------------- DIVIDENDS AND ACCOUNT POLICIES Account statements In general, you will receive account statements as follows: o after every transaction (except a dividend reinvestment) that affects your account balance o after any changes of name or address of the registered owner(s) o in all other circumstances, every quarter Every year you should also receive, if applicable, a Form 1099 tax information statement, mailed by January 31. Dividends The fund generally distributes most or all of its net earnings annually in the form of dividends. The fund typically declares and pays any income dividends quarterly. Capital gains, if any, are typically distributed annually. Dividend reinvestments Most investors have their dividends reinvested in additional shares of the same fund and class. If you choose this option, or if you do not indicate any choice, your dividends will be reinvested on the dividend record date. Alternatively, you can choose to have a check for your dividends and capital gains in the amount of more than $10 mailed to you. However, if the check is not deliverable or the combined dividend and 12 YOUR ACCOUNT capital gains amount is $10 or less, your proceeds will be reinvested. If five or more of your dividend or capital gains checks remain uncashed after 180 days, all subsequent dividends and capital gains will be reinvested. Taxability of dividends Dividends you receive from a fund, whether reinvested or taken as cash, are generally considered taxable. Dividends from the fund's long-term capital gains are taxable as capital gains; dividends from the fund's income and short-term capital gains are generally taxable as ordinary income. Whether gains are short-term or long-term depends on the fund's holding period. Some dividends paid in January may be taxable as if they had been paid the previous December. The Form 1099 that is mailed to you every January details your dividends and their federal tax category, although you should verify your tax liability with your tax professional. Taxability of transactions Any time you sell or exchange shares, it is considered a taxable event for you. Depending on the purchase price and the sale price of the shares you sell or exchange, you may have a gain or a loss on the transaction. You are responsible for any tax liabilities generated by your transactions. Small accounts (non-retirement only) If you draw down a non-retirement account so that its total value is less than $1,000, you may be asked to purchase more shares within 30 days. If you do not take action, your fund may close out your account and mail you the proceeds. Alternatively, Signature Services may charge you $10 a year to maintain your account. You will not be charged a CDSC if your account is closed for this reason, and your account will not be closed if its drop in value is due to fund performance or the effects of sales charges. - -------------------------------------------------------------------------------- ADDITIONAL INVESTOR SERVICES Monthly Automatic Accumulation Program (MAAP) MAAP lets you set up regular investments from your paycheck or bank account to the John Hancock fund(s) of your choice. You determine the frequency and amount of your investments, and you can terminate your program at any time. To establish: o Complete the appropriate parts of your account application. o If you are using MAAP to open an account, make out a check ($25 minimum) for your first investment amount payable to "John Hancock Signature Services, Inc." Deliver your check and application to your financial representative or Signature Services. Systematic withdrawal plan This plan may be used for routine bill payments or periodic withdrawals from your account. To establish: o Make sure you have at least $5,000 worth of shares in your account. o Make sure you are not planning to invest more money in this account (buying shares during a period when you are also selling shares of the same fund is not advantageous to you, because of sales charges). o Specify the payee(s). The payee may be yourself or any other party, and there is no limit to the number of payees you may have, as long as they are all on the same payment schedule. o Determine the schedule: monthly, quarterly, semi-annually, annually or in certain selected months. o Fill out the relevant part of the account application. To add a systematic withdrawal plan to an existing account, contact your financial representative or Signature Services. Retirement plans John Hancock Funds offers a range of retirement plans, including traditional and Roth IRAs, Coverdell ESAs, SIMPLE plans and SEPs. Using these plans, you can invest in any John Hancock fund (except tax-free income funds) with a low minimum investment of $250 or, for some group plans, no minimum investment at all. To find out more, call Signature Services at 1-800-225-5291. YOUR ACCOUNT 13 Fund details - -------------------------------------------------------------------------------- BUSINESS STRUCTURE The diagram below shows the basic business structure used by the fund. The fund's board of trustees oversees the fund's business activities and retains the services of the various firms that carry out the fund's operations. The management firm The fund is managed by John Hancock Advisers, LLC Founded in 1968, John Hancock Advisers is a wholly owned subsidiary of John Hancock Financial Services, Inc. and as of June 30, 2003 managed approximately $27 billion in assets. Management fee For the fiscal year ended December 31, 2002, the fund paid the investment adviser a management fee at an annual rate of 0.57% of the fund's average daily net assets. ------------------------------ Shareholders ------------------------------ Distribution and shareholder services ------------------------------ Financial services firms and their representatives Advise current and prospective shareholders on their fund investments, often in the context of an overall financial plan. ------------------------------ ------------------------------ Principal distributor John Hancock Funds, LLC Markets the fund and distributes shares through selling brokers, financial planners and other financial representatives. ------------------------------ ------------------------------ Transfer agent John Hancock Signature Services, Inc. Handles shareholder services, including record-keeping and statements, distribution of dividends and processing of buy and sell requests. ------------------------------ ------------------------------ Investment adviser John Hancock Advisers, LLC 101 Huntington Avenue Boston, MA 02199-7603 Manages the fund's business and investment activities. ------------------------------ ------------------------------ Custodian The Bank of New York One Wall Street New York, New York 10286 Holds the fund's assets, settles all portfolio trades and collects most of the valuation data required for calculating the fund's NAV. ------------------------------ Asset management ------------------------------ Trustees Oversee the fund's activities. ------------------------------ 14 FUND DETAILS MANAGEMENT BIOGRAPHIES Below is an alphabetical list of the portfolio managers for the John Hancock Sovereign Investors Fund. It is a brief summary of their business careers over the past five years. Barry H. Evans, CFA - ------------------------------------ Senior vice president Joined John Hancock Advisers in 1986 Began business career in 1986 Peter M. Schofield, CFA - ------------------------------------ Vice president Joined John Hancock Advisers in 1996 Began business career in 1984 John F. Snyder, III - ------------------------------------ Executive vice president Joined John Hancock Advisers in 1991 Began business career in 1971 FUND DETAILS 15 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS These tables detail the performance of the fund's share classes, including total return information showing how much an investment in the fund has increased or decreased each year. Sovereign Investors Fund Figures audited by Ernst & Young LLP.
Unaudited CLASS A SHARES PERIOD ENDED: 12-31-98 12-31-99 12-31-00 12-31-01(1) 12-31-02(1) 6-30-03(2) - ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $22.41 $24.23 $24.51 $23.35 $19.88 $15.81 Net investment income(3) 0.31 0.30 0.33 0.32 0.24 0.09 Net realized and unrealized gain (loss) on investments 3.11 1.11 0.61 (1.77) (3.94) 0.97 Total from investment operations 3.42 1.41 0.94 (1.45) (3.70) 1.06 Less distributions >From net investment income (0.31) (0.35) (0.33) (0.37) (0.25) (0.09) >From net realized gain (1.29) (0.78) (1.77) (1.65) (0.12) __ (1.60) (1.13) (2.10) (2.02) (0.37) (0.09) Net asset value, end of period $24.23 $24.51 $23.35 $19.88 $15.81 $16.78 Total return(4) (%) 15.62 5.91 4.10 (6.06) (18.68) 6.73(5) - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS AND SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in millions) $1,884 $1,788 $1,446 $1,217 $908 $921 Ratio of expenses to average net assets (%) 1.03 1.05 1.08 1.10 1.17 1.24(6) Ratio of net investment income to average net assets (%) 1.33 1.21 1.44 1.50 1.36 1.05(6) Portfolio turnover (%) 51 64 46 76 85 31
Unaudited CLASS B SHARES PERIOD ENDED: 12-31-98 12-31-99 12-31-00 12-31-01(1) 12-31-02 6-30-03(2) - ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $22.38 $24.20 $24.48 $23.31 $19.86 $15.79 Net investment income(3) 0.14 0.13 0.17 0.17 0.12 0.03 Net realized and unrealized gain (loss) on investments 3.11 1.11 0.60 (1.76) (3.94) 0.97 Total from investment operations 3.25 1.24 0.77 (1.59) (3.82) 1.00 Less distributions >From net investment income (0.14) (0.18) (0.17) (0.21) (0.13) (0.03) >From net realized gain (1.29) (0.78) (1.77) (1.65) (0.12) __ (1.43) (0.96) (1.94) (1.86) (0.25) (0.03) Net asset value, end of period $24.20 $24.48 $23.31 $19.86 $15.79 $16.76 Total return(4) (%) 14.79 5.20 3.32 (6.66) (19.29) 6.37(5) - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS AND SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in millions) $790 $820 $663 $551 $328 $307 Ratio of expenses to average net assets (%) 1.79 1.73 1.78 1.80 1.87 1.94(6) Ratio of net investment income to average net assets (%) 0.58 0.54 0.75 0.80 0.65 0.36(6) Portfolio turnover (%) 51 64 46 76 85 31
16 FUND DETAILS
Unaudited CLASS C SHARES PERIOD ENDED: 12-31-98(4) 12-31-99 12-31-00 12-31-01(1) 12-31-02(1) 6-30-03(2) - ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $24.43 $24.22 $24.50 $23.33 $19.88 $15.81 Net investment income(2) 0.13 0.13 0.18 0.17 0.12 0.03 Net realized and unrealized gain (loss) on investments 1.07 1.10 0.59 (1.76) (3.94) 0.97 Total from investment operations 1.20 1.23 0.77 (1.59) (3.82) 1.00 Less distributions >From net investment income (0.12) (0.17) (0.17) (0.21) (0.13) (0.03) >From net realized gain (1.29) (0.78) (1.77) (1.65) (0.12) __ (1.41) (0.95) (1.94) (1.86) (0.25) (0.03) Net asset value, end of period $24.22 $24.50 $23.33 $19.88 $15.81 $16.78 Total return(3) (%) 5.185 5.17 3.32 (6.66) (19.27) 6.36(5) - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS AND SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in millions) $5 $11 $12 $17 $24 $23 Ratio of expenses to average net assets (%) 1.676 1.75 1.79 1.80 1.87 1.94(6) Ratio of net investment income to average net assets (%) 0.846 0.51 0.76 0.82 0.67 0.34(6) Portfolio turnover (%) 51 64 46 76 85 31
(1) As required, effective January 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies, as revised, relating to the amortization of premiums and accretion of discounts on debt securities. The effect of this change on per share amounts for the year ended December 31, 2001 was to decrease net investment income per share by $0.01, decrease net realized and unrealized losses per share by $0.01, and, had the Fund not made these changes to amortization and accretion, the ratio of net investment income to average net assets would have been 1.53%, 0.83% and 0.85% for Class A, Class B and Class C shares, respectively. The effect of this change on per share amounts for the year ended December 31, 2002 was to decrease net investment income per share by $0.01, decrease net realized and unrealized losses per share by $0.01, and, had the Fund not made these changes to amortization and accretion, the ratio of net investment income to average net assets would have been 1.43%, 0.72% and 0.74% for Class A, Class B and Class C shares, respectively. Per share ratios and supplemental data for periods prior to January 1, 2001 have not been restated to reflect this change in presentation. (2) Semiannual period from 1-1-03 through 6-30-03. Unaudited. (3) Based on the average of the shares outstanding. (4) Assumes dividend reinvestment and does not reflect the effect of sales charges. (5) Not annualized. (6) Annualized. (7) Class C shares began operations on 5-1-98. FUND DETAILS 17 For more information Two documents are available that offer further information on the John Hancock Sovereign Investors Fund: Annual/Semiannual Report to Shareholders Includes financial statements, a discussion of the market conditions and investment strategies that significantly affected performance, as well as the auditors' report (in annual report only). Statement of Additional Information (SAI) The SAI contains more detailed information on all aspects of the fund. The current annual report is included in the SAI. A current SAI has been filed with the Securities and Exchange Commission and is incorporated by reference into (is legally a part of) this prospectus. To request a free copy of the current annual/semiannual report or the SAI, please contact John Hancock: By mail: John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1000 Boston, MA 02217-1000 By phone: 1-800-225-5291 By EASI-Line: 1-800-338-8080 By TDD: 1-800-554-6713 On the Internet: www.jhfunds.com Or you may view or obtain these documents from the SEC: In person: at the SEC's Public Reference Room in Washington, DC. For access to the Reference Room call 1-202-942-8090 By mail: Public Reference Section Securities and Exchange Commission Washington, DC 20549-0102 (duplicating fee required) By electronic request: publicinfo@sec.gov (duplicating fee required) On the Internet: www.sec.gov (C)2003 JOHN HANCOCK FUNDS, LLC 290PN 3/03 [LOGO](R) John Hancock Funds, LLC MEMBER NASD 101 Huntington Avenue Boston, MA 02199-7603 www.jhfunds.com JOHN HANCOCK Prospectus 3.1.03 Sovereign Investors Fund as revised 10.1.03 INSTITUTIONAL CLASS I [LOGO](R) - ------------------ JOHN HANCOCK FUNDS As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved this fund or determined whether the information in this prospectus is adequate and accurate. Anyone who indicates otherwise is committing a federal crime. Contents - -------------------------------------------------------------------------------- A summary of the fund's Sovereign Investors Fund 4 goals, strategies, risks, performance and expenses. Policies and instructions for Your account opening, maintaining and closing an account. Who can buy shares 6 Opening an account 6 Buying shares 7 Selling shares 8 Transaction policies 10 Dividends and account policies 10 Further information on the Fund details fund. Business structure 11 Management biographies 12 Financial highlights 13 For more information back cover Sovereign Investors Fund GOAL AND STRATEGY [Clip Art] The fund seeks long-term growth of capital and income without assuming undue market risks. To pursue this goal, the fund normally invests at least 80% of stocks in a diversified portfolio of companies with market capitalizations within the range of the Standard & Poor's 500 Index. On July 31, 2003, that range was $284.9 million to $384.7 billion. At least 65% of the fund's stock investments are "dividend performers" -- companies whose dividend payments have increased steadily for ten years. In managing the portfolio, the managers use fundamental financial analysis to identify individual companies with high-quality income statements, substantial cash reserves and identifiable catalysts for growth, which may be new products or benefits from industrywide growth. The managers generally visit companies to evaluate the strength and consistency of their management strategy. Finally, the managers look for stocks that are reasonably priced relative to their earnings and industry. Historically, companies that meet these criteria have tended to have large or medium capitalizations. The fund may not invest more than 5% of assets in any one security. The fund may invest in bonds of any maturity, with up to 5% of assets in junk bonds rated as low as C and their unrated equivalents. The fund typically invests in U.S. companies but may invest in dollar-denominated foreign securities. It may also make limited use of certain derivatives (investments whose value is based on indexes). Under normal conditions, the fund may not invest more than 10% of assets in cash or cash equivalents. In abnormal market conditions, the fund may temporarily invest extensively in investment-grade short-term securities. In these and other cases, the fund might not achieve its goal. The fund may trade securities actively, which could increase its transaction costs (thus lowering performance) and increase your taxable distributions. ================================================================================ PAST PERFORMANCE [Clip Art] The graph shows how the fund's total return has varied from year to year, while the table shows performance over time (along with a broad-based market index for reference). This information may help provide an indication of the fund's risks. Since Class I shares have no operational history, the year-by-year and average annual figures are for Class A shares, which are offered in a separate prospectus. Annual returns should be substantially similar since all classes invest in the same portfolio. Class I shares have no sales charges and lower expenses than Class A shares. The average annual figures reflect sales charges; the year-by-year and index figures do not, and would be lower if they did. All figures assume dividend reinvestment. Past performance before and after taxes does not indicate future results. Class A, total returns 2003 return as of 6-30-03: 6.73% Best quarter: Q4 '98, 15.56% Worst quarter: Q3 '02, -13.87% After-tax returns After-tax returns are shown for Class A shares. They are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. Index (reflects no fees or taxes) Standard & Poor's 500 Index, an unmanaged index of 500 stocks. - -------------------------------------------------------------------------------- Class A calendar year total returns (without sales charges) - -------------------------------------------------------------------------------- 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 5.71% -1.85% 29.15% 17.57% 29.14% 15.62% 5.91% 4.08% -6.06% -18.68% - -------------------------------------------------------------------------------- Average annual total returns (including sales charge) for periods ending 12-31-02 - -------------------------------------------------------------------------------- 1 year 5 year 10 year Class A before tax -22.76% -1.55% 6.53% Class A after tax on distributions -23.32% -3.07% 4.76% Class A after tax on distributions, with sale -13.85% -1.32% 4.97% Class I before tax (no operational history) -- -- -- - -------------------------------------------------------------------------------- Standard & Poor's 500 Index -22.10% -0.59% 9.34% 4 MAIN RISKS [Clip Art] The value of your investment will fluctuate in response to stock and bond market movements. The fund's management strategy has a significant influence on fund performance. Large- or medium-capitalization stocks as a group could fall out of favor with the market, causing the fund to underperform funds that focus on small-capitalization stocks. Medium-capitalization stocks tend to be more volatile than stocks of larger companies. In addition, if the managers' securities selection strategies do not perform as expected, the fund could underperform its peers or lose money. To the extent that the fund makes investments with additional risks, these risks could increase volatility or reduce performance: o Certain derivatives could produce disproportionate losses. o In a down market, higher-risk securities and derivatives could become harder to value or to sell at a fair price. o Foreign investments carry additional risks, including inadequate or inaccurate financial information and social or political instability. o Any bonds held by the fund could be downgraded in credit rating or go into default. Bond prices generally fall when interest rates rise and longer maturity will increase volatility. Junk bond prices can fall on bad news about the economy, an industry or a company. Investments in the fund are not bank deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. You could lose money by investing in this fund. ================================================================================ YOUR EXPENSES [Clip Art] Operating expenses are paid from the fund's assets, and therefore are paid by shareholders indirectly. Because Class I is new, its expenses are based on Class A expenses, adjusted to reflect any changes. - -------------------------------------------------------------------------------- Annual operating expenses - -------------------------------------------------------------------------------- Management fee 0.57% Other expenses 0.18% Total fund operating expenses 0.75% The hypothetical example below shows what your expenses would be if you invested $10,000 over the time frames indicated, assuming you reinvested all distributions and that the average annual return was 5%. The example is for comparison only, and does not represent the fund's actual expenses and returns, either past or future. - -------------------------------------------------------------------------------- Expenses Year 1 Year 3 Year 5 Year 10 - -------------------------------------------------------------------------------- Class I $77 $240 $417 $930 PORTFOLIO MANAGERS John F. Snyder, III Joined fund team in 1983 Barry H. Evans, CFA Joined fund team in 1996 Peter M. Schofield, CFA Joined fund team in 1996 See page 12 for the management biographies. FUND CODES Class I Ticker -- CUSIP 47803P880 Newspaper -- SEC number 811-0560 JH fund number 429 5 Your account - -------------------------------------------------------------------------------- WHO CAN BUY SHARES Class I shares are offered without any sales charge to certain types of investors, as noted below: o Retirement and other benefit plans and their participants o Rollover assets for participants whose plans are invested in the fund o Certain trusts, endowment funds and foundations o Any state, county or city, or its instrumentality, department, authority or agency o Insurance companies, trust companies and bank trust departments buying shares for their own account o Investment companies not affiliated with the adviser o Clients of service agents and broker-dealers who have entered into an agreement with John Hancock Funds o Investors who participate in fee-based, wrap and other investment platform programs o Any entity that is considered a corporation for tax purposes o Fund trustees and other individuals who are affiliated with this fund or other John Hancock funds - -------------------------------------------------------------------------------- OPENING AN ACCOUNT 1 Read this prospectus carefully. 2 Determine if you are eligible, by referring to "Who can buy shares" on the left. 3 Determine how much you want to invest. The minimum initial investment is $10,000. There is no minimum investment for retirement plans with at least 350 eligible employees. 4 Complete the appropriate parts of the account application, carefully following the instructions. By applying for privileges now, you can avoid the delay and inconvenience of having to file an additional application if you want to add privileges later. You must submit additional documentation when opening trust, corporate or power of attorney accounts. 5 Make your initial investment using the table on the next page. 6 If you have questions or need more information, please contact your financial representative or call Signature Services at 1-888-972-8696. John Hancock Funds may pay significant compensation out of its own resources to your financial representative. Your broker or agent may charge you a fee to effect transactions in fund shares. 6 YOUR ACCOUNT - -------------------------------------------------------------------------------- Buying shares - -------------------------------------------------------------------------------- Opening an account Adding to an account By check [Clip Art] o Make out a check for the o Make out a check for the investment amount, payable to investment amount payable to "John Hancock Signature "John Hancock Signature Services, Inc." Services, Inc." o Deliver the check and your o Fill out the detachable completed application to your investment slip from an financial representative, or account statement. If no slip mail them to Signature is available, include a note Services (address below). specifying the fund name(s), your share class, your account number and the name(s) in which the account is registered. o Deliver the check and investment slip or note to your financial representative, or mail them to Signature Services (address below). By exchange [Clip Art] o Call your financial o Call your financial representative or Signature representative or Signature Services to request an Services to request an exchange. exchange. o You may only exchange for o You may only exchange for shares of other institutional shares of other institutional funds, Class I shares or Money funds or Class I shares, Class Market Fund Class A shares. I shares or Money Market Fund Class A shares. By wire [Clip Art] o Deliver your completed o Instruct your bank to wire application to your financial the amount of your representative or mail it to investment to: Signature Services. First Signature Bank & Trust o Obtain your account number by Account # 900022260 calling your financial Routing # 211475000 representative or Signature Services. Specify the fund name(s), your share class, your account number o Instruct your bank to wire and the name(s) in which the the amount of your account is registered. Your bank investment to: may charge a fee to wire funds. First Signature Bank & Trust Account # 900022260 Routing # 211475000 Specify the fund name(s), the share class, the new account number and the name(s) in which the account is registered. Your bank may charge a fee to wire funds. By phone [Clip Art] See "By exchange" and "By wire." o Verify that your bank or credit union is a member of the Automated Clearing House (ACH) system. o Complete the "To Purchase, Exchange or Redeem Shares via Telephone" and "Bank Information" sections on your account application. o Call Signature Services to verify that these features are in place on your account. o Call your financial representative or Signature Services with the fund name(s), your share class, your account number, the name(s) in which the account is registered and the amount of your investment. - -------------------------------------------- Address: John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1001 Boston, MA 02217-1001 Phone Number: 1-888-972-8696 Or contact your financial representative for instructions and assistance. - -------------------------------------------- YOUR ACCOUNT 7 - -------------------------------------------------------------------------------- Selling shares - -------------------------------------------------------------------------------- Designed for To sell some or all of your shares By letter [Clip Art] o Sales of any amount; however, o Write a letter of instruction sales of $5 million or more indicating the fund name, must be made by letter. your account number, your share class, the name(s) in o Certain requests will require which the account is a Medallion signature registered and the dollar guarantee. Please refer to value or number of shares you "Selling shares in writing." wish to sell. o Include all signatures and any additional documents that may be required (see next page). o Mail the materials to Signature Services. o A check or wire will be sent according to your letter of instruction. By phone [Clip Art] o Sales of up to $5 million. o To place your request with a representative at John Hancock Funds, call Signature Services between 8 a.m. and 4 p.m. Eastern Time on most business days. o Redemption proceeds of up to $100,000 may be sent by wire or by check. A check will be mailed to the exact name(s) and address on the account. Redemption proceeds exceeding $100,000 must be wired to your designated bank account. By wire or electronic funds transfer (EFT) o To verify that the telephone redemption privilege is in [Clip Art] o Requests by letter to sell place on an account, or to any amount. request the forms to add it to an existing account, call o Requests by phone to sell up Signature Services. to $5 million (accounts with telephone redemption o Amounts of $5 million or more privileges). will be wired on the next business day. o Amounts up to $100,000 may be sent by EFT or by check. Funds from EFT transactions are generally available by the second business day. Your bank may charge a fee for this service. By exchange [Clip Art] o Sales of any amount. o Obtain a current prospectus for the fund into which you are exchanging by calling your financial representative or Signature Services. o You may only exchange for shares of other institutional funds, Class I shares or Money Market Fund Class A shares. o Call your financial representative or Signature Services to request an exchange. 8 YOUR ACCOUNT Selling shares in writing In certain circumstances, you will need to make your request to sell shares in writing. You may need to include additional items with your request, as shown in the table below, unless they were previously provided to Signature Services and are still accurate. You may also need to include a Medallion signature guarantee, which protects you against fraudulent orders. You will need a signature guarantee if: o your address of record has changed within the past 30 days o you are selling more than $100,000 worth of shares and are requesting payment by check o you are selling more than $5 million worth of shares You will need to obtain your Medallion signature guarantee from a member of the Signature Guarantee Medallion Program. Most brokers and securities dealers are members of this program. A notary public CANNOT provide a signature guarantee. - -------------------------------------------------------------------------------- Seller Requirements for written requests - -------------------------------------------------------------------------------- [Clip Art] Owners of individual, joint or o Letter of instruction. UGMA/UTMA accounts (custodial accounts for minors). o On the letter, the signatures of all persons authorized to sign for the account, exactly as the account is registered. o Medallion signature guarantee if applicable (see above). Owners of corporate, sole o Letter of instruction. proprietorship, general partner or association accounts. o Corporate business/organization resolution, certified within the past 12 months, or a John Hancock Funds business/organization certification form. o On the letter and the resolution, the signature of the person(s) authorized to sign for the account. o Medallion signature guarantee if applicable (see above). Owners or trustees of retirement plan, o Letter of instruction. pension trust and trust accounts. o On the letter, the signature(s) of the trustee(s). o Copy of the trust document certified within the past 12 months or a John Hancock Funds trust certification form. o Medallion signature guarantee if applicable (see above). Joint tenancy shareholders with rights o Letter of instruction signed by of survivorship whose co-tenants are surviving tenant. deceased. o Copy of death certificate. o Medallion signature guarantee if applicable (see above). Executors of shareholder estates. o Letter of instruction signed by executor. o Copy of order appointing executor, certified within the past 12 months. o Medallion signature guarantee if applicable (see above). Administrators, conservators, o Call 1-888-972-8696 for guardians and other sellers or account instructions. types not listed above. - -------------------------------------------- Address: John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1001 Boston, MA 02217-1001 Phone Number: 1-888-972-8696 Or contact your financial representative for instructions and assistance. - -------------------------------------------- YOUR ACCOUNT 9 - -------------------------------------------------------------------------------- TRANSACTION POLICIES Valuation of shares The net asset value (NAV) per share for the fund is determined each business day at the close of regular trading on the New York Stock Exchange (typically 4 P.M. Eastern Time). The fund uses market prices in valuing portfolio securities, but may use fair-value estimates if reliable market prices are unavailable. The fund may also value securities at fair value if the value of these securities has been materially affected by events occurring after the close of a foreign market. The fund may trade foreign stock or other portfolio securities on U.S. holidays and weekends, even though the fund's shares will not be priced on those days. This may change a fund's NAV on days when you cannot buy or sell shares. Buy and sell prices When you buy shares, you pay the NAV. When you sell shares, you receive the NAV. Execution of requests The fund is open on those days when the New York Stock Exchange is open, typically Monday through Friday. Buy and sell requests are executed at the next NAV to be calculated after Signature Services receives your request in good order. At times of peak activity, it may be difficult to place requests by phone. During these times, consider sending your request in writing. In unusual circumstances, the fund may temporarily suspend the processing of sell requests, or may postpone payment of proceeds for up to three business days or longer, as allowed by federal securities laws. Telephone transactions For your protection, telephone requests may be recorded in order to verify their accuracy. Also for your protection, telephone transactions are not permitted on accounts whose names or addresses have changed within the past 30 days. Proceeds from telephone transactions can only be mailed to the address of record. Exchanges You may exchange Class I shares for shares of any institutional fund, Class I shares or Money Market Fund Class A shares. The registration for both accounts involved must be identical. Note: Once exchanged into Money Market Fund Class A, shares may only be exchanged back to Class I or institutional fund shares. To protect the interests of other investors in the fund, a fund may cancel the exchange privileges of any parties who, in the opinion of the fund, are using market timing strategies or making more than seven exchanges per owner or controlling party per calendar year. The fund reserves the right to require that previously exchanged shares and reinvested dividends be in the fund for 90 days before a shareholder is permitted a new exchange. The fund may also refuse any exchange order. A fund may change or cancel its exchange policies at any time, upon 60 days' notice to its shareholders. Account Information John Hancock Funds is required by law to obtain information for verifying an account holder's identity. If you do not provide the required information, we may not be able to open your account. If verification is unsuccessful, John Hancock Funds may close your account, redeem your shares at the next NAV and take other steps that it deems reasonable. Certificated shares The fund no longer issues share certificates. Shares are electronically recorded. Any existing certificated shares can only be sold by returning the certificated shares to Signature Services, along with a letter of instruction or a stock power and a signature guarantee. Sales in advance of purchase payments When you place a request to sell shares for which the purchase money has not yet been collected, the request will be executed in a timely fashion, but the fund will not release the proceeds to you until your purchase payment clears. This may take up to ten business days after the purchase. - -------------------------------------------------------------------------------- DIVIDENDS AND ACCOUNT POLICIES Account statements In general, you will receive account statements as follows: o after every transaction (except a dividend reinvestment) that affects your account balance o after any changes of name or address of the registered owner(s) o in all other circumstances, at least quarterly Every year you should also receive, if applicable, a Form 1099 tax information statement, mailed by January 31. Dividends The fund generally distributes most or all of its net earnings in the form of dividends. Any capital gains are distributed annually. The fund declares and pays any income dividends quarterly. Dividend reinvestments Dividends will be reinvested automatically in additional shares of the same fund on the dividend record date. Alternatively, you can choose to have your dividends and capital gains sent directly to your bank account or a check will be sent in the amount of 10 YOUR ACCOUNT more than $10. However, if the check is not deliverable or the combined dividend and capital gains amount is $10 or less, your proceeds will be reinvested. If five or more of your dividend or capital gains checks remain uncashed after 180 days, all subsequent dividends and capital gains will be reinvested. Taxability of dividends For investors who are not exempt from federal income taxes, dividends you receive from a fund, whether reinvested or taken as cash, are generally considered taxable. Dividends from a fund's short-term capital gains are taxable as ordinary income. Dividends from a fund's long-term capital gains are taxable at a lower rate. Whether gains are short-term or long-term depends on the fund's holding period. Some dividends paid in January may be taxable as if they had been paid the previous December. The Form 1099 that is mailed to you every January details your dividends and their federal tax category, although you should verify your tax liability with your tax professional. Taxability of transactions Any time you sell or exchange shares, it is considered a taxable event for you if you are not exempt from federal income taxes. Depending on the purchase price and the sale price of the shares you sell or exchange, you may have a gain or a loss on the transaction. You are responsible for any tax liabilities generated by your transactions. Fund details - -------------------------------------------------------------------------------- BUSINESS STRUCTURE The fund's board of trustees oversees the fund's business activities and retains the services of the various firms that carry out the fund's operations. The investment adviser The fund is managed by John Hancock Advisers, LLC, 101 Huntington Avenue, Boston, MA 02199-7603. Founded in 1968, John Hancock Advisers is a wholly owned subsidiary of John Hancock Financial Services, Inc. and as of June 30, 2003 managed approximately $27 billion in assets. Management fees For the period ended December 31, 2002, the fund paid the investment adviser management fees at a rate of 0.57% of average net assets. YOUR ACCOUNT 11 - -------------------------------------------------------------------------------- MANAGEMENT BIOGRAPHIES Below is an alphabetical list of the portfolio managers for the John Hancock Sovereign Investors fund. It is a brief summary of their business careers over the past five years. Barry H. Evans, CFA Senior vice president Joined John Hancock Advisers in 1986 Began business career in 1986 Peter M. Schofield, CFA Vice president Joined John Hancock Advisers in 1996 Began business career in 1984 John F. Snyder, III Executive vice president Joined John Hancock Advisers in 1991 Began business career in 1971 12 FUND DETAILS - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS Since Class I shares have no operational history, financial highlights are provided for the fund's Class A shares, which are offered in a separate prospectus. This table details the performance of the fund's Class A shares, including total return information showing how much an investment in the fund has increased or decreased each year. Sovereign Investors Fund Figures audited by Ernst & Young LLP.
Unaudited CLASS A SHARES PERIOD ENDED: 12-31-98 12-31-99 12-31-00 12-31-01(1) 12-31-02(1) 6-30-02(2) - ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $22.41 $24.23 $24.51 $23.35 $19.88 $15.81 Net investment income(3) 0.31 0.30 0.33 0.32 0.24 0.09 Net realized and unrealized gain (loss) on investments 3.11 1.11 0.61 (1.77) (3.94) 0.97 Total from investment operations 3.42 1.41 0.94 (1.45) (3.70) 1.06 Less distributions From net investment income (0.31) (0.35) (0.33) (0.37) (0.25) (0.09) From net realized gain (1.29) (0.78) (1.77) (1.65) (0.12) __ (1.60) (1.13) (2.10) (2.02) (0.37) (0.09) Net asset value, end of period $24.23 $24.51 $23.35 $19.88 $15.81 $16.78 Total return(4) (%) 15.62 5.91 4.10 (6.06) (18.68) 6.73(5) - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS AND SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in millions) $1,884 $1,788 $1,446 $1,217 $908 $921 Ratio of expenses to average net assets (%) 1.03 1.05 1.08 1.10 1.17 1.24(6) Ratio of net investment income to average net assets (%) 1.33 1.21 1.44 1.50 1.36 1.05(6) Portfolio turnover (%) 51 64 46 76 85 31
(1) As required, effective January 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies, as revised, relating to the amortization of premiums and accretion of discounts on debt securities. The effect of this change on per share amounts for the year ended December 31, 2001 was to decrease net investment income per share by $0.01, decrease net realized and unrealized losses per share by $0.01, and, had the Fund not made these changes to amortization and accretion, the ratio of net investment income to average net assets would have been 1.53% for Class A shares. The effect of this change on per share amounts for the year ended December 31, 2002 was to decrease net investment income per share by $0.01, decrease net realized and unrealized losses per share by $0.01, and, had the Fund not made these changes to amortization and accretion, the ratio of net investment income to average net assets would have been 1.43% for Class A shares. Per share ratios and supplemental data for periods prior to January 1, 2001 have not been restated to reflect this change in presentation. (2) Semiannual period from 1-1-03 through 6-30-03. Unaudited. (3) Based on the average of the shares outstanding. (4) Assumes dividend reinvestment and does not reflect the effect of sales charges. (5) Not annualized. (6) Annualized. FUND DETAILS 13 For more information Two documents are available that offer further information on John Hancock Sovereign Investors Fund: Annual/Semiannual Report to Shareholders Includes financial statements, a discussion of the market conditions and investment strategies that significantly affected performance, as well as the auditors' report (in annual report only). Statement of Additional Information (SAI) The SAI contains more detailed information on all aspects of the fund. The current annual report is included in the SAI. A current SAI has been filed with the Securities and Exchange Commission and is incorporated by reference into (is legally a part of) this prospectus. (C)2003 JOHN HANCOCK FUNDS, LLC 29IPN 3/03 To request a free copy of the current annual/semiannual report or the SAI, please contact John Hancock: By mail: John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1001 Boston, MA 02217-1001 By phone: 1-888-972-8696 By EASI-Line: 1-800-597-1897 By TDD: 1-800-554-6713 On the Internet: www.jhfunds.com Or you may view or obtain these documents from the SEC: In person: at the SEC's Public Reference Room in Washington, DC. For access to the Reference Room call 1-202-942-8090 By mail: Public Reference Section Securities and Exchange Commission Washington, DC 20549-0102 (duplicating fee required) By electronic request: publicinfo@sec.gov (duplicating fee required) On the Internet: www.sec.gov [LOGO[(R) PRSRT STD John Hancock Funds, LLC U.S. POSTAGE MEMBER NASD PAID 101 Huntington Avenue BOSTON, MA Boston, MA 02199-7603 PERMIT NO. 11 www.jhfunds.com John Hancock Sovereign Investors Fund ANNUAL REPORT 12.31.02 Sign up for electronic delivery at www.jhancock.com/funds/edelivery [A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower, center middle of page. A tag line below reads "JOHN HANCOCK FUNDS."] [A photo of Maureen R. Ford, Chairman and Chief Executive Officer, flush left next to first paragraph.] WELCOME Table of contents Your fund at a glance page 1 Managers' report page 2 A look at performance page 6 Growth of $10,000 page 7 Fund's investments page 8 Financial statements page 12 Trustees & officers page 26 For your information page 29 Dear Fellow Shareholders, Investors were probably never happier to close out a year than they were in 2002, since it was the third consecutive year that the stock market declined -- something that hadn't occurred in 60 years. Driving the fall were fears of war, a weak economy, disappointing profits, rising oil prices and a string of corporate scandals. All market sectors and investment styles suffered. As a result, the broad Standard & Poor's 500 Index fell by 22.09% for the year, while the Dow Jones Industrial Average lost 15.04% and the technology laden Nasdaq Composite Index lost 31.53%. Despite a fourth-quarter rally, only 3.8% of U.S. stock mutual funds made money last year, and the average U.S. stock fund lost 22.42%, according to Lipper, Inc. Bond funds provided the only bright spot, producing mostly positive results, with the average long-term bond fund rising 7.9%. It was the third year in which bonds outperformed stocks and gained ground, confirming yet again the importance of having a portfolio well-diversified among stocks, bonds and cash. In fact, the disparity between stock and bond results over the last three years means that many investors' portfolios may have shifted substantially in their mix between stocks and bonds. We recommend working with your investment professional to rebalance your assets according to your long-term goals. After three down years, no one can predict when the bear market cycle will turn. Currently, uncertainties abound, as the good news seen in signs of improving economic and corporate data, and efforts by Washington to stimulate the economy, are offset by the possibility of war and other geopolitical risks. While all these factors are beyond our control, investors can take charge of how they maneuver through the inevitable bull and bear market cycles. We've said it before, but it bears repeating: the key is to keep a long-term perspective and work with your investment professional to develop and maintain a properly diversified portfolio. We believe this offers the best protection in the tough times and the best means to reach your long-term goals. Sincerely, /S/ MAUREEN R. FORD Maureen R. Ford, Chairman and Chief Executive Officer YOUR FUND AT A GLANCE The Fund seeks long-term growth of capital without assuming undue market risks by investing in a diversified portfo- lio of companies with market capi- talizations within the range of the Standard & Poor's 500 Index. Over the last twelve months * An anemic economic recovery, lackluster earnings and high-profile corporate scandals drove stock prices down. * Our relatively large stake in large-capitalization stocks held back performance. * We began to see some compelling values that meet our stringent investment standards. [Bar chart with heading "John Hancock Sovereign Investors Fund." Under the heading is a note that reads "Fund performance for the year ended December 31, 2002." The chart is scaled in increments of 5% with -20% at the bottom and 0% at the top. The first bar represents the -18.68% total return for Class A. The second bar represents the -19.29% total return for Class B. The third bar represents the -19.27% total return for Class C. A note below the chart reads "Total returns for the Fund are at net asset value with all distributions reinvested."] Top 10 holdings 4.1% Bank of America 3.4% Exxon Mobil 3.4% Johnson & Johnson 2.9% Citigroup 2.7% General Electric 2.6% Philip Morris Cos. 2.5% American International Group 2.5% International Business Machines 2.3% AFLAC 2.1% Avon Products As a percentage of net assets on December 31, 2002. MANAGERS' REPORT BY JOHN F. SNYDER, III, PETER M. SCHOFIELD, CFA, AND BARRY H. EVANS, CFA, PORTFOLIO MANAGERS John Hancock Sovereign Investors Fund An anemic economic recovery, lackluster earnings and high- profile corporate scandals drove stock prices down throughout the year. There were few safe havens as the downturn hit virtually every sector of the market. With the Dow Jones Industrial Average down 15.04% and the Standard & Poor's 500 Index down 22.09%, stocks posted their third consecutive year of negative returns -- something that hasn't happened in 60 years. PERFORMANCE REVIEW In this difficult market environment, John Hancock Sovereign Investors Fund's Class A, Class B and Class C shares returned -18.68%, -19.29% and -19.27%, respectively, at net asset value. By comparison, the average equity-income fund returned -16.33%, according to Lipper, Inc.1 Keep in mind that your net asset value return will be different from the Fund's performance if you were not invested in the Fund for the entire period and did not reinvest all distributions. Please see pages six and seven for historical performance information. "An anemic economic recovery, lackluster earnings and high- profile corporate scandals drove stock prices down..." LARGE CAPS SUFFER; CONSUMERS STRONG The Fund's relative underperformance can be explained by its heavier emphasis on large-capitalization stocks. Many of our large-cap names were spared during the market's decline in 2001. As the end of a market downturn gets closer, however, there's often indiscriminate selling. That's what happened this year as many large-cap names fell in the last stages of the market's capitulation. What's more, in the wake of corporate scandals, many large-cap companies with complex balance sheets suffered as investors began to question their accounting practices. [Photos of John Snyder, Peter Schofield, and Barry Evans flush right next to first paragraph.] Citigroup and IBM were among the large-cap holdings that disappointed us. A combination of legal problems, difficulties overseas and the weak U.S. stock market took its toll on Citigroup. We believe, however, that the company's fundamentals are very strong, especially compared with its competitors. Furthermore, we believe the problems that plagued the stock this year will be alleviated in 2003. IBM has suffered from a lack of capital spending. In our opinion, management has done a great job refocusing the business through strategic divestitures and acquisitions. As a result, they've been able to gain market share in an extremely challenging business environment. Once the economy improves, IBM should be well positioned to benefit from a pick-up in capital spending. "...our consumer staple stocks continued to perform strongly..." On the flip side, our consumer staple stocks continued to perform strongly throughout the year. In particular, Procter & Gamble and Avon have been among the few companies that have met or exceeded their earnings projections. At P&G, new management has successfully streamlined the company's product line and in turn, gained market share. The story was similar for Avon as new management grew sales -- especially in international markets -- with several successful new products. NEW OPPORTUNITIES In this challenging market environment, we've maintained our focus on our long-term investment strategy. The vast majority of the Fund's holdings remain in "dividend performers" -- those companies that have raised their dividends for at least 10 consecutive years. Our dividend performers' investment philosophy keeps us squarely focused on high-quality companies with reasonable valuations, steady earnings growth, strong cash flow and market leadership. [Table at top left-hand side of page entitled "Top five industry groups." The first listing is Medical 10%, the second is Banks 10%, the third Oil & gas 9%, the fourth Computers 8%, and the fifth Insurance 7%.] Given the stock market's prolonged downturn, we've begun to see some compelling values that meet our strict investment standards. The decline has allowed us to add several new stocks to the portfolio that we've long admired, but haven't been able to purchase because of their high valuations. Omnicom -- one of the world's leading advertising agencies - -- was hit hard as investors worried that advertising spending would dry up in a slowing economy. With a solid balance sheet and strong client base throughout the world, we believe that Omnicom will be one of the biggest beneficiaries of an increase in advertising that will undoubtedly accompany a stronger economy. [Pie chart at middle of page with heading "Portfolio diversification As a percentage of net assets on 12-31-02." The chart is divided into four sections (from top to left): Common stocks 90%, Corporate bonds 5%, Short-term investments & other 4% and Preferred stocks 1%.] State Street Corp. is another new addition. Like Omnicom, we've followed the company closely, but the stock has been too expensive until this year. Being one of the largest financial processors in the world, the market's downturn has taken a toll on State Street's revenues. That's because when stock market activity declines, so do processing needs. We've taken advantage of the company's recent drop to add the stock to the portfolio. Looking ahead, we believe the company will bounce back once the stock market turns around. What's more, as mutual fund companies increasingly outsource their processing business, State Street is likely to gain market share. [Table at top of page entitled "SCORECARD." The header for the left column is "INVESTMENT" and the header for the right column is "RECENT PERFORMANCE...AND WHAT'S BEHIND THE NUMBERS." The first listing is IBM followed by a down arrow with the phrase "Lack of capital spending." The second listing is Citigroup followed by a down arrow with the phrase "Legal issues; weak stock market." The third listing is Avon followed by an up arrow with the phrase "Successful new products."] OUTLOOK This year ended with a stock market rally that left many investors wondering whether the downturn was finally over. Investors remain skeptical, however, remembering all too well the 2001 year-end rally, which quickly faded in 2002. As we look ahead, we are optimistic that stock prices will move higher this year. After three straight years of losses, it would be unlikely for stocks to decline four years in a row. That's happened only once -- from 1929-1932 during the Depression -- and the situation is far different today. "Although the economic recovery will gain momen- tum in 2003, we don't expect to see a sharp rebound." Although the economic recovery will gain momentum in 2003, we don't expect to see a sharp rebound. Since low interest rates have allowed the consumer to continue spending during this recession, there's not a significant amount of pent-up demand. In addition, excess capacity in the industrial sector will continue to limit pricing power and keep pressure on corporate earnings. As a result, it will be critical to own high quality companies with strong balance sheets, steady earnings growth and the ability to leverage the gradual upturn in the economy. This commentary reflects the views of the portfolio managers through the end of the Fund's period discussed in this report. Of course, the managers' views are subject to change as market and other conditions warrant. 1 Figures from Lipper, Inc. include reinvested dividends and do not take into account sales charges. Actual load-adjusted performance is lower. A LOOK AT PERFORMANCE For the period ended December 31, 2002 The index used for comparison is the Standard & Poor's 500 Index, an unman- aged index that includes 500 widely traded common stocks. It is not possible to invest in an index. Class A Class B Class C Index Inception date 5-1-36 1-3-94 5-1-98 -- Average annual returns with maximum sales charge (POP) One year -22.76% -23.26% -20.86% -22.09% Five years -1.55% -1.53% -- -0.58% Ten years 6.53% -- -- 9.34% Since inception -- 6.52% -3.36% -- Cumulative total returns with maximum sales charge (POP) One year -22.76% -23.26% -20.86% -22.09% Five years -7.51% -7.41% -- -2.87% Ten years 88.16% -- -- 144.21% Since inception -- 76.41% -14.75% -- Performance figures assume all distributions are reinvested. Returns with maximum sales charge reflect a sales charge on Class A shares of 5% and Class C shares of 1%, and the applicable contingent deferred sales charge (CDSC) on Class B and Class C shares. The Class B shares' CDSC declines annually between years 1-6 according to the following schedule: 5, 4, 3, 3, 2, 1%. No sales charge will be assessed after the sixth year. Class C shares held for less than one year are subject to a 1% CDSC. The return and principal value of an investment in the Fund will fluctuate, so that shares, when redeemed, may be worth more or less than the original cost. Index figures do not reflect sales charges and would be lower if they did. The returns reflect past results and should not be considered indicative of future performance. The performance table above and the chart on the next page do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. GROWTH OF $10,000 This chart shows what happened to a hypothetical $10,000 investment in Class A shares for the period indicated. For comparison, we've shown the same investment in the Standard & Poor's 500 Index. Line chart with the heading "GROWTH OF $10,000." Within the chart are three lines. The first line represents the Index and is equal to $24,421 as of December 31, 2002. The second line represents the value of the hypothetical $10,000 investment made in the John Hancock Sovereign Investors Fund, before sales charge, and is equal to $19,809 as of December 31, 2002. The third line represents the value of the same hypothetical investment made in the John Hancock Sovereign Investors Fund, after sales charge, and is equal to $18,816 as of December 31, 2002. Class B 1 Class C 1 Period beginning 1-3-94 5-1-98 Without sales charge $17,641 $8,612 With maximum sales charge -- $8,526 Index $22,190 $8,439 Assuming all distributions were reinvested for the period indicated, the table above shows the value of a $10,000 investment in the Fund's Class B and Class C shares, respectively, as of December 31, 2002. Performance of the classes will vary based on the difference in sales charges paid by shareholders investing in the different classes and the fee structure of those classes. 1 No contingent deferred sales charge applicable. FINANCIAL STATEMENTS FUND'S INVESTMENTS Securities owned by the Fund on December 31, 2002 This schedule is divided into five main categories: common stocks, preferred stocks, corporate bonds, U.S. government and agencies obligations, and short-term investments. The common and preferred stocks and corporate bonds are further broken down by industry group. Short-term investments, which represent the Fund's cash position, are listed last.
SHARES ISSUER VALUE COMMON STOCKS 90.21% $1,136,452,353 (Cost $958,824,640) Advertising 1.54% $19,380,000 300,000 Omnicom Group, Inc. 19,380,000 Banks 10.23% 128,906,000 750,000 Bank of America Corp. 52,177,500 800,000 Bank of New York Co., Inc. (The) 19,168,000 600,000 Mellon Financial Corp. 15,666,000 250,000 State Street Corp. 9,750,000 300,000 U.S. Bancorp 6,366,000 550,000 Wells Fargo & Co. 25,778,500 Beverages 1.09% 13,721,500 325,000 PepsiCo, Inc. 13,721,500 Chemicals 3.61% 45,453,536 500,000 Air Products & Chemicals, Inc. 21,375,000 416,800 Praxair, Inc. 24,078,536 Computers 8.05% 101,435,000 280,000 Automatic Data Processing, Inc. 10,990,000 1,500,000 Cisco Systems, Inc.* 19,650,000 1,250,000 Hewlett-Packard Co. 21,700,000 400,000 International Business Machines Corp. 31,000,000 350,000 Microsoft Corp.* 18,095,000 Cosmetics & Personal Care 2.97% 37,421,000 500,000 Avon Products, Inc. 26,935,000 200,000 Colgate-Palmolive Co. 10,486,000 Diversified Operations 6.21% 78,208,000 200,000 3M Co. 24,660,000 1,400,000 General Electric Co. 34,090,000 300,000 Illinois Tool Works, Inc. 19,458,000 Electronics 1.19% 14,974,206 294,478 Emerson Electric Co. 14,974,206 Finance 6.54% 82,401,831 200,000 American Express Co. 7,070,000 1,052,941 Citigroup, Inc. 37,052,994 648,309 MBNA Corp. 12,330,837 650,000 Morgan Stanley Dean Witter & Co. 25,948,000 Food 1.32% 16,644,132 427,540 Kraft Foods, Inc. (Class A) 16,644,132 Insurance 7.31% 92,131,010 960,000 AFLAC, Inc. 28,915,200 550,000 American International Group, Inc. 31,817,500 350,000 Hartford Financial Services Group, Inc. (The) 15,900,500 1,057,871 Travelers Property Casualty Corp. (Class A)* 15,497,810 Media 1.32% 16,675,396 275,900 McGraw-Hill Cos., Inc. (The) 16,675,396 Medical 10.23% 128,919,920 450,000 Abbott Laboratories 18,000,000 400,000 Baxter International, Inc. 11,200,000 350,000 Cardinal Health, Inc. 20,716,500 802,000 Johnson & Johnson 43,075,420 300,000 Medtronic, Inc. 13,680,000 150,000 Merck & Co., Inc. 8,491,500 450,000 Pfizer, Inc. 13,756,500 Mortgage Banking 4.15% 52,304,500 400,000 Fannie Mae 25,732,000 450,000 Freddie Mac 26,572,500 Office 1.37% 17,184,858 281,350 Avery Dennison Corp. 17,184,858 Oil & Gas 8.61% 108,474,249 300,000 Anadarko Petroleum Corp. 14,370,000 600,000 BP Plc, American Depositary Receipts (ADR) (United Kingdom) 24,390,000 400,000 ChevronTexaco Corp. 26,592,000 1,234,180 Exxon Mobil Corp. 43,122,249 Retail 4.43% 55,776,028 100,000 Family Dollar Stores, Inc. 3,121,000 500,000 Lowe's Cos., Inc. 18,750,000 433,200 SYSCO Corp. 12,905,028 700,000 Target Corp. 21,000,000 Soap & Cleaning Preparations 1.71% 21,485,000 250,000 Procter & Gamble Co. (The) 21,485,000 Telecommunications 3.45% 43,483,823 300,000 Nokia Corp., ADR (Finland) 4,650,000 789,241 SBC Communications, Inc. 21,396,323 450,000 Verizon Communications, Inc. 17,437,500 Tobacco 2.57% 32,424,000 800,000 Philip Morris Cos., Inc. 32,424,000 Utilities 2.31% 29,048,364 150,000 ALLTEL Corp. 7,650,000 300,000 BellSouth Corp. 7,761,000 490,200 Questar Corp. 13,637,364 PREFERRED STOCKS 0.55% $6,930,000 (Cost $6,000,000) Oil & Gas 0.55% 6,930,000 60,000 Lasmo America Ltd., 8.15% (R) 6,930,000 INTEREST CREDIT PAR VALUE ISSUER, DESCRIPTION, MATURITY DATE RATE RATING** (000s OMITTED) VALUE CORPORATE BONDS 5.40% $68,095,453 (Cost $66,953,530) Energy 0.47% 5,883,875 CalEnergy Co., Inc., Sr Bond 09-15-28 8.480 BBB- 5,000 5,883,875 Finance 1.18% 14,950,187 Guaranteed Trade Trust, Gtd Note Ser 94-A 06-26-06 7.390 AAA 5,821 6,430,811 Household Finance Corp., Note 01-24-06 6.500 A- 8,000 8,519,376 Media 1.32% 16,648,036 Continental Cablevision, Inc., Deb 08-01-13 9.500 BBB 6,500 7,526,571 Rogers Cablesystems Ltd., Sr Note Ser B (Canada) 03-15-05 10.000 BBB- 4,000 4,120,000 TCI Communications, Inc., Sr Note 01-15-03 8.250 BBB 5,000 5,001,465 Telecommunications 0.21% 2,621,780 GTE North, Inc., Deb Ser A 01-01-21 9.600 A+ 2,500 2,621,780 Utilities 2.22% 27,991,575 Appalachian Power Co., Sr Note Ser E 06-15-05 4.800 BBB+ 2,000 2,008,194 BVPS II Funding Corp., Collateralized Lease Bond 06-01-17 8.680 BBB- 6,494 6,928,384 Midland Funding Corp. II, Deb Ser A 07-23-05 11.750 BB- 10,535 10,745,700 New Valley Generation II, Pass Thru Ctf 05-01-20 5.572 AAA 2,805 2,997,482 Tennessee Valley Authority, Note 07-15-43 7.250 AAA 5,000 5,311,815 U.S. GOVERNMENT AND AGENCIES OBLIGATIONS 0.06% $718,089 (Cost $661,291) Government -- U.S. Agencies 0.06% $718,089 Government National Mortgage Assn., 30 Yr SF Pass Thru Ctf 08-15-24 8.000 AAA 657 718,089 INTEREST PAR VALUE ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE SHORT-TERM INVESTMENTS 21.29% $268,256,041 (Cost $268,256,041) Joint Repurchase Agreement 3.31% Investment in a joint repurchase agreement transaction with UBS Warburg, Inc. -- Dated 12-31-02, due 01-02-03 (Secured by U.S. Treasury Bond 8.500% due 02-15-20, U.S. Treasury Notes 4.625% due 02-28-02 and 5.375% due 06-30-03, U.S. Treasury Inflation Indexed Notes 3.500% due 01-15-11 and 3.000% due 07-15-12) 1.150% 41,714 41,714,000 SHARES Cash Equivalents 17.98% AIM Cash Investment Trust*** 226,542,041 226,542,041 TOTAL INVESTMENTS 117.51% $1,480,451,936 OTHER ASSETS AND LIABILITIES, NET (17.51%) ($220,601,260) TOTAL NET ASSETS 100.00% $1,259,850,676 * Non-income producing security. ** Credit ratings by Moody's Investors Service or John Hancock Advisers, LLC where Standard & Poor's ratings are not available. *** Represents investment of securities lending collateral. (R) This security is exempt from registration under rule 144A of the Securities Act of 1933. Such security may be resold, normally to qualified institutional buyers, in transactions exempt from registration. Rule 144A securities amounted to $6,930,000 or 0.55% of net assets as of December 31, 2002. Parenthetical disclosure of a foreign country in the security description represents country of a foreign issuer; however, security is U.S. dollar-denominated. The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the Fund. See notes to financial statements.
ASSETS AND LIABILITIES December 31, 2002 This Statement of Assets and Liabilities is the Fund's balance sheet. It shows the value of what the Fund owns, is due and owes. You'll also find the net asset value and the maximum offering price per share. ASSETS Investments at value (cost $1,300,695,502, including $222,300,392 of securities loaned) $1,480,451,936 Cash 135 Receivable for investments sold 5,162,087 Receivable for shares sold 91,044 Dividends and interest receivable 3,894,624 Other assets 396,259 Total assets 1,489,996,085 LIABILITIES Payable for investments purchased 773,553 Payable for securities on loan 226,542,041 Payable to affiliates 2,292,306 Other payables and accrued expenses 537,509 Total liabilities 230,145,409 NET ASSETS Capital paid-in 1,171,784,757 Accumulated net realized loss on investments (91,514,737) Net unrealized appreciation of investments 179,756,434 Distributions in excess of net investment income (175,778) Net assets $1,259,850,676 NET ASSET VALUE PER SHARE Based on net asset values and shares outstanding Class A ($907,528,038 [DIV] 57,392,158 shares) $15.81 Class B ($328,054,601 [DIV] 20,769,889 shares) $15.79 Class C ($24,268,037 [DIV] 1,534,567 shares) $15.81 MAXIMUM OFFERING PRICE PER SHARE Class A 1 ($15.81 [DIV] 95%) $16.64 Class C ($15.81 [DIV] 99%) $15.97 1 On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the offering price is reduced. See notes to financial statements. OPERATIONS For the year ended December 31, 2002 This Statement of Operations summarizes the Fund's investment income earned and expenses incurred in operating the Fund. It also shows net gains (losses) for the period stated. INVESTMENT INCOME Dividends (net of foreign withholding taxes of $38,000) $27,838,180 Interest (including securities lending income of $389,993 and net of foreign withholding taxes of $16,667) 10,416,350 Total investment income 38,254,530 EXPENSES Investment management fee 8,703,622 Class A distribution and service fee 3,187,797 Class B distribution and service fee 4,309,103 Class C distribution and service fee 222,151 Transfer agent fee 3,328,892 Accounting and legal services fee 439,523 Custodian fee 228,413 Miscellaneous 92,043 Registration and filing fee 90,783 Trustees' fee 85,037 Printing 82,263 Auditing fee 40,600 Interest expense 24,249 Legal fee 22,557 Total expenses 20,857,033 Less expense reductions (1,850) Net expenses 20,855,183 Net investment income 17,399,347 REALIZED AND UNREALIZED LOSS Net realized loss on investments (90,047,264) Change in net unrealized appreciation (depreciation) of investments (253,306,863) Net realized and unrealized loss (343,354,127) Decrease in net assets from operations ($325,954,780) See notes to financial statements. CHANGES IN NET ASSETS This Statement of Changes in Net Assets shows how the value of the Fund's net assets has changed since the end of the previous period. The dif- ference reflects earnings less expenses, any investment gains and losses, distributions paid to share- holders, if any, and any increase or decrease in money share- holders invested in the Fund. YEAR YEAR ENDED ENDED 12-31-01 12-31-02 INCREASE (DECREASE) IN NET ASSETS From operations Net investment income $24,267,904 $17,399,347 Net realized gain (loss) 87,473,939 (90,047,264) Change in net unrealized appreciation (depreciation) (242,845,053) (253,306,863) Decrease in net assets resulting from operations (131,103,210) (325,954,780) Distributions to shareholders From net investment income Class A (21,483,276) (15,200,803) Class B (5,690,116) (3,050,052) Class C (148,909) (177,688) From net realized gain Class A (93,517,970) (6,861,940) Class B (42,463,282) (2,512,670) Class C (1,288,670) (183,073) (164,592,223) (27,986,226) From Fund share transactions (116,803,512) (170,742,889) NET ASSETS Beginning of period 2,197,033,516 1,784,534,571 End of period 1 $1,784,534,571 $1,259,850,676 1 Includes distributions in excess of net investment income of $235,249 and $175,778, respectively. See notes to financial statements.
FINANCIAL HIGHLIGHTS CLASS A SHARES The Financial Highlights show how the Fund's net asset value for a share has changed since the end of the previous period. PERIOD ENDED 12-31-98 12-31-99 12-31-00 12-31-01 1 12-31-02 1 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $22.41 $24.23 $24.51 $23.35 $19.88 Net investment income 2 0.31 0.30 0.33 0.32 0.24 Net realized and unrealized gain (loss) on investments 3.11 1.11 0.61 (1.77) (3.94) Total from investment operations 3.42 1.41 0.94 (1.45) (3.70) Less distributions From net investment income (0.31) (0.35) (0.33) (0.37) (0.25) From net realized gain (1.29) (0.78) (1.77) (1.65) (0.12) (1.60) (1.13) (2.10) (2.02) (0.37) Net asset value, end of period $24.23 $24.51 $23.35 $19.88 $15.81 Total return 3 (%) 15.62 5.91 4.10 (6.06) (18.68) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in millions) $1,884 $1,788 $1,446 $1,217 $908 Ratio of expenses to average net assets (%) 1.03 1.05 1.08 1.10 1.17 Ratio of net investment income to average net assets (%) 1.33 1.21 1.44 1.50 1.36 Portfolio turnover (%) 51 64 46 76 85 See notes to financial statements.
FINANCIAL HIGHLIGHTS CLASS B SHARES PERIOD ENDED 12-31-98 12-31-99 12-31-00 12-31-01 1 12-31-02 1 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $22.38 $24.20 $24.48 $23.31 $19.86 Net investment income 2 0.14 0.13 0.17 0.17 0.12 Net realized and unrealized gain (loss) on investments 3.11 1.11 0.60 (1.76) (3.94) Total from investment operations 3.25 1.24 0.77 (1.59) (3.82) Less distributions From net investment income (0.14) (0.18) (0.17) (0.21) (0.13) From net realized gain (1.29) (0.78) (1.77) (1.65) (0.12) (1.43) (0.96) (1.94) (1.86) (0.25) Net asset value, end of period $24.20 $24.48 $23.31 $19.86 $15.79 Total return 3 (%) 14.79 5.20 3.32 (6.66) (19.29) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in millions) $790 $820 $663 $551 $328 Ratio of expenses to average net assets (%) 1.79 1.73 1.78 1.80 1.87 Ratio of net investment income to average net assets (%) 0.58 0.54 0.75 0.80 0.65 Portfolio turnover (%) 51 64 46 76 85 See notes to financial statements.
FINANCIAL HIGHLIGHTS CLASS C SHARES PERIOD ENDED 12-31-98 4 12-31-99 12-31-00 12-31-01 1 12-31-02 1 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $24.43 $24.22 $24.50 $23.33 $19.88 Net investment income 2 0.13 0.13 0.18 0.17 0.12 Net realized and unrealized gain (loss) on investments 1.07 1.10 0.59 (1.76) (3.94) Total from investment operations 1.20 1.23 0.77 (1.59) (3.82) Less distributions From net investment income (0.12) (0.17) (0.17) (0.21) (0.13) From net realized gain (1.29) (0.78) (1.77) (1.65) (0.12) (1.41) (0.95) (1.94) (1.86) (0.25) Net asset value, end of period $24.22 $24.50 $23.33 $19.88 $15.81 Total return 3 (%) 5.18 5 5.17 3.32 (6.66) (19.27) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in millions) $5 $11 $12 $17 $24 Ratio of expenses to average net assets (%) 1.67 6 1.75 1.79 1.80 1.87 Ratio of net investment income to average net assets (%) 0.84 6 0.51 0.76 0.82 0.67 Portfolio turnover (%) 51 64 46 76 85 1 As required, effective January 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies, as revised, relating to the amortization of premiums and accretion of discounts on debt securities. The effect of this change on per share amounts for the year ended December 31, 2001 was to decrease net investment income per share by $0.01, decrease net realized and unrealized losses per share by $0.01, and, had the Fund not made these changes to amortization and accretion, the ratio of net investment income to average net assets would have been 1.53%, 0.83% and 0.85% for Class A, Class B and Class C shares, respectively. The effect of this change on per share amounts for the year ended December 31, 2002 was to decrease net investment income per share by $0.01, decrease net realized and unrealized losses per share by $0.01, and, had the Fund not made these changes to amortization and accretion, the ratio of net investment income to average net assets would have been 1.43%, 0.72% and 0.74% for Class A, Class B and Class C shares, respectively. Per share ratios and supplemental data for periods prior to January 1, 2001 have not been restated to reflect this change in presentation. 2 Based on the average of the shares outstanding. 3 Assumes dividend reinvestment and does not reflect the effect of sales charges. 4 Class C shares began operations on 5-1-98. 5 Not annualized. 6 Annualized. See notes to financial statements.
NOTES TO STATEMENTS NOTE A Accounting policies John Hancock Sovereign Investors Fund (the "Fund") is a diversified series of John Hancock Investment Trust, an open-end investment management company registered under the Investment Company Act of 1940. The investment objective of the Fund is to provide long-term growth of capital and of income without assuming undue market risks. The Trustees have authorized the issuance of multiple classes of shares of the Fund, designated as Class A, Class B, Class C and Class I shares. No Class I shares have been issued as of December 31, 2002. The shares of each class represent an interest in the same portfolio of investments of the Fund and have equal rights as to voting, redemptions, dividends and liquidation, except that certain expenses, subject to the approval of the Trustees, may be applied differently to each class of shares in accordance with current regulations of the Securities and Exchange Commission and the Internal Revenue Service. Shareholders of a class that bears distribution and service expenses under terms of a distribution plan have exclusive voting rights to that distribution plan. Significant accounting policies of the Fund are as follows: Valuation of investments Securities in the Fund's portfolio are valued on the basis of market quotations, valuations provided by independent pricing services or at fair value as determined in good faith in accordance with procedures approved by the Trustees. Short-term debt investments maturing within 60 days are valued at amortized cost, which approximates market value. Investments in AIM Cash Investment Trust are valued at their net asset value each business day. Joint repurchase agreement Pursuant to an exemptive order issued by the Securities and Exchange Commission, the Fund, along with other registered investment companies having a management contract with John Hancock Advisers, LLC (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group, LLC, may participate in a joint repurchase agreement transaction. Aggregate cash balances are invested in one or more large repurchase agreements, whose underlying securities are obligations of the U.S. government and/or its agencies. The Fund's custodian bank receives delivery of the underlying securities for the joint account on the Fund's behalf. The Adviser is responsible for ensuring that the agreement is fully collateralized at all times. Investment transactions Investment transactions are recorded as of the date of purchase, sale or maturity. Net realized gains and losses on sales of investments are determined on the identified cost basis. Discount and premium on securities The Fund accretes discount and amortizes premium from par value on securities from either the date of issue or the date of purchase over the life of the security. Class allocations Income, common expenses and realized and unrealized gains (losses) are determined at the fund level and allocated daily to each class of shares based on the appropriate net assets of the respective classes. Distribution and service fees, if any, and transfer agent fees are calculated daily at the class level based on the appropriate net assets of each class and the specific expense rate(s) applicable to each class. Expenses The majority of the expenses are directly identifiable to an individual fund. Expenses that are not readily identifiable to a specific fund will be allocated in such a manner as deemed equitable, taking into consideration, among other things, the nature and type of expense and the relative sizes of the funds. Bank borrowings The Fund is permitted to have bank borrowings for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Fund has entered into a syndicated line of credit agreement with various banks. This agreement enables the Fund to participate with other funds managed by the Adviser in an unsecured line of credit with banks, which permit borrowings of up to $475 million, collectively. Interest is charged to each fund, based on its borrowing. In addition, a commitment fee is charged to each fund based on the average daily unused portion of the line of credit and is allocated among the participating funds. The Fund had no borrowing activity under the line of credit during the year ended December 31, 2002. Securities lending The Fund may lend securities to certain qualified brokers who pay the Fund negotiated lender fees. These fees are included in interest income. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay of the loaned securities in recovery or even loss of rights in the collateral, should the borrower of the securities fail financially. On December 31, 2002, the Fund loaned securities having a market value of $222,300,392 collateralized by cash in the amount of $226,542,041. The cash collateral was invested in a short-term instrument. Federal income taxes The Fund qualifies as a "regulated investment company" by complying with the applicable provisions of the Internal Revenue Code and will not be subject to federal income tax on taxable income that is distributed to shareholders. Therefore, no federal income tax provision is required. For federal income tax purposes, the Fund has $89,791,390 of a capital loss carryforward available, to the extent provided by regulations, to offset future net realized capital gains. To the extent that such carryforward is used by the Fund, no capital gain distributions will be made. The entire amount of the loss carryforward expires December 31, 2010. Net capital losses of $1,091,684 that are attributable to security transactions that occurred after October 31, 2002, are treated as arising on January 1, 2003, the first day of the Fund's next taxable year. Dividends, interest and distributions Dividend income on investment securities is recorded on the ex-dividend date or, in the case of some foreign securities, on the date thereafter when the Fund identifies the dividend. Interest income on investment securities is recorded on the accrual basis. Foreign income may be subject to foreign withholding taxes, which are accrued as applicable. The Fund records distributions to shareholders from net investment income and net realized gains on the ex-dividend date. During the year ended December 31, 2002, the tax character of distributions paid was as follows: ordinary income $18,428,543 and long-term capital gains $9,557,683. Distributions paid by the Fund with respect to each class of shares are calculated in the same manner, at the same time and are in the same amount, except for the effect of expenses that may be applied differently to each class. As of December 31, 2002, the components of distributable earnings on a tax basis included $85,154 of undistributed ordinary income. Such distributions, on a tax basis, are determined in conformity with income tax regulations, which may differ from accounting principles generally accepted in the United States of America. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Use of estimates The preparation of these financial statements, in accordance with accounting principles generally accepted in the United States of America, incorporates estimates made by management in determining the reported amount of assets, liabilities, revenues and expenses of the Fund. Actual results could differ from these estimates. NOTE B Management fee and transactions with affiliates and others The Fund has an investment management contract with the Adviser. Under the investment management contract, the Fund pays a quarterly management fee to the Adviser equivalent, on an annual basis, to the sum of: (a) 0.60% of the first $750,000,000 of the Fund's average daily net asset value, (b) 0.55% of the next $750,000,000, (c) 0.50% of the next $1,000,000,000 and (d) 0.45% of the Fund's average daily net asset value in excess of $2,500,000,000. The Fund has an agreement with its custodian bank under which custody fees are reduced by brokerage commissions offsets applied during the period. Accordingly, the custody expense reduction amounted to $1,850, and had no impact on the Fund's ratio of expenses to average net asset for the year ended December 31, 2002. The Fund has Distribution Plans with John Hancock Funds, LLC ("JH Funds"), a wholly owned subsidiary of the Adviser. The Fund has adopted Distribution Plans with respect to Class A, Class B and Class C pursuant to Rule 12b-1 under the Investment Company Act of 1940 to reimburse JH Funds for the services it provides as distributor of shares of the Fund. Accordingly, the Fund makes monthly payments to JH Funds at an annual rate not to exceed 0.30% of Class A average daily net assets and 1.00% of Class B and Class C average daily net assets. A maximum of 0.25% of such payments may be service fees as defined by the Conduct Rules of the National Association of Securities Dealers. Under the Conduct Rules, curtailment of a portion of the Fund's 12b-1 payments could occur under certain circumstances. Class A and Class C shares are assessed up-front sales charges. During the year ended December 31, 2002, JH Funds received net up-front sales charges of $1,027,023 with regard to sales of Class A shares. Of this amount, $157,106 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $556,528 was paid as sales commissions to unrelated broker-dealers and $313,389 was paid as sales commissions to sales personnel of Signator Investors, Inc. ("Signator Investors"), a related broker-dealer. The Adviser's indirect parent, John Hancock Life Insurance Company ("JHLICo"), is the indirect sole shareholder of Signator Investors. During the year ended December 31, 2002, JH Funds received net up-front sales charges of $72,370 with regard to sales of Class C shares. Of this amount, $67,186 was paid as sales commissions to unrelated broker-dealers and $5,184 was paid as sales commissions to sales personnel of Signator Investors. Class B shares that are redeemed within six years of purchase are subject to a contingent deferred sales charge ("CDSC") at declining rates, beginning at 5.00% of the lesser of the current market value at the time of redemption or the original purchase cost of the shares being redeemed. Class C shares that are redeemed within one year of purchase are subject to a CDSC at a rate of 1.00% of the lesser of the current market value at the time of redemption or the original purchase cost of the shares being redeemed. Proceeds from the CDSCs are paid to JH Funds and are used in whole or in part to defray its expenses for providing distribution related services to the Fund in connection with the sale of Class B and Class C shares. During the year ended December 31, 2002, CDSCs received by JH Funds amounted to $800,046 for Class B shares and $11,779 for Class C shares. The Fund has a transfer agent agreement with John Hancock Signature Services, Inc., an indirect subsidiary of JHLICo. The Fund pays a monthly transfer agent fee based on the number of shareholder accounts, plus certain out-of-pocket expenses. Effective January 1, 2003, the Fund will pay a monthly transfer agent fee at an annual rate of 0.05% of the average daily net asset value, plus a fee based on the number of shareholder accounts and reimbursement for certain out-of-pocket expenses. The Fund has an agreement with the Adviser to perform necessary tax, accounting and legal services for the Fund. The compensation for the year was at an annual rate of approximately 0.03% of the average net assets of the Fund. Ms. Maureen R. Ford and Mr. John M. DeCiccio are directors and/or officers of the Adviser and/or its affiliates, as well as Trustees of the Fund. The compensation of unaffiliated Trustees is borne by the Fund. The unaffiliated Trustees may elect to defer for tax purposes their receipt of this compensation under the John Hancock Group of Funds Deferred Compensation Plan. The Fund makes investments into other John Hancock funds, as applicable, to cover its liability for the deferred compensation. Investments to cover the Fund's deferred compensation liability are recorded on the Fund's books as an other asset. The deferred compensation liability and the related other asset are always equal and are marked to market on a periodic basis to reflect any income earned by the investment as well as any unrealized gains or losses. The Deferred Compensation Plan investments had no impact on the operations of the Fund. NOTE C Fund share transactions This listing illustrates the number of Fund shares sold, reinvested and repurchased during the last two periods, along with the corresponding dollar value. The Fund has an unlimited number of shares authorized with no par value.
YEAR ENDED 12-31-01 YEAR ENDED 12-31-02 SHARES AMOUNT SHARES AMOUNT CLASS A SHARES Sold 3,336,339 $72,751,800 7,115,380 $128,166,011 Distributions reinvested 5,388,568 106,277,304 1,218,520 20,462,624 Repurchased (9,435,947) (206,055,587) (12,150,506) (210,473,134) Net decrease (711,040) ($27,026,483) (3,816,606) ($61,844,499) CLASS B SHARES Sold 2,832,080 $61,448,950 2,536,815 $45,690,969 Distributions reinvested 2,281,033 44,746,477 317,980 5,295,398 Repurchased (5,845,389) (127,066,605) (9,799,112) (171,997,634) Net decrease (732,276) ($20,871,178) (6,944,317) ($121,011,267) CLASS C SHARES Sold 435,806 $9,546,015 1,365,472 $24,421,944 Distributions reinvested 62,843 1,232,554 20,572 339,309 Repurchased (161,626) (3,513,723) (708,865) (12,648,376) Net increase 337,023 $7,264,846 677,179 $12,112,877 CLASS Y SHARES 1 Repurchased (3,261,479) ($76,170,697) -- -- Net decrease (3,261,479) ($76,170,697) -- -- NET DECREASE (4,367,772) ($116,803,512) (10,083,744) ($170,742,889) 1 Class Y shares were terminated 1-3-01.
NOTE D Investment transactions Purchases and proceeds from sales of securities, other than short-term securities and obligations of the U.S. government, during the year ended December 31, 2002, aggregated $648,369,066 and $848,276,523, respectively. Purchases and proceeds from maturities of obligations of U.S. government aggregated $590,674,961 and $608,087,773, respectively, during the year ended December 31, 2002. The cost of investments owned on December 31, 2002, including short-term investments, for federal income tax purposes was $1,302,027,269. Gross unrealized appreciation and depreciation of investments aggregated $246,615,341 and $68,190,674, respectively, resulting in net unrealized appreciation of $178,424,667. The difference between book basis and tax basis net unrealized appreciation of investments is attributable primarily to the tax deferral of losses on wash sales and amortization of premiums and accretion of discounts on debt securities. NOTE E Reclassification of accounts During the year ended December 31, 2002, the Fund reclassified amounts to reflect an increase in accumulated net realized loss on investments of $866,056, a decrease in distributions in excess of net investment income of $1,088,667 and a decrease in capital paid-in of $222,611. This represents the amount necessary to report these balances on a tax basis, excluding certain temporary differences, as of December 31, 2002. Additional adjustments may be needed in subsequent reporting periods. These reclassifications, which have no impact on the net asset value of the Fund, are primarily attributable to amortization of premium and accretion of discount and to certain differences in the computation of distributable income and capital gains under federal tax rules versus accounting principles generally accepted in the United States of America. The calculation of net investment income per share in the financial highlights excludes these adjustments. NOTE F Change in accounting principle Effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies, as revised, relating to the amortization of premiums and accretion of discounts on debt securities. The cumulative effect of this accounting change had no impact on the total net assets of the Fund, but resulted in a $424,665 reduction in the cost of investments and a corresponding increase in net unrealized appreciation, based on securities held as of December 31, 2000. The effect of this change for the year ended December 31, 2001 was to decrease net investment income by $552,488, increase unrealized appreciation of investments by $71,807 and increase net realized gain on investments by $480,681. The effect of this change for the year ended December 31, 2002 was to decrease net investment income by $1,084,007, increase unrealized appreciation on investments by $203,616 and decrease net realized loss of investments by $880,391. The statement of changes in net assets and the financial highlights for prior periods have not been restated to reflect this change in presentation. NOTE G Change in Independent Auditor Based on the recommendation of the Audit Committee of the Fund, the Board of Trustees has determined not to retain Ernst & Young LLP as the Fund's independent auditor and voted to appoint Deloitte & Touche LLP for the fiscal year ended December 31, 2003. During the two most recent fiscal years, Ernst & Young LLP's audit reports contained no adverse opinion or disclaimer of opinion; nor were their reports qualified as to uncertainty, audit scope, or accounting principles. Further, there were no disagreements between the fund and Ernst & Young LLP on accounting principles, financial statements disclosure or audit scope, which if not resolved to the satisfaction of Ernst & Young LLP, would have caused them to make reference to the disagreement in their report. AUDITORS' REPORT Report of Ernst & Young LLP, Independent Auditors To the Board of Trustees and Shareholders of John Hancock Sovereign Investors Fund of John Hancock Investment Trust, We have audited the accompanying statement of assets and liabilities of John Hancock Sovereign Investors Fund (a series of John Hancock Investment Trust) (the "Fund"), including the schedule of investments, as of December 31, 2002, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2002, by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of John Hancock Sovereign Investors Fund at December 31, 2002, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. /S/ ERNST & YOUNG LLP Boston, Massachusetts February 7, 2003 TAX INFORMATION Unaudited For federal income tax purposes, the following information is furnished with respect to the distributions of the Fund, if any, paid during its taxable year ended December 31, 2002. The Fund has designated distributions to shareholders of $9,557,683 as a capital gain dividend. With respect to the ordinary dividends paid by the Fund for the fiscal year ended December 31, 2002, 100% of the dividends qualify for the corporate dividends-received deduction. If the Fund paid dividends during the fiscal year, shareholders will be mailed a 2002 U.S. Treasury Department Form 1099-DIV in January 2003. This will reflect the total of all distributions that are taxable for calendar year 2002. TRUSTEES & OFFICERS This chart provides information about the Trustees and Officers who oversee your John Hancock fund. Officers elected by the Trustees manage the day-to-day operations of the Fund and execute policies formulated by the Trustees.
INDEPENDENT TRUSTEES NUMBER OF NAME, AGE TRUSTEE JOHN HANCOCK PRINCIPAL OCCUPATION(S) AND OTHER OF FUND FUNDS OVERSEEN DIRECTORSHIPS DURING PAST 5 YEARS SINCE 1 BY TRUSTEE James F. Carlin 2, Born: 1940 1992 30 Chairman and CEO, Alpha Analytical Laboratories (chemical analysis); Part Owner and Treasurer, Lawrence Carlin Insurance Agency, Inc. (since 1995); Part Owner and Vice President, Mone Lawrence Carlin Insurance Agency, Inc. (since 1996); Director/Treasurer, Rizzo Associates (until 2000); Chairman and CEO, Carlin Consolidated, Inc. (management/investments); Director/Partner, Proctor Carlin & Co., Inc. (until 1999); Trustee, Massachusetts Health and Education Tax Exempt Trust; Director of the following: Uno Restaurant Corp. (until 2001), Arbella Mutual (insurance) (until 2000), HealthPlan Services, Inc. (until 1999), Flagship Healthcare, Inc. (until 1999), Carlin Insurance Agency, Inc. (until 1999), Chairman, Massachusetts Board of Higher Education (until 1999). William H. Cunningham, Born: 1944 1994 30 Former Chancellor, University of Texas System and former President of the University of Texas, Austin, Texas; Chairman, IBT Technologies (until 2001); Director of the following: The University of Texas Investment Management Company (until 2000), Hire.com (since 2000), STC Broadcasting, Inc. and Sunrise Television Corp. (since 2001), Symtx, Inc. (since 2001), Adorno/Rogers Technology, Inc. (since 2001), Pinnacle Foods Corporation (since 2001), rateGenius (since 2001); LaQuinta Motor Inns, Inc. (hotel management company) (until 1998), Jefferson-Pilot Corporation (diversified life insurance company) (since 1985), New Century Equity Holdings (formerly Billing Concepts) (until 2001), eCertain (until 2001), ClassMap.com (until 2001), Agile Ventures (until 2001), LBJ Foundation (until 2000), Golfsmith International, Inc. (until 2000), Metamor Worldwide (until 2000); AskRed.com (until 2001), Southwest Airlines and Introgen; Advisory Director, Q Investments; Advisory Director, Chase Bank (formerly Texas Commerce Bank -- Austin), LIN Television (since 2002) and WilTel Communications (since 2002). Ronald R. Dion, Born: 1946 1998 30 Chairman and Chief Executive Officer, R.M. Bradley & Co., Inc.; Director, The New England Council and Massachusetts Roundtable; Trustee, North Shore Medical Center; Director, BJ's Wholesale Club, Inc. and a corporator of the Eastern Bank; Trustee, Emmanuel College. Charles L. Ladner 2, Born: 1938 1979 30 Chairman and Trustee, Dunwoody Village, Inc. (continuing care retire- ment community); Senior Vice President and Chief Financial Officer, UGI Corporation (Public Utility Holding Company) (retired 1998); Vice President and Director for AmeriGas, Inc. (retired 1998); Director of AmeriGas Partners, L.P. (until 1997) (gas distribution); Director, EnergyNorth, Inc. (until 1995); Director, Parks and History Association (since 2001). Steven Pruchansky, Born: 1944 1991 30 Chairman and Chief Executive Officer, Mast Holdings, Inc. (since 2000); Director and President, Mast Holdings, Inc. (until 2000); Managing Director, JonJames, LLC (real estate) (since 2001); Director, First Signature Bank & Trust Company (until 1991); Director, Mast Realty Trust (until 1994); President, Maxwell Building Corp. (until 1991). Norman H. Smith, Born: 1933 1991 30 Lieutenant General, United States Marine Corps; Deputy Chief of Staff for Manpower and Reserve Affairs, Headquarters Marine Corps; Commanding General III Marine Expeditionary Force/3rd Marine Division (retired 1991). John P. Toolan 2, Born: 1930 1991 30 Director, The Smith Barney Muni Bond Funds, The Smith Barney Tax-Free Money Funds, Inc., Vantage Money Market Funds (mutual funds), The Inefficient-Market Fund, Inc. (closed-end investment company) and Smith Barney Trust Company of Florida; Chairman, Smith Barney Trust Company (retired 1991); Director, Smith Barney, Inc., Mutual Management Company and Smith Barney Advisers, Inc. (investment advisers) (retired 1991); Senior Executive Vice President, Director and member of the Executive Committee, Smith Barney, Harris Upham & Co., Incorporated (investment bankers) (until 1991). INTERESTED TRUSTEES 3 NAME, AGE NUMBER OF POSITION(S) HELD WITH FUND TRUSTEE JOHN HANCOCK PRINCIPAL OCCUPATION(S) AND OTHER OF FUND FUNDS OVERSEEN DIRECTORSHIPS DURING PAST 5 YEARS SINCE 1 BY TRUSTEE John M. DeCiccio, Born: 1948 2001 61 Trustee Executive Vice President and Chief Investment Officer, John Hancock Financial Services, Inc.; Director, Executive Vice President and Chief Investment Officer, John Hancock Life Insurance Company; Chairman of the Committee of Finance of John Hancock Life Insurance Company; Director, John Hancock Subsidiaries, LLC ("Subsidiaries, LLC"), Hancock Natural Resource Group, Independence Investment LLC, Independence Fixed Income LLC, John Hancock Advisers, LLC (the "Adviser") and The Berkeley Financial Group, LLC ("The Berkeley Group"), John Hancock Funds, LLC ("John Hancock Funds"), Massachusetts Business Development Corporation; Director, John Hancock Insurance Agency, Inc. ("Insurance Agency, Inc.") (until 1999). Maureen R. Ford, Born: 1955 2000 61 Trustee, Chairman, President and Chief Executive Officer Executive Vice President, John Hancock Financial Services, Inc., John Hancock Life Insurance Company; Chairman, Director, President and Chief Executive Officer, the Adviser and The Berkeley Group; Chairman, Director, President and Chief Executive Officer, John Hancock Funds; Chairman, Director and Chief Executive Officer, Sovereign Asset Management Corporation ("SAMCorp."); Director, Independence Investment LLC, Subsidiaries, LLC, Independence Fixed Income LLC and Signature Services; Senior Vice President, MassMutual Insurance Co. (until 1999). PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES NAME, AGE POSITION(S) HELD WITH FUND OFFICER PRINCIPAL OCCUPATION(S) AND OF FUND DIRECTORSHIPS DURING PAST 5 YEARS SINCE William L. Braman, Born: 1953 2000 Executive Vice President and Chief Investment Officer Executive Vice President and Chief Investment Officer, the Adviser and each of the John Hancock funds; Director, SAMCorp., Executive Vice President and Chief Investment Officer, Baring Asset Management, London U.K. (until 2000). Richard A. Brown, Born: 1949 2000 Senior Vice President and Chief Financial Officer Senior Vice President, Chief Financial Officer and Treasurer, the Adviser, John Hancock Funds, and The Berkeley Group; Second Vice President and Senior Associate Controller, Corporate Tax Department, John Hancock Financial Services, Inc. (until 2001). Susan S. Newton, Born: 1950 1991 Senior Vice President, Secretary and Chief Legal Officer Senior Vice President, Secretary and Chief Legal Officer, SAMCorp., the Adviser and each of the John Hancock funds, John Hancock Funds and The Berkeley Group; Vice President, Signature Services (until 2000), Director, Senior Vice President and Secretary, NM Capital. William H. King, Born: 1952 1992 Vice President and Treasurer Vice President and Assistant Treasurer, the Adviser; Vice President and Treasurer of each of the John Hancock funds; Assistant Treasurer of each of the John Hancock funds (until 2001). Thomas H. Connors, Born: 1959 1992 Vice President and Compliance Officer Vice President and Compliance Officer, the Adviser and each of the John Hancock funds; Vice President, John Hancock Funds. This chart provides information about the Trustees and Officers who oversee your John Hancock fund. Officers elected by the Trustees manage the day-to-day operations of the Fund and execute policies formulated by the Trustees. The business address for all Trustees and Officers is 101 Huntington Avenue, Boston, Massachusetts 02199. The Statement of Additional Information of the Fund includes additional information about members of the Board of Trustees of the Fund and is available, without charge, upon request, by calling 1-800-225-5291. 1 Each Trustee serves until resignation, retirement age or until his or her successor is elected. 2 Member of Audit Committee. 3 Interested Trustees hold positions with the Fund's investment adviser, underwriter and certain other affiliates.
FOR YOUR INFORMATION INVESTMENT ADVISER John Hancock Advisers, LLC 101 Huntington Avenue Boston, Massachusetts 02199-7603 PRINCIPAL DISTRIBUTOR John Hancock Funds, LLC 101 Huntington Avenue Boston, Massachusetts 02199-7603 CUSTODIAN The Bank of New York One Wall Street New York, New York 10286 TRANSFER AGENT John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1000 Boston, Massachusetts 02217-1000 LEGAL COUNSEL Hale and Dorr LLP 60 State Street Boston, Massachusetts 02109-1803 INDEPENDENT AUDITORS Ernst & Young LLP 200 Clarendon Street Boston, Massachusetts 02116-5072 HOW TO CONTACT US On the Internet www.jhfunds.com By regular mail John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1000 Boston, MA 02217-1000 By express mail John Hancock Signature Services, Inc. Attn: Mutual Fund Image Operations 529 Main Street Charlestown, MA 02129 Customer service representatives 1-800-225-5291 24-hour automated information 1-800-338-8080 TDD line 1-800-554-6713 [A 1 1/2" x 1/2" John Hancock (Signature) logo in upper left hand corner. A tag line below reads "JOHN HANCOCK FUNDS."] 1-800-225-5291 1-800-554-6713 (TDD) 1-800-338-8080 EASI-Line www.jhfunds.com Now available: electronic delivery www.jhancock.com/funds/edelivery This report is for the information of the shareholders of the John Hancock Sovereign Investors Fund. 2900A 12/02 2/03 John Hancock Sovereign Investors Fund SEMI ANNUAL REPORT 6.30.03 Sign up for electronic delivery at www.jhancock.com/funds/edelivery [A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower, center middle of page. A tag line below reads "JOHN HANCOCK FUNDS."] [A photo of Maureen R. Ford, Chairman and Chief Executive Officer, flush left next to first paragraph.] WELCOME Table of contents Your fund at a glance page 1 Managers' report page 2 A look at performance page 6 Growth of $10,000 page 7 Fund's investments page 8 Financial statements page 12 For your information page 25 Dear Fellow Shareholders, The stock market made a strong recovery in the first half of 2003. Historically low interest rates, improving corporate earnings and government stimulus in the form of tax cuts gave investors hope that the economy would soon begin to strengthen. Most of the market's move up occurred in the second quarter, and the breadth of the rally was enormous. As a result, the major indexes were able to wipe out their first-quarter losses and post solid gains for the first six months of the year. With technology leading the way, the tech-heavy Nasdaq Composite Index rose 21.51% through June, the Dow Jones Industrial Average was up 9.02% and the Standard & Poor's 500 Index returned 11.75%. With falling interest rates, bonds also did well, continuing their upward trend for a fourth consecutive year. High yield bonds led the pack, returning 18.49% in the first half as measured by the Lehman High Yield Index. After the jarring stock-market losses of the last three years, it's a welcome relief for investors to be reminded that the market is indeed cyclical, and does move up -- not just down. And mutual fund investors will finally like what they see in their second-quarter statements: positive results. With the exception of bear funds, which bet on the market going down, every fund category tracked by Morningstar, Inc. and Lipper, Inc. posted double-digit gains in the quarter. Whether this rally can be sustained depends in large part on whether the economy actually does rebound, and by how much, and how corporate earnings fare. It will also depend on how soon a lot of the investors still sitting on the sidelines decide to get back into the stock market. No matter what happens next, the dramatic reversal in the stock market's fortunes, and other economic improvements, could be signals that it's time for investors to review their portfolios with their investment professionals to make sure they are well-positioned to meet their long-term investment objectives. Sincerely, /S/ MAUREEN R. FORD Maureen R. Ford, Chairman and Chief Executive Officer This commentary reflects the chairman's views as of June 30, 2003. They are subject to change at any time. YOUR FUND AT A GLANCE The Fund seeks long-term growth of capital without assuming undue market risks by investing in a diversified portfo- lio of companies with market capi- talizations within the range of the Standard & Poor's 500 Index. Over the last six months * The stock market staged a strong rally in the second quarter of 2003, with higher-risk stocks leading the way. * The Fund outperformed in the first quarter, but lagged in the second with its focus on high-quality, lower-risk companies. * A dividend tax cut was enacted, potentially making dividend-paying companies more attractive. [Bar chart with heading "John Hancock Sovereign Investors Fund."Under the heading is a note that reads "Fund performance for the six months ended June 30, 2003." The chart is scaled in increments of 4% with 0% at the bottom and 8% at the top. The first bar represents the 6.73% total return for Class A. The second bar represents the 6.37% total return for Class B. The third bar represents the 6.36% total return for Class C. A note below the chart reads "Total returns for the Fund are at net asset value with all distributions reinvested."] Top 10 holdings 3.3% Citigroup, Inc. 3.3% Exxon Mobil Corp. 2.9% Johnson & Johnson 2.9% General Electric Co. 2.8% Bank of America Corp. 2.6% International Business Machines Corp. 2.6% 3M Co. 2.5% Hewlett-Packard Co. 2.4% American International Group, Inc. 2.4% BP Plc As a percentage of net assets on June 30, 2003. MANAGERS' REPORT BY JOHN F. SNYDER III, PETER M. SCHOFIELD, CFA, AND BARRY H. EVANS, CFA, PORTFOLIO MANAGERS John Hancock Sovereign Investors Fund The first half of the year was made up of two distinct market environments. Worries about the war with Iraq and the fragile U.S. economy kept stocks under pressure throughout the first quarter of the year. Against a backdrop of uncertainty, investors sought out the safety and stability of higher-quality stocks. The tables turned, however, in the second quarter as a quick resolution to the war with Iraq, glimmers of an improving economy and a significant tax cut sparked a strong rally in stocks. With hopes of an economic turnaround running high, investors flocked to high-beta -- that is, high-risk -- stocks that are likely to benefit from a stronger economy. The second-quarter rally allowed stocks to show solid advances for the six months ended June 30, 2003, with the broad Standard & Poor's 500 Index returning 11.75%. PERFORMANCE REVIEW For the six months ended June 30, 2003, John Hancock Sovereign Investors Fund Class A, Class B and Class C shares returned 6.73%, 6.37% and 6.36%, respectively, at net asset value. The average equity-income fund returned 9.56%, according to Lipper, Inc.1 Keep in mind, your net asset value return will be different from the Fund's performance if you were not invested in the Fund for the entire period and did not reinvest all distributions. Please see pages six and seven for historical performance information. "The second-quarter rally allowed stocks to show solid advances for the six months ended June 30, 2003..." In the first quarter of the year, the Fund outperformed its peers, as investors fled to higher-quality stocks. But when higher-risk stocks took the lead in the second-quarter rally, the Fund wasn't able to keep up with its more aggressive peers. Large, high-quality stocks -- particularly dividend performers -- lagged behind smaller, non-dividend-paying stocks, not necessarily because of any fundamental issues, but more due to a short-term shift in market sentiment. [Photos of John Snyder, Peter Schofield and Barry Evans flush right next to first paragraph.] In addition, several of our financial holdings turned in disappointing results and fears of asbestos litigation hurt our property and casualty holdings, particularly American International Group (AIG). We're maintaining our position here as we believe that AIG's strong, global franchise should be able to withstand any fallout from the litigation. Our government-sponsored enterprises, Fannie Mae and Freddie Mac, also detracted from performance as accounting problems plagued the duo. Despite the shift away from high-quality stocks, several of our large holdings turned in strong results. Citigroup, for example, was one of the Fund's top performers. This undervalued stock rose sharply as investors began to anticipate a pickup in the capital markets. In the consumer discretionary group, mass merchandiser Target and advertising conglomerate Omnicom Group also moved up strongly, as investors looked forward to an increase in consumer spending and a pickup in advertising in the back half of the year. "...we believe this new tax law could make our 'dividend performers' more enticing to investors..." TAX CHANGES FAVOR "DIVIDEND PERFORMERS" With the Bush administration's recent tax cut, one of the key changes was the reduction of taxes on dividends. We believe the change is a positive for investors and companies because it's easier now for companies to increase their dividend payouts to shareholders. In fact, one of our largest holdings, Bank of America, recently increased its dividend by 25%. As long-time shareholders know, we have remained consistently focused on our long-term strategy of investing primarily in "dividend performers" -- those companies that have raised their dividends for at least 10 consecutive years. Although non-dividend stocks have led the market recently, we believe this new tax law could make our "dividend performers" more enticing to investors over the long-term. [Table at top left-hand side of page entitled "Top five industry groups." The first listing is Medical 13%, the second is Computers 9%, the third Oil & gas 9%, the fourth Banks-United States 8%, and the fifth Diversified operations 7%.] NEW OPPORTUNITIES As always, we've continued to look for new opportunities that meet our strict investment criteria. In this period we established a new position in United Technologies. We think this industrial conglomerate is extremely well managed and, as a whole, it has held up well during the economic downturn. Although its aerospace business did experience some difficulties, we believe the worst is over. When the recovery does take hold, we believe United Technologies will be well positioned to leverage an economic upturn. [Pie chart at middle of page with heading "Portfolio diversification As a percentage of net assets on 6-30-03." The chart is divided into four sections (from top to left): Common stocks 94%, Short-term investments & other 4%, Preferred stocks 1%, and Corporate bonds 1%.] Goldman Sachs was another new addition. As the capital markets turn around, there's likely to be a pickup in stock and bond issuance, as well as increased merger and acquisition activity. As one of the leading investment banks in the world, Goldman Sachs is poised to be one of the beneficiaries of a recovery in the financial markets. [Table at top of page entitled "SCORECARD."The header for the left column is "INVESTMENT" and the header for the right column is "PERIOD'S PERFORMANCE...AND WHAT'S BEHIND THE NUMBERS." The first listing is Citigroup followed by an up arrow with the phrase "Rebound in the financial market." The second listing is Omnicom followed by an up arrow with the phrase "Pickup in advertising spending." The third listing is Johnson & Johnson followed by a down arrow with the phrase "Pharmaceuticals out of favor."] WHAT'S AHEAD As we look to the back half of the year, we remain cautiously optimistic. Economic indicators suggest that the economy has finally stabilized. Although fears of a double-dip recession have subsided, consumers and corporations are still nervous. The recent run-up has left many wondering, once again, whether a recovery will finally materialize in the second half of the year. The problem is that hopes of a recovery have been dashed several times before in this bear market. As a result, investors remain skeptical and that's likely to keep stocks choppy. "The key will be whether earnings can meet Wall Street's expectations." The longer-term picture, we believe, is brighter. President Bush has pumped a tremendous amount of fiscal stimulus into the economy in an attempt to jump-start its recovery. Interest rates remain at 40-year lows and inflation is well contained, providing a positive backdrop for stocks. As for corporate earnings, we're likely to continue to see improvement in the quarters ahead. The key will be whether earnings can meet Wall Street's expectations. Finally, there's a significant amount of money sitting on the sidelines. Once investors regain their confidence, this money could flow back into stocks. This commentary reflects the views of the portfolio managers through the end of the Fund's period discussed in this report. The managers' statements reflect their own opinions. As such, they are in no way guarantees of future events, and are not intended to be used as investment advice or a recommendation regarding any specific security. They are also subject to change at any time as market and other conditions warrant. 1 Figures from Lipper, Inc. include reinvested dividends and do not take into account sales charges. Actual load-adjusted performance is lower. A LOOK AT PERFORMANCE For the period ended June 30, 2003 The index used for comparison is the Standard & Poor's 500 Index, an unmanaged index that includes 500 widely traded common stocks. It is not possible to invest directly in an index. Class A Class B Class C Index Inception date 5-1-36 1-3-94 5-1-98 -- Average annual returns with maximum sales charge (POP) One year -7.57% -8.14% -5.29% 0.25% Five years -1.88% -1.86% -1.75% -1.61% Ten years 7.11% -- -- 10.04% Since inception -- 6.86% -1.88% -- Cumulative total returns with maximum sales charge (POP) Six months 1.40% 1.37% 4.31% 11.75% One year -7.57% -8.14% -5.29% 0.25% Five years -9.07% -8.97% -8.43% -7.79% Ten years 98.84% -- -- 160.37% Since inception -- 87.66% -9.32% -- SEC 30-day yield as of June 30, 2003 0.71% 0.05% 0.05% -- Performance figures assume all distributions are reinvested. Returns with maximum sales charge reflect a sales charge on Class A shares of 5% and Class C shares of 1%, and the applicable contingent deferred sales charge (CDSC) on Class B and Class C shares. The Class B shares' CDSC declines annually between years 1-6 according to the following schedule: 5, 4, 3, 3, 2, 1%. No sales charge will be assessed after the sixth year. Class C shares held for one year or less are subject to a 1% CDSC. The return and principal value of an investment in the Fund will fluctuate, so that shares, when redeemed, may be worth more or less than the original cost. Index figures do not reflect sales charges and would be lower if they did. The returns reflect past results and should not be considered indicative of future performance. The performance table above and the chart on the next page do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. GROWTH OF $10,000 This chart shows what happened to a hypothetical $10,000 investment in Class A shares for the period indicated. For comparison, we've shown the same investment in the Standard & Poor's 500 Index. Line chart with the heading "GROWTH OF $10,000." Within the chart are three lines. The first line represents the Index and is equal to $26,037 as of June 30, 2003. The second line represents the value of the hypothetical $10,000 investment made in the John Hancock Sovereign Investors Fund, before sales charge, and is equal to $20,930 as of June 30, 2003. The third line represents the value of the same hypothetical investment made in the John Hancock Sovereign Investors Fund, after sales charge, and is equal to $19,884 as of June 30, 2003. Class B 1 Class C 1 Period beginning 1-3-94 5-1-98 Without sales charge $18,766 $9,160 With maximum sales charge -- $9,068 Index $24,854 $9,351 Assuming all distributions were reinvested for the period indicated, the table above shows the value of a $10,000 investment in the Fund's Class B and Class C shares, respectively, as of June 30, 2003. Performance of the classes will vary based on the difference in sales charges paid by shareholders investing in the different classes and the fee structure of those classes. 1 No contingent deferred sales charge applicable. FINANCIAL STATEMENTS FUND'S INVESTMENTS Securities owned by the Fund on June 30, 2003 (unaudited) This schedule is divided into four main categories: common stocks, preferred stocks, corporate bonds and short-term investments. The common and preferred stocks and corporate bonds are further broken down by industry group. Short-term investments, which represent the Fund's cash position, are listed last.
SHARES ISSUER VALUE COMMON STOCKS 94.23% $1,179,802,342 (Cost $963,407,822) Advertising 2.00% 25,095,000 350,000 Omnicom Group, Inc. 25,095,000 Aerospace 1.70% 21,249,000 300,000 United Technologies Corp. 21,249,000 Banks -- United States 8.48% 106,201,000 450,000 Bank of America Corp. 35,563,500 750,000 Bank of New York Co., Inc. (The) 21,562,500 200,000 State Street Corp. 7,880,000 550,000 U.S. Bancorp 13,475,000 550,000 Wells Fargo & Co. 27,720,000 Beverages 2.80% 35,060,500 300,000 Coca-Cola Co. (The) 13,923,000 475,000 PepsiCo, Inc. 21,137,500 Broker Services 1.34% 16,750,000 200,000 Goldman Sachs Group, Inc. (The) 16,750,000 Chemicals 2.00% 25,049,680 416,800 Praxair, Inc. 25,049,680 Computers 8.84% 110,688,500 1,500,000 Cisco Systems, Inc.* 25,035,000 1,450,000 Hewlett-Packard Co. 30,885,000 400,000 International Business Machines Corp. 33,000,000 850,000 Microsoft Corp. 21,768,500 Cosmetics & Personal Care 3.16% 39,580,000 450,000 Avon Products, Inc. 27,990,000 200,000 Colgate-Palmolive Co. 11,590,000 Diversified Operations 7.02% 87,850,000 250,000 3M Co. 32,245,000 1,250,000 General Electric Co. 35,850,000 300,000 Illinois Tool Works, Inc. 19,755,000 Electronics 2.21% 27,689,426 94,478 Emerson Electric Co. 4,827,826 200,000 Grainger (W.W.), Inc. 9,352,000 650,000 Intel Corp. 13,509,600 Finance 6.03% 75,564,634 952,941 Citigroup, Inc. 40,785,875 848,309 MBNA Corp. 17,678,759 400,000 Morgan Stanley Dean Witter & Co. 17,100,000 Food 0.43% 5,400,000 100,000 Unilever NV (NY Reg Shares) (Netherlands) 5,400,000 Insurance 6.56% 82,162,849 547,600 AFLAC, Inc. 16,838,700 550,000 American International Group, Inc. 30,349,000 250,000 Hartford Financial Services Group, Inc. (The) 12,590,000 1,407,871 Travelers Property Casualty Corp. (Class A) 22,385,149 Media 1.22% 15,281,000 350,000 Viacom, Inc. (Class B)* 15,281,000 Medical 13.13% 164,393,400 650,000 Abbott Laboratories 28,444,000 450,000 Cardinal Health, Inc. 28,935,000 702,000 Johnson & Johnson 36,293,400 300,000 Medtronic, Inc. 14,391,000 150,000 Merck & Co., Inc. 9,082,500 850,000 Pfizer, Inc. 29,027,500 400,000 Wyeth 18,220,000 Mortgage Banking 3.17% 39,668,500 400,000 Fannie Mae 26,976,000 250,000 Freddie Mac 12,692,500 Office 1.53% 19,143,770 381,350 Avery Dennison Corp. 19,143,770 Oil & Gas 7.93% 99,309,904 250,000 Anadarko Petroleum Corp. 11,117,500 700,000 BP Plc, American Depositary Receipts (ADR) (United Kingdom) 29,414,000 250,000 ChevronTexaco Corp. 18,050,000 1,134,180 Exxon Mobil Corp. 40,728,404 Retail 5.44% 68,066,078 100,000 Family Dollar Stores, Inc. 3,815,000 400,000 Lowe's Cos., Inc. 17,180,000 283,200 SYSCO Corp. 8,507,328 700,000 Target Corp. 26,488,000 225,000 Wal-Mart Stores, Inc. 12,075,750 Soap & Cleaning Preparations 2.14% 26,754,000 300,000 Procter & Gamble Co. (The) 26,754,000 Telecommunications 3.79% 47,446,107 700,000 Nokia Corp., ADR (Finland) 11,501,000 789,241 SBC Communications, Inc. 20,165,107 400,000 Verizon Communications, Inc. 15,780,000 Tobacco 2.00% 24,992,000 550,000 Altria Group, Inc. 24,992,000 Utilities 1.31% 16,406,994 490,200 Questar Corp. 16,406,994 PREFERRED STOCKS 0.58% 7,200,000 (Cost $6,000,000) Oil & Gas 0.58% 60,000 Lasmo America Ltd., 8.15% (R) 7,200,000 INTEREST CREDIT PAR VALUE ISSUER, DESCRIPTION, MATURITY DATE RATE RATING** (000s OMITTED) VALUE CORPORATE BONDS 0.59% $7,393,624 (Cost $7,388,294) Utilities 0.59% Tennessee Valley Authority, Note 07-15-43 7.250% AAA $7,000 7,393,624 SHORT-TERM INVESTMENTS 4.04% $50,532,000 (Cost $50,532,000) Joint Repurchase Agreement 4.04% Investment in a joint repurchase agreement transaction with UBS Warburg, Inc. -- Dated 06-30-03, due 07-01-03 (Secured by U.S. Treasury Bonds, 5.250% thru 7.875% due 02-15-21 thru 11-15-28) 1.100% 50,532 50,532,000 TOTAL INVESTMENTS 99.44% $1,244,927,966 OTHER ASSETS AND LIABILITIES, NET 0.56% $7,070,812 TOTAL NET ASSETS 100.0% $1,251,998,778 Notes to Schedule of Investments * Non-income-producing security. ** Credit ratings by Moody's Investors Service or John Hancock Advisers, LLC, where Standard & Poor's ratings are not available. (R) This security is exempt from registration under rule 144A of the Securities Act of 1933. Such security may be resold, normally to qualified institutional buyers, in transactions exempt from registration. Rule 144A securities amounted to $7,200,000 or 0.58% of net assets as of June 30, 2003. Parenthetical disclosure of a foreign country in the security description represents country of a foreign issuer. The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the Fund. See notes to financial statements.
ASSETS AND LIABILITIES June 30, 2003 (unaudited) This Statement of Assets and Liabilities is the Fund's balance sheet. It shows the value of what the Fund owns, is due and owes. You'll also find the net asset value and the maximum offering price per share. ASSETS Investments at value (cost $1,027,328,116) $1,244,927,966 Cash 437 Receivable for investments sold 10,205,913 Receivable for shares sold 166,431 Dividends and interest receivable 1,588,762 Other assets 342,758 Total assets 1,257,232,267 LIABILITIES Payable for investments purchased 2,323,205 Payable for shares repurchased 501,681 Payable to affiliates Management fee 1,825,317 Distribution and service fee 83,595 Other 85,496 Other payables and accrued expenses 414,195 Total liabilities 5,233,489 NET ASSETS Capital paid-in 1,092,637,725 Accumulated net realized loss on investments (57,651,652) Net unrealized appreciation of investments 217,599,850 Distributions in excess of net investment income (587,145) Net assets $1,251,998,778 NET ASSET VALUE PER SHARE Based on net asset values and shares outstanding Class A ($921,401,067 [DIV] 54,924,905 shares) $16.78 Class B ($307,362,904 [DIV] 18,344,119 shares) $16.76 Class C ($23,234,807 [DIV] 1,384,964 shares) $16.78 MAXIMUM OFFERING PRICE PER SHARE Class A 1 ($16.78 [DIV] 95%) $17.66 Class C ($16.78 [DIV] 99%) $16.95 1 On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the offering price is reduced. See notes to financial statements. OPERATIONS For the period ended June 30, 2003 (unaudited) 1 This Statement of Operations summarizes the Fund's investment income earned and expenses incurred in operat- ing the Fund. It also shows net gains (losses) for the period stated. INVESTMENT INCOME Dividends (net of foreign withholding taxes of $100,991) $11,630,951 Interest (including securities lending income of $171,768) 2,328,820 Total investment income 13,959,771 EXPENSES Investment management fee 3,525,052 Class A distribution and service fee 1,324,594 Class B distribution and service fee 1,540,648 Class C distribution and service fee 115,117 Transfer agent fee 1,765,863 Accounting and legal services fee 157,588 Custodian fee 84,598 Trustees' fee 40,042 Printing 36,626 Registration and filing fee 35,211 Miscellaneous 34,414 Auditing fee 19,718 Legal fee 8,082 Interest expense 3,858 Net expenses 8,691,411 Net investment income 5,268,360 REALIZED AND UNREALIZED GAIN Net realized gain on investments 33,863,085 Change in net unrealized appreciation (depreciation) of investments 37,843,416 Net realized and unrealized gain 71,706,501 Increase in net assets from operations $76,974,861 1 Semiannual period from 1-1-03 through 6-30-03. See notes to financial statements. CHANGES IN NET ASSETS This Statement of Changes in Net Assets shows how the value of the Fund's net assets has changed since the end of the previous period. The dif- ference reflects earnings less expenses, any investment gains and losses, distributions, if any, paid to shareholders and any increase or decrease in money share holders invested in the Fund. YEAR PERIOD ENDED ENDED 12-31-02 6-30-03 1 INCREASE (DECREASE) IN NET ASSETS From operations Net investment income $17,399,347 $5,268,360 Net realized gain (loss) (90,047,264) 33,863,085 Change in net unrealized appreciation (depreciation) (253,306,863) 37,843,416 Increase (decrease) in net assets resulting from operations (325,954,780) 76,974,861 Distributions to shareholders From net investment income Class A (15,200,803) (4,973,558) Class B (3,050,052) (657,965) Class C (177,688) (48,204) From net realized gain Class A (6,861,940) -- Class B (2,512,670) -- Class C (183,073) -- (27,986,226) (5,679,727) From Fund share transactions (170,742,889) (79,147,032) NET ASSETS Beginning of period 1,784,534,571 1,259,850,676 End of period 2 $1,259,850,676 $1,251,998,778 1 Semiannual period from 1-1-03 through 6-30-03. Unaudited. 2 Includes distributions in excess of net investment income of $175,778 and $587,145, respectively. See notes to financial statements.
FINANCIAL HIGHLIGHTS CLASS A SHARES The Financial Highlights show how the Fund's net asset value for a share has changed since the end of the previous period. PERIOD ENDED 12-31-98 12-31-99 12-31-00 12-31-01 1 12-31-02 6-30-03 2 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $22.41 $24.23 $24.51 $23.35 $19.88 $15.81 Net investment income 3 0.31 0.30 0.33 0.32 0.24 0.09 Net realized and unrealized gain (loss) on investments 3.11 1.11 0.61 (1.77) (3.94) 0.97 Total from investment operations 3.42 1.41 0.94 (1.45) (3.70) 1.06 Less distributions From net investment income (0.31) (0.35) (0.33) (0.37) (0.25) (0.09) From net realized gain (1.29) (0.78) (1.77) (1.65) (0.12) -- (1.60) (1.13) (2.10) (2.02) (0.37) (0.09) Net asset value, end of period $24.23 $24.51 $23.35 $19.88 $15.81 $16.78 Total return 4 (%) 15.62 5.91 4.10 (6.06) (18.68) 6.73 5 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in millions) $1,884 $1,788 $1,446 $1,217 $908 $921 Ratio of expenses to average net assets (%) 1.03 1.05 1.08 1.10 1.17 1.24 6 Ratio of net investment income to average net assets (%) 1.33 1.21 1.44 1.50 1.36 1.05 6 Portfolio turnover (%) 51 64 46 76 85 31
See notes to financial statements.
FINANCIAL HIGHLIGHTS CLASS B SHARES PERIOD ENDED 12-31-98 12-31-99 12-31-00 12-31-01 1 12-31-02 6-30-03 2 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $22.38 $24.20 $24.48 $23.31 $19.86 $15.79 Net investment income 3 0.14 0.13 0.17 0.17 0.12 0.03 Net realized and unrealized gain (loss) on investments 3.11 1.11 0.60 (1.76) (3.94) 0.97 Total from investment operations 3.25 1.24 0.77 (1.59) (3.82) 1.00 Less distributions From net investment income (0.14) (0.18) (0.17) (0.21) (0.13) (0.03) From net realized gain (1.29) (0.78) (1.77) (1.65) (0.12) -- (1.43) (0.96) (1.94) (1.86) (0.25) (0.03) Net asset value, end of period $24.20 $24.48 $23.31 $19.86 $15.79 $16.76 Total return 4 (%) 14.79 5.20 3.32 (6.66) (19.29) 6.37 5 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in millions) $790 $820 $663 $551 $328 $307 Ratio of expenses to average net assets (%) 1.79 1.73 1.78 1.80 1.87 1.94 6 Ratio of net investment income to average net assets (%) 0.58 0.54 0.75 0.80 0.65 0.36 6 Portfolio turnover (%) 51 64 46 76 85 31
See notes to financial statements.
FINANCIAL HIGHLIGHTS CLASS C SHARES PERIOD ENDED 12-31-98 7 12-31-99 12-31-00 12-31-01 1 12-31-02 6-30-03 2 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $24.43 $24.22 $24.50 $23.33 $19.88 $15.81 Net investment income 3 0.13 0.13 0.18 0.17 0.12 0.03 Net realized and unrealized gain (loss) on investments 1.07 1.10 0.59 (1.76) (3.94) 0.97 Total from investment operations 1.20 1.23 0.77 (1.59) (3.82) 1.00 Less distributions From net investment income (0.12) (0.17) (0.17) (0.21) (0.13) (0.03) From net realized gain (1.29) (0.78) (1.77) (1.65) (0.12) -- (1.41) (0.95) (1.94) (1.86) (0.25) (0.03) Net asset value, end of period $24.22 $24.50 $23.33 $19.88 $15.81 $16.78 Total return 4 (%) 5.185 5.17 3.32 (6.66) (19.27) 6.36 5 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in millions) $5 $11 $12 $17 $24 $23 Ratio of expenses to average net assets (%) 1.67 6 1.75 1.79 1.80 1.87 1.94 6 Ratio of net investment income to average net assets (%) 0.84 6 0.51 0.76 0.82 0.67 0.34 6 Portfolio turnover (%) 51 64 46 76 85 31
1 As required, effective January 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies, as revised, relating to the amortization of premiums and accretion of discounts on debt securities. The effect of this change on per share amounts for the year ended December 31, 2001, was to decrease net investment income per share by $0.01, decrease net realized and unrealized losses per share by $0.01, and, had the Fund not made these changes to amortization and accretion, the ratio of net investment income to average net assets would have been 1.53%, 0.83% and 0.85% for Class A, Class B and Class C shares, respectively. Per share ratios and supplemental data for periods prior to January 1, 2001, have not been restated to reflect this change in presentation. 2 Semiannual period from 1-1-03 through 6-30-03. Unaudited. 3 Based on the average of the shares outstanding. 4 Assumes dividend reinvestment and does not reflect the effect of sales charges. 5 Not annualized. 6 Annualized. 7 Class C shares began operations on 5-1-98. See notes to financial statements. NOTES TO STATEMENTS Unaudited NOTE A Accounting policies John Hancock Sovereign Investors Fund (the "Fund") is a diversified series of John Hancock Investment Trust, an open-end management investment company registered under the Investment Company Act of 1940. The investment objective of the Fund is to provide long-term growth of capital and of income without assuming undue market risks. The Trustees have authorized the issuance of multiple classes of shares of the Fund, designated as Class A, Class B, Class C and Class I shares. No Class I shares have been issued as of June 30, 2003. The shares of each class represent an interest in the same portfolio of investments of the Fund and have equal rights as to voting, redemptions, dividends and liquidation, except that certain expenses, subject to the approval of the Trustees, may be applied differently to each class of shares in accordance with current regulations of the Securities and Exchange Commission and the Internal Revenue Service. Shareholders of a class that bears distribution and service expenses under terms of a distribution plan have exclusive voting rights to that distribution plan. Significant accounting policies of the Fund are as follows: Valuation of investments Securities in the Fund's portfolio are valued on the basis of market quotations, valuations provided by independent pricing services or at fair value as determined in good faith in accordance with procedures approved by the Trustees. Short-term debt investments maturing within 60 days are valued at amortized cost, which approximates market value. Investments in AIM Cash Investment Trust are valued at their net asset value each business day. Joint repurchase agreement Pursuant to an exemptive order issued by the Securities and Exchange Commission, the Fund, along with other registered investment companies having a management contract with John Hancock Advisers, LLC (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group, LLC, may participate in a joint repurchase agreement transaction. Aggregate cash balances are invested in one or more large repurchase agreements, whose underlying securities are obligations of the U.S. government and/or its agencies. The Fund's custodian bank receives delivery of the underlying securities for the joint account on the Fund's behalf. The Adviser is responsible for ensuring that the agreement is fully collateralized at all times. Investment transactions Investment transactions are recorded as of the date of purchase, sale or maturity. Net realized gains and losses on sales of investments are determined on the identified cost basis. Discount and premium on securities The Fund accretes discount and amortizes premium from par value on securities from either the date of issue or the date of purchase over the life of the security. Class allocations Income, common expenses and realized and unrealized gains (losses) are determined at the fund level and allocated daily to each class of shares based on the appropriate net assets of the respective classes. Distri bution and service fees, if any, are calculated daily at the class level based on the appropriate net assets of each class and the specific expense rate(s) applicable to each class. Expenses The majority of the expenses are directly identifiable to an individual fund. Expenses that are not readily identifiable to a specific fund will be allocated in such a manner as deemed equitable, taking into consideration, among other things, the nature and type of expense and the relative sizes of the funds. Bank borrowings The Fund is permitted to have bank borrowings for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Fund has entered into a syndicated line of credit agreement with various banks. This agreement enables the Fund to participate with other funds managed by the Adviser in an unsecured line of credit with banks, which permits borrowings of up to $250 million, collectively. Interest is charged to each fund, based on its borrowing. In addition, a commitment fee is charged to each fund based on the average daily unused portion of the line of credit and is allocated among the participating funds. The Fund had no borrowing activity under the line of credit during the period ended June 30, 2003. Securities lending The Fund may lend securities to certain qualified brokers who pay the Fund negotiated lender fees. These fees are included in interest income. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay of the loaned securities in recovery or even loss of rights in the collateral, should the borrower of the securities fail financially. There were no securities loaned on June 30, 2003. Federal income taxes The Fund qualifies as a "regulated investment company" by complying with the applicable provisions of the Internal Revenue Code and will not be subject to federal income tax on taxable income that is distributed to shareholders. Therefore, no federal income tax provision is required. For federal income tax purposes, the Fund has $89,791,390 of a capital loss carryforward available, to the extent provided by regulations, to offset future net realized capital gains. To the extent that such carryforward is used by the Fund, no capital gain distributions will be made. The entire loss carryforward expires on December 31, 2010. Dividends, interest and distributions Dividend income on investment securities is recorded on the ex-dividend date or, in the case of some foreign securities, on the date thereafter when the Fund identifies the dividend. Interest income on investment securities is recorded on the accrual basis. Foreign income may be subject to foreign withholding taxes, which are accrued as applicable. The Fund records distributions to shareholders from net investment income and net realized gains on the ex-dividend date. Distributions paid by the Fund with respect to each class of shares are calculated in the same manner, at the same time and are in the same amount, except for the effect of expenses that may be applied differently to each class. Such distributions, on a tax basis, are determined in conformity with income tax regulations, which may differ from accounting prin ci ples generally accepted in the United States of America. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Use of estimates The preparation of these financial statements, in accordance with accounting principles generally accepted in the United States of America, incorporates estimates made by management in determining the reported amount of assets, liabilities, revenues and expenses of the Fund. Actual results could differ from these estimates. NOTE B Management fee and transactions with affiliates and others The Fund has an investment management contract with the Adviser. Under the investment management contract, the Fund pays a quarterly management fee to the Adviser equivalent, on an annual basis, to the sum of: (a) 0.60% of the first $750,000,000 of the Fund's average daily net asset value, (b) 0.55% of the next $750,000,000, (c) 0.50% of the next $1,000,000,000 and (d) 0.45% of the Fund's average daily net asset value in excess of $2,500,000,000. The Fund has Distribution Plans with John Hancock Funds, LLC ("JH Funds"), a wholly owned subsidiary of the Adviser. The Fund has adopted Distribution Plans with respect to Class A, Class B and Class C pursuant to Rule 12b-1 under the Investment Company Act of 1940 to reimburse JH Funds for the services it provides as distributor of shares of the Fund. Accordingly, the Fund makes monthly payments to JH Funds at an annual rate not to exceed 0.30% of Class A average daily net assets and 1.00% of Class B and Class C average daily net assets. A maximum of 0.25% of such payments may be service fees as de fined by the Conduct Rules of the National Association of Securities Dealers. Under the Conduct Rules, curtailment of a portion of the Fund's 12b-1 payments could occur under certain circumstances. Class A and Class C shares are assessed up-front sales charges. During the period ended June 30, 2003, JH Funds received net up-front sales charges of $338,220 with regard to sales of Class A shares. Of this amount, $47,087 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $195,997 was paid as sales commissions to unrelated broker-dealers and $95,136 was paid as sales commissions to sales personnel of Signator Investors, Inc. ("Signator Investors"), a related broker-dealer. The Adviser's indirect parent, John Hancock Life Insurance Company ("JHLICo"), is the indirect sole shareholder of Signator Inves tors. During the period ended June 30, 2003, JH Funds received net up-front sales charges of $32,029 with regard to sales of Class C shares. Of this amount, $30,521 was paid as sales commissions to unrelated broker-dealers and $1,508 was paid as sales commissions to sales personnel of Signator Investors. Class B shares that are redeemed within six years of purchase are subject to a contingent deferred sales charge ("CDSC") at declining rates, beginning at 5.00% of the lesser of the current market value at the time of redemption or the original purchase cost of the shares being redeemed. Class C shares that are redeemed within one year of purchase are subject to a CDSC at a rate of 1.00% of the lesser of the current market value at the time of redemption or the original purchase cost of the shares being redeemed. Proceeds from the CDSCs are paid to JH Funds and are used in whole or in part to defray its expenses for providing distribution related services to the Fund in connection with the sale of Class B and Class C shares. During the period ended June 30, 2003, CDSCs received by JH Funds amounted to $275,189 for Class B shares and $325 for Class C shares. The Fund has a transfer agent agreement with John Hancock Signature Services, Inc., an indirect subsidiary of JHLICo. The Fund pays a monthly transfer agent fee at an annual rate of 0.05% of the Fund's average daily net asset value, plus a fee based on the number of shareholder accounts and reimbursement for certain out-of-pocket expenses, aggregated and allocated to each class on the basis of its relative net asset value. The Fund has an agreement with the Adviser to perform necessary tax, accounting and legal services for the Fund. The compensation for the period was at an annual rate of approximately 0.03% of the average net assets of the Fund. Ms. Maureen R. Ford and Mr. John M. DeCiccio are directors and/or officers of the Adviser and/or its affiliates, as well as Trustees of the Fund. The compensation of unaffiliated Trustees is borne by the Fund. The unaffiliated Trustees may elect to defer for tax purposes their receipt of this compensation under the John Hancock Group of Funds Deferred Compensation Plan. The Fund makes investments into other John Hancock funds, as applicable, to cover its liability for the deferred compensation. Investments to cover the Fund's deferred compensation liability are recorded on the Fund's books as an other asset. The deferred compensation liability and the related other asset are always equal and are marked to market on a periodic basis to reflect any income earned by the investments as well as any unrealized gains or losses. The Deferred Compensation Plan investments had no impact on the operations of the Fund. NOTE C Fund share transactions This listing illustrates the number of Fund shares sold, reinvested and repurchased during the last two periods, along with the corresponding dollar value. The Fund has an unlimited number of shares authorized with no par value.
YEAR ENDED 12-31-02 YEAR ENDED 6-31-03 1 SHARES AMOUNT SHARES AMOUNT CLASS A SHARES Sold 7,115,380 $128,166,011 2,328,937 $37,289,386 Distributions reinvested 1,218,520 20,462,624 286,775 4,621,893 Repurchased (12,150,506) (210,473,134) (5,082,965) (80,450,367) Net decrease (3,816,606) ($61,844,499) (2,467,253) ($38,539,088) CLASS B SHARES Sold 2,536,815 $45,690,969 1,028,665 $16,432,053 Distributions reinvested 317,980 5,295,398 39,765 629,290 Repurchased (9,799,112) (171,997,634) (3,494,200) (55,333,280) Net decrease (6,944,317) ($121,011,267) (2,425,770) ($38,271,937) CLASS C SHARES Sold 1,365,472 $24,421,944 736,564 $11,608,371 Distributions reinvested 20,572 339,309 2,851 45,182 Repurchased (708,865) (12,648,376) (889,018) (13,989,560) Net increase (decrease) 677,179 $12,112,877 (149,603) ($2,336,007) NET DECREASE (10,083,744) ($170,742,889) (5,042,626) ($79,147,032) 1 Semiannual period from 1-1-03 through 6-30-03. Unaudited.
NOTE D Investment transactions Purchases and proceeds from sales or maturities of securities other than short-term securities and obligations of the U.S. government, during the period ended June 30, 2003, aggregated $326,895,520 and $416,040,741, respectively. Purchases and proceeds from sales or maturities of obligations of U.S. government aggregated $31,657,813 and $31,756,055, respectively, during the period ended June 30, 2003. The cost of investments owned on June 30, 2003, including short-term investments, for federal income tax purposes was $1,027,441,697. Gross unrealized appreciation and depreciation of investments aggregated $245,137,177 and $27,650,908, respectively, resulting in net unrealized appreciation of $217,486,269. The difference between book basis and tax basis net unrealized appreciation of investments is attributable primarily to the amortization of premiums and accretion of discounts on debt securities. OUR FAMILY OF FUNDS - ------------------------------------------------------- Equity Balanced Fund Classic Value Fund Core Equity Fund Focused Equity Fund Growth Trends Fund International Fund Large Cap Equity Fund Large Cap Growth Fund Large Cap Spectrum Fund Mid Cap Growth Fund Multi Cap Growth Fund Small Cap Equity Fund Small Cap Growth Fund Sovereign Investors Fund U.S. Global Leaders Growth Fund - -------------------------------------------------------- Sector Biotechnology Fund Financial Industries Fund Health Sciences Fund Real Estate Fund Regional Bank Fund Technology Fund - -------------------------------------------------------- Income Bond Fund Government Income Fund High Income Fund High Yield Bond Fund Investment Grade Bond Fund Strategic Income Fund - -------------------------------------------------------- Tax-Free Income California Tax-Free Income Fund High Yield Municipal Bond Fund Massachusetts Tax-Free Income Fund New York Tax-Free Income Fund Tax-Free Bond Fund - ------------------------------------------------------- Money Market Money Market Fund U.S. Government Cash Reserve For more complete information on any John Hancock Fund and a prospectus, which includes charges and expenses, call your financial professional, or John Hancock Funds at 1-800-225-5291. Please read the prospectus carefully before investing or sending money. ELECTRONIC DELIVERY Now available from John Hancock Funds Instead of receiving annual and semiannual reports and prospectuses through the U.S. mail, we'll notify you by e-mail when these documents are available for online viewing. How does electronic delivery benefit you? * No more waiting for the mail to arrive; you'll receive an e-mail notification as soon as the document is ready for online viewing. * Reduces the amount of paper mail you receive from John Hancock Funds. * Reduces costs associated with printing and mailing. Sign up for electronic delivery today at www.jhancock.com/funds/edelivery FOR YOUR INFORMATION TRUSTEES James F. Carlin William H. Cunningham John M. DeCiccio Ronald R. Dion Maureen R. Ford Charles L. Ladner* Steven R. Pruchansky Lt. Gen. Norman H. Smith, USMC (Ret.) John P. Toolan* *Members of the Audit Committee OFFICERS Maureen R. Ford Chairman, President and Chief Executive Officer William L. Braman Executive Vice President and Chief Investment Officer Richard A. Brown Senior Vice President and Chief Financial Officer Susan S. Newton Senior Vice President and Secretary William H. King Vice President and Treasurer Thomas H. Connors Vice President and Compliance Officer INVESTMENT ADVISER John Hancock Advisers, LLC 101 Huntington Avenue Boston, Massachusetts 02199-7603 PRINCIPAL DISTRIBUTOR John Hancock Funds, LLC 101 Huntington Avenue Boston, Massachusetts 02199-7603 CUSTODIAN The Bank of New York One Wall Street New York, New York 10286 TRANSFER AGENT John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1000 Boston, Massachusetts 02217-1000 LEGAL COUNSEL Hale and Dorr LLP 60 State Street Boston, Massachusetts 02109-1803 HOW TO CONTACT US On the Internet www.jhfunds.com By regular mail John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1000 Boston, MA 02217-1000 By express mail John Hancock Signature Services, Inc. Attn: Mutual Fund Image Operations 529 Main Street Charlestown, MA 02129 Customer service representatives 1-800-225-5291 24-hour automated information 1-800-338-8080 TDD line 1-800-554-6713 The Fund's voting policies and procedures are available without charge, upon request: By phone 1-800-225-5291 On the Fund's Web site www.jhfunds.com/proxy On the SEC's Web site http://www.sec.gov [A 1 1/2" x 1/2" John Hancock (Signature) logo in upper left hand corner. A tag line below reads "JOHN HANCOCK FUNDS."] 1-800-225-5291 1-800-554-6713 (TDD) 1-800-338-8080 EASI-Line www.jhfunds.com Now available: electronic delivery www.jhancock.com/funds/edelivery This report is for the information of the shareholders of the John Hancock Sovereign Investors Fund. 290SA 6/03 8/03 Part B Statement of Additional Information JOHN HANCOCK SOVEREIGN INVESTORS FUND (the "Acquiring Fund", and a series of John Hancock Investment Trust) JOHN HANCOCK LARGE CAP SPECTRUM FUND (the "Acquired Fund", and a series of John Hancock Equity Trust) 101 Huntington Avenue Boston, MA 02199 1-800-225-5291 October 8, 2003 This Statement of Additional Information provides additional information and is not a prospectus. It should be read in conjunction with the related proxy statement and prospectus that is also dated October 8, 2003. This Statement of Additional Information provides additional information about John Hancock Sovereign Investors Fund and the Fund that it is acquiring, John Hancock Large Cap Spectrum Fund. Please retain this Statement of Additional Information for future reference. A copy of the proxy statement and prospectus can be obtained free of charge by calling John Hancock Signature Services, Inc., at 1-800-225-5291. Table Of Contents Page Introduction 3 Note Regarding Pro Forma Financial Information 3 Additional Information about the Acquiring Fund 3 General Information and History 3 Investment Objective and Policies 3 Management of the Acquiring Fund 3 Control Persons and Principal Holders of Shares 3 Investment Advisory and Other Services 3 Brokerage Allocation 3 Capital Stock and Other Securities 3 Purchase, Redemption and Pricing of Acquiring Fund Shares 3 Tax Status 4 Underwriters 4 Calculation of Performance Data 4 Financial Statements 4 Additional Information about the Acquired Fund 4 General Information and History 4 Investment Objective and Policies 4 Management of the Acquired Fund 4 Control Persons and Principal Holders of Shares 4 Investment Advisory and Other Services 4 Brokerage Allocation 4 Capital Stock and Other Securities 4 Purchase, Redemption and Pricing of Acquired Fund Shares 5 Tax Status 5 Underwriters 5 Calculation of Performance Data 5 Financial Statements 5 Exhibits A - Statement of Additional Information, dated August 5, 2003, of the Acquiring Fund including audited financial statements as of December 31, 2002 and unaudited financial statements dated June 30, 2003. B - Statement of Additional Information, dated March 1, 2003 and revised July 15, 2003, of the Acquired Fund including audited financial statements as of October 31, 2002 and unaudited financial statements dated April 30, 2003. 2 INTRODUCTION This Statement of Additional Information ("SAI") is intended to supplement the information provided in a proxy statement and prospectus dated October 8, 2003. The proxy statement and prospectus has been sent to the shareholders of the Acquired Fund in connection with the solicitation by the Trustees of the Acquired Fund of proxies to be voted at the Special Meeting of Shareholders of the Acquired Fund to be held on December 3, 2003. This Statement of Additional Information incorporates by reference the Statement of Additional Information of the Acquiring Fund, dated August 5, 2003, and the Statement of Additional Information of the Acquired Fund, dated March 1, 2003, as revised July 15, 2003. The SAI for the Acquiring Fund and the SAI for the Acquired Fund are included with this Statement of Additional Information. NOTE REGARDING PRO FORMA FINANCIAL INFORMATION In accordance with Item 14(a)(2) of Form N-14, pro forma financial statements were not prepared for the proposed reorganization of the Acquired Fund into the Acquiring Fund, since the net asset value of the Acquired Fund did not exceed ten percent of the net asset value of the Acquiring Fund on August 15, 2003. Additional Information About the Acquiring Fund ----------------------------------------------- General Information and History - ------------------------------- For additional information about the Acquiring Fund generally and its history, see "Organization of the Fund" in the Acquiring Fund SAI attached hereto as Exhibit A. Investment Objective and Policies - --------------------------------- For additional information about the Acquiring Fund's investment objective, policies and restrictions, see "Investment Objective and Policies" and "Investment Restrictions" in the Acquiring Fund SAI attached hereto as Exhibit A. Management of the Acquiring Fund - -------------------------------- For additional information about the Acquiring Fund's Board of Trustees, officers and management personnel, see "Those Responsible for Management" in the Acquiring Fund SAI attached hereto as Exhibit A. Control Persons and Principal Holders of Shares - ----------------------------------------------- For additional information about control persons of the Acquiring Fund and principal holders of shares of the Acquiring Fund, see "Those Responsible for Management" in the Acquiring Fund SAI attached hereto as Exhibit A. Investment Advisory and Other Services - -------------------------------------- For additional information about the Acquiring Fund's investment adviser, custodian, transfer agent and independent accountants, see "Investment Advisory and Other Services", "Distribution Contracts", "Transfer Agent Services", "Custody of Portfolio", and "Independent Auditors" in the Acquiring Fund SAI attached hereto as Exhibit A. Brokerage Allocation and Other Practices - ---------------------------------------- For additional information about the Acquiring Fund's brokerage allocation practices, see "Brokerage Allocation" in the Acquiring Fund SAI attached hereto as Exhibit A. Capital Stock and Other Securities - ---------------------------------- For additional information about the voting rights and other characteristics of the Acquiring Fund's shares of beneficial interest, see "Description of the Fund's Shares" in the Acquiring Fund SAI attached hereto as Exhibit A. 3 Purchase, Redemption and Pricing of Acquiring Fund Shares - --------------------------------------------------------- For additional information about the purchase, redemption and pricing of the Acquiring Fund's shares, see "Net Asset Value", "Sales Compensation", "Eligible Investors for Class R Shares", "Special Redemptions", "Additional Services and Programs", and "Purchase and Redemptions through Third Parties" in the Acquiring Fund SAI attached hereto as Exhibit A. Tax Status - ---------- For additional information about the tax status of the Acquiring Fund, see "Tax Status" in the Acquiring Fund SAI, attached hereto as Exhibit A. Underwriters - ------------ For additional information about the Acquiring Fund's principal underwriter and the distribution contract between the principal underwriter and the Acquiring Fund, see "Distribution Contracts" in the Acquiring Fund SAI attached hereto as Exhibit A. Calculation of Performance Data - ------------------------------- For additional information about the investment performance of the Acquiring Fund, see "Calculation of Performance" in the Acquiring Fund SAI attached hereto as Exhibit A. Financial Statements - -------------------- Audited financial statements of the Acquiring Fund at December 31, 2002 and unaudited financial statements at June 30, 2003 are attached to the Acquiring Fund SAI, which is attached hereto as Exhibit A. Additional Information About the Acquired Fund ---------------------------------------------- General Information and History - ------------------------------- For additional information about the Acquired Fund generally and its history, see "Organization of the Fund" in the Acquired Fund SAI attached hereto as Exhibit B. Investment Objective and Policies - --------------------------------- For additional information about the Acquired Fund's investment objectives, policies and restrictions, see "Investment Objective and Policies" and "Investment Restrictions" in the Acquired Fund SAI attached hereto as Exhibit B. Management of Acquired Fund - --------------------------- For additional information about the Acquired Fund's Board of Trustees, officers and management personnel, see "Those Responsible for Management" in the Acquired Fund SAI attached hereto as Exhibit B. Control Persons and Principal Holders of Shares - ----------------------------------------------- For additional information about control persons of the Acquiring Fund and principal holders of shares of the Acquired Fund, see "Those Responsible for Management" in the Acquired Fund SAI attached hereto as Exhibit B. Investment Advisory and Other Services - -------------------------------------- For additional information about the Acquired Fund's investment adviser, custodian, transfer agent and independent accountants, see "Investment Advisory and Other Services", "Distribution Contracts", "Transfer Agent Services", "Custody of Portfolio" and "Independent Auditors" in the Acquired Fund SAI attached hereto as Exhibit B. Brokerage Allocation and Other Practices - ---------------------------------------- For additional information about the Acquired Fund's brokerage allocation practices, see "Brokerage Allocation" in the Acquired Fund SAI attached hereto as Exhibit B. 4 Capital Stock and Other Securities - ---------------------------------- For additional information about the voting rights and other characteristics of the Acquired Fund's shares of beneficial interest, see "Description of the Fund's Shares" in the Acquired Fund SAI attached hereto as Exhibit B. Purchase, Redemption and Pricing of Acquired Fund Shares - -------------------------------------------------------- For additional information about the purchase, redemption and pricing of the Acquired Fund's shares, see "Net Asset Value", "Sales Compensation", "Additional Services and Programs", "Special Redemptions" and "Purchases and Redemptions Through Third Parties" in the Acquired Fund SAI attached hereto as Exhibit B. Tax Status - ---------- For additional information about the tax status of the Acquired Fund, see "Tax Status" in the Acquired Fund SAI attached hereto as Exhibit B. Underwriters - ------------ For additional information about the Acquired Fund's principal underwriter and the distribution contract between the principal underwriter and the Acquired Fund, see "Distribution Contracts" in the Acquired Fund SAI attached hereto as Exhibit B. Calculation of Performance Data - ------------------------------- For additional information about the investment performance of the Acquired Fund, see "Calculation of Performance" in the Acquired Fund SAI attached hereto as Exhibit B. Financial Statements - -------------------- Audited financial statements of the Acquired Fund at October 31, 2002 and unaudited financial statements at April 30, 2003 are attached to the Acquired Fund SAI, which is attached hereto as Exhibit B. 5 Part B Statement of Additional Information JOHN HANCOCK SOVEREIGN INVESTORS FUND (the "Acquiring Fund", and a series of John Hancock Investment Trust) JOHN HANCOCK DIVIDEND PERFORMERS FUND (the "Acquired Fund", and a series of John Hancock Institutional Series Trust) 101 Huntington Avenue Boston, MA 02199 1-800-225-5291 October 8, 2003 This Statement of Additional Information provides additional information and is not a prospectus. It should be read in conjunction with the related proxy statement and prospectus that is also dated October 8, 2003. This Statement of Additional Information provides additional information about John Hancock Sovereign Investors Fund and the Fund that it is acquiring, John Hancock Dividend Performers Fund. Please retain this Statement of Additional Information for future reference. A copy of the proxy statement and prospectus can be obtained free of charge by calling John Hancock Signature Services, Inc., at 1-800-225-5291. Table Of Contents Page Introduction 3 Note Regarding Pro Forma Financial Information 3 Additional Information about the Acquiring Fund 3 General Information and History 3 Investment Objective and Policies 3 Management of the Acquiring Fund 3 Control Persons and Principal Holders of Shares 3 Investment Advisory and Other Services 3 Brokerage Allocation 3 Capital Stock and Other Securities 3 Purchase, Redemption and Pricing of Acquiring Fund Shares 4 Tax Status 4 Underwriters 4 Calculation of Performance Data 4 Financial Statements 4 Additional Information about the Acquired Fund 4 General Information and History 4 Investment Objective and Policies 4 Management of the Acquired Fund 4 Control Persons and Principal Holders of Shares 4 Investment Advisory and Other Services 4 Brokerage Allocation 4 Capital Stock and Other Securities 4 Purchase, Redemption and Pricing of Acquired Fund Shares 5 Tax Status 5 Underwriters 5 Calculation of Performance Data 5 Financial Statements 5 Exhibits A - Class I Statement of Additional Information, dated March 1, 2003, of the Acquiring Fund including audited financial statements as of December 31, 2002 and unaudited financial statements as of June 30, 2003. B - Statement of Additional Information, dated July 1, 2003, of the Acquired Fund including audited financial statements as of February 28, 2003. 2 INTRODUCTION This Statement of Additional Information ("SAI") is intended to supplement the information provided in a proxy statement and prospectus dated October 8, 2003 . The proxy statement and prospectus has been sent to the shareholders of the Acquired Fund in connection with the solicitation by the Trustees of the Acquired Fund of proxies to be voted at the Special Meeting of Shareholders of the Acquired Fund to be held on December 3, 2003. This Statement of Additional Information incorporates by reference the Class I Statement of Additional Information of the Acquiring Fund, dated March 1, 2003, and the Statement of Additional Information of the Acquired Fund, dated July 1, 2003. The SAI for the Acquiring Fund and the SAI for the Acquired Fund are included with this Statement of Additional Information. NOTE REGARDING PRO FORMA FINANCIAL INFORMATION In accordance with Item 14(a)(2) of Form N-14, pro forma financial statements were not prepared for the proposed reorganization of the Acquired Fund into the Acquiring Fund, since the net asset value of the Acquired Fund did not exceed ten percent of the net asset value of the Acquiring Fund on August 15, 2003. Additional Information About the Acquiring Fund ----------------------------------------------- General Information and History - ------------------------------- For additional information about the Acquiring Fund generally and its history, see "Organization of the Fund" in the Acquiring Fund SAI attached hereto as Exhibit A. Investment Objective and Policies - --------------------------------- For additional information about the Acquiring Fund's investment objective, policies and restrictions, see "Investment Objective and Policies" and "Investment Restrictions" in the Acquiring Fund SAI attached hereto as Exhibit A. Management of the Acquiring Fund - -------------------------------- For additional information about the Acquiring Fund's Board of Trustees, officers and management personnel, see "Those Responsible for Management" in the Acquiring Fund SAI attached hereto as Exhibit A. Control Persons and Principal Holders of Shares - ----------------------------------------------- For additional information about control persons of the Acquiring Fund and principal holders of shares of the Acquiring Fund, see "Those Responsible for Management" in the Acquiring Fund SAI attached hereto as Exhibit A. Investment Advisory and Other Services - -------------------------------------- For additional information about the Acquiring Fund's investment adviser, custodian, transfer agent and independent accounts, see "Investment Advisory and Other Services", "Distribution Contracts", "Transfer Agent Services", "Custody of Portfolio", and "Independent Auditors" in the Acquiring Fund SAI attached hereto as Exhibit A. Brokerage Allocation and Other Practices - ---------------------------------------- For additional information about the Acquiring Fund's brokerage allocation practices, see "Brokerage Allocation" in the Acquiring Fund SAI attached hereto as Exhibit A. Capital Stock and Other Securities - ---------------------------------- For additional information about the voting rights and other characteristics of the Acquiring Fund's shares of beneficial interest, see "Description of the Fund's Shares" in the Acquiring Fund SAI attached hereto as Exhibit A. 3 Purchase, Redemption and Pricing of Acquiring Fund Shares - --------------------------------------------------------- For additional information about the purchase, redemption and pricing of the Acquiring Fund's shares, see "Net Asset Value", "Sales Compensation", "Special Redemptions", "Additional Services and Programs", and "Purchase and Redemptions through Third Parties" in the Acquiring Fund SAI attached hereto as Exhibit A. Tax Status - ---------- For additional information about the tax status of the Acquiring Fund, see "Tax Status" in the Acquiring Fund SAI, attached hereto as Exhibit A. Underwriters - ------------ For additional information about the Acquiring Fund's principal underwriter and the distribution contract between the principal underwriter and the Acquiring Fund, see "Distribution Contracts" in the Acquiring Fund SAI attached hereto as Exhibit A. Calculation of Performance Data - ------------------------------- For additional information about the investment performance of the Acquiring Fund, see "Calculation of Performance" in the Acquiring Fund SAI attached hereto as Exhibit A. Financial Statements - -------------------- Audited financial statements of the Acquiring Fund at December 31, 2002 and unaudited financial statements at June 30, 2003 are attached to the Acquiring Fund SAI, which is attached hereto as Exhibit A. Additional Information About the Acquired Fund ---------------------------------------------- General Information and History - ------------------------------- For additional information about the Acquired Fund generally and its history, see "Organization of the Fund" in the Acquired Fund SAI attached hereto as Exhibit B. Investment Objective and Policies - --------------------------------- For additional information about the Acquired Fund's investment objectives, policies and restrictions, see "Investment Objective and Policies" and "Investment Restrictions" in the Acquired Fund SAI attached hereto as Exhibit B. Management of Acquired Fund - --------------------------- For additional information about the Acquired Fund's Board of Trustees, officers and management personnel, see "Those Responsible for Management" in the Acquired Fund SAI attached hereto as Exhibit B. Control Persons and Principal Holders of Shares - ----------------------------------------------- For additional information about control persons of the Acquired Fund and principal holders of shares of the Acquired Fund, see "Those Responsible for Management" in the Acquired Fund SAI attached hereto as Exhibit B. Investment Advisory and Other Services - -------------------------------------- For additional information about the Acquired Fund's investment adviser, custodian, transfer agent and independent accountants, see "Investment Advisory and Other Services", "Distribution Contracts", "Transfer Agent Services", "Custody of Portfolio" and "Independent Auditors" in the Acquired Fund SAI attached hereto as Exhibit B. Brokerage Allocation and Other Practices - ---------------------------------------- For additional information about the Acquired Fund's brokerage allocation practices, see "Brokerage Allocation" in the Acquired Fund SAI attached hereto as Exhibit B. Capital Stock and Other Securities - ---------------------------------- For additional information about the voting rights and other characteristics of the Acquired Fund's shares of beneficial interest, see "Description of the Fund's Shares" in the Acquired Fund SAI attached hereto as Exhibit B. 4 Purchase, Redemption and Pricing of Acquired Fund Shares - -------------------------------------------------------- For additional information about the purchase, redemption and pricing of the Acquired Fund's shares, see "Net Asset Value", "Sales Compensation", "Additional Services and Programs", "Special Redemptions" and "Purchases and Redemptions Through Third Parties" in the Acquired Fund SAI attached hereto as Exhibit B. Tax Status - ---------- For additional information about the tax status of the Acquired Fund, see "Tax Status" in the Acquired Fund SAI attached hereto as Exhibit B. Underwriters - ------------ For additional information about the Acquired Fund's principal underwriter and the distribution contract between the principal underwriter and the Acquired Fund, see "Distribution Contracts" in the Acquired Fund SAI attached hereto as Exhibit B. Calculation of Performance Data - ------------------------------- For additional information about the investment performance of the Acquired Fund, see "Calculation of Performance" in the Acquired Fund SAI attached hereto as Exhibit B. Financial Statements - -------------------- Audited annual financial statements of the Acquired Fund at February 28, 2003 are attached to the Acquired Fund SAI, which is attached hereto as Exhibit B. 5 JOHN HANCOCK SOVEREIGN INVESTORS FUND Class A, Class B, Class C and Class R Shares Statement of Additional Information August 5, 2003 This Statement of Additional Information provides information about John Hancock Sovereign Investors Fund (the "Fund") in addition to the information that is contained in the Fund's current Prospectus dated March 1, 2003 for Class A, B and C shares and in the Fund's current Prospectus dated August 5, 2003 for Class R shares (the "Prospectuses"). The Fund is a diversified series of John Hancock Investment Trust (the "Trust"). This Statement of Additional Information is not a prospectus. It should be read in conjunction with the Prospectus. This Statement of Additional Information incorporates by reference the Fund's Annual Report. A copy of the Prospectus or Annual Report can be obtained free of charge by writing or telephoning: John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1000 Boston, Massachusetts 02217-1000 1-(800)-225-5291 TABLE OF CONTENTS Page Organization of the Fund.................................................. 2 Investment Objective and Policies......................................... 2 Investment Restrictions................................................... 8 Those Responsible for Management.......................................... 11 Investment Advisory and Other Services.................................... 18 Distribution Contracts.................................................... 21 Sales Compensation........................................................ 23 Net Asset Value........................................................... 25 Initial Sales Charge on Class A Shares.................................... 25 Deferred Sales Charge on Class B and Class C Shares....................... 28 Eligible Investors for Class R Shares..................................... 32 Special Redemptions....................................................... 32 Additional Services and Programs.......................................... 32 Purchase and Redemptions through Third Parties............................ 34 Description of the Fund's Shares.......................................... 34 Tax Status................................................................ 35 Calculation of Performance................................................ 40 Brokerage Allocation...................................................... 42 Transfer Agent Services................................................... 45 Custody of Portfolio...................................................... 45 Independent Auditors...................................................... 46 Appendix A- Description of Investment Risk................................ A-1 Appendix B-Description of Bond Ratings.................................... B-1 Appendix C-Proxy Voting Summary........................................... C-1 Financial Statements...................................................... F-1 1 ORGANIZATION OF THE FUND The Fund is a series of the Trust, an open-end investment management company organized as a Massachusetts business trust under the laws of The Commonwealth of Massachusetts. John Hancock Advisers, LLC (prior to February 1, 2002, John Hancock Advisers, Inc.) (the "Adviser") is the Fund's investment adviser. The Adviser is an indirect, wholly-owned subsidiary of John Hancock Life Insurance Company (formerly John Hancock Mutual Life Insurance Company)(the "Life Company"), a Massachusetts life insurance company chartered in 1862, with national headquarters at John Hancock Place, Boston, Massachusetts. The Life Company is wholly owned by John Hancock Financial Services, Inc., a Delaware corporation organized in February, 2000. INVESTMENT OBJECTIVE AND POLICIES The following information supplements the discussion of the Fund's investment objective and policies discussed in the Prospectus. Appendix A contains further information describing investment risks. The investment objective of the Fund is fundamental and may only be changed with shareholder approval. There is no assurance that the Fund will achieve its investment objective. The Fund's investment objective is to provide long-term growth of capital and of income without assuming undue market risks. At times, however, because of market conditions, the Fund may invest primarily for current income. The Fund will make investments in different types and classes of securities in accordance with the Trustees' and the Adviser's appraisal of economic and market conditions. The Fund's portfolio securities are selected mainly for their investment character based upon generally accepted elements of intrinsic value, including industry position, management, financial strength, earning power, marketability and prospects for future growth. The distribution or mix of various types of investments is based on general market conditions, the level of interest rates, business and economic conditions, and the availability of investments in the equity and fixed income markets. The amount of the Fund's assets that may be invested in either equity or fixed income securities is not restricted and is based upon management's judgment of what might best achieve the Fund's investment objectives. The Fund normally invest at least 80% of stocks in a diversified portfolio of companies with market capitalizations within the range of the Standard & Poor's 500 Stock Index. The securities held by the Fund are under continuous study by the Adviser. They are selected because they are considered by the management to contribute to the possible achievement of the Fund's objective. They are held or disposed of in accordance with the results of a continuing examination of their merit. The Fund currently uses a strategy of investing at least 65% of stock investments in companies which have a record of having increased their dividend payout in each of the preceding ten or more years. This dividend performers strategy can be changed at any time. By investing primarily in these companies, the portfolio management team focuses on investments with characteristics such as: a strong management team that has demonstrated leadership through changing market cycles; financial soundness as evidenced by consistently rising dividends and profits, strong cash flows, high return on equity and a balance sheet showing little debt; and strong brand recognition and market acceptance, backed by proven products and a well-established, often global, distribution network. Subject to the Fund's policy of investing primarily in common stocks, the Fund may invest without limit in investment grade debt securities or investment grade preferred stocks (equivalent to the top four bond rating categories of an NRSRO). For temporary defensive purposes, the Fund may invest some or all of its assets in investment grade short-term securities. 2 The investment policy of the Fund is to purchase and hold securities for capital appreciation and investment income, although there may be a limited number of short- term transactions incidental to the pursuit of its investment objective. The Fund may make portfolio purchases and sales to the extent that in its Board's opinion, relying on the Adviser or independently, such transactions are in the interest of shareholders. The Fund endeavors to achieve its objective by utilizing experienced management and generally investing in securities of seasoned companies in sound financial condition. The Fund has not purchased securities of real estate investment trusts and has no present intention of doing so in the future. The Fund may not invest more than 5% of its total assets at time of purchase in any one security (other than U.S. Government Securities). Under normal conditions the Fund may not invest more than 10% of total assets in cash and/or cash equivalents (except cash segregated in relation to futures, forward and option contracts). Diversification. The Fund's investments are diversified in a broad list of issues, representing many different industries. Although diversification does not eliminate market risk, it may tend to reduce it. At the same time, holdings of a large number of shares in any one company are avoided. Thus, during periods when general economic and political conditions are subject to rapid changes, it may be appropriate to effect rapid changes in the Fund's investments. This can be more readily accomplished by limiting the amount of any one investment. As is common to all securities investments, the stock of this managed diversified Fund is subject to fluctuation in value; its portfolio will not necessarily prove a defense in periods of declining prices or lead the advance in rising markets. The Fund's management will endeavor to reduce the risks encountered in the use of any single investment by investing the assets of the Fund in a widely diversified group of securities. Diversification, however, will not necessarily reduce inherent market risks. Securities are selected mainly for their investment character, based upon generally accepted elements of intrinsic value including industry position, management, financial strength, earning power, ready marketability and prospects for future growth. Concentration. The Fund's policy is not to concentrate its investments in any one industry, but investments of up to 25% of its total assets at market value may be made in a single industry. This limitation may not be changed without the affirmative vote of a majority of the Fund's outstanding voting securities, as defined in the Investment Company Act of 1940, as amended (the "Investment Company Act"). Ratings as Investment Criteria. In general, the ratings of Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Ratings Group ("S&P") represent the opinions of these agencies as to the quality of the securities which they rate. It should be emphasized however, that ratings are relative and subjective and are not absolute standards of quality. These ratings will be used by the Funds as initial criteria for the selection of portfolio securities. Among the factors which will be considered are the long-term ability of the issuer to pay principal and interest and general economic trends. Appendix B contains further information concerning the rating of Moody's and S&P and their significance. Subsequent to its purchase by the Fund, an issue of securities may cease to be rated or its rating may be reduced below the minimum required for purchase by the Fund. Neither of these events will require the sale of the securities by the Fund. Lower Rated High-Yield "High Risk" Debt Obligations. The Fund may invest up to 5% of its net assets in debt securities rated as low as C by Moody's or S&P and unrated securities deemed of equivalent quality by the Adviser. These securities are speculative to a high degree and often have very poor prospects of attaining real investment standing. Lower rated securities are generally referred to as junk bonds. See the Appendix attached to this Statement of Additional Information which describes the characteristics of the securities in the various rating categories. 3 Securities rated lower than Baa by Moody's or BBB by Standard & Poor's are sometimes referred to as junk bonds. See the Appendix attached to this Statement of Additional Information which describes the characteristics of the securities in the various ratings categories. The Fund is not obligated to dispose of securities whose issuers subsequently are in default or which are downgraded below the above-stated ratings. The credit ratings of Moody's and Standard & Poor's in a timely fashion to reflect subsequent economic events. The credit ratings of securities do not reflect an evaluation of market risk. Debt obligations rated in the lower ratings categories, or which are unrated, involve greater volatility of price and risk of loss of principal and income. In addition, lower ratings reflect a greater possibility of an adverse change in financial condition affecting the issuer's ability to make payments of interest and principal. The market price and liquidity of lower rated fixed income securities generally respond more to short-term corporate and market developments than do those of higher rated securities, because these developments are perceived to have a more direct relationship to the ability of an issuer of lower rated securities to meet its ongoing debt obligations. The Adviser seeks to minimize these risks through diversification, investment analysis and attention to current developments in interest rates and economic conditions. Reduced volume and liquidity in the high yield high risk bond market, or the reduced availability of market quotations, will make it more difficult to dispose of the bonds and to value accurately the Fund's assets. The reduced availability of reliable, objective data may increase the Fund's reliance on management's judgment in valuing high yield high risk bonds. In addition, the Fund's investments in high yield high risk securities may be susceptible to adverse publicity and investor perceptions, whether or not justified by fundamental factors. The Fund's investment, and consequently its net asset value, will be subject to the market fluctuations and risk inherent in all securities. Increasing rate note securities are typically refinanced by the issuers within a short period of time. The market value of debt securities which carry no equity participation usually reflects yields generally available on securities of similar quality and type. When such yields decline, the market value of a portfolio already invested at higher yields can be expected to rise if such securities are protected against early call. In general, in selecting securities for its portfolio, the Fund intends to seek protection against early call. Similarly, when such yields increase, the market value of a portfolio already invested at lower yields can be expected to decline. The Fund's portfolio may include debt securities which sell at substantial discounts from par. These securities are low coupon bonds which, during periods of high interest rates, because of their lower acquisition cost tend to sell on a yield basis approximating current interest rates. Options and Futures. The Fund may not invest in futures contracts or sell call or put options. The Fund has authority to purchase put and call options. Options on Securities Indices. The Fund may purchase call and put options on any securities index based on securities in which it may invest. These options may be listed on national domestic securities exchanges or foreign securities exchanges or traded in the over-the-counter market. The Fund may purchase put and call options for any non-speculative purpose. These include using options as a substitute for the purchase or sale of securities or to protect against declines in the value of portfolio securities and against increases in the cost of securities to be acquired. Purchasing Options. The Fund would normally purchase index call options in anticipation of an increase, or index put options in anticipation of a decrease ("protective puts") in the market value of securities of the type in which it may invest. The Fund may also sell call and put options to close out its purchased options. 4 The purchase of an index call option would entitle the Fund, in return for the premium paid, to receive a cash payment reflecting any increase in the index above a specified level upon exercising the option during the option period. The Fund would ordinarily realize a gain on the purchase of a call option if the amount of this cash payment exceeded the premium paid and transaction costs; otherwise the Fund would realized either no gain or a loss on the purchase of the call option. The purchase of an index put option would entitle the Fund, in exchange for the premium paid, to receive a cash payment reflecting any decrease in the index below a specified level upon exercising the option during the option period. The purchase of protective puts is designed to offset or hedge against a decline in the market value of the Fund's portfolio securities. The Fund would ordinarily realize a gain if, during the option period, the level of the index decreased below the exercise price sufficiently to cover the premium and transaction costs; otherwise the Fund would realize either no gain or a loss on the purchase of the put option. Gains and losses on the purchase of put options may be offset by countervailing changes in the value of the Fund's portfolio securities. The Fund's options transactions will be subject to limitations established by each of the exchanges, boards of trade or other trading facilities on which such options are traded. These limitations govern the maximum number of options in each class which may be written or purchased by a single investor or group of investors acting in concert, regardless of whether the options are written or purchased on the same or different exchanges, boards of trade or other trading facilities or are held or written in one or more accounts or through one or more brokers. Thus, the number of options which the Fund may purchase may be affected by options written or purchased by other investment advisory clients of the Adviser. An exchange, board of trade or other trading facility may order the liquidation of positions found to be in excess of these limits, and it may impose certain other sanctions. Risks Associated with Options Transactions. There is no assurance that a liquid secondary market on an options exchange will exist for any particular exchange-traded option or at any particular time. If the Fund is unable to effect a closing sale transaction with respect to options it has purchased, it would have to exercise the options in order to realize any profit and will incur transaction costs upon the purchase or sale of underlying securities. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of options; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or the Options Clearing Corporation may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of options (or a particular class or series of options). If trading were discontinued, the secondary market on that exchange ( or in that class or series of options) would cease to exist. However, outstanding options on that exchange that had been issued by the Options Clearing Corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms. The Fund's ability to terminate over-the-counter options is more limited than with exchange-traded options and may involve the risk that broker-dealers participating in such transactions will not fulfill their obligations. The Adviser will determine the liquidity of each over-the-counter option in accordance with guidelines adopted by the Trustees. The purchase of options is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. The successful use of options depends in part on the Adviser's ability to predict future price fluctuations and, for hedging transactions, the degree of correlation between the options and securities markets. 5 Government Securities. Certain U.S. Government securities, including U.S. Treasury bills notes and bonds, and Government National Mortgage Association certificates ("Ginnie Maes"), are supported by the full faith and credit of the United States. Certain other U.S. Government securities issued or guaranteed by Federal agencies or government sponsored enterprises, are not supported by the full faith and credit of the United States, but may be supported by the right of the issuer to borrow from the U.S. Treasury. These securities include obligations of the Federal Home Loan Mortgage Corporation ("Freddie Macs"), and obligations supported by the credit of the instrumentality, such as Federal National Mortgage Association Bonds ("Fannie Maes"). No assurance can be given that the U.S. Government will provide financial support to such Federal agencies, authorities, instrumentalities and government sponsored enterprises in the future. Ginnie Maes, Freddie Macs, Fannie Maes and Sallie Maes are mortgage-backed securities which provide monthly payments which are, in effect, a "pass-through" of the monthly interest and principal payments (including any prepayments) made by the individual borrowers on the pooled mortgage loans. Collateralized Mortgage Obligations ("CMOs") in which the Fund may invest are securities issued by a U.S. Government instrumentality that are collateralized by a portfolio of mortgages or mortgage-backed securities. Mortgage-backed securities may be less effective than traditional debt obligations of similar maturity at maintaining yields during periods of declining interest rates. Mortgage-backed securities have stated maturities of up to thirty years when they are issued depending upon the length of the mortgages underlying the securities. In practice, however, unscheduled or early payments of principal and interest on the underlying mortgages may make the securities' effective maturity shorter than this and the prevailing interest rates may be higher or lower than the current yield of the Fund's portfolio at the time such payments are received by the Fund for reinvestment. Mortgage-backed securities may have less potential for capital appreciation than comparable fixed-income securities due to the likelihood of increased prepayments of mortgages as interest rates decline. If the Fund buys mortgage-backed securities at a premium, mortgage foreclosures and prepayments of principal by mortgagors (which may be made at any time without penalty) may result in some loss of the Fund's principal investment to the extent of the premium paid. Restricted Securities. The Fund may purchase securities that are not registered ("restricted securities") under the Securities Act of 1933 ("1933 Act"), including commercial paper issued in reliance on Section 4(2) of the 1933 act and securities offered and sold to "qualified institutional buyers" under Rule 144A under the 1933 Act. The Fund will not invest more than 15% of its net assets in illiquid investments. If the Trustees determine, based upon a continuing review of the trading markets for specific Section 4(2) paper or Rule 144A securities, that they are liquid, they will not be subject to the 15% limit on illiquid investments. The Trustees have adopt guidelines and delegated to the Adviser the daily function of determining, the monitoring and liquidity of restricted securities. The Trustees, however, will retain sufficient oversight and be ultimately responsible for the determinations. The Trustees will carefully monitor the Fund's investments in these securities, focusing on such important factors, among others, as valuation, liquidity and availability of information. This investment practice could have the effect of increasing the level of illiquidity in the Fund if qualified institutional buyers become for a time uninterested in purchasing these restricted securities. The Fund does not intend to invest more than 5% of its net assets in Rule 144A securities. Repurchase Agreements. In a repurchase agreement the Fund buys a security for a relatively short period (usually not more than 7 days) subject to the obligation to sell it back to the issuer at a fixed time and price plus accrued interest. The Fund will enter into repurchase agreements only with member banks of the Federal Reserve System and with "primary dealers" in U.S. Government securities. The Adviser will continuously monitor the creditworthiness of the parties with whom the Fund enters into repurchase agreements. 6 The Fund has established a procedure providing that the securities serving as collateral for each repurchase agreement must be delivered to the Fund's custodian either physically or in book-entry form and that the collateral must be marked to market daily to ensure that each repurchase agreement is fully collateralized at all times. In the event of bankruptcy or other default by a seller of a repurchase agreement, the Fund could experience delays in liquidating the underlying securities during the period in which the Fund seeks to enforce its rights thereto, possible subnormal levels of income decline in value of the underlining securities or lack of access to income during this period, as well as, the expense of enforcing its rights. Reverse Repurchase Agreements. The Fund may also enter into reverse repurchase agreements which involve the sale of U.S. Government securities held in its portfolio to a bank with an agreement that the Fund will buy back the securities at a fixed future date at a fixed price plus an agreed amount of "interest" which may be reflected in the repurchase price. Reverse repurchase agreements are considered to be borrowings by the Fund. Reverse repurchase agreements involve the risk that the market value of securities purchased by the Fund with proceeds of the transaction may decline below the repurchase price of the securities sold by the Fund which it is obligated to repurchase. The Fund will also continue to be subject to the risk of a decline in the market value of the securities sold under the agreements because it will reacquire those securities upon effecting their repurchase. To minimize various risks associated with reverse repurchase agreements, the Fund will establish a separate account consisting of liquid securities, of any type or maturity in an amount at least equal to the repurchase prices of these securities (plus any accrued interest thereon) under such agreements. In addition, the Fund may not borrow money except in connection with the sale or resale of its shares. The Fund will not enter into reverse repurchase agreements and other borrowings exceeding in the aggregate 33 1/3% of the market value of its total assets. The Fund will enter into reverse repurchase agreements only with federally insured banks which are approved in advance as being creditworthy by the Trustees. Under procedures established by the Trustees, the Adviser will monitor the creditworthiness of the firms involved. Lending of Securities. The Fund may lend portfolio securities to brokers, dealers, and financial institutions if the loan is collateralized by cash or U.S. Government securities according to applicable regulatory requirements. The Fund may reinvest any cash collateral in short-term securities and money market funds. When the Fund lends portfolio securities, there is a risk that the borrower may fail to return the securities involved in the transaction. As a result, the Fund may incur a loss or, in the event of the borrower's bankruptcy, the Fund may be delayed in or prevented from liquidating the collateral. It is a fundamental policy of the Fund not to lend portfolio securities having a total value exceeding 33 1/3% of its total assets. Rights and Warrants. The Fund may purchase warrants and rights which are securities permitting, but not obligating, their holder to purchase the underlying securities at a predetermined price. Generally, warrants and stock purchase rights do not carry with them the right to receive dividends or exercise voting rights with respect to the underlying securities, and they do not represent any rights in the assets of the issuer. As a result, an investment in warrants and rights may be considered to entail greater investment risk than certain other types of investments. In addition, the value of warrants and rights does not necessarily change with the value of the underlying securities, and they cease to have value if they are not exercised on or prior to their expiration date. Investment in warrants and rights increases the potential profit or loss to be realized from the investment of a given amount of the Fund's assets as compared with investing the same amount in the underlying stock. Short-Sales. The Fund may not engage in short sales. 7 Forward Commitment and When-Issued Securities. The Fund may purchase securities on a when-issued or forward commitment basis. "When-issued" refers to securities whose terms are available and for which a market exists, but which have not been issued. The Fund will engage in when-issued transactions with respect to securities purchased for its portfolio in order to obtain what is considered to be an advantageous price and yield at the time of the transaction. For when-issued transactions, no payment is made until delivery is due, often a month or more after the purchase. In a forward commitment transaction, the Fund contracts to purchase securities for a fixed price at a future date beyond customary settlement time. When the Fund engages in forward commitment and when-issued transactions, it relies on the seller to consummate the transaction. The failure of the issuer or seller to consummate the transaction may result in the Fund's losing the opportunity to obtain a price and yield considered to be advantageous. The purchase of securities on a when- issued or forward commitment basis also involves a risk of loss if the value of the security to be purchased declines prior to the settlement date. On the date the Fund enters into an agreement to purchase securities on a when- issued or forward commitment basis, the Fund will segregate in a separate account cash or liquid securities, of any type or maturity, equal in value to the Fund's commitment. These assets will be valued daily at market, and additional cash or securities will be segregated in a separate account to the extent that the total value of the assets in the account declines below the amount of the when-issued commitments. Alternatively, the Fund may enter into offsetting contracts for the forward sale of other securities that it owns. Short-Term Trading and Portfolio Turnover. Short-term trading means the purchase and subsequent sale of a security after it has beeen held for a relatively brief period of time. The Fund may engage in short-term trading in response to stock market conditions, changes in interest rates or other economic trends and developments, or to take advantage of yield disparities between various fixed income securities in order to realize capital gains or improve income. Short term trading may have the effect of increasing portfolio turnover rate. A high rate of portfolio turnover (100% or greater) involves correspondingly higher brokerage expenses. The Fund's portfolio turnover rate is set forth in the table under the caption "Financial Highlights" in the Prospectus. INVESTMENT RESTRICTIONS Fundamental Investment Restrictions. The following investment restrictions will not be changed without the approval of a majority of the Fund's outstanding voting securities which, as used in the Prospectus and this Statement of Additional Information means the approval by the lesser of (1) the holders of 67% or more of the Fund's shares represented at a meeting if more than 50% of the Fund's outstanding shares are present in person or by proxy at that meeting or (2) more than 50% of the Fund's outstanding shares. The Fund may not: (1) The Fund may not, with respect to 75% of its total assets, purchase any security (other than securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities and repurchase agreements collateralized by such securities) if, as a result: (a) more than 5% of its total assets would be invested in the securities of any one issuer, or (b) the Fund would own more than 10% of the voting securities of any one issuer. [see nonfundamental investment restriction] (2) The Fund may not issue senior securities, except as permitted by paragraphs (3) and (7) below. For purposes of this restriction, the issuance of shares of common stock in multiple classes, the purchase or sale of options, futures contracts and options on futures contracts, forward commitments, and repurchase agreements entered into in accordance with the Fund's investment policies, and the pledge, mortgage or hypothecation of the Fund's assets are not deemed to be senior securities. 8 (3) The Fund may not borrow money except in connection with the sale or resale of its shares. (4) The Fund may not act as an underwriter, except to the extent that, in connection with the disposition of portfolio investments, the Fund may be deemed to be an underwriter for purposes of the Securities Act of 1933. (5) The Fund may not purchase or sell real estate, or any interest therein, including real estate mortgage loans, except that the Fund may: (i) hold and sell real estate acquired as the result of its ownership of securities, or (ii) invest in securities of corporate or governmental entities secured by real estate or marketable interests therein or securities issued by companies (other that real estate limited partnerships) that invest in real estate or interests therein. (6) The Fund may not make loans, except that the Fund (1) may lend portfolio securities in accordance with the Fund's investment policies in an amount up to 33 1/3% of the Fund's total assets taken at market value, (2) enter into repurchase agreements, and (3) purchase all or a portion of an issue of debt securities, bank loan participation interests, bank certificates of deposit, bankers' acceptances, debentures or other securities, whether or not the purchase is made upon the original issuance of the securities. (7) The Fund may not purchase or sell commodities or commodity contracts; except that the Fund may purchase and sell options on securities, securities indices, currency and other financial instruments, futures contracts on securities, securities indices, currency and other financial instruments and options on such futures contracts, forward commitments, interest rate swaps, caps and floors, securities index put or call warrants and repurchase agreements entered into in accordance with the Fund's investment policies. (8) The Fund may not purchase securities of an issuer conducting its principal activity in any particular industry if immediately after such purchase the value of the Fund's investments in all issuers in this industry would exceed 25% of its total assets taken at market value. Non-fundamental Investment Restrictions. The following restrictions are designated as non-fundamental and may be changed by the Trustees without shareholder approval. The Fund may not: (a) Participate on a joint-and-several basis in any securities trading account. The "bunching" of orders for the sale or purchase of marketable portfolio securities with other accounts under the management of any investment adviser to the Fund in order to save commissions or to average prices among the accounts, and the participation of the Fund as a part of a group bidding for the purchase of tax exempt bonds shall not be deemed to result in participation in a securities trading account. (b) Purchase securities on margin or make short sales. (c) Purchase a security if, as a result, (i) more than 10% of the Fund's total assets would be invested in the securities of other investment companies, (ii) the Fund would hold more than 3% of the total outstanding voting securities of any one investment company, or (iii) more than 5% of the Fund's total assets would be invested in the securities of any one investment company. These limitations 9 do not apply to (a) the investment of cash collateral, received by the Fund in connection with lending the Fund's portfolio securities, in the securities of open-end investment companies or (b) the purchase of shares of any investment company in connection with a merger, consolidation, reorganization or purchase of substantially all of the assets of another investment company. Subject to the above percentage limitations, the Fund may, in connection with the John Hancock Group of Funds Deferred Compensation Plan for Independent Trustees/Directors, purchase securities of other investment companies within the John Hancock Group of Funds. (d) Invest for the purpose of exercising control over or management of any company. (e) Invest more than 15% of its net assets in illiquid securities. (f) Write put or call options. (g) No officer or Trustee of the Fund may take a short position in the shares of the Fund, withhold orders or buy shares in anticipation of orders. (h) The Fund may not invest more than 5% of its total assets at time of purchase in any one securitiy (other than US Government securities). Except with respect to borrowing money, if a percentage restriction on investment or utilization of assets as set forth above is adhered to at the time an investment is made, a later change in percentage resulting from changes in the value of the Fund's assets will not be considered a violation of the restriction. The Funds will invest only in countries on the Adviser's Approved Country Listing. The Approved Country Listing is a list maintained by the Adviser's investment department that outlines all countries, including the United States, that have been approved for investment by Funds managed by the Adviser. If allowed by the Fund's other investment policies and restrictions, the Fund may invest up to 5% of its total assets in Russian equity securities and up to 10% of its total assets in Russian fixed income securities. All Russian securities must be: (1) denominated in U.S. dollars, Canadian dollars, euros, sterling, or yen; (2) traded on a major exchange; and (3) held physically outside of Russia. 10 THOSE RESPONSIBLE FOR MANAGEMENT The business of the Fund is managed by its Trustees, including certain Trustees who are not "interested persons" of the Fund or the Trust (as defined by the Investment Company Act of 1940) (the "Independent Trustees"), who elect officers who are responsible for the day-to-day operations of the Fund and who execute policies formulated by the Trustees. Several of the officers and Trustees of the Fund are also officers or Directors of the Adviser, or officers and Directors of the Fund's principal distributor, John Hancock Funds, LLC (prior to February 1, 2002, John Hancock Funds, Inc.) ("John Hancock Funds").
- ----------------------------- ------------- ------------- ------------------------------------------------ ------------------ Number of John Position(s) Trustee/ Hancock Funds Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by And Age Fund since(2) Directorships During Past 5 Years Trustee - ----------------------------- ------------- ------------- ------------------------------------------------ ------------------ Independent Trustees - ----------------------------- ------------- ------------- ------------------------------------------------ ------------------ James F. Carlin Trustee 1992 Chairman and CEO, Alpha Analytical 31 Born: 1940 Laboratories (chemical analysis); Part Owner and Treasurer, Lawrence Carlin Insurance Agency, Inc. (since 1995); Part Owner and Vice President, Mone Lawrence Carlin Insurance Agency, Inc. (since 1996); Director/Treasurer, Rizzo Associates (until 2000); Chairman and CEO, Carlin Consolidated, Inc. (management/investments); Director/Partner, Proctor Carlin & Co., Inc. (until 1999); Trustee, Massachusetts Health and Education Tax Exempt Trust; Director of the following: Uno Restaurant Corp. (until 2001), Arbella Mutual (insurance) (until 2000), HealthPlan Services, Inc. (until 1999), Flagship Healthcare, Inc. (until 1999), Carlin Insurance Agency, Inc. (until 1999), Chairman, Massachusetts Board of Higher Education (until 1999). - ----------------------------- ------------- ------------- ------------------------------------------------ ------------------ (1) Business address for independent and interested Trustees and officers is 101 Huntington Avenue, Boston, Massachusetts 02199. (2) Each Trustee serves until resignation, retirement age or until her or his successor is elected. (3) Interested Trustee: holds positions with the Fund's investment adviser, underwriter, and/ or certain other affiliates. 11 - ----------------------------- ------------- ------------- ------------------------------------------------ ------------------ Number of John Position(s) Trustee/ Hancock Funds Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by And Age Fund since(2) Directorships During Past 5 Years Trustee - ----------------------------- ------------- ------------- ------------------------------------------------ ------------------ - ----------------------------- ------------- ------------- ------------------------------------------------ ------------------ William H. Cunningham Trustee 1994 Former Chancellor, University of Texas System 31 Born: 1944 and former President of the University of Texas, Austin, Texas; Chairman and CEO, IBT Technologies (until 2001); Director of the following: The University of Texas Investment Management Company (until 2000), Hire.com (since 2000), STC Broadcasting, Inc. and Sunrise Television Corp. (until 2001), Symtx, Inc. (since 2001), Adorno/Rogers Technology, Inc. (since 2001), Pinnacle Foods Corporation (since 2001), rateGenius (since 2001), LaQuinta Motor Inns, Inc. (hotel management company) (until 1998), Jefferson-Pilot Corporation (diversified life insurance company), New Century Equity Holdings (formerly Billing Concepts) (until 2001), eCertain (until 2001), ClassMap.com (until 2001), Agile Ventures (until 2001), LBJ Foundation (until 2000), Golfsmith International, Inc. (until 2000), Metamor Worldwide (until 2000), AskRed.com (until 2001), Southwest Airlines and Introgen; Advisory Director, Q Investments; Advisory Director, Chase Bank (formerly Texas Commerce Bank - Austin), LIN Television (since 2002) , WilTel Communications (since 2002). - ----------------------------- ------------- ------------- ------------------------------------------------ ------------------ Ronald R. Dion Trustee 1998 Chairman and Chief Executive Officer, R.M. 31 Born: 1946 Bradley & Co., Inc.; Director, The New England Council and Massachusetts Roundtable; Trustee, North Shore Medical Center; Director, BJ's Wholesale Club, Inc. and a corporator of the Eastern Bank; Trustee, Emmanuel College. - ----------------------------- ------------- ------------- ------------------------------------------------ ------------------ (1) Business address for independent and interested Trustees and officers is 101 Huntington Avenue, Boston, Massachusetts 02199. (2) Each Trustee serves until resignation, retirement age or until her or his successor is elected. (3) Interested Trustee: holds positions with the Fund's investment adviser, underwriter, and/ or certain other affiliates. 12 - ----------------------------- ------------- ------------- ------------------------------------------------ ------------------ Number of John Position(s) Trustee/ Hancock Funds Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by And Age Fund since(2) Directorships During Past 5 Years Trustee - ----------------------------- ------------- ------------- ------------------------------------------------ ------------------ - ----------------------------- ------------- ------------- ------------------------------------------------ ------------------ Charles L. Ladner Trustee 1994 Chairman and Trustee, Dunwoody Village, Inc. 31 Born: 1938 (continuing care retirement community); Senior Vice President and Chief Financial Officer, UGI Corporation (Public Utility Holding Company) (retired 1998); Vice President and Director for AmeriGas, Inc. (retired 1998); Director of AmeriGas Partners, L.P. (until 1997)(gas distribution); Director, EnergyNorth, Inc. (until 1995); Director, Parks and History Association (since 2001). - ----------------------------- ------------- ------------- ------------------------------------------------ ------------------ Steven Pruchansky Trustee 1991 Chairman and Chief Executive Officer, Mast 31 Born: 1944 Holdings, Inc. (since 2000); Director and President, Mast Holdings, Inc. (until 2000); Managing Director, JonJames, LLC (real estate)(since 2001); Director, First Signature Bank & Trust Company (until 1991); Director, Mast Realty Trust (until 1994); President, Maxwell Building Corp. (until 1991). - ----------------------------- ------------- ------------- ------------------------------------------------ ------------------ Norman H. Smith Trustee 1991 Lieutenant General, United States Marine 31 Born: 1933 Corps; Deputy Chief of Staff for Manpower and Reserve Affairs, Headquarters Marine Corps; Commanding General III Marine Expeditionary Force/3rd Marine Division (retired 1991). - ----------------------------- ------------- ------------- ------------------------------------------------ ------------------ (1) Business address for independent and interested Trustees and officers is 101 Huntington Avenue, Boston, Massachusetts 02199. (2) Each Trustee serves until resignation, retirement age or until her or his successor is elected. (3) Interested Trustee: holds positions with the Fund's investment adviser, underwriter, and/ or certain other affiliates. 13 - ----------------------------- ------------- ------------- ------------------------------------------------ ------------------ Number of John Position(s) Trustee/ Hancock Funds Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by And Age Fund since(2) Directorships During Past 5 Years Trustee - ---------------------------- ------------- -------------- ------------------------------------------------ ------------------ - ---------------------------- ------------- -------------- ------------------------------------------------ ------------------ John P. Toolan Trustee 1991 Director, The Smith Barney Muni Bond Funds, 31 Born: 1930 The Smith Barney Tax-Free Money Funds, Inc., Vantage Money Market Funds (mutual funds), The Inefficient-Market Fund, Inc. (closed-end investment company) and Smith Barney Trust Company of Florida; Chairman, Smith Barney Trust Company (retired 1991); Director, Smith Barney, Inc., Mutual Management Company and Smith Barney Advisers, Inc. (investment advisers) (retired 1991); Senior Executive Vice President, Director and member of the Executive Committee, Smith Barney, Harris Upham & Co., Incorporated (investment bankers) (until 1991). - ---------------------------- ------------- -------------- ------------------------------------------------ ------------------ Interested Trustees - ---------------------------- ------------- -------------- ------------------------------------------------ ------------------ John M. DeCiccio (3) Trustee 2001 Executive Vice President and Chief Investment 52 Born: 1948 Officer, John Hancock Financial Services, Inc.; Director, Executive Vice President and Chief Investment Officer, John Hancock Life Insurance Company; Chairman of the Committee of Finance of John Hancock Life Insurance Company; Director, John Hancock Subsidiaries, LLC, Hancock Natural Resource Group, Independence Investment LLC, Independence Fixed Income LLC, John Hancock Advisers, LLC (the "Adviser") and The Berkeley Financial Group, LLC ("The Berkeley Group"), John Hancock Funds, LLC ("John Hancock Funds"), Massachusetts Business Development Corporation; Director, Insurance Agency, Inc. (until 1999. - ---------------------------- ------------- -------------- ------------------------------------------------ ------------------ (1) Business address for independent and interested Trustees and officers is 101 Huntington Avenue, Boston, Massachusetts 02199. (2) Each Trustee serves until resignation, retirement age or until her or his successor is elected. (3) Interested Trustee: holds positions with the Fund's investment adviser, underwriter, and/ or certain other affiliates. 14 - ----------------------------- ------------- ------------- ------------------------------------------------ ------------------ Number of John Position(s) Trustee/ Hancock Funds Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by And Age Fund since(2) Directorships During Past 5 Years Trustee - ---------------------------- -------------- ------------- ------------------------------------------------ ------------------ - ---------------------------- -------------- ------------- ------------------------------------------------ ------------------ Maureen R. Ford (3) Trustee, 2000 Executive Vice President, John Hancock 52 Born: 1955 Chairman, Financial Services, Inc., John Hancock Life President Insurance Company; Chairman, President, and Chief Director, President and Chief Executive Executive Officer, the Adviser and The Berkeley Group; Officer Chairman, President, Director and Chief Executive Officer, John Hancock Funds; Chairman, Director and Chief Executive Officer, Sovereign Asset Management Corporation ("SAMCorp."); Director, John Hancock Subsidiaries, LLC, Independence Investment LLC, Independence Fixed Income LLC and John Hancock Signature Services, Inc. ("Signature Services"); Senior Vice President, MassMutual Insurance Co. (until 1999). - ---------------------------- -------------- ------------- ------------------------------------------------ ------------------ Principal Officers who are not Trustees - ---------------------------- -------------- ------------- ------------------------------------------------ ------------------ William L. Braman Executive 2000 Executive Vice President and Chief Investment N/A Born: 1953 Vice Officer, the Adviser and each of the John President Hancock funds; Director, SAMCorp., Executive and Chief Vice President and Chief Investment Officer, Investment Baring Asset Management, London U.K. (until Officer 2000). - ---------------------------- -------------- ------------- ------------------------------------------------ ------------------ Richard A. Brown Senior Vice 2000 Senior Vice President, Chief Financial Officer N/A Born: 1949 President and Treasurer, the Adviser, John Hancock and Chief Funds, and The Berkeley Group; Second Vice Financial President and Senior Associate Controller, Officer Corporate Tax Department, John Hancock Financial Services, Inc. (until 2001). - ---------------------------- -------------- ------------- ------------------------------------------------ ------------------ Thomas H. Connors Vice 1992 Vice President and Compliance Officer, the N/A Born: 1959 President Adviser and each of the John Hancock funds; and Vice President, John Hancock Funds. Compliance Officer - ---------------------------- -------------- ------------- ------------------------------------------------ ------------------ (1) Business address for independent and interested Trustees and officers is 101 Huntington Avenue, Boston, Massachusetts 02199. (2) Each Trustee serves until resignation, retirement age or until her or his successor is elected. (3) Interested Trustee: holds positions with the Fund's investment adviser, underwriter, and/ or certain other affiliates. 15 - ----------------------------- ------------- ------------- ------------------------------------------------ ------------------ Number of John Position(s) Trustee/ Hancock Funds Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by And Age Fund since(2) Directorships During Past 5 Years Trustee - ---------------------------- ------------- -------------- ------------------------------------------------ ------------------ William H. King Vice 1992 Vice President and Assistant Treasurer, the N/A Born: 1952 President Adviser; Vice President and Treasurer of each and of the John Hancock funds; Assistant Treasurer Treasurer of each of the John Hancock funds (until 2001). - ---------------------------- ------------- -------------- ------------------------------------------------ ------------------ Susan S. Newton Senior Vice 1991 Senior Vice President, Secretary and Chief N/A Born: 1950 President, Legal Officer, SAMCorp., the Adviser and each Secretary of the John Hancock funds, John Hancock Funds and Chief and The Berkeley Group; Vice President, Legal Signature Services (until 2000), Director, Officer Senior Vice President and Secretary, NM Capital. - ---------------------------- ------------- -------------- ------------------------------------------------ ------------------ (1) Business address for independent and interested Trustees and officers is 101 Huntington Avenue, Boston, Massachusetts 02199. (2) Each Trustee serves until resignation, retirement age or until her or his successor is elected. (3) Interested Trustee: holds positions with the Fund's investment adviser, underwriter, and/ or certain other affiliates.
The Fund's Board of Trustees currently has four standing Committees: the Audit Committee, the Administration Committee, the Contracts/Operations Committee and the Investment Performance Committee. Each Committee is comprised of Independent Trustees. The Audit Committee members are Messrs. Ladner, Moore, Toolan and Ms. Peterson. The Audit Committee recommends to the full board auditors for the Fund, monitors and oversees the audits of the Fund, communicates with both independent auditors and internal auditors on a regular basis and provides a forum for the auditors to report and discuss any matters they deem appropriate at any time. The Audit Committee held four meetings during the fiscal year ended December 31, 2002. The Administration Committee's members are all of the Independent Trustees of the Fund. The Administration Committee reviews the activities of the other three standing committees and makes the final selection and nomination of candidates to serve as Independent Trustees. The Administration Committee will consider nominees recommended by shareholders to serve as Independent Trustees, provided that shareholders submit recommendations in compliance with all of the pertinent provisions of Rule 14a-8 under the Securities Exchange Act of 1934. The Administration Committee also works with al Trustees on the selection and election of officers of the Fund and reviews Trustee compensation, evaluates Trustee performance and considers committee membership rotations as well as relevant corporate governance issues. The Administration Committee held four meetings during the fiscal year ended December 31, 2002. The Contracts/Operations Committee members are Messrs. Carlin, Smith and Pruchansky. The Contracts/Operations Committee oversees the initiation, operation, and renewal of contracts between the Fund and other entities. These contracts include advisory and subadvisory agreements, custodial and transfer agency agreements and arrangements with other service providers. The Contracts/Operations Committee held five meetings during the fiscal year ended December 31, 2002. 16 The Investment Performance Committee consists of Messrs. Dion and Cunningham. The Investment Performance Committee monitors and analyzes the performance of the Fund generally, consults with the adviser as necessary if the Fund requires special attention, and reviews peer groups and other comparative standards as necessary. The Investment Performance Committee held four meetings during the fiscal year ended December 31, 2002. The following table provides a dollar range indicating each Trustee's ownership of equity securities of the Fund, as well as aggregate holdings of shares of equity securities of all John Hancock Funds overseen by the Trustee, as of December 31, 2002. - -------------------------------------------------------------------------------- Dollar Range of Aggregate Dollar Range of Fund shares Owned holdings in John Hancock Name of Trustee by Trustee funds overseen by Trustee - -------------------------------------------------------------------------------- Independent Trustees - -------------------------------------------------------------------------------- James F. Carlin $1-$10,000 $10,001-$50,000 - -------------------------------------------------------------------------------- William H. Cunningham None $10,001-$50,000 - -------------------------------------------------------------------------------- Ronald R. Dion $1-$10,000 Over $100,000 - -------------------------------------------------------------------------------- Charles L. Ladner $10,001-$50,000 Over $100,000 - -------------------------------------------------------------------------------- Steven R. Pruchansky $1-$10,000 Over $100,000 - -------------------------------------------------------------------------------- Norman H. Smith $50,001-$100,000 Over $100,000 - -------------------------------------------------------------------------------- John P. Toolan None $50,001-$100,000 - -------------------------------------------------------------------------------- Interested Trustees - -------------------------------------------------------------------------------- John M. DeCiccio None Over $100,000 - -------------------------------------------------------------------------------- Maureen R. Ford $1-$10,000 Over $100,000 - -------------------------------------------------------------------------------- (1) This Fund does participate in the John Hancock Deferred Compensation Plan for Independent Trustees (the "Plan"). Under the Plan, an Independent Trustee may defer his fees by electing to have the Adviser invest his fees in one of the funds in the John Hancock complex that participates in the Plan. Under these circumstances, the Trustee is not the legal owner of the underlying shares, but does participate in any positive or negative return on those shares to the same extent as all other shareholders. With regard to Trustees participating in the Plan, if a Trustee was deemed to own the shares used in computing the value of his deferred compensation, as of December 31, 2002, the respective "Dollar Range of Fund Shares Owned by Trustee" and the "Aggregate Dollar Range of holdings in John Hancock funds overseen by Trustee" would be as follows: over $100,000 and over $100,000 for Mr. Cunningham, over $100,000 and over $100,000 for Mr. Dion, $10,001-$50,000 and over $100,000 for Mr. Pruchansky, $50,001-$100,000 and over $100,000 for Mr. Smith, over $100,000 and over $100,000 for Mr. Toolan. The following table provides information regarding the compensation paid by the Fund and the other investment companies in the John Hancock Fund Complex to the Independent Trustees for their services. Mr. DeCiccio and Ms. Ford, each a non-independent Trustee, and each of the officers of the Fund who are interested persons of the Adviser, and/or affiliates are compensated by the Adviser and receive no compensation from the Fund for their services. 17 Aggregate Total Compensation from Compensation all Funds in John Hancock Trustees From the Fund(1) Fund Complex to Trustees (2) - -------- ---------------- ---------------------------- James F. Carlin $11,822 $ 75,000 William H. Cunningham* 11,838 75,100 Ronald R. Dion* 11,822 75,000 Charles L. Ladner 11,357 72,000 Steven R. Pruchansky* 11,373 72,100 Norman H. Smith* 12,290 78,000 John P. Toolan* 11,357 72,000 -------- ---------- Total $81,859 $519,200 (1) Compensation is for fiscal period ended December 31, 2002. (2) Total compensation paid by the John Hancock Fund Complex to the Independent Trustees is for the calendar year ended December 31, 2002. As of that date, there were sixty-one funds in the John Hancock Fund Complex, with each of these Independent Trustees serving on thirty funds. (*) As of December 31, 2002 the value of the aggregate accrued deferred compensation from all Funds in the John Hancock fund complex for Mr. Cunningham was $428,963, for Mr. Dion was $122,717, for Mr. Pruchansky was $95,779, for Mr. Smith was $204,328 and for Mr. Toolan was $517,774 under the John Hancock Deferred Compensation Plan for Independent Trustees (the "Plan"). All of the officers listed are officers or employees of the Adviser or affiliated companies. Some of the Trustees and officers may also be officers and/or Directors and/or Trustees of one or more other funds for which the Adviser serves as investment adviser. As of July 18, 2003, officers and Trustees of the Trust as a group owned less than 1% of the outstanding shares of the Fund. To the knowledge of the Trust, only the following persons owned of record or beneficially 5% or more of any class of the Fund's outstanding shares of the Fund: Percentage of Total Outstanding Shares of Name and Address of Shareholder Class of Shares the Class of the Fund - ------------------------------- --------------- --------------------- Citigroup Global Markets Inc C 10.67% 333 West 34th Street New York, New York 10001 INVESTMENT ADVISORY AND OTHER SERVICES The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603, was organized in 1968 and as of March 31, 2003 has approximately $26 billion in assets under management in its capacity as investment adviser to the Fund and other funds in the John Hancock group of funds, as well as retail and institutional privately managed accounts. The Adviser is an affiliate of the Life Company, one of the most recognized and respected financial institutions in the nation. With total assets under management of approximately $130 billion, the Life Company is one of the ten largest life insurance companies in the United States, and carries a high rating from Standard & Poor's and A.M. Best. Founded in 1862, the Life Company has been serving clients for over 130 years. 18 The Fund has entered into an investment management contract (the "Advisory Agreement") with the Adviser which was approved by the Fund's shareholders. Pursuant to the Advisory Agreement, the Adviser will: (a) furnish continuously an investment program for the Fund and determine, subject to the overall supervision and review of the Trustees, which investments should be purchased, held, sold or exchanged, and (b) provide supervision over all aspects of the Fund's operations except those which are delegated to a custodian, transfer agent or other agent. The Fund bears all costs of its organization and operation, including but not limited to expenses of preparing, printing and mailing all shareholders' reports, notices, prospectus, proxy statements and reports to regulatory agencies, expenses relating to the issuance, registration and qualification of shares; government fees; interest charges; expenses of furnishing to shareholders their account statements; taxes; expenses of redeeming shares; brokerage and other expenses connected with the execution of portfolio securities transactions; expenses pursuant to the Fund's plan of distribution; fees and expenses of custodians including those for keeping books and accounts, maintaining a committed line of credit and calculating the net asset value of shares; fees and expenses of transfer agents and dividend disbursing agents; legal, accounting, financial, management, tax and auditing fees and expenses of the Fund (including an allocable portion of the cost of the Adviser's employees rendering such services to the Fund; the compensation and expenses of Trustees who are not otherwise affiliated with the Trust, the Adviser or any of their affiliates; expenses of Trustees' and shareholders' meetings; trade association membership; insurance premiums; and any extraordinary expenses. As compensation for its services under the Advisory Agreement, the Fund pays the Adviser quarterly a fee based on a stated percentage of the average of the daily net assets of the Fund as follows: Averagey Daily Net Assets Annual Rates - ------------------------- ------------ $0 to $750 million 0.60% Next $750 million to 1.5 billion 0.55% Next $1.5 billion to 2.5. billion 0.50% Amount over $2.5 billion and over 0.45% From time to time, the Adviser may reduce its fee or make other arrangements to limit the Fund's expenses to a specified percentage of average daily net assets. The Adviser retains the right to re-impose a fee and recover any other payments to the extent that, at the end of any fiscal year, the Fund's annual expenses fall below this limit. For the fiscal years ended December 31, 2000, 2001 and 2002, the Fund paid the Adviser fees of $12,377,727, $10,647,323 and $8,703,622, respectively. Securities held by the Fund may also be held by other funds or investment advisory clients for which the Adviser or affiliates provide investment advice. Because of different investment objectives or other factors, a particular security may be bought for one or more funds or clients when one or more other funds or clients are selling the same security. If opportunities for purchase or sale of securities by the Adviser for the Fund or for other funds or clients for which the Adviser renders investment advice arise for consideration at or about the same time, transactions in such securities will be made, insofar as feasible, for the respective funds or clients in a manner deemed equitable to all of them. To the extent that transactions on behalf of more than one client of the Adviser or affiliates may increase the demand for securities being purchased or the supply of securities being sold, there may be an adverse effect on price. Pursuant to the Advisory Agreement, the Adviser is not liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the matters to which the Advisory Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the Adviser in the performance of its duties or from reckless disregard of the obligations and duties under the Advisory Agreement. 19 Under the Advisory Agreement, the Fund may use the name "John Hancock" or any name derived from or similar to it only for so long as the Advisory Agreement or any extension, renewal or amendment thereof remains in effect. If the Advisory Agreement is no longer in effect, the Fund (to the extent that it lawfully can) will cease to use such a name or any other name indicating that it is advised by or otherwise connected with the Adviser. In addition, the Adviser or the Life Company may grant the non-exclusive right to use the name "John Hancock" or any similar name to any other corporation or entity, including but not limited to any investment company of which the Life Company or any subsidiary or affiliate thereof or any successor to the business of any subsidiary or affiliate thereof shall be the investment adviser. The Fund's Board of Trustees is responsible for overseeing the performance of the Fund's investment adviser and determining whether to approve and renew the Fund's Advisory Agreement. The Board has a standing request that the Adviser provide the Board with certain information the Board has deemed important to evaluating the short- and long-term performance of the Adviser. This information includes periodic performance analysis and status reports from the Adviser and quarterly Portfolio and Investment Performance Reports. The Fund's portfolio managers meet with the Board from time to time to discuss the management and performance of the Fund and respond to the Board's questions concerning the performance of the Adviser. When the Board considers whether to renew an investment advisory contract, the Board takes into account numerous factors, including: (1) the nature, extent and quality of the services provided by the Adviser; (2) the investment performance of the Fund's assets managed by the adviser; (3) the fair market value of the services provided by the adviser; (4) a comparative analysis of expense ratios of, and advisory fees paid by, similar funds; (5) the extent to which the adviser has realized or will realize economies of scale as the Fund grows; (6) other sources of revenue to the Adviser or its affiliates from its relationship with the Fund and intangible or "fall-out" benefits that accrue to the adviser and its affiliates, if relevant; and (7) the Adviser's control of the operating expenses of the fund, such as transaction costs, including ways in which portfolio transactions for the fund are conducted and brokers are selected. In evaluating the Advisory Agreement, the Independent Trustees reviewed materials furnished by Adviser, including information regarding the Adviser, its respective affiliates and their personnel, operations and financial condition. The Independent Trustees also reviewed, among other things: o The investment performance of the Fund. The Board determined that the performance results of the Fund and the Adviser's responsive actions were reasonable, as compared with relevant performance standards, including the performance results of comparable equity income funds derived from data provided by Lipper Inc. and appropriate market indexes. o The fee charged by the Adviser for investment advisory and administrative services, as well as other compensation received by affiliates of the Adviser and the total operating expenses of the Fund. The Independent Trustees determined that these fees and expenses were reasonable based on the average advisory fees and operating expenses for comparable funds. The Independent Trustees also took into account the nature of the advisory fee arrangement, which includes breakpoints that will adjust the fee downward as the size of the Fund's portfolio increases. o The Adviser's investment staff and portfolio management process, the historical quality of services provided by the Adviser, and the overall performance of the Fund's portfolio on both a short-term and long-term basis. The Independent Trustees determined that the terms of the Fund's Advisory Agreement are fair and reasonable and that the contract is in the Fund's best interest. The Independent Trustees believe that the advisory contract will enable the Fund to enjoy high quality investment advisory services at a cost they deem appropriate, reasonable and in the best interests of the Fund and its shareholders. In making such determinations, the Independent Trustees met independently from the Interested Trustees of the Fund and any officers of the Adviser or its affiliates. The Independent Trustees also relied upon the assistance of counsel o the Independent Trustees and counsel to the Fund. 20 Accounting and Legal Services Agreement. The Trust, on behalf of the Fund, is a party to an Accounting and Legal Services Agreement with the Adviser. Pursuant to this Agreement, the Adviser provides the Fund with certain tax, accounting and legal services. For the fiscal years ended December 31, 2000, 2001 and 2002, the Fund paid the Adviser $422,449, $387,253 and $439,523, respectively, for the services under this Agreement. Proxy Voting. The Fund's Trustees have delegated to the Adviser the authority to vote proxies on behalf of the Fund. The Trustees have approved the proxy voting guidelines of the Adviser and will review the guidelines and suggest changes as they deem advisable. A summary of the Adviser's proxy voting guidelines is attached to this statement of additional information as Appendix C. Personnel of the Adviser and its affiliates may trade securities for their personal accounts. The Fund also may hold, or may be buying or selling, the same securities. To prevent the Fund from being disadvantaged, the Adviser(s) and principal underwriter and the Fund have adopted a code of ethics which restricts the trading activity of those personnel. DISTRIBUTION CONTRACTS The Fund has a Distribution Agreement with John Hancock Funds. Under the agreement, John Hancock Funds is obligated to use its best efforts to sell shares of each class of the Fund. Shares of the Fund are also sold by selected broker-dealers (the "Selling Brokers") that have entered into selling agency agreements with John Hancock Funds. These Selling Brokers are authorized to designate other intermediaries to receive purchase and redemption orders on behalf of the Fund. John Hancock Funds accepts orders for the purchase of the shares of the Fund that are continually offered at net asset value next determined, plus an applicable sales charge, if any. In connection with the sale of Fund shares, John Hancock Funds and Selling Brokers receive compensation from a sales charge imposed, in the case of Class A and C shares, at the time of sale. In the case of Class B, Class C or Class R shares, the broker receives compensation immediately but John Hancock Funds is compensated on a deferred basis. Total underwriting commissions for sales of the Fund's Class A shares for the fiscal period ended December 31, 2000, 2001 and 2002 were $1,019,674, $1,204,448 and $1,027,023, respectively. Of such amounts $162,633, $127,182 and $157,106, were retained by John Hancock Funds in 2000, 2001 and 2002, respectively. Total underwriting commissions for sales of the Fund's Class C shares for the fiscal period ended December 31, 2000, 2001 and 2002 were $60,615, $86,609 and $72,370, respectively. The remainder of the underwriting commissions were reallowed to dealers. The Fund's Trustees adopted Distribution Plans with respect to each class of shares (the "Plans"), pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plans, the Fund will pay distribution and service fees at an aggregate annual rate of up to 0.30% for Class A, 1.00% for Class B and Class C shares and 0.50% for Class R shares of the Fund's average daily net assets attributable to the respective class of shares. However, the service fee will not exceed 0.25% of the Fund's average daily net assets attributable to each class of shares. The distribution fees will be used to reimburse John Hancock Funds for its distribution expenses, including but not limited to: (i) initial and ongoing sales compensation to Selling Brokers and others (including affiliates of John Hancock Funds) engaged in the sale of Fund shares, (ii) marketing, promotional and overhead expenses incurred in connection with the distribution of Fund shares, and (iii) with respect to Class B and Class C shares only, interest expenses on unreimbursed distribution expenses. The service fees will be used to compensate Selling Brokers and others for providing 21 personal and account maintenance services to shareholders. In the event that John Hancock Funds is not fully reimbursed for payments or expenses it incurs under the Class A Plan, these expenses will not be carried beyond twelve months from the date they were incurred. Unreimbursed expenses under the Class B and Class C Plans will be carried forward together with interest on the balance of these unreimbursed expenses. Unreimbursed expenses under the Class R Plan will be carried forward to subsequent fiscal years. The Fund does not treat unreimbursed expenses under the Class B, Class C and Class R Plans as a liability of the Fund because the Trustees may terminate Class B, Class C and/or Class R Plans at any time. For the fiscal year ended December 31, 2002, an aggregate of $12,422,931 of Distribution Expenses or 2.88% of the average net assets of the Fund's Class B shares was not reimbursed or recovered by John Hancock Funds through the receipt of deferred sales charges or Rule 12b-1 fees in prior periods. For the fiscal year ended December 31, 2002, an aggregate of $93,055 of Distribution Expenses or 0.42% of the average net assets of the Fund's Class C shares was not reimbursed or recovered by John Hancock Funds through the receipt of deferred sales charges or Rule 12b-1 fees. The Fund has also adopted a separate Class R shares Service Plan ("the Service Plan"). The Service Plan authorizes the Fund to pay securities dealers, plan administrators or other service organizations who agree to provide certain services to retirement plans or plan participants holding shares of the Fund a service fee of up to 0.25% of the Fund's average daily net assets attributable to Class R shares held by such plan participants. These services may include (a) acting, directly or through an agent, as the shareholder and nominee for all plan participants; (b) maintaining account records for each plan participant that beneficially owns Class R shares; (c) processing orders to purchase, redeem and exchange Class R shares on behalf of plan participants, and handling the transmission of funds representing the purchase price or redemption proceeds; (d) addressing plan participant questions regarding their accounts and the Fund; and (e) other services related to servicing such retirement plans. The Plans were approved by a majority of the voting securities of the Fund. The Plans and all amendments were approved by the Trustees, including a majority of the Trustees who are not interested persons of the Fund and who have no direct or indirect financial interest in the operation of the Plans (the "Independent Trustees"), by votes cast in person at meetings called for the purpose of voting on such Plans. Pursuant to the Plans, at least quarterly, John Hancock Funds provides the Fund with a written report of the amounts expended under the Plans and the purpose for which the expenditures were made. The Trustees review these reports on a quarterly basis to determine their continued appropriateness. The Plans provide that they will continue in effect only so long as their continuance is approved at least annually by a majority of both the Trustees and by the Independent Trustees. The Plans provide that they may be terminated without penalty (a) by a vote of a majority of the Independent Trustees, (b) by a vote of a majority of the Fund's outstanding shares of the applicable class upon 60 days' written notice to John Hancock Funds, and (c) automatically in the event of assignment. The Plans further provide that they may not be amended to increase the maximum amount of the fees for the services described therein without the approval of a majority of the outstanding shares of the class of the Fund which has voting rights with respect to the Plan. Each Plan provides, that no material amendment to the Plans will be effective unless it is approved by a majority vote of the Trustees and the Independent Trustees of the Fund. The holders of Class A, Class B, Class C and Class R shares have exclusive voting rights with respect to the Plan applicable to their respective class of shares. In adopting the Plans, the Trustees concluded that, in their judgment, there is a reasonable likelihood that the Plans will benefit the holders of the applicable class of shares of the Fund. Amounts paid to John Hancock Funds by any class of shares of the Fund will not be used to pay the expenses incurred with respect to any other class of shares of the Fund; provided, however, that expenses attributable to the Fund as a whole will be allocated, to the extent permitted by law, according to a formula based upon gross sales dollars and/or average daily net assets of each such 22 class, as may be approved from time to time by vote of a majority of the Trustees. From time to time the Fund may participate in joint distribution activities with other Funds and the costs of those activities will be borne by each Fund in proportion to the relative net asset value of the participating Funds. During the fiscal year ended December 31, 2002, the Fund paid John Hancock Funds the following amounts of expenses in connection with their services for the Fund.
Expense Items ------------- Printing and Mailing of Interest Carrying Prospectus to Compensation to Expenses of John or Other Finance Shares Advertising New Shareholders Selling Brokers Hancock Funds Charges - ------ ----------- ---------------- --------------- ------------- ------- Class A $235,899 $11,388 $2,302,789 $637,721 -- Class B 391,827 18,423 2,903,027 987,921 $7,906 Class C 22,482 1,201 134,874 63,594 -- Class R -- -- -- -- -- Class R shares did not exist during the fiscal year ended December 31, 2002. SALES COMPENSATION As part of their business strategies, the Fund, along with John Hancock Funds, pay compensation to financial services firms that sell the Fund's shares. These firms typically pass along a portion of this compensation to your broker or financial representative. The two primary sources of broker compensation payments are (1) the 12b-1 fees that are paid out of the Fund's assets and (2) sales charges paid by investors. The sales charges and 12b-1 fees are detailed in the prospectus and under "Distribution Contracts" in this Statement of Additional Information. The portions of these expenses that are paid to financial services firms are shown on the next page. Whenever you make an investment in the Fund, the financial services firm receives a reallowance/payment, as described below. The firm also receives the first year's 12b-1 service fee at this time. Beginning with the second year after an investment is made, the financial services firm receives an annual 12b-1 service fee of 0.25% of its total eligible fund net assets. This fee is paid quarterly in arrears by the Fund. In addition, from time to time, John Hancock Funds, at its expense, may provide significant additional compensation to financial services firms in connection with their promotion of the Fund or sale of shares of the Fund. Such compensation provided by John Hancock Funds may include, for example, financial assistance to financial services firms in connection with their marketing and sales development programs for their registered representatives and other employees, as well as payment for travel expenses, including lodging, incurred by registered representatives and other employees for such marketing and sales development programs, as well as assistance for seminars for the public, advertising and sales campaigns regarding one or more Funds, and other financial services firms-sponsored events or activities. From time to time, John Hancock Funds may provide expense reimbursements for special training of a financial services firm's registered representatives and other employees in group meetings. Other compensation, such as asset retention fees, finder's fees and reimbursement for wire transfer fees or other administrative fees and costs may be offered to the extent not prohibited by law or any self-regulatory agency, such as the NASD. 23 Broker receives Sales charge Broker receives 12b-1 service fee Total broker paid by investors maximum reallowance (% of net compensation (1) Class A investments (% of offering price) (% of offering price) investment) (3) (% of offering price) - ------------------- --------------------- --------------------- --------------- --------------------- Up to $49,999 5.00% 4.01% 0.25% 4.25% $50,000 - $99,999 4.50% 3.51% 0.25% 3.75% $100,000 - $249,999 3.50% 2.61% 0.25% 2.85% $250,000 - $499,999 2.50% 1.86% 0.25% 2.10% $500,000 - $999,999 2.00% 1.36% 0.25% 1.60% Investments of Class A share of $1 million or more (4) - ---------------------- First $1M - $4,999,999 -- 0.75% 0.25% 1.00% (2) Next $1 - $5M above that -- 0.25% 0.25% 0.50% Next $1 or more above that -- 0.00% 0.25% 0.25% Broker receives Broker receives maximum 12b-1 service fee Total broker reallowance (% of net compensation (1) Class B investments (% of offering price) investment) (3) (% of offering price) - ------------------- --------------------- --------------- --------------------- All amounts -- 3.75% 0.25% 4.00% Broker receives Broker receives maximum 12b-1 service fee Total broker reallowance (% of net compensation (1) Class C investments (% of offering price) Investment) (3) (% of offering price) - ------------------- -------------------- --------------- --------------------- Over $1,000,000 or amounts purchased at NAV -- 0.75% 0.25% 1.00% All other amounts 1.00% 1.75% 0.25% 2.00% Broker receives Broker receives maximum 12b-1 service fee Total broker reallowance (% of net compensation (1) Class R investments (% of offering price) Investment) (3) (% of offering price) - ------------------- --------------------- --------------- --------------------- All amounts -- 0% 0.50% 0.50%
(1) Broker percentages and 12b-1 service fee percentages are calculated from different amounts, and therefore may not equal total broker compensation percentages if combined using simple addition. (2) Group investments may be eligible for 1% on asset levels of $5 million and higher. (3) After first year broker receives 12b-1 fees quarterly in arrears. 24 (4) Includes new investments aggregated with investments since the last annual reset. John Hancock Funds may take recent redemptions into account in determining if an investment qualifies as a new investment. CDSC revenues collected by John Hancock Funds may be used to pay brokers commissions when there is no initial sales charge. NET ASSET VALUE For purposes of calculating the net asset value ("NAV") of the Fund's shares, the following procedures are utilized wherever applicable. Debt investment securities are valued on the basis of valuations furnished by a principal market maker or a pricing service, both of which generally utilize electronic data processing techniques to determine valuations for normal institutional size trading units of debt securities without exclusive reliance upon quoted prices. Equity securities traded on a principal exchange are generally valued at last sale price on the day of valuation or in the case of securities traded on NASDAQ, the NASDAQ official closing price. Securities in the aforementioned category for which no sales are reported and other securities traded over-the-counter are generally valued at the last available bid price. Short-term debt investments which have a remaining maturity of 60 days or less are generally valued at amortized cost which approximates market value. If market quotations are not readily available or if in the opinion of the Adviser any quotation or price is not representative of true market value, the fair value of the security may be determined in good faith in accordance with procedures approved by the Trustees. Foreign securities are valued on the basis of quotations from the primary market in which they are traded. Any assets or liabilities expressed in terms of foreign currencies are translated into U.S. dollars by the custodian bank based on London currency exchange quotations as of 5:00 p.m., London time (12:00 noon, New York time) on the date of any determination of the Fund's NAV. If quotations are not readily available, or the value has been materially affected by events occurring after the closing of a foreign market, assets are valued by a method that the Trustees believe accurately reflects fair value. The NAV for each fund and class is determined each business day at the close of regular trading on the New York Stock Exchange (typically 4:00 p.m. Eastern Time) by dividing a class's net assets by the number of its shares outstanding. On any day an international market is closed and the New York Stock Exchange is open, any foreign securities will be valued at the prior day's close with the current day's exchange rate. Trading of foreign securities may take place on Saturdays and U.S. business holidays on which a Fund's NAV is not calculated. Consequently, the Fund's portfolio securities may trade and the NAV of the Fund's redeemable securities may be significantly affected on days when a shareholder has no access to the Fund. INITIAL SALES CHARGE ON CLASS A AND CLASS C SHARES Shares of the Fund are offered at a price equal to their net asset value plus a sales charge which, at the option of the purchaser, may be imposed either at the time of purchase (the "initial sales charge alternative") or on a contingent deferred basis (the "deferred sales charge alternative"). The Fund no longer issues share certificates. All shares are electronically recorded. The Trustees reserve the right to change or waive the Fund's minimum investment requirements and to reject any order to purchase shares (including purchase by exchange) when in the judgment of the Adviser such rejection is in the Fund's best interest. 25 The sales charges applicable to purchases of Class A and Class C shares of the Fund are described in the Fund's Prospectus. Methods of obtaining reduced sales charges referred to generally in the Prospectus are described in detail below. In calculating the sales charge applicable to current purchases of Class A shares of the Fund, the investor is entitled to cumulate current purchases with the greater of the current value (at offering price) of the Class A shares of the Fund owned by the investor, or if John Hancock Signature Services, Inc. ("Signature Services") is notified by the investor's dealer or the investor at the time of the purchase, the cost of the Class A shares owned. Without Sales Charge. Class A shares may be offered without a front-end sales charge or a contingent deferred sales charge ("CDSC") to various individuals and institutions as follows: o A Trustee or officer of the Trust; a Director or officer of the Adviser and its affiliates, sub-adviser or Selling Brokers; employees or sales representatives of any of the foregoing; retired officers, employees or Trustees of any of the foregoing; a member of the immediate family (spouse, children, grandchildren, mother, father, sister, brother, mother-in-law, father-in-law, daughter-in-law, son-in-law, niece, nephew, grandparents and same sex domestic partner) of any of the foregoing; or any fund, pension, profit sharing or other benefit plan for the individuals described above. o A broker, dealer, financial planner, consultant or registered investment advisor that has entered into a signed agreement with John Hancock Funds providing specifically for the use of Fund shares in fee-based investment products or services made available to their clients. o A former participant in an employee benefit plan with John Hancock funds, when he or she withdraws from his or her plan and transfers any or all of his or her plan distributions directly to the Fund. o A member of a class action lawsuit against insurance companies who is investing settlement proceeds. o Certain retirement plans participating in Merrill Lynch servicing programs offered in Class A shares, including transferee recording arrangements, Merrill Lynch Connect Arrangements and third party administrator recordkeeping arrangements. See your Merrill Lynch Financial Consultant for further information. o Retirement plans investing through the PruArray Program sponsored by Prudential Securities. o Pension plans transferring assets from John Hancock variable annuity contract to the Fund pursuant to an exemptive application approved by the Securities and Exchange Commission. o Participant directed retirement plans with at least 100 eligible employees at the inception of the Fund account. Each of these investors may purchase Class A shares with no initial sales charge. However, if the shares are redeemed within 12 months after the end of the calendar year in which the purchase was made, a CDSC will be imposed at the following rate: 26 Amount Invested CDSC Rate --------------- --------- $1 to $4,999,999 1.00% Next $5 million to $9,999,999 0.50% Amounts of $10 million and over 0.25% Class C shares may be offered without a front-end sales charge to: o Investments of redemption proceeds from a non-John Hancock mutual fund. o Group Retirement plan products for which John Hancock Signature Services performs recordkeeping and administrative services. (These plans include 403(b), Simple IRA, SEP and SARSEP plans.) o Group Retirement plan products sold through third party administrators under the John Hancock SELECT retirement plan program. (These plans include 401(k), Money Purchase and Profit Sharing plans.) o An investor who buys through a Merrill Lynch, Raymond James Financial Services or Raymond James & Associates omnibus account. However, a CDSC may apply if the shares are sold within 12 months of purchase. o Certain retirement plans participating in Merrill Lynch servicing programs offered in Class C shares, including transferee recording arrangements, Merrill Lynch Connect Arrangements and third party administrator recordkeeping arrangements. See your Merrill Lynch Financial Consultant for further information. Merrill Lynch retirement plans are waived from CDSC. Class A and Class C shares may also be purchased without an initial sales charge in connection with certain liquidation, merger or acquisition transactions involving other investment companies or personal holding companies. Combination Privilege. In calculating the sales charge applicable to purchases of Class A shares made at one time, the purchases will be combined to reduce sales charges if made by (a) an individual, his or her spouse and their children under the age of 21, purchasing securities for his or their own account, (b) a trustee or other fiduciary purchasing for a single trust, estate or fiduciary account and (c) groups which qualify for the Group Investment Program (see below). A company's (not an individual's) qualified and non-qualified retirement plan investments can be combined to take advantage of this privilege. Further information about combined purchases, including certain restrictions on combined group purchases, is available from Signature Services or a Selling Broker's representative. Accumulation Privilege. Investors (including investors combining purchases) who are already Class A shareholders may also obtain the benefit of the reduced sales charge by taking into account not only the amount being invested but also the investor's purchase price or current value of the Class A shares of all John Hancock funds which carry a sales charge already held by such person. Class A shares of John Hancock money market funds will only be eligible for the accumulation privilege if the investor has previously paid a sales charge on the amount of those shares. Retirement plan investors may include the value of Class B shares if Class B shares held are greater than $1 million. Retirement plans must notify Signature Services to utilize. A company's (not an individual's) qualified and non-qualified retirement plan investments can be combined to take advantage of this privilege. 27 Group Investment Program. Under the Combination and Accumulation Privileges, all members of a group may combine their individual purchases of Class A shares to potentially qualify for breakpoints in the sales charge schedule. This feature is provided to any group which (1) has been in existence for more than six months, (2) has a legitimate purpose other than the purchase of mutual fund shares at a discount for its members, (3) utilizes salary deduction or similar group methods of payment, and (4) agrees to allow sales materials of the fund in its mailings to members at a reduced or no cost to John Hancock Funds. Letter of Intention. Reduced sales charges are also applicable to investments made pursuant to a Letter of Intention (the "LOI"), which should be read carefully prior to its execution by an investor. The Fund offers two options regarding the specified period for making investments under the LOI. All investors have the option of making their investments over a period of thirteen (13) months. Investors who are using the Fund as a funding medium for a retirement plan, however, may opt to make the necessary investments called for by the LOI over a forty-eight (48) month period. These retirement plans include traditional, Roth IRAs and Coverdell ESAs, SEP, SARSEP, 401(k), 403(b) (including TSAs), SIMPLE IRA, SIMPLE 401(k), Money Purchase Pension, Profit Sharing and Section 457 plans. An individual's non-qualified and qualified retirement plan investments cannot be combined to satisfy LOI of 48 months. Such an investment (including accumulations and combinations but not including reinvested dividends) must aggregate $50,000 or more invested during the specified period from the date of the LOI or from a date within ninety (90) days prior thereto, upon written request to Signature Services. The sales charge applicable to all amounts invested under the LOI is computed as if the aggregate amount intended to be invested had been invested immediately. If such aggregate amount is not actually invested, the difference in the sales charge actually paid and the sales charge payable had the LOI not been in effect is due from the investor. However, for the purchases actually made within the specified period (either 13 or 48 months) the sales charge applicable will not be higher than that which would have been applied (including accumulations and combinations) had the LOI been for the amount actually invested. The LOI authorizes Signature Services to hold in escrow sufficient Class A shares (approximately 5% of the aggregate) to make up any difference in sales charges on the amount intended to be invested and the amount actually invested, until such investment is completed within the specified period, at which time the escrowed Class A shares will be released. If the total investment specified in the LOI is not completed, the Class A shares held in escrow may be redeemed and the proceeds used as required to pay such sales charge as may be due. By signing the LOI, the investor authorizes Signature Services to act as his or her attorney-in-fact to redeem any escrowed Class A shares and adjust the sales charge, if necessary. A LOI does not constitute a binding commitment by an investor to purchase, or by the Fund to sell, any additional Class A shares and may be terminated at any time. Because Class R shares are sold at net asset value without the imposition of any sales charge, none of the privileges described under these captions are available to Class R investors. DEFERRED SALES CHARGE ON CLASS B AND CLASS C SHARES Investments in Class B shares are purchased at net asset value per share without the imposition of an initial sales charge so that the Fund will receive the full amount of the purchase payment. Contingent Deferred Sales Charge. Class B and Class C shares which are redeemed within six years or one year of purchase, respectively, will be subject to a CDSC at the rates set forth in the Class A, Class B and Class C Prospectus as a percentage of the dollar amount subject to the CDSC. The charge will be assessed on an amount equal to the lesser of the current market value or the original purchase cost of the Class B or Class C shares being redeemed. No CDSC will be imposed on increases in account value above the initial purchase prices, including all shares derived from reinvestment of dividends or capital gains distributions. 28 Class B shares are not available to retirement plans that had more than 100 eligible employees at the inception of the Fund account. The amount of the CDSC, if any, will vary depending on the number of years from the time of payment for the purchase of Class B shares until the time of redemption of such shares. Solely for purposes of determining the number of years from the time of any payment for the purchase of both Class B and Class C shares, all payments during a month will be aggregated and deemed to have been made on the first day of the month. In determining whether a CDSC applies to a redemption, the calculation will be determined in a manner that results in the lowest possible rate being charged. It will be assumed that your redemption comes first from shares you have held beyond the six-year CDSC redemption period for Class B or one year CDSC redemption period for Class C or those you acquired through dividend and capital gain reinvestment, and next from the shares you have held the longest during the six-year period for Class B shares. For this purpose, the amount of any increase in a share's value above its initial purchase price is not regarded as a share exempt from CDSC. Thus, when a share that has appreciated in value is redeemed during the CDSC period, a CDSC is assessed only on its initial purchase price. When requesting a redemption for a specific dollar amount, please indicate if you require the proceeds to equal the dollar amount requested. If not indicated, only the specified dollar amount will be redeemed from your account and the proceeds will be less any applicable CDSC. Example: You have purchased 100 Class B shares at $10 per share. The second year after your purchase, your investment's net asset value per share has increased by $2 to $12, and you have gained 10 additional shares through dividend reinvestment. If you redeem 50 shares at this time your CDSC will be calculated as follows: oProceeds of 50 shares redeemed at $12 per shares (50 x 12) $600.00 o*Minus Appreciation ($12 - $10) x 100 shares (200.00) o Minus proceeds of 10 shares not subject to CDSC (dividend reinvestment) (120.00) ---------- oAmount subject to CDSC $280.00 *The appreciation is based on all 100 shares in the account not just the shares being redeemed. Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or in part by Signature Services to defray its expenses related to providing distribution related services to the Fund in connection with the sale of the Class B and Class C shares, such as the payment of compensation to select Selling Brokers for selling Class B and Class C shares. The combination of the CDSC and the distribution and service fees enables the Fund to sell the Class B and Class C shares without a sales charge being deducted at the time of the purchase. Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on redemptions of Class B and Class C shares and of Class A shares that are subject to CDSC, unless indicated otherwise, in the circumstances defined below: For all account types: * Redemptions made pursuant to the Fund's right to liquidate your account if you own shares worth less than $1,000. 29 * Redemptions made under certain liquidation, merger or acquisition transactions involving other investment companies or personal holding companies. * Redemptions due to death or disability. (Does not apply to Trust accounts unless Trust is being dissolved.) * Redemptions made under the Reinstatement Privilege, as described in "Sales Charge Reductions and Waivers" of the Prospectus. * Redemptions of Class B and Class C shares made under a periodic withdrawal plan, or redemptions for fees charged by planners or advisors for advisory services, as long as your annual redemptions do not exceed 12% of your account value, including reinvested dividends, at the time you established your periodic withdrawal plan and 12% of the value of subsequent investments (less redemptions) in that account at the time you notify Signature Services. (Please note that this waiver does not apply to periodic withdrawal plan redemptions of Class A shares that are subject to a CDSC.) * Certain retirement plans participating in Merrill Lynch servicing programs offered in Class A, Class B, Class C and Class R shares, including transferee recording arrangements, Merrill Lynch Connect Arrangements and third party administrator recordkeeping arrangements. See your Merrill Lynch Financial Consultant for further information. * Redemptions of Class A shares by retirement plans that invested through the PruArray Program sponsored by Prudential Securities. * Redemptions of Class A shares made after one year from the inception date of a retirement plan at John Hancock. For Retirement Accounts (such as traditional, Roth IRAs and Coverdell ESAs, SIMPLE IRAs, SIMPLE 401(k), Rollover IRA,TSA, 457, 403(b), 401(k), Money Purchase Pension Plan, Profit-Sharing Plan and other plans as described in the Internal Revenue Code of 1986, as amended (the "Code")) unless otherwise noted. * Redemptions made to effect mandatory or life expectancy distributions under the Internal Revenue Code. (Waiver based on required minimum distribution calculations for John Hancock Mutual Fund IRA assets only.) * Returns of excess contributions made to these plans. * Redemptions made to effect distributions to participants or beneficiaries from employer sponsored retirement plans under sections 401(a) (such as Money Purchase Pension Plans and Profit-Sharing Plan/401(k) Plans), 457 and 408 (SEPs and SIMPLE IRAs) of the Internal Revenue Code. * Redemptions from certain IRA and retirement plans that purchased shares prior to October 1, 1992 and certain IRA plans that purchased shares prior to May 15, 1995. Please see matrix for some examples. 30
- ----------------------- ----------------- ----------------- ---------------- ----------------- ---------------- Type of 401 (a) Plan 403 (b) 457 IRA, IRA Non-retirement Distribution (401 (k), MPP, Rollover PSP) 457 & 408 (SEPs & Simple IRAs) - ----------------------- ----------------- ----------------- ---------------- ----------------- ---------------- Death or Disability Waived Waived Waived Waived Waived - ----------------------- ----------------- ----------------- ---------------- ----------------- ---------------- Over 70 1/2 Waived Waived Waived Waived for 12% of account required value annually minimum in periodic distributions* payments or 12% of account value annually in periodic payments. - ----------------------- ----------------- ----------------- ---------------- ----------------- ---------------- Between 59 1/2 and Waived Waived Waived Waived for Life 12% of account 70 1/2 Expectancy or value annually 12% of account in periodic value annually payments in periodic payments. - ----------------------- ----------------- ----------------- ---------------- ----------------- ---------------- Under 59 1/2 Waived for Waived for Waived for Waived for 12% of account (Class B and Class C annuity annuity annuity annuity value annually only) payments (72t) payments (72t) payments (72t) payments (72t) in periodic or 12% of or 12% of or 12% of or 12% of payments account value account value account value account value annually in annually in annually in annually in periodic periodic periodic periodic payments. payments. payments. payments. - ----------------------- ----------------- ----------------- ---------------- ----------------- ---------------- Loans Waived Waived N/A N/A N/A - ----------------------- ----------------- ----------------- ---------------- ----------------- ---------------- Termination of Plan Not Waived Not Waived Not Waived Not Waived N/A - ----------------------- ----------------- ----------------- ---------------- ----------------- ---------------- Hardships Waived Waived Waived N/A N/A - ----------------------- ----------------- ----------------- ---------------- ----------------- ---------------- Qualified Domestic Waived Waived Waived N/A N/A Relations Orders - ----------------------- ----------------- ----------------- ---------------- ----------------- ---------------- Termination of Waived Waived Waived N/A N/A Employment Before Normal Retirement Age - ----------------------- ----------------- ----------------- ---------------- ----------------- ---------------- Return of Excess Waived Waived Waived Waived N/A - ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
*Required minimum distributions based on John Hancock Mutual Fund IRA assets only. 31 If you qualify for a CDSC waiver under one of these situations, you must notify Signature Services at the time you make your redemption. The waiver will be granted once Signature Services has confirmed that you are entitled to the waiver. ELIGIBLE INVESTORS FOR CLASS R SHARES Class R shares are available only to 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit sharing and money purchase pension plans, defined benefit plans and non-qualified deferred compensation plans (eligible retirement plans). Class R shares are also available for Rollover IRA accounts for participants whose plans are invested in Class R shares funds. Class R shares are not generally available to retail non-retirement accounts, traditional and Roth IRAs, Coverdell Educational Savings Accounts, SEPs, SAR-SEPs SIMPLE IRAs and individual 403(b) plans. SPECIAL REDEMPTIONS Although it would not normally do so, the Fund has the right to pay the redemption price of shares of the Fund in whole or in part in portfolio securities as prescribed by the Trustees. When the shareholder sells portfolio securities received in this fashion, the shareholder will incur a brokerage charge. Any such securities would be valued for the purposes of making such payment at the same value as used in determining net asset value. The Fund has, however, elected to be governed by Rule 18f-1 under the Investment Company Act. Under that rule, the Fund must redeem its shares for cash except to the extent that the redemption payments to any shareholder during any 90-day period would exceed the lesser of $250,000 or 1% of the Fund's net asset value at the beginning of such period. ADDITIONAL SERVICES AND PROGRAMS FOR CLASSES A, B AND C SHARES Exchange Privilege. The Fund permits exchanges of shares of any class for shares of the same class in any other John Hancock fund offering that same class. Investors may exchange Class R shares for Class R shares of other John Hancock funds or Class A shares of John Hancock Money Market Fund. If an investor exchanges Class R shares for Class A shares of Money Market Fund, any future exchanges out of the Money Market Fund Class A must be to another Class R fund. Exchanges between funds with shares that are not subject to a CDSC are based on their respective net asset values. No sales charge or transactions charge is imposed. Shares of the Fund which are subject to a CDSC may be exchanged into shares of any of the other John Hancock funds that are subject to a CDSC without incurring the CDSC; however, the shares acquired in an exchange will be subject to the CDSC schedule of the shares acquired if and when such shares are redeemed (except that shares exchanged into John Hancock 500 Index Fund will retain the exchanged fund's CDSC schedule). For purposes of computing the CDSC payable upon redemption of shares acquired in an exchange, the holding period of the original shares is added to the holding period of the shares acquired in an exchange. If a retirement plan exchanges the plan's Class A account in its entirety from the Fund to a non-John Hancock investment, the one-year CDSC applies. If a shareholder exchanges Class B shares purchased prior to January 1, 1994 for Class B shares of any other John Hancock fund, the acquired shares will continue to be subject to the CDSC schedule that was in effect when the exchanged shares were purchased. The Fund reserves the right to require that previously exchanged shares (and reinvested dividends) be in the Fund for 90 days before a shareholder is permitted a new exchange. 32 The Fund may refuse any exchange order. The Fund may change or cancel its exchange policies at any time, upon 60 days' notice to its shareholders. An exchange of shares is treated as a redemption of shares of one fund and the purchase of shares of another for Federal Income Tax purposes. An exchange may result in a taxable gain or loss. See "TAX STATUS". Systematic Withdrawal Plan. The Fund permits the establishment of a Systematic Withdrawal Plan. Payments under this plan represent proceeds arising from the redemption of Fund shares, which may result in realization of gain or loss for purposes of Federal, state and local income taxes. The maintenance of a Systematic Withdrawal Plan concurrently with purchases of additional shares of the Fund could be disadvantageous to a shareholder because of the initial sales charge payable on such purchases of Class A shares and the CDSC imposed on redemptions of Class B and Class C shares and because redemptions are taxable events. Therefore, a shareholder should not purchase shares at the same time as a Systematic Withdrawal Plan is in effect. The Fund reserves the right to modify or discontinue the Systematic Withdrawal Plan of any shareholder on 30 days' prior written notice to such shareholder, or to discontinue the availability of such plan in the future. The shareholder may terminate the plan at any time by giving proper notice to Signature Services. Monthly Automatic Accumulation Program (MAAP). The program is explained in the Class A, Class B and Class C Prospectus. The program, as it relates to automatic investment checks, is subject to the following conditions: The investments will be drawn on or about the day of the month indicated. The privilege of making investments through the MAAP may be revoked by Signature Services without prior notice if any investment is not honored by the shareholder's bank. The bank shall be under no obligation to notify the shareholder as to the non-payment of any checks. The program may be discontinued by the shareholder either by calling Signature Services or upon written notice to Signature Services which is received at least five (5) business days prior to the order date of any investment. Reinstatement and Reinvestment Privilege. If Signature Services is notified prior to reinvestment, a shareholder who has redeemed shares of the Fund may, within 120 days after the date of redemption, reinvest without payment of a sales charge any part of the redemption proceeds in shares of the same class of the Fund or another John Hancock fund, subject to the minimum investment limit in any fund. The proceeds from the redemption of Class A shares may be reinvested at net asset value without paying a sales charge in Class A shares of any John Hancock funds. If a CDSC was paid upon a redemption, a shareholder may reinvest the proceeds from such redemption at net asset value in additional shares of the class from which the redemption was made. The shareholder's account will be credited with the amount of any CDSC charged upon the prior redemption and the new shares will continue to be subject to the CDSC. The holding period of the shares acquired through reinvestment will, for purposes of computing the CDSC payable upon a subsequent redemption, include the holding period of the redeemed shares. To protect the interests of other investors in the Fund, the Fund may cancel the reinvestment privilege of any parties that, in the opinion of the Fund, are using market timing strategies or making more than seven exchanges per owner or controlling party per calendar year. Also, the Fund may refuse any reinvestment request. The Fund may change or cancel its reinvestment policies at any time. 33 A redemption or exchange of shares is a taxable transaction for Federal income tax purposes even if the reinvestment privilege is exercised, and any gain or loss realized by a shareholder on the redemption or other disposition of shares will be treated for tax purposes as described below under the caption "TAX STATUS." Retirement plans participating in Merrill Lynch's servicing programs: - --------------------------------------------------------------------- Class A, C and R shares are available at net asset value for Merrill Lynch retirement plans, including transferee recording arrangements, Merrill Lynch Connect Arrangements and third party administrator recordkeeping arrangements. See your Merrill Lynch Financial Consultant for further information. For participating retirement plans investing in Class B shares, shares will convert to Class A shares after eight years, or sooner if the plan attains assets of $5 million (by means of a CDSC-free redemption/purchase at net asset value). PURCHASES AND REDEMPTIONS THROUGH THIRD PARTIES Shares of the Fund may be purchased or redeemed through certain broker-dealers or Service Agents ("Brokers"). Brokers may charge for their services or place limitations on the extent to which you may use the services of the Fund. The Fund will be deemed to have received a purchase or redemption order when an authorized broker, or if applicable, a broker's authorized designee, receives the order. If a broker is an agent or designee of the Fund, orders are processed at the NAV next calculated after the broker receives the order. The broker must segregate any orders it receives after the close of regular trading on the New York Stock Exchange and transmit those orders to the Fund for execution at NAV next determined. Some brokers that maintain nominee accounts with the Fund for their clients charge an annual fee on the average net assets held in such accounts for accounting, servicing, and distribution services they provide with respect to the underlying Fund shares. The Adviser, the Fund, and/or John Hancock Funds, LLC (the Fund's principal distributor), share in the expense of these fees. DESCRIPTION OF FUND'S SHARES The Trustees of the Trust are responsible for the management and supervision of the Fund. The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest of the Fund, without par value. Under the Declaration of Trust, the Trustees have the authority to create and classify shares of beneficial interest in separate series and classes, without further action by shareholders. As of the date of this Statement of Additional Information, the Trustees have authorized shares of the Fund and four other series. The Trustees have also authorized the issuance of four classes of shares of the Fund, designated as Class A, Class B, Class C, Class I and Class R. The shares of each class of the Fund represent an equal proportionate interest in the aggregate net assets attributable to that class of the Fund. Holders of Class A, Class B and Class C shares have certain exclusive voting rights on matters relating to their respective distribution plans. The different classes of the Fund may bear different expenses relating to the cost of holding shareholder meetings necessitated by the exclusive voting rights of any class of shares. Dividends paid by the Fund, if any, with respect to each class of shares will be calculated in the same manner, at the same time and on the same day and will be in the same amount, except for differences resulting from the facts that (i) the distribution and service fees relating to each class of shares will be borne exclusively by that class, (ii) Class B and Class C shares will pay higher distribution and service fees than Class A and Class R shares and Class R shares 34 will pay higher distribution and service fees than Class A shares(iii) each class of shares will bear any other class expenses properly allocable to such class of shares, subject to the conditions the Internal Revenue Service imposes with respect to the multiple-class structures. Similarly, the net asset value per share may vary depending on which class of shares are purchased. No interest will be paid on uncashed dividend or redemption checks. In the event of liquidation, shareholders of each class are entitled to share pro rata in the net assets of the Fund available for distribution to these shareholders. Shares entitle their holders to one vote per share, are freely transferable and have no preemptive, subscription or conversion rights. When issued, shares are fully paid and non-assessable, except as set forth below. Unless otherwise required by the Investment Company Act or the Declaration of Trust, the Fund has no intention of holding annual meetings of shareholders. Fund shareholders may remove a Trustee by the affirmative vote of at least two-thirds of the Trust's outstanding shares and the Trustees shall promptly call a meeting for such purpose when requested to do so in writing by the record holders of not less than 10% of the outstanding shares of the Trust. Shareholders may, under certain circumstances, communicate with other shareholders in connection with a request for a special meeting of shareholders. However, at any time that less than a majority of the Trustees holding office were elected by the shareholders, the Trustees will call a special meeting of shareholders for the purpose of electing Trustees. Under Massachusetts law, shareholders of a Massachusetts business trust could, under certain circumstances, be held personally liable for acts or obligations of the Trust. However, the Declaration of Trust contains an express disclaimer of shareholder liability for acts, obligations and affairs of the Fund. The Declaration of Trust also provides for indemnification out of the Fund's assets for all losses and expenses of any shareholder held personally liable by reason of being or having been a shareholder. The Declaration of Trust also provides that no series of the Trust shall be liable for the liabilities of any other series. Furthermore, no fund included in this Fund's prospectus shall be liable for the liabilities of any other John Hancock Funds. Liability is therefore limited to circumstances in which the Fund itself would be unable to meet its obligations, and the possibility of this occurrence is remote. The Fund reserves the right to reject any application which conflicts with the Fund's internal policies or the policies of any regulatory authority. John Hancock Funds does not accept starter, credit card or third party checks. All checks returned by the post office as undeliverable will be reinvested at net asset value in the fund or funds from which a redemption was made or dividend paid. Information provided on the account application may be used by the Fund to verify the accuracy of the information or for background or financial history purposes. A joint account will be administered as a joint tenancy with right of survivorship, unless the joint owners notify Signature Services of a different intent. A shareholder's account is governed by the laws of The Commonwealth of Massachusetts. For telephone transactions, the transfer agent will take measures to verify the identity of the caller, such as asking for name, account number, Social Security or other taxpayer ID number and other relevant information. If appropriate measures are taken, the transfer agent is not responsible for any losses that may occur to any account due to an unauthorized telephone call. Also for your protection telephone transactions are not permitted on accounts whose names or addresses have changed within the past 30 days. Proceeds from telephone transactions can only be mailed to the address of record. Selling activities for the Fund may not take place outside the U.S. except with U.S. military bases, APO addresses and U.S. diplomats. Brokers of record on Non-U.S. investors' accounts with foreign mailing addresses are required to certify that all sales activities have occurred, and in the future will occur, only in the U.S. A foreign corporation may purchase shares of the Fund only if it has a U.S. mailing address. TAX STATUS The Fund, is treated as a separate entity for accounting and tax purposes, has qualified and elected to be treated as a "regulated investment company" under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), and intends to continue to so qualify for each taxable year. As such and by 35 complying with the applicable provisions of the Code regarding the sources of its income, the timing of its distributions and the diversification of its assets, the Fund will not be subject to Federal income tax on taxable income (including net realized capital gains) distributed to shareholders in accordance with the timing requirements of the Code. The Fund will be subject to a 4% nondeductible Federal excise tax on certain amounts not distributed (and not treated as having been distributed) on a timely basis in accordance with annual minimum distribution requirements. The Fund intends under normal circumstances to seek to avoid or minimize liability for such tax by satisfying such distribution requirements. Distributions from the Fund's current or accumulated earnings and profits ("E&P") will be taxable under the Code for investors who are subject to tax. If these distributions are paid from the Fund's "investment company taxable income," they will be taxable as ordinary income; and if they are paid from the Fund's "net capital gain," they will be taxable as long-term capital gain. (Net capital gain is the excess (if any) of net long-term capital gain over net short-term capital loss, and investment company taxable income is all taxable income and capital gains, other than those gains and losses included in computing net capital gain, after reduction by deductible expenses.). Some distributions may be paid in January but may be taxable to shareholders as if they had been received on December 31 of the previous year. The tax treatment described above will apply without regard to whether distributions are received in cash or reinvested in additional shares of the Fund. Distributions, if any, in excess of E&P will constitute a return of capital under the Code, which will first reduce an investor's federal tax basis in Fund shares and then, to the extent such basis is exceeded, will generally give rise to capital gains. Shareholders who have chosen automatic reinvestment of their distributions will have a federal tax basis in each share received pursuant to such a reinvestment equal to the amount of cash they would have received had they elected to receive the distribution in cash, divided by the number of shares received in the reinvestment. The amount of net realized capital gains, if any, in any given year will result from sales of securities made with a view to the maintenance of a portfolio believed by the Fund's management to be most likely to attain the Fund's objective. Such sales, and any resulting gains or losses, may therefore vary considerably from year to year. At the time of an investor's purchase of shares of the Fund, a portion of the purchase price is often attributable to realized or unrealized appreciation in the Fund's portfolio. Consequently, subsequent distributions on these shares from such appreciation or income may be taxable to such investor even if the net asset value of the investor's shares is, as a result of the distributions, reduced below the investor's cost for such shares and the distributions in reality represent a return of a portion of the purchase price. If the Fund invests in stock (including an option to acquire stock as is inherent in a convertible bond) of certain foreign corporations that receive at least 75% of their annual gross income from passive sources (such as interest, dividends certain rents and royalties or capital gain) or hold at least 50% of their assets in investments producing such passive income ("passive foreign investment companies"), the Fund could be subject to federal income tax and additional interest charges on "excess distributions" received from such companies or gain from the sale of stock in such companies, even if all income or gain actually received by the Fund is timely distributed to its shareholders. These investments could also result in the treatment of associated capital gains as ordinary income. The Fund would not be able to pass through to its shareholders any credit or deduction for such a tax. An election may be available to ameliorate these adverse tax consequences, but could require the Fund to recognize taxable income or gain without the concurrent receipt of cash. The Fund may limit and/or manage its holdings in passive foreign investment companies or make an available election to minimize its tax liability or maximize its return from these investments. 36 The Fund may be subject to foreign taxes on its income from investments in certain foreign securities, if any. Some tax conventions between certain countries and the U.S. may reduce or eliminate such taxes. Because more than 50% of the Fund's assets at the close of any taxable year will generally not consist of stocks or securities of foreign corporations, the Fund will generally be unable to pass such taxes through to shareholders, who will therefore generally not be entitled to any foreign tax credit or deduction with respect to their investment in the Fund. The Fund will deduct the foreign taxes it pays in determining the amount it has available for distribution to shareholders. Foreign exchange gains and losses realized by the Fund in connection with certain transactions involving foreign currency-denominated debt securities, foreign currencies, or payable or receivables denominated in foreign currency are subject to Section 988 of the Code, which generally causes such gains and losses to be treated as ordinary income and losses and may affect the amount, timing and character of distributions to shareholders. Certain of these transactions may cause the Fund to recognize gains or losses from marking to market even though its positions have not been sold or terminated and affect the character as long-term or short-term and timing of some capital gains and losses realized by the Fund. Additionally, certain of the Fund's losses on its transactions involving options and any offsetting or successor portfolio positions may be deferred rather than being taking into account currently in calculating the Fund's taxable income or gains. Certain of such transactions may also cause the Fund to dispose of investments sooner than would otherwise have occurred. These transactions may therefore affect the amount, timing and character of the Fund's distributions to shareholders. The Fund will take into account the special tax rules (including consideration of available elections) applicable to options in order to minimize any potential adverse tax consequences. Upon a redemption of shares of the Fund (including by exercise of the exchange privilege) in a transaction that is treated as a sale for tax purposes, a shareholder will ordinarily realize a taxable gain or loss depending upon the amount of the proceeds and the investor's basis in his shares. Such gain or loss will be treated as capital gain or loss if the shares are capital assets in the shareholder's hands and will be long-term or short-term, depending upon the shareholder's tax holding period for the shares and subject to the special rules described below. A sales charge paid in purchasing shares of the Fund cannot be taken into account for purposes of determining gain or loss on the redemption or exchange of such shares within 90 days after their purchase to the extent shares of the Fund or another John Hancock fund are subsequently acquired without payment of a sales charge pursuant to the reinvestment or exchange privilege. This disregarded charge will result in an increase in the shareholder's tax basis in the shares subsequently acquired. Also, any loss realized on a redemption or exchange may be disallowed to the extent the shares disposed of are replaced with other shares of the Fund within a period of 61 days beginning 30 days before and ending 30 days after the shares are disposed of, such as pursuant to automatic dividend reinvestment. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. Any loss realized upon the redemption of shares with a tax holding period of six months or less will be treated as a long-term capital loss to the extent of any amounts treated as distributions of long- term capital gain with respect to such shares. Shareholders should consult their own tax advisers regarding their particular circumstances to determine whether a disposition of Fund shares is properly treated as a sale for tax purposes, as is assumed in the foregoing discussion. Although the present intention is to distribute, at least annually, all net capital gain, if any, the Fund reserves the right to retain and reinvest all or any portion of the excess, as computed for Federal income tax purposes, of net gain over net short- term capital loss in any year. The Fund will not in any event distribute net capital gain realized in any year to the extent that a capital loss is carried forward from prior years against such gain. To the extent such excess was retained and not exhausted by the carryforward of prior years' capital losses, it would be subject to Federal income tax in the hands of the Fund. Upon proper designation of this amount by the Fund, each shareholder 37 would be treated for Federal income tax purposes as if the Fund had distributed to him on the last day of its taxable year his pro rata share of such excess, and he had paid his pro rata share of the taxes paid by the Fund and reinvested the remainder in the Fund. Accordingly, each shareholder would (a) include his pro rata share of such excess as long-term capital gain in his return for his taxable year in which the last day of the Fund's taxable year falls, (b) be entitled either to a tax credit on his return for, or to a refund of, his pro rata share of the taxes paid by the Fund, and (c) be entitled to increase the adjusted tax basis for his shares in the Fund by the difference between his pro rata share of such excess and his pro rata share of these taxes. For Federal income tax purposes, the Fund is permitted to carry forward a net capital loss in any year to offset net capital gains, if any, during the eight years following the year of the loss. To the extent subsequent net capital gains are offset by such losses, they would not result in Federal income tax liability to the Fund and as noted above would not be distributed as such to shareholders. The Fund has a $89,791,390 capital loss carryforward available, to the extent provided by regulations, to offset future net realized capital gains. The entire carryforward expires on December 31, 2010. For purposes of the dividends received deduction available to corporations, dividends received by the Fund, if any, from U.S. domestic corporations in respect of the stock of such corporations held by the Fund, for U.S. Federal income tax purposes, for at least 46 days (91 days in the case of certain preferred stock) during a prescribed period extending before and after each dividend and distributed and properly designated by the Fund may be treated a qualifying dividends. Corporate shareholders must meet the minimum holding period requirement stated above (46 or 91 days) with respect to their shares of the Fund for each dividend in order to qualify for the deduction and, if they have any debt that is deemed under the Code directly attributable to such shares, may be denied a portion of the dividends received deduction. The entire qualifying dividend, including the otherwise deductible amount, will be included in determining the excess (if any) of a corporate shareholder's adjusted current earnings over its alternative minimum taxable income, which may increase its alternative minimum tax liability, if any. Additionally, any corporate shareholder should consult its tax adviser regarding the possibility that its tax basis in its shares may be reduced, for Federal income tax purposes, by reason of "extraordinary dividends" received with respect to the shares, for the purpose of computing its gain or loss on redemption or other disposition of the shares. If the Fund should have dividend income that qualifies as Qualified Dividend Income, as provided in the Jobs and Growth Tax Relief Reconciliation Act of 2003, the maximum amount allowable will be designated by the Fund. This amount will be reflected on Form 1099-DIV for the current calendar year. The Fund is required to accrue income on any debt securities that have more than a de minimus amount of original issue discount (or debt securities acquired at a market discount, if the Fund elects to include market discount in income currently) prior to the receipt of the corresponding cash payments. The mark to market rules applicable to certain options and futures contracts may also require the Fund to recognize gain within a concurrent receipt of cash. However, the Fund must distribute to shareholders for each taxable year substantially all of its net income and net capital gains, including such income or liability for any federal income or excise tax. Therefore, the Fund may have to dispose of its portfolio securities under disadvantageous circumstances to generate cash, or may have to leverage itself by borrowing the cash, to satisfy these distribution requirements. A state income (and possibly local income and/or intangible property) tax exemption is generally available to the extent (if any) the Fund's distributions are derived from interest on (or, in the case of intangible taxes, the value of its assets is attributable to) certain U.S. Government obligations, provided in some states that certain thresholds for holdings of such obligations and/or reporting requirements are satisfied. The Fund will not seek to satisfy any threshold or reporting requirements that may apply in particular taxing jurisdictions, although the Fund may in its sole discretion provide relevant information to shareholders. 38 The Fund will be required to report to the Internal Revenue Service (the "IRS") all taxable distributions to shareholders, as well as gross proceeds from the redemption or exchange of Fund shares, except in the case of certain exempt recipients, i.e., corporations and certain other investors distributions to which are exempt from the information reporting provisions of the Code. Under the backup withholding provisions of the Code, Section 3406, and applicable Treasury regulations, all such reportable distributions and proceeds may be subject to backup withholding of federal income tax in the case of non-exempt shareholders who fail to furnish the Fund with their correct taxpayer identification number and certain certifications required by the IRS or if the IRS or a broker notifies the Fund that the number furnished by the shareholder is incorrect or that the shareholder is subject to backup withholding as a result of failure to report interest or dividend income. The Fund may refuse to accept an application that does not contain any required taxpayer identification number or certification that the number provided is correct. If the backup withholding provisions are applicable, any such distributions and proceeds, whether taken in cash or reinvested in shares, will be reduced by the amounts required to be withheld. Any amounts withheld may be credited against a shareholder's U.S. federal income tax liability. Investors should consult their tax advisers about the applicability of the backup withholding provisions. Different tax treatment, including penalties on certain excess contributions and deferrals, certain pre-retirement and post-retirement distributions and certain prohibited transactions, is accorded to accounts maintained as qualified retirement plans. Shareholders should consult their tax advisers for more information. Investments in debt obligations that are at risk of or in default may present special tax issues for the Fund. Tax rules are not entirely clear about issues such as when the Fund may cease to accrue interest, original issue discount, or market discount; when and to what extent deductions may be taken for bad debts or worthless securities; how payments received on obligations in default should be allocated between principal and income; and whether exchanges of debt obligations in a workout context are taxable. These and other issues will be addressed by the Fund, in the event it invests in such securities, in order to reduce the risk of distributing insufficient income to preserve its status as a regulated investment company and seek to avoid becoming subject to Federal income or excise tax. The foregoing discussion relates solely to U.S. Federal income tax laws applicable to the U.S. persons (i.e., U.S. citizens or residents and U.S. domestic corporations, partnerships, trusts or estates) subject to tax under such law. The discussion does not address special tax rules applicable to certain types of investors, such as tax-exempt entities, insurance companies and financial institutions. Dividends, capital gain distributions, and ownership of or gains realized on the redemption (including an exchange) of shares of the Fund may also be subject to state and local taxes. The foregoing discussion related to U.S. investors that are not exempt from U.S. Federal income tax. Different tax consequences will apply to plan participants, tax-exempt investors and investors that are subject to tax deferral. You should consult your tax adviser for specific advice. Under the Code, a tax-exempt investor in the Fund will not generally recognize unrelated business taxable income from its investment in the Fund unless the tax-exempt investor incurred indebtedness to acquire or continue to hold Fund shares and such indebtedness remains unpaid. Shareholders should consult their own tax advisers as to the Federal, state or local tax consequences of ownership of shares of, and receipt of distributions from, the Fund in their particular circumstances. Non-U.S. investors not engaged in a U.S. trade or business with which their investment in the Fund is effectively connected will be subject to U.S. Federal income tax treatment that is different from that described above. These investors may be subject to non-resident alien withholding tax at the rate of 30% (or a lower rate under an applicable tax treaty) on amounts treated as 39 ordinary dividends from the Fund and, unless an effective IRS Form W-8, Form W-8BEN or other authorized withholding certificate is on file and to backup withholding on certain other payments from the Fund. Non-U.S. investors should consult their tax advisers regarding such treatment and the application of foreign taxes to an investment in the Fund. The Fund is not subject to Massachusetts corporate excise or franchise taxes. The Fund anticipates that, provided that the Fund qualifies as a regulated investment company under the Code, it will not be required to pay Massachusetts income taxes. CALCULATION OF PERFORMANCE For the 30-day period ended December 31, 2002, the annualized yields on Class A, Class B and Class C shares were 1.20%, 0.56% and 0.55%, respectively. As of December 31, 2002, the average annual total returns before taxes of Class A shares of the Fund for the one, five and ten year periods were -22.76%, -1.55% and 6.53%, respectively. As of December 31, 2002, the average annual total returns before taxes for the Fund's Class B shares for the one, five and since the commencement of operations on January 3, 1994 were -23.26%, -1.53% and 6.52%, respectively. As of December 31, 2002, the average annual total returns before taxes for the Fund's Class C shares for the one year period and since the commencement of operations on May 1, 1998 were -20.86% and -3.36%, respectively. Because Class R shares are new, there is no performance to report. Class B performance is currently disclosed in the Fund's prospectus for Class R shares. The average annual total return before taxes is computed by finding the average annual compounded rate of return over the 1-year, 5-year and 10-year periods, or the period since the commencement of operations, that would equate the initial amount invested to the ending redeemable value according to the following formula: P(1+T)n = ERV Where: P= a hypothetical initial payment of $1,000. T= average annual total return n= number of years ERV= ending redeemable value of a hypothetical $1,000 payment made at the beginning of the 1-year, 5-year or 10-year periods (or fractional portion). The Fund discloses average annual total returns after taxes for Class B shares for the one, five and 10 year periods ended December 31, 2002 in the prospectus. After tax returns are computed using the historical highest individual federal marginal income-tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. 40 The average annual total return (after taxes on distributions) is computed by finding the average annual compounded rate of return over the 1-year, 5-year and 10-year periods, or the period since the commencement of operations, that would equate the initial amount invested to the ending redeemable value according to the following formula: P(1+T)n = ATVD Where: P= a hypothetical initial payment of $1,000. T= average annual total return (after taxes on distributions) n= number of years ATVD= ending value of a hypothetical $1,000 payment made at the beginning of the 1-year, 5-year, or 10-year periods (or fractional portion) after taxes on fund distributions but not after taxes on redemption. The average annual total return (after taxes on distributions and redemption) is computed by finding the average annual compounded rate of return over the 1-year, 5-year, and 10-year periods, or the period since the commencement of operations, that would equate the initial amount invested to the ending redeemable value according to the following formula: P(1+T)n = ATVDR Where: P= a hypothetical initial payment of $1,000. T= average annual total return (after taxes on distributions and redemption) n= number of years ATVDR= ending value of a hypothetical $1,000 payment made at the beginning of the 1-year, 5-year or 10-year periods (or fractional portion), after taxes on fund distributions and redemption. Because each class has its own sales charge and fee structure, the classes have different performance results. In the case of each class, these calculations assume the maximum sales charge is included in the initial investment or the CDSC applied at the end of the period. These calculations assume that all dividends and distributions are reinvested at net asset value on the reinvestment dates during the period. The "distribution rate" is determined by annualizing the result of dividing the declared dividends of the Fund during the period stated by the maximum offering price or net asset value at the end of the period. Excluding the Fund's sales charge from the distribution rate produces a higher rate. In addition to average annual total returns, the Fund may quote unaveraged or cumulative total returns reflecting the simple change in value of an investment over a stated period. Cumulative total returns may be quoted as a percentage or as a dollar amount, and may be calculated for a single investment, a series of investments, and/or a series of redemptions, over any time period. Total returns may be quoted with or without taking the Fund's sales charge on Class A shares or the CDSC on Class B or Class C shares into account. Excluding the Fund's sales charge on Class A shares and the CDSC on Class B or Class C shares from a total return calculation produces a higher total return figure. In the case of a tax-exempt obligation issued without original issue discount and having a current market discount, the coupon rate of interest is used in lieu of the yield to maturity. Where, in the case of a tax-exempt obligation with original issue discount, the discount based on the current market value exceeds the then-remaining portion of original issue discount (market discount), the yield to maturity is the imputed rate based on the original issue discount calculation. Where, in the case of a tax-exempt obligation with original issue discount, the discount based on the current market value is less than the then-remaining portion of original issue discount (market premium), the yield to maturity is based on the market value. 41 The Fund may advertise yield, where appropriate. The Fund's yield is computed by dividing net investment income per share determined for a 30-day period by the maximum offering price per share (which includes the full sales charge) on the last day of the period, according to the following standard formula: 6 Yield = 2 ( [ ( a - b ) + 1 ] - 1 ) ------- cd Where: a = dividends and interest earned during the period. b = net expenses accrued during the period. c = the average daily number of fund shares outstanding during the period that would be entitled to receive dividends. d = the maximum offering price per share on the last day of the period (NAV where applicable). From time to time, in reports and promotional literature, the Fund's yield and total return will be compared to indices of mutual funds and bank deposit vehicles such as Lipper Analytical Services, Inc.'s "Lipper -- Fixed Income Fund Performance Analysis," a monthly publication which tracks net assets, total return, and yield on fixed income mutual funds in the United States. Ibottson and Associates, CDA Weisenberger and F.C. Towers are also used for comparison purposes, as well the Russell and Wilshire Indices. Performance rankings and ratings reported periodically in, and excerpts from, national financial publications such as MONEY Magazine, FORBES, BUSINESS WEEK, THE WALL STREET JOURNAL, MORNINGSTAR, and BARRON'S may also be utilized. The Fund's promotional and sales literature may make reference to the Fund's "beta." Beta is a reflection of the market-related risk of the Fund by showing how responsive the Fund is to the market. The performance of the Fund is not fixed or guaranteed. Performance quotations should not be considered to be representations of performance of the Fund for any period in the future. The performance of the Fund is a function of many factors including its earnings, expenses and number of outstanding shares. Fluctuating market conditions; purchases, sales and maturities of portfolio securities; sales and redemptions of shares of beneficial interest; and changes in operating expenses are all examples of items that can increase or decrease the Fund's performance. BROKERAGE ALLOCATION Decisions concerning the purchase and sale of portfolio securities and the allocation of brokerage commissions are made by the Adviser's investment and/or trading personnel. Orders for purchases and sales of securities are placed in a manner, which, in the opinion of such personnel, will offer the best price and market for the execution of each such transaction. The Fund's trading practices and investments are reviewed monthly by the Adviser's Senior Investment Policy Committee which consists of officers of the Adviser and quarterly by the Adviser's Investment Committee which consists of officers and directors of the Adviser and Trustees of the Trust who are interested persons of the Fund. 42 Purchases from underwriters of portfolio securities may include a commission or commissions paid by the issuer and transactions with dealers serving as market maker reflect a "spread." Investments in debt securities are generally traded on a "net" basis through dealers acting for their own account as principals and not as brokers; no brokerage commissions are payable on these transactions. In the U.S. Government securities market, securities are generally traded on a net basis with dealers acting as principal for their own account without a stated commission, although the price of the security usually includes a profit to the dealer. On occasion, certain money market instruments and agency securities may be purchased directly from the issuer, in which case no commissions or premiums are paid. Investments in equity securities are generally traded on exchanges or on over-the-counter markets at fixed commission rates or on a net basis. In other countries, both debt and equity securities are traded on exchanges at fixed commission rates. Commissions on foreign transactions are generally higher than the negotiated commission rates available in the U.S. There is generally less government supervision and regulation of foreign stock exchanges and broker-dealers than in the U.S. The Fund's primary policy is to execute all purchases and sales of portfolio instruments at the most favorable prices consistent with best execution, considering all of the costs of the transaction including brokerage commissions. The policy governs the selection of brokers and dealers and the market in which a transaction is executed. Consistent with the foregoing primary policy, the Conduct Rules of the National Association of Securities Dealers, Inc. and such other policies as the Trustees may determine, the Adviser may consider sales of shares of the Fund as a factor in the selection of broker-dealers to execute the Fund's portfolio transactions. To the extent consistent with the foregoing, the Fund will be governed in the selection of brokers and dealers, and the negotiation of brokerage commission rates and dealer spreads, by the reliability and quality of the services, including primarily the availability and value of research information and, to a lesser extent, statistical assistance furnished to the Adviser of the Fund. As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund may pay to a broker which provides brokerage and research services to the Fund an amount of disclosed commission in excess of the commission which another broker would have charged for effecting that transaction. This practice is subject to a good faith determination by the Trustees that such price is reasonable in light of the services provided and to such policies as the Trustees may adopt from time to time. For the fiscal year ended December 31, 2002, the Fund paid $201,275 as compensation to brokers for research services such as industry, economic and company reviews and evaluations of securities. Research services received from broker-dealers supplement the Adviser's own research (and the research of its affiliates), and may include the following types of information: statistical and background information on the U.S. and foreign economies, industry groups and individual companies; forecasts and interpretations with respect to the U.S. and foreign economies, securities, markets, specific industry groups and individual companies; information on federal, state, local and foreign political developments; portfolio management strategies; performance information on securities, indexes and investment accounts; and information concerning prices and ratings of securities. Broker-dealers may communicate such information electronically, orally, in written form or on computer software. Research services may also include the providing of electronic communication of trade information and the providing of custody services, as well as the providing of equipment used to communicate research information, the providing of specialized consultations with the Adviser's personnel with respect to computerized systems and data furnished as a component of other research services, the arranging of meetings with management of companies, and the providing of access to consultants who supply research information. The outside research assistance is useful to the Adviser since the broker-dealers used by the Adviser tend to follow a broader universe of securities and other matters than the Adviser's staff can follow. In addition, the research provides the Adviser with a diverse perspective on financial markets. Research services provided to the Adviser by broker-dealers are available for the benefit of all accounts managed or advised by the Adviser or by its affiliates. Some broker-dealers may indicate that the provision of 43 research services is dependent upon the generation of certain specified levels of commissions and underwriting concessions by the Adviser's clients, including the Fund. However, the Fund is not under any obligation to deal with any broker-dealer in the execution of transactions in portfolio securities. In some cases, the research services are available only from the broker-dealer providing them. In other cases, the research services may be obtainable from alternative sources in return for cash payments. The Adviser believes that the research services are beneficial in supplementing the Adviser's research and analysis and that they improve the quality of the Adviser's investment advice. It is not possible to place a dollar value on information and services to be received from brokers and dealers, since it is only supplementary to the research efforts of the Adviser. The advisory fee paid by the Fund is not reduced because the Adviser receives such services. The receipt of research information is not expected to reduce significantly the expenses of the Adviser. However, to the extent that the Adviser would have purchased research services had they not been provided by broker-dealers, the expenses to the Adviser could be considered to have been reduced accordingly. The research information and statistical assistance furnished by brokers and dealers may benefit the Life Company or other advisory clients of the Adviser, and conversely, brokerage commissions and spreads paid by other advisory clients of the Adviser may result in research information and statistical assistance beneficial to the Fund. The Fund will make no commitment to allocate portfolio transactions upon any prescribed basis. While the Adviser will be primarily responsible for its allocation of the Fund's brokerage business, the policies and practices of the Adviser in this regard must be consistent with the foregoing and at all times be subject to review by the Trustees. For the fiscal years ended Deember 31, 2000, 2001 and 2002, the Fund paid negotiated brokerage commissions of $2,192,992, $1,808,600 and $1,586,271, respectively. The Adviser may determine target levels of commission business with various brokers on behalf of its clients (including the Fund) over a certain time period. The target levels will be based upon the following factors, among others: (1) the execution services provided by the broker; (2) the research services provided by the broker; and (3) the broker's interest in mutual funds in general and in the Fund and other mutual funds advised by the Adviser in particular, including sales of the Fund. In connection with (3) above, the Fund's trades may be executed directly by dealers that sell shares of the John Hancock funds or by other broker-dealers with which such dealers have clearing arrangements, consistent with obtaining best execution and the Conduct Rules of the National Association of Securities Dealers, Inc. The Adviser will not use a specific formula in connection with any of these considerations to determine the target levels. Pursuant to procedures determined by the Trustees and consistent with the above policy of obtaining best net results, the Fund may execute portfolio transactions with or through brokers affiliated with the Adviser ("Affiliated Brokers"). Affiliated Brokers may act as broker for the Fund on exchange transactions, subject, however, to the general policy of the Fund set forth above and the procedures adopted by the Trustees pursuant to the Investment Company Act. Commissions paid to an Affiliated Broker must be at least as favorable as those which the Trustees believe to be contemporaneously charged by other brokers in connection with comparable transactions involving similar securities being purchased or sold. A transaction would not be placed with an Affiliated Broker if the Fund would have to pay a commission rate less favorable than the Affiliated Broker's contemporaneous charges for comparable transactions for its other most favored, but unaffiliated, customers except for accounts for which the Affiliated Broker acts as clearing broker for another brokerage firm, and any customers of the Affiliated Broker not comparable to the Fund as determined by a majority of the Trustees who are not interested persons (as defined in the Investment Company Act) of the Fund, the Adviser, or the Affiliated Broker. Because the Adviser that is affiliated with the Affiliated Broker has, as an investment adviser to the Fund, the obligation to provide investment management services, which includes elements of research and related investment skills such research and related skills will not be used by the Affiliated Broker as a basis for negotiating commissions at a rate higher than that determined in accordance with the above criteria. 44 The Adviser's indirect parent, the Life Company, is the indirect sole shareholder of Signator Investors, Inc., a broker-dealer (until January 1, 1999, John Hancock Distributors, Inc.) ("Signator" or an "Affiliated Broker"). For the fiscal years ended October 31, 2000, 2001 and 2002, the Fund did not execute portfolio transactions with Signator. Other investment advisory clients advised by the Adviser may also invest in the same securities as the Fund. When these clients buy or sell the same securities at substantially the same time, the Adviser may average the transactions as to price and allocate the amount of available investments in a manner which the Adviser believes to be equitable to each client, including the Fund. Because of this, client accounts in a particular style may sometimes not sell or acquire securities as quickly or at the same prices as they might if each were managed and traded individually. For purchases of equity securities, when a complete order is not filled, a partial allocation will be made to each participating account pro rata based on the order size. For high demand issues (for example, initial public offerings), shares will be allocated pro rata by account size as well as on the basis of account objective, account size ( a small account's allocation may be increased to provide it with a meaningful position), and the account's other holdings. In addition, an account's allocation may be increased if that account's portfolio manager was responsible for generating the investment idea or the portfolio manager intends to buy more shares in the secondary market. For fixed income accounts, generally securities will be allocated when appropriate among accounts based on account size, except if the accounts have different objectives or if an account is too small to get a meaningful allocation. For new issues, when a complete order is not filled, a partial allocation will be made to each account pro rata based on the order size. However, if a partial allocation is too small to be meaningful, it may be reallocated based on such factors as account objectives, strategies, duration benchmarks and credit and sector exposure. For example, value funds will likely not participate in initial public offerings as frequently as growth funds. In some instances, this investment procedure may adversely affect the price paid or received by the Fund or the size of the position obtainable for it. On the other hand, to the extent permitted by law, the Adviser may aggregate securities to be sold or purchased for the Fund with those to be sold or purchased for other clients managed by it in order to obtain best execution. TRANSFER AGENT SERVICES John Hancock Signature Services, Inc., 1 John Hancock Way, Suite 1000, Boston, MA 02217-1000, a wholly owned indirect subsidiary of the Life Company, is the transfer and dividend paying agent for the Fund. The Fund pays Signature Services monthly a fee which is based on an annual rate of $16.00 for each Class A shareholder account, $18.50 for each Class B shareholder account, $17.50 for each Class C shareholder account and $20.00 for each Class R shareholder account. The Fund also pays Signature Services monthly a fee which is based on an annual rate of 0.05% of average daily net assets attributable to Class A, Class B, Class C and R shares. For Class A, B, C and R shares, the Fund also pays certain out-of pocket expenses. Expenses for Class A, B, C and R shares are aggregated and allocated to each class on the basis of their relative net asset values. CUSTODY OF PORTFOLIO Portfolio securities of the Fund are held pursuant to a custodian agreement between the Fund and The Bank of New York, One Wall Street, New York, New York 10286. Under the custodian agreement, The Bank of New York is performing custody, portfolio, Foreign Custody Manager and fund accounting services. 45 INDEPENDENT AUDITORS The independent auditors of the Fund are Deloitte & Touche LLP, 200 Berkeley Street, Boston, Massachusetts 02116. Deloitte & Touche LLP will audit and render an opinion on the Fund's annual financial statements and review the Fund's annual Federal income tax returns. Until December 31, 2002, the independent auditors of the Fund were Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts 02116. The financial statements of the Fund, incorporated by reference in the Prospectus and this Statement of Additional Information, have been audited by Ernst & Young LLP for the periods indicated in their report with respect to those financial statements and are included in reliance upon the authority of Ernst & Young, LLP as experts in accounting and auditing. 46 APPENDIX-A MORE ABOUT RISK A fund's risk profile is largely defined by the fund's principal securities and investment practices. You may find the most concise description of the fund's risk profile in the prospectus. A fund is permitted to utilize -- within limits established by the trustees -- certain other securities and investment practices that have higher risks and opportunities associated with them. To the extent that the fund utilizes these securities or practices, its overall performance may be affected, either positively or negatively. On the following pages are brief definitions of certain associated risks with them, with examples of related securities and investment practices included in brackets. See the "Investment Objectives and Policies" and "Investment Restrictions" sections of this Statement of Additional Information for a description of this Fund's investment policies. The fund follows certain policies that may reduce these risks. As with any mutual fund, there is no guarantee that the fund will earn income or show a positive total return over any period of time -- days, months or years. TYPES OF INVESTMENT RISK Correlation risk The risk that changes in the value of a hedging instrument will not match those of the asset being hedged (hedging is the use of one investment to offset the effects of another investment). (e.g. short sales, financial futures and options; securities and index options, currency contracts). Credit risk The risk that the issuer of a security, or the counterparty to a contract, will default or otherwise become unable to honor a financial obligation. (e.g. Borrowing; reverse repurchase agreements, repurchase agreements, securities lending, non-investment-grade debt securities, financial futures and options; securities and index options). Currency risk The risk that fluctuations in the exchange rates between the U.S. dollar and foreign currencies may negatively affect an investment. (e.g. Foreign securities, financial futures and options; securities and index options, currency contracts). Extension risk The risk that an unexpected rise in interest rates will extend the life of a mortgage-backed security beyond the expected prepayment time, typically reducing the security's value. Information risk The risk that key information about a security or market is inaccurate or unavailable. (e.g. non-investment-grade debt securities, foreign securities). Interest rate risk The risk of market losses attributable to changes in interest rates. With fixed-rate securities, a rise in interest rates typically causes a fall in values, while a fall in rates typically causes a rise in values. (e.g. Non investment-grade debt securities, financial futures and options; securities and index options). Leverage risk Associated with securities or practices (such as borrowing) that multiply small index or market movements into large changes in value. (e.g. Borrowing; reverse repurchase agreements, short-sales, when-issued securities and forward commitments; financial futures and options; securities and index options, currency contracts). A-1 o Hedged When a derivative (a security whose value is based on another security or index) is used as a hedge against an opposite position that the fund also holds, any loss generated by the derivative should be substantially offset by gains on the hedged investment, and vice versa. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. o Speculative To the extent that a derivative is not used as a hedge, the fund is directly exposed to the risks of that derivative. Gains or losses from speculative positions in a derivative may be substantially greater than the derivative's original cost. Liquidity risk The risk that certain securities may be difficult or impossible to sell at the time and the price that the seller would like. (e.g. short sales, non-investment-grade debt securities; restricted and illiquid securities, financial futures and options; securities and index options, currency contracts). Management risk The risk that a strategy used by a fund's management may fail to produce the intended result. Common to all mutual funds. Market risk The risk that the market value of a security may move up and down, sometimes rapidly and unpredictably. Common to all stocks and bonds and the mutual funds that invest in them. (e.g. Short sales, short-term trading, when-issued securities and forward commitments, non-investment-grade securities, foreign securities, financial futures and options; securities and index options, restricted and illiquid securities). Natural event risk The risk of losses attributable to natural disasters, crop failures and similar events. (e.g. Foreign securities). Opportunity risk The risk of missing out on an investment opportunity because the assets necessary to take advantage of it are tied up in less advantageous investments. (e.g. Short sales, when -issued securities and forward commitments, financial futures and options; securities and index options, currency contracts). Political risk The risk of losses directly attributable to government or political actions of any sort. (e.g. Foreign securities) Prepayment risk The risk that unanticipated prepayments may occur during periods of falling interest rates, reducing the value of mortgage-backed securities. Valuation risk The risk that a fund has valued certain of its securities at a higher price than it can sell them for. (e.g. Non-investment-grade debt securities, restricted and illiquid securities). A-2 APPENDIX B Moody's describes its lower ratings for corporate bonds as follows: Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterized bonds in this class. Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Bonds which are rated Ca represented obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Standard & Poor's describes its lower ratings for corporate bonds as follows: Debt rated 'BBB' is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. Debt rated 'BB,' 'B,' 'CCC,' or 'CC' is regarded, on balance, as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligations. 'BB' indicates the lowest degree of speculation and 'CC' the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. Moody's describes its three highest ratings for commercial paper as follows: Issuers rated P-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. P-1 repayment capacity will normally be evidenced by the following characteristics: (1) leading market positions in well- established industries; (2) high rates of return on funds employed; (3) conservative capitalization structures with moderate reliance on debt and ample asset protections; (4) broad margins in earnings coverage of fixed financial charges and high internal cash generation; and (5) well established access to a range of financial markets and assured sources of alternate liquidity. Issuers rated P-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. B-1 Issuers rated P-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. Standard & Poor's describes its lower ratings for corporate bonds as follows: BBB Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. BB, B, CCC, CC, C Debt rated 'BB', 'B', 'CCC', 'CC" and 'C' is regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. 'BB' indicates the lowest degree of speculation and 'C' the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. BB Debt rated 'BB' has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The 'BB' rating category is also used for debt subordinated to senior debt that is assigned an actual or implied 'BBB-' rating. B Debt rated 'B' has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The 'B' rating category is also used for debt subordinated to senior debt that is assigned an actual or implied 'BB' or 'BB-' rating. CCC Debt rated 'CCC' has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The 'CCC' rating category is also used for debt subordinated to senior debt that is assigned an actual or implied 'B' or 'B-' rating. CC The rating 'CC' is typically applied to debt subordinated to senior debt that is assigned an actual or implied 'CCC' rating. C The rating 'C' is typically applied to debt subordinated to senior debt which is assigned an actual or implied 'CCC-' debt rating. The 'C' rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued. Standard & Poor's describes its three highest ratings for commercial paper as follows: A-1. This designation indicated that the degree of safety regarding timely payment is very strong. B-2 A-2. Capacity for timely payment on issues with this designation is strong. However, the relative degree of safety is not as overwhelming as for issues designated A-1. A-3. Issues carrying this designation have a satisfactory capacity for timely payment. They are, however, somewhat more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations. Issuers rated P-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Issuers rated P-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. B-3 APPENDIX C John Hancock Advisers, LLC Sovereign Asset Management Corporation Proxy Voting Summary We believe in placing our clients' interests first. Before we invest in a particular stock or bond, our team of portfolio managers and research analysts look closely at the company by examining its earnings history, its management team and its place in the market. Once we invest, we monitor all our clients' holdings, to ensure that they maintain their potential to produce results for investors. As part of our active investment management strategy, we keep a close eye on each company we invest in. Routinely, companies issue proxies by which they ask investors like us to vote for or against a change, such as a new management team, a new business procedure or an acquisition. We base our decisions on how to vote these proxies with the goal of maximizing the value of our clients' investments. Currently, John Hancock Advisers, LLC ("JHA") and Sovereign Asset Management Corporation ("Sovereign") manage open-end funds, closed-end funds and portfolios for institutions and high-net-worth investors. Occasionally, we utilize the expertise of an outside asset manager by means of a subadvisory agreement. In all cases, JHA or Sovereign makes the final decision as to how to vote our clients' proxies. There is one exception, however, and that pertains to our international accounts. The investment management team for international investments votes the proxies for the accounts they manage. Unless voting is specifically retained by the named fiduciary of the client, JHA and Sovereign will vote proxies for ERISA clients. In order to ensure a consistent, balanced approach across all our investment teams, we have established a proxy oversight group comprised of associates from our investment, operations and legal teams. The group has developed a set of policies and procedures that detail the standards for how JHA and Sovereign vote proxies. The guidelines of JHA have been approved and adopted by each fund client's board of trustees who have voted to delegate proxy voting authority to their investment adviser, JHA. JHA and Sovereign's other clients have granted us the authority to vote proxies in our advisory contracts or comparable documents. JHA and Sovereign have hired a third party proxy voting service which has been instructed to vote all proxies in accordance with our established guidelines except as otherwise instructed. In evaluating proxy issues, our proxy oversight group may consider information from many sources, including the portfolio manager, management of a company presenting a proposal, shareholder groups, and independent proxy research services. Proxies for securities on loan through securities lending programs will generally not be voted, however a decision may be made to recall a security for voting purposes if the issue is material. Below are the guidelines we adhere to when voting proxies. Please keep in mind that these are purely guidelines. Our actual votes will be driven by the particular circumstances of each proxy. From time to time votes may ultimately be cast on a case-by-case basis, taking into consideration relevant facts and circumstances at the time of the vote. Decisions on these matters (case-by-case, abstention, recall) will normally be made by a portfolio manager under the supervision of the chief investment officer and the proxy oversight group. We may abstain from voting a proxy if we conclude that the effect on our clients' economic interests or the value of the portfolio holding is indeterminable or insignificant. C-1 Proxy Voting Guidelines Board of Directors We believe good corporate governance evolves from an independent board. We support the election of uncontested director nominees, but will withhold our vote for any nominee attending less than 75% of the board and committee meetings during the previous fiscal year. Contested elections will be considered on a case by case basis by the proxy oversight group, taking into account the nominee's qualifications. We will support management's ability to set the size of the board of directors and to fill vacancies without shareholder approval but will not support a board that has fewer than 3 directors or allows for the removal of a director without cause. We will support declassification of a board and block efforts to adopt a classified board structure. This structure typically divides the board into classes with each class serving a staggered term. In addition, we support proposals for board indemnification and limitation of director liability, as long as they are consistent with corporate law and shareholders' interests. We believe that this is necessary to attract qualified board members. Selection of Auditors We believe an independent audit committee can best determine an auditor's qualifications. We will vote for management proposals to ratify the board's selection of auditors, and for proposals to increase the independence of audit committees. Capitalization We will vote for a proposal to increase or decrease authorized common or preferred stock and the issuance of common stock, but will vote against a proposal to issue or convert preferred or multiple classes of stock if the board has unlimited rights to set the terms and conditions of the shares, or if the shares have voting rights inferior or superior to those of other shareholders. In addition, we will support a management proposal to: create or restore preemptive rights; approve a stock repurchase program; approve a stock split or reverse stock split; and, approve the issuance or exercise of stock warrants Acquisitions, mergers and corporate restructuring Proposals to merge with or acquire another company will be voted on a case-by-case basis, as will proposals for recapitalization, restructuring, leveraged buyout, sale of assets, bankruptcy or liquidation. We will vote against a reincorporation proposal if it would reduce shareholder rights. We will vote against a management proposal to ratify or adopt a poison pill or to establish a supermajority voting provision to approve a merger or other business combination. We would however support a management proposal to opt out of a state takeover statutory provision, to spin-off certain operations or divisions and to establish a fair price provision. C-2 Corporate Structure and Shareholder Rights In general, we support proposals that foster good corporate governance procedures and that provide shareholders with voting power equal to their equity interest in the company. To preserve shareholder rights, we will vote against a management proposal to restrict shareholders' right to: call a special meeting and to eliminate a shareholders' right to act by written consent. In addition, we will not support a management proposal to adopt a supermajority vote requirement to change certain by-law or charter provisions or a non-technical amendment to by-laws or a charter that reduces shareholder rights. Equity-based compensation Equity-based compensation is designed to attract, retain and motivate talented executives and independent directors, but should not be so significant as to materially dilute shareholders' interests. We will vote against the adoption or amendment of a stock option plan if the: o plan dilution is more than 10% of outstanding common stock, o plan allows for non-qualified options to be priced at less than 85% of the fair market value on the grant date, o company allows or has allowed the re-pricing or replacement of underwater options in the past fiscal year (or the exchange of underwater options). With respect to the adoption or amendment of employee stock purchase plans or a stock award plan, we will vote against management if: o the plan allows stock to be purchased at less than 85% of fair market value; o this plan dilutes outstanding common equity greater than 10% o all stock purchase plans, including the proposed plan, exceed 15% of outstanding common equity. Other Business For routine business matters which are the subject of many proxy related questions, we will vote with management proposals to: o change the company name; o approve other business; o adjourn meetings; o make technical amendments to the by-laws or charters; o approve financial statements; o approve an employment agreement or contract. Shareholder Proposals Shareholders are permitted per SEC regulations to submit proposals for inclusion in a company's proxy statement. We will generally vote against shareholder proposals and in accordance with the recommendation of management except as follows where we will vote for proposals: C-3 o calling for shareholder ratification of auditors; o calling for auditors to attend annual meetings; o seeking to increase board independence; o requiring minimum stock ownership by directors; o seeking to create a nominating committee or to increase the independence of the nominating committee; o seeking to increase the independence of the audit committee. Corporate and social policy issues We believe that "ordinary business matters" are primarily the responsibility of management and should be approved solely by the corporation's board of directors. Proposals in this category, initiated primarily by shareholders, typically request that the company disclose or amend certain business practices. We generally vote against business practice proposals and abstain on social policy issues, though we may make exceptions in certain instances where we believe a proposal has substantial economic implications. C-4 John Hancock Advisers, LLC Sovereign Asset Management Corporation Proxy Voting Procedures The role of the proxy voting service John Hancock Advisers, LLC ("JHA") and Sovereign Asset Management Corporation ("Sovereign") have hired a proxy voting service to assist with the voting of client proxies. The proxy service coordinates with client custodians to ensure that proxies are received for securities held in client accounts and acted on in a timely manner. The proxy service votes all proxies received in accordance with the proxy voting guidelines established and adopted by JHA and Sovereign. When it is unclear how to apply a particular proxy voting guideline or when a particular proposal is not covered by the guidelines, the proxy voting service will contact the proxy oversight group coordinator for a resolution. The role of the proxy oversight group and coordinator The coordinator will interact directly with the proxy voting service to resolve any issues the proxy voting service brings to the attention of JHA or Sovereign. When a question arises regarding how a proxy should be voted the coordinator contacts the firm's investment professionals and the proxy oversight group for a resolution. In addition the coordinator ensures that the proxy voting service receives responses in a timely manner. Also, the coordinator is responsible for identifying whether, when a voting issue arises, there is a potential conflict of interest situation and then escalating the issue to the firm's Executive Committee. For securities out on loan as part of a securities lending program, if a decision is made to vote a proxy, the coordinator will manage the return/recall of the securities so the proxy can be voted. The role of mutual fund trustees The boards of trustees of our mutual fund clients have reviewed and adopted the proxy voting guidelines of the funds' investment adviser, JHA. The trustees will periodically review the proxy voting guidelines and suggest changes they deem advisable. Conflicts of interest Conflicts of interest are resolved in the best interest of clients. With respect to potential conflicts of interest, proxies will be voted in accordance with JHA's or Sovereign's predetermined policies. If application of the predetermined policy is unclear or does not address a particular proposal, a special internal review by the JHA Executive Committee or Sovereign Executive Committee will determine the vote. After voting, a report will be made to the client (in the case of an investment company, to the fund's board of trustees), if requested. An example of a conflict of interest created with respect to a proxy solicitation is when JHA or Sovereign must vote the proxies of companies that they provide investment advice to or are currently seeking to provide investment advice to, such as to pension plans. C-5 FINANCIAL STATEMENTS The financial statements listed below are included in the Fund's 2002 Annual Report to Shareholders for the year ended December 31, 2002; (filed electronically on February 24, 2003, accession number 0000928816-03-000128) and are included in and incorporated by reference into Part B of the Registration Statement for John Hancock Sovereign Investors Fund (file nos. 811-0560 and 2-10156). John Hancock Investment Trust John Hancock Sovereign Investors Fund Statement of Assets and Liabilities as of December 31, 2002. Statement of Operations for the year ended December 31, 2002. Statement of Changes in Net Assets for each of the two years in the period ended December 31, 2002. Notes to Financial Statements. Financial Highlights for each of the five years in the period ended December 31, 2002. Schedule of Investments as of December 31, 2002. Report of Independent Auditors. F-1 JOHN HANCOCK SOVEREIGN INVESTORS FUND Class I Shares Statement of Additional Information March 1, 2003 This Statement of Additional Information provides information about John Hancock Sovereign Investors Fund (the "Fund") in addition to the information in the Fund's current Prospectus for Class I shares (the "Prospectus"). The Fund is a diversified series of John Hancock Investment Trust (the "Trust"). This Statement of Additional Information is not a prospectus. It should be read in conjunction with the Prospectus. This Statement of Additional Information incorporates by reference the Fund's Annual Report. A copy of the Prospectus or Annual Report can be obtained free of charge by writing or telephoning: John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1001 Boston, Massachusetts 02217-1001 1-(888)-972-8696 TABLE OF CONTENTS Page Organization of the Fund 2 Investment Objective and Policies 2 Investment Restrictions 8 Those Responsible for Management 11 Investment Advisory and Other Services 18 Distribution Contracts 21 Sales Compensation 21 Net Asset Value 21 Special Redemptions 22 Additional Services and Programs 22 Purchase and Redemptions through Third Parties 23 Description of the Fund's Shares 23 Tax Status 24 Calculation of Performance 28 Brokerage Allocation 31 Transfer Agent Services 33 Custody of Portfolio 34 Independent Auditors 34 Appendix A - Description of Investment Risk A-1 Appendix B - Description of Bond Ratings B-1 Financial Statements F-1 1 ORGANIZATION OF THE FUND The Fund is a series of the Trust, an open-end investment management company organized as a Massachusetts business trust under the laws of The Commonwealth of Massachusetts. John Hancock Advisers, LLC (prior to February 1, 2002, John Hancock Advisers, Inc. ) (the "Adviser") is the Fund's investment adviser. The Adviser is an indirect, wholly-owned subsidiary of John Hancock Life Insurance Company (formerly John Hancock Mutual Life Insurance Company)(the "Life Company"), a Massachusetts life insurance company chartered in 1862, with national headquarters at John Hancock Place, Boston, Massachusetts. The Life Company is wholly owned by John Hancock Financial Services, Inc., a Delaware corporation organized in February, 2000. INVESTMENT OBJECTIVE AND POLICIES The following information supplements the discussion of the Fund's investment objective and policies discussed in the Prospectus. Appendix A contains further information describing investment risks. The investment objective of the Fund is fundamental and may only be changed with shareholder approval. There is no assurance that the Fund will achieve its investment objective. The Fund's investment objective is to provide long-term growth of capital and of income without assuming undue market risks. At times, however, because of market conditions, the Fund may invest primarily for current income. The Fund will make investments in different types and classes of securities in accordance with the Trustees' and the Adviser's appraisal of economic and market conditions. The Fund's portfolio securities are selected mainly for their investment character based upon generally accepted elements of intrinsic value, including industry position, management, financial strength, earning power, marketability and prospects for future growth. The distribution or mix of various types of investments is based on general market conditions, the level of interest rates, business and economic conditions, and the availability of investments in the equity and fixed income markets. The amount of the Fund's assets that may be invested in either equity or fixed income securities is not restricted and is based upon management's judgment of what might best achieve the Fund's investment objectives. The Fund normally invest at least 80% of stocks in a diversified portfolio of companies with market capitalizations within the range of the Standard & Poor's 500 Stock Index. The securities held by the Fund are under continuous study by the Adviser. They are selected because they are considered by the management to contribute to the possible achievement of the Fund's objective. They are held or disposed of in accordance with the results of a continuing examination of their merit. The Fund currently uses a strategy of investing at least 65% of stock investments in companies which have a record of having increased their dividend payout in each of the preceding ten or more years. This dividend performers strategy can be changed at any time. By investing primarily in these companies, the portfolio management team focuses on investments with characteristics such as: a strong management team that has demonstrated leadership through changing market cycles; financial soundness as evidenced by consistently rising dividends and profits, strong cash flows, high return on equity and a balance sheet showing little debt; and strong brand recognition and market acceptance, backed by proven products and a well-established, often global, distribution network. Subject to the Fund's policy of investing primarily in common stocks, the Fund may invest without limit in investment grade debt securities or investment grade preferred stocks (equivalent to the top four bond rating categories of an NRSRO). For temporary defensive purposes, the Fund may invest some or all of its assets in investment grade short-term securities. 2 The investment policy of the Fund is to purchase and hold securities for capital appreciation and investment income, although there may be a limited number of short- term transactions incidental to the pursuit of its investment objective. The Fund may make portfolio purchases and sales to the extent that in its Board's opinion, relying on the Adviser or independently, such transactions are in the interest of shareholders. The Fund endeavors to achieve its objective by utilizing experienced management and generally investing in securities of seasoned companies in sound financial condition. The Fund has not purchased securities of real estate investment trusts and has no present intention of doing so in the future. The Fund may not invest more than 5% of its total assets at time of purchase in any one security (other than U.S. Government Securities). Under normal conditions the Fund may not invest more than 10% of total assets in cash and/or cash equivalents (except cash segregated in relation to futures, forward and option contracts). Diversification. The Fund's investments are diversified in a broad list of issues, representing many different industries. Although diversification does not eliminate market risk, it may tend to reduce it. At the same time, holdings of a large number of shares in any one company are avoided. Thus, during periods when general economic and political conditions are subject to rapid changes, it may be appropriate to effect rapid changes in the Fund's investments. This can be more readily accomplished by limiting the amount of any one investment. As is common to all securities investments, the stock of this managed diversified Fund is subject to fluctuation in value; its portfolio will not necessarily prove a defense in periods of declining prices or lead the advance in rising markets. The Fund's management will endeavor to reduce the risks encountered in the use of any single investment by investing the assets of the Fund in a widely diversified group of securities. Diversification, however, will not necessarily reduce inherent market risks. Securities are selected mainly for their investment character, based upon generally accepted elements of intrinsic value including industry position, management, financial strength, earning power, ready marketability and prospects for future growth. Concentration. The Fund's policy is not to concentrate its investments in any one industry, but investments of up to 25% of its total assets at market value may be made in a single industry. This limitation may not be changed without the affirmative vote of a majority of the Fund's outstanding voting securities, as defined in the Investment Company Act of 1940, as amended (the "Investment Company Act"). Ratings as Investment Criteria. In general, the ratings of Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Ratings Group ("S&P") represent the opinions of these agencies as to the quality of the securities which they rate. It should be emphasized however, that ratings are relative and subjective and are not absolute standards of quality. These ratings will be used by the Funds as initial criteria for the selection of portfolio securities. Among the factors which will be considered are the long-term ability of the issuer to pay principal and interest and general economic trends. Appendix B contains further information concerning the rating of Moody's and S&P and their significance. Subsequent to its purchase by the Fund, an issue of securities may cease to be rated or its rating may be reduced below the minimum required for purchase by the Fund. Neither of these events will require the sale of the securities by the Fund. Lower Rated High-Yield "High Risk" Debt Obligations. The Fund may invest up to 5% of its net assets in debt securities rated as low as C by Moody's or S&P and unrated securities deemed of equivalent quality by the Adviser. These securities are speculative to a high degree and often have very poor prospects of attaining real investment standing. Lower rated securities are generally referred to as junk 3 bonds. See the Appendix attached to this Statement of Additional Information which describes the characteristics of the securities in the various rating categories. Securities rated lower than Baa by Moody's or BBB by Standard & Poor's are sometimes referred to as junk bonds. See the Appendix attached to this Statement of Additional Information which describes the characteristics of the securities in the various ratings categories. The Fund is not obligated to dispose of securities whose issuers subsequently are in default or which are downgraded below the above-stated ratings. The credit ratings of Moody's and Standard & Poor's in a timely fashion to reflect subsequent economic events. The credit ratings of securities do not reflect an evaluation of market risk. Debt obligations rated in the lower ratings categories, or which are unrated, involve greater volatility of price and risk of loss of principal and income. In addition, lower ratings reflect a greater possibility of an adverse change in financial condition affecting the issuer's ability to make payments of interest and principal. The market price and liquidity of lower rated fixed income securities generally respond more to short-term corporate and market developments than do those of higher rated securities, because these developments are perceived to have a more direct relationship to the ability of an issuer of lower rated securities to meet its ongoing debt obligations. The Adviser seeks to minimize these risks through diversification, investment analysis and attention to current developments in interest rates and economic conditions. Reduced volume and liquidity in the high yield high risk bond market, or the reduced availability of market quotations, will make it more difficult to dispose of the bonds and to value accurately the Fund's assets. The reduced availability of reliable, objective data may increase the Fund's reliance on management's judgment in valuing high yield high risk bonds. In addition, the Fund's investments in high yield high risk securities may be susceptible to adverse publicity and investor perceptions, whether or not justified by fundamental factors. The Fund's investment, and consequently its net asset value, will be subject to the market fluctuations and risk inherent in all securities. Increasing rate note securities are typically refinanced by the issuers within a short period of time. The market value of debt securities which carry no equity participation usually reflects yields generally available on securities of similar quality and type. When such yields decline, the market value of a portfolio already invested at higher yields can be expected to rise if such securities are protected against early call. In general, in selecting securities for its portfolio, the Fund intends to seek protection against early call. Similarly, when such yields increase, the market value of a portfolio already invested at lower yields can be expected to decline. The Fund's portfolio may include debt securities which sell at substantial discounts from par. These securities are low coupon bonds which, during periods of high interest rates, because of their lower acquisition cost tend to sell on a yield basis approximating current interest rates. Options and Futures. The Fund may not invest in futures contracts or sell call or put options. The Fund has authority to purchase put and call options. Options on Securities Indices. The Fund may purchase call and put options on any securities index based on securities in which it may invest. These options may be listed on national domestic securities exchanges or foreign securities exchanges or traded in the over-the-counter market. The Fund may purchase put and call options for any non-speculative purpose. These include using options as a substitute for the purchase or sale of securities or to protect against declines in the value of portfolio securities and against increases in the cost of securities to be acquired. Purchasing Options. The Fund would normally purchase index call options in anticipation of an increase, or index put options in anticipation of a decrease ("protective puts") in the market value of securities of the type in which it may invest. The Fund may also sell call and put options to close out its purchased options. 4 The purchase of an index call option would entitle the Fund, in return for the premium paid, to receive a cash payment reflecting any increase in the index above a specified level upon exercising the option during the option period. The Fund would ordinarily realize a gain on the purchase of a call option if the amount of this cash payment exceeded the premium paid and transaction costs; otherwise the Fund would realized either no gain or a loss on the purchase of the call option. The purchase of an index put option would entitle the Fund, in exchange for the premium paid, to receive a cash payment reflecting any decrease in the index below a specified level upon exercising the option during the option period. The purchase of protective puts is designed to offset or hedge against a decline in the market value of the Fund's portfolio securities. The Fund would ordinarily realize a gain if, during the option period, the level of the index decreased below the exercise price sufficiently to cover the premium and transaction costs; otherwise the Fund would realize either no gain or a loss on the purchase of the put option. Gains and losses on the purchase of put options may be offset by countervailing changes in the value of the Fund's portfolio securities. The Fund's options transactions will be subject to limitations established by each of the exchanges, boards of trade or other trading facilities on which such options are traded. These limitations govern the maximum number of options in each class which may be written or purchased by a single investor or group of investors acting in concert, regardless of whether the options are written or purchased on the same or different exchanges, boards of trade or other trading facilities or are held or written in one or more accounts or through one or more brokers. Thus, the number of options which the Fund may purchase may be affected by options written or purchased by other investment advisory clients of the Adviser. An exchange, board of trade or other trading facility may order the liquidation of positions found to be in excess of these limits, and it may impose certain other sanctions. Risks Associated with Options Transactions. There is no assurance that a liquid secondary market on an options exchange will exist for any particular exchange-traded option or at any particular time. If the Fund is unable to effect a closing sale transaction with respect to options it has purchased, it would have to exercise the options in order to realize any profit and will incur transaction costs upon the purchase or sale of underlying securities. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of options; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or the Options Clearing Corporation may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of options (or a particular class or series of options). If trading were discontinued, the secondary market on that exchange ( or in that class or series of options) would cease to exist. However, outstanding options on that exchange that had been issued by the Options Clearing Corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms. The Fund's ability to terminate over-the-counter options is more limited than with exchange-traded options and may involve the risk that broker-dealers participating in such transactions will not fulfill their obligations. The Adviser will determine the liquidity of each over-the-counter option in accordance with guidelines adopted by the Trustees. The purchase of options is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. The successful use of 5 options depends in part on the Adviser's ability to predict future price fluctuations and, for hedging transactions, the degree of correlation between the options and securities markets. Government Securities. Certain U.S. Government securities, including U.S. Treasury bills notes and bonds, and Government National Mortgage Association certificates ("Ginnie Maes"), are supported by the full faith and credit of the United States. Certain other U.S. Government securities issued or guaranteed by Federal agencies or government sponsored enterprises, are not supported by the full faith and credit of the United States, but may be supported by the right of the issuer to borrow from the U.S. Treasury. These securities include obligations of the Federal Home Loan Mortgage Corporation ("Freddie Macs"), and obligations supported by the credit of the instrumentality, such as Federal National Mortgage Association Bonds ("Fannie Maes"). No assurance can be given that the U.S. Government will provide financial support to such Federal agencies, authorities, instrumentalities and government sponsored enterprises in the future. Ginnie Maes, Freddie Macs, Fannie Maes and Sallie Maes are mortgage-backed securities which provide monthly payments which are, in effect, a "pass-through" of the monthly interest and principal payments (including any prepayments) made by the individual borrowers on the pooled mortgage loans. Collateralized Mortgage Obligations ("CMOs") in which the Fund may invest are securities issued by a U.S. Government instrumentality that are collateralized by a portfolio of mortgages or mortgage-backed securities. Mortgage-backed securities may be less effective than traditional debt obligations of similar maturity at maintaining yields during periods of declining interest rates. Mortgage-backed securities have stated maturities of up to thirty years when they are issued depending upon the length of the mortgages underlying the securities. In practice, however, unscheduled or early payments of principal and interest on the underlying mortgages may make the securities' effective maturity shorter than this and the prevailing interest rates may be higher or lower than the current yield of the Fund's portfolio at the time such payments are received by the Fund for reinvestment. Mortgage-backed securities may have less potential for capital appreciation than comparable fixed-income securities due to the likelihood of increased prepayments of mortgages as interest rates decline. If the Fund buys mortgage-backed securities at a premium, mortgage foreclosures and prepayments of principal by mortgagors (which may be made at any time without penalty) may result in some loss of the Fund's principal investment to the extent of the premium paid. Restricted Securities. The Fund may purchase securities that are not registered ("restricted securities") under the Securities Act of 1933 ("1933 Act"), including commercial paper issued in reliance on Section 4(2) of the 1933 act and securities offered and sold to "qualified institutional buyers" under Rule 144A under the 1933 Act. The Fund will not invest more than 15% of its net assets in illiquid investments. If the Trustees determines, based upon a continuing review of the trading markets for specific Section 4(2) paper or Rule 144A securities, that they are liquid, they will not be subject to the 15% limit on illiquid investments. The Trustees have adopt guidelines and delegate to the Advisers the daily function of determining, the monitoring and liquidity of restricted securities. The Trustees, however, will retain sufficient oversight and be ultimately responsible for the determinations. The Trustees will carefully monitor the Fund's investments in these securities, focusing on such important factors, among others, as valuation, liquidity and availability of information. This investment practice could have the effect of increasing the level of illiquidity in the Fund if qualified institutional buyers become for a time uninterested in purchasing these restricted securities. The Fund does not intend to invest more than 5% of its net assets in Rule 144A securities. Repurchase Agreements. In a repurchase agreement the Fund buys a security for a relatively short period (usually not more than 7 days) subject to the obligation to sell it back to the issuer at a fixed time and price plus accrued interest. The Fund will enter into repurchase agreements only with member banks of the Federal Reserve System and with "primary dealers" in U.S. Government securities. The Adviser will 6 continuously monitor the creditworthiness of the parties with whom the Fund enters into repurchase agreements. The Fund has established a procedure providing that the securities serving as collateral for each repurchase agreement must be delivered to the Fund's custodian either physically or in book-entry form and that the collateral must be marked to market daily to ensure that each repurchase agreement is fully collateralized at all times. In the event of bankruptcy or other default by a seller of a repurchase agreement, the Fund could experience delays in liquidating the underlying securities during the period in which the Fund seeks to enforce its rights thereto, possible subnormal levels of income decline in value of the underlining securities or lack of access to income during this period, as well as, the expense of enforcing its rights. Reverse Repurchase Agreements. The Fund may also enter into reverse repurchase agreements which involve the sale of U.S. Government securities held in its portfolio to a bank with an agreement that the Fund will buy back the securities at a fixed future date at a fixed price plus an agreed amount of "interest" which may be reflected in the repurchase price. Reverse repurchase agreements are considered to be borrowings by the Fund. Reverse repurchase agreements involve the risk that the market value of securities purchased by the Fund with proceeds of the transaction may decline below the repurchase price of the securities sold by the Fund which it is obligated to repurchase. The Fund will also continue to be subject to the risk of a decline in the market value of the securities sold under the agreements because it will reacquire those securities upon effecting their repurchase. To minimize various risks associated with reverse repurchase agreements, the Fund will establish a separate account consisting of liquid securities, of any type or maturity in an amount at least equal to the repurchase prices of these securities (plus any accrued interest thereon) under such agreements. In addition, the Fund may not borrow money except in connection with the sale or resale of its shares. The Fund will not enter into reverse repurchase agreements and other borrowings exceeding in the aggregate 33 1/3% of the market value of its total assets. The Fund will enter into reverse repurchase agreements only with federally insured banks which are approved in advance as being creditworthy by the Trustees. Under procedures established by the Trustees, the Adviser will monitor the creditworthiness of the firms involved. Lending of Securities. The Fund may lend portfolio securities to brokers, dealers, and financial institutions if the loan is collateralized by cash or U.S. Government securities according to applicable regulatory requirements. The Fund may reinvest any cash collateral in short-term securities and money market funds. When the Fund lends portfolio securities, there is a risk that the borrower may fail to return the securities involved in the transaction. As a result, the Fund may incur a loss or, in the event of the borrower's bankruptcy, the Fund may be delayed in or prevented from liquidating the collateral. It is a fundamental policy of the Fund not to lend portfolio securities having a total value exceeding 33 1/3% of its total assets. Rights and Warrants. The Fund may purchase warrants and rights which are securities permitting, but not obligating, their holder to purchase the underlying securities at a predetermined price. Generally, warrants and stock purchase rights do not carry with them the right to receive dividends or exercise voting rights with respect to the underlying securities, and they do not represent any rights in the assets of the issuer. As a result, an investment in warrants and rights may be considered to entail greater investment risk than certain other types of investments. In addition, the value of warrants and rights does not necessarily change with the value of the underlying securities, and they cease to have value if they are not exercised on or prior to their expiration date. Investment in warrants and rights increases the potential profit or loss to be realized from the investment of a given amount of the Fund's assets as compared with investing the same amount in the underlying stock. Short-Sales. The Fund may not engage in short sales. 7 Forward Commitment and When-Issued Securities. The Fund may purchase securities on a when-issued or forward commitment basis. "When-issued" refers to securities whose terms are available and for which a market exists, but which have not been issued. The Fund will engage in when-issued transactions with respect to securities purchased for its portfolio in order to obtain what is considered to be an advantageous price and yield at the time of the transaction. For when-issued transactions, no payment is made until delivery is due, often a month or more after the purchase. In a forward commitment transaction, the Fund contracts to purchase securities for a fixed price at a future date beyond customary settlement time. When the Fund engages in forward commitment and when-issued transactions, it relies on the seller to consummate the transaction. The failure of the issuer or seller to consummate the transaction may result in the Fund's losing the opportunity to obtain a price and yield considered to be advantageous. The purchase of securities on a when- issued or forward commitment basis also involves a risk of loss if the value of the security to be purchased declines prior to the settlement date. On the date the Fund enters into an agreement to purchase securities on a when- issued or forward commitment basis, the Fund will segregate in a separate account cash or liquid securities, of any type or maturity, equal in value to the Fund's commitment. These assets will be valued daily at market, and additional cash or securities will be segregated in a separate account to the extent that the total value of the assets in the account declines below the amount of the when-issued commitments. Alternatively, the Fund may enter into offsetting contracts for the forward sale of other securities that it owns. Short-Term Trading and Portfolio Turnover. Short-term trading means the purchase and subsequent sale of a security after it has beeen held for a relatively brief period of time. The Fund may engage in short-term trading in response to stock market conditions, changes in interest rates or other economic trends and developments, or to take advantage of yield disparities between various fixed income securities in order to realize capital gains or improve income. Short term trading may have the effect of increasing portfolio turnover rate. A high rate of portfolio turnover (100% or greater) involves correspondingly higher brokerage expenses. The Fund's portfolio turnover rate is set forth in the table under the caption "Financial Highlights" in the Prospectus. INVESTMENT RESTRICTIONS Fundamental Investment Restrictions. The following investment restrictions will not be changed without the approval of a majority of the Fund's outstanding voting securities which, as used in the Prospectus and this Statement of Additional Information means the approval by the lesser of (1) the holders of 67% or more of the Fund's shares represented at a meeting if more than 50% of the Fund's outstanding shares are present in person or by proxy at that meeting or (2) more than 50% of the Fund's outstanding shares. The Fund may not: (1) The Fund may not, with respect to 75% of its total assets, purchase any security (other than securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities and repurchase agreements collateralized by such securities) if, as a result: (a) more than 5% of its total assets would be invested in the securities of any one issuer, or (b) the Fund would own more than 10% of the voting securities of any one issuer. [see nonfundamental investment restriction] (2) The Fund may not issue senior securities, except as permitted by paragraphs (3) and (7) below. For purposes of this restriction, the issuance of shares of common stock in multiple classes, the purchase or sale of options, futures contracts and options on futures contracts, forward commitments, and repurchase agreements entered into in accordance with the 8 Fund's investment policies, and the pledge, mortgage or hypothecation of the Fund's assets are not deemed to be senior securities. (3) The Fund may not borrow money except in connection with the sale or resale of its shares. (4) The Fund may not act as an underwriter, except to the extent that, in connection with the disposition of portfolio investments, the Fund may be deemed to be an underwriter for purposes of the Securities Act of 1933. (5) The Fund may not purchase or sell real estate, or any interest therein, including real estate mortgage loans, except that the Fund may: (i) hold and sell real estate acquired as the result of its ownership of securities, or (ii) invest in securities of corporate or governmental entities secured by real estate or marketable interests therein or securities issued by companies (other that real estate limited partnerships) that invest in real estate or interests therein. (6) The Fund may not make loans, except that the Fund (1) may lend portfolio securities in accordance with the Fund's investment policies in an amount up to 33 1/3% of the Fund's total assets taken at market value, (2) enter into repurchase agreements, and (3) purchase all or a portion of an issue of debt securities, bank loan participation interests, bank certificates of deposit, bankers' acceptances, debentures or other securities, whether or not the purchase is made upon the original issuance of the securities. (7) The Fund may not purchase or sell commodities or commodity contracts; except that the Fund may purchase and sell options on securities, securities indices, currency and other financial instruments, futures contracts on securities, securities indices, currency and other financial instruments and options on such futures contracts, forward commitments, interest rate swaps, caps and floors, securities index put or call warrants and repurchase agreements entered into in accordance with the Fund's investment policies. (8) The Fund may not purchase securities of an issuer conducting its principal activity in any particular industry if immediately after such purchase the value of the Fund's investments in all issuers in this industry would exceed 25% of its total assets taken at market value. Non-fundamental Investment Restrictions. The following restrictions are designated as non-fundamental and may be changed by the Trustees without shareholder approval. The Fund may not: (a) Participate on a joint-and-several basis in any securities trading account. The "bunching" of orders for the sale or purchase of marketable portfolio securities with other accounts under the management of any investment adviser to the Fund in order to save commissions or to average prices among the accounts, and the participation of the Fund as a part of a group bidding for the purchase of tax exempt bonds shall not be deemed to result in participation in a securities trading account. (b) Purchase securities on margin or make short sales. (c) Purchase a security if, as a result, (i) more than 10% of the Fund's total assets would be invested in the securities of other investment companies, (ii) the Fund would hold more than 3% of the total outstanding voting securities of any one investment company, or (iii) more than 5% of the Fund's total assets would be invested in the securities of any one 9 investment company. These limitations do not apply to (a) the investment of cash collateral, received by the Fund in connection with lending the Fund's portfolio securities, in the securities of open-end investment companies or (b) the purchase of shares of any investment company in connection with a merger, consolidation, reorganization or purchase of substantially all of the assets of another investment company. Subject to the above percentage limitations, the Fund may, in connection with the John Hancock Group of Funds Deferred Compensation Plan for Independent Trustees/Directors, purchase securities of other investment companies within the John Hancock Group of Funds. (d) Invest for the purpose of exercising control over or management of any company. (e) Invest more than 15% of its net assets in illiquid securities. (f) Write put or call options. (g) No officer or Trustee of the Fund may take a short position in the shares of the Fund, withhold orders or buy shares in anticipation of orders. (h) The Fund may not invest more than 5% of its total assets at time of purchase in any one securitiy (other than US Government securities). Except with respect to borrowing money, if a percentage restriction on investment or utilization of assets as set forth above is adhered to at the time an investment is made, a later change in percentage resulting from changes in the value of the Fund's assets will not be considered a violation of the restriction. The Funds will invest only in countries on the Adviser's Approved Country Listing. The Approved Country Listing is a list maintained by the Adviser's investment department that outlines all countries, including the United States, that have been approved for investment by Funds managed by the Adviser. If allowed by the Fund's other investment policies and restrictions, the Fund may invest up to 5% of its total assets in Russian equity securities and up to 10% of its total assets in Russian fixed income securities. All Russian securities must be: (1) denominated in U.S. dollars, Canadian dollars, euros, sterling, or yen; (2) traded on a major exchange; and (3) held physically outside of Russia. 10 THOSE RESPONSIBLE FOR MANAGEMENT The business of the Fund is managed by its Trustees, including certain Trustees who are not "interested persons" of the Fund or the Trust (as defined by the Investment Company Act of 1940) (the "Independent Trustees"), who elect officers who are responsible for the day-to-day operations of the Fund and who execute policies formulated by the Trustees. Several of the officers and Trustees of the Fund are also officers or Directors of the Adviser, or officers and Directors of the Fund's principal distributor, John Hancock Funds, LLC (prior to February 1, 2002, John Hancock Funds, Inc.) ("John Hancock Funds").
- ----------------------------------------------------------------------------------------------------------------------- Number of John Hancock Position(s) Trustee/ Funds Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by And Age Fund since(2) Directorships During Past 5 Years Trustee - ----------------------------------------------------------------------------------------------------------------------- Independent Trustees - ----------------------------------------------------------------------------------------------------------------------- James F. Carlin Trustee 1992 Chairman and CEO, Alpha Analytical 30 Born: 1940 Laboratories (chemical analysis); Part Owner and Treasurer, Lawrence Carlin Insurance Agency, Inc. (since 1995); Part Owner and Vice President, Mone Lawrence Carlin Insurance Agency, Inc. (since 1996); Director/Treasurer, Rizzo Associates (until 2000); Chairman and CEO, Carlin Consolidated, Inc. (management/investments); Director/Partner, Proctor Carlin & Co., Inc. (until 1999); Trustee, Massachusetts Health and Education Tax Exempt Trust; Director of the following: Uno Restaurant Corp. (until 2001), Arbella Mutual (insurance) (until 2000), HealthPlan Services, Inc. (until 1999), Flagship Healthcare, Inc. (until 1999), Carlin Insurance Agency, Inc. (until 1999), Chairman, Massachusetts Board of Higher Education (until 1999). - -----------------------------------------------------------------------------------------------------------------------
(1) Business address for independent and interested Trustees and officers is 101 Huntington Avenue, Boston, Massachusetts 02199. (2) Each Trustee serves until resignation, retirement age or until her or his successor is elected. (3) Interested Trustee: holds positions with the Fund's investment adviser, underwriter, and or certain other affiliates. 11
- ----------------------------------------------------------------------------------------------------------------------- Number of John Hancock Position(s) Trustee/ Funds Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by And Age Fund Since(2) Directorships During Past 5 Years Trustee - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- William H. Cunningham Trustee 1994 Former Chancellor, University of Texas System 30 Born: 1944 and former President of the University of Texas, Austin, Texas; Chairman and CEO, IBT Technologies (until 2001); Director of the following: The University of Texas Investment Management Company (until 2000), Hire.com (since 2000), STC Broadcasting, Inc. and Sunrise Television Corp. (until 2001), Symtx, Inc. (since 2001), Adorno/Rogers Technology, Inc. (since 2001), Pinnacle Foods Corporation (since 2001), rateGenius (since 2001), LaQuinta Motor Inns, Inc. (hotel management company) (until 1998), Jefferson-Pilot Corporation (diversified life insurance company), New Century Equity Holdings (formerly Billing Concepts) (until 2001), eCertain (until 2001), ClassMap.com (until 2001), Agile Ventures (until 2001), LBJ Foundation (until 2000), Golfsmith International, Inc. (until 2000), Metamor Worldwide (until 2000), AskRed.com (until 2001), Southwest Airlines and Introgen; Advisory Director, Q Investments; Advisory Director, Chase Bank (formerly Texas Commerce Bank - Austin), LIN Television (since 2002) , WilTel Communications (since 2002). - ----------------------------------------------------------------------------------------------------------------------- Ronald R. Dion Trustee 1998 Chairman and Chief Executive Officer, R.M. 30 Born: 1946 Bradley & Co., Inc.; Director, The New England Council and Massachusetts Roundtable; Trustee, North Shore Medical Center; Director, BJ's Wholesale Club, Inc. and a corporator of the Eastern Bank; Trustee, Emmanuel College. - -----------------------------------------------------------------------------------------------------------------------
(1) Business address for independent and interested Trustees and officers is 101 Huntington Avenue, Boston, Massachusetts 02199. (2) Each Trustee serves until resignation, retirement age or until her or his successor is elected. (3) Interested Trustee: holds positions with the Fund's investment adviser, underwriter, and or certain other affiliates. 12
- ----------------------------------------------------------------------------------------------------------------------- Number of John Hancock Position(s) Trustee/ Funds Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by And Age Fund since(2) Directorships During Past 5 Years Trustee - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- Charles L. Ladner Trustee 1994 Chairman and Trustee, Dunwoody Village, Inc. 30 Born: 1938 (continuing care retirement community); Senior Vice President and Chief Financial Officer, UGI Corporation (Public Utility Holding Company) (retired 1998); Vice President and Director for AmeriGas, Inc. (retired 1998); Director of AmeriGas Partners, L.P. (until 1997)(gas distribution); Director, EnergyNorth, Inc. (until 1995); Director, Parks and History Association (since 2001). - ----------------------------------------------------------------------------------------------------------------------- Steven Pruchansky Trustee 1991 Chairman and Chief Executive Officer, Mast 30 Born: 1944 Holdings, Inc. (since 2000); Director and President, Mast Holdings, Inc. (until 2000); Managing Director, JonJames, LLC (real estate)(since 2001); Director, First Signature Bank & Trust Company (until 1991); Director, Mast Realty Trust (until 1994); President, Maxwell Building Corp. (until 1991). - ----------------------------------------------------------------------------------------------------------------------- Norman H. Smith Trustee 1991 Lieutenant General, United States Marine 30 Born: 1933 Corps; Deputy Chief of Staff for Manpower and Reserve Affairs, Headquarters Marine Corps; Commanding General III Marine Expeditionary Force/3rd Marine Division (retired 1991). - -----------------------------------------------------------------------------------------------------------------------
(1) Business address for independent and interested Trustees and officers is 101 Huntington Avenue, Boston, Massachusetts 02199. (2) Each Trustee serves until resignation, retirement age or until her or his successor is elected. (3) Interested Trustee: holds positions with the Fund's investment adviser, underwriter, and or certain other affiliates. 13
- ----------------------------------------------------------------------------------------------------------------------- Number of John Hancock Position(s) Trustee/ Funds Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by And Age Fund since(2) Directorships During Past 5 Years Trustee - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- John P. Toolan Trustee 1991 Director, The Smith Barney Muni Bond Funds, The 30 Born: 1930 Smith Barney Tax-Free Money Funds, Inc., Vantage Money Market Funds (mutual funds), The Inefficient-Market Fund, Inc. (closed-end investment company) and Smith Barney Trust Company of Florida; Chairman, Smith Barney Trust Company (retired 1991); Director, Smith Barney, Inc., Mutual Management Company and Smith Barney Advisers, Inc. (investment advisers) (retired 1991); Senior Executive Vice President, Director and member of the Executive Committee, Smith Barney, Harris Upham & Co., Incorporated (investment bankers) (until 1991). - ----------------------------------------------------------------------------------------------------------------------- Interested Trustees - ----------------------------------------------------------------------------------------------------------------------- John M. DeCiccio (3) Trustee 2001 Executive Vice President and Chief Investment 61 Born: 1948 Officer, John Hancock Financial Services, Inc.; Director, Executive Vice President and Chief Investment Officer, John Hancock Life Insurance Company; Chairman of the Committee of Finance of John Hancock Life Insurance Company; Director, John Hancock Subsidiaries, LLC, Hancock Natural Resource Group, Independence Investment LLC, Independence Fixed Income LLC, John Hancock Advisers, LLC (the "Adviser") and The Berkeley Financial Group, LLC ("The Berkeley Group"), John Hancock Funds, LLC ("John Hancock Funds"), Massachusetts Business Development Corporation; Director, Insurance Agency, Inc. (until 1999) and John Hancock Signature Services, Inc.("Signature Services") (until 1997). - -----------------------------------------------------------------------------------------------------------------------
(1) Business address for independent and interested Trustees and officers is 101 Huntington Avenue, Boston, Massachusetts 02199. (2) Each Trustee serves until resignation, retirement age or until her or his successor is elected. (3) Interested Trustee: holds positions with the Fund's investment adviser, underwriter, and or certain other affiliates. 14
- ----------------------------------------------------------------------------------------------------------------------- Number of John Hancock Position(s) Trustee/ Funds Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by And Age Fund since(2) Directorships During Past 5 Years Trustee - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- Maureen R. Ford (3) Trustee, 2000 Executive Vice President, John Hancock 61 Born: 1955 Chairman, Financial Services, Inc., John Hancock Life President Insurance Company; Chairman, Director, and Chief President and Chief Executive Officer, the Executive Advisers and The Berkeley Group; Chairman, Officer President, Director and Chief Executive Officer, John Hancock Funds; Chairman, Director and Chief Executive Officer, Sovereign Asset Management Corporation ("SAMCorp."); Director, John Hancock Subsidiaries, LLC, Independence Investment LLC, Independence Fixed Income LLC and Signature Services, Inc.; Senior Vice President, MassMutual Insurance Co. (until 1999). - ----------------------------------------------------------------------------------------------------------------------- Principal Officers who are not Trustees - ----------------------------------------------------------------------------------------------------------------------- William L. Braman Executive 2000 Executive Vice President and Chief Investment N/A Born: 1953 Vice Officer, the Adviser and each of the John President Hancock funds; Director, SAMCorp., Executive and Chief Vice President and Chief Investment Officer, Investment Baring Asset Management, London U.K. (until Officer 2000). - ----------------------------------------------------------------------------------------------------------------------- Richard A. Brown Senior Vice 2000 Senior Vice President, Chief Financial Officer N/A Born: 1949 President and Treasurer, the Adviser, John Hancock Funds, and Chief and The Berkeley Group; Second Vice President Financial and Senior Associate Controller, Corporate Tax Officer Department, John Hancock Financial Services, Inc. (until 2001). - ----------------------------------------------------------------------------------------------------------------------- Thomas H. Connors Vice 1992 Vice President and Compliance Officer, the N/A Born: 1959 President Adviser and each of the John Hancock funds; and Vice President, John Hancock Funds. Compliance Officer - -----------------------------------------------------------------------------------------------------------------------
(1) Business address for independent and interested Trustees and officers is 101 Huntington Avenue, Boston, Massachusetts 02199. (2) Each Trustee serves until resignation, retirement age or until her or his successor is elected. (3) Interested Trustee: holds positions with the Fund's investment adviser, underwriter, and or certain other affiliates. 15
- ----------------------------------------------------------------------------------------------------------------------- Number of John Hancock Position(s) Trustee/ Funds Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by And Age Fund since(2) Directorships During Past 5 Years Trustee - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- William H. King Vice 1992 Vice President and Assistant Treasurer, N/A Born: 1952 President the Adviser; Vice President and Treasurer and Treasurer of each of the John Hancock funds; Assistant Treasurer of each of the John Hancock funds (until 2001). - ----------------------------------------------------------------------------------------------------------------------- Susan S. Newton Senior Vice 1991 Senior Vice President, Secretary and Chief N/A Born: 1950 President, Legal Officer, SAMCorp., the Adviser and Secretary each of the John Hancock funds, John and Chief Hancock Funds and The Berkeley Group; Vice Legal Officer President, Signature Services (until 2000), Director, Senior Vice President and Secretary, NM Capital. - -----------------------------------------------------------------------------------------------------------------------
(1) Business address for independent and interested Trustees and officers is 101 Huntington Avenue, Boston, Massachusetts 02199. (2) Each Trustee serves until resignation, retirement age or until her or his successor is elected. (3) Interested Trustee: holds positions with the Fund's investment adviser, underwriter, and or certain other affiliates. The Fund's Board of Trustees currently has four standing Committees: the Audit Committee, the Administration Committee, the Contracts/Operations Committee and the Investment Performance Committee. Each Committee is comprised of Independent Trustees. The Audit Committee members are Messrs. Ladner, Moore, Toolan and Ms. Peterson. The Audit Committee recommends to the full board auditors for the Fund, monitors and oversees the audits of the Fund, communicates with both independent auditors and internal auditors on a regular basis and provides a forum for the auditors to report and discuss any matters they deem appropriate at any time. The Audit Committee held four meetings during the fiscal year ended December 31, 2002. The Administration Committee's members are all of the Independent Trustees of the Fund. The Administration Committee reviews the activities of the other four standing committees and makes the final selection and nomination of candidates to serve as Independent Trustees. The Administration Committee will consider nominees recommended by shareholders to serve as Independent Trustees, provided that shareholders submit recommendations in compliance with all of the pertinent provisions of Rule 14a-8 under the Securities Exchange Act of 1934. The Administration Committee also works with al Trustees on the selection and election of officers of the Fund and reviews Trustee compensation, evaluates Trustee performance and considers committee membership rotations as well as relevant corporate governance issues. The Administration Committee held four meetings during the fiscal year ended December 31, 2002. The Contracts/Operations Committee members are Messrs. Carlin and Pruchansky. The Contracts/Operations Committee oversees the initiation, operation, and renewal of contracts between the Fund and other entities. These contracts include advisory and subadvisory agreements, custodial and transfer agency agreements and arrangements with other service providers. The Contracts/Operations Committee held five meetings during the fiscal year ended December 31, 2002. 16 The Investment Performance Committee consists of Messrs. Dion and Cunningham. The Investment Performance Committee monitors and analyzes the performance of the Fund generally, consults with the adviser as necessary if the Fund requires special attention, and reviews peer groups and other comparative standards as necessary. The Investment Performance Committee held four meetings during the fiscal year ended December 31, 2002. The following table provides a dollar range indicating each Trustee's ownership of equity securities of the Fund, as well as aggregate holdings of shares of equity securities of all John Hancock Funds overseen by the Trustee, as of December 31, 2002.
- ------------------------------------------------------------------------------------------------------------- Aggregate Dollar Range of Dollar Range of Fund shares Owned holdings in John Hancock funds Name of Trustee by Trustee (1) overseen by Trustee (1) - ------------------------------------------------------------------------------------------------------------- Independent Trustees - ------------------------------------------------------------------------------------------------------------- James F. Carlin $1-$10,000 $10,001-$50,000 - ------------------------------------------------------------------------------------------------------------- William H. Cunningham None $10,001-$50,000 - ------------------------------------------------------------------------------------------------------------- Ronald R. Dion $1-$10,000 Over $100,000 - ------------------------------------------------------------------------------------------------------------- Charles L. Ladner $10,001-$50,000 Over $100,000 - ------------------------------------------------------------------------------------------------------------- Steven R. Pruchansky $1-$10,000 Over $100,000 - ------------------------------------------------------------------------------------------------------------- Norman H. Smith $50,001-$100,000 Over $100,000 - ------------------------------------------------------------------------------------------------------------- John P. Toolan None $50,001-$100,000 - ------------------------------------------------------------------------------------------------------------- Interested Trustees - ------------------------------------------------------------------------------------------------------------- John M. DeCiccio None Over $100,000 - ------------------------------------------------------------------------------------------------------------- Maureen R. Ford $1-$10,000 Over $100,000 - -------------------------------------------------------------------------------------------------------------
(1) This Fund does participate in the John Hancock Deferred Compensation Plan for Independent Trustees (the "Plan"). Under the Plan, an Independent Trustee may defer his fees by electing to have the Adviser invest his fees in one of the funds in the John Hancock complex that participates in the Plan. Under these circumstances, the Trustee is not the legal owner of the underlying shares, but does participate in any positive or negative return on those shares to the same extent as all other shareholders. With regard to Trustees participating in the Plan, if a Trustee was deemed to own the shares used in computing the value of his deferred compensation, as of December 31, 2002, the respective "Dollar Range of Fund Shares Owned by Trustee" and the "Aggregate Dollar Range of holdings in John Hancock funds overseen by Trustee" would be as follows: over $100,000 and over $100,000 for Mr. Cunningham, over $100,000 and over $100,000 for Mr. Dion, $10,001-$50,000 and over $100,000 for Mr. Pruchansky, $50,001-$100,000 and over $100,000 for Mr. Smith, over $100,000 and over $100,000 for Mr. Toolan. The following table provides information regarding the compensation paid by the Fund and the other investment companies in the John Hancock Fund Complex to the Independent Trustees for their services. Mr. DeCiccio and Ms. Ford, each a non-independent Trustee, and each of the officers of the Fund who are interested persons of the Adviser, and/or affiliates are compensated by the Adviser and receive no compensation from the Fund for their services. 17 Aggregate Total Compensation from all Compensation Funds in John Hancock Fund Trustees From the Fund(1) Complex to Trustees (2) - -------- ---------------- ----------------------- James F. Carlin $11,822 $ 75,000 William H. Cunningham* 11,838 75,100 Ronald R. Dion* 11,822 75,000 Charles L. Ladner 11,357 72,000 Steven R. Pruchansky* 11,373 72,100 Norman H. Smith* 12,290 78,000 John P. Toolan* 11,357 72,000 ------- -------- Total $81,859 $519,200 (1) Compensation is for fiscal period ended December 31, 2002. (2) Total compensation paid by the John Hancock Fund Complex to the Independent Trustees is for the calendar year ended December 31, 2002. As of that date, there were sixty-one funds in the John Hancock Fund Complex, with each of these Independent Trustees serving on thirty funds. (*) As of December 31, 2002 the value of the aggregate accrued deferred compensation from all Funds in the John Hancock fund complex for Mr. Cunningham was $428,963, for Mr. Dion was $122,717, for Mr. Pruchansky was $95,779, for Mr. Smith was $204,328 and for Mr. Toolan was $517,774 under the John Hancock Deferred Compensation Plan for Independent Trustees (the "Plan"). All of the officers listed are officers or employees of the Adviser or affiliated companies. Some of the Trustees and officers may also be officers and/or Directors and/or Trustees of one or more other funds for which the Adviser serves as investment adviser. The officers and Trustees of the Fund as a group beneficially owned less than 1% of the outstanding shares of the Fund and no shareholders of record beneficially owned 5% or more of the outstanding Class I shares of the Fund. INVESTMENT ADVISORY AND OTHER SERVICES The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603, was organized in 1968 and as of December 31, 2002 has approximately $26 billion in assets under management in its capacity as investment adviser to the Fund and other funds in the John Hancock group of funds, as well as retail and institutional privately managed accounts. The Adviser is an affiliate of the Life Company, one of the most recognized and respected financial institutions in the nation. With total assets under management of approximately $100 billion, the Life Company is one of the ten largest life insurance companies in the United States, and carries a high rating from Standard & Poor's and A.M. Best. Founded in 1862, the Life Company has been serving clients for over 130 years. The Fund has entered into an investment management contract (the "Advisory Agreement") with the Adviser which was approved by the Fund's shareholders. Pursuant to the Advisory Agreement, the Adviser will: (a) furnish continuously an investment program for the Fund and determine, subject to the overall supervision and review of the Trustees, which investments should be purchased, held, sold or exchanged, and (b) provide supervision over all aspects of the Fund's operations except those which are delegated to a custodian, transfer agent or other agent. 18 The Fund bears all costs of its organization and operation, including but not limited to expenses of preparing, printing and mailing all shareholders' reports, notices, prospectus, proxy statements and reports to regulatory agencies, expenses relating to the issuance, registration and qualification of shares; government fees; interest charges; expenses of furnishing to shareholders their account statements; taxes; expenses of redeeming shares; brokerage and other expenses connected with the execution of portfolio securities transactions; expenses pursuant to the Fund's plan of distribution; fees and expenses of custodians including those for keeping books and accounts, maintaining a committed line of credit and calculating the net asset value of shares; fees and expenses of transfer agents and dividend disbursing agents; legal, accounting, financial, management, tax and auditing fees and expenses of the Fund (including an allocable portion of the cost of the Adviser's employees rendering such services to the Fund; the compensation and expenses of Trustees who are not otherwise affiliated with the Trust, the Adviser or any of their affiliates; expenses of Trustees' and shareholders' meetings; trade association membership; insurance premiums; and any extraordinary expenses. As compensation for its services under the Advisory Agreement, the Fund pays the Adviser quarterly a fee based on a stated percentage of the average of the daily net assets of the Fund as follows: Average Daily Net Assets Annual Rates - ------------------------ ------------ $0 to $750 million 0.60% Next $750 million to 1.5 billion 0.55% Next $1.5 billion to 2.5. billion 0.50% Amount over $2.5 billion and over 0.45% From time to time, the Adviser may reduce its fee or make other arrangements to limit the Fund's expenses to a specified percentage of average daily net assets. The Adviser retains the right to re-impose a fee and recover any other payments to the extent that, at the end of any fiscal year, the Fund's annual expenses fall below this limit. For the fiscal years ended December 31, 2000, 2001 and 2002, the Fund paid the Adviser fees of $12,377,727, $10,647,323 and $8,703,622, respectively. Securities held by the Fund may also be held by other funds or investment advisory clients for which the Adviser or affiliates provide investment advice. Because of different investment objectives or other factors, a particular security may be bought for one or more funds or clients when one or more are selling the same security. If opportunities for purchase or sale of securities by the Adviser for the Fund or for other funds or clients for which the Adviser renders investment advice arise for consideration at or about the same time, transactions in such securities will be made, insofar as feasible, for the respective funds or clients in a manner deemed equitable to all of them. To the extent that transactions on behalf of more than one client of the Adviser or affiliates may increase the demand for securities being purchased or the supply of securities being sold, there may be an adverse effect on price. Pursuant to the Advisory Agreement, the Adviser is not liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the matters to which the Advisory Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the Adviser in the performance of its duties or from reckless disregard of the obligations and duties under the Advisory Agreement. Under the Advisory Agreement, the Fund may use the name "John Hancock" or any name derived from or similar to it only for so long as the Advisory Agreement or any extension, renewal or amendment thereof remains in effect. If the Advisory Agreement is no longer in effect, the Fund (to the extent that it lawfully can) will cease to use such a name or any other name indicating that it is advised by or otherwise connected with the Adviser. In addition, the Adviser or the Life Company may grant the non-exclusive 19 right to use the name "John Hancock" or any similar name to any other corporation or entity, including but not limited to any investment company of which the Life Company or any subsidiary or affiliate thereof or any successor to the business of any subsidiary or affiliate thereof shall be the investment adviser. The Fund's Board of Trustees is responsible for overseeing the performance of the Fund's investment adviser and determining whether to approve and renew the Fund's Advisory Agreement. The Board has a standing request that the Adviser provide the Board with certain information the Board has deemed important to evaluating the short- and long-term performance of the Adviser. This information includes periodic performance analysis and status reports from the Adviser and quarterly Portfolio and Investment Performance Reports. The Fund's portfolio managers meet with the Board from time to time to discuss the management and performance of the Fund and respond to the Board's questions concerning the performance of the Adviser. When the Board considers whether to renew an investment advisory contract, the Board takes into account numerous factors, including: (1) the nature, extent and quality of the services provided by the Adviser; (2) the investment performance of the Fund's assets managed by the adviser; (3) the fair market value of the services provided by the adviser; (4) a comparative analysis of expense ratios of, and advisory fees paid by, similar funds; (5) the extent to which the adviser has realized or will realize economies of scale as the Fund grows; (6) other sources of revenue to the Adviser or its affiliates from its relationship with the Fund and intangible or "fall-out" benefits that accrue to the adviser and its affiliates, if relevant; and (7) the Adviser's control of the operating expenses of the fund, such as transaction costs, including ways in which portfolio transactions for the fund are conducted and brokers are selected. The primary factors underlying the Board's decision to renew the Fund's Advisory Agreement were as follows: o The Board determined that the performance results of the Fund and the Adviser's responsive actions were reasonable, as compared with relevant performance standards, including the performance results of comparable equity income funds derived from data provided by Lipper Inc. and appropriate market indexes. o The Board decided that the advisory fee paid by the Fund was reasonable based on the average advisory fee for comparable funds. The Board also took into account the nature of the fee arrangements which include breakpoints that will adjust the fee downward as the size of the Fund's portfolio increases. o The Board evaluated the Adviser's investment staff and portfolio management process, and reviewed the composition and overall performance of the Fund's portfolio on both a short-term and long-term basis. The Board considered whether the Fund should obtain alternative portfolio management services and concluded that, under all the circumstances and based on its informed business judgement, the most appropriate course of action in the best interest of the Fund's shareholders was to renew the agreement with the Adviser. The continuation of the Advisory Agreement and Distribution Agreement (discussed below) was approved by all of the Trustees. The Advisory Agreement and the Distribution Agreement will continue in effect from year to year, provided that its continuance is approved annually both (i) by the holders of a majority of the outstanding voting securities of the Trust or by the Trustees, and (ii) by a majority of the Trustees who are not parties to the Agreement or "interested persons" of any such parties. Both Agreements may be terminated on 60 days written notice by either party or by a vote of a majority of the outstanding voting securities of the Fund and will terminate automatically if assigned. Accounting and Legal Services Agreement. The Trust, on behalf of the Fund, is a party to an Accounting and Legal Services Agreement with the Adviser. Pursuant to this Agreement, the Adviser provides the 20 Fund with certain tax, accounting and legal services. For the fiscal years ended December 31, 2000, 2001 and 2002, the Fund paid the Adviser $422,449, $387,253 and $439,523, respectively for the services under this Agreement. Personnel of the Adviser and its affiliates may trade securities for their personal accounts. The Fund also may hold, or may be buying or selling, the same securities. To prevent the Fund from being disadvantaged, the adviser(s) and principal underwriter and the Fund have adopted a code of ethics which restricts the trading activity of those personnel. DISTRIBUTION CONTRACTS The Fund has a Distribution Agreement with John Hancock Funds. Under the Agreement, John Hancock Funds is obligated to use its best efforts to sell shares of each Fund. Shares of the Fund are also sold by selected broker-dealers (the "Selling Brokers") which have entered into selling agency agreements with John Hancock Funds. These Selling Brokers are authorized to designate other intermediaries to receive purchase and redemption orders on behalf of the Fund. John Hancock Funds accepts orders for the purchase of the shares of the Funds which are continually offered at net asset value next determined. SALES COMPENSATION As part of its business strategy, John Hancock Funds may pay compensation to financial services firms that sell the Fund's shares. These firms typically pass along a portion of this compensation to your broker or financial representative. John Hancock Funds may make a one-time payment at the time of initial purchase out of its own resources to a Selling Broker who sells shares of the Fund. This payment may not exceed 0.15% of the amount invested. In addition, from time to time, John Hancock Funds, at its expense, may provide significant additional compensation to financial services firms in connection with their promotion of the Fund or sale of shares of the Fund. Such compensation provided by John Hancock Funds may include, for example, financial assistance to financial services firms in connection with their marketing and sales development programs for their registered representatives and other employees, as well as payment for travel expenses, including lodging, incurred by registered representatives and other employees for such marketing and sales development programs, as well as assistance for seminars for the public, advertising and sales campaigns regarding one or more Funds, and other financial services firms-sponsored events or activities. From time to time, John Hancock Funds may provide expense reimbursements for special training of a financial services firm's registered representatives and other employees in group meetings. Other compensation, such as asset retention fees, finder's fees and reimbursement for wire transfer fees or other administrative fees and costs may be offered to the extent not prohibited by law or any self-regulatory agency, such as the NASD. NET ASSET VALUE For purposes of calculating the net asset value ("NAV") of the Fund's shares, the following procedures are utilized wherever applicable. Debt investment securities are valued on the basis of valuations furnished by a principal market maker or a pricing service, both of which generally utilize electronic data processing techniques to determine valuations for normal institutional size trading units of debt securities without exclusive reliance upon quoted prices. 21 Equity securities traded on a principal exchange or NASDAQ National Market Issues are generally valued at last sale price on the day of valuation. Securities in the aforementioned category for which no sales are reported and other securities traded over-the-counter are generally valued at the last available bid price. Short-term debt investments which have a remaining maturity of 60 days or less are generally valued at amortized cost which approximates market value. If market quotations are not readily available or if in the opinion of the Adviser any quotation or price is not representative of true market value, the fair value of the security may be determined in good faith in accordance with procedures approved by the Trustees. Foreign securities are valued on the basis of quotations from the primary market in which they are traded. Any assets or liabilities expressed in terms of foreign currencies are translated into U.S. dollars by the custodian bank based on London currency exchange quotations as of 5:00 p.m., London time (12:00 noon, New York time) on the date of any determination of the Fund's NAV. If quotations are not readily available, or the value has been materially affected by events occurring after the closing of a foreign market, assets are valued by a method that the Trustees believe accurately reflects fair value. The NAV for each fund and class is determined each business day at the close of regular trading on the New York Stock Exchange (typically 4:00 p.m. Eastern Time) by dividing a class's net assets by the number of its shares outstanding. On any day an international market is closed and the New York Stock Exchange is open, any foreign securities will be valued at the prior day's close with the current day's exchange rate. Trading of foreign securities may take place on Saturdays and U.S. business holidays on which a Fund's NAV is not calculated. Consequently, the Fund's portfolio securities may trade and the NAV of the Fund's redeemable securities may be significantly affected on days when a shareholder has no access to the Fund. SPECIAL REDEMPTIONS Although it would not normally do so, the Fund has the right to pay the redemption price of shares of the Fund in whole or in part in portfolio securities as prescribed by the Trustees. When the shareholder sells portfolio securities received in this fashion, the shareholder will incur a brokerage charge. Any such securities would be valued for the purposes of making such payment at the same value as used in determining net asset value. The Fund has, however, elected to be governed by Rule 18f-1 under the Investment Company Act. Under that rule, the Fund must redeem its shares for cash except to the extent that the redemption payments to any shareholder during any 90-day period would exceed the lesser of $250,000 or 1% of the Fund's net asset value at the beginning of such period. ADDITIONAL SERVICES AND PROGRAMS Exchange Privilege. The Fund permits exchanges of shares of any class of a fund for shares of the same class in any other John Hancock fund offering that class. Investors may exchange between institutional funds and Class I shares. The Fund reserves the right to require that previously exchanged shares (and reinvested dividends) be in the Fund for 90 days before a shareholder is permitted a new exchange. The Fund may refuse any exchange order. The Fund may change or cancel its exchange policies at any time, upon 60 days' notice to its shareholders. An exchange of shares is treated as a redemption of shares of one fund and the purchase of shares of another for Federal Income Tax purposes. An exchange may result in a taxable gain or loss. See "TAX STATUS". 22 PURCHASES AND REDEMPTIONS THROUGH THIRD PARTIES Shares of the Fund may be purchased or redeemed through certain broker-dealers or Service Agents ("Brokers"). Brokers may charge for their services or place limitations on the extent to which you may use the services of the Fund. The Fund will be deemed to have received a purchase or redemption order when an authorized broker, or if applicable, a broker's authorized designee, receives the order. If a broker is an agent or designee of the Fund, orders are processed at the NAV next calculated after the broker receives the order. The broker must segregate any orders it receives after the close of regular trading on the New York Stock Exchange and transmit those orders to the Fund for execution at NAV next determined. Some brokers that maintain nominee accounts with the Fund for their clients charge an annual fee on the average net assets held in such accounts for accounting, servicing, and distribution services they provide with respect to the underlying Fund shares. The Adviser, the Fund, and/or John Hancock Funds, LLC (the Fund's principal distributor), share in the expense of these fees. DESCRIPTION OF FUND'S SHARES The Trustees of the Trust are responsible for the management and supervision of the Fund. The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest of the Fund, without par value. Under the Declaration of Trust, the Trustees have the authority to create and classify shares of beneficial interest in separate series and classes, without further action by shareholders. As of the date of this Statement of Additional Information, the Trustees have authorized shares of the Fund and four other series. The Trustees have also authorized the issuance of four classes of shares of the Fund, designated as Class A, Class B, Class C and Class I. Class A, Class B and Class C shares are discussed in a separate Statement of Additional Information. The shares of each class of the Fund represent an equal proportionate interest in the aggregate net assets attributable to that class of the Fund. Holders of Class A, Class B and Class C shares have certain exclusive voting rights on matters relating to their respective distribution plans. The different classes of the Fund may bear different expenses relating to the cost of holding shareholder meetings necessitated by the exclusive voting rights of any class of shares. Dividends paid by the Fund, if any, with respect to each class of shares will be calculated in the same manner, at the same time and on the same day and will be in the same amount, except for differences resulting from the facts that (i) the distribution and service fees relating to Class A, Class B and Class C shares will be borne exclusively by that class; (ii) Class B and Class C shares will pay higher distribution and service fees than Class A shares, and (iii) each class of shares will bear any class expenses properly allocable to that class of shares, subject to the conditions the Internal Revenue Service imposes with respect to the multiple-class structures. Similarly, the net asset value per share may vary depending on which class of shares are purchased. No interest will be paid on uncashed dividend or redemption checks. In the event of liquidation, shareholders of each class are entitled to share pro rata in the net assets of the Fund available for distribution to these shareholders. Shares entitle their holders to one vote per share, are freely transferable and have no preemptive, subscription or conversion rights. When issued, shares are fully paid and non-assessable, except as set forth below. Unless otherwise required by the Investment Company Act or the Declaration of Trust, the Fund has no intention of holding annual meetings of shareholders. Fund shareholders may remove a Trustee by the affirmative vote of at least two-thirds of the Trust's outstanding shares and the Trustees shall promptly call a meeting for such purpose when requested to do so in writing by the record holders of not less than 10% of the outstanding shares of the Trust. Shareholders may, under certain circumstances, communicate with other shareholders in connection with a request for a special meeting of shareholders. However, at 23 any time that less than a majority of the Trustees holding office were elected by the shareholders, the Trustees will call a special meeting of shareholders for the purpose of electing Trustees. Under Massachusetts law, shareholders of a Massachusetts business trust could, under certain circumstances, be held personally liable for acts or obligations of the Trust. However, the Declaration of Trust contains an express disclaimer of shareholder liability for acts, obligations and affairs of the Fund. The Declaration of Trust also provides for indemnification out of the Fund's assets for all losses and expenses of any shareholder held personally liable by reason of being or having been a shareholder. The Declaration of Trust also provides that no series of the Trust shall be liable for the liabilities of any other series. Furthermore, no fund included in this Fund's prospectus shall be liable for the liabilities of any other John Hancock Funds. Liability is therefore limited to circumstances in which the Fund itself would be unable to meet its obligations, and the possibility of this occurrence is remote. The Fund reserves the right to reject any application which conflicts with the Fund's internal policies or the policies of any regulatory authority. John Hancock Funds does not accept starter, credit card or third party checks. All checks returned by the post office as undeliverable will be reinvested at net asset value in the fund or funds from which a redemption was made or dividend paid. Information provided on the account application may be used by the Fund to verify the accuracy of the information or for background or financial history purposes. A joint account will be administered as a joint tenancy with right of survivorship, unless the joint owners notify Signature Services of a different intent. A shareholder's account is governed by the laws of The Commonwealth of Massachusetts. For telephone transactions, the transfer agent will take measures to verify the identity of the caller, such as asking for name, account number, Social Security or other taxpayer ID number and other relevant information. If appropriate measures are taken, the transfer agent is not responsible for any losses that may occur to any account due to an unauthorized telephone call. Also for your protection telephone transactions are not permitted on accounts whose names or addresses have changed within the past 30 days. Proceeds from telephone transactions can only be mailed to the address of record. Selling activities for the Fund may not take place outside the U.S. except with U.S. military bases, APO addresses and U.S. diplomats. Brokers of record on Non-U.S. investors' accounts with foreign mailing addresses are required to certify that all sales activities have occurred, and in the future will occur, only in the U.S. A foreign corporation may purchase shares of the Fund only if it has a U.S. mailing address. TAX STATUS The Fund, is treated as a separate entity for accounting and tax purposes, has qualified and elected to be treated as a "regulated investment company" under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), and intends to continue to so qualify for each taxable year. As such and by complying with the applicable provisions of the Code regarding the sources of its income, the timing of its distributions and the diversification of its assets, the Fund will not be subject to Federal income tax on taxable income (including net realized capital gains) distributed to shareholders in accordance with the timing requirements of the Code. The Fund will be subject to a 4% nondeductible Federal excise tax on certain amounts not distributed (and not treated as having been distributed) on a timely basis in accordance with annual minimum distribution requirements. The Fund intends under normal circumstances to seek to avoid or minimize liability for such tax by satisfying such distribution requirements. Distributions from the Fund's current or accumulated earnings and profits ("E&P") will be taxable under the Code for investors who are subject to tax. If these distributions are paid from the Fund's "investment company taxable income," they will be taxable as ordinary income; and if they are paid from the Fund's "net capital gain," they will be taxable as long-term capital gain. (Net capital gain is the excess (if any) of 24 net long-term capital gain over net short-term capital loss, and investment company taxable income is all taxable income and capital gains, other than those gains and losses included in computing net capital gain, after reduction by deductible expenses.). Some distributions may be paid in January but may be taxable to shareholders as if they had been received on December 31 of the previous year. The tax treatment described above will apply without regard to whether distributions are received in cash or reinvested in additional shares of the Fund. Distributions, if any, in excess of E&P will constitute a return of capital under the Code, which will first reduce an investor's federal tax basis in Fund shares and then, to the extent such basis is exceeded, will generally give rise to capital gains. Shareholders who have chosen automatic reinvestment of their distributions will have a federal tax basis in each share received pursuant to such a reinvestment equal to the amount of cash they would have received had they elected to receive the distribution in cash, divided by the number of shares received in the reinvestment. The amount of net realized capital gains, if any, in any given year will result from sales of securities made with a view to the maintenance of a portfolio believed by the Fund's management to be most likely to attain the Fund's objective. Such sales, and any resulting gains or losses, may therefore vary considerably from year to year. At the time of an investor's purchase of shares of the Fund, a portion of the purchase price is often attributable to realized or unrealized appreciation in the Fund's portfolio. Consequently, subsequent distributions on these shares from such appreciation or income may be taxable to such investor even if the net asset value of the investor's shares is, as a result of the distributions, reduced below the investor's cost for such shares and the distributions in reality represent a return of a portion of the purchase price. If the Fund invests in stock (including an option to acquire stock as is inherent in a convertible bond) of certain foreign corporations that receive at least 75% of their annual gross income from passive sources (such as interest, dividends certain rents and royalties or capital gain) or hold at least 50% of their assets in investments producing such passive income ("passive foreign investment companies"), the Fund could be subject to federal income tax and additional interest charges on "excess distributions" received from such companies or gain from the sale of stock in such companies, even if all income or gain actually received by the Fund is timely distributed to its shareholders. These investments could also result in the treatment of associated capital gains as ordinary income. The Fund would not be able to pass through to its shareholders any credit or deduction for such a tax. An election may be available to ameliorate these adverse tax consequences, but could require the Fund to recognize taxable income or gain without the concurrent receipt of cash. The Fund may limit and/or manage its holdings in passive foreign investment companies or make an available election to minimize its tax liability or maximize its return from these investments. The Fund may be subject to foreign taxes on its income from investments in certain foreign securities, if any. Some tax conventions between certain countries and the U.S. may reduce or eliminate such taxes. Because more than 50% of the Fund's assets at the close of any taxable year will generally not consist of stocks or securities of foreign corporations, the Fund will generally be unable to pass such taxes through to shareholders, who will therefore generally not be entitled to any foreign tax credit or deduction with respect to their investment in the Fund. The Fund will deduct the foreign taxes it pays in determining the amount it has available for distribution to shareholders. Foreign exchange gains and losses realized by the Fund in connection with certain transactions involving foreign currency-denominated debt securities, foreign currencies, or payable or receivables denominated in foreign currency are subject to Section 988 of the Code, which generally causes such gains and losses to be treated as ordinary income and losses and may affect the amount, timing and character of distributions to shareholders. 25 Certain of these transactions may cause the Fund to recognize gains or losses from marking to market even though its positions have not been sold or terminated and affect the character as long-term or short-term and timing of some capital gains and losses realized by the Fund. Additionally, certain of the Fund's losses on its transactions involving options and any offsetting or successor portfolio positions may be deferred rather than being taking into account currently in calculating the Fund's taxable income or gains. Certain of such transactions may also cause the Fund to dispose of investments sooner than would otherwise have occurred. These transactions may therefore affect the amount, timing and character of the Fund's distributions to shareholders. The Fund will take into account the special tax rules (including consideration of available elections) applicable to options in order to minimize any potential adverse tax consequences. Upon a redemption of shares of the Fund (including by exercise of the exchange privilege) in a transaction that is treated as a sale for tax purposes, a shareholder will ordinarily realize a taxable gain or loss depending upon the amount of the proceeds and the investor's basis in his shares. Such gain or loss will be treated as capital gain or loss if the shares are capital assets in the shareholder's hands and will be long-term or short-term, depending upon the shareholder's tax holding period for the shares and subject to the special rules described below. A sales charge paid in purchasing shares of the Fund cannot be taken into account for purposes of determining gain or loss on the redemption or exchange of such shares within 90 days after their purchase to the extent shares of the Fund or another John Hancock fund are subsequently acquired without payment of a sales charge pursuant to the reinvestment or exchange privilege. This disregarded charge will result in an increase in the shareholder's tax basis in the shares subsequently acquired. Also, any loss realized on a redemption or exchange may be disallowed to the extent the shares disposed of are replaced with other shares of the Fund within a period of 61 days beginning 30 days before and ending 30 days after the shares are disposed of, such as pursuant to automatic dividend reinvestment. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. Any loss realized upon the redemption of shares with a tax holding period of six months or less will be treated as a long-term capital loss to the extent of any amounts treated as distributions of long- term capital gain with respect to such shares. Shareholders should consult their own tax advisers regarding their particular circumstances to determine whether a disposition of Fund shares is properly treated as a sale for tax purposes, as is assumed in the foregoing discussion. Although the present intention is to distribute, at least annually, all net capital gain, if any, the Fund reserves the right to retain and reinvest all or any portion of the excess, as computed for Federal income tax purposes, of net gain over net short- term capital loss in any year. The Fund will not in any event distribute net capital gain realized in any year to the extent that a capital loss is carried forward from prior years against such gain. To the extent such excess was retained and not exhausted by the carryforward of prior years' capital losses, it would be subject to Federal income tax in the hands of the Fund. Upon proper designation of this amount by the Fund, each shareholder would be treated for Federal income tax purposes as if the Fund had distributed to him on the last day of its taxable year his pro rata share of such excess, and he had paid his pro rata share of the taxes paid by the Fund and reinvested the remainder in the Fund. Accordingly, each shareholder would (a) include his pro rata share of such excess as long-term capital gain in his return for his taxable year in which the last day of the Fund's taxable year falls, (b) be entitled either to a tax credit on his return for, or to a refund of, his pro rata share of the taxes paid by the Fund, and (c) be entitled to increase the adjusted tax basis for his shares in the Fund by the difference between his pro rata share of such excess and his pro rata share of these taxes. For Federal income tax purposes, the Fund is permitted to carry forward a net capital loss in any year to offset net capital gains, if any, during the eight years following the year of the loss. To the extent subsequent net capital gains are offset by such losses, they would not result in Federal income tax liability to the Fund and as noted above would not be distributed as such to shareholders. The Fund has a $89,791,390 capital loss carryforward available, to the extent provided by regulations, to offset future net realized capital gains. The entire carryforward expires on December 31, 2010. 26 For purposes of the dividends received deduction available to corporations, dividends received by the Fund, if any, from U.S. domestic corporations in respect of the stock of such corporations held by the Fund, for U.S. Federal income tax purposes, for at least 46 days (91 days in the case of certain preferred stock) during a prescribed period extending before and after each dividend and distributed and properly designated by the Fund may be treated a qualifying dividends. Corporate shareholders must meet the minimum holding period requirement stated above (46 or 91 days) with respect to their shares of the Fund for each dividend in order to qualify for the deduction and, if they have any debt that is deemed under the Code directly attributable to such shares, may be denied a portion of the dividends received deduction. The entire qualifying dividend, including the otherwise deductible amount, will be included in determining the excess (if any) of a corporate shareholder's adjusted current earnings over its alternative minimum taxable income, which may increase its alternative minimum tax liability, if any. Additionally, any corporate shareholder should consult its tax adviser regarding the possibility that its tax basis in its shares may be reduced, for Federal income tax purposes, by reason of "extraordinary dividends" received with respect to the shares, for the purpose of computing its gain or loss on redemption or other disposition of the shares. The Fund is required to accrue income on any debt securities that have more than a de minimus amount of original issue discount (or debt securities acquired at a market discount, if the Fund elects to include market discount in income currently) prior to the receipt of the corresponding cash payments. The mark to market rules applicable to certain options and futures contracts may also require the Fund to recognize gain within a concurrent receipt of cash. However, the Fund must distribute to shareholders for each taxable year substantially all of its net income and net capital gains, including such income or liability for any federal income or excise tax. Therefore, the Fund may have to dispose of its portfolio securities under disadvantageous circumstances to generate cash, or may have to leverage itself by borrowing the cash, to satisfy these distribution requirements. A state income (and possibly local income and/or intangible property) tax exemption is generally available to the extent (if any) the Fund's distributions are derived from interest on (or, in the case of intangible taxes, the value of its assets is attributable to) certain U.S. Government obligations, provided in some states that certain thresholds for holdings of such obligations and/or reporting requirements are satisfied. The Fund will not seek to satisfy any threshold or reporting requirements that may apply in particular taxing jurisdictions, although the Fund may in its sole discretion provide relevant information to shareholders. The Fund will be required to report to the Internal Revenue Service (the "IRS") all taxable distributions to shareholders, as well as gross proceeds from the redemption or exchange of Fund shares, except in the case of certain exempt recipients, i.e., corporations and certain other investors distributions to which are exempt from the information reporting provisions of the Code. Under the backup withholding provisions of the Code, Section 3406, and applicable Treasury regulations, all such reportable distributions and proceeds may be subject to backup withholding of federal income tax in the case of non-exempt shareholders who fail to furnish the Fund with their correct taxpayer identification number and certain certifications required by the IRS or if the IRS or a broker notifies the Fund that the number furnished by the shareholder is incorrect or that the shareholder is subject to backup withholding as a result of failure to report interest or dividend income. The Fund may refuse to accept an application that does not contain any required taxpayer identification number or certification that the number provided is correct. If the backup withholding provisions are applicable, any such distributions and proceeds, whether taken in cash or reinvested in shares, will be reduced by the amounts required to be withheld. Any amounts withheld may be credited against a shareholder's U.S. federal income tax liability. Investors should consult their tax advisers about the applicability of the backup withholding provisions. 27 Different tax treatment, including penalties on certain excess contributions and deferrals, certain pre-retirement and post-retirement distributions and certain prohibited transactions, is accorded to accounts maintained as qualified retirement plans. Shareholders should consult their tax advisers for more information. Investments in debt obligations that are at risk of or in default may present special tax issues for the Fund. Tax rules are not entirely clear about issues such as when the Fund may cease to accrue interest, original issue discount, or market discount; when and to what extent deductions may be taken for bad debts or worthless securities; how payments received on obligations in default should be allocated between principal and income; and whether exchanges of debt obligations in a workout context are taxable. These and other issues will be addressed by the Fund, in the event it invests in such securities, in order to reduce the risk of distributing insufficient income to preserve its status as a regulated investment company and seek to avoid becoming subject to Federal income or excise tax. The foregoing discussion relates solely to U.S. Federal income tax laws applicable to the U.S. persons (i.e., U.S. citizens or residents and U.S. domestic corporations, partnerships, trusts or estates) subject to tax under such law. The discussion does not address special tax rules applicable to certain types of investors, such as tax-exempt entities, insurance companies and financial institutions. Dividends, capital gain distributions, and ownership of or gains realized on the redemption (including an exchange) of shares of the Fund may also be subject to state and local taxes. The foregoing discussion related to U.S. investors that are not exempt from U.S. Federal income tax. Different tax consequences will apply to plan participants, tax-exempt investors and investors that are subject to tax deferral. You should consult your tax adviser for specific advice. Under the Code, a tax-exempt investor in the Fund will not generally recognize unrelated business taxable income from its investment in the Fund unless the tax-exempt investor incurred indebtedness to acquire or continue to hold Fund shares and such indebtedness remains unpaid. Shareholders should consult their own tax advisers as to the Federal, state or local tax consequences of ownership of shares of, and receipt of distributions from, the Fund in their particular circumstances. Non-U.S. investors not engaged in a U.S. trade or business with which their investment in the Fund is effectively connected will be subject to U.S. Federal income tax treatment that is different from that described above. These investors may be subject to non-resident alien withholding tax at the rate of 30% (or a lower rate under an applicable tax treaty) on amounts treated as ordinary dividends from the Fund and, unless an effective IRS Form W-8, Form W-8BEN or other authorized withholding certificate is on file and to backup withholding on certain other payments from the Fund. Non-U.S. investors should consult their tax advisers regarding such treatment and the application of foreign taxes to an investment in the Fund. The Fund is not subject to Massachusetts corporate excise or franchise taxes. The Fund anticipates that, provided that the Fund qualifies as a regulated investment company under the Code, it will not be required to pay Massachusetts income taxes. CALCULATION OF PERFORMANCE Because Class I shares are new, there is no performance to report. Class A performance is currently disclosed in the Fund's prospectus for Class I shares. As of December 31, 2002, the average annual total returns before taxes of the Class A shares of the Fund for the one, five and ten year periods were -22.76%, - -1.55% and 6.53%, respectively. The average annual total return before taxes is computed by finding the average annual compounded rate of return over the 1-year, 5-year, and 10-year periods, or the period since the commencement of 28 operations, that would equate the initial amount invested to the ending redeemable value according to the following formula: n P(1+T) = ERV Where: P= a hypothetical initial payment of $1,000. T= average annual total return n= number of years ERV= ending redeemable value of a hypothetical $1,000 payment made at the beginning of the 1-year, 5-year or 10-year periods (or fractional portion). The Fund discloses average annual total returns after taxes for Class A shares for the one, five and 10 year periods ended December 31, 2002 in the prospectus. After tax returns are computed using the historical highest individual federal marginal income-tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. The average annual total return (after taxes on distributions) is computed by finding the average annual compounded rate of return over the 1-year, 5-year and 10-year periods, or the period since the commencement of operations, that would equate the initial amount invested to the ending redeemable value according to the following formula: n P(1+T) = ATV D Where: P= a hypothetical initial payment of $1,000. T= average annual total return (after taxes on distributions) n= number of years ATV = ending value of a hypothetical $1,000 payment made at D the beginning of the 1-year, 5-year, or 10-year periods (or fractional portion) after taxes on fund distributions but not after taxes on redemption. The average annual total return (after taxes on distributions and redemption) is computed by finding the average annual compounded rate of return over the 1-year, 5-year, and 10-year periods, or the period since the commencement of operations, that would equate the initial amount invested to the ending redeemable value according to the following formula: n P(1+T) = ATV DR Where: P= a hypothetical initial payment of $1,000. T= average annual total return (after taxes on distributions and redemption) n= number of years ATV = ending value of a hypothetical $1,000 payment made at DR the beginning of the 1-year, 5-year or 10-year periods (or fractional portion), after taxes on fund distributions and redemption. 29 Because each class has its own sales charge and fee structure, the classes have different performance results. In the case of each class shares, these calculations assume the maximum sales charge is included in the initial investment or the CDSC applied at the end of the period. These calculations assume that all dividends and distributions are reinvested at net asset value on the reinvestment dates during the period. The "distribution rate" is determined by annualizing the result of dividing the declared dividends of the Fund during the period stated by the maximum offering price or net asset value at the end of the period. Excluding the Fund's sales charge from the distribution rate produces a higher rate. In addition to average annual total returns, the Fund may quote unaveraged or cumulative total returns reflecting the simple change in value of an investment over a stated period. Cumulative total returns may be quoted as a percentage or as a dollar amount, and may be calculated for a single investment, a series of investments, and/or a series of redemptions, over any time period. Total returns may be quoted with or without taking the Fund's sales charge on Class A shares into account. Excluding the Fund's sales charge on Class A shares from a total return calculation produces a higher total return figure. The Fund may advertise yield, where appropriate. The Fund's yield is computed by dividing net investment income per share determined for a 30-day period by the maximum offering price per share (which includes the full sales charge) on the last day of the period, according to the following standard formula: a - b 6 Yield = 2([(-----)+1] -1) cd Where: a = dividends and interest earned during the period. b = net expenses accrued during the period. c = the average daily number of fund shares outstanding during the period that would be entitled to receive dividends. d = the maximum offering price per share on the last day of the period (NAV where applicable). From time to time, in reports and promotional literature, the Fund's yield/total return will be compared to indices of mutual funds and bank deposit vehicles such as Lipper Analytical Services, Inc.'s "Lipper -- Growth and Income Fund Performance Analysis," a monthly publication which tracks mutual fund net assets, total return, and yield. Comparisons may also be made to bank certificates of deposit ("CDs"), which differ from mutual funds, such as the Fund, in several ways. The interest rate established by the sponsoring bank is fixed for the term of a CD, there are penalties for early withdrawal from CDs, and the principal on a CD is insured. Performance rankings and ratings reported periodically in, and excerpts from, national financial publications such as MONEY Magazine, FORBES, BUSINESS WEEK, the WALL STREET JOURNAL, MICROPAL, INC., MORNINGSTAR, BARRON'S and IBBOTSON ASSOCIATES will also be utilized as well as the Russell and Wilshire indices. The Fund may also cite Morningstar Mutual Values, an independent mutual fund information service which ranks mutual funds. The Fund's promotional and sales literature may make reference to the Fund's "beta." Beta is a reflection of the market-related risk of the Fund by showing how responsive the Fund is to the market. The performance of the Fund is not fixed or guaranteed. Performance quotations should not be considered to be representations of performance of the Fund for any period in the future. The performance of the 30 Fund is a function of many factors including its earnings, expenses and number of outstanding shares. Fluctuating market conditions; purchases, sales and maturities of portfolio securities; sales and redemptions of shares; and changes in operating expenses are all examples of items that can increase or decrease the Fund's performance. BROKERAGE ALLOCATION Decisions concerning the purchase and sale of portfolio securities and the allocation of brokerage commissions are made by the Adviser's investment and/or trading personnel. Orders for purchases and sales of securities are placed in a manner, which, in the opinion of such personnel, will offer the best price and market for the execution of each such transaction. The Fund's trading practices and investments are reviewed monthly by the Adviser's Senior Investment Policy Committee which consists of officers of the Adviser and quarterly by the Adviser's Investment Committee which consists of officers and directors of the Adviser and Trustees of the Trust who are interested persons of the Fund. Purchases from underwriters of portfolio securities may include a commission or commissions paid by the issuer and transactions with dealers serving as market maker reflect a "spread." Investments in debt securities are generally traded on a "net" basis through dealers acting for their own account as principals and not as brokers; no brokerage commissions are payable on these transactions. In the U.S. Government securities market, securities are generally traded on a net basis with dealers acting as principal for their own account without a stated commission, although the price of the security usually includes a profit to the dealer. On occasion, certain money market instruments and agency securities may be purchased directly from the issuer, in which case no commissions or premiums are paid. Investments in equity securities are generally traded on exchanges or on over-the-counter markets at fixed commission rates or on a net basis. In other countries, both debt and equity securities are traded on exchanges at fixed commission rates. Commissions on foreign transactions are generally higher than the negotiated commission rates available in the U.S. There is generally less government supervision and regulation of foreign stock exchanges and broker-dealers than in the U.S. The Fund's primary policy is to execute all purchases and sales of portfolio instruments at the most favorable prices consistent with best execution, considering all of the costs of the transaction including brokerage commissions. The policy governs the selection of brokers and dealers and the market in which a transaction is executed. Consistent with the foregoing primary policy, the Conduct Rules of the National Association of Securities Dealers, Inc. and such other policies as the Trustees may determine, the Adviser may consider sales of shares of the Fund as a factor in the selection of broker-dealers to execute the Fund's portfolio transactions. To the extent consistent with the foregoing, the Fund will be governed in the selection of brokers and dealers, and the negotiation of brokerage commission rates and dealer spreads, by the reliability and quality of the services, including primarily the availability and value of research information and, to a lesser extent, statistical assistance furnished to the Adviser of the Fund. As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund may pay to a broker which provides brokerage and research services to the Fund an amount of disclosed commission in excess of the commission which another broker would have charged for effecting that transaction. This practice is subject to a good faith determination by the Trustees that such price is reasonable in light of the services provided and to such policies as the Trustees may adopt from time to time. For the fiscal year ended December 31, 2002, the Fund paid $201,275 as compensation to brokers for research services such as industry, economic and company reviews and evaluations of securities. Research services received from broker-dealers supplement the Adviser's own research (and the research of its affiliates), and may include the following types of information: statistical and background information on the U.S. and foreign economies, industry groups and individual companies; forecasts and interpretations with respect to the U.S. and foreign economies, securities, markets, specific industry 31 groups and individual companies; information on federal, state, local and foreign political developments; portfolio management strategies; performance information on securities, indexes and investment accounts; and information concerning prices and ratings of securities. Broker-dealers may communicate such information electronically, orally, in written form or on computer software. Research services may also include the providing of electronic communication of trade information and the providing of custody services, as well as the providing of equipment used to communicate research information, the providing of specialized consultations with the Adviser's personnel with respect to computerized systems and data furnished as a component of other research services, the arranging of meetings with management of companies, and the providing of access to consultants who supply research information. The outside research assistance is useful to the Adviser since the broker-dealers used by the Adviser tend to follow a broader universe of securities and other matters than the Adviser's staff can follow. In addition, the research provides the Adviser with a diverse perspective on financial markets. Research services provided to the Adviser by broker-dealers are available for the benefit of all accounts managed or advised by the Adviser or by its affiliates. Some broker-dealers may indicate that the provision of research services is dependent upon the generation of certain specified levels of commissions and underwriting concessions by the Adviser's clients, including the Fund. However, the Fund is not under any obligation to deal with any broker-dealer in the execution of transactions in portfolio securities. In some cases, the research services are available only from the broker-dealer providing them. In other cases, the research services may be obtainable from alternative sources in return for cash payments. The Adviser believes that the research services are beneficial in supplementing the Adviser's research and analysis and that they improve the quality of the Adviser's investment advice. It is not possible to place a dollar value on information and services to be received from brokers and dealers, since it is only supplementary to the research efforts of the Adviser. The advisory fee paid by the Fund is not reduced because the Adviser receives such services. The receipt of research information is not expected to reduce significantly the expenses of the Adviser. However, to the extent that the Adviser would have purchased research services had they not been provided by broker-dealers, the expenses to the Adviser could be considered to have been reduced accordingly. The research information and statistical assistance furnished by brokers and dealers may benefit the Life Company or other advisory clients of the Adviser, and conversely, brokerage commissions and spreads paid by other advisory clients of the Adviser may result in research information and statistical assistance beneficial to the Fund. The Fund will make no commitment to allocate portfolio transactions upon any prescribed basis. While the Adviser will be primarily responsible for its allocation of the Fund's brokerage business, the policies and practices of the Adviser in this regard must be consistent with the foregoing and at all times be subject to review by the Trustees. For the fiscal years ended Deember 31, 2000, 2001 and 2002, the Fund paid negotiated brokerage commissions of $2,192,992, $1,808,600 and $1,586,271, respectively. The Adviser may determine target levels of commission business with various brokers on behalf of its clients (including the Fund) over a certain time period. The target levels will be based upon the following factors, among others: (1) the execution services provided by the broker; (2) the research services provided by the broker; and (3) the broker's interest in mutual funds in general and in the Fund and other mutual funds advised by the Adviser in particular, including sales of the Fund. In connection with (3) above, the Fund's trades may be executed directly by dealers that sell shares of the John Hancock funds or by other broker-dealers with which such dealers have clearing arrangements, consistent with obtaining best execution and the Conduct Rules of the National Association of Securities Dealers, Inc. The Adviser will not use a specific formula in connection with any of these considerations to determine the target levels. Pursuant to procedures determined by the Trustees and consistent with the above policy of obtaining best net results, the Fund may execute portfolio transactions with or through brokers affiliated with the Adviser 32 ("Affiliated Brokers"). Affiliated Brokers may act as broker for the Fund on exchange transactions, subject, however, to the general policy of the Fund set forth above and the procedures adopted by the Trustees pursuant to the Investment Company Act. Commissions paid to an Affiliated Broker must be at least as favorable as those which the Trustees believe to be contemporaneously charged by other brokers in connection with comparable transactions involving similar securities being purchased or sold. A transaction would not be placed with an Affiliated Broker if the Fund would have to pay a commission rate less favorable than the Affiliated Broker's contemporaneous charges for comparable transactions for its other most favored, but unaffiliated, customers except for accounts for which the Affiliated Broker acts as clearing broker for another brokerage firm, and any customers of the Affiliated Broker not comparable to the Fund as determined by a majority of the Trustees who are not interested persons (as defined in the Investment Company Act) of the Fund, the Adviser, or the Affiliated Broker. Because the Adviser that is affiliated with the Affiliated Broker has, as an investment adviser to the Fund, the obligation to provide investment management services, which includes elements of research and related investment skills such research and related skills will not be used by the Affiliated Broker as a basis for negotiating commissions at a rate higher than that determined in accordance with the above criteria. The Adviser's indirect parent, the Life Company, is the indirect sole shareholder of Signator Investors, Inc., a broker-dealer (until January 1, 1999, John Hancock Distributors, Inc.) ("Signator" or an "Affiliated Broker"). For the fiscal years ended October 31, 2000, 2001 and 2002, the Fund did not execute portfolio transactions with Signator. Other investment advisory clients advised by the Adviser may also invest in the same securities as the Fund. When these clients buy or sell the same securities at substantially the same time, the Adviser may average the transactions as to price and allocate the amount of available investments in a manner which the Adviser believes to be equitable to each client, including the Fund. Because of this, client accounts in a particular style may sometimes not sell or acquire securities as quickly or at the same prices as they might if each were managed and traded individually. For purchases of equity securities, when a complete order is not filled, a partial allocation will be made to each participating account pro rata based on the order size. For high demand issues (for example, initial public offerings), shares will be allocated pro rata by account size as well as on the basis of account objective, account size ( a small account's allocation may be increased to provide it with a meaningful position), and the account's other holdings. In addition, an account's allocation may be increased if that account's portfolio manager was responsible for generating the investment idea or the portfolio manager intends to buy more shares in the secondary market. For fixed income accounts, generally securities will be allocated when appropriate among accounts based on account size, except if the accounts have different objectives or if an account is too small to get a meaningful allocation. For new issues, when a complete order is not filled, a partial allocation will be made to each account pro rata based on the order size. However, if a partial allocation is too small to be meaningful, it may be reallocated based on such factors as account objectives, strategies, duration benchmarks and credit and sector exposure. For example, value funds will likely not participate in initial public offerings as frequently as growth funds. In some instances, this investment procedure may adversely affect the price paid or received by the Fund or the size of the position obtainable for it. On the other hand, to the extent permitted by law, the Adviser may aggregate securities to be sold or purchased for the Fund with those to be sold or purchased for other clients managed by it in order to obtain best execution. TRANSFER AGENT SERVICES John Hancock Signature Services, Inc., John Hancock Way, Suite 1001, Boston, MA 02217-1001, a wholly-owned indirect subsidiary of the Life Company is the transfer and dividend paying agent for each Fund. The Fund pays Signature Services monthly a fee which is based on an annual rate of 0.05% of its average daily net assets attributable to Class I shares plus certain out-of-pocket expenses. 33 CUSTODY OF PORTFOLIO Portfolio securities of the Fund are held pursuant to a custodian agreement between the Fund and The Bank of New York, One Wall Street, New York, New York 10286. Under the custodian agreement, The Bank of New York is performing custody, portfolio, Foreign Custody Manager and fund accounting services. INDEPENDENT AUDITORS The independent auditors of the Fund are Deloitte & Touche LLP, 200 Berkeley Street, Boston, Massachusetts 02116. Deloitte & Touche LLP audits and renders opinions on the Fund's annual financial statements and reviews the Fund's annual Federal income tax returns. Until December 31, 2002, the independent auditors of the Fund were Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts 02116. The financial statements of the Fund, incorporated by reference in the Prospectus and this Statement of Additional Information, have been audited by Ernst & Young LLP for the periods indicated in their report with respect to those financial statements and are included in reliance upon the authority of Ernst & Young, LLP as experts in accounting and auditing. 34 APPENDIX-A MORE ABOUT RISK A fund's risk profile is largely defined by the fund's principal securities and investment practices. You may find the most concise description of the fund's risk profile in the prospectus. A fund is permitted to utilize -- within limits established by the trustees -- certain other securities and investment practices that have higher risks and opportunities associated with them. To the extent that the fund utilizes these securities or practices, its overall performance may be affected, either positively or negatively. On the following pages are brief definitions of certain associated risks with them, with examples of related securities and investment practices included in brackets. See the "Investment Objectives and Policies" and "Investment Restrictions" sections of this Statement of Additional Information for a description of this Fund's investment policies. The fund follows certain policies that may reduce these risks. As with any mutual fund, there is no guarantee that the fund will earn income or show a positive total return over any period of time -- days, months or years. TYPES OF INVESTMENT RISK Correlation risk The risk that changes in the value of a hedging instrument will not match those of the asset being hedged (hedging is the use of one investment to offset the effects of another investment). (e.g. short sales, financial futures and options; securities and index options, currency contracts). Credit risk The risk that the issuer of a security, or the counterparty to a contract, will default or otherwise become unable to honor a financial obligation. (e.g. Borrowing; reverse repurchase agreements, repurchase agreements, securities lending, non-investment-grade debt securities, financial futures and options; securities and index options). Currency risk The risk that fluctuations in the exchange rates between the U.S. dollar and foreign currencies may negatively affect an investment. (e.g. Foreign securities, financial futures and options; securities and index options, currency contracts). Extension risk The risk that an unexpected rise in interest rates will extend the life of a mortgage-backed security beyond the expected prepayment time, typically reducing the security's value. Information risk The risk that key information about a security or market is inaccurate or unavailable. (e.g. non-investment-grade debt securities, foreign securities). Interest rate risk The risk of market losses attributable to changes in interest rates. With fixed-rate securities, a rise in interest rates typically causes a fall in values, while a fall in rates typically causes a rise in values. (e.g. Non investment-grade debt securities, financial futures and options; securities and index options). Leverage risk Associated with securities or practices (such as borrowing) that multiply small index or market movements into large changes in value. (e.g. Borrowing; reverse repurchase agreements, short-sales, when-issued securities and forward commitments; financial futures and options; securities and index options, currency contracts). A-1 o Hedged When a derivative (a security whose value is based on another security or index) is used as a hedge against an opposite position that the fund also holds, any loss generated by the derivative should be substantially offset by gains on the hedged investment, and vice versa. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. o Speculative To the extent that a derivative is not used as a hedge, the fund is directly exposed to the risks of that derivative. Gains or losses from speculative positions in a derivative may be substantially greater than the derivative's original cost. Liquidity risk The risk that certain securities may be difficult or impossible to sell at the time and the price that the seller would like. (e.g. short sales, non-investment-grade debt securities; restricted and illiquid securities, financial futures and options; securities and index options, currency contracts). Management risk The risk that a strategy used by a fund's management may fail to produce the intended result. Common to all mutual funds. Market risk The risk that the market value of a security may move up and down, sometimes rapidly and unpredictably. Common to all stocks and bonds and the mutual funds that invest in them. (e.g. Short sales, short-term trading, when-issued securities and forward commitments, non-investment-grade securities, foreign securities, financial futures and options; securities and index options, restricted and illiquid securities). Natural event risk The risk of losses attributable to natural disasters, crop failures and similar events. (e.g. Foreign securities). Opportunity risk The risk of missing out on an investment opportunity because the assets necessary to take advantage of it are tied up in less advantageous investments. (e.g. Short sales, when -issued securities and forward commitments, financial futures and options; securities and index options, currency contracts). Political risk The risk of losses directly attributable to government or political actions of any sort. (e.g. Foreign securities) Prepayment risk The risk that unanticipated prepayments may occur during periods of falling interest rates, reducing the value of mortgage-backed securities. Valuation risk The risk that a fund has valued certain of its securities at a higher price than it can sell them for. (e.g. Non-investment-grade debt securities, restricted and illiquid securities). A-2 APPENDIX B Moody's describes its lower ratings for corporate bonds as follows: Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterized bonds in this class. Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Bonds which are rated Ca represented obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Standard & Poor's describes its lower ratings for corporate bonds as follows: Debt rated 'BBB' is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. Debt rated 'BB,' 'B,' 'CCC,' or 'CC' is regarded, on balance, as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligations. 'BB' indicates the lowest degree of speculation and 'CC' the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. Moody's describes its three highest ratings for commercial paper as follows: Issuers rated P-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. P-1 repayment capacity will normally be evidenced by the following characteristics: (1) leading market positions in well- established industries; (2) high rates of return on funds employed; (3) conservative capitalization structures with moderate reliance on debt and ample asset protections; (4) broad margins in earnings coverage of fixed financial charges and high internal cash generation; and (5) well established access to a range of financial markets and assured sources of alternate liquidity. B-1 Issuers rated P-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Issuers rated P-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. Standard & Poor's describes its lower ratings for corporate bonds as follows: BBB Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. BB, B, CCC, CC, C Debt rated 'BB', 'B', 'CCC', 'CC" and 'C' is regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. 'BB' indicates the lowest degree of speculation and 'C' the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. BB Debt rated 'BB' has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The 'BB' rating category is also used for debt subordinated to senior debt that is assigned an actual or implied 'BBB-' rating. B Debt rated 'B' has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The 'B' rating category is also used for debt subordinated to senior debt that is assigned an actual or implied 'BB' or 'BB-' rating. CCC Debt rated 'CCC' has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The 'CCC' rating category is also used for debt subordinated to senior debt that is assigned an actual or implied 'B' or 'B-' rating. CC The rating 'CC' is typically applied to debt subordinated to senior debt that is assigned an actual or implied 'CCC' rating. C The rating 'C' is typically applied to debt subordinated to senior debt which is assigned an actual or implied 'CCC-' debt rating. The 'C' rating may be used to cover a situation where a B-2 bankruptcy petition has been filed, but debt service payments are continued. Standard & Poor's describes its three highest ratings for commercial paper as follows: A-1. This designation indicated that the degree of safety regarding timely payment is very strong. A-2. Capacity for timely payment on issues with this designation is strong. However, the relative degree of safety is not as overwhelming as for issues designated A-1. A-3. Issues carrying this designation have a satisfactory capacity for timely payment. They are, however, somewhat more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations. Issuers rated P-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Issuers rated P-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. B-3 FINANCIAL STATEMENTS The financial statements listed below are included in the Fund's 2002 Annual Report to Shareholders for the year ended December 31, 2002; (filed electronically on February 24, 2003, accession number 0000928816-03-000128) and are included in and incorporated by reference into Part B of the Registration Statement for John Hancock Sovereign Investors Fund (file nos. 811-00560 and 2-10156). John Hancock Investment Trust John Hancock Sovereign Investors Fund Statement of Assets and Liabilities as of December 31, 2002. Statement of Operations for the year ended December 31, 2002. Statement of Changes in Net Assets for each of the two years in the period ended December 31, 2002. Notes to Financial Statements. Financial Highlights for each of the five years in the period ended December 31, 2002. Schedule of Investments as of December 31, 2002. Report of Independent Auditors. F-1 JOHN HANCOCK - -------------------------------------------------------------------------------- Prospectus 3.1.03 Large Cap Spectrum Fund as revised 10.1.03 670PN 9/03 Draft 8/20/03 [LOGO](R) - ------------------ JOHN HANCOCK FUNDS As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved this fund or determined whether the information in this prospectus is adequate and accurate. Anyone who indicates otherwise is committing a federal crime. Contents - -------------------------------------------------------------------------------- A summary of the fund's Large Cap Spectrum Fund 4 goals, strategies, risks, performance and expenses. Policies and instructions for Your account opening, maintaining and closing an account. Choosing a share class 6 How sales charges are calculated 6 Sales charge reductions and waivers 7 Opening an account 8 Buying shares 9 Selling shares 10 Transaction policies 12 Dividends and account policies 12 Additional investor services 13 Further information on the Fund details fund. Business structure 14 Financial highlights 15 For more information back cover 3 Large Cap Spectrum Fund GOAL AND STRATEGY [Clip Art] The fund seeks long-term growth of capital. To pursue this goal, the fund normally invests at least 80% of its assets in stocks of large-capitalization companies (companies in the capitalization range of the Standard & Poor's 500 Index, which was $284.90 million to $384.70 billion on July 31, 2003). The fund is non-diversified and may invest up to 10% of assets in securities of individual companies. The fund's assets will be managed according to three separate investment strategies -- growth, core and value. The fund's assets will be allocated to reflect an optimal combination as determined by the adviser's: (1) assessment of the three strategies' historical risk, return and correlation; and (2) long-term strategic view of the relative attractiveness of the three strategies. In managing the growth portion of the portfolio, the managers seek to identify companies with above-average earnings growth prospects that are not fully reflected in current market valuations. They emphasize stock selection, relying heavily upon the fundamental analysis and research of their internal research staff. They favor companies with strong management, superior industry positions and excellent balance sheets. In managing the core portion of the portfolio, the managers look for companies that are undervalued and/or offer the potential for above-average earnings growth. The managers employ a combination of proprietary financial models and bottom-up, fundamental financial research to identify companies that are selling at what appear to be substantial discounts to their longterm intrinsic value. These companies often have identifiable catalysts for growth, such as new products, business reorganizations or mergers. The managers of the value portion of the fund look for companies that they believe are undervalued. They employ a fundamental value approach, focusing on the relationship between a security's current price and its intrinsic economic value, as measured by earnings power and dividend paying capability. The fund may invest up to 20% of assets in foreign securities. The fund may also make limited use of certain derivatives (investments whose value is based on indexes, securities or currencies). In abnormal circumstances, the fund may temporarily invest more than 20% of its assets in investment-grade shortterm securities, cash and cash equivalents. In these and other cases, the fund might not achieve its goal. ================================================================================ PAST PERFORMANCE [Clip Art] This section normally shows how the fund's total return has varied from year to year, along with a broad-based market index for reference. Because the fund has existed for less than a full calendar year, there is no past performance to report. 4 MAIN RISKS [Clip Art] The value of your investment will fluctuate in response to stock market movements. The fund's management strategy has a significant influence on fund performance. Large-capitalization stocks as a group could fall out of favor with the market, causing the fund to underperform investments that focus on small- or medium-capitalization stocks. In addition, if the managers' securities selection strategies or the adviser's asset allocation strategy do not perform as expected, the fund could underperform its peers or lose money. To the extent that the fund makes investments with additional risks, these risks could increase volatility or reduce performance: o Certain derivatives could produce disproportionate losses. o In a down market, higher-risk securities and derivatives could become harder to value or to sell at a fair price. o Foreign investments carry additional risks, including potentially unfavorable currency exchange rates, inadequate or inaccurate financial information and social or political instability. o If the fund invests heavily in a single issuer, its performance could suffer significantly from adverse events affecting that issuer. The fund may trade securities actively, which could increase its transaction costs (thus lowering performance) and increase your taxable distributions. Investments in the fund are not bank deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. You could lose money by investing in this fund. ================================================================================ YOUR EXPENSES [Clip Art] Transaction expenses are charged directly to your account. Operating expenses are paid from the fund's assets, and therefore are paid by shareholders indirectly.
- --------------------------------------------------------------------------------------- Shareholder transaction expenses(1) Class A Class B Class C - --------------------------------------------------------------------------------------- Maximum sales charge (load) 5.00% 5.00% 2.00% Maximum front-end sales charge (load) on purchases as a % of purchase price 5.00% none 1.00% Maximum deferred sales charge (load) as a % of purchase or sale price, whichever is less none(2) 5.00% 1.00%
- --------------------------------------------------------------------------------------- Annual operating expenses Class A Class B Class C - --------------------------------------------------------------------------------------- Management fee 0.85% 0.85% 0.85% Distribution and service (12b-1) fees 0.30% 1.00% 1.00% Other expenses 1.25% 1.25% 1.25% Total fund operating expenses 2.40% 3.10% 3.10% Expense reimbursement (at least until 2-28-04) 0.90% 0.90% 0.90% Net annual operating expenses 1.50% 2.20% 2.20%
The hypothetical example below shows what your expenses would be after the expense reimbursement (first year only) if you invested $10,000 over the time frames indicated, assuming you reinvested all distributions and that the average annual return was 5%. The example is for comparison only, and does not represent the fund's actual expenses and returns, either past or future. - -------------------------------------------------------------------------------- Expenses Year 1 Year 3 Year 5 Year 10 - -------------------------------------------------------------------------------- Class A $645 $1,129 1,639 3,034 Class B with redemption $723 $1,173 1,747 3,185 Class B without redemption $223 $873 1,547 3,185 Class C with redemption $420 $964 1,632 3,415 Class C without redemption $321 $964 1,632 3,415 (1) A $4.00 fee will be charged for wire redemptions. (2) Except for investments of $1 million or more; see "How sales charges are calculated." ================================================================================ ADVISER John Hancock Advisers, LLC Team responsible for core portion of the fund SUBADVISER Alliance Capital Management, L.P. Team responsible for growth portion of the fund Founded in 1971 Supervised by the adviser Bernstein Investment Research & Management Unit A unit of Alliance Capital Management, L.P. Team responsible for value portion of the fund Supervised by the adviser FUND CODES Class A Ticker JLSAX CUSIP 41014V406 Newspaper -- SEC number 811-4079 JH fund number 67 Class B Ticker JLSBX CUSIP 41014V505 Newspaper -- SEC number 811-4079 JH fund number 167 Class C Ticker JLSCX CUSIP 41014V604 Newspaper -- SEC number 811-4079 JH fund number 567 5 Your account - -------------------------------------------------------------------------------- CHOOSING A SHARE CLASS Each share class has its own cost structure, including a Rule 12b-1 plan that allows it to pay fees for the sale, distribution and service of its shares. Your financial representative can help you decide which share class is best for you. - -------------------------------------------------------------------------------- Class A - -------------------------------------------------------------------------------- o A front-end sales charge, as described at right. o Distribution and service (12b-1) fees of 0.30%. - -------------------------------------------------------------------------------- Class B - -------------------------------------------------------------------------------- o No front-end sales charge; all your money goes to work for you right away. o Distribution and service (12b-1) fees of 1.00%. o A deferred sales charge, as described on following page. o Automatic conversion to Class A shares after eight years, thus reducing future annual expenses. - -------------------------------------------------------------------------------- Class C - -------------------------------------------------------------------------------- o A front-end sales charge, as described at right. o Distribution and service (12b-1) fees of 1.00%. o A 1.00% contingent deferred sales charge on shares sold within one year of purchase. o No automatic conversion to Class A shares, so annual expenses continue at the Class C level throughout the life of your investment. Because 12b-1 fees are paid on an ongoing basis, they may cost shareholders more than other types of sales charges. Investors purchasing $1 million or more of Class B or Class C shares may want to consider the lower operating expenses of Class A shares. Your broker/dealer receives a percentage of these sales charges and fees. In addition, John Hancock Funds may pay significant compensation out of its own resources to your broker/dealer. Your broker/dealer or agent may charge you a fee to effect transactions in fund shares. - -------------------------------------------------------------------------------- HOW SALES CHARGES ARE CALCULATED Class A and Class C Sales charges are as follows: - -------------------------------------------------------------------------------- Class A sales charges - -------------------------------------------------------------------------------- As a % of As a % of your Your investment offering price investment Up to $49,999 5.00% 5.26% $50,000 - $99,999 4.50% 4.71% $100,000 - $249,999 3.50% 3.63% $250,000 - $499,000 2.50% 2.56% $500,000 - $999,999 2.00% 2.04% $1,000,000 and over See below - -------------------------------------------------------------------------------- Class C sales charges - -------------------------------------------------------------------------------- As a % of As a % of your Your investment offering price investment Up to $1,000,000 1.00% 1.01% $1,000,000 and over none Investments of $1 million or more Class A and Class C shares are available with no front-end sales charge. However, there is a contingent deferred sales charge (CDSC) on any Class A shares sold within one year of purchase, as follows: - -------------------------------------------------------------------------------- CDSC on $1 million+ investments - -------------------------------------------------------------------------------- CDSC on shares Your investment being sold First $1M - $4,999,999 1.00% Next $1 - $5M above that 0.50% Next $1 or more above that 0.25% For purposes of this CDSC, all purchases made during a calendar month are counted as having been made on the first day of that month. 6 YOUR ACCOUNT The CDSC is based on the lesser of the original purchase cost or the current market value of the shares being sold, and is not charged on shares you acquired by reinvesting your dividends. To keep your CDSC as low as possible, each time you place a request to sell shares we will first sell any shares in your account that are not subject to a CDSC. Class B Shares are offered at their net asset value per share, without any initial sales charge. Class B and Class C A CDSC may be charged if you sell Class B or Class C shares within a certain time after you bought them, as described in the tables below. There is no CDSC on shares acquired through reinvestment of dividends. The CDSC is based on the original purchase cost or the current market value of the shares being sold, whichever is less. The CDSCs are as follows: - -------------------------------------------------------------------------------- Class B deferred charges - -------------------------------------------------------------------------------- Years after purchase CDSC on shares being sold 1st year 5.00% 2nd year 4.00% 3rd or 4th year 3.00% 5th year 2.00% 6th year 1.00% After 6th year none - -------------------------------------------------------------------------------- Class C deferred charges - -------------------------------------------------------------------------------- Years after purchase CDSC 1st year 1.00% After 1st year none For purposes of these CDSCs, all purchases made during a calendar month are counted as having been made on the first day of that month. CDSC calculations are based on the number of shares involved, not on the value of your account. To keep your CDSC as low as possible, each time you place a request to sell shares we will first sell any shares in your account that carry no CDSC. If there are not enough of these to meet your request, we will sell those shares that have the lowest CDSC. - -------------------------------------------------------------------------------- SALES CHARGE REDUCTIONS AND WAIVERS Reducing your Class A sales charges There are several ways you can combine multiple purchases of Class A shares of John Hancock funds to take advantage of the breakpoints in the sales charge schedule. The first three ways can be combined in any manner. o Accumulation Privilege -- lets you add the value of any Class A shares you already own to the amount of your next Class A investment for purposes of calculating the sales charge. Retirement plans investing $1 million in Class B shares may add that value to Class A purchases to calculate charges. o Letter of Intention -- lets you purchase Class A shares of a fund over a 13-month period and receive the same sales charge as if all shares had been purchased at once. o Combination Privilege -- lets you combine Class A shares of multiple funds for purposes of calculating the sales charge. To utilize: complete the appropriate section of your application, or contact your financial representative or Signature Services, or consult the SAI (see the back cover of this prospectus). Group Investment Program A group may be treated as a single purchaser under the accumulation and combination privileges. Each investor has an individual account, but the group's investments are lumped together for sales charge purposes, making the investors potentially eligible for reduced sales charges. There is no charge or obligation to invest (although initial investments must total at least $250) and individual investors may close their accounts at any time. To utilize: contact your financial representative or Signature Services to find out how to qualify, or consult the SAI (see the back cover of the prospectus). CDSC waivers As long as Signature Services is notified at the time you sell, the CDSC for each share class will generally be waived in the following cases: o to make payments through certain systematic withdrawal plans o to make certain distributions from a retirement plan o because of shareholder death or disability To utilize: If you think you may be eligible for a CDSC waiver, contact your financial representative or Signature Services, or consult the SAI (see the back cover of this prospectus). YOUR ACCOUNT 7 Reinstatement privilege If you sell shares of a John Hancock fund, you may reinvest some or all of the proceeds in the same share class of any John Hancock fund within 120 days without a sales charge, as long as Signature Services is notified before you reinvest. If you paid a CDSC when you sold your shares, you will be credited with the amount of the CDSC. All accounts involved must have the same registration. To utilize: contact your financial representative or Signature Services. Waivers for certain investors Class A shares may be offered without front-end sales charges or CDSCs to various individuals and institutions, including: o selling brokers and their employees and sales representatives o financial representatives utilizing fund shares in fee-based investment products under signed agreement with John Hancock Funds o fund trustees and other individuals who are affiliated with these or other John Hancock funds o individuals transferring assets from an employee benefit plan into a John Hancock fund o participants in certain retirement plans with at least 100 eligible employees (one-year CDSC applies) Class C shares may be offered without front-end sales charges to various individuals and institutions. To utilize: if you think you may be eligible for a sales charge waiver, contact Signature Services or consult the SAI (see the back cover of this prospectus). - -------------------------------------------------------------------------------- OPENING AN ACCOUNT 1 Read this prospectus carefully. 2 Determine how much you want to invest. The minimum initial investments for the John Hancock funds are as follows: o non-retirement account: $1,000 o retirement account: $250 o group investments: $250 o Monthly Automatic Accumulation Plan (MAAP): $25 to open; you must invest at least $25 a month o fee-based clients of selling brokers who have placed at least $2 billion in John Hancock funds: $250 3 Complete the appropriate parts of the account application, carefully following the instructions. You must submit additional documentation when opening trust, corporate or power of attorney accounts. You must notify your financial representative or Signature Services if this information changes. For more details, please contact your financial representative or call Signature Services at 1-800-225-5291. 4 Complete the appropriate parts of the account privileges application. By applying for privileges now, you can avoid the delay and inconvenience of having to file an additional application if you want to add privileges later. 5 Make your initial investment using the table on the next page. You and your financial representative can initiate any purchase, exchange or sale of shares. 8 YOUR ACCOUNT - -------------------------------------------------------------------------------- Buying shares - -------------------------------------------------------------------------------- Opening an account Adding to an account By check [Clip Art] o Make out a check for the o Make out a check for the investment amount, payable to investment amount payable to "John Hancock Signature "John Hancock Signature Services, Inc." Services, Inc." o Deliver the check and your o Fill out the detachable completed application to your investment slip from an financial representative, or account statement. If no slip mail them to Signature is available, include a note Services (address below). specifying the fund name, your share class, your account number and the name(s) in which the account is registered. o Deliver the check and your investment slip or note to your financial representative, or mail them to Signature Services (address below). By exchange [Clip Art] o Call your financial o Log on to www.jhfunds.com to representative or Signature process exchanges between Services to request an funds. exchange. o Call EASI-Line for automated service 24 hours a day using your touch-tone phone at 1-800-338-8080. o Call your financial representative or Signature Services to request an exchange. By wire [Clip Art] o Deliver your completed o Instruct your bank to wire the application to your financial amount of your investment to: representative, or mail it to First Signature Bank & Trust Signature Services. Account # 900000260 o Obtain your account number by Routing # 211475000 calling your financial Specify the fund name, your share representative or Signature class, your account number and Services. the name(s) in which the account o Instruct your bank to wire the is registered. Your bank may amount of your investment to: charge a fee to wire funds. First Signature Bank & Trust Account # 900000260 Routing # 211475000 Specify the fund name, your choice of share class, the new account number and the name(s) in which the account is registered. Your bank may charge a fee to wire funds. By Internet [Clip Art] See "By exchange" and "By wire." o Verify that your bank or credit union is a member of the Automated Clearing House (ACH) system. o Complete the "Bank Information" section on your account application. o Log on to www.jhfunds.com to initiate purchases using your authorized bank account. By phone [Clip Art] See "By exchange" and "By wire." o Verify that your bank or credit union is a member of the Automated Clearing House (ACH) system. o Complete the "Bank Information" section on your account application. o Call EASI-Line for automated service 24 hours a day using your touch-tone phone at 1-800-338-8080. o Call your financial representative or Signature Services between 8 A.M. and 4 P.M. Eastern Time on most business days. To open or add to an account using the Monthly Automatic Accumulation Program, see "Additional investor services." - -------------------------------------------------------------------------------- Address: John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1000 Boston, MA 02217-1000 Phone Number: 1-800-225-5291 Or contact your financial representative for instructions and assistance. - -------------------------------------------------------------------------------- YOUR ACCOUNT 9 - -------------------------------------------------------------------------------- Selling shares - -------------------------------------------------------------------------------- Designed for To sell some or all of your shares By letter [Clip Art] o Accounts of any type. o Write a letter of instruction or o Sales of any amount. complete a stock power indicating the fund name, your share class, your account number, the name(s) in which the account is registered and the dollar value or number of shares you wish to sell. o Include all signatures and any additional documents that may be required (see next page). o Mail the materials to Signature Services. o A check will be mailed to the name(s) and address in which the account is registered, or otherwise according to your letter of instruction. By Internet [Clip Art] o Most accounts. o Log on to www.jhfunds.com to o Sales of up to $100,000. initiate redemptions from your funds. By phone [Clip Art] o Most accounts. o Call EASI-Line for automated o Sales of up to $100,000. service 24 hours a day using your touch-tone phone at 1-800-338-8080. o Call your financial representative or Signature Services between 8 A.M. and 4 P.M. Eastern Time on most business days. By wire or electronic funds transfer (EFT) [Clip Art] o Requests by letter to sell o To verify that the Internet or any amount. telephone redemption privilege o Requests by Internet or is in place on an account, or to phone to sell up to $100,000. request the form to add it to an existing account, call Signature Services. o Amounts of $1,000 or more will be wired on the next business day. A $4 fee will be deducted from your account. o Amounts of less than $1,000 may be sent by EFT or by check. Funds from EFT transactions are generally available by the second business day. Your bank may charge a fee for this service. By exchange [Clip Art] o Accounts of any type. o Obtain a current prospectus for o Sales of any amount. the fund into which you are exchanging by Internet or by calling your financial representative or Signature Services. o Log on to www.jhfunds.com to process exchanges between your funds. o Call EASI-Line for automated service 24 hours a day using your touch-tone phone at 1-800-338-8080. o Call your financial representative or Signature Services to request an exchange. To sell shares through a systematic withdrawal plan, see "Additional investor services." 10 YOUR ACCOUNT Selling shares in writing In certain circumstances, you will need to make your request to sell shares in writing. You may need to include additional items with your request, unless they were previously provided to Signature Services and are still accurate. These items are shown in the table below. You may also need to include a signature guarantee, which protects you against fraudulent orders. You will need a signature guarantee if: o your address of record has changed within the past 30 days o you are selling more than $100,000 worth of shares o you are requesting payment other than by a check mailed to the address of record and payable to the registered owner(s) You will need to obtain your signature guarantee from a member of the Signature Guarantee Medallion Program. Most brokers and securities dealers are members of this program. A notary public CANNOT provide a signature guarantee. - -------------------------------------------------------------------------------- Seller Requirements for written requests - -------------------------------------------------------------------------------- [Clip Art] Owners of individual, joint or o Letter of instruction. UGMA/UTMA accounts (custodial accounts o On the letter, the signatures and for minors). titles of all persons authorized to sign for the account, exactly as the account is registered. o Signature guarantee if applicable (see above). Owners of corporate, sole o Letter of instruction. proprietorship, general partner or o Corporate business/organization association accounts. resolution, certified within the past 12 months, or a John Hancock Funds business/ organization certification form. o On the letter and the resolution, the signature of the person(s) authorized to sign for the account. o Signature guarantee if applicable (see above). Owners or trustees of trust accounts. o Letter of instruction. o On the letter, the signature(s) of the trustee(s). o Copy of the trust document certified within the past 12 months or a John Hancock Funds trust certification form. o Signature guarantee if applicable (see above). Joint tenancy shareholders with rights o Letter of instruction signed by of survivorship whose co-tenants are surviving tenant. deceased. o Copy of death certificate. o Signature guarantee if applicable (see above). Executors of shareholder estates. o Letter of instruction signed by executor. o Copy of order appointing executor, certified within the past 12 months. o Signature guarantee if applicable (see above). Administrators, conservators, o Call 1-800-225-5291 for guardians and other sellers or account instructions. types not listed above. - -------------------------------------------------------------------------------- Address: John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1000 Boston, MA 02217-1000 Phone Number: 1-800-225-5291 Or contact your financial representative for instructions and assistance. - -------------------------------------------------------------------------------- YOUR ACCOUNT 11 - -------------------------------------------------------------------------------- TRANSACTION POLICIES Valuation of shares The net asset value (NAV) per share for each class of the fund is determined each business day at the close of regular trading on the New York Stock Exchange (typically 4 P.M. Eastern Time). The fund uses market prices in valuing portfolio securities, but may use fair-value estimates if reliable market prices are unavailable. The fund may also value securities at fair value if the value of these securities has been materially affected by events occurring after the close of a foreign market. Foreign stock or other portfolio securities held by the fund may trade on U.S. holidays and weekends, even though the fund's shares will not be priced on those days. This may change the fund's NAV on days when you cannot buy or sell shares. Buy and sell prices When you buy shares, you pay the NAV plus any applicable sales charges, as described earlier. When you sell shares, you receive the NAV minus any applicable deferred sales charges. Execution of requests The fund is open on those days when the New York Stock Exchange is open, typically Monday through Friday. Buy and sell requests are executed at the next NAV to be calculated after Signature Services receives your request in good order. At times of peak activity, it may be difficult to place requests by phone. During these times, consider using EASI-Line, accessing www.jhfunds.com, or sending your request in writing. In unusual circumstances, the fund may temporarily suspend the processing of sell requests, or may postpone payment of proceeds for up to three business days or longer, as allowed by federal securities laws. Telephone transactions For your protection, telephone requests may be recorded in order to verify their accuracy. Also for your protection, telephone redemption transactions are not permitted on accounts whose names or addresses have changed within the past 30 days. Proceeds from telephone transactions can only be mailed to the address of record. Exchanges You may exchange shares of one John Hancock fund for shares of the same class of any other, generally without paying any additional sales charges. The registration for both accounts involved must be identical. Class B and Class C shares will continue to age from the original date and will retain the same CDSC rate. However, if the new fund's CDSC rate is higher, then the rate will increase. A CDSC rate that has increased will drop again with a future exchange into a fund with a lower rate. To protect the interests of other investors in the fund, the fund may cancel the exchange privileges of any parties who, in the opinion of the fund, are using market timing strategies or making more than seven exchanges per owner or controlling party per calendar year. The fund may also refuse any exchange order. The fund may change or cancel its exchange policies at any time, upon 60 days' notice to its shareholders. Account Information John Hancock Funds is required by law to obtain information for verifying an account holder's identity. If you do not provide the required information, we may not be able to open your account. If verification is unsuccessful, John Hancock Funds may close your account, redeem your shares at the next NAV minus any applicable sales charges, and take other steps that it deems reasonable. Certificated shares The fund does not issue share certificates. Shares are electronically recorded. Sales in advance of purchase payments When you place a request to sell shares for which the purchase money has not yet been collected, the request will be executed in a timely fashion, but the fund will not release the proceeds to you until your purchase payment clears. This may take up to ten business days after the purchase. - -------------------------------------------------------------------------------- DIVIDENDS AND ACCOUNT POLICIES Account statements In general, you will receive account statements as follows: o after every transaction (except a dividend reinvestment) that affects your account balance o after any changes of name or address of the registered owner(s) o in all other circumstances, every quarter Every year you should also receive, if applicable, a Form 1099 tax information statement, mailed by January 31. Dividends The fund generally distributes most or all of its net earnings annually in the form of dividends. The fund declares and pays any income dividends annually. Capital gains, if any, are typically distributed annually. Dividend reinvestments Most investors have their dividends reinvested in additional shares of the same fund and class. If you choose this option, or if you do not indicate any choice, your dividends will be reinvested on the dividend record date. Alternatively, you can choose to have a check for your dividends and capital gains in the amount of more than $10 mailed to you. However, if the check is not deliverable or the combined dividend and capital gains amount is $10 or less, your proceeds will be 12 YOUR ACCOUNT reinvested. If five or more of your dividend or capital gains checks remain uncashed after 180 days, all subsequent dividends and capital gains will be reinvested. Taxability of dividends Dividends you receive from a fund, whether reinvested or taken as cash, are generally considered taxable. Dividends from the fund's long-term capital gains are taxable as capital gains; dividends from the fund's income and short-term capital gains are generally taxable as ordinary income. Whether gains are short-term or long-term depends on the fund's holding period. Some dividends paid in January may be taxable as if they had been paid the previous December. The Form 1099 that is mailed to you every January details your dividends and their federal tax category, although you should verify your tax liability with your tax professional. Taxability of transactions Any time you sell or exchange shares, it is considered a taxable event for you. Depending on the purchase price and the sale price of the shares you sell or exchange, you may have a gain or a loss on the transaction. You are responsible for any tax liabilities generated by your transactions. Small accounts (non-retirement only) If you draw down a non-retirement account so that its total value is less than $1,000, you may be asked to purchase more shares within 30 days. If you do not take action, your fund may close out your account and mail you the proceeds. Alternatively, Signature Services may charge you $10 a year to maintain your account. You will not be charged a CDSC if your account is closed for this reason, and your account will not be closed if its drop in value is due to fund performance or the effects of sales charges. - -------------------------------------------------------------------------------- ADDITIONAL INVESTOR SERVICES Monthly Automatic Accumulation Program (MAAP) MAAP lets you set up regular investments from your paycheck or bank account to the John Hancock fund(s) of your choice. You determine the frequency and amount of your investments, and you can terminate your program at any time. To establish: o Complete the appropriate parts of your account application. o If you are using MAAP to open an account, make out a check ($25 minimum) for your first investment amount payable to "John Hancock Signature Services, Inc." Deliver your check and application to your financial representative or Signature Services. Systematic withdrawal plan This plan may be used for routine bill payments or periodic withdrawals from your account. To establish: o Make sure you have at least $5,000 worth of shares in your account. o Make sure you are not planning to invest more money in this account (buying shares during a period when you are also selling shares of the same fund is not advantageous to you, because of sales charges). o Specify the payee(s). The payee may be yourself or any other party, and there is no limit to the number of payees you may have, as long as they are all on the same payment schedule. o Determine the schedule: monthly, quarterly, semi-annually, annually or in certain selected months. o Fill out the relevant part of the account application. To add a systematic withdrawal plan to an existing account, contact your financial representative or Signature Services. Retirement plans John Hancock Funds offers a range of retirement plans, including traditional and Roth IRAs, Coverdell ESAs, SIMPLE plans and SEPs. Using these plans, you can invest in any John Hancock fund (except tax-free income funds) with a low minimum investment of $250 or, for some group plans, no minimum investment at all. To find out more, call Signature Services at 1-800-225-5291. YOUR ACCOUNT 13 Fund details - -------------------------------------------------------------------------------- BUSINESS STRUCTURE The diagram below shows the basic business structure used by the fund. The fund's board of trustees oversees the fund's business activities and retains the services of the various firms that carry out the fund's operations. The trustees have the power to change the fund's investment goal without shareholder approval. The trustees of the fund have the power to change the focus of the fund's 80% investment policy without shareholder approval. The fund will provide written notice to shareholders at least 60 days prior to a change in its 80% investment policy. The management firm The fund is managed by John Hancock Advisers, LLC Founded in 1968, John Hancock Advisers is a wholly owned subsidiary of John Hancock Financial Services, Inc. and as of June 30, 2003, managed approximately $27 billion in assets. Subadvisers Alliance Capital Management L.P. ("Alliance") subadvises Large Cap Spectrum Fund with respect to the fund's growth and value investment strategies. Alliance was founded in 1971 and provides investment advisory services to individual and institutional investors. As of December 31, 2002, Alliance had total assets under management in excess of $387 billion. Management fee For the fiscal year ended December 31, 2002, the fund paid the investment adviser a management fee at an annual rate of 0.00% of the fund's average daily net assets, after expense reimbursement. ----------------------------------- Shareholders ----------------------------------- ----------------------------------- Distribution and Financial services firms and their shareholder services representatives Advise current and prospective shareholders on their fund investments, often in the context of an overall financial plan. ----------------------------------- ----------------------------------- Principal distributor John Hancock Funds, LLC Markets the fund and distributes shares through selling brokers, financial planners and other financial representatives. ----------------------------------- ----------------------------------- Transfer agent John Hancock Signature Services, Inc. Handles shareholder services, including recordkeeping and statements, distribution of dividends and processing of buy and sell requests. ----------------------------------- ----------------------------------- Subadviser Asset management Alliance Capital Management, L.P. 1345 Avenue of the Americas New York, NY 10105 Provides portfolio management to the fund. ----------------------------------- ----------------------------------- Investment adviser John Hancock Advisers, LLC 101 Huntington Avenue Boston, MA 02199-7603 Manages the fund's business and investment activities. ----------------------------------- ----------------------------------- Custodian The Bank of New York One Wall Street New York, New York 10286 Holds the fund's assets, settles all portfolio trades and collects most of the valuation data required for calculating the fund's NAV. ----------------------------------- ----------------------------------- Trustees Oversee the fund's activities. ----------------------------------- 14 FUND DETAILS - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS These tables detail the performance of the fund's share classes, including total return information showing how much an investment in the fund has increased or decreased each year. Figures audited by PricewaterhouseCoopers LLP.
Unaudited --------- CLASS A SHARES PERIOD ENDED: 10-31-02(1) 4-30-03(2) - --------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE - --------------------------------------------------------------------------------------------------- Net asset value, beginning of period $10.00 $7.67 Net investment loss(3) --(4) 0.01 Net realized and unrealized loss on investments (2.33) 0.16 Total from investment operations (2.33) 0.17 Net asset value, end of period $7.67 $7.84 Total return(5),(6)(%) (23.30)(7) 2.22(7) - --------------------------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA - --------------------------------------------------------------------------------------------------- Net assets, end of period(in millions) $6 $5 Ratio of expenses to average net assets(%) 1.50(8) 1.50(8) Ratio of adjusted expenses to average net assets(9)(%) 2.40(8) 2.32(8) Ratio of net investment loss to average net assets(%) --(8) 0.24(8) Portfolio turnover(%) 70 40 CLASS B SHARES PERIOD ENDED: 10-31-02(1) 4-30-03(2) - --------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE - --------------------------------------------------------------------------------------------------- Net asset value, beginning of period $10.00 $7.64 Net investment loss(3) (0.04) (0.02) Net realized and unrealized loss on investments (2.32) 0.16 Total from investment operations (2.36) 0.14 Net asset value, end of period $7.64 $7.78 Total return(5),(6)(%) (23.60)(7) 1.83(7) - --------------------------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA - --------------------------------------------------------------------------------------------------- Net assets, end of period(in millions) $8 $7 Ratio of expenses to average net assets(%) 2.20(8) 2.20(8) Ratio of adjusted expenses to average net assets(9)(%) 3.10(8) 3.02(8) Ratio of net investment loss to average net assets(%) (0.69)(8) (0.45)(8) Portfolio turnover(%) 70 40 CLASS C SHARES PERIOD ENDED: 10-31-02(1) 4-30-03(2) - --------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE - --------------------------------------------------------------------------------------------------- Net asset value, beginning of period $10.00 $7.64 Net investment loss(3) (0.04) (0.02) Net realized and unrealized loss on investments (2.32) 0.16 Total from investment operations (2.36) 0.14 Net asset value, end of period $7.64 $7.78 Total return(5),(6)(%) (23.60)(7) 1.83(7) - --------------------------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA - --------------------------------------------------------------------------------------------------- Net assets, end of period(in millions) $6 $5 Ratio of expenses to average net assets(%) 2.20(8) 2.20(8) Ratio of adjusted expenses to average net assets(9)(%) 3.10(8) 3.02(8) Ratio of net investment loss to average net assets(%) (0.69)(8) (0.46)(8) Portfolio turnover(%) 70 40
(1) Class A, Class B and Class C shares began operations on 2-25-02. (2) Semiannual period from 11-1-02 through 4-30-03. Unaudited. (3) Based on the average of the shares outstanding. (4) Less than $0.01 per share. (5) Assumes dividend reinvestment and does not reflect the effect of sales charges (6) Total returns would have been lower had certain expenses not been reduced during the periods shown. (7) Not annualized. (8) Annualized. (9) Does not take into consideration expense reductions during the periods shown. ================================================================================ The following returns are not audited and are not part of the audited financial highlights presented above: Without the expense reductions, returns for Class A, Class B and Class C for the period ended October 31, 2002, would have been (23.91%), (24.21%) and (24.21%), respectively. FUND DETAILS 15 For more information Two documents are available that offer further information on the John Hancock Large Cap Spectrum Fund: Annual/Semiannual Report to Shareholders Includes financial statements, a discussion of the market conditions and investment strategies that significantly affected performance, as well as the auditors' report (in annual report only). Statement of Additional Information (SAI) The SAI contains more detailed information on all aspects of the fund. The current annual report is included in the SAI. A current SAI has been filed with the Securities and Exchange Commission and is incorporated by reference into (is legally a part of) this prospectus. To request a free copy of the current annual/semiannual report or the SAI, please contact John Hancock: By mail: John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1000 Boston, MA 02217-1000 By phone: 1-800-225-5291 By EASI-Line: 1-800-338-8080 By TDD: 1-800-554-6713 On the Internet: www.jhfunds.com Or you may view or obtain these documents from the SEC: In person: at the SEC's Public Reference Room in Washington, DC. For access to the Reference Room call 1-202-942-8090 By mail: Public Reference Section Securities and Exchange Commission Washington, DC 20549-0102 (duplicating fee required) By electronic request: publicinfo@sec.gov (duplicating fee required) On the Internet: www.sec.gov (C)2003 JOHN HANCOCK FUNDS, LLC 670PN 9/03 [LOGO](R) John Hancock Funds, LLC MEMBER NASD 101 Huntington Avenue Boston, MA 02199-7603 www.jhfunds.com Sign up for electronic delivery at www.jhancock.com/funds/edelivery JOHN HANCOCK Prospectus 7.1.03 Institutional funds Dividend Performers Fund Independence Diversified Core Equity Fund II [LOGO](R) - ------------------ JOHN HANCOCK FUNDS As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these funds or determined whether the information in this prospectus is adequate and accurate. Anyone who indicates otherwise is committing a federal crime. Contents - -------------------------------------------------------------------------------- A fund-by-fund summary Dividend Performers Fund 4 of goals, strategies, risks, performance and expenses. Independence Diversified Core Equity Fund II 6 Policies and instructions for Your account opening, maintaining and closing an account in any Who can buy shares 8 institutional fund. Opening an account 8 Buying shares 9 Selling shares 10 Transaction policies 12 Dividends and account policies 12 Further information on the Fund Details institutional funds. Business structure 13 Financial highlights 14 For more information back cover Overview - -------------------------------------------------------------------------------- JOHN HANCOCK INSTITUTIONAL FUNDS These funds offer clearly defined investment strategies, each focusing on a particular market segment and following a disciplined investment process. Blended together or selected individually, these funds are designed to meet the needs of investors seeking risk-managed investment strategies from seasoned professional portfolio managers. RISKS OF MUTUAL FUNDS Mutual funds are not bank deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Because you could lose money by investing in these funds, be sure to read all risk disclosure carefully before investing. THE MANAGEMENT FIRM All John Hancock institutional funds are managed by John Hancock Advisers, LLC. Founded in 1968, John Hancock Advisers is a wholly owned subsidiary of John Hancock Financial Services, Inc. and as of March 31, 2003 managed approximately $26 billion in assets. FUND INFORMATION KEY Concise fund-by-fund descriptions begin on the next page. Each description provides the following information: [Clip Art] Goal and strategy The fund's particular investment goals and the strategies it intends to use in pursuing those goals. [Clip Art] Main risks The major risk factors associated with the fund. [Clip Art] Past performance The fund's total return, measured year-by-year and over time. [Clip Art] Your expenses The overall costs borne by an investor in the fund, including annual expenses. 3 Dividend Performers Fund GOAL AND STRATEGY [Clip Art] The fund seeks long-term growth of capital with income as a secondary objective. To pursue this goal, the fund normally invests at least 80% of its assets in a diversified portfolio of U.S. stocks with market capitalizations within the range of the Standard & Poor's 500 Index. On May 31, 2003, that range was $387 million to $285.6 billion. The managers normally invest at least 80% of assets in "dividend performers." These are dividend-paying companies that have typically increased their dividend payments over time, or which the managers believe demonstrate the potential to increase their dividend payments. In managing the portfolio, the managers use fundamental financial analysis to identify individual companies with high-quality income statements, substantial cash reserves and identifiable catalysts for growth, which may be new products or benefits from industry-wide growth. The managers generally visit companies to evaluate the strength and consistency of their management strategy. Finally, the managers look for stocks that are reasonably priced relative to their earnings and industry. Historically, companies that meet these criteria have tended to have large market capitalizations. The fund may not invest more than 5% of assets, at time of purchase, in any one security. The fund typically invests in U.S. companies but may invest in American Depositary Receipts. It may also make limited use of certain derivatives (investments whose value is based on indexes). Under normal conditions, the fund may not invest more than 10% of assets in cash or cash equivalents. In abnormal conditions, the fund may temporarily invest in U.S. government securities with maturities of up to three years and more than 10% of assets in cash or cash equivalents. In these and other cases, the fund might not achieve its goal. ================================================================================ PAST PERFORMANCE [Clip Art] The graph shows how the fund's total return has varied from year to year, while the table shows performance over time (along with a broad-based market index for reference). This information may help provide an indication of the fund's risks. All figures assume dividend reinvestment. Past performance before and after taxes does not indicate future results. Total returns 2003 total return as of 3-31-03: -3.16% Best quarter: Q4 '98, 20.75% Worst quarter: Q3 '02, -17.51% After-tax returns After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. Index (reflects no fees or taxes) Standard & Poor's 500 Index, an unmanaged index of 500 stocks. [The following was represented as a bar chart in the printed material.] - -------------------------------------------------------------------------------- Calendar year total returns - -------------------------------------------------------------------------------- 1996 1997 1998 1999 2000 2001 2002 18.56% 34.33% 17.95% 13.38% -0.62% -9.86% -24.66% - -------------------------------------------------------------------------------- Average annual total returns for periods ending 12-31-02 - -------------------------------------------------------------------------------- 1 year 5 year Life of Fund Fund before tax (began 3-30-95) -24.66% -2.03% 7.08% Fund after tax on distributions -24.95% -4.90% 4.42% Fund after tax on distributions, with sale -15.13% -1.20% 5.91% - -------------------------------------------------------------------------------- Standard & Poor's 500 Index -22.10% -0.59% 9.28% 4 MAIN RISKS [Clip Art] The value of your investment will fluctuate in response to movements in the stock market. The fund's investment strategy will influence performance significantly. Large-capitalization stocks could fall out of favor, causing the fund to underperform funds that focus on small- or medium-capitalization stocks. Similarly, if individual securities do not perform as the management team expects, the fund could underperform its peers or lose money. To the extent that the fund makes investments with additional risks, those risks could increase volatility or reduce performance: o Certain derivatives could produce disproportionate losses. o Foreign investments carry additional risks, including inadequate or inaccurate financial information and social or political instability. o In a down market, higher-risk securities and derivatives could become harder to value or to sell at a fair price. ================================================================================ YOUR EXPENSES [Clip Art] Operating expenses are paid from the fund's assets, and therefore are paid by shareholders indirectly. - -------------------------------------------------------------------------------- Annual operating expenses - -------------------------------------------------------------------------------- Management fee 0.60% Other expenses 1.40% Total fund operating expenses 2.00% Expense reimbursement (at least until 6-30-04) 1.00% Net annual operating expenses 1.00% The hypothetical example below shows what your expenses would be after the expense reimbursement (first year only) if you invested $10,000 over the time frames indicated, assuming you reinvested all distributions, that the average annual return was 5% and that your shares were redeemed at the end of the time frames. The example is for comparison only, and does not represent the fund's actual expenses and returns, either past or future. - -------------------------------------------------------------------------------- Expenses Year 1 Year 3 Year 5 Year 10 - -------------------------------------------------------------------------------- $102 $531 $985 $2,247 ================================================================================ PORTFOLIO MANAGERS John F. Snyder, III - -------------------------------------------------------------------------------- Executive vice president Joined fund team in 1995 Joined John Hancock Advisers in 1991 Began business career in 1971 Peter M. Schofield, CFA - -------------------------------------------------------------------------------- Vice president Joined fund team in 1996 Joined John Hancock Advisers in 1996 Began business career in 1984 FUND CODES Ticker JHDPX CUSIP 410132104 Newspaper DivPerf JH fund number 442 5 Independence Diversified Core Equity Fund II GOAL AND STRATEGY [Clip Art] The fund seeks above-average total return, consisting of capital appreciation and income. To pursue this goal, the fund normally invests at least 80% of its assets in a diversified portfolio of equity securities which are primarily stocks of large-capitalization companies (companies in the capitalization range of the S&P 500 Index, which was $387 million to $285.6 billion on May 31, 2003). The portfolio's risk profile is substantially similar to that of the S&P 500 Index. The managers select from a menu of stocks of approximately 600 companies that evolves over time. Approximately 70% to 80% of these companies also are included in the S&P 500 Index. The sub-adviser's investment research team is organized by industry and tracks these companies to develop earnings estimates and five-year projections for growth. A series of proprietary computer models use this in-house research to rank the stocks according to their combination of: o value, meaning they appear to be underpriced o improving fundamentals, meaning they show potential for strong growth This process, together with a risk/return analysis against the S&P 500 Index, results in a portfolio of approximately 75 to 125 of the stocks from the top 60% of the menu. The fund generally sells stocks that fall into the bottom 20% of the menu. In normal circumstances, the fund is almost entirely invested in stocks. The fund may, however, invest in certain other types of equity securities, including dollar-denominated foreign securities. In abnormal circumstances, the fund may temporarily invest more than 20% of assets in investment-grade short-term securities. In these and other cases, the fund might not achieve its goal. The fund may trade securities actively, which could increase its transaction costs (thus lowering performance) and increase your taxable distributions. ================================================================================ PAST PERFORMANCE [Clip Art] The graph shows how the fund's total return has varied from year to year, while the table shows performance over time (along with a broad-based market index for reference). This information may help provide an indication of the fund's risks. All figures assume dividend reinvestment. Past performance before and after taxes does not indicate future results. Total returns 2003 total return as of 3-31-03: -2.91% Best quarter: Q4 '98, 25.14% Worst quarter: Q3 '02, -18.31% After-tax returns After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. Index (reflects no fees or taxes) Standard & Poor's 500 Index, an unmanaged index of 500 stocks. [The following was represented as a bar chart in the printed material.] - -------------------------------------------------------------------------------- Calendar year total returns - -------------------------------------------------------------------------------- 1996 1997 1998 1999 2000 2001 2002 20.08% 29.49% 30.15% 11.59% -6.88% -9.05% -23.36% - -------------------------------------------------------------------------------- Average annual total returns for periods ending 12-31-02 - -------------------------------------------------------------------------------- 1 year 5 year Life of Fund Fund before tax (began 3-10-95) -23.36% -1.17% 8.15% Fund after tax on distributions -23.67% -4.84% 4.84% Fund after tax on distributions, with sale -14.26% -0.38% 6.90% - -------------------------------------------------------------------------------- Standard & Poor's 500 Index -22.10% -0.59% 9.58% 6 MAIN RISKS [Clip Art] The value of your investment will fluctuate in response to stock market movements. Large-capitalization stocks as a group could fall out of favor with the market, causing the fund to underperform funds that focus on small- or medium-capitalization stocks. The fund's management strategy will influence performance significantly. If the investment research team's earnings estimates or projections turn out to be inaccurate, or if the proprietary computer models do not perform as expected, the fund could underperform its peers or lose money. To the extent that the fund makes investments with additional risks, those risks could increase volatility or reduce performance: o Foreign investments carry additional risks, including potentially inadequate or inaccurate financial information and social or political instability. ================================================================================ YOUR EXPENSES [Clip Art] Operating expenses are paid from the fund's assets, and therefore are paid by shareholders indirectly. - -------------------------------------------------------------------------------- Annual operating expenses - -------------------------------------------------------------------------------- Management fee 0.50% Other expenses 0.18% Total fund operating expenses 0.68% The hypothetical example below shows what your expenses would be if you invested $10,000 over the time frames indicated, assuming you reinvested all distributions, that the average annual return was 5% and that your shares were redeemed at the end of the time frame. The example is for comparison only, and does not represent the fund's actual expenses and returns, either past or future. - -------------------------------------------------------------------------------- Expenses Year 1 Year 3 Year 5 Year 10 - -------------------------------------------------------------------------------- $69 $218 $379 $847 ================================================================================ SUBADVISER Independence Investment LLC Team responsible for day-to-day investment management A subsidiary of John Hancock Financial Services, Inc. Founded in 1982 Supervised by the adviser FUND CODES Class I Ticker COREX CUSIP 410132708 Newspaper IndpCorII JH fund number 425 7 Your account - -------------------------------------------------------------------------------- WHO CAN BUY SHARES John Hancock institutional funds are offered without any sales charge to certain types of investors, as noted below: o Retirement and other benefit plans and their participants o Rollover assets for participants whose plans are invested in the fund o Certain trusts, endowment funds and foundations o Any state, county or city, or its instrumentality, department, authority or agency o Insurance companies, trust companies and bank trust departments buying shares for their own account o Investment companies not affiliated with the adviser o Clients of service agents and broker-dealers who have entered into an agreement with John Hancock Funds, LLC o Investors who participate in fee-based, wrap and other investment platform programs o Any entity that is considered a corporation for tax purposes o Fund trustees and other individuals who are affiliated with these or other John Hancock funds - -------------------------------------------------------------------------------- OPENING AN ACCOUNT 1 Read this prospectus carefully. 2 Determine if you are eligible, by referring to "Who can buy shares" on the left. 3 Determine how much you want to invest. The minimum initial investment is $10,000. There is no minimum investment for retirement plans with at least 350 eligible employees. 4 Complete the appropriate parts of the account application, carefully following the instructions. By applying for privileges now, you can avoid the delay and inconvenience of having to file an additional application if you want to add privileges later. You must submit additional documentation when opening trust, corporate or power of attorney accounts. 5 Make your initial investment using the table on the next page. 6 If you have questions or need more information, please contact your financial representative or call Signature Services at 1-888-972-8696. John Hancock Funds may pay significant compensation out of its own resources to your financial representative. Your broker/dealer or agent may charge you a fee to effect transactions in fund shares. 8 YOUR ACCOUNT - -------------------------------------------------------------------------------- Buying shares - -------------------------------------------------------------------------------- Opening an account Adding to an account By check [Clip Art] o Make out a check for the o Make out a check for the investment amount, payable investment amount payable to "John Hancock Signature to "John Hancock Signature Services, Inc." Services, Inc." o Deliver the check and your o Fill out the detachable completed application to investment slip from an your financial account statement. If no representative, or mail slip is available, include them to Signature Services a note specifying the fund (address below). name(s), your share class, your account number and the name(s) in which the account is registered. o Deliver the check and investment slip or note to your financial representative, or mail them to Signature Services (address below). By exchange [Clip Art] o Call your financial o Call your financial representative or Signature representative or Signature Services to request an Services to request an exchange. exchange. o You may only exchange for o You may only exchange for shares of other shares of other institutional funds or institutional funds or Class I shares or Money Class I shares or Money Market Fund-Class A shares. Market Fund-Class A shares. By wire [Clip Art] o Deliver your completed o Instruct your bank to wire application to your the amount of your financial representative or investment to: mail it to Signature Services. First Signature Bank & Trust Account # 900022260 o Obtain your account number Routing # 211475000 by calling your financial representative or Signature Specify the fund name(s), your Services. share class, your account number and the name(s) in o Instruct your bank to wire which the account is the amount of your registered. Your bank may investment to: charge a fee to wire funds. First Signature Bank & Trust Account # 900022260 Routing # 211475000 Specify the fund name(s), the share class, the new account number and the name(s) in which the account is registered. Your bank may charge a fee to wire funds. By phone [Clip Art] See "By exchange" and "By o Verify that your bank or wire." credit union is a member of the Automated Clearing House (ACH) system. o Complete the "To Purchase, Exchange or Redeem Shares via Telephone" and "Bank Information" sections on your account application. o Call Signature Services to verify that these features are in place on your account. o Call your financial representative or Signature Services with the fund name(s), your share class, your account number, the name(s) in which the account is registered and the amount of your investment. - --------------------------------------- Address: John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1001 Boston, MA 02217-1001 Phone Number: 1-888-972-8696 Or contact your financial representative for instructions and assistance. - --------------------------------------- YOUR ACCOUNT 9 - -------------------------------------------------------------------------------- Selling shares - -------------------------------------------------------------------------------- Designed for To sell some or all of your shares By letter [Clip Art] o Sales of any amount; o Write a letter of however, sales of $5 instruction indicating the million or more must be fund name, your account made by letter. number, your share class, the name(s) in which the o Certain requests will account is registered and require a Medallion the dollar value or number signature guarantee. Please of shares you wish to sell. refer to "Selling shares in writing". o Include all signatures and any additional documents that may be required (see next page). o Mail the materials to Signature Services. o A check or wire will be sent according to your letter of instruction. By phone [Clip Art] o Sales of up to $5 million. o To place your request with a representative at John Hancock Funds, call Signature Services between 8 A.M. and 4 P.M. Eastern Time on most business days. o Redemption proceeds of up to $100,000 may be sent by wire or by check. A check will be mailed to the exact name(s) and address on the account. Redemption proceeds exceeding $100,000 must be wired to your designated bank account. By wire or electronic funds transfer (EFT) [Clip Art] o Requests by letter to sell o To verify that the any amount. telephone redemption privilege is in place on an o Requests by phone to sell account, or to request the up to $5 million (accounts forms to add it to an with telephone redemption existing account, call privileges). Signature Services. o Amounts of $5 million or more will be wired on the next business day. o Amounts up to $100,000 may be sent by EFT or by check. Funds from EFT transactions are generally available by the second business day. Your bank may charge a fee for this service. By exchange [Clip Art] o Sales of any amount. o Obtain a current prospectus for the fund into which you are exchanging by calling your financial representative or Signature Services. o You may only exchange for shares of other institutional funds or Class I shares or Money Market Fund-Class A shares. o Call your financial representative or Signature Services to request an exchange. 10 YOUR ACCOUNT Selling shares in writing In certain circumstances, you will need to make your request to sell shares in writing. You may need to include additional items with your request, as shown in the table below, unless they were previously provided to Signature Services and are still accurate. You may also need to include a Medallion signature guarantee, which protects you against fraudulent orders. You will need a signature guarantee if: o your address of record has changed within the past 30 days o you are selling more than $100,000 worth of shares and are requesting payment by check o you are selling more than $5 million worth of shares You will need to obtain your Medallion signature guarantee from a member of the Signature Guarantee Medallion Program. Most brokers and securities dealers are members of this program. A notary public CANNOT provide a signature guarantee. - -------------------------------------------------------------------------------- Seller Requirements for written requests - -------------------------------------------------------------------------------- [Clip Art] Owners of individual, joint or o Letter of instruction. UGMA/UTMA accounts (custodial accounts for minors). o On the letter, the signatures of all persons authorized to sign for the account, exactly as the account is registered. o Medallion signature guarantee if applicable (see above). Owners of corporate, sole o Letter of instruction. proprietorship, general partner or association accounts. o Corporate business/organization resolution, certified within the past 12 months, or a John Hancock Funds business/organization certification form. o On the letter and the resolution, the signature of the person(s) authorized to sign for the account. o Medallion signature guarantee if applicable (see above). Owners or trustees of retirement plan, o Letter of instruction. pension trust and trust accounts. o On the letter, the signature(s) of the trustee(s). o Copy of the trust document certified within the past 12 months or a John Hancock Funds trust certification form. o Medallion signature guarantee if applicable (see above). Joint tenancy shareholders with rights o Letter of instruction signed by of survivorship whose co-tenants are surviving tenant. deceased. o Copy of death certificate. o Medallion signature guarantee if applicable (see above). Executors of shareholder estates. o Letter of instruction signed by executor. o Copy of order appointing executor, certified within the past 12 months. o Medallion signature guarantee if applicable (see above). Administrators, conservators, guardians o Call 1-888-972-8696 for and other sellers or account types not instructions. listed above. - ----------------------------------------- Address: John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1001 Boston, MA 02217-1001 Phone Number: 1-888-972-8696 Or contact your financial representative for instructions and assistance. - ----------------------------------------- YOUR ACCOUNT 11 - -------------------------------------------------------------------------------- TRANSACTION POLICIES Valuation of shares The net asset value (NAV) per share for each fund is determined each business day at the close of regular trading on the New York Stock Exchange (typically 4 P.M. Eastern Time). The funds use market prices in valuing portfolio securities, but may use fair-value estimates if reliable market prices are unavailable. The funds may also value securities at fair value if the value of these securities has been materially affected by events occurring after the close of a foreign market. The funds may trade foreign stock or other portfolio securities on U.S. holidays and weekends, even though the funds' shares will not be priced on those days. This may change a fund's NAV on days when you cannot buy or sell shares. Buy and sell prices When you buy shares, you pay the NAV. When you sell shares, you receive the NAV. Execution of requests Each fund is open on those days when the New York Stock Exchange is open, typically Monday through Friday. Buy and sell requests are executed at the next NAV to be calculated after Signature Services receives your request in good order. At times of peak activity, it may be difficult to place requests by phone. During these times, consider sending your request in writing. In unusual circumstances, any fund may temporarily suspend the processing of sell requests, or may postpone payment of proceeds for up to three business days or longer, as allowed by federal securities laws. Telephone transactions For your protection, telephone requests may be recorded in order to verify their accuracy. Also for your protection, telephone redemption transactions are not permitted on accounts whose names or addresses have changed within the past 30 days. Proceeds from telephone transactions can only be mailed to the address of record. Exchanges You may exchange institutional fund and Class I shares for shares of any other institutional fund, Class I shares or Money Market Fund-Class A shares. The registration for both accounts involved must be identical. Note: once exchanged into Money Market Fund Class A, shares may only be exchanged back into Class I or institutional fund shares. To protect the interests of other investors in the fund, a fund may cancel the exchange privileges of any parties who, in the opinion of the fund, are using market timing strategies or making more than seven exchanges per owner or controlling party per calendar year. The funds reserve the right to require that previously exchanged shares and reinvested dividends be in a fund for 90 days before a shareholder is permitted a new exchange. A fund may also refuse any exchange order. A fund may change or cancel its exchange policies at any time, upon 60 days' notice to its shareholders. Account Information John Hancock Funds is required by law to obtain information for verifying an account holder's identity. If you do not provide the required information, we may not be able to open your account. If verification is unsuccessful, John Hancock Funds may close your account, redeem your shares at the next NAV minus any applicable sales charges, and take other steps that it deems reasonable. Certificated shares The funds no longer issue share certificates. Shares are electronically recorded. Any existing certificated shares can only be sold by returning the certificated shares to Signature Services, along with a letter of instruction or a stock power and a signature guarantee. Sales in advance of purchase payments When you place a request to sell shares for which the purchase money has not yet been collected, the request will be executed in a timely fashion, but a fund will not release the proceeds to you until your purchase payment clears. This may take up to ten business days after the purchase. - -------------------------------------------------------------------------------- DIVIDENDS AND ACCOUNT POLICIES Account statements In general, you will receive account statements as follows: o after every transaction (except a dividend reinvestment) that affects your account balance o after any changes of name or address of the registered owner(s) o in all other circumstances, at least quarterly Every year you should also receive, if applicable, a Form 1099 tax information statement, mailed by January 31. Dividends The funds declare and pay any income dividends quarterly. Capital gains, if any, are typically distributed annually. Dividend reinvestments Dividends will be reinvested automatically in additional shares of the same fund on the dividend record date. Alternatively, you can choose to have your dividends and capital gains sent directly to your bank account or a check will be sent in the amount of more than $10. However, if the check is not deliverable or the combined dividend and capital gains amount is $10 or less, your 12 YOUR ACCOUNT proceeds will be reinvested. If five or more of your dividend or capital gains checks remain uncashed after 180 days, all subsequent dividends and capital gains will be reinvested. Taxability of dividends For investors who are not exempt from federal income taxes, dividends you receive from a fund, whether reinvested or taken as cash, are generally considered taxable. Dividends from a fund's short-term capital gains are taxable as ordinary income. Dividends from a fund's long-term capital gains are taxable at a lower rate. Whether gains are short-term or long-term depends on the fund's holding period. Some dividends paid in January may be taxable as if they had been paid the previous December. The Form 1099 that is mailed to you every January details your dividends and their federal tax category, although you should verify your tax liability with your tax professional. Taxability of transactions Any time you sell or exchange shares, it is considered a taxable event for you if you are not exempt from federal income taxes. Depending on the purchase price and the sale price of the shares you sell or exchange, you may have a gain or a loss on the transaction. You are responsible for any tax liabilities generated by your transactions. Fund Details - -------------------------------------------------------------------------------- BUSINESS STRUCTURE The funds' board of trustees oversees each fund's business activities and retains the services of the various firms that carry out the fund's operations. The trustees have the power to change the funds' respective investment goals without shareholder approval. The trustees of each fund have the power to change the focus of a fund's 80% investment policy without shareholder approval. A fund will provide written notice to shareholders at least 60 days prior to a change in its 80% investment policy. The investment adviser John Hancock Advisers, LLC, 101 Huntington Avenue, Boston, MA 02199-7603. The subadviser Independence Investment LLC, 53 State Street, Boston, MA 02109, is the subadviser to Independence Diversified Core Equity Fund II. Founded in 1982, Independence Investment is a wholly owned subsidiary of John Hancock Financial Services, Inc. and manages approximately $18.4 billion in assets as of March 31, 2003. Management fees The management fees paid to the investment adviser by the John Hancock institutional funds last fiscal year are as follows: - -------------------------------------------------------------------------------- Fund % of net assets - -------------------------------------------------------------------------------- Dividend Performers Fund 0.00%* Independence Diversified Core Equity Fund II 0.50% *after expense reimbursement YOUR ACCOUNT 13 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS These tables detail the performance of each fund's share, including total return information showing how much an investment in the fund has increased or decreased each year. Dividend Performers Fund Figures audited by Deloitte & Touche LLP.
PERIOD ENDED: 2-28-99 2-29-00 2-28-01 2-28-02 2-28-03 - ------------------------------------------------------------------------------------------------------------------------ PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $14.92 $14.46 $13.51 $11.14 $7.89 Net investment income(1) 0.15 0.11 0.10 0.08 0.06 Net realized and unrealized gain (loss) on investments 1.04 0.60 0.45 (0.77) (2.03) Total from investment operations 1.19 0.71 0.55 (0.69) (1.97) Less distributions From net investment income (0.15) (0.11) (0.11) (0.10) (0.06) From net realized gain (1.50) (1.55) (2.81) (2.46) -- (1.65) (1.66) (2.92) (2.56) (0.06) Net asset value, end of period $14.46 $13.51 $11.14 $7.89 $5.86 Total return(2),(3)(%) 7.97 4.17 2.94 (6.93) (25.00) - ------------------------------------------------------------------------------------------------------------------------ RATIOS AND SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in millions) $18 $15 $6 $5 $3 Ratio of expenses to average net assets (%) 0.70 0.70 0.70 0.70 0.70 Ratio of adjusted expenses to average net assets(4) (%) 0.95 1.05 1.08 1.91 2.14 Ratio of net investment income to average net assets (%) 0.95 0.71 0.73 0.84 0.92 Portfolio turnover (%) 64 46 58 51 53
(1) Based on the average of the shares outstanding. (2) Assumes dividend reinvestment. (3) Total returns would have been lower had certain expenses not been reduced during the periods shown. (4) Does not take into consideration expense reductions during the periods shown. ================================================================================ The following returns are not audited and are not part of the audited financial highlights presented above: Without the expense reductions, returns for the fund for the years ended February 28, 1999, February 29, 2000, February 28, 2001, 2002 and 2003 would have been 7.72%, 3.82%, 2.56%, (8.14%) and (26.44%), respectively. 14 FUND DETAILS Independence Diversified Core Equity Fund II Figures audited by Deloitte & Touche LLP.
COMMON SHARES PERIOD ENDED: 2-28-99 2-29-00 2-28-01 2-28-02 2-28-03 - ---------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE - ---------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $15.34 $15.69 $14.23 $8.91 $6.50 Net investment income(1) 0.12 0.09 0.09 0.05 0.04 Net realized and unrealized gain (loss) on investments 2.76 0.34 (0.29) (0.75) (1.55) Total from investment operations 2.88 0.43 (0.20) (0.70) (1.51) Less distributions From net investment income (0.14) (0.09) (0.10) (0.06) (0.04) From net realized gain (2.39) (1.80) (5.02) (1.65) (0.03) (2.53) (1.89) (5.12) (1.71) (0.07) Net asset value, end of period $15.69 $14.23 $8.91 $6.50 $4.92 Total return(2) (%) 18.98 1.99 (2.68) (8.46)(3) (23.29) - ---------------------------------------------------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA - ---------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $552 $426 $147 $87 $61 Ratio of expenses to average net assets (%) 0.63 0.64 0.67 0.70 0.74 Ratio of adjusted expenses to average net assets(4) (%) -- -- -- 0.70 -- Ratio of net investment income to average net assets (%) 0.76 0.57 0.61 0.64 0.77 Portfolio turnover (%) 55 69 56 52 72
(1) Based on the average of the shares outstanding. (2) Assumes dividend reinvestment. (3) Total return would have been lower had certain expenses not been reduced during the period shown. (4) Does not take into consideration expense reductions during the period shown. ================================================================================ The following return is not audited and is not part of the audited financial highlights presented above: Without the expense reductions, the effect on the return for the fund for the year ended February 28, 2002 would have been less than 0.01%. FUND DETAILS 15 For more information Two documents are available that offer further information on John Hancock institutional funds: Annual/Semiannual Report to Shareholders Includes financial statements, a discussion of the market conditions and investment strategies that significantly affected performance, as well as the auditors' report (in annual report only). Statement of Additional Information (SAI) The SAI contains more detailed information on all aspects of the funds. The current annual report is included in the SAI. A current SAI has been filed with the Securities and Exchange Commission and is incorporated by reference into (is legally a part of) this prospectus. To request a free copy of the current annual/semiannual report or the SAI, please contact John Hancock: By mail: John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1001 Boston, MA 02217-1001 By phone: 1-888-972-8696 By EASI-Line: 1-800-597-1897 By TDD: 1-800-554-6713 On the Internet: www.jhfunds.com Or you may view or obtain these documents from the SEC: In person: at the SEC's Public Reference Room in Washington, DC. For access to the Reference Room call 1-202-942-8090 By mail: Public Reference Section Securities and Exchange Commission Washington, DC 20549-0102 (duplicating fee required) By electronic request: publicinfo@sec.gov (duplicating fee required) On the Internet: www.sec.gov (C)2003 JOHN HANCOCK FUNDS, LLC K00PN 7/03 [LOGO](R) ------------- John Hancock Funds, LLC PRSRT STD MEMBER NASD U.S. POSTAGE 101 Huntington Avenue P A I D Boston, MA 02199-7603 BOSTON, MA PERMIT NO. 11 www.jhfunds.com JOHN HANCOCK LARGE CAP SPECTRUM FUND Class A, Class B and Class C Shares Statement of Additional Information March 1, 2003 as revised July 15, 2003 This Statement of Additional Information provides information about John Hancock Large Cap Spectrum Fund (the "Fund") in addition to the information that is contained in the Fund's current Prospectus (the "Prospectus"). The Fund is a non-diversified series of John Hancock Equity Trust (the "Trust"). This Statement of Additional Information is not a prospectus. It should be read in conjunction with the Prospectus. This Statement of Additional Information incorporates by reference the Fund's Annual Report. A copy of the Prospectus or Annual Report can be obtained free of charge by writing or telephoning: John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1000 Boston, Massachusetts 02217-1000 1-800-225-5291 TABLE OF CONTENTS Page ---- Organization of the Fund ................................................. 2 Investment Objective and Policies ........................................ 2 Investment Restrictions................................................... 18 Those Responsible for Management.......................................... 20 Investment Advisory and Other Services.................................... 27 Distribution Contracts.................................................... 30 Sales Compensation........................................................ 32 Net Asset Value........................................................... 34 Initial Sales Charge on Class A Shares.................................... 34 Deferred Sales Charge on Class B and Class C Shares....................... 37 Special Redemptions....................................................... 41 Additional Services and Programs.......................................... 41 Purchase and Redemptions through Third Parties............................ 43 Description of the Fund's Shares.......................................... 43 Tax Status................................................................ 44 Calculation of Performance................................................ 49 Brokerage Allocation...................................................... 51 Transfer Agent Services................................................... 55 Custody of Portfolio...................................................... 55 Independent Auditors...................................................... 55 Further Details........................................................... 55 Appendix A- Description of Investment Risk................................ A-1 Appendix B-Description of Bond Ratings.................................... B-1 Financial Statements...................................................... F-1 1 ORGANIZATION OF THE FUND The Fund is a series of the Trust, an open-end investment management company organized on July 23, 1984 as a Massachusetts business trust under the laws of The Commonwealth of Massachusetts. Prior to August 28, 2000, the Trust was named John Hancock Special Equities Fund. John Hancock Advisers, LLC (prior to February 1, 2002, John Hancock Advisers, Inc.) (the "Adviser") is the Fund's investment adviser. The Adviser is an indirect wholly-owned subsidiary of John Hancock Life Insurance Company (formerly John Hancock Mutual Life Insurance Company) (the "Life Company"), a Massachusetts life insurance company chartered in 1862, with national headquarters at John Hancock Place, Boston, Massachusetts. The Life Company is wholly owned by John Hancock Financial Services, Inc., a Delaware corporation organized in February, 2000. The Fund's Sub-Adviser is Alliance Capital Management L.P. ("Alliance") (the "Sub-Adviser"). Alliance is responsible for providing investment advice to the Fund with respect to the Fund's growth and value investment strategies, subject to the review of the Trustees and overall supervision of the Adviser. INVESTMENT OBJECTIVE AND POLICIES The following information supplements the discussion of the Fund's investment objective and policies discussed in the Prospectus. Appendix A contains further information describing investment risks. The investment objective is non-fundamental and may be changed by the Trustees without shareholder approval. There is no assurance that the Fund will achieve its investment objective. The Fund seeks long-term growth of capital. To pursue this goal, under normal circumstances, the Fund invests at least 80% of its Assets in common and preferred stocks of large capitalization companies-companies in the capitalization range of the Standard & Poor's 500 Index. The Fund is classified as non-diversified and may invest up to 10% of total assets, at time of purchase, in securities of individual companies. The Fund's assets will be managed according to three separate investment strategies each focused on a different style of management - growth, core and value. The Fund may invest up to 20% of total assets in foreign securities. The Fund may also invest up to 5% of net assets in junk bonds rated as low as CC/Ca and their unrated equivalents. The Fund may make limited use of certain derivatives (investments whose value is based on indexes, securities or currencies). Under abnormal circumstances, such as situations where the Fund experiences unusually large cash inflows or anticipates unusually large redemptions, and in adverse market, economic, political, or other conditions, the Fund may temporarily invest more than 20% of its Assets in investment-grade short-term securities, cash, and cash equivalents. In these and other cases, the Fund might not achieve its goal. With respect to the Fund's policy of investing at least 80% of its Assets in large capitalization companies, "Assets" is defined as net assets plus the amount of any borrowings for investment purposes. Also, with respect to this 80% investment policy, the Fund will notify shareholders at least 60 days prior to any change in this policy. The Subadviser's investment strategy for the growth portion of the portfolio emphasizes stock selection and investment in the securities of a limited number of issuers. The manager's rely heavily upon the fundamental analysis and research of their firm's large internal research staff, which generally follows a primary research universe of more than 500 companies that have 2 strong management, superior industry positions, excellent balance sheets and superior earnings growth prospects. The managers typically select stocks of 25-35 companies that, in their opinion, are attractive based on some or all of these factors. An emphasis is placed on identifying companies whose substantially above average prospective earnings growth are not fully reflected in current market valuations. In managing the growth portion of the portfolio, the managers seek to utilize market volatility judiciously (assuming no change in company fundamentals), strive to capitalize on apparently unwarranted price fluctuations, both to purchase or increase positions on weakness and to sell or reduce overpriced holdings. The growth portion of the portfolio normally remains nearly fully invested and the managers do not take significant cash positions for market timing purposes. During market declines, while adding to positions in favored stocks, the managers become somewhat more aggressive, gradually reducing the number of stocks represented in the growth portion of the portfolio. Conversely, in rising markets, while reducing or eliminating fully valued positions, the managers become somewhat more conservative, gradually increasing the number of companies represented in this portion of the portfolio. Through this "buying into declines" and "selling into strength," the managers seek to gain positive returns in good markets while providing some measure of protection in poor markets. In managing the core portion of the portfolio, the managers employ a combination of proprietary financial models and bottom-up, fundamental financial research to identify companies that are selling at what appear to be substantial discounts to their long-term intrinsic and "franchise" values. These companies often have identifiable catalysts for growth, such as new products, business reorganizations or mergers. The management team emphasizes a relative value-oriented approach to individual stock selection (i.e. those stocks which are inexpensively priced relative to others within the same industry or economic sector, exhibiting what the Fund's management team believes to be sound company management and the prospect of improved business fundamentals). The Subadviser's investment strategy for the value portion of the portfolio emphasizes investment in companies that they determine to be undervalued, using a fundamental value approach. This approach to equity investing generally defines value by reference to the relationship between a security's current price and its intrinsic economic value, as measured by earnings power and divided paying capability. The manager's rely heavily on the fundamental research and analysis of their firm's large internal research staff in making investment decisions for this portion of the Fund's portfolio, typically selecting 35-50 stocks from the Russell 1000 Value Index. These investment decisions are the result of the multi-step process described below. The fundamental value approach seeks to identify, in the first instance, a universe of securities that are considered to be undervalued because they are attractively priced relative to their future earnings power and dividend paying capability. With respect to the value portion of the Fund's portfolio, the Subadviser's research staff of company and industry analysts follows a research universe of approximately 700 companies with large capitalizations. This universe covers approximately 90% of the capitalization of the Russell 1000 Value Index. The research staff identifies and quantifies the critical variables that influence a business's performance and analyzes the results in order to forecast each company's long-term prospects. A company's financial performance is typically projected over a full economic cycle, including a trough and a peak, within the context of forecasts for real economic growth, inflation and interest rate changes. A committee composed of senior investment professionals (the "Research Review Committee") reviews all analyst research performed for the value portion of the Fund's portfolio. The Subadviser's Research Review Committee makes sure that the analysts have appropriately 3 considered the key issues facing each company. In addition, it checks to see that forecasts of a company's future are compatible with history. Finally, the Research Review Committee ensures that all forecasts use consistent analytic frameworks and economic assumptions. For each company in the research universe, the Subadviser relates the present value of the company's future cash flow, as forecast by the Subadviser's analysts, to the current price of the company's stock. Using a dividend discount model and solving for the internal rate of return, the managers of the value portion of the portfolio thus derive an expected rate of return. The senior investment professionals involved in the fundamental value approach then factor into this analysis the risk attributes of each company for purposes of re-ranking the companies. By evaluating overall sector concentration, capitalization distribution, leverage, degree of undervaluation and other factors, the Subadviser ranks each security on a risk adjusted basis, in an effort to minimize the overall volatility for the value portion of the portfolio. The managers of the value portion of the portfolio simply do not invest in the highest ranked securities. Rather, they consider aggregate portfolio characteristics and risk diversification when deciding how much of each security to purchase for the portfolio. The Subadviser may take more risk when unusually large value distortions create opportunities for added returns, and less risk when opportunities are limited. Asset Allocation: The Fund's assets will be allocated among the three investment styles (growth, core, and value) to reflect an optimal combination as determined by the adviser's: (1) assessment of the three strategies' historical risk, historical return and correlation; and (2) long-term strategic view of the relative attractiveness of the three strategies. Initial asset allocation will be weighted 50% core, 25% growth and 25% value, which represents the Fund's neutral weighting. Thereafter the Fund's target allocations among the three strategies may shift substantially depending on the Adviser's assessment of the Fund's optimal asset combination. Target allocations will be set and calculated at least annually. Due to changes in market values, new cash and assets will be allocated as needed in order to attempt to maintain target allocations. The Adviser reserves the right to rebalance the Fund and/or change the allocation at any time. In some instances, the effect of a reallocation of assets may be to shift assets from a better performing strategy to a portion of the portfolio with a relatively lower return. Reallocations may result in additional costs since sales of securities may result in higher portfolio turnover. Also, because each investment adviser selects securities independently, it is possible that a security held by one portfolio segment may also be held by another portfolio segment. In addition, the different portfolio segments may simultaneously favor the same industry. The Adviser will monitor the overall portfolio to ensure that any such overlaps do not create an unintended industry concentration. In addition, if one investment adviser buys a security as another adviser sells it, the net position of the Fund in the security may be approximately the same as it would have been with a single portfolio and no such sale and purchase had occurred, but the Fund will have incurred additional costs. Non-Diversification: The Fund has elected "non-diversified" status under the Investment Company Act of 1940 and may invest more than 5% of total assets in securities of a single company. However, the Fund intends to comply with the diversification standards applicable to regulated investment companies under Subchapter M of the Internal Revenue Code of 1986, as amended. In order to meet these standards, among other requirements, at the close of each quarter of its taxable year (a) at least 50% of the value of the Fund's total assets must be represented by one or more of the following: (i) cash and cash items, including receivables; (ii) U.S. Government securities; (iii) securities of other regulated investment companies; and (iv) securities (other than those in items (ii) and (iii) above) of any one or more issuers as to which the Fund's investment in an issuer does not exceed 5% of the value of the Fund's total assets (valued at time of purchase); and (b) not more than 25% of its total assets (valued at time of 4 purchase) may be invested in the securities of any one issuer (other than U.S. Government securities or securities of other regulated investment companies). The Fund's ability to invest heavily in securities of individual issuers may increase the volatility of the Fund's investment performance. Changes in the market value of a single issuer could cause greater fluctuations in share price than would occur in a comparable "diversified" fund. Common stocks. Common stocks are shares of a corporation or other entity that entitle the holder to a pro rata share of the profits of the corporation, if any, without preference over any other shareholder or class of shareholders, including holders of such entity's preferred stock and other senior equity. Ownership of common stock usually carries with it the right to vote and, frequently, an exclusive right to do so. Common stocks have the potential to outperform fixed-income securities over the long term. Common stocks provide the most potential for growth, yet are the more volatile of the two asset classes. Preferred stocks. The Fund may invest in preferred stocks. Preferred stock generally has a preference to dividends and, upon liquidation, over an issuer's common stock but ranks junior to debt securities in an issuer's capital structure. Preferred stock generally pays dividends in cash (or additional shares of preferred stock) at a defined rate but, unlike interest payments on debt securities, preferred stock dividends are payable only if declared by the issuer's board of directors. Dividends on preferred stock may be cumulative, meaning that, in the event the issuer fails to make one or more dividend payments on the preferred stock, no dividends may be paid on the issuer's common stock until all unpaid preferred stock dividends have been paid. Preferred stock also may be subject to optional or mandatory redemption provisions. Convertible securities. The Fund may invest in convertible securities which may include corporate notes or preferred stock. Investments in convertible securities are not subject to the rating criteria with respect to non-convertible debt obligations. As with all debt securities, the market value of convertible securities tends to decline as interest rates increase and, conversely, to increase as interest rates decline. The market value of convertible securities can also be heavily dependent upon the changing value of the equity securities into which such securities are convertible, depending on whether the market price of the underlying security exceeds the conversion price. Convertible securities generally rank senior to common stocks in an issuer's capital structure and consequently entail less risk than the issuer's common stock. However, the extent to which such risk is reduced depends upon the degree to which the convertible security sells above its value as a fixed-income security. Government Securities. The Fund may invest in government securities. Certain U.S. Government securities, including U.S. Treasury bills, notes and bonds, and Government National Mortgage Association certificates ("GNMA"), are supported by the full faith and credit of the United States. Certain other U.S. Government securities, issued or guaranteed by Federal agencies or government sponsored enterprises, are not supported by the full faith and credit of the United States, but may be supported by the right of the issuer to borrow from the U.S. Treasury. These securities include obligations of the Federal Home Loan Mortgage Corporation ("FHLMC"), and obligations supported by the credit of the instrumentality, such as Federal National Mortgage Association Bonds ("FNMA"). No assurance can be given that the U.S. Government will provide financial support to such Federal agencies, authorities, instrumentalities and government sponsored enterprises in the future. Debt securities. The Fund may invest in debt obligations. Debt securities of corporate and governmental issuers in which the Fund may invest are subject to the risk of an issuer's inability to meet principal and interest payments on the obligations (credit risk) and may also be subject to price volatility due to such factors as interest rate sensitivity, market perception of the 5 creditworthiness of the issuer and general market liquidity (market risk). Lower Rated High Yield / "High Risk" Debt Obligations. The Fund may invest up to 5% of its net assets in high yielding, fixed income instruments below investment grade (e.g., rated below Baa by Moody's Investors Service, Inc. ("Moody's") or below BBB by Standard & Poor's Ratings Group ("S&P")). The Fund may invest in high yielding fixed income instruments rated as low as Ca by Moody's or CC by S&P. Ratings are based largely on the historical financial condition of the issuer. Consequently, the rating assigned to any particular security is not necessarily a reflection of the issuer's current financial condition, which may be better or worse than the rating would indicate. See Appendix A to this Statement of Additional Information which describes the characteristics of corporate bonds in the various ratings categories. The Fund may invest in comparable quality unrated securities which, in the opinion of the Adviser or Subadviser, offer comparable yields and risks to those securities which are rated. Debt obligations rated in the lower ratings categories, or which are unrated, involve greater volatility of price and risk of loss of principal and income. In addition, lower ratings reflect a greater possibility of an adverse change in financial condition affecting the ability of the issuer to make payments of interest and principal. The high yield fixed income market is relatively new and its growth occurred during a period of economic expansion. The market has not yet been fully tested by an economic recession. The market price and liquidity of lower rated fixed income securities generally respond to short term corporate and market developments to a greater extent than do the price and liquidity of higher rated securities because such developments are perceived to have a more direct relationship to the ability of an issuer of such lower rated securities to meet its ongoing debt obligations. Reduced volume and liquidity in the high yield bond market or the reduced availability of market quotations will make it more difficult to dispose of the bonds and to value accurately the Fund's assets. The reduced availability of reliable, objective data may increase the Fund's reliance on management's judgment in valuing high yield bonds. In addition, the Fund's investments in high yield securities may be susceptible to adverse publicity and investor perceptions, whether or not justified by fundamental factors. A Fund's investments, and consequently its net asset value, will be subject to the market fluctuations and risks inherent in all securities. Short-Term Bank and Corporate Obligations. The Fund may invest in depository-type obligations of banks and savings and loan associations and other high quality money market instruments consisting of short-term obligations of the U.S. Government or its agencies and commercial paper rated at least P-1 by Moody's or A-1 by Standard & Poor's. Commercial paper represents short-term unsecured promissory notes issued in bearer form by banks or bank holding companies, corporations and finance companies. Depository-type obligations in which the Fund may invest include certificates of deposit, bankers' acceptances and fixed time deposits. Certificates of deposit are negotiable certificates issued against funds deposited in a commercial bank for a definite period of time and earning a specified return. Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn by an importer or exporter to pay for specific merchandise, which are "accepted" by a bank, meaning, in effect, that the bank unconditionally agrees to pay the face value of the instrument at maturity. Fixed time deposits are bank obligations payable at a stated maturity date and bearing interest at a fixed rate. Fixed time deposits may be withdrawn on demand by the investor, but may be subject to early withdrawal penalties which vary depending upon market conditions and the remaining maturity 6 of the obligation. There are no contractual restrictions on the right to transfer a beneficial interest in a fixed time deposit to a third party, although there is no market for such deposits. Bank notes and bankers' acceptances rank junior to domestic deposit liabilities of the bank and pari passu with other senior, unsecured obligations of the bank. Bank notes are not insured by the Federal Deposit Insurance Corporation or any other insurer. Deposit notes are insured by the Federal Deposit Insurance Corporation only to the extent of $100,000 per depositor per bank. Ratings as Investment Criteria. In general, the ratings of Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Ratings Group ("S&P") represent the opinions of these agencies as to the quality of the securities which they rate. It should be emphasized, however, that ratings are relative and subjective and are not absolute standards of quality. These ratings will be used by the Fund as initial criteria for the selection of debt securities. Among the factors which will be considered are the long-term ability of the issuer to pay principal and interest and general economic trends. Appendix B contains further information concerning the rating of Moody's and S&P and their significance. Subsequent to its purchase by the Fund, an issue of securities may cease to be rated or its rating may be reduced below the minimum required for purchase by the Fund. Neither of these events will require the sale of the securities by the Fund. Investments in Foreign Securities. The Fund may invest up to 20% of total assets in foreign securities. The Fund may invest directly in the securities of foreign issuers as well as securities in the form of sponsored or unsponsored American Depository Receipts ("ADRs"), European Depository Receipts ("EDRs") and Global Depository Receipts ("GDRs"). The Fund's foreign securities may include, but are not limited to, common stocks, convertible preferred stocks, preferred stocks and warrants or other securities convertible into securities of foreign issuers. ADRs are receipts typically issued by a U.S. bank or trust company which evidence ownership of underlying securities issued by a foreign corporation. EDRs are receipts issued in Europe which evidence a similar ownership arrangement. Issuers of unsponsored ADRs are not contractually obligated to disclose material information, including financial information, in the United States. Generally, ADRs are designed for use in the United States securities markets and EDRs are designed for use in European securities markets. An investment in foreign securities including ADRs may be affected by changes in currency rates and in exchange control regulations. Issuers of unsponsored ADRs are not contractually obligated to disclose material information including financial information, in the United States and, therefore, there may not be a correlation between such information and the market value of the unsponsored ADR. Foreign companies may not be subject to accounting standards or government supervision comparable to U.S. companies, and there is often less publicly available information about their operations. Foreign companies may also be affected by political or financial instability abroad. These risk considerations may be intensified in the case of investments in ADRs of foreign companies that are located in emerging market countries. ADRs of companies located in these countries may have limited marketability and may be subject to more abrupt or erratic price movements. Foreign Currency Transactions. The Fund may engage in foreign currency transactions. Foreign currency transactions may be conducted on a spot (i.e., cash) basis at the spot rate for purchasing or selling currency prevailing in the foreign exchange market. The Fund may also enter into forward foreign currency exchange contracts to hedge against fluctuations in currency exchange rates affecting a particular transaction or portfolio position. Forward contracts are agreements to purchase or sell a specified currency at a specified future date and price set at the time of the contract. Transaction hedging is the purchase or sale of forward foreign currency contracts with respect to specific receivables or payables of the Fund accruing in connection with the purchase and sale of its portfolio securities quoted or 7 denominated in the same or related foreign currencies. Portfolio hedging is the use of forward foreign currency contracts to offset portfolio security positions denominated or quoted in the same or related foreign currencies. The Fund may elect to hedge less than all of its foreign portfolio positions as deemed appropriate by the Adviser. The Fund will not engage in speculative forward foreign currency exchange transactions. If the Fund purchases a forward contract, the Fund will segregate cash or liquid securities in a separate account in an amount equal to the value of the Fund's total assets committed to the consummation of such forward contract. The assets in the segregated account will be valued at market daily and if the value of the securities in the separate account declines, additional cash or securities will be placed in the account so that the value of the account will be equal to the amount of the Fund's commitment in forward contracts. Hedging against a decline in the value of a currency does not eliminate fluctuations in the prices of portfolio securities or prevent losses if the prices of such securities decline. Such transactions also preclude the opportunity for gain if the value of the hedged currency rises. Moreover, it may not be possible for the Fund to hedge against a devaluation that is so generally anticipated that the Fund is not able to contract to sell the currency at a price above the devaluation level it anticipates. Risks of Foreign Securities. Investments in foreign securities may involve a greater degree of risk than those in domestic securities. There is generally less publicly available information about foreign companies in the form of reports and ratings similar to those that are published about issuers in the United States. Also, foreign issuers are generally not subject to uniform accounting, auditing and financial reporting requirements comparable to those applicable to United States issuers. Because foreign securities may be denominated in currencies other than the U.S. dollar, changes in foreign currency exchange rates will affect the Fund's net asset value, the value of dividends and interest earned, gains and losses realized on the sale of securities, and any net investment income and gains that the Fund distributes to shareholders. Securities transactions undertaken in some foreign markets may not be settled promptly so that the Fund's investments on foreign exchanges may be less liquid and subject to the risk of fluctuating currency exchange rates pending settlement. Foreign securities will be purchased in the best available market, whether through over-the-counter markets or exchanges located in the countries where principal offices of the issuers are located. Foreign securities markets are generally not as developed or efficient as those in the United States. While growing in volume, they usually have substantially less volume than the New York Stock Exchange, and securities of some foreign issuers are less liquid and more volatile than securities of comparable United States issuers. Fixed commissions on foreign exchanges are generally higher than negotiated commissions on United States exchanges, although the Fund will endeavor to achieve the most favorable net results on its portfolio transactions. There is generally less government supervision and regulation of securities exchanges, brokers and listed issuers than in the United States. With respect to certain foreign countries, there is the possibility of adverse changes in investment or exchange control regulations, expropriation, nationalization or confiscatory taxation limitations on the removal of funds or other assets of the Fund, political or social instability, or diplomatic developments which could affect United States investments in those countries. Moreover, individual foreign economies may differ favorably or unfavorably from the United States' economy in terms of growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position. 8 The dividends, in some cases capital gains and interest payable on certain of the Fund's foreign portfolio securities, may be subject to foreign withholding or other foreign taxes, thus reducing the net amount of income or gains available for distribution to the Fund's shareholders. These risks may be intensified in the case of investments in emerging markets or countries with limited or developing capital markets. These countries are located in the Asia-Pacific region, Eastern Europe, Latin and South America and Africa. Security prices in these markets can be significantly more volatile than in more developed countries, reflecting the greater uncertainties of investing less established markets and economies. Political, legal and economic structure in many of these emerging market countries may be undergoing significant evolution and rapid development, and they may lack the social, political, legal and economic stability characteristic of more developed countries. Emerging market countries may have failed in the past to recognize private property rights. They may have relatively unstable governments, present the risk of nationalization of businesses, restrictions on foreign ownership, or prohibitions on repatriation of assets, and may have less protection of property rights than more developed countries. Their economies may be predominantly based on only a few industries, may be highly vulnerable to changes in local or global trade conditions, and may suffer from extreme and volatile debt burdens or inflation rates. Local securities markets may trade a small number of securities and may be unable to respond effectively to increases in trading volume, potentially making prompt liquidation of substantial holdings difficult or impossible at times. The Fund may be required to establish special custodial or other arrangements before making certain investments in those countries. Securities of issuers located in these countries may have limited marketability and may be subject to more abrupt or erratic price movements. Repurchase Agreements. In a repurchase agreement the Fund buys a security for a relatively short period (usually not more than 7 days) subject to the obligation to sell it back to the issuer at a fixed time and price plus accrued interest. The Fund will enter into repurchase agreements only with member banks of the Federal Reserve System and with "primary dealers" in U.S. Government securities. The Adviser will continuously monitor the creditworthiness of the parties with whom the Fund enters into repurchase agreements. The Fund has established a procedure providing that the securities serving as collateral for each repurchase agreement must be delivered to the Fund's custodian either physically or in book-entry form and that the collateral must be marked to market daily to ensure that each repurchase agreement is fully collateralized at all times. In the event of bankruptcy or other default by a seller of a repurchase agreement, the Fund could experience delays in liquidating the underlying securities during the period in which the Fund seeks to enforce its rights thereto, possible subnormal levels of income decline in value of the underlying securities or lack of access to income during this period and the expense of enforcing its rights. Reverse Repurchase Agreements and Other Borrowings. The Fund may also enter into reverse repurchase agreements which involve the sale of U.S. Government securities held in its portfolio to a bank with an agreement that the Fund will buy back the securities at a fixed future date at a fixed price plus an agreed amount of "interest" which may be reflected in the repurchase price. Reverse repurchase agreements are considered to be borrowings by the Fund. Reverse repurchase agreements involve the risk that the market value of securities purchased by the Fund with proceeds of the transaction may decline below the repurchase price of the securities sold by the Fund which it is obligated to repurchase. The Fund will also continue to be subject to the risk of a decline in the market value of the securities sold under the agreements because it will reacquire those securities upon effecting their repurchase. To minimize various risks associated with reverse repurchase agreements, the Fund will establish and maintain a separate account consisting of liquid securities, of any type or maturity, in an amount at least equal to the repurchase prices of the securities (plus any accrued interest thereon) under such agreements. 9 The Fund will not enter into reverse repurchase agreements and other borrowings except from banks as a temporary measure for extraordinary emergency purposes in amounts not to exceed 33 1/3% of the Fund's total assets (including the amount borrowed) taken at market value. The Fund will not use leverage to attempt to increase total return. The Fund will enter into reverse repurchase agreements only with federally insured banks which are approved in advance as being creditworthy by the Trustees. Under procedures established by the Trustees, the Advisers will monitor the creditworthiness of the banks involved. Restricted Securities. The Fund may purchase securities that are not registered ("restricted securities") under the Securities Act of 1933 ("1933 Act"), including commercial paper issued in reliance on Section 4(2) of the 1933 act and securities offered and sold to "qualified institutional buyers" under Rule 144A under the 1933 Act. The Fund will not invest more than 15% of its net assets in illiquid investments. If the Trustees determines, based upon a continuing review of the trading markets for specific Section 4(2) paper or Rule 144A securities, that they are liquid, they will not be subject to the 15% limit on illiquid investments. The Trustees have adopted guidelines and delegate to the Advisers the daily function of determining the monitoring and liquidity of restricted securities. The Trustees, however, will retain sufficient oversight and be ultimately responsible for the determinations. The Trustees will carefully monitor the Fund's investments in these securities, focusing on such important factors, among others, as valuation, liquidity and availability of information. This investment practice could have the effect of increasing the level of illiquidity in the Fund if qualified institutional buyers become for a time uninterested in purchasing these restricted securities. Mortgage-Backed Securities. The Fund may invest a portion of its assets in mortgage-backed securities. Ginnie Maes, Freddie Macs and Fannie Maes are mortgage-backed securities which provide monthly payments that are, in effect, a "pass- through" of the monthly interest and principal payments (including any pre-payments) made by the individual borrowers on the pooled mortgage loans. Collateralized Mortgage Obligations ("CMOs"), in which the Fund may also invest, are securities issued by a U.S. Government instrumentality that are collateralized by a portfolio of mortgages or mortgage-backed securities. During periods of declining interest rates, principal and interest on mortgage-backed securities may be prepaid at faster-than-expected rates. The proceeds of these prepayments typically can only be invested in lower-yielding securities. Therefore, mortgage-backed securities may be less effective at maintaining yields during periods of declining interest rates than traditional debt securities of similar maturity. U.S. Government agencies and instrumentalities include, but are not limited to, Federal Farm Credit Banks, Federal Home Loan Banks, the Federal Home Loan Mortgage Corporation, the Student Loan Marketing Association, and the Federal National Mortgage Association. Some obligations issued by an agency or instrumentality may be supported by the full faith and credit of the U.S. Treasury. A real estate mortgage investment conduit, or REMIC, is a private entity formed for the purpose of holding a fixed pool of mortgages secured by an interest in real property, and of issuing multiple classes of interests therein to investors such as the Fund. The Fund may consider REMIC securities as possible investments when the mortgage collateral is insured, guaranteed or otherwise backed by the U.S. Government or one or more of its agencies or instrumentalities. The Fund will not invest in "residual" interests in REMIC's because of certain tax disadvantages for regulated investment companies that own such interests. Risks of Mortgage-Backed Securities. Different types of mortgage-backed securities are subject to different combinations of prepayment, extension, interest rate and/or other market risks. Conventional mortgage pass-through securities and sequential pay CMOs are subject to all of these risks, but are typically not leveraged. PACs, TACs and other senior classes of sequential and parallel pay CMOs involve less exposure to prepayment, extension and interest rate risk than other mortgage-backed securities, provided that prepayment rates remain within expected prepayment ranges or "collars." 10 The value of mortgage-backed securities may also change due to shifts in the market's perception of issuers. In addition, regulatory or tax changes may adversely affect the mortgage-backed securities market as a whole. Non-government mortgage-backed securities may offer higher yields than those issued by government entities, but also may be subject to greater price changes than government issues. Asset-Backed Securities. The Fund may invest a portion of its assets in asset-backed securities. Asset-backed securities are often subject to more rapid repayment than their stated maturity date would indicate as a result of the pass-through of prepayments of principal on the underlying loans. During periods of declining interest rates, prepayment of loans underlying asset-backed securities can be expected to accelerate. Accordingly, the Fund's ability to maintain positions in these securities will be affected by reductions in the principal amount of such securities resulting from prepayments, and its ability to reinvest the returns of principal at comparable yields is subject to generally prevailing interest rates at that time. Credit card receivables are generally unsecured and the debtors on such receivables are entitled to the protection of a number of state and federal consumer credit laws, many of which give such debtors the right to set-off certain amounts owed on the credit cards, thereby reducing the balance due. Automobile receivables generally are secured, but by automobiles rather than residential real property. Most issuers of automobile receivables permit the loan services to retain possession of the underlying obligations. If the service were to sell these obligations to another party, there is a risk that the purchaser would acquire an interest superior to that of the holders of the asset-backed securities. In addition, because of the large number of vehicles involved in a typical issuance and technical requirements under state laws, the trustee for the holders of the automobile receivables may not have a proper security interest in the underlying automobiles. Therefore, there is the possibility that, in some cases, recoveries on repossessed collateral may not be available to support payments on these securities. Swaps, Caps, Floors and Collars. As one way of managing its exposure to different types of investments, the Fund may enter into interest rate swaps, currency swaps, and other types of swap agreements such as caps, collars and floors. In a typical interest rate swap, one party agrees to make regular payments equal to a floating interest rate times a "notional principal amount," in return for payments equal to a fixed rate times the same amount, for a specified period of time. If a swap agreement provides for payment in different currencies, the parties might agree to exchange the notional principal amount as well. Swaps may also depend on other prices or rates, such as the value of an index or mortgage prepayment rates. In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. For example, the buyer of an interest rate cap obtains the right to receive payments to the extent that a specified interest rate exceeds an agreed-upon level, while the seller of an interest rate floor is obligated to make payments to the extent that a specified interest rate falls below an agreed-upon level. An interest rate collar combines elements of buying a cap and selling a floor. Swap agreements will tend to shift the Fund's investment exposure from one type of investment to another. For example, if the Fund agreed to exchange payments in dollars for payments in a foreign currency, the swap agreement would tend to decrease the Fund's exposure to U.S. interest rates and increase its exposure to foreign currency and interest rates. Caps and floors have an effect similar to buying or writing options. Depending on how they are used, swap agreements may increase or decrease the overall volatility of a Fund's investments and its share price and yield. 11 Swap agreements are sophisticated hedging instruments that typically involve a small investment of cash relative to the magnitude of risks assumed. As a result, swaps can be highly volatile and may have a considerable impact on the Fund's performance. Swap agreements are subject to risks related to the counterpart's ability to perform, and may decline in value if the counterpart's credit worthiness deteriorates. The Fund may also suffer losses if it is unable to terminate outstanding swap agreements or reduce its exposure through offsetting transactions. The Fund will maintain in a segregated account with its custodian, cash or liquid, high grade debt securities equal to the net amount, if any, of the excess of the Fund's obligations over its entitlement with respect to swap, cap, collar or floor transactions. Pay-In-Kind, Delayed and Zero Coupon Bonds. The Fund may invest in pay-in-kind, delayed and zero coupon bonds. These are securities issued at a discount from their face value because interest payments are typically postponed until maturity. The amount of the discount rate varies depending on factors including the time remaining until maturity, prevailing interest rates, the security's liquidity and the issuer's credit quality. These securities also may take the form of debt securities that have been stripped of their interest payments. A portion of the discount with respect to stripped tax-exempt securities or their coupons may be taxable. The market prices in pay-in-kind, delayed and zero coupon bonds generally are more volatile than the market prices of interest- bearing securities and are likely to respond to a grater degree to changes in interest rates than interest-bearing securities having similar maturities and credit quality. The Fund's investments in pay-in-kind, delayed and zero coupon bonds may require the Fund to sell certain of its portfolio securities to generate sufficient cash to satisfy certain income distribution requirements. See "Tax Status." Options on Securities, Securities Indices and Currency. The Fund may purchase and write (sell) call and put options on any securities in which it may invest, on any securities index based on securities in which it may invest or on any currency in which Fund investments may be denominated. These options may be listed on national domestic securities exchanges or foreign securities exchanges or traded in the over-the-counter market. The Fund may write covered put and call options and purchase put and call options as a substitute for the purchase or sale of securities or currency or to protect against declines in the value of portfolio securities and against increases in the cost of securities to be acquired. Writing Covered Options. A call option on securities or currency written by the Fund obligates the Fund to sell specified securities or currency to the holder of the option at a specified price if the option is exercised at any time before the expiration date. A put option on securities or currency written by the Fund obligates the Fund to purchase specified securities or currency from the option holder at a specified price if the option is exercised at any time before the expiration date. Options on securities indices are similar to options on securities, except that the exercise of securities index options requires cash settlement payments and does not involve the actual purchase or sale of securities. In addition, securities index options are designed to reflect price fluctuations in a group of securities or segment of the securities market rather than price fluctuations in a single security. Writing covered call options may deprive the Fund of the opportunity to profit from an increase in the market price of the securities or foreign currency assets in its portfolio. Writing covered put options may deprive the Fund of the opportunity to profit from a decrease in the market price of the securities or foreign currency assets to be acquired for its portfolio. All call and put options written by the Fund are covered. A written call option or put option may be covered by (i) maintaining cash or liquid securities, either of which may be quoted or denominated in any currency, in a segregated account with a value at least equal to the Fund's obligation under the option, (ii) entering into an offsetting forward commitment and/or (iii) purchasing an offsetting option or any other option which, by virtue of its exercise price or otherwise, reduces the Fund's net exposure on its written option position. A written call option 12 on securities is typically covered by maintaining the securities that are subject to the option in a segregated account. The Fund may cover call options on a securities index by owning securities whose price changes are expected to be similar to those of the underlying index. The Fund may terminate its obligations under an exchange traded call or put option by purchasing an option identical to the one it has written. Obligations under over-the-counter options may be terminated only by entering into an offsetting transaction with the counterparty to such option. Such purchases are referred to as "closing purchase transactions." Purchasing Options. The Fund would normally purchase call options in anticipation of an increase, or put options in anticipation of a decrease ("protective puts"), in the market value of securities or currencies of the type in which it may invest. The Fund may also sell call and put options to close out its purchased options. The purchase of a call option would entitle the Fund, in return for the premium paid, to purchase specified securities or currency at a specified price during the option period. The Fund would ordinarily realize a gain on the purchase of a call option if, during the option period, the value of such securities or currency exceeded the sum of the exercise price, the premium paid and transaction costs; otherwise the Fund would realize either no gain or a loss on the purchase of the call option. The purchase of a put option would entitle the Fund, in exchange for the premium paid, to sell specified securities or currency at a specified price during the option period. The purchase of protective puts is designed to offset or hedge against a decline in the market value of the Fund's portfolio securities or the currencies in which they are denominated. Put options may also be purchased by the Fund for the purpose of affirmatively benefiting from a decline in the price of securities or currencies which it does not own. The Fund would ordinarily realize a gain if, during the option period, the value of the underlying securities or currency decreased below the exercise price sufficiently to cover the premium and transaction costs; otherwise the Fund would realize either no gain or a loss on the purchase of the put option. Gains and losses on the purchase of put options may be offset by countervailing changes in the value of the Fund's portfolio securities. The Fund's options transactions will be subject to limitations established by each of the exchanges, boards of trade or other trading facilities on which such options are traded. These limitations govern the maximum number of options in each class which may be written or purchased by a single investor or group of investors acting in concert, regardless of whether the options are written or purchased on the same or different exchanges, boards of trade or other trading facilities or are held or written in one or more accounts or through one or more brokers. Thus, the number of options which the Fund may write or purchase may be affected by options written or purchased by other investment advisory clients of the Adviser. An exchange, board of trade or other trading facility may order the liquidation of positions found to be in excess of these limits, and it may impose certain other sanctions. Risks Associated with Options Transactions. There is no assurance that a liquid secondary market on a domestic or foreign options exchange will exist for any particular exchange-traded option or at any particular time. If the Fund is unable to effect a closing purchase transaction with respect to covered options it has written, the Fund will not be able to sell the underlying securities or currencies or dispose of assets held in a segregated account until the options expire or are exercised. Similarly, if the Fund is unable to effect a closing sale transaction with respect to options it has purchased, it would have to exercise the options in order to realize any profit and will incur transaction costs upon the purchase or sale of underlying securities or currencies. 13 Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of options; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or the Options Clearing Corporation may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of options (or a particular class or series of options). If trading were discontinued, the secondary market on that exchange (or in that class or series of options) would cease to exist. However, outstanding options on that exchange that had been issued by the Options Clearing Corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms. The Fund's ability to terminate over-the-counter options is more limited than with exchange-traded options and may involve the risk that broker-dealers participating in such transactions will not fulfill their obligations. The Adviser will determine the liquidity of each over-the-counter option in accordance with guidelines adopted by the Trustees. The writing and purchase of options is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. The successful use of options depends in part on the Adviser's ability to predict future price fluctuations and, for hedging transactions, the degree of correlation between the options and securities or currency markets. Futures Contracts and Options on Futures Contracts. The Fund may purchase and sell futures contracts based on various securities (such as U.S. Government securities) and securities indices, foreign currencies and any other financial instruments and indices and purchase and write call and put options on these futures contracts. The Fund may purchase and sell futures and options on futures for hedging or other non-speculative purposes. The Fund may also enter into closing purchase and sale transactions with respect to any of these contracts and options. All futures contracts entered into by a Fund are traded on U.S. or foreign exchanges or boards of trade that are licensed, regulated or approved by the Commodity Futures Trading Commission ("CFTC"). Futures Contracts. A futures contract may generally be described as an agreement between two parties to buy and sell particular financial instruments or currencies for an agreed price during a designated month (or to deliver the final cash settlement price, in the case of a contract relating to an index or otherwise not calling for physical delivery at the end of trading in the contract). Positions taken in the futures markets are not normally held to maturity but are instead liquidated through offsetting transactions which may result in a profit or a loss. While futures contracts on securities or currency will usually be liquidated in this manner, the Fund may instead make, or take, delivery of the underlying securities or currency whenever it appears economically advantageous to do so. A clearing corporation associated with the exchange on which futures contracts are traded guarantees that, if still open, the sale or purchase will be performed on the settlement date. Hedging and Other Strategies. Hedging is an attempt to establish with more certainty than would otherwise be possible the effective price or rate of return on portfolio securities or securities that a Fund proposes to acquire or the exchange rate of currencies in which the portfolio securities are quoted or denominated. When securities prices are falling, a Fund can seek to offset a decline in the value of its current portfolio securities through the sale of futures contracts. When securities prices are rising, a Fund, through the purchase of futures contracts, can attempt to secure better rates or prices than might later be available in the market when it effects anticipated purchases. A Fund may seek to offset anticipated changes in the value of a currency in which its portfolio 14 securities, or securities that it intends to purchase, are quoted or denominated by purchasing and selling futures contracts on such currencies. A Fund may, for example, take a "short" position in the futures market by selling futures contracts in an attempt to hedge against an anticipated decline in market prices or foreign currency rates that would adversely affect the value of the Fund's portfolio securities. Such futures contracts may include contracts for the future delivery of securities held by a Fund or securities with characteristics similar to those of the Fund's portfolio securities. Similarly, a Fund may sell futures contracts on any currencies in which its portfolio securities are quoted or denominated or in one currency to hedge against fluctuations in the value of securities denominated in a different currency if there is an established historical pattern of correlation between the two currencies. If, in the opinion of the Adviser, there is a sufficient degree of correlation between price trends for the Fund's portfolio securities and futures contracts based on other financial instruments, securities indices or other indices, the Fund may also enter into such futures contracts as part of its hedging strategy. Although under some circumstances prices of securities in the Fund's portfolio may be more or less volatile than prices of such futures contracts, the Adviser will attempt to estimate the extent of this volatility difference based on historical patterns and compensate for any differential by having the Fund enter into a greater or lesser number of futures contracts or by attempting to achieve only a partial hedge against price changes affecting the Fund's portfolio securities. When a short hedging position is successful, any depreciation in the value of portfolio securities will be substantially offset by appreciation in the value of the futures position. On the other hand, any unanticipated appreciation in the value of the Fund's portfolio securities would be substantially offset by a decline in the value of the futures position. On other occasions, a Fund may take a "long" position by purchasing futures contracts. This would be done, for example, when the Fund anticipates the subsequent purchase of particular securities when it has the necessary cash, but expects the prices or currency rates then available in the applicable market to be less favorable than prices that are currently available. Subject to the limitations imposed on the funds, as described above, a Fund may also purchase futures contracts as a substitute for transactions in securities or foreign currency, to alter the investment characteristics of or currency exposure associated with portfolio securities or to gain or increase its exposure to a particular securities market or currency. Options on Futures Contracts. The purchase of put and call options on futures contracts will give a Fund the right (but not the obligation) for a specified price to sell or to purchase, respectively, the underlying futures contract at any time during the option period. As the purchaser of an option on a futures contract, a Fund obtains the benefit of the futures position if prices move in a favorable direction but limits its risk of loss in the event of an unfavorable price movement to the loss of the premium and transaction costs. The writing of a call option on a futures contract generates a premium which may partially offset a decline in the value of a Fund's assets. By writing a call option, a Fund becomes obligated, in exchange for the premium (upon exercise of the option) to sell a futures contract if the option is exercised, which may have a value higher than the exercise price. Conversely, the writing of a put option on a futures contract generates a premium which may partially offset an increase in the price of securities that the Fund intends to purchase. However, a Fund becomes obligated (upon exercise of the option) to purchase a futures contract if the option is exercised, which may have a value lower than the exercise price. The loss incurred by each Fund in writing options on futures is potentially unlimited and may exceed the amount of the premium received. 15 The holder or writer of an option on a futures contract may terminate its position by selling or purchasing an offsetting option of the same series. There is no guarantee that such closing transactions can be effected. A Fund's ability to establish and close out positions on such options will be subject to the development and maintenance of a liquid market. Other Considerations. The Fund will engage in futures and related options transactions either for bona fide hedging or for other non-speculative purposes as permitted by the CFTC. These purposes may include using futures and options on futures as substitute for the purchase or sale of securities or currencies to increase or reduce exposure to particular markets. To the extent that a Fund is using futures and related options for hedging purposes, futures contracts will be sold to protect against a decline in the price of securities (or the currency in which they are quoted or denominated) that the Fund owns or futures contracts will be purchased to protect the Fund against an increase in the price of securities or the currency in which they are quoted or denominated) it intends to purchase. The Fund will determine that the price fluctuations in the futures contracts and options on futures used for hedging purposes are substantially related to price fluctuations in securities held by the Fund or securities or instruments which it expects to purchase. As evidence of its hedging intent, the Fund expects that on 75% or more of the occasions on which it takes a long futures or option position (involving the purchase of futures contracts), the Fund will have purchased, or will be in the process of purchasing, equivalent amounts of related securities in the cash market at the time when the futures or option position is closed out. However, in particular cases, when it is economically advantageous for the Fund to do so, a long futures position may be terminated or an option may expire without the corresponding purchase of securities or other assets. To the extent that the Fund engages in nonhedging transactions in futures contracts and options on futures, the aggregate initial margin and premiums required to establish these nonhedging positions will not exceed 5% of the net asset value of the Fund's portfolio, after taking into account unrealized profits and losses on any such positions and excluding the amount by which such options were in-the-money at the time of purchase. Transactions in futures contracts and options on futures involve brokerage costs, require margin deposits and, in the case of contracts and options obligating a Fund to purchase securities or currencies, require the Fund to establish a segregated account consisting of cash or liquid securities in an amount equal to the underlying value of such contracts and options. While transactions in futures contracts and options on futures may reduce certain risks, these transactions themselves entail certain other risks. For example, unanticipated changes in interest rates, securities prices or currency exchange rates may result in a poorer overall performance for a Fund than if it had not entered into any futures contracts or options transactions. Perfect correlation between a Fund's futures positions and portfolio positions will be impossible to achieve. In the event of an imperfect correlation between a futures position and a portfolio position which is intended to be protected, the desired protection may not be obtained and the Fund may be exposed to risk of loss. In addition, it is not possible to hedge fully or protect against currency fluctuations affecting the value of securities denominated in foreign currencies because the value of such securities is likely to fluctuate as a result of independent factors not related to currency fluctuations. Some futures contracts or options on futures may become illiquid under adverse market conditions. In addition, during periods of market volatility, a commodity exchange may suspend or limit trading in a futures contract or related option, which may make the instrument temporarily illiquid and difficult to price. Commodity exchanges may also establish daily limits on the amount that the price of a futures contract or related option can vary from the previous 16 day's settlement price. Once the daily limit is reached, no trades may be made that day at a price beyond the limit. This may prevent the Fund from closing out positions and limiting its losses. Lending of Securities. The Fund may lend portfolio securities to brokers, dealers, and financial institutions if the loan is collateralized by cash or U.S. government securities according to applicable regulatory requirements. The Fund may reinvest any cash collateral in short-term securities and money market funds. When the Fund lends portfolio securities, there is a risk that the borrower may fail to return the loaned securities involved in the transaction. As a result, the Fund may incur a loss or, in the event of the borrower's bankruptcy, the Fund may be delayed in or prevented from liquidating the collateral. It is a fundamental policy of the Fund not to lend portfolio securities having a total value in excess of 33 1/3 % of its total assets. Rights and Warrants. The Fund may purchase warrants and rights which are securities permitting, but not obligating, their holder to purchase the underlying securities at a predetermined price, subject to the Fund's Investment Restriction. Generally, warrants and stock purchase rights do not carry with them the right to receive dividends or exercise voting rights with respect to the underlying securities, and they do not represent any rights in the assets of the issuer. As a result, an investment in warrants and rights may be considered to entail greater investment risk than certain other types of investments. In addition, the value of warrants and rights does not necessarily change with the value of the underlying securities, and they cease to have value if they are not exercised on or prior to their expiration date. Investment in warrants and rights increases the potential profit or loss to be realized from the investment of a given amount of the Fund's assets as compared with investing the same amount in the underlying stock. Short Sales. The Fund may engage in short sales "against the box". In a short sale against the box, the Fund agrees to sell at a future date a security that it either contemporaneously owns or has the right to acquire at no extra cost. If the price of the security has declined at the time the Fund is required to deliver the security, the Fund will benefit from the difference in the price. If the price of the security has increased, the Fund will be required to pay the difference. Forward Commitment and When-Issued Securities. The Fund may purchase securities on a when-issued or forward commitment basis. "When-issued" refers to securities whose terms are available and for which a market exists, but which have not been issued. The Fund will engage in when-issued transactions with respect to securities purchased for its portfolio in order to obtain what is considered to be an advantageous price and yield at the time of the transaction. For when-issued transactions, no payment is made until delivery is due, often a month or more after the purchase. In a forward commitment transaction, the Fund contracts to purchase securities for a fixed price at a future date beyond customary settlement time. When the Fund engages in forward commitment and when-issued transactions, it relies on the seller to consummate the transaction. The failure of the issuer or seller to consummate the transaction may result in the Fund's losing the opportunity to obtain a price and yield considered to be advantageous. The purchase of securities on a when-issued or forward commitment basis also involves a risk of loss if the value of the security to be purchased declines prior to the settlement date. On the date the Fund enters into an agreement to purchase securities on a when-issued or forward commitment basis, the Fund will segregate in a separate account cash or liquid securities equal, of any type or maturity, in value to the Fund's commitment. These assets will be valued daily at market, and additional cash or securities will be segregated in a separate account to the extent that the total value of the assets in the account declines below the amount of the when-issued commitments. Alternatively, the Fund may enter into offsetting contracts for the forward sale of other securities that it owns. 17 Short-Term Trading and Portfolio Turnover. Short-term trading means the purchase and subsequent sale of a security after it has been held for a relatively brief period of time. The Fund may engage in short-term trading in response to stock market conditions, changes in interest rates or other economic trends and developments, or to take advantage of yield disparities between various fixed income securities in order to realize capital gains or improve income. Short-term trading may have the effect of increasing portfolio turnover rate. A high rate of portfolio turnover (100% or greater) involves correspondingly higher brokerage expenses. The Fund's portfolio turnover rate is set forth in the table under the caption "Financial Highlights" in the Prospectus. INVESTMENT RESTRICTIONS Fundamental Investment Restrictions. The following investment restrictions will not be changed without the approval of a majority of the Fund's outstanding voting securities which, as used in the Prospectus and this Statement of Additional Information, means the approval by the lesser of (1) the holders of 67% or more of the Fund's shares represented at a meeting if more than 50% of the Fund's outstanding shares are present in person or by proxy at that meeting or (2) more than 50% of the Fund's outstanding shares. The Fund may not: 1. Issue senior securities, except as permitted by the Fund's fundamental investment restrictions on borrowing, lending and investing in commodities, and as otherwise permitted under the 1940 Act. For purposes of this restriction, the issuance of shares of beneficial interest in multiple classes or series, the deferral of trustees' fees, the purchase or sale of options, futures contracts and options on futures contracts, forward commitments, forward foreign exchange contracts and repurchase agreements entered into in accordance with the Fund's investment policies are not deemed to be senior securities. 2. Borrow money, except: (i) for temporary or short-term purposes or for the clearance of transactions in amounts not to exceed 33 1/3% of the value of the fund's total assets (including the amount borrowed) taken at market value; (ii) in connection with the redemption of fund shares or to finance failed settlements of portfolio trades without immediately liquidating portfolio securities or other assets, (iii) in order to fulfill commitments or plans to purchase additional securities pending the anticipated sale of other portfolio securities or assets; (iv) in connection with entering into reverse repurchase agreements and dollar rolls, but only if after each such borrowing there is asset coverage of at least 300% as defined in the 1940 Act; and (v) as otherwise permitted under the 1940 Act. For purposes of this investment restriction, the deferral of trustees' fees and transactions in short sales, futures contracts, options on futures contracts, securities or indices and forward commitment transactions shall not constitute borrowing. 3. Act as an underwriter, except to the extent that in connection with the disposition of portfolio securities, the Fund may be deemed to be an underwriter for purposes of the Securities Act of 1933. 4. Purchase, sell or invest in real estate, but subject to its other investment policies and restrictions may invest in securities of companies that deal in real estate or are engaged in the real estate business. These companies include real estate investment trusts and securities secured by real estate or interests in real estate. The fund may hold and sell real estate acquired through default, liquidation or other distributions of an interest in real estate as a result of the fund's ownership of securities. 18 5. Invest in commodities or commodity futures contracts, other than financial derivative contracts. Financial derivatives include forward currency contracts; financial futures contracts and options on financial futures contracts; options and warrants on securities, currencies and financial indices; swaps, caps, floors, collars and swaptions; and repurchase agreements entered into in accordance with the fund's investment policies. 6. Make loans, except that the fund may (i) lend portfolio securities in accordance with the fund's investment policies up to 33 1/3% of the fund's total assets taken at market value, (ii) enter into repurchase agreements, and (iii) purchase all or a portion of an issue of publicly distributed debt securities, bank loan participation interests, bank certificates of deposit, bankers' acceptances, debentures or other securities, whether or not the purchase is made upon the original issuance of the securities. 7. Purchase the securities of issuers conducting their principal activity in the same industry if, immediately after such purchase, the value of its investments in such industry would exceed 25% of its total assets taken at market value at the time of such investment. This limitation does not apply to investments in obligations of the U.S. Government or any of its agencies, instrumentalities or authorities. Non-Fundamental Investment Restrictions. The following investment restrictions are designated as non-fundamental and may be changed by the Trustees without shareholder approval. 1. Purchase a security if, as a result, (i) more than 10% of the fund's total assets would be invested in the securities of other investment companies, (ii) the fund would hold more than 3% of the total outstanding voting securities of any one investment company, or (iii) more than 5% of the Fund's total assets would be invested in the securities of any one investment company. These limitations do not apply to (a) the investment of cash collateral, received by the fund in connection with lending of the fund's portfolio securities, in the securities of open-end investment companies or (b) the purchase of shares of any investment company in connection with a merger, consolidation, reorganization or purchase of substantially all of the assets of another investment company. Subject to the above percentage limitations, the fund may, in connection with the John Hancock Group of Funds Deferred Compensation Plan for Independent Trustees/Directors, purchase securities of other investment companies within the John Hancock Group of Funds. 2. Invest in the securities of an issuer for the purpose of exercising control or management. 3. Purchase securities on margin, except that the Fund may obtain such short-term credits as may be necessary for the clearance of securities transactions. 4. Invest more than 15% of its net assets in securities which are illiquid. Except with respect to borrowing money, if a percentage restriction on investment or utilization of assets as set forth above is adhered to at the time an investment is made, a later change in percentage resulting from changes in the value of the Fund's assets will not be considered a violation of the restriction. The Funds will invest only in countries on the Adviser's Approved Country Listing. The Approved Country Listing is a list maintained by the Adviser's investment department that outlines all countries, including the United States, that have been approved for investment by Funds managed by the Adviser. 19 If allowed by the Fund's other investment policies and restrictions, the Fund may invest up to 5% of its total assets in Russian equity securities and up to 10% of its total assets in Russian fixed income securities. All Russian securities must be: (1) denominated in U.S. dollars, Canadian dollars, euros, sterling, or yen; (2) traded on a major exchange; and (3) held physically outside of Russia. THOSE RESPONSIBLE FOR MANAGEMENT The business of the Fund is managed by its Trustees, including certain Trustees who are not "interested persons" of the Fund or the Trust (as defined by the Investment Company Act of 1940) (the "Independent Trustees"), who elect officers who are responsible for the day-to-day operations of the Fund and who execute policies formulated by the Trustees. Several of the officers and Trustees of the Fund are also officers or Directors of the Adviser, or officers and Directors of the Fund's principal distributor, John Hancock Funds, LLC (prior to February 1, 2002, John Hancock Funds, Inc.) ("John Hancock Funds"). 20
- ------------------------------------------------------------------------------------------------------------------- Number of John Hancock Position(s) Trustee/ Principal Occupation(s) and other Funds Name, Address (1) Held with Officer Directorships Overseen by And Age Fund since(2) During Past 5 Years Trustee - ------------------------------------------------------------------------------------------------------------------- Independent Trustees - ------------------------------------------------------------------------------------------------------------------- Dennis S. Aronowitz Trustee 2001 Professor of Law, Emeritus, Boston 31 Born: 1931 University School of Law (as of 1996); Director, Brookline Bancorp. - ------------------------------------------------------------------------------------------------------------------- Richard P. Chapman, Jr. Trustee 2001 Chairman, President and Chief Executive 31 Born: 1935 Officer, Brookline Bancorp. (lending) (since 1972); Chairman and Director, Lumber Insurance Co. (insurance) (until 2000); Chairman and Director, Northeast Retirement Services, Inc. (retirement administration) (since 1998). - ------------------------------------------------------------------------------------------------------------------- William J. Cosgrove Trustee 2001 Vice President, Senior Banker and Senior 31 Born: 1933 Credit Officer, Citibank, N.A. (banking) (retired 1991); Executive Vice President, Citadel Group Representatives, Inc. (financial reinsurance); Director, Hudson City Bancorp (banking); Trustee, Scholarship Fund for Inner City Children (since 1986). - ------------------------------------------------------------------------------------------------------------------- Richard A. Farrell Trustee 2001 President, Farrell, Healer & Co., Inc. 31 Born: 1932 (venture capital management firm)(since 1980) and General Partner of the Venture Capital Fund of NE (since 1980); Trustee, Marblehead Savings Bank (since 1994). Prior to 1980, headed the venture capital group at Bank of Boston Corporation. - -------------------------------------------------------------------------------------------------------------------
(1) Business address for independent and interested Trustees and officers is 101 Huntington Avenue, Boston, Massachusetts 02199. (2) Each Trustee serves until resignation, retirement age or until her or his successor is elected. (3) Interested Trustee: holds positions with the Fund's investment adviser, underwriter, and or certain other affiliates. 21
- --------------------------------------------------------------------------------------------------------------------------- Number of John Position(s) Trustee/ Principal Occupation(s) and other Hancock Funds Name, Address (1) Held with Officer Directorships Overseen by And Age Fund since(2) During Past 5 Years Trustee - --------------------------------------------------------------------------------------------------------------------------- William F. Glavin Trustee 2001 President Emeritus, Babson College (as of 1998); 31 Born: 1932 Vice Chairman, Xerox Corporation (until 1989); Director, Reebok, Inc. (until 2002) and Inco Ltd. (until 2002). - --------------------------------------------------------------------------------------------------------------------------- John A. Moore Trustee 2001 President and Chief Executive Officer, Institute 39 Born: 1939 for Evaluating Health Risks, (nonprofit institution) (until 2001); Senior Scientist, Sciences International (health research)(since 1998); Principal, Hollyhouse (consulting)(since 2000); Director, CIIT(nonprofit research) (since 2002). - --------------------------------------------------------------------------------------------------------------------------- Patti McGill Peterson Trustee 2001 Executive Director, Council for International 39 Born: 1943 Exchange of Scholars (since 1998); Vice President, Institute of International Education (since 1998); Senior Fellow, Cornell Institute of Public Affairs, Cornell University (until 1997); President Emerita of Wells College and St. Lawrence University; Director, Niagara Mohawk Power Corporation (electric utility). - --------------------------------------------------------------------------------------------------------------------------- John W. Pratt Trustee 2001 Professor of Business Administration Emeritus, 31 Born: 1931 Harvard University Graduate School of Business Administration (as of 1998). - ---------------------------------------------------------------------------------------------------------------------------
(1) Business address for independent and interested Trustees and officers is 101 Huntington Avenue, Boston, Massachusetts 02199. (2) Each Trustee serves until resignation, retirement age or until her or his successor is elected. (3) Interested Trustee: holds positions with the Fund's investment adviser, underwriter, and or certain other affiliates. 22
- ------------------------------------------------------------------------------------------------------------------------------ Number of John Position(s) Trustee/ Principal Occupation(s) and other Hancock Funds Name, Address (1) Held with Officer Directorships Overseen by And Age Fund since(2) During Past 5 Years Trustee - ------------------------------------------------------------------------------------------------------------------------------ Interested Trustees - ------------------------------------------------------------------------------------------------------------------------------ John M. DeCiccio (3) Trustee 2001 Executive Vice President and Chief Investment 61 Born: 1948 Officer, John Hancock Financial Services, Inc.; Director, Executive Vice President and Chief Investment Officer, John Hancock Life Insurance Company; Chairman of the Committee of Finance of John Hancock Life Insurance Company; Director, John Hancock Subsidiaries, LLC, Hancock Natural Resource Group, Independence Investment LLC, Independence Fixed Income LLC, John Hancock Advisers, LLC (the "Adviser") and The Berkeley Financial Group, LLC ("The Berkeley Group"), John Hancock Funds, LLC ("John Hancock Funds"), Massachusetts Business Development Corporation; Director, John Hancock Insurance Agency, Inc. ("Insurance Agency, Inc.") (until 1999) and John Hancock Signature Services, Inc. ("Signature Services") (until 1997). - ------------------------------------------------------------------------------------------------------------------------------ Maureen R. Ford (3) Trustee, 2001 Executive Vice President, John Hancock 61 Born: 1955 Chairman, Financial Services, Inc., John Hancock Life President Insurance Company; Chairman, Director, and Chief President and Chief Executive Officer, the Executive Advisers and The Berkeley Group; Chairman, Officer Director, President and Chief Executive Officer, John Hancock Funds; Chairman, Director and Chief Executive Officer, Sovereign Asset Management Corporation ("SAMCorp."); Director, John Hancock Subsidiaries, LLC; Independence Investment LLC, Independence Fixed Income LLC and Signature Services; Senior Vice President, MassMutual Insurance Co. (until 1999). - ------------------------------------------------------------------------------------------------------------------------------
(1) Business address for independent and interested Trustees and officers is 101 Huntington Avenue, Boston, Massachusetts 02199. (2) Each Trustee serves until resignation, retirement age or until her or his successor is elected. (3) Interested Trustee: holds positions with the Fund's investment adviser, underwriter, and or certain other affiliates. 23
- ------------------------------------------------------------------------------------------------------------------- Number of John Hancock Position(s) Trustee/ Principal Occupation(s) and other Funds Name, Address (1) Held with Officer Directorships Overseen by And Age Fund since(2) During Past 5 Years Trustee - ------------------------------------------------------------------------------------------------------------------- Principal Officers who are not Trustees - ------------------------------------------------------------------------------------------------------------------- William L. Braman Executive 2001 Executive Vice President and Chief N/A Born: 1953 Vice Investment Officer, the Adviser and each President of the John Hancock funds; Director, and Chief SAMCorp., Executive Vice President and Investment Chief Investment Officer, Baring Asset Officer Management, London U.K. (until 2000). - ------------------------------------------------------------------------------------------------------------------- Richard A. Brown Senior Vice 2001 Senior Vice President, Chief Financial N/A Born: 1949 President Officer and Treasurer, the Adviser, John and Chief Hancock Funds, and The Berkeley Group; Financial Second Vice President and Senior Associate Officer Controller, Corporate Tax Department, John Hancock Financial Services, Inc. (until 2001). - ------------------------------------------------------------------------------------------------------------------- Thomas H. Connors Vice 2001 Vice President and Compliance Officer, the N/A Born: 1959 President Adviser and each of the John Hancock and funds; Vice President, John Hancock Funds. Compliance Officer - ------------------------------------------------------------------------------------------------------------------- William H. King Vice 2001 Vice President and Assistant Treasurer, N/A Born: 1952 President the Adviser; Vice President and Treasurer and of each of the John Hancock funds; Assistant Treasurer Treasurer of each of the John Hancock funds (until 2001). - ------------------------------------------------------------------------------------------------------------------- Susan S. Newton Senior Vice 2001 Senior Vice President, Secretary and Chief N/A Born: 1950 President, Legal Officer, SAMCorp., the Adviser and Secretary each of the John Hancock funds, John and Chief Hancock Funds and The Berkeley Group; Vice Legal Officer President, Signature Services (until 2000), Director, Senior Vice President and Secretary, NM Capital. - -------------------------------------------------------------------------------------------------------------------
(1) Business address for independent and interested Trustees and officers is 101 Huntington Avenue, Boston, Massachusetts 02199. (2) Each Trustee serves until resignation, retirement age or until her or his successor is elected. (3) Interested Trustee: holds positions with the Fund's investment adviser, underwriter, and or certain other affiliates. 24 The Fund's Board of Trustees currently has five standing Committees: the Audit Committee, the Administration Committee, the Contracts/Operations Committee, the Investment Performance Committee and the Coordinating Committee. Each Committee is comprised of Independent Trustees. The Audit Committee members are Messrs. Glavin, Moore and Ms. McGill Peterson. The Audit Committee recommends to the full board auditors for the Fund, monitors and oversees the audits of the Fund, communicates with both independent auditors and internal auditors on a regular basis and provides a forum for the auditors to report and discuss any matters they deem appropriate at any time. The Audit Committee held four meetings during the fiscal year ended October 31, 2002. The Administration Committee's members are all of the Independent Trustees of the Fund. The Administration Committee reviews the activities of the other four standing committees and makes the final selection and nomination of candidates to serve as Independent Trustees. The Administration Committee will consider nominees recommended by shareholders to serve as Independent Trustees, provided that shareholders submit recommendations in compliance with all of the pertinent provisions of Rule 14a-8 under the Securities Exchange Act of 1934. The Administration Committee also works with all Trustees on the selection and election of officers of the Fund. The Administration Committee held four meetings during the fiscal year ended October 31, 2002. The Contracts/Operations Committee members are Messrs. Farrell and Pratt. The Contracts/Operations Committee oversees the initiation, operation, and renewal of contracts between the Fund and other entities. These contracts include advisory and subadvisory agreements, custodial and transfer agency agreements and arrangements with other service providers. The Contracts/Operations Committee held five meetings during the fiscal year ended October 31, 2001. The Investment Performance Committee consists of Messrs. Aronowitz, Chapman and Cosgrove. The Investment Performance Committee monitors and analyzes the performance of the Fund generally, consults with the adviser as necessary if the Fund requires special attention, and reviews peer groups and other comparative standards as necessary. The Investment Performance Committee held four meetings during the fiscal year ended October 31, 2002. The Coordinating Committee members are the chairpersons of the other four standing committees. The Coordinating Committee assures consistency of action among committees, reviews Trustee compensation, evaluates Trustee performance and considers committee membership rotations as well as relevant corporate governance issues. The following table provides a dollar range indicating each Trustee's ownership of equity securities of the Fund, as well as aggregate holdings of shares of equity securities of all John Hancock Funds overseen by the Trustee, as of December 31, 2002. 25
- ----------------------------------------------------------------------------------------------------------- Aggregate Dollar Range of holdings Dollar Range of Fund Shares in John Hancock funds overseen by Name of Trustee Owned by Trustee (1) Trustee (1) - ----------------------------------------------------------------------------------------------------------- Independent Trustees - ----------------------------------------------------------------------------------------------------------- Dennis S. Aronowitz None $50,001-$100,000 - ----------------------------------------------------------------------------------------------------------- Richard P. Chapman, Jr. None Over $100,000 - ----------------------------------------------------------------------------------------------------------- William J. Cosgrove None Over $100,000 - ----------------------------------------------------------------------------------------------------------- Richard A. Farrell None Over $100,000 - ----------------------------------------------------------------------------------------------------------- William F. Glavin None $10,001-$50,000 - ----------------------------------------------------------------------------------------------------------- Dr. John A. Moore None Over $100,000 - ----------------------------------------------------------------------------------------------------------- Patti McGill Peterson $1-$10,000 Over $100,000 - ----------------------------------------------------------------------------------------------------------- John W. Pratt None Over $100,000 - ----------------------------------------------------------------------------------------------------------- Interested Trustees - ----------------------------------------------------------------------------------------------------------- John M. DeCiccio None Over $100,000 - ----------------------------------------------------------------------------------------------------------- Maureen R. Ford $1-$10,000 Over $100,000 - -----------------------------------------------------------------------------------------------------------
(1) This Fund does not participate in the John Hancock Deferred Compensation Plan for Independent Trustees (the "Plan"). Under the Plan, an Independent Trustee may defer his fees by electing to have the Adviser invest his fees in one of the funds in the John Hancock complex that participates in the Plan. Under these circumstances, the Trustee is not the legal owner of the underlying shares, but does participate in any positive or negative return on those shares to the same extent as all other shareholders. With regard to Trustees participating in the Plan, if a Trustee was deemed to own the shares used in computing the value of his deferred compensation, as of December 31, 2002, the respective "Dollar Range of Fund Shares Owned by Trustee" and the "Aggregate Dollar Range of holdings in John Hancock funds overseen by Trustee" would be as follows: none and over $100,000 for Mr. Chapman, none and over $100,000 for Mr. Cosgrove, none and over $100,000 for Mr. Glavin, none and over $100,000 for Mr. Moore. The following table provides information regarding the compensation paid by the Fund and the other investment companies in the John Hancock Fund Complex to the Independent Trustees for their services. Mr. DeCiccio and Ms. Ford, each a non-Independent Trustee, and each of the officers of the Fund who are interested persons of the Adviser, are compensated by the Adviser and/or affiliates and receive no compensation from the Fund for their services.
Total Compensation From the Aggregate Compensation Fund and John Hancock Fund from the Fund (1) Complex to Trustees (2) ---------------------- --------------------------- Independent Trustees - -------------------- Dennis J. Aronowitz $ 18 $ 72,000 Richard P. Chapman* 26 78,100 William J. Cosgrove* 21 75,100 Richard A. Farrell 21 75,000 Gail D. Fosler+ 18 72,000 William F. Glavin* 21 75,000 Dr. John A. Moore* 18 72,000 Patti McGill Peterson 18 72,000 John Pratt 18 72,100 ---- -------- Total $179 $663,300
(1) Compensation is for the current fiscal year ending October 31, 2002. 26 (2) Total compensation paid by the John Hancock Funds Complex to the Independent Trustees is as of December 31, 2002. As of this date, there were sixty-one funds in the John Hancock Fund Complex, with Mr. Moore and Ms. Peterson serving on thirty-nine funds and each the other Independent Trustees serving on thirty-one funds. * As of December 31, 2002, the value of the aggregate accrued deferred compensation amount from all funds in the John Hancock Funds Complex for Mr. Chapman was $46,844, Mr. Cosgrove was $166,358, Mr. Glavin was $219,230 and for Dr. Moore was $203,650 under the John Hancock Group of Funds Deferred Compensation Plan for Independent Trustees (the "Plan"). + As of December 31, 2002, Ms. Fosler resigned as Trustee of the Complex. All of the officers listed are officers or employees of the Adviser or Affiliated Companies. Some of the Trustees and officers may also be officers or Trustees of one or more of the other funds for which the Adviser serves as investment adviser. INVESTMENT ADVISORY AND OTHER SERVICES The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603, was organized in 1968 and as of March 31, 2003 had approximately $26 billion in assets under management in its capacity as investment adviser to the Fund and other funds in the John Hancock group of funds as well as retail and institutional privately managed accounts. The Adviser is an affiliate of the Life Company, one of the most recognized and respected financial institutions in the nation. With total assets under management of approximately $130 billion, the Life Company is one of the ten largest life insurance companies in the United States, and carries a high rating from Standard & Poor's and A. M. Best. Founded in 1862, the Life Company has been serving clients for over 130 years. The Fund has entered into an investment management contract with the Adviser (the "Advisory Agreement"). Pursuant to the Advisory Agreement, the Adviser, in conjunction with the Sub-Adviser will: (a) furnish continuously an investment program for the Fund and determine, subject to the overall supervision and review of the Trustees, which investments should be purchased, held, sold or exchanged and (b) provide supervision over all aspects of the Fund's operations except those which are delegated to a custodian, transfer agent or other agent. Alliance Capital Management L.P. ("Alliance") serves as Subadviser to the Fund with respect to the Fund's growth and value investment strategies. Alliance, a Delaware limited partnership, is a leading international investment adviser with principal offices at 1345 Avenue of the Americas, New York, NY 10105. Alliance Capital Management Corporation ("ACMC") is the general partner of Alliance and an indirect wholly-owned subsidiary of AXA Financial, Inc. ("AXA Financial"). As of June 30, 2001 December 31, 2002, Alliance Capital Management Holding L.P. ("Alliance Holding") owned approximately 29.9% 30.7% of the outstanding units of limited partnership interest in Alliance ("Alliance Units"). ACMC is the general partner of Alliance Holding, whose equity interest are traded on the New York Stock Exchange in the form of units ("Alliance Holding Units"). As of June 30, 2001 December 31, 2002, AXA Financial, together with certain of its wholly-owned subsidiaries, including ACMC, beneficially owned 2.1% 1.9% of the outstanding Alliance Holding Units and 51.8% 55.7% of the outstanding Alliance Units. AXA Financial, a Delaware corporation, is a wholly-owned subsidiary of AXA, a French company. The Adviser has entered into a Sub-Advisory Agreement with the Sub-Adviser under which the Sub-Adviser, subject to the review of the Trustees and the overall supervision of the Adviser, is responsible for managing the investment operations of the growth and value portion of the Fund 27 and the composition of these portions of the Fund's portfolio and furnishing the Fund with advice and recommendations with respect to investments, investment policies and the purchase and sale of securities. The Fund bears all costs of its organization and operation, including but not limited to expenses of preparing, printing and mailing all shareholders' reports, notices, prospectuses, proxy statements and reports to regulatory agencies; expenses relating to the issuance, registration and qualification of shares; government fees; interest charges; expenses of furnishing to shareholders their account statements; taxes; expenses of redeeming shares; brokerage and other expenses connected with the execution of portfolio securities transactions; expenses pursuant to the Fund's plan of distribution; fees and expenses of custodians including those for keeping books and accounts maintaining a committed line of credit and calculating the net asset value of shares; fees and expenses of transfer agents and dividend disbursing agents; legal, accounting, financial, management, tax and auditing fees and expenses of the Fund (including an allocable portion of the cost of the Adviser's employees rendering such services to the Fund); the compensation and expenses of Trustees who are not otherwise affiliated with the Trust, the Adviser or any of their affiliates; expenses of Trustees' and shareholders' meetings; trade association memberships; insurance premiums; and any extraordinary expenses. As compensation for its services under the Advisory Agreement, the Fund pays the Adviser a fee monthly based on an annual rate of 0.85% of the average of the daily net assets of the Fund. From time to time, the Adviser may reduce its fee or make other arrangements to limit the Fund's expenses to a specified percentage of average daily net assets. The Adviser retains the right to reimpose a fee and recover any other payments to the extent that, at the end of any fiscal year, the Fund's annual expenses fall below this limit. The Adviser has agreed to limit the Fund's expenses (excluding 12b-1 fees) to 1.20% of the Fund's average daily net assets. The Adviser reserves the right to terminate this limitation in the future. For the period from the commencement of operations of the Fund on February 25, 2002, to October 31, 2002, advisory fees payable to the Fund's adviser amounted to $124,294, prior to the expense reduction by the Adviser. After the expense reduction, the fund paid no advisory fee for the period ended October 31, 2002. As provided in the Sub-Advisory Agreement, the Adviser (not the Fund) pays Alliance a monthly subadvisory fee. For the first year, beginning on the date the Fund commences operations, the Adviser will pay the Sub-Adviser a subadvisory fee at an annual rate of 0.500% of the average net assets in the Fund managed by the Sub-Adviser. Thereafter, the fee shall be calculated at the following annual rates: 0.900% on the first $20 million of average net assets managed by the Sub-Adviser; 0.750% on the next $20 million of average net assets managed by the Sub-Adviser; 0.600% on the next $20 million of average net assets managed by the Sub-Adviser; 0.400% on the next $40 million of average net assets managed by the Sub-Adviser; 0.300% on the next average net assets in excess of $100 million managed by the Sub-Adviser. Securities held by the Fund may also be held by other funds or investment advisory clients for which the Adviser, the Sub-Adviser or their respective affiliates provide investment advice. Because of different investment objectives or other factors, a particular security may be bought for one or more funds or clients when one or more are selling the same security. If opportunities for purchase or sale of securities by the Adviser or Sub-Adviser for the Fund or for other funds or clients for which the Adviser or Sub-Adviser renders investment advice arise for consideration at or about the same time, transactions in such securities will be made, insofar as feasible, for the 28 respective funds or clients in a manner deemed equitable to all of them. To the extent that transactions on behalf of more than one client of the Adviser, the Sub-Adviser or their respective affiliates may increase the demand for securities being purchased or the supply of securities being sold, there may be an adverse effect on price. Pursuant to the Advisory Agreement and Sub-Advisory Agreement, the Adviser and Sub-Advisers are not liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the matters to which their respective Agreements relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the Adviser or Sub-Adviser in the performance of their duties or from their reckless disregard of the obligations and duties under the applicable Agreements. Under the Advisory Agreement, the Fund may use the name "John Hancock" or any name derived from or similar to it only for so long as the Advisory Agreement or any extension, renewal or amendment thereof remains in effect. If the Advisory Agreement is no longer in effect, the Fund (to the extent that it lawfully can) will cease to use such name or any other name indicating that it is advised by or otherwise connected with the Adviser. In addition, the Adviser or the Life Company may grant the nonexclusive right to use the name "John Hancock" or any similar name to any other corporation or entity, including but not limited to any investment company of which the Life Company or any subsidiary or affiliate thereof or any successor to the business of any subsidiary or affiliate thereof shall be the investment adviser. The Fund's Board of Trustees is responsible for overseeing the performance of the Fund's investment Adviser and Sub-adviser and determining whether to approve and renew the Fund's Advisory Agreement and Sub-Advisory Agreement. The Board has a standing request that the Adviser provide the Board with certain information the Board has deemed important to evaluating the short- and long-term performance of the Adviser and Sub-Adviser. This information includes periodic performance analysis and status reports from the Adviser and quarterly Portfolio and Investment Performance Reports. The Fund's portfolio managers meet with the Board from time to time to discuss the management and performance of the Fund and respond to the Board's questions concerning the performance of the Adviser. When the Board considers whether to renew an investment advisory contract, the Board takes into account numerous factors, including: (1) the nature, extent and quality of the services provided by the Adviser and Sub-adviser; (2) the investment performance of the Fund; (3) the fair market value of the services provided by the Adviser and Sub-Adviser; (4) a comparative analysis of expense ratios of, and advisory fees paid by, similar funds; (5) the extent to which the Adviser has realized or will realize economies of scale as the Fund grows; (6) other sources of revenue to the Adviser or its affiliates from its relationship with the Fund and intangible or "fall-out" benefits that accrue to the adviser and its affiliates, if relevant; and (7) the Adviser's control of the operating expenses of the fund, such as transaction costs, including ways in which portfolio transactions for the fund are conducted and brokers are selected. In approving the Fund's Advisory Agreement and Sub-Advisory Agreement, the Board considered and evaluated various factors, including the terms and conditions of the Agreements, including the nature, extent and quality of the services to be provided to the Fund by the Adviser and Sub-Adviser and the structure and rates of the investment advisory fees to be charged for those services. On the basis of its review, the Board of Trustees found that the terms of the Investment Advisory Agreement and Sub-Advisory Agreement were fair and reasonable and in the best interest of the Fund's shareholders. The Advisory Agreement, Sub-Advisory Agreement and Distribution Agreement (discussed below) will continue in effect from year to year, provided that its continuance is approved annually both by (i) by the holders of a majority of the outstanding voting securities of the Trust or by the Trustees, and (ii) by a majority of the Trustees who are not parties to the Agreement or 29 "interested persons" of any such parties. These agreements may be terminated on 60 days written notice by any party or by a vote of a majority of the outstanding voting securities of the Fund and will terminate automatically if it is assigned. The Sub-Advisory Agreement will terminate automatically upon the termination of the Advisory Agreement. Accounting and Legal Services Agreement. The Trust, on behalf of the Fund, is a party to an Accounting and Legal Services Agreement with the Adviser. Pursuant to this Agreement, the Adviser provides the Fund with certain tax, accounting and legal services. For the period from the commencement of operations of the Fund on February 25, 2002 to October 31, 2002, the Fund paid the Adviser $3,084 for services under this Agreement. Personnel of the Adviser and its affiliates may trade securities for their personal accounts. The Fund also may hold, or may be buying or selling, the same securities. To prevent the Fund from being disadvantaged, the adviser(s), principal underwriter and the Fund have adopted a code of ethics which restricts the trading activity of those personnel. DISTRIBUTION CONTRACTS The Fund has a Distribution Agreement with John Hancock Funds. Under the agreement, John Hancock Funds is obligated to use its best efforts to sell shares of each class of the Fund. Shares of the Fund are also sold by selected broker-dealers (the "Selling Brokers") which have entered into selling agency agreements with John Hancock Funds. These Selling Brokers are authorized to designate other intermediaries to receive purchase and redemption orders on behalf of the Fund. John Hancock Funds accepts orders for the purchase of the shares of the Fund which are continually offered at net asset value next determined, plus an applicable sales charge, if any. In connection with the sale of Fund shares, John Hancock Funds and Selling Brokers receive compensation from a sales charge imposed, in the case of Class A and Class C shares, at the time of sale. In the case of Class B or Class C shares, the broker receives compensation immediately but John Hancock Funds is compensated on a deferred basis. Total underwriting commissions for sales of the Fund's Class A shares for the period from the commencement of operations of the Fund on February 25, 2002, to October 31, 2002 were $85,567. The underwriting commissions for sales of the Fund's Class C shares for the period from the commencement of operations of the Fund on February 25, 2002, to October 31, 2002 were $62,085. The remainder of the underwriting commissions were reallowed to Selling Brokers. The Fund's Trustees adopted Distribution Plans with respect to each class of shares (the "Plans") pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plans, the Fund will pay distribution and service fees at an aggregate annual rate of up to 0.30% for class A shares and 1.00% for Class B and Class C shares of the Fund's average daily net assets attributable to shares of that class. However, the service fees will not exceed 0.25% of the Fund's average daily net assets attributable to each class of shares. The distribution fees will be used to reimburse John Hancock Funds for its distribution expenses, including but not limited to: (i) initial and ongoing sales compensation to Selling Brokers and others (including affiliates of the John Hancock Funds) engaged in the sale of Fund shares; (ii) marketing, promotional and overhead expenses incurred in connection with the distribution of Fund shares; and (iii) with respect to Class B and Class C shares only, interest expenses on unreimbursed distribution expenses. The service fees will be used to compensate Selling Brokers and others for providing personal and account maintenance services to shareholders. In the event that John Hancock Funds is not fully reimbursed for payments or expenses it incurs under the Class A Plan, these expenses will not be carried beyond twelve months from the date they were incurred. Unreimbursed expenses under the Class B and Class C Plans will be carried forward together with interest on the balance of these unreimbursed expenses. The Fund does not treat 30 unreimbursed expenses under the Class B and Class C Plans as a liability of the Fund because the Trustees may terminate the Class B and /or Class C Plans at any time with no additional liability for these expenses to the shareholders and the Fund. For the fiscal year ended October 31, 2002, an aggregate amount of $280,404 of distribution expenses, or 3.08% of the average net assets of the Class B shares of the Fund, was not reimbursed or recovered by John Hancock Funds through the receipt of deferred sales charges or 12b-1 fees in prior periods. For the fiscal year ended October 31, 2002, an aggregate of $162,076 of distribution expenses, or 2.96% of the average net assets of the Class C shares of the Fund was not reimbursed or recovered by John Hancock Funds through the receipt of deferred sales charges or 12b-1 fess in prior periods. The Plans and all amendments were approved by the Trustees, including a majority of the Trustees who are not interested persons of the Fund and who have no direct or indirect financial interest in the operation of the Plans (the "Independent Trustees"), by votes cast in person at meetings called for the purpose of voting on these Plans. Pursuant to the Plans, at least quarterly, John Hancock Funds provides the Fund with a written report of the amounts expended under the Plans and the purpose for which these expenditures were made. The Trustees review these reports on a quarterly basis to determine their continued appropriateness. The Plans provide that they will continue in effect only so long as its continuance is approved at least annually by a majority of both the Trustees and the Independent Trustees. The Plans provide that they may be terminated without penalty, (a) by a vote of a majority of the Independent Trustees, (b) by a vote of a majority of the Fund's outstanding shares of the applicable class upon 60 days' written notice to John Hancock Funds and (c) automatically in the event of assignment. The Plans further provide that they may not be amended to increase the maximum amount of the fees for the services described therein without the approval of a majority of the outstanding shares of the class of the Fund which has voting rights with respect to that Plan. Each plan provides, that no material amendment to the Plans will be effective unless it is approved by a majority vote of the Trustees and the Independent Trustees of the Fund. The holders of Class A, Class B and Class C shares have exclusive voting rights with respect to the Plan applicable to their respective class of shares. In adopting the Plans, the Trustees concluded that, in their judgment, there is a reasonable likelihood that the Plans will benefit the holders of the applicable class of shares of the Fund. Amounts paid to the John Hancock Funds by any class of shares of the Fund will not be used to pay the expenses incurred with respect to any other class of shares of the Fund; provided, however, that expenses attributable to the Fund as a whole will be allocated, to the extent permitted by law, according to the formula based upon gross sales dollars and/or average daily net assets of each such class, as may be approved from time to time by vote of a majority of the Trustees. From time to time, the Fund may participate in joint distribution activities with other Funds and the costs of those activities will be borne by each Fund in proportion to the relative net asset value of the participating Fund. 31 During the fiscal year ended October 31, 2002, the Fund paid John Hancock Funds the following amounts of expenses in connection with their services for the Fund. Expense Items -------------
Printing and Mailing of Prospectuses to Expenses of Compensation Interest, Carrying New John Hancock to Selling or Other Finance Shares Advertising Shareholders Funds Brokers Charges ------ ----------- --------------- ------------ ------------ ------------------ Class A $ 7,062 $ 362 $1,926 $ 4,834 $ 0 Class B $34,285 $1,758 $1,020 $20,524 $4,185 Class C $20,705 $1,142 $ 758 $14,566 $ 0
SALES COMPENSATION As part of their business strategies, the Fund, along with John Hancock Funds, pay compensation to financial services firms that sell the Fund's shares. These firms typically pass along a portion of this compensation to your broker or financial representative. The two primary sources of broker compensation payments are (1) the 12b-1 fees that are paid out of the Fund's assets and (2) sales charges paid by investors. The sales charges and 12b-1 fees are detailed in the prospectus and under "Distribution Contracts" in this Statement of Additional Information. The portions of these expenses that are paid to financial services firms are shown on the next page. Whenever you make an investment in the Fund, the financial services firm receives a reallowance/payment, as described below. The firm also receives the first year's service fee at this time. Beginning with the second year after an investment is made, the financial services firm receives an annual 12b-1 service fee of 0.25% of its total eligible fund net assets. This fee is paid quarterly in arrears by the Fund. In addition, from time to time, John Hancock Funds, at its expense, may provide significant additional compensation to financial services firms in connection with their promotion of the Fund and sale of shares of the Fund. Such compensation provided by John Hancock Funds may include, for example, financial assistance to financial services firms in connection with their marketing and sales development programs for their registered representatives and other employees, as well as payment for travel expenses, including lodging, incurred by registered representatives and other employees for such marketing and sales development programs, as well as assistance for seminars for the public, advertising and sales campaigns regarding one or more Funds, and other financial services firms-sponsored events or activities. From time to time, John Hancock Funds may provide expense reimbursements for special training of a financial services firm's registered representatives and other employees in group meetings. Other compensation, such as asset retention fees, finder's fees and reimbursement for wire transfer fees or other administrative fees and costs may be offered to the extent not prohibited by law or any self-regulatory agency, such as the NASD. 32
Broker receives Sales charge paid Broker receives 12b-1 service fee Total broker by investors (% maximum reallowance (% of net compensation (1) Class A Investments of offering price) (% of offering price) investment) (3) (% of offering price) - ------------------- ------------------ -------------------- --------------- --------------------- Up to $49,999 5.00% 4.01% 0.25% 4.25% $50,000 - $99,999 4.50% 3.51% 0.25% 3.75% $100,000 - $249,999 3.50% 2.61% 0.25% 2.85% $250,000 - $499,999 2.50% 1.86% 0.25% 2.10% $500,000 - $999,999 2.00% 1.36% 0.25% 1.60% Investments of Class A shares of $1 million or more (4) - ---------------------- First $1M - $4,999,999 -- 0.75% 0.25% 1.00% (2) Next $1 - $5M above that -- 0.25% 0.25% 0.50% Next $1 or more above that -- 0.00% 0.25% 0.25%
Broker receives Broker receives 12b-1 service fee Total broker maximum reallowance (% of net compensation (1) Class B Investments (% of offering price) investment) (3) (% of offering price) - ------------------- -------------------- --------------- --------------------- All amounts -- 3.75% 0.25% 4.00%
Broker receives Broker receives 12b-1 service fee Total broker maximum reallowance (% of net compensation (1) Class C Investments (% of offering price) investment) (3) (% of offering price) - ------------------- -------------------- --------------- --------------------- Over $1,000,000 or amounts purchased at NAV -- 0.75% 0.25% 1.00% All other amounts 1.00% 1.75% 0.25% 2.00%
(1) Broker percentages and 12b-1 service fee percentages are calculated from different amounts, and therefore may not equal total broker compensation percentages if combined using simple addition. (2) Group investments may be eligible for 1% on asset levels of $5 million and higher. (3) After first year broker receives 12b-1 fees quarterly in arrears. (4) Includes new investments aggregated with investments since the last annual reset. John Hancock Funds may take recent redemptions into account in determining if an investment qualifies as a new investment. CDSC revenues collected by John Hancock Funds may be used to pay brokers commissions when there is no initial sales charge. 33 NET ASSET VALUE For purposes of calculating the net asset value (NAV) of the Fund's shares, the following procedures are utilized wherever applicable. Debt investment securities are valued on the basis of valuations furnished by a principal market- maker or a pricing service, both of which generally utilize electronic data processing techniques to determine valuations for normal institutional size trading units of debt securities without exclusive reliance upon quoted prices. Equity securities traded on a principal exchange are generally valued at last sale price on the day of valuation or in the case of securities traded on NASDAQ, the NASDAQ official closing price. Securities in the aforementioned category for which no sales are reported and other securities traded over-the-counter are generally valued at the last available bid price. Short-term debt investments which have a remaining maturity of 60 days or less are generally valued at amortized cost which approximates market value. If market quotations are not readily available or if in the opinion of the Adviser any quotation or price is not representative of true market value, the fair value of the security may be determined in good faith in accordance with procedures approved by the Trustees. Foreign securities are valued on the basis of quotations from the primary market in which they are traded. Any assets or liabilities expressed in terms of foreign currencies are translated into U.S. dollars by the custodian bank based on London currency exchange quotations as of 5:00 p.m., London time (12:00 noon, New York time) on the date of a determination of the Fund's NAV. If quotations are not readily available, or the value has been materially affected by the events occurring after the closing of a foreign market, assets are valued by a method that the Trustees believe accurately reflects fair value. The NAV of each Fund and class is determined each business day at the close of regular trading on the New York Stock Exchange (typically 4:00 p.m. Eastern Time) by dividing a class's net assets by the number of its shares outstanding. On any day an international market is closed and the New York Stock Exchange is open, any foreign securities will be valued at the prior day's close with the current day's exchange rate. Trading of foreign securities may take place on Saturdays and U.S. business holidays on which the Fund's NAV is not calculated. Consequently, the Fund's portfolio securities may trade and the NAV of the Fund's redeemable securities may be significantly affected on days when a shareholder has no access to the Fund. INITIAL SALES CHARGE ON CLASS A AND CLASS C SHARES Shares of the Fund are offered at a price equal to their net asset value plus a sales charge which, at the option of the purchaser, may be imposed either at the time of purchase (the "initial sales charge alternative") or on a contingent deferred basis (the "deferred sales charge alternative"). The fund no longer issues share certificates. Shares are electronically recorded. The Trustees reserve the right to change or waive the Fund's minimum investment requirements and to reject any order to purchase shares (including purchase by exchange) when in the judgment of the Adviser such rejection is in the Fund's best interest. The sales charges applicable to purchases of Class A and Class C shares of the Fund are described in the Prospectus. Methods of obtaining reduced sales charges referred to generally in the Prospectus are described in detail below. In calculating the sales charge applicable to current purchases of Class A shares of the Fund, the investor is entitled to accumulate current purchases with the greater of the current value (at offering price) of the Class A shares of the Fund, owned 34 by the investor, or if John Hancock Signature Services, Inc. ("Signature Services") is notified by the investor's dealer or the investor at the time of the purchase, the cost of the Class A shares owned. Without Sales Charges. Class A shares may be offered without a front-end sales charge or contingent deferred sales charge ("CDSC") to various individuals and institutions as follows: o A Trustee or officer of the Trust; a Director or officer of the Adviser and its affiliates, subadviser or Selling Brokers; employees or sales representatives of any of the foregoing; retired officers, employees or Directors of any of the foregoing; a member of the immediate family (spouse, children, grandparents, grandchildren, mother, father, sister, brother, mother-in-law, father-in-law, daughter-in-law, son-in-law, niece, nephew and same sex domestic partner) of any of the foregoing; or any fund, pension, profit sharing or other benefit plan for the individuals described above. o A broker, dealer, financial planner, consultant or registered investment advisor that has entered into a signed agreement with John Hancock Funds providing specifically for the use of Fund shares in fee-based investment products or services made available to their clients. o A former participant in an employee benefit plan with John Hancock funds, when he or she withdraws from his or her plan and transfers any or all of his or her plan distributions directly to the Fund. o A member of a class action lawsuit against insurance companies who is investing settlement proceeds. o Certain retirement plans participating in Merrill Lynch servicing programs offered in Class A shares, including transferee recording arrangements, Merrill Lynch Connect Arrangements and third party administrator recordkeeping arrangements. See your Merrill Lynch Financial Consultant for further information. o Retirement plans investing through the PruArray Program sponsored by Prudential Securities. o Pension plans transferring assets from a John Hancock variable annuity contract to the Fund pursuant to an exemptive application approved by the Securities and Exchange Commission. o Participant directed retirement plans with at least 100 eligible employees at the inception of the Fund account. Each of these investors may purchase Class A shares with no initial sales charge. However, if the shares are redeemed within 12 months after the end of the calendar year in which the purchase was made, a CDSC will be imposed at the following rate:
Amount Invested CDSC Rate --------------- --------- $1 to $4,999,999 1.00% Next $5 million to $9,999,999 0.50% Amounts of $10 million and over 0.25%
Class C shares may be offered without a front-end sales charge to: 35 o Investments of redemption proceeds from a non-John Hancock mutual fund. o Group Retirement plan products for which John Hancock Signature Services performs recordkeeping and administrative services. (These plans include 403(b), Simple IRA, SEP and SARSEP plans.) o Group Retirement plan products sold through third party administrators under the John Hancock SELECT retirement plan program. (These plans include 401(k), Money Purchase and Profit Sharing plans.) o An investor who buys through a Merrill Lynch, Raymond James Financial Services or Raymond James & Associates omnibus account. However, a CDSC may apply if the shares are sold within 12 months of purchase. o Certain retirement plans participating in Merrill Lynch servicing programs offered in Class C shares, including transferee recording arrangements, Merrill Lynch Connect Arrangements and third party administrator recordkeeping arrangements. See your Merrill Lynch Financial Consultant for further information. Merrill Lynch retirement plans are waived from CDSC. Class A and Class C shares may also be purchased without an initial sales charge in connection with certain liquidation, merger or acquisition transactions involving other investment companies or personal holding companies. Combination Privilege. In calculating the sales charge applicable to purchases of Class A shares made at one time, the purchases will be combined to reduce sales charges if made by (a) an individual, his or her spouse and their children under the age of 21, purchasing securities for his or their own account, (b) a trustee or other fiduciary purchasing for a single trust, estate or fiduciary account and (c) groups which qualify for the Group Investment Program (see below). A company's (not an individual's) qualified and non-qualified retirement plan investments can be combined to take advantage of this privilege. Further information about combined purchases, including certain restrictions on combined group purchases, is available from Signature Services or a Selling Broker's representative. Accumulation Privilege. Investors (including investors combining purchases) who are already Class A shareholders may also obtain the benefit of the reduced sales charge by taking into account not only the amount being invested but also the investor's purchase price or current value of the Class A shares of all John Hancock funds which carry a sales charge already held by such person. Class A shares of John Hancock money market funds will only be eligible for the accumulation privilege if the investor has previously paid a sales charge on the amount of those shares. Retirement plan investors may include the value of Class B shares if Class B shares held are greater than $1 million. Retirement plans must notify Signature Services to utilize. A company's (not an individual's) qualified and non-qualified retirement plan investments can be combined to take advantage of this privilege. Group Investment Program. Under the Combination and Accumulation Privileges, all members of a group may combine their individual purchases of Class A shares to potentially qualify for breakpoints in the sales charge schedule. This feature is provided to any group which (1) has been in existence for more than six months, (2) has a legitimate purpose other than the purchase of mutual fund shares at a discount for its members, (3) utilizes salary deduction or similar group methods of payment, and (4) agrees to allow sales materials of the fund in its mailings to members at a reduced or no cost to John Hancock Funds. 36 Letter of Intention. Reduced sales charges are also applicable to investments made pursuant to a Letter of Intention (the "LOI"), which should be read carefully prior to its execution by an investor. The Fund offers two options regarding the specified period for making investments under the LOI. All investors have the option of making their investments over a specified period of thirteen (13) months. Investors who are using the Fund as a funding medium for a retirement plan, however, may opt to make the necessary investments called for by the LOI over a forty-eight (48) month period. These retirement plans include traditional, Roth IRAs and Coverdell ESAs, SEP, SARSEP, 401(k), 403(b) (including TSAs), SIMPLE IRA, SIMPLE 401(k), Money Purchase Pension, Profit Sharing and Section 457 plans. An individual's non-qualified and qualified retirement plan investments cannot be combined to satisfy LOI of 48 months. Such an investment (including accumulations and combinations but not including reinvested dividends) must aggregate $50,000 or more during the specified period from the date of the LOI or from a date within ninety (90) days prior thereto, upon written request to Signature Services. The sales charge applicable to all amounts invested under the LOI is computed as if the aggregate amount intended to be invested had been invested immediately. If such aggregate amount is not actually invested, the difference in the sales charge actually paid and the sales charge payable had the LOI not been in effect is due from the investor. However, for the purchases actually made within the specified period (either 13 or 48 months) the sales charge applicable will not be higher than that which would have applied (including accumulations and combinations) had the LOI been for the amount actually invested. The LOI authorizes Signature Services to hold in escrow sufficient Class A shares (approximately 5% of the aggregate) to make up any difference in sales charges on the amount intended to be invested and the amount actually invested, until such investment is completed within the specified period, at which time the escrowed Class A shares will be released. If the total investment specified in the LOI is not completed, the Class A shares held in escrow may be redeemed and the proceeds used as required to pay such sales charge as may be due. By signing the LOI, the investor authorizes Signature Services to act as his attorney-in-fact to redeem any escrowed Class A shares and adjust the sales charge, if necessary. A LOI does not constitute a binding commitment by an investor to purchase, or by the Fund to sell, any additional Class A shares and may be terminated at any time. DEFERRED SALES CHARGE ON CLASS B AND CLASS C SHARES Investments in Class B shares are purchased at net asset value per share without the imposition of an initial sales charge so that the Fund will receive the full amount of the purchase payment. Contingent Deferred Sales Charge. Class B and Class C shares which are redeemed within six years or one year of purchase, respectively will be subject to a CDSC at the rates set forth in the Prospectus as a percentage of the dollar amount subject to the CDSC. The charge will be assessed on an amount equal to the lesser of the current market value or the original purchase cost of the Class B or Class C shares being redeemed. No CDSC will be imposed on increases in account value above the initial purchase price or on shares derived from reinvestment of dividends or capital gains distributions. Class B shares are not available to retirement plans had more than 100 eligible employees at the inception of the Fund account. The amount of the CDSC, if any, will vary depending on the number of years from the time of payment for the purchase of Class B shares until the time of redemption of such shares. Solely for purposes of determining the number of years from the time of any payment for the purchases of both Class B and Class C shares, all payments during a month will be aggregated and deemed to have been made on the first day of the month. 37 In determining whether a CDSC applies to a redemption, the calculation will be determined in a manner that results in the lowest possible rate being charged. It will be assumed that your redemption comes first from shares you have held beyond the six-year CDSC redemption period for Class B or one year CDSC redemption period for Class C, or those you acquired through dividend and capital gain reinvestment, and next from the shares you have held the longest during the six-year period for Class B shares. For this purpose, the amount of any increase in a share's value above its initial purchase price is not subject to a CDSC. Thus, when a share that has appreciated in value is redeemed during the CDSC period, a CDSC is assessed only on its initial purchase price. When requesting a redemption for a specific dollar amount, please indicate if you require the proceeds to equal the dollar amount requested. If not indicated, only the specified dollar amount will be redeemed from your account and the proceeds will be less any applicable CDSC. Example: You have purchased 100 Class B shares at $10 per share. The second year after your purchase, your investment's net asset value per share has increased by $2 to $12, and you have gained 10 additional shares through dividend reinvestment. If you redeem 50 shares at this time your CDSC will be calculated as follows: o Proceeds of 50 shares redeemed at $12 per shares (50 x 12) $600.00 o *Minus Appreciation ($12 - $10) x 100 shares (200.00) o Minus proceeds of 10 shares not subject to CDSC (dividend reinvestment) (120.00) ------- o Amount subject to CDSC $280.00 * The appreciation is based on all 100 shares in the account not just the shares being redeemed. Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or in part by John Hancock Funds to defray its expenses related to providing distribution-related services to the Fund in connection with the sale of the Class B and Class C shares, such as the payment of compensation to select Selling Brokers for selling Class B and Class C shares. The combination of the CDSC and the distribution and service fees facilitates the ability of the Fund to sell the Class B and Class C shares without a sales charge being deducted at the time of the purchase. Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on redemptions of Class B and Class C shares and of Class A shares that are subject to a CDSC, unless indicated otherwise, in the circumstances defined below: For all account types: * Redemptions made pursuant to the Fund's right to liquidate your account if you own shares worth less than $1,000. * Redemptions made under certain liquidation, merger or acquisition transactions involving other investment companies or personal holding companies. * Redemptions due to death or disability. (Does not apply to trust accounts unless trust is being dissolved.) * Redemptions made under the Reinstatement Privilege, as described in "Sales Charge Reductions and Waivers" of the Prospectus. 38 * Redemption of Class B and Class C shares made under a periodic withdrawal plan or redemptions for fees charged by planners or advisors for advisory services, as long as your annual redemptions do not exceed 12% of your account value, including reinvested dividends, at the time you established your periodic withdrawal plan and 12% of the value of subsequent investments (less redemptions) in that account at the time you notify Signature Services. (Please note, this waiver does not apply to periodic withdrawal plan redemptions of Class A shares that are subject to a CDSC.) * Certain retirement plans participating in Merrill Lynch servicing programs offered in Class A, Class B and Class C shares, including transferee recording arrangements, Merrill Lynch Connect Arrangements and third party administrator recordkeeping arrangements. See your Merrill Lynch Financial Consultant for further information. * Redemptions of Class A shares made after one year from the inception date of a retirement plan at John Hancock. * Redemption of Class A shares by retirement plans that invested through the PruArray Program sponsored by Prudential Securities. For Retirement Accounts (such as traditional, Roth IRAs and Coverdell ESAs, SIMPLE IRAs, SIMPLE 401(k), Rollover IRA, TSA, 457, 403(b), 401(k), Money Purchase Pension Plan, Profit-Sharing Plan and other plans as described in the Internal Revenue Code) unless otherwise noted. * Redemptions made to effect mandatory or life expectancy distributions under the Internal Revenue Code. (Waiver based on required minimum distribution calculations for John Hancock Mutual Fund IRA assets only.) * Returns of excess contributions made to these plans. * Redemptions made to effect distributions to participants or beneficiaries from employer sponsored retirement plans under sections 401(a) (such as Money Purchase Pension Plans and Profit Sharing Plan/401(k) Plans), 457 and 408 (SEPs and SIMPLE IRAs) of the Internal Revenue Code. * Redemptions from certain IRA and retirement plans that purchased shares prior to October 1, 1992 and certain IRA plans that purchased shares prior to May 15, 1995. Please see matrix for some examples. 39
- -------------------------------------------------------------------------------------------------------------- Type of 401 (a) Plan 403 (b) 457 IRA, IRA Non- Distribution (401 (k), MPP, Rollover retirement PSP) 457 & 408 (SEPs & Simple IRAs) - -------------------------------------------------------------------------------------------------------------- Death or Disability Waived Waived Waived Waived Waived - -------------------------------------------------------------------------------------------------------------- Over 70 1/2 Waived Waived Waived Waived for 12% of account required value annually minimum in periodic distributions* payments or 12% of account value annually in periodic payments. - -------------------------------------------------------------------------------------------------------------- Between 59 1/2 Waived Waived Waived Waived for Life 12% of account and 70 1/2 Expectancy or value annually 12% of account in periodic value annually payments in periodic payments. - -------------------------------------------------------------------------------------------------------------- Under 59 1/2 Waived for Waived for Waived for Waived for 12% of account (Class B and annuity annuity annuity annuity value annually Class C only) payments (72t) payments (72t) payments (72t) payments (72t) in periodic or 12% of or 12% of or 12% of or 12% of payments account value account value account value account value annually in annually in annually in annually in periodic periodic periodic periodic payments. payments. payments. payments. - -------------------------------------------------------------------------------------------------------------- Loans Waived Waived N/A N/A N/A - -------------------------------------------------------------------------------------------------------------- Termination of Plan Not Waived Not Waived Not Waived Not Waived N/A - -------------------------------------------------------------------------------------------------------------- Hardships Waived Waived Waived N/A N/A - -------------------------------------------------------------------------------------------------------------- Qualified Domestic Waived Waived Waived N/A N/A Relations Orders - -------------------------------------------------------------------------------------------------------------- Termination of Waived Waived Waived N/A N/A Employment Before Normal Retirement Age - -------------------------------------------------------------------------------------------------------------- Return of Excess Waived Waived Waived Waived N/A - --------------------------------------------------------------------------------------------------------------
* Required minimum distributions based on John Hancock Mutual Funds IRA assets only. If you qualify for a CDSC waiver under one of these situations, you must notify Signature Services at the time you make your redemption. The waiver will be granted once Signature Services has confirmed that you are entitled to the waiver. 40 SPECIAL REDEMPTIONS Although it would not normally do so, the Fund has the right to pay the redemption price of shares of the Fund in whole or in part in portfolio securities as prescribed by the Trustees. When the shareholder sells portfolio securities received in this fashion, the shareholders will incur a brokerage charge. Any such securities would be valued for the purposes of making such payment at the same value as used in determining net asset value. The Fund has, however, elected to be governed by Rule 18f-1 under the Investment Company Act. Under that rule, the Fund must redeem its shares for cash except to the extent that the redemption payments to any shareholder during any 90-day period would exceed the lesser of $250,000 or 1% of the Fund's net asset value at the beginning of such period. ADDITIONAL SERVICES AND PROGRAMS Exchange Privilege. The Fund permits exchanges of shares of any class of a fund for shares of the same class in any other John Hancock fund offering that class. Exchanges between funds with shares that are not subject to a CDSC are based on their respective net asset values. No sales charge or transaction charge is imposed. Shares of the Fund which are subject to a CDSC may be exchanged into shares of any of the other John Hancock funds that are subject to a CDSC without incurring the CDSC; however, the shares acquired in an exchange will be subject to the CDSC schedule of the shares acquired if and when such shares are redeemed (except that shares exchanged into John Hancock 500 Index Fund will retain the exchanged Fund's CDSC schedule). For purposes of computing the CDSC payable upon redemption of shares acquired in an exchange, the holding period of the original shares is added to the holding period of the shares acquired in an exchange. If a retirement plan exchanges the plan's Class A account in its entirety from the Fund to a non-John Hancock investment, the one-year CDSC applies. If a shareholder exchanges Class B shares purchased prior to January 1, 1994 for Class B shares of any other John Hancock fund, the acquired shares will continue to be subject to the CDSC schedule that was in effect when the exchanged shares were purchased. The Fund reserves the right to require that previously exchanged shares (and reinvested dividends) be in the Fund for 90 days before a shareholder is permitted a new exchange. The Fund may refuse any exchange order. The Fund may change or cancel its exchange policies at any time, upon 60 days' notice to its shareholders. An exchange of shares is treated as a redemption of shares of one fund and the purchase of shares of another for Federal Income Tax purposes. An exchange may result in a taxable gain or loss. See "TAX STATUS". Systematic Withdrawal Plan. The Fund permits the establishment of a Systematic Withdrawal Plan. Payments under this plan represent proceeds arising from the redemption of Fund shares which may result in realization of gain or loss for purposes of Federal, state and local income taxes. The maintenance of a Systematic Withdrawal Plan concurrently with purchases of additional shares of the Fund could be disadvantageous to a shareholder because of the initial sales charge payable on such purchases of Class A shares and the CDSC imposed on redemptions of Class B and Class C shares and because redemptions are taxable events. Therefore, a shareholder should not purchase shares at the same time a Systematic Withdrawal Plan is in effect. The Fund reserves the right to modify or discontinue the Systematic Withdrawal Plan of 41 any shareholder on 30 days' prior written notice to such shareholder, or to discontinue the availability of such plan in the future. The shareholder may terminate the plan at any time by giving proper notice to Signature Services. Monthly Automatic Accumulation Program ("MAAP"). The program is explained in the Prospectus. The program, as it relates to automatic investment checks, is subject to the following conditions: The investments will be drawn on or about the day of the month indicated. The privilege of making investments through the MAAP may be revoked by Signature Services without prior notice if any investment is not honored by the shareholder's bank. The bank shall be under no obligation to notify the shareholder as to the non-payment of any checks. The program may be discontinued by the shareholder either by calling Signature Services or upon written notice to Signature Services which is received at least five (5) business days prior to the order date of any investment. Reinstatement or Reinvestment Privilege. If Signature Services is notified prior to reinvestment, a shareholder who has redeemed Fund shares may, within 120 days after the date of redemption, reinvest without payment of a sales charge any part of the redemption proceeds in shares of the same class of the Fund or another John Hancock fund, subject to the minimum investment limit in that fund. The proceeds from the redemption of Class A shares may be reinvested at net asset value without paying a sales charge in Class A shares of the Fund or in Class A shares of any John Hancock fund. If a CDSC was paid upon a redemption, a shareholder may reinvest the proceeds from this redemption at net asset value in additional shares of the class from which the redemption was made. The shareholder's account will be credited with the amount of any CDSC charged upon the prior redemption and the new shares will continue to be subject to the CDSC. The holding period of the shares acquired through reinvestment will, for purposes of computing the CDSC payable upon a subsequent redemption, include the holding period of the redeemed shares. To protect the interests of other investors in the Fund, the Fund may cancel the reinvestment privilege of any parties that, in the opinion of the Fund, are using market timing strategies or making more than seven exchanges per owner or controlling party per calendar year. Also, the Fund may refuse any reinvestment request. The Fund may change or cancel its reinvestment policies at any time. A redemption or exchange of Fund shares is a taxable transaction for Federal income tax purposes even if the reinvestment privilege is exercised, and any gain or loss realized by a shareholder on the redemption or other disposition of Fund shares will be treated for tax purposes as described under the caption "TAX STATUS." Retirement plans participating in Merrill Lynch's servicing programs: - --------------------------------------------------------------------- Certain retirement plans participating in Merrill Lynch servicing programs offered in Class A and Class C shares, including transferee recording arrangements, Merrill Lynch Connect Arrangements and third party administrator recordkeeping arrangements. See your Merrill Lynch Financial Consultant for further information. For participating retirement plans investing in Class B shares, shares will convert to Class A shares after eight years, or sooner if the plan attains assets of $5 million (by means of a CDSC-free redemption/purchase at net asset value). 42 PURCHASES AND REDEMPTIONS THROUGH THIRD PARTIES Shares of the Fund may be purchased or redeemed through certain broker-dealers or Service Agents ("Brokers"). Brokers may charge for their services or place limitations on the extent to which you may use the services of the Fund. The Fund will be deemed to have received a purchase or redemption order when an authorized broker, or if applicable, a broker's authorized designee, receives the order. If a broker is an agent or designee of the Fund, orders are processed at the NAV next calculated after the broker receives the order. The broker must segregate any orders it receives after the close of regular trading on the New York Stock Exchange and transmit those orders to the Fund for execution at NAV next determined. Some brokers that maintain nominee accounts with the Fund for their clients charge an annual fee on the average net assets held in such accounts for accounting, servicing, and distribution services they provide with respect to the underlying Fund shares. The Adviser, the Fund and/or John Hancock Funds, LLC (the Fund's principal distributor), share in the expense of these fees. DESCRIPTION OF THE FUND'S SHARES The Trustees of the Trust are responsible for the management and supervision of the Fund. The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest of the Fund without par value. Under the Declaration of Trust, the Trustees have the authority to create and classify shares of beneficial interest in separate series and classes without further action by shareholders. As of the date of this Statement of Additional Information, the Trustees have authorized shares of the Fund and one other series. Additional series may be added in the future. The Trustees have also authorized the issuance of three classes of shares of the Fund, designated as Class A, Class B and Class C. The shares of each class of the Fund represent an equal proportionate interest in the aggregate net assets attributable to that class of the Fund. Holders of each class of shares have certain exclusive voting rights on matters relating to their respective distribution plans. The different classes of the Fund may bear different expenses relating to the cost of holding shareholder meetings necessitated by the exclusive voting rights of any class of shares. Dividends paid by the Fund, if any, with respect to each class of shares will be calculated in the same manner, at the same time and on the same day and will be in the same amount, except for differences resulting from the facts that (i) the distribution and service fees relating to each class will be borne exclusively by that class, (ii) Class B and Class C shares will pay higher distribution and service fees than Class A shares and (iii) each class of shares will bear any class expenses properly allocable to that class of shares, subject to the conditions the Internal Revenue Service imposes with respect to the multiple-class structures. Similarly, the net asset value per share may vary depending on which class of shares are purchased. No interest will be paid on uncashed dividend or redemption checks. In the event of liquidation, shareholders of each class are entitled to share pro rata in the net assets of the Fund available for distribution to these shareholders. Shares entitle their holders to one vote per share, are freely transferable and have no preemptive, subscription or conversion rights. When issued, shares are fully paid and non-assessable, except as set forth below. Unless otherwise required by the Investment Company Act or the Declaration of Trust, the Fund has no intention of holding annual meetings of shareholders. Fund shareholders may remove a Trustee by the affirmative vote of at least two-thirds of the Trust's outstanding shares and the Trustees shall promptly call a meeting for such purpose when requested to do so in writing by the record holders of not less than 10% of the outstanding shares of the Trust. Shareholders may, 43 under certain circumstances, communicate with other shareholders in connection with requesting a special meeting of shareholders. However, at any time that less than a majority of the Trustees holding office were elected by the shareholders, the Trustees will call a special meeting of shareholders for the purpose of electing Trustees. Under Massachusetts law, shareholders of a Massachusetts business trust could, under certain circumstances, be held personally liable for acts or obligations of the Fund. However, the Fund's Declaration of Trust contains an express disclaimer of shareholder liability for acts, obligations or affairs of the Fund. The Declaration of Trust also provides for indemnification out of the Fund's assets for all losses and expenses of any shareholder held personally liable for reason of being or having been a shareholder. The Declaration of Trust also provides that no series of the Trust shall be liable for the liabilities of any other series. Furthermore, no fund included in this Fund's prospectus shall be liable for the liabilities of any other John Hancock Fund. Liability is therefore limited to circumstances in which the Fund itself would be unable to meet its obligations, and the possibility of this occurrence is remote. The Fund reserves the right to reject any application which conflicts with the Fund's internal policies or the policies of any regulatory authority. John Hancock Funds does not accept starter, credit card or third party checks. All checks returned by the post office as undeliverable will be reinvested at net asset value in the fund or funds from which a redemption was made or dividend paid. Information provided on the account application may be used by the Fund to verify the accuracy of the information or for background or financial history purposes. A joint account will be administered as a joint tenancy with right of survivorship, unless the joint owners notify Signature Services of a different intent. A shareholder's account is governed by the laws of The Commonwealth of Massachusetts. For telephone transactions, the transfer agent will take measures to verify the identity of the caller, such as asking for name, account number, Social Security or other taxpayer ID number and other relevant information. If appropriate measures are taken, the transfer agent is not responsible for any losses that may occur to any account due to an unauthorized telephone call. Also for your protection telephone transactions are not permitted on accounts whose names or addresses have changed within the past 30 days. Proceeds from telephone transactions can only be mailed to the address of record. Selling activities for the Fund may not take place outside the U.S. except with U.S. military bases, APO addresses and U.S. diplomats. Brokers of record on Non-U.S. investors' accounts with foreign mailing addresses are required to certify that all sales activities have occurred, and in the future will occur, only in the U.S. A foreign corporation may purchase shares of the Fund only if it has a U.S. mailing address. TAX STATUS The Fund, is treated as a separate entity for accounting and tax purposes, has qualified and elected to be treated as a "regulated investment company" under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), and intends to continue to qualify for each taxable year. As such and by complying with the applicable provisions of the Code regarding the sources of its income, the timing of its distributions and the diversification of its assets, the Fund will not be subject to Federal income tax on its taxable income (including net realized capital gains) which is distributed to shareholders in accordance with the timing requirements of the Code. The Fund will be subject to a 4% nondeductible Federal excise tax on certain amounts not distributed (and not treated as having been distributed) on a timely basis in accordance with annual minimum distribution requirements. The Fund intends under normal circumstances to seek to avoid or minimize liability for such tax by satisfying such distributions requirements. 44 Distribution from the Fund's current or accumulated earnings and profits ("E&P") will be taxable under the Code for investors who are subject to tax. If these distributions are paid from the Fund's "investment company taxable income," they will be taxable as ordinary income; and if they are paid from the Fund's "net capital gain" they will be taxable as capital gain. (Net capital gain is the excess (if any) of net long-term capital gain over net short-term capital loss, and investment company taxable income is all taxable income and capital gains, other than net capital gain, after reduction by deductible expenses). Some distributions may be paid in January but may be taxable to shareholders as if they had been received on December 31 of the previous year. The tax treatment described above will apply without regard to whether distributions are received in cash or reinvested in additional shares of the Fund. Distributions, if any, in excess of E&P will constitute a return of capital under the Code, which will first reduce an investor's federal tax basis in Fund shares and then, to the extent such basis is exceeded, will generally give rise to capital gains. Shareholders who have chosen automatic reinvestment of their distributions will have a federal tax basis in each share received pursuant to such a reinvestment equal to the amount of cash they would have received had they elected to receive the distribution in cash, divided by the number of shares received in the reinvestment. The Fund may be subject to withholding and other taxes imposed by foreign countries with respect to their investments in foreign securities. Tax conventions between certain countries and the U.S. may reduce or eliminate such taxes. Because more than 50% of the Fund's assets at the close of any taxable year will not consist of stocks or securities of foreign corporations, the Fund will be unable to pass such taxes through to shareholders (as additional income) along with a corresponding entitlement to a foreign tax credit or deduction. The Fund will deduct the foreign taxes it pays in determining the amount it has available for distribution to shareholders. If the Fund invests in stock (including an option to acquire stock such as is inherent in a convertible bond) of certain foreign corporations that receive at least 75% of their annual gross income from passive sources (such as interest, dividends, certain rents and royalties or capital gain) or hold at least 50% of their asset in investments producing such passive income ("passive foreign investment companies"), the Fund could be subject to Federal income tax and additional interest charges on "excess distributions" received from such companies or gain from the sale of stock in such companies, even if all income or gain actually received by the Fund is timely distributed to its shareholders. The Fund would not be able to pass through to its shareholders any credit or deduction for such a tax. An election may be available to ameliorate these adverse tax consequences, but could require the Fund to recognize taxable income or gain without the concurrent receipt of cash. These investments could also result in the treatment of associated capital gains as ordinary income. The Fund may limit and/or manage its holdings in passive foreign investment companies or make an available election to minimize its tax liability or maximize its return for these investments. Foreign exchange gains and losses realized by the Fund in connection with certain transactions involving foreign currency-denominated debt securities, certain foreign currency options, foreign currencies, or payables or receivables denominated in foreign currency are subject to Section 988 of the Code, which generally causes such gains and losses to be treated as ordinary income and losses and may affect the amount, timing and character of distributions to shareholders. Transactions in foreign currencies that are not directly related to the Fund's investment in stock or securities, including speculative currency positions could under future Treasury regulations produce income not among the types of "qualifying income" from which the Fund must derive at least 90% of its gross income from each taxable year. If the net foreign exchange loss for a year treated as ordinary loss under Section 988 were to exceed the Fund's investment company taxable income computed without regard to such loss the resulting overall ordinary loss for such year would not be deductible by the Fund or its shareholders in future years. 45 Certain options, futures, and forward foreign currency contracts undertaken by the Fund could cause the Fund to recognize gains or losses from marking to market even though its positions have not been sold or terminated and affect the character as long-term or short-term (or, in the case of foreign currency contracts, as ordinary income or loss) and timing of some capital gains and losses realized by the Fund. Additionally, the Fund may be required to recognize gain, but not loss, if an option, short sales or other transaction is treated as a constructive sale of an appreciated financial position in the Fund's portfolio. Also, certain of the Fund's losses on its transactions involving options, futures or forward contracts and/or offsetting or successor portfolio positions may be deferred rather than being taken into account currently in calculating the Fund's taxable income or gains. Certain of such transactions may also cause the Fund to dispose of investments sooner than would otherwise have occurred. These transactions may therefore affect the amount, timing and character of the Fund's distributions to shareholders. The Fund will take into account the special tax rules (including consideration of available elections) applicable to options, futures and forward contracts in order to seek to minimize any potential adverse tax consequences. The amount of the Fund's net realized capital gains, if any, in any given year will vary depending upon the Adviser's current investment strategy and whether the Adviser believes it to be in the best interest of the Fund to dispose of portfolio securities and/or engage in options transactions that will generate capital gains. At the time of an investor's purchase of Fund shares, a portion of the purchase price is often attributable to realized or unrealized appreciation in the Fund's portfolio or undistributed taxable income of the Fund. Consequently, subsequent distributions on those shares from such appreciation or income may be taxable to such investor even if the net asset value of the investor's shares is, as a result of the distributions, reduced below the investor's cost for such shares, and the distributions in reality represent a return of a portion of the purchase price. Upon a redemption or other disposition of shares of the Fund (including by exercise of the exchange privilege) that in a transaction is treated as a sale for tax purposes, a shareholder will ordinarily realize a taxable gain or loss depending upon the amount of the proceeds and the investor's basis in his shares. Such gain or loss will be treated as capital gain or loss if the shares are capital assets in the shareholder's hands. A sales charge paid in purchasing shares of the Fund cannot be taken into account for purposes of determining gain or loss on the redemption or exchange of such shares within 90 days after their purchase to the extent shares of the Fund or another John Hancock fund are subsequently acquired without payment of a sales charge pursuant to the reinvestment or exchange privilege. This disregarded charge will result in an increase in the shareholder's tax basis in the shares subsequently acquired. Also, any loss realized on a redemption or exchange may be disallowed to the extent the shares disposed of are replaced with other shares of the Fund within a period of 61 days beginning 30 days before and ending 30 days after the shares are disposed of, such as pursuant to automatic dividend reinvestments. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. Any loss realized upon the redemption of shares with a tax holding period of six months or less will be treated as a long-term capital loss to the extent of any amounts treated as distributions of long-term capital gain with respect to such shares. Shareholders should consult their own tax advisers regarding their particular circumstances to determine whether a disposition of Fund shares is properly treated as a sale for tax purposes, as is assumed in the foregoing discussion. Although its present intention is to distribute, at least annually, all net capital gain, if any, the Fund reserves the right to retain and reinvest all or any portion of the excess, as computed for Federal income tax purposes, of net long-term capital gain over net short-term capital loss in any year. The Fund will not in any event distribute net capital gain realized in any year to the extent that a capital loss is carried forward from prior years against such gain. To the extent such 46 excess was retained and not exhausted by the carry forward of prior years' capital losses, it would be subject to Federal income tax in the hands of the Fund. Upon proper designation of this amount by the Fund, each shareholder would be treated for Federal income tax purposes as if the Fund had distributed to him on the last day of its taxable year his pro rata share of such excess, and he had paid his pro rata share of the taxes paid by the Fund and reinvested the remainder in the Fund. Accordingly, each shareholder would (a) include his pro rata share of such excess as long-term capital gain in his return for his taxable year in which the last day of the Fund's taxable year falls, (b) be entitled either to a tax credit on his return for, or to a refund of, his pro rata share of the taxes paid by the Fund, and (c) be entitled to increase the adjusted tax basis for his shares in the Fund by the difference between his pro rata share of such excess and his pro rata share of such taxes. For Federal income tax purposes, the Fund is permitted to carry forward a net realized capital loss in any year to offset net capital gains, if any, during the eight years following the year of the loss. To the extent subsequent net capital gains are offset by such losses, they would not result in Federal income tax liability to the Fund and, as noted above, would not be distributed as such to shareholders. Presently, there are no realized capital loss carryforwards available to offset future net realized capital gains. Investment in debt obligations that are at risk of or in default present special tax issues for the Fund. Tax rules are not entirely clear about issues such as when the Fund may cease to accrue interest, original issue discount, or market discount, when and to what extent deductions may be taken for bad debts or worthless securities, how payments received on obligations in default should be allocated between principal and income, and whether exchanges of debt obligations in a workout context are taxable. These and other issues will be addressed by the Fund, in the event it acquires or holds any such obligations, in order to reduce the risk of distributing insufficient income to preserve its status as a regulated investment company and seeks to avoid becoming subject to Federal income or excise tax. For purposes of the dividends-received deduction available to corporations, dividends received by the Fund, if any, from U.S. domestic corporations in respect of the stock of such corporations held by the Fund, for U.S. Federal income tax purposes, for at least 46 days (91 days in the case of certain preferred stock) during a prescribed period extending before and after each such dividend and distributed and properly designated by the Fund may be treated as qualifying dividends. Corporate shareholders must meet the holding period requirements stated above with respect to their shares of the Fund for each dividend in order to qualify for the deduction and, if they have any debt that is deemed under the Code directly attributable to such shares, may be denied a portion of the dividends received deduction. The entire qualifying dividend, including the otherwise deductible amount, will be included in determining the excess (if any) of a corporate shareholder's adjusted current earnings over its alternative minimum taxable income, which may increase its alternative minimum tax liability. Additionally, any corporate shareholder should consult its tax adviser regarding the possibility that its basis in its shares may be reduced, for Federal income tax purposes, by reason of "extraordinary dividends" received with respect to the shares, and, to the extend such basis would be reduced below zero, that current recognition of income would be required. The Fund is required to accrue income on any debt securities that have more than a de minimis amount of original issue discount (or debt securities acquired at a market discount, if the Fund elects to include market discount in income currently) prior to the receipt of the corresponding cash payments. The mark to market or constructive sale rules applicable to certain options, futures, forwards, short sales or other transactions may also require the Fund to recognize income or gain without a concurrent receipt of cash. Additionally, some countries restrict repatriation which may make it difficult or impossible for the Fund to obtain cash corresponding to its earnings or assets in those countries. However, the Fund must distribute to shareholders for each 47 taxable year substantially all of its net income and net capital gains, including such income or gain, to qualify as a regulated investment company and avoid liability for any federal income or excise tax. Therefore, the Fund may have to dispose of its portfolio securities under disadvantageous circumstances to generate cash, or may borrow cash, to satisfy these distribution requirements. A state income (and possibly local income and/or intangible property) tax exemption is generally available to the extent (if any) the Fund's distributions are derived from interest on (or, in the case of intangible property taxes, the value of its assets is attributable to) certain U.S. Government obligations, provided in some states that certain thresholds for holdings of such obligations and/or reporting requirements are satisfied. The Fund will not seek to satisfy any threshold or reporting requirements that may apply in particular taxing jurisdictions, although it may in its sole discretion provide relevant information to shareholders. The Fund will be required to report to the Internal Revenue Service (the "IRS") all taxable distributions to shareholders, as well as gross proceeds from the redemption or exchange of Fund shares, except in the case of certain exempt recipients, i.e., corporations and certain other investors distributions to which are exempt from the information reporting provisions of the Code. Under the backup withholding provisions of Code Section 3406 and applicable Treasury regulations, all such reportable distributions and proceeds may be subject to backup withholding of federal income tax in the case of non-exempt shareholders who fail to furnish the Fund with their correct taxpayer identification number and certain certifications required by the IRS or if the IRS or a broker notifies the Fund that the number furnished by the shareholder is incorrect or that the shareholder is subject to backup withholding as a result of failure to report interest or dividend income. The Fund may refuse to accept an application that does not contain any required taxpayer identification number or certification that the number provided is correct. If the backup withholding provisions are applicable, any such distributions and proceeds, whether taken in cash or reinvested in shares, will be reduced by the amounts required to be withheld. Any amounts withheld may be credited against a shareholder's U.S. federal income tax liability. Investors should consult their tax advisers about the applicability of the backup withholding provisions. Different tax treatment, including penalties on certain excess contributions and deferrals, certain pre-retirement and post-retirement distributions and certain prohibited transactions, is accorded to accounts maintained as qualified retirement plans. Shareholders should consult their tax advisers for more information. The foregoing discussion relates solely to Federal income tax law as applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic corporations, partnerships, trusts or estates) subject to tax under such law. The discussion does not address special tax rules applicable to certain types of investors, such as tax-exempt entities, insurance companies and financial institutions. Dividends, capital gain distributions and ownership of or gains realized on the redemption (including an exchange) of shares of the Fund may also be subject to state and local taxes. Shareholders should consult their own tax advisers as to the Federal, state or local tax consequences of ownership of shares of, and receipt of distributions from, the Fund in their particular circumstances. Non-U.S. investors not engaged in a U.S. trade or business with which their investment in the Fund is effectively connected will be subject to U.S. Federal income tax treatment that is different from that described above. These investors may be subject to non-resident alien withholding tax at the rate of 30% (or a lower rate under an applicable tax treaty) on amounts treated as ordinary dividends from the Fund and, unless an effective IRS Form W-8, W-8BEN or other authorized withholding certificate is on file and to backup withholding on certain other 48 payments from the Fund. Non-U.S. investors should consult their tax advisers regarding such treatment and the application of foreign taxes to an investment in the Fund. The Fund is not subject to Massachusetts corporate excise or franchise taxes. The Fund anticipates that, provided that the Fund qualifies as a regulated investment company under the Code, it will also not be required to pay any Massachusetts income tax. CALCULATION OF PERFORMANCE As of October 31, 2002, the cumulative total return before taxes of Class A shares of the Fund since the commencement of operations on February 25, 2002 was - -27.16%. As of October 31, 2002, the cumulative togtal return before taxes of Class B shares of the Fund since the commencement of operations on February 25, 2002, was -27.42%. As of October 31, 2002, the cumulative total return before taxes of Class C shares of the Fund since the commencement of operations on February 25, 2002, was -25.11%. The average annual total return before taxes is computed by finding the average annual compounded rate of return over the 1-year, 5-year and 10-year periods, or the period since the commencement of operations, that would equate the initial amount invested to the ending redeemable value according to the following formula: n P(1+T) = ERV Where: P = a hypothetical initial payment of $1,000. T = average annual total return n = number of years ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning of the 1-year, 5-year or 10-year periods (or fractional portion). The Fund discloses average annual total returns after taxes for Class A shares for the one, five and 10 year periods ended December 31, 2002 in the prospectus. After tax returns are computed using the historical highest individual federal marginal income-tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. The average annual total return (after taxes on distributions) is computed by finding the average annual compounded rate of return over the 1-year, 5-year and 10-year periods, or period since the commencement of operations, that would equate the initial amount invested to the ending redeemable value according to the following formula: 49 n P(1+T) = ATV D Where: P = a hypothetical initial payment of $1,000. T = average annual total return (after taxes on distributions) n = number of years ATV = ending value of a hypothetical $1,000 payment made at the D beginning of the 1-year, 5-year or 10-year periods (or fractional portion), after taxes on fund distributions but not after taxes on redemption. The average annual total return (after taxes on distributions and redemption) is computed by finding the average annual compounded rate of return over the 1-year, 5-year and 10-year periods, or period since commencement of operations, that would equate the initial amount invested to the ending redeemable value according to the following formula: n P(1+T) = ATV DR Where: P = a hypothetical initial payment of $1,000. T = average annual total return (after taxes on distributions and redemption) n = number of years ATV = ending value of a hypothetical $1,000 payment made at the DR beginning of the 1-year, 5-year or 10-year periods (or fractional portion), after taxes on fund distributions and redemption. Because each class has its own sales charge and fee structure, the classes have different performance results. In the case of each class, these calculations assume the maximum sales charge is included in the initial investment or the CDSC is applied at the end of the period. These calculations assume that all dividends and distributions are reinvested at net asset value on the reinvestment dates during the period. The "distribution rate" is determined by annualizing the result of dividing the declared dividends of the Fund during the period stated by the maximum offering price or net asset value at the end of the period. Excluding the Fund's sales charge from the distribution rate produces a higher rate. In addition to average annual total returns, the Fund may quote unaveraged or cumulative total returns reflecting the simple change in value of an investment over a stated period. Cumulative total returns may be quoted as a percentage or as a dollar amount, and may be calculated for a single investment, a series of investments and/or a series of redemptions over any time period. Total returns may be quoted with or without taking the Fund's sales charge on Class A or Class C shares or the CDSC on Class B or Class C shares into account. Excluding the Fund's sales charge on Class A and Class C shares and the CDSC on Class B or Class C shares from a total return calculation produces a higher total return figure. The Fund may advertise yield, where appropriate. The Fund's yield is computed by dividing net investment income per share determined for a 30-day period by the maximum offering price per share (which includes the full sales charge) on the last day of the period, according to the following standard formula: 50 6 Yield = 2 ([a-b) +1] - 1) --- cd Where: a = dividends and interest earned during the period. b = net expenses accrued during the period. c = the average daily number of fund shares outstanding during the period that would be entitled to receive dividends. d = the maximum offering price per share on the last day of the period (NAV where applicable). From time to time, in reports and promotional literature, the Fund's total return will be compared to indices of mutual funds such as Lipper Analytical Services, Inc.'s "Lipper - Mutual Fund Performance Analysis," a monthly publication which tracks net assets, total return and yield on mutual funds in the United States. Ibottson and Associates, CDA Weisenberger and F.C. Towers are also used for comparison purposes, as well as the Russell and Wilshire Indices. The Fund may also utilize research and analysis from sources such as Zephyr and Strategic Insight. Performance rankings and ratings reported periodically in, and excerpts from, national financial publications such as MONEY Magazine, FORBES, BUSINESS WEEK, THE WALL STREET JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRON'S may also be utilized. The Fund's promotional and sales literature may make reference to the Fund's "beta". Beta is a reflection of the market related risk of the Fund by showing how responsive the Fund is to the market. The performance of the Fund is not fixed or guaranteed. Performance quotations should not be considered to be representations of performance of the Fund for any period in the future. The performance of the Fund is a function of many factors including its earnings, expenses and number of outstanding shares. Fluctuating market conditions; purchases, sales and maturities of portfolio securities; sales and redemptions of shares of beneficial interest; and changes in operating expenses are all examples of items that can increase or decrease the Fund's performance. BROKERAGE ALLOCATION Decisions concerning the purchase and sale of portfolio securities and the allocation of brokerage commissions are made by the Adviser's or Subadviser's investment and/or trading personnel. Orders for purchases and sales of securities are placed in a manner, which, in the opinion of such personnel, will offer the best price and market for the execution of each such transaction. The Fund's trading practices and investments are reviewed monthly by the Adviser's Senior Investment Policy Committee which consists of officers of the Adviser and quarterly by the Adviser's Investment Committee which consists of officers and directors of the Adviser and Trustees of the Trust who are interested persons of the Fund. Purchases from underwriters of portfolio securities may include a commission or commissions paid by the issuer and transactions with dealers serving as market maker reflect a "spread." Investments in debt securities are generally traded on a "net" basis through dealers acting for their own account as principals and not as brokers; no brokerage commissions are payable on these transactions. In the U.S. Government securities market, securities are generally traded on a 51 net basis with dealers acting as principal for their own account without a stated commission, although the price of the security usually includes a profit to the dealer. On occasion, certain money market instruments and agency securities may be purchased directly from the issuer, in which case no commissions or premiums are paid. Investments in equity securities are generally traded on exchanges or on over-the-counter markets at fixed commission rates or on a net basis. In other countries, both debt and equity securities are traded on exchanges at fixed commission rates. Commissions on foreign transactions are generally higher than the negotiated commission rates available in the U.S. There is generally less government supervision and regulation of foreign stock exchanges and broker-dealers than in the U.S. The Fund's primary policy is to execute all purchases and sales of portfolio instruments at the most favorable prices consistent with best execution, considering all of the costs of the transaction including brokerage commissions. The policy governs the selection of brokers and dealers and the market in which a transaction is executed. Consistent with the foregoing primary policy, the Conduct Rules of the National Association of Securities Dealers, Inc. and such other policies as the Trustees may determine, the Adviser and Subadviser may consider sales of shares of the Fund as a factor in the selection of broker-dealers to execute the Fund's portfolio transactions. To the extent consistent with the foregoing, the Fund will be governed in the selection of brokers and dealers, and the negotiation of brokerage commission rates and dealer spreads, by the reliability and quality of the services, including primarily the availability and value of research information and, to a lesser extent, statistical assistance furnished to the Adviser and Subadviser of the Fund. As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund may pay to a broker which provides brokerage and research services to the Fund an amount of disclosed commission in excess of the commission which another broker would have charged for effecting that transaction. This practice is subject to a good faith determination by the Trustees that such price is reasonable in light of the services provided and to such policies as the Trustees may adopt from time to time. For the fiscal year ended October 31, 2002, the Fund paid $32,580 as compensation to brokers for research services such as industry, economic and company reviews and evaluations of securities. Research services received from broker-dealers supplement the Adviser's or Sub-adviser's own research (and the research of its affiliates), and may include the following types of information: statistical and background information on the U.S. and foreign economies, industry groups and individual companies; forecasts and interpretations with respect to the U.S. and foreign economies, securities, markets, specific industry groups and individual companies; information on federal, state, local and foreign political developments; portfolio management strategies; performance information on securities, indexes and investment accounts; and information concerning prices and ratings of securities. Broker-dealers may communicate such information electronically, orally, in written form or on computer software. Research services may also include the providing of electronic communication of trade information and the providing of custody services, as well as the providing of equipment used to communicate research information, the providing of specialized consultations with the Adviser's or Subadviser's personnel with respect to computerized systems and data furnished as a component of other research services, the arranging of meetings with management of companies, and the providing of access to consultants who supply research information. The outside research assistance is useful to the Adviser or Subadviser since the broker-dealers used by the Adviser or Subadviser tend to follow a broader universe of securities and other matters than the Adviser's or Subadviser's staff can follow. In addition, the research provides the Adviser or Subadviser with a diverse perspective on financial markets. Research services provided to the Adviser or Subadviser by broker-dealers are available for the benefit of all accounts managed or advised by the Adviser or by its affiliates, or by the Subadviser or by its 52 affiliates. Some broker-dealers may indicate that the provision of research services is dependent upon the generation of certain specified levels of commissions and underwriting concessions by the Adviser's or Subadviser's clients, including the Fund. However, the Fund is not under any obligation to deal with any broker-dealer in the execution of transactions in portfolio securities. In some cases, the research services are available only from the broker-dealer providing them. In other cases, the research services may be obtainable from alternative sources in return for cash payments. The Adviser and Subadviser believe that the research services are beneficial in supplementing the Adviser's research and analysis and that they improve the quality of the Adviser's or Subadviser's investment advice. It is not possible to place a dollar value on information and services to be received from brokers and dealers, since it is only supplementary to the research efforts of the Adviser or Subadviser. The advisory fee paid by the Fund is not reduced because the Adviser receives such services. The receipt of research information is not expected to reduce significantly the expenses of the Adviser and Subadviser. However, to the extent that the Adviser or Subadviser would have purchased research services had they not been provided by broker-dealers, the expenses to the Adviser or Subadviser could be considered to have been reduced accordingly. The research information and statistical assistance furnished by brokers and dealers may benefit the Life Company or other advisory clients of the Adviser or Sub-adviser, and conversely, brokerage commissions and spreads paid by other advisory clients of the Adviser or Subadviser may result in research information and statistical assistance beneficial to the Fund. The Fund will make no commitment to allocate portfolio transactions upon any prescribed basis. While the Adviser and/or Subadviser's will be primarily responsible for the allocation of the Fund's brokerage business, the policies and practices of the Adviser or Subadviser in this regard must be consistent with the foregoing and at all times be subject to review by the Trustees. For the fiscal year ended October 31, 2002, the Fund paid negotiated commission of $108,806. The Adviser or Subadviser may determine target levels of commission business with various brokers on behalf of its clients (including the Fund) over a certain time period. The target levels will be based upon the following factors, among others: (1) the execution services provided by the broker; (2) the research services provided by the broker; and (3) the broker's interest in mutual funds in general and in the Fund and other mutual funds advised by the Adviser or Subadviser in particular, including sales of the Fund. In connection with (3) above, the Fund's trades may be executed directly by dealers that sell shares of the John Hancock funds or by other broker-dealers with which such dealers have clearing arrangements, consistent with obtaining best execution and the Conduct Rules of the National Association of Securities Dealers, Inc. The Adviser or Subadviser will not use a specific formula in connection with any of these considerations to determine the target levels. Pursuant to procedures determined by the Trustees and consistent with the above policy of obtaining best net results, the Fund may execute portfolio transactions with or through brokers affiliated with the Adviser and/or the Subadviser ("Affiliated Brokers"). Affiliated Brokers may act as broker for the Fund on exchange transactions, subject, however, to the general policy of the Fund set forth above and the procedures adopted by the Trustees pursuant to the Investment Company Act. Commissions paid to an Affiliated Broker must be at least as favorable as those which the Trustees believe to be contemporaneously charged by other brokers in connection with comparable transactions involving similar securities being purchased or sold. A transaction would not be placed with an Affiliated Broker if the Fund would have to pay a commission rate less favorable than the Affiliated Broker's contemporaneous charges for comparable transactions for its other most favored, but unaffiliated, customers except for accounts for which the Affiliated Broker acts as clearing broker for another brokerage firm, and any customers of the Affiliated Broker not comparable to the Fund as determined by a majority of the Trustees who are not interested persons (as defined in the Investment Company Act) of the 53 Fund, the Adviser, the Subadviser or the Affiliated Broker. Because the Adviser or Subadviser that is affiliated with the Affiliated Broker has, as an investment adviser to the Fund, the obligation to provide investment management services, which includes elements of research and related investment skills such research and related skills will not be used by the Affiliated Broker as a basis for negotiating commissions at a rate higher than that determined in accordance with the above criteria. The Adviser's indirect parent, the Life Company, is the indirect sole shareholder of Signator Investors, Inc., a broker-dealer (until January 1, 1999, John Hancock Distributors, Inc.) ("Signator" or an "Affiliated Broker"). For the fiscal years ended October 31, 2001 and 2002, the Fund did not execute portfolio transactions with Signator. Alliance Capital Management L.P. has several affiliates engaged in the brokerage business throughout the United States and abroad (all "Affiliated Brokers"). Pursuant to procedures determined by the Trustees and consistent with the above policy of obtaining best net results, the Fund may execute portfolio transactions with or through Affiliated Brokers. With respect to the portion of the Fund managed by the Adviser, for purchases of equity securities, when a complete order is not filled, a partial allocation will be made to each participating account pro rata based on the order size. For high demand issues (for example, initial public offerings), shares will be allocated pro rata by account size as well as on the basis of account objective, account size ( a small account's allocation may be increased to provide it with a meaningful position), and the account's other holdings. In addition, an account's allocation may be increased if that account's portfolio manager was responsible for generating the investment idea or the portfolio manager intends to buy more shares in the secondary market. For fixed income accounts, generally securities will be allocated when appropriate among accounts based on account size, except if the accounts have different objectives or if an account is too small to get a meaningful allocation. For new issues, when a complete order is not filled, a partial allocation will be made to each account pro rata based on the order size. However, if a partial allocation is too small to be meaningful, it may be reallocated based on such factors as account objectives, strategies, duration benchmarks and credit and sector exposure. For example, value funds will likely not participate in initial public offerings as frequently as growth funds. In some instances, this investment procedure may adversely affect the price paid or received by the Fund or the size of the position obtainable for it. On the other hand, to the extent permitted by law, the Adviser may aggregate securities to be sold or purchased for the Fund with those to be sold or purchased for other clients managed by it in order to obtain best execution. The Sub-Adviser has also adopted procedures for partial-allocations. Accounts under the supervision of the Sub-Adviser are generally divided into two categories: 1) those with equity equal to or greater than $5 million (including relationships with combined equity equal to or greater than $5 million), and 2) those with equity less than $5 million. Accounts or account relationships falling into the first category will receive the appropriate partial allocation rounded to the nearest 100 shares if the result of the partial allocation is 1,000 shares or more. In any account or account relationship in this category where, as a result of the partial allocation, the account or account relationship would receive less than 1,000 shares, those accounts or account relationships are then chosen on a random basis to receive, if selected, the lesser of 1,000 shares or the number of shares remaining to be filled. Transactions for accounts or account relationships with equity of less than $5 million will be allocated on an all-or-nothing basis by random selection. This category of accounts and account relationships will receive roughly the percentage of the execution to which it is entitled as a whole (e.g., if this group represents 30% of the entire order, then approximately 30% of the shares executed will be allocated to the group). However, if there are shares remaining that would result in a partial allocation to an account with equity of less than $5 million, these shares will be allocated, if possible, to accounts with equity greater than $5 million if there are partials that have not been completed. To the extent there are 54 none, these shares will be allocated to one account with equity of less than $5 million, resulting in a partial allocation. While a defined relationship of accounts will generally be treated as a single trading entity from the standpoint of allocation, account-specific factors, such as differences in risk tolerance, tax considerations or permitted investment techniques, may make treatment of the relationship as an entity inappropriate. Other investment advisory clients advised by the Adviser may also invest in the same securities as the Fund. When these clients buy or sell the same securities at substantially the same time, the Adviser may average the transactions as to price and allocate the amount of available investments in a manner which the Adviser believes to be equitable to each client, including the Fund. Because of this, client accounts in a particular style may sometimes not sell or acquire securities as quickly or at the same prices as they might if each were managed and traded individually. TRANSFER AGENT SERVICES John Hancock Signature Services, Inc., 1 John Hancock Way, Suite 1000, Boston, MA 02217-1000, a wholly owned indirect subsidiary of the Life Company, is the transfer and dividend paying agent for the Fund. The Fund pays Signature Services monthly a fee which is based on an annual rate of $16.00 for each Class A shareholder account and $18.50 for each Class B shareholder account and $17.50 for each Class C shareholder account. The Fund also pays Signature Services monthly a fee which is based on an annual rate of 0.05% of average daily net assets attributable to Class A, Class B and Class C shares. For Class A, B, and C shares, the Fund also pays certain out-of pocket expenses. Expenses are aggregated and allocated to each class on the basis of their relative net asset values. CUSTODY OF PORTFOLIO Portfolio securities of the Fund are held pursuant to a custodian agreement between the Fund and The Bank of New York, One Wall Street, New York, New York 10286. Under the custodian agreement, The Bank of New York is performing custody, Foreign Custody Manager and fund accounting services. INDEPENDENT AUDITORS The independent auditors of the Fund are PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110. PricewaterhouseCoopers LLP audits and renders an opinion on the Fund's annual financial statements and reviews the Fund's annual Federal income tax return. FURTHER DETAILS The Large Cap Growth Team - ------------------------- Alliance Capital Management, L.P. manages the Fund's large capitalization growth stocks utilizing its Large Cap Growth Strategy. Alliance is a leading growth manager for the institutional investment market - pension funds, banks, insurance companies, foundations and endowments. Alfred Harrison, CFA, Vice Chairman of the Board with 41 years of investment experience, and Stephanie Simon, CFA, Senior Vice President with 15 years of investment experience, direct the strategy. 55 The Large Cap Core Team - ----------------------- John Hancock Advisers, LLC manages the large capitalization core portion of the Fund. Paul Berlinguet, Vice President and Portfolio Manager with 17 years of investment experience, Robert Junkin, CPA, Vice President and Portfolio Manager with 15 years of investment experience, Robert Uek, CFA, Vice President and Portfolio Manager with 13 years of investment experience, Thomas Norton, CFA, Vice President and Portfolio Manager with 17 years of investment experience and Roger Hamilton, Vice President and Portfolio Manager with 23 years of investment experience, direct the strategy. The Large Cap Value Team - ------------------------ Alliance Capital's Bernstein Investment Research and Management Unit manages the large capitalization value portion of the Fund utilizing its Strategic Value Strategy. Bernstein combined with Alliance Capital Management in 2000 and is a leading value manager serving institutions, wealthy individuals and families. Lewis A. Sanders, CFA, Vice Chairman and Chief Investment Officer with 36 years of investment experience, and Marilyn G. Fedak, CFA, Chief Investment Officer - U.S. Value Equities and Executive Vice President with 31 years of investment experience, direct the strategy. Asset Allocation - ---------------- John Hancock Advisers, LLC, aims to capture the best performance of the combined portfolio each year. William L. Braman, Executive Vice President and Chief Investment Officer with 26 years of investment experience, directs the asset allocation team. 56 APPENDIX A - MORE ABOUT RISK A fund's risk profile is largely defined by the fund's primary securities and investment practices. You may find the most concise description of the fund's risk profile in the prospectus. A fund is permitted to utilize -- within limits established by the trustees -- certain other securities and investment practices that have higher risks and opportunities associated with them. To the extent that the Fund utilizes these securities or practices, its overall performance may be affected, either positively or negatively. On the following pages are brief definitions of certain associated risks with them with examples of related securities and investment practices included in brackets. See the "Investment Objective and Policies" and "Investment Restrictions" sections of this Statement of Additional Information for a description of this Fund's investment policies. The Fund follows certain policies that may reduce these risks. As with any mutual fund, there is no guarantee that the Fund will earn income or show a positive return over any period of time -- days, months or years. TYPES OF INVESTMENT RISK Correlation risk The risk that changes in the value of a hedging instrument will not match those of the asset being hedged (hedging is the use of one investment to offset the effects of another investment). Incomplete correlation can result in unanticipated risks. (e.g., short sales, financial futures and options; securities and index options, currency contracts). Credit risk The risk that the issuer of a security, or the counterparty to a contract, will default or otherwise become unable to honor a financial obligation. (e.g., borrowing; reverse repurchase agreements, repurchase agreements, securities lending, non-investment-grade securities, financial futures and options; securities and index options). Currency risk The risk that fluctuations in the exchange rates between the U.S. dollar and foreign currencies may negatively affect an investment. Adverse changes in exchange rates may erode or reverse any gains produced by foreign currency denominated investments and may widen any losses. (e.g., foreign equities, financial futures and options; securities and index options, currency contracts). Information risk The risk that key information about a security or market is inaccurate or unavailable. (e.g., non-investment-grade securities, foreign equities). Interest rate risk The risk of market losses attributable to changes in interest rates. With fixed-rate securities, a rise in interest rates typically causes a fall in values, while a fall in rates typically causes a rise in values. (e.g., non-investment-grade securities, financial futures and options; securities and index options). Leverage risk Associated with securities or practices (such as borrowing) that multiply small index or market movements into large changes in value. (e.g., borrowing; reverse repurchase agreements, when-issued securities and forward commitments). o Hedged When a derivative (a security whose value is based on another security or index) is used as a hedge against an opposite position that the fund also holds, any loss generated by the derivative A-1 should be substantially offset by gains on the hedged investment, and vice versa. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. (e.g., short sales, financial futures and options securities and index options; currency contracts). o Speculative To the extent that a derivative is not used as a hedge, the fund is directly exposed to the risks of that derivative. Gains or losses from speculative positions in a derivative may be substantially greater than the derivative's original cost. (e.g., short sales, financial futures and options securities and index options; currency contracts). o Liquidity risk The risk that certain securities may be difficult or impossible to sell at the time and the price that the seller would like. The seller may have to lower the price, sell other securities instead or forego an investment opportunity, any of which could have a negative effect on fund management or performance. (e.g., non-investment-grand securities, short sales, restricted and illiquid securities, financial futures and options securities and index options; currency contracts). Management risk The risk that a strategy used by a fund's management may fail to produce the intended result. Common to all mutual funds. Market risk The risk that the market value of a security may move up and down, sometimes rapidly and unpredictably. These fluctuations may cause a security to be worth less than the price originally paid for it, or less than it was worth at an earlier time. Market risk may affect a single issuer, industry, sector of the economy or the market as a whole. Common to all stocks and bonds and the mutual funds that invest in them. (e.g., short sales, short-term trading, when-issued securities and forward commitments, non-investment-grade securities, foreign equities, financial futures and options; securities and index options restricted and illiquid securities). Natural event risk The risk of losses attributable to natural disasters, crop failures and similar events. (e.g., foreign equities). Opportunity risk The risk of missing out on an investment opportunity because the assets necessary to take advantage of it are tied up in less advantageous investments. (e.g., short sales, when-issued securities and forward commitments; financial futures and options; securities and index options, currency contracts). Political risk The risk of losses attributable to government or political actions, from changes in tax or trade statutes to governmental collapse and war.(e.g., foreign equities). Valuation risk The risk that a fund has valued certain of its securities at a higher price than it can sell them for. (e.g., non-investment-grade securities, restricted and illiquid securities). A-2 APPENDIX B Description of Bond Ratings The ratings of Moody's Investors Service, Inc. and Standard & Poor's Ratings Group represent their opinions as to the quality of various debt instruments they undertake to rate. It should be emphasized that ratings are not absolute standards of quality. Consequently, debt instruments with the same maturity, coupon and rating may have different yields while debt instruments of the same maturity and coupon with different ratings may have the same yield. MOODY'S INVESTORS SERVICE, INC. Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa: Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuations of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. A: Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment at some time in the future. Baa: Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba: Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B: Bonds which are rated B generally lack the characteristics of desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Bonds which are rated Ca represented obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. B-1 STANDARD & POOR'S RATINGS GROUP AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA: Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. A: Debt rated A has a strong capacity to pay interest and repay principal, although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. BB, B: Debt rated BB, and B is regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and CC the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. CCC Debt rated 'CCC' has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The 'CCC' rating category is also used for debt subordinated to senior debt that is assigned an actual or implied 'B' or 'B-' rating. CC The rating 'CC' is typically applied to debt subordinated to senior debt that is assigned an actual or implied 'CCC' rating. B-2 FINANCIAL STATEMENTS The financial statements listed below are included in the Fund's 2002 Annual Report to Shareholders for the year ended October 31, 2002; (filed electronically on December 27, 2002, accession number (0000928816-02-000990) and are included in and incorporated by reference into Part B of the Registration Statement for John Hancock Growth Trends Fund (file nos. 811-4079 and 2-92548). John Hancock Equity Trust John Hancock Large Cap Spectrum Fund Statement of Assets and Liabilities as of October 31, 2002 Statement of Operations for October 31, 2002 Statement of Changes in Net Assets October 31, 2002 Financial Highlights. Schedule of Investments as of October 31, 2002 Notes to Financial Statements. Report of Independent Auditors. F-1 JOHN HANCOCK INSTITUTIONAL SERIES TRUST Statement of Additional Information July 1, 2003 John Hancock Dividend Performers Fund John Hancock Independence Diversified Core Equity Fund II (each, a "Fund" and collectively, the "Funds") This Statement of Additional Information provides information about the John Hancock Dividend Performers Fund ("Dividend Performers Fund") and John Hancock Independence Diversified Core Equity Fund II ("Diversified Core Equity Fund II") in addition to the information that is contained in the current Prospectus. This Statement of Additional Information is not a prospectus. It should be read in conjunction with the Funds' Prospectuses, copies of which can be obtained free of charge by writing or telephoning: John Hancock Signature Services, Inc. John Hancock Way, Suite 1001 Boston, Massachusetts 02217-1001 1-888-972-8696 TABLE OF CONTENTS Page Organization of the Funds 2 Investment Objectives and Policies 2 Investment Restrictions 13 Those Responsible for Management 16 Investment Advisory and Other Services 24 Distribution Contract 28 Sales Compensation 28 Net Asset Value 29 Additional Services and Programs 29 Purchases and Redemptions Through Third Parties 30 Special Redemptions 30 Description of the Funds' Shares 30 Tax Status 31 Calculation of Performance 36 Brokerage Allocation 38 Transfer Agent Services 41 Custody of Portfolio 41 Independent Auditors 41 Appendix A--Description of Securities Ratings A-1 Financial Statements F-1 ORGANIZATION OF THE FUNDS Each Fund is a series of John Hancock Institutional Series Trust (the "Trust") an open-end investment management company organized as a Massachusetts business trust on October 31, 1994 under the laws of the Commonwealth of Massachusetts. The investment adviser of each Fund is John Hancock Advisers, LLC (prior to February 1, 2002, John Hancock Advisers, Inc.) (the "Adviser"). The Adviser is an indirect wholly-owned subsidiary of John Hancock Life Insurance Company (formerly John Hancock Mutual Life Insurance Company) (the "Life Company"), a Massachusetts life insurance company chartered in 1862, with national headquarters at John Hancock Place, Boston, Massachusetts. The Life Company is wholly owned by John Hancock Financial Services, Inc., a Delaware corporation organized in February, 2000. The investment sub-adviser of the Independence Diversified Core Equity Fund II is Independence Investment LLC ("Independence") (formerly Independence Investment Associates, Inc.). Independence is sometimes referred to herein as the "Sub-Adviser." The Sub-Adviser is responsible for providing investment advice to the Diversified Core Equity Fund II, subject to the review of the Trustees and overall supervision of the Adviser. Independence is an affiliate of the Life Company. INVESTMENT OBJECTIVES AND POLICIES The following information supplements the discussion of each Fund's investment objective and policies as discussed in the Prospectus. There is no assurance that either Fund will achieve its investment objective. Each Fund has adopted certain investment restrictions that are detailed under "Investment Restrictions" in this Statement of Additional Information where they are classified as fundamental or nonfundamental. Those restrictions designated as fundamental may not be changed without shareholder approval. Each Fund's investment objective, investment policies and nonfundamental restrictions, however, may be changed by a vote of the Trustees without shareholder approval. If there is a change in a Fund's investment objective, shareholders should consider whether the Fund remains an appropriate investment in light of their then current financial position and needs. For a further description of each Fund's investment objectives, policies and restrictions see "Goal and Strategy" and "Main Risks" in the Prospectus and "Investment Restrictions" in this Statement of Additional Information. Effective October 1, 1999, existing shares of Diversified Core Equity Fund II were designated as "Class I" shares. See Appendix A to this Statement of Additional Information for a description of the quality categories of corporate bonds in which certain of the Funds may invest. With respect to Dividend Performers Fund's investment policy of investing at least 80% of its Assets in "dividend performers", "Assets" means net asset plus the amount of any borrowings for investment purposes. Also, with respect to this 80% investment policy, the Fund will notify shareholders at least 60 days prior to any change in this policy. With respect to the Diversified Core Equity Fund II's investment policy of investing at least 80% of its Assets in equity securities, "Assets" is defined as net assets plus the amount of any borrowings for investment purposes. Also, with respect to this 80% investment policy, the Fund will notify shareholders at least 60 days prior to any change in this policy. Common stocks. Dividend Performers Fund and the Diversified Core Equity Fund II may invest in common stocks. Common stocks are shares of a corporation or other entity that entitle the holder to a pro rata share of the profits of the corporation, if any, without preference over any other shareholder or class of shareholders, including holders of such entity's preferred stock and other senior equity. Ownership of common stock usually carries with it the right to vote and, frequently, an exclusive right to do so. Common stocks have the potential to outperform fixed-income securities over the long term. Common stocks provide the most potential for growth, yet are the more volatile of the two asset classes. 2 Debt securities. Under normal conditions, Dividend Performers Fund will not invest in any debt securities. However, in abnormal conditions, Dividend Performers Fund may temporarily invest in U.S. Government securities and U.S. Government agency securities with maturities of up to three years, and may also invest more than 10% of total assets in cash and/or cash equivalents (including U.S. Government securities maturing in 90 days or less.) Debt securities of corporate and governmental issuers in which the Funds may invest are subject to the risk of an issuer's inability to meet principal and interest payments on the obligations (credit risk) and may also be subject to price volatility due to such factors as interest rate sensitivity, market perception of the creditworthiness of the issuer and general market liquidity (market risk). Preferred stocks. Dividend Performers Fund and the Diversified Core Equity Fund II may invest in preferred stocks. Preferred stock generally has a preference to dividends and, upon liquidation, over an issuer's common stock but ranks junior to debt securities in an issuer's capital structure. Preferred stock generally pays dividends in cash (or additional shares of preferred stock) at a defined rate but, unlike interest payments on debt securities, preferred stock dividends are payable only if declared by the issuer's board of directors. Dividends on preferred stock may be cumulative, meaning that, in the event the issuer fails to make one or more dividend payments on the preferred stock, no dividends may be paid on the issuer's common stock until all unpaid preferred stock dividends have been paid. Preferred stock also may be subject to optional or mandatory redemption provisions. Convertible securities. Dividend Performers Fund may invest in convertible preferred stocks. Investments in convertible securities are not subject to the rating criteria with respect to non-convertible debt obligations. As with all debt securities, the market value of convertible securities tends to decline as interest rates increase and, conversely, to increase as interest rates decline. The market value of convertible securities can also be heavily dependent upon the changing value of the equity securities into which such securities are convertible, depending on whether the market price of the underlying security exceeds the conversion price. Convertible securities generally rank senior to common stocks in an issuer's capital structure and consequently entail less risk than the issuer's common stock. However, the extent to which such risk is reduced depends upon the degree to which the convertible security sells above its value as a fixed-income security. Investments in Foreign Securities and Emerging Countries. Each of the Funds may invest in U.S. dollar denominated securities of foreign issuers and in American Depositary Receipts. ADRs (sponsored and unsponsored) are receipts, typically issued by U.S. banks, which evidence ownership of underlying securities issued by a foreign corporation. ADR's are publicly traded on a U.S. stock exchange or in the over-the-counter market. An investment in foreign securities including ADRs may be affected by changes in currency rates and in exchange control regulations. Issuers of unsponsored ADRs are not contractually obligated to disclose material information including financial information, in the United States and, therefore, there may not be a correlation between such information and the market value of the unsponsored ADR. Foreign companies may not be subject to accounting standards or government supervision comparable to U.S. companies, and there is often less publicly available information about their operations. Foreign companies may also be affected by political or financial inability abroad. These risk considerations may be intensified in the case of investments in ADRs of foreign companies that are located in emerging market countries. ADRs of companies located in these countries may have limited marketability and may be subject to more abrupt or erratic price movements. Repurchase Agreements. Each Fund may enter into repurchase agreements. In a repurchase agreement the Fund buys a security for a relatively short period (usually not more than 7 days) subject to the obligation to sell it back to the issuer at a fixed time and price plus accrued interest. The Fund will enter into 3 repurchase agreements only with member banks of the Federal Reserve System and with "primary dealers" in U.S. Government securities. The Adviser will continuously monitor the creditworthiness of the parties with whom the Fund enters into repurchase agreements. Each Fund has established a procedure providing that the securities serving as collateral for each repurchase agreement must be delivered to the Fund's custodian either physically or in book-entry form and that the collateral must be marked to market daily to ensure that each repurchase agreement is fully collateralized at all times. In the event of bankruptcy or other default by a seller of a repurchase agreement, the Fund could experience delays in liquidating the underlying securities during the period in which the Fund seeks to enforce its rights thereto, possible subnormal levels of income, decline in value of the underlying securities or lack of access to income during this period as well as the expense of enforcing its rights. Reverse Repurchase Agreements and Other Borrowings. Each Fund may also enter into reverse repurchase agreements which involve the sale of U.S. Government securities held in its portfolio to a bank with an agreement that a Fund will buy back the securities at a fixed future date at a fixed price plus an agreed amount of "interest" which may be reflected in the repurchase price. Reverse repurchase agreements are considered to be borrowings by a Fund. Reverse repurchase agreements involve the risk that the market value of securities purchased by each Fund with proceeds of the transaction may decline below the repurchase price of the securities sold by a Fund which it is obligated to repurchase. Each Fund will also continue to be subject to the risk of a decline in the market value of the securities sold under the agreements because it will reacquire those securities upon effecting its repurchase. To minimize various risks associated with reverse repurchase agreements, a Fund will establish a separate account consisting of liquid securities, of any type or maturity, in an amount at least equal to the repurchase prices of the securities (plus any accrued interest thereon) under such agreements. In addition, a Fund will not enter into reverse repurchase agreements or other borrowings except from banks temporarily for extraordinary or emergency purposes (not for leveraging) in amounts not to exceed 33 1/3% of a Fund's total assets (including the amount borrowed) taken at market value. Each Fund will not use leverage to attempt to increase income. Each Fund will enter into reverse repurchase agreements only with federally insured banks which are approved in advance as being creditworthy by the Trustees. Under the procedures established by the Trustees, the Adviser will monitor the creditworthiness of the banks involved. Restricted Securities. Each Fund may purchase securities that are not registered ("restricted securities") under the Securities Act of 1933 ("1933 Act"), including commercial paper issued in reliance on Section 4(2) of the 1933 Act and securities offered and sold to "qualified institutional buyers" under Rule 144A under the 1933 Act. Each Fund will not invest more than 15% of its net assets in illiquid investments. If the Trustees determine, based upon a continuing review of the trading markets for specific Section 4(2) paper or Rule 144A securities, that they are liquid, they will not be subject to the 15% limit on illiquid investments. The Trustees may adopt guidelines and delegate to the Adviser the daily function of determining the monitoring and liquidity of restricted securities. The Trustees, however, will retain sufficient oversight and be ultimately responsible for the determinations. The Trustees will carefully monitor the Fund's investments in these securities, focusing on such important factors, among others, as valuation, liquidity and availability of information. This investment practice could have the effect of increasing the level of illiquidity in the Fund if qualified institutional buyers become for a time uninterested in purchasing these restricted securities. Options on Securities Indices. Dividend Performers Fund may purchase and write (sell) call and put options on any securities index based on securities in which it may invest. These options may be listed on national domestic securities exchanges or foreign securities exchanges or traded in the over-the-counter market. Dividend Performers Fund may write covered put and call options and purchase put and call options for any non-speculative purpose. These include using options as a substitute for the purchase or sale of securities or to protect against declines in the value of portfolio securities and against increases in the cost of securities to be acquired. 4 Writing Covered Options. A call option on a securities index written by a Fund obligates the Fund to make a cash payment reflecting any increase in the index above a specified level to the holder of the option if the option is exercised at any time before the expiration date. A put option on a securities index written by a Fund obligates the Fund to make a cash payment reflecting any decrease in the index below a specified level from the option holder if the option is exercised at any time before the expiration date. Options on securities indices do not involve the actual purchase or sale of securities. In addition, securities index options are designed to reflect price fluctuations in a group of securities or segment of the securities market rather than price fluctuations in a single security. Writing covered call options may deprive a Fund of the opportunity to profit from an increase in the market price of the securities in its portfolio. Writing covered put options may deprive a Fund of the opportunity to profit from a decrease in the market price of the securities to be acquired for its portfolio. All call and put options written by Dividend Performers Fund are covered. A written call option or put option may be covered by (i) maintaining cash or liquid securities, either of which may be quoted or denominated in any currency, in a segregated account with a value at least equal to the Fund's obligation under the option, (ii) entering into an offsetting forward commitment and/or (iii) purchasing an offsetting option or any other option which, by virtue of its exercise price or otherwise, reduces the Fund's net exposure on its written option position. A Fund may also cover call options on a securities index by owning securities whose price changes are expected to be similar to those of the underlying index. Dividend Performers Fund may terminate its obligations under an exchange traded call or put option by purchasing an option identical to the one it has written. Obligations under over-the-counter options may be terminated only by entering into an offsetting transaction with the counterparty to such option. Such purchases are referred to as "closing purchase transactions." Purchasing Options. A Fund would normally purchase index call options in anticipation of an increase, or index put options in anticipation of a decrease ("protective puts"), in the market value of securities of the type in which it may invest. A Fund may also sell call and put options to close out its purchased options. The purchase of an index call option would entitle a Fund, in return for the premium paid, to receive a cash payment reflecting any increase in the index above a specified level upon exercising the option during the option period. A Fund would ordinarily realize a gain on the purchase of a call option if the amount of this cash payment exceeded the premium paid and transaction costs; otherwise the Fund would realize either no gain or a loss on the purchase of the call option. The purchase of an index put option would entitle a Fund, in exchange for the premium paid, to receive a cash payment reflecting any decrease in the index below a specified level upon exercising the option during the option period. The purchase of protective puts is designed to offset or hedge against a decline in the market value of the Fund's portfolio securities. A Fund would ordinarily realize a gain if, during the option period, the level of the index decreased below the exercise price sufficiently to cover the premium and transaction costs; otherwise the Fund would realize either no gain or a loss on the purchase of the put option. Gains and losses on the purchase of put options may be offset by countervailing changes in the value of the Fund's portfolio securities. Dividend Performers Fund's options transactions will be subject to limitations established by each of the exchanges, boards of trade or other trading facilities on which such options are traded. These limitations govern the maximum number of options in each class which may be written or purchased by a single investor or group of investors acting in concert, regardless of whether the options are written or purchased on the same or different exchanges, boards 5 of trade or other trading facilities or are held or written in one or more accounts or through one or more brokers. Thus, the number of options which a Fund may write or purchase may be affected by options written or purchased by other investment advisory clients of the Adviser. An exchange, board of trade or other trading facility may order the liquidation of positions found to be in excess of these limits, and it may impose certain other sanctions. Risks Associated with Options Transactions. There is no assurance that a liquid secondary market on a domestic or foreign options exchange will exist for any particular exchange-traded option or at any particular time. If a Fund is unable to effect a closing purchase transaction with respect to covered options it has written, the Fund will not be able to dispose of assets held in a segregated account until the options expire or are exercised. Similarly, if the Fund is unable to effect a closing sale transaction with respect to options it has purchased, it would have to exercise the options in order to realize any profit. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of options; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or the Options Clearing Corporation may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of options (or a particular class or series of options). If trading were discontinued, the secondary market on that exchange (or in that class or series of options) would cease to exist. However, outstanding options on that exchange that had been issued by the Options Clearing Corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms. Dividend Performers Fund's ability to terminate over-the-counter options is more limited than with exchange-traded options and may involve the risk that broker-dealers participating in such transactions will not fulfill their obligations. The Adviser will determine the liquidity of each over-the-counter option in accordance with guidelines adopted by the Trustees. The writing and purchase of options is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. The successful use of options depends in part on the Adviser's ability to predict future price fluctuations and, for hedging transactions, the degree of correlation between the options and securities markets. Futures Contracts and Options on Futures Contracts. Dividend Performers Fund may purchase and sell various kinds of futures contracts on securities indices, and purchase and write call and put options on these futures contracts, for any non-speculative purpose. Dividend Performers Fund may also enter into closing purchase and sale transactions with respect to any of these contracts and options. All futures contracts entered into by Dividend Performers Fund are traded on U.S. or foreign exchanges or boards of trade that are licensed, regulated or approved by the Commodity Futures Trading Commission ("CFTC"). Futures Contracts. An index futures contract may generally be described as an agreement between two parties to deliver a final cash settlement price based on an increase or decrease in the level of the index above or below a specified level. Unlike some futures contracts, index futures do not involve the physical delivery of securities at the end of trading in the contract. Positions taken in the futures markets are not normally held to maturity but are instead liquidated through offsetting transactions which may result in a profit or a loss. A clearing corporation associated with the exchange on which futures contracts are traded guarantees that, if still open, the contract will be performed on the settlement date. 6 Hedging and Other Strategies. Hedging is an attempt to establish with more certainty than would otherwise be possible the effective price or rate of return on portfolio securities or securities that the Fund proposes to acquire. When securities prices are falling, a Fund can seek to offset a decline in the value of its current portfolio securities through the sale of futures contracts. When securities prices are rising, a Fund, through the purchase of futures contracts, can attempt to secure better rates or prices than might later be available in the market when it effects anticipated purchases. Dividend Performers Fund may, for example, take a "short" position in the futures market by selling futures contracts in an attempt to hedge against an anticipated decline in market prices that would adversely affect the value of the Fund's portfolio securities. Such futures contracts may be based on indices that include securities held by the Fund or securities with characteristics similar to those of the Fund's portfolio securities. Although under some circumstances prices of securities in the Fund's portfolio may be more or less volatile than prices of such futures contracts, the Adviser will attempt to estimate the extent of this volatility difference based on historical patterns and compensate for any differential by having the Fund enter into a greater or lesser number of futures contracts or by attempting to achieve only a partial hedge against price changes affecting the Fund's portfolio securities. When a short hedging position is successful, any depreciation in the value of portfolio securities will be substantially offset by appreciation in the value of the futures position. On the other hand, any unanticipated appreciation in the value of a Fund's portfolio securities would be substantially offset by a decline in the value of the futures position. On other occasions, a Fund may take a "long" position by purchasing index futures contracts. This would be done, for example, when the Fund anticipates the subsequent purchase of particular securities when it has the necessary cash, but expects the prices rates then available in the applicable market to be less favorable than prices that are currently available. Dividend Performers Fund may also purchase index futures contracts as a substitute for transactions in securities. For example, a Fund may engage in these substitution transactions in order to remain fully invested in the stock market while maintaining a sufficient cash position to meet the Fund's liquidity needs. Options on Futures Contracts. Dividend Performers Fund may purchase and write options on index futures for the same purposes as its transactions in index futures contracts. The purchase of put and call options on index futures contracts will give a Fund the right (but not the obligation) for a specified price to sell or to purchase, respectively, the underlying futures contract at any time during the option period. As the purchaser of an option on a futures contract, a Fund obtains the benefit of the futures position if prices move in a favorable direction but limits its risk of loss in the event of an unfavorable price movement to the loss of the premium and transaction costs. The writing of a call option on an index futures contract generates a premium which may partially offset a decline in the value of a Fund's assets. By writing a call option, a Fund becomes obligated, in exchange for the premium (upon exercise of the option) to sell a futures contract if the option is exercised, which may have a value higher than the exercise price. Conversely, the writing of a put option on an index futures contract generates a premium which may partially offset an increase in the price of securities that a Fund intends to purchase. However, a Fund becomes obligated (upon exercise of the option) to purchase a futures contract if the option is exercised, which may have a value lower than the exercise price. The loss incurred by a Fund in writing options on index futures is potentially unlimited and may exceed the amount of the premium received. The holder or writer of an option on a futures contract may terminate its position by selling or purchasing an offsetting option of the same series. There is no guarantee that such closing transactions can be effected. A Fund's ability to establish and close out positions on such options will be subject to the development and maintenance of a liquid market. 7 Other Considerations. Dividend Performers Fund will engage in index futures and related options transactions for bona fide hedging or other non-speculative purposes. To the extent that a Fund is using futures and related options for hedging purposes, futures contracts will be sold to protect against a decline in the price of securities that the Fund owns or futures contracts will be purchased to protect the Fund against an increase in the price of securities it intends to purchase. A Fund will determine that the price fluctuations in the futures contracts and options on futures used for hedging purposes are substantially related to price fluctuations in securities held by the Fund or securities or instruments which it expects to purchase. As evidence of its hedging intent, Dividend Performers Fund expects that on 75% or more of the occasions on which it takes a long index futures or option position (involving the purchase of futures contracts), the Fund will have purchased, or will be in the process of purchasing, equivalent amounts of related securities in the cash market at the time when the futures or option position is closed out. However, in particular cases, when it is economically advantageous for the Fund to do so, a long futures position may be terminated or an option may expire without the corresponding purchase of securities. To the extent that a Fund engages in nonhedging transactions in futures contracts and options on futures, the aggregate initial margin and premiums required to establish these nonhedging positions will not exceed 5% of the net asset value of the Fund's portfolio, after taking into account unrealized profits and losses on any such positions and excluding the amount by which such options were in-the-money at the time of purchase. Dividend Performers Fund will engage in transactions in futures contracts and related options only to the extent such transactions are consistent with the requirements of the Internal Revenue Code of 1986, as amended (the "Code"), for maintaining its qualifications as a regulated investment company for federal income tax purposes. Transactions in index futures contracts and options on index futures involve brokerage costs, require margin deposits and, in the case of contracts and options that are economically equivalent to the purchase of securities, require a Fund to establish a segregated account consisting of cash or liquid securities in an amount equal to the underlying value of such contracts and options. While transactions in index futures contracts and options on futures may reduce certain risks, these transactions themselves entail certain other risks. For example, unanticipated changes in securities prices may result in a poorer overall performance for a Fund than if it had not entered into any futures contracts or options transactions. Perfect correlation between a Fund's index futures positions and portfolio positions will be impossible to achieve. In the event of an imperfect correlation between a futures position and a portfolio position which is intended to be protected, the desired protection may not be obtained and the Fund may be exposed to risk of loss. Some futures contracts or options on futures may become illiquid under adverse market conditions. In addition, during periods of market volatility, a commodity exchange may suspend or limit trading in a futures contract or related option, which may make the instrument temporarily illiquid and difficult to price. Commodity exchanges may also establish daily limits on the amount that the price of a futures contract or related option can vary from the previous day's settlement price. Once the daily limit is reached, no trades may be made that day at a price beyond the limit. This may prevent a Fund from closing out positions and limiting its losses. Forward Commitment and When-Issued Securities. Each Fund may purchase securities on a when-issued or forward commitment basis. "When-issued" refers to securities whose terms are available and for which a market exists, but which have not been issued. A Fund will engage in when-issued transactions with respect to securities purchased for its portfolio in order to obtain what is considered to be an advantageous price and yield at the time of the transaction. For when-issued transactions, no payment is made until delivery is due, often a month or more after the purchase. In a forward commitment transaction, a Fund 8 contracts to purchase securities for a fixed price at a future date beyond customary settlement time. When a Fund engages in forward commitment and when-issued transactions, it relies on the seller to consummate the transaction. The failure of the issuer or seller to consummate the transaction may result in the Funds losing the opportunity to obtain a price and yield considered to be advantageous. The purchase of securities on a when-issued and forward commitment basis also involves a risk of loss if the value of the security to be purchased declines prior to the settlement date. On the date a Fund enters into an agreement to purchase securities on a when-issued or forward commitment basis, the Fund will segregate in separate account cash or liquid securities, of any type or maturity, equal in value to the Fund's commitment. These assets will be valued daily at market, and additional cash or securities will be segregated in a separate account to the extent that the total value of the assets in the account declines below the amount of the when-issued commitments. Alternatively, a Fund may enter into offsetting contracts for the forward sale of other securities that it owns. Warrants. Dividend Performers Fund may invest in warrants. Warrants entitle the holder to buy equity securities at a specific price for a specific period of time. Warrants tend to be more volatile than their underlying securities. Also, the value of the warrant does not necessarily change with the value of the underlying securities and a warrant ceases to have value if it is not exercised prior to the expiration date. Government Securities. Each Fund may invest in government securities. However, under normal conditions, Dividend Performers Fund and will not invest in any debt securities, with the exception of cash equivalents (which include U.S. Government securities maturing in 90 days or less). In abnormal conditions, Dividend Performers Fund may temporarily invest in U.S. Government securities and U.S. Government agency securities with maturities of up to three years, and may also invest more than 10% of total assets in cash and/or cash equivalents. Certain U.S. Government securities, including U.S. Treasury bills, notes and bonds, and Government National Mortgage Association certificates ("GNMA"), are supported by the full faith and credit of the United States. Certain other U.S. Government securities, issued or guaranteed by Federal agencies or government sponsored enterprises, are not supported by the full faith and credit of the United States, but may be supported by the right of the issuer to borrow from the U.S. Treasury. These securities include obligations of the Federal Home Loan Mortgage Corporation ("FHLMC"), and obligations supported by the credit of the instrumentality, such as Federal National Mortgage Association Bonds ("FNMA"). No assurance can be given that the U.S. Government will provide financial support to such Federal agencies, authorities, instrumentalities and government sponsored enterprises in the future. Mortgage-Backed Securities. The Diversified Core Equity Fund II may invest in mortgage pass-through certificates and multiple-class pass-through securities, such as real estate mortgage investment conduits ("REMIC") pass-through certificates, collateralized mortgage obligations ("CMOs") and stripped mortgage-backed securities ("SMBS"), and other types of "Mortgage-Backed securities" that may be available in the future. Guaranteed Mortgage Pass-Through Securities. Guaranteed mortgage pass-through securities represent participation interests in pools of residential mortgage loans and are issued by U.S. Governmental or private lenders and guaranteed by the U.S. Government or one of its agencies or instrumentalities, including but not limited to the GNMA, the FNMA and the FHLMC. GNMA certificates are guaranteed by the full faith and credit of the U.S. Government for timely payment of principal and interest on the certificates. FNMA certificates are guaranteed by FNMA, a federally chartered and privately owned corporation, for full and timely payment of principal and interest on the certificates. FHLMC certificates are guaranteed by FHLMC, a corporate instrumentality of the U.S. Government, for timely payment of interest and the ultimate collection of all principal of the related mortgage loans. Multiple-Class Pass-Through Securities and Collateralized Mortgage Obligations. CMOs and REMIC pass-through or participation certificates may be issued by, among others, U.S. Government agencies and instrumentalities as well as private lenders. CMOs and REMIC certificates are issued in multiple classes and the principal of and interest on the mortgage assets may be allocated among the 9 several classes of CMOs or REMIC certificates in various ways. Each class of CMOs or REMIC certificates, often referred to as a "tranche," is issued at a specific adjustable or fixed interest rate and must be fully retired no later than its final distribution date. Generally, interest is paid or accrues on all classes of CMOs or REMIC certificates on a monthly basis. Typically, CMOs are collateralized by GNMA, FNMA or FHLMC certificates but also may be collateralized by other mortgage assets such as whole loans or private mortgage pass-through securities. Debt service on CMOs is provided from payments of principal and interest on collateral of mortgaged assets and any reinvestment income thereon. A REMIC is a CMO that qualifies for special tax treatment under the Code and invests in certain mortgages primarily secured by interests in real property and other permitted investments. Investors may purchase "regular" and "residual" interest shares of beneficial interest in REMIC trusts although the Funds do not intend to invest in residual interests. Stripped Mortgage-Backed Securities. SMBS are derivative multiple-class mortgage-backed securities. SMBS are usually structured with two classes that receive different proportions of interest and principal distributions on a pool of mortgage assets. A typical SMBS will have one class receiving some of the interest and most of the principal, while the other class will receive most of the interest and the remaining principal. In the most extreme case, one class will receive all of the interest (the "interest only" class) while the other class will receive all of the principal (the "principal only" class). The yields and market risk of interest only and principal only SMBS, respectively, may be more volatile than those of other fixed income securities. The staff of the SEC considers privately issued SMBS to be illiquid. Structured or Hybrid Notes. Diversified Core Equity Fund II may invest in "structured" or "hybrid" notes. The distinguishing feature of a structured or hybrid note is that the amount of interest and/or principal payable on the note is based on the performance of a benchmark asset or market other than fixed-income securities or interest rates. Examples of these benchmarks include stock prices, currency exchange rates and physical commodity prices. Investing in a structured note allows a Fund to gain exposure to the benchmark market while fixing the maximum loss that the Fund may experience in the event that market does not perform as expected. Depending on the terms of the note, a Fund may forego all or part of the interest and principal that would be payable on a comparable conventional note; a Fund's loss cannot exceed this foregone interest and/or principal. An investment in structured or hybrid notes involves risks similar to those associated with a direct investment in the benchmark asset. Risk Factors Associated with Mortgage-Backed Securities. Investing in Mortgage-Backed Securities involves certain risks, including the failure of a counter-party to meet its commitments, adverse interest rate changes and the effects of prepayments on mortgage cash flows. In addition, investing in the lowest tranche of CMOs and REMIC certificates involves risks similar to those associated with investing in equity securities. Further, the yield characteristics of Mortgage-Backed Securities differ from those of traditional fixed income securities. The major differences typically include more frequent interest and principal payments (usually monthly), the adjustability of interest rates, and the possibility that prepayments of principal may be made substantially earlier than their final distribution dates. Prepayment rates are influenced by changes in current interest rates and a variety of economic, geographic, social and other factors and cannot be predicted with certainty. Both adjustable rate mortgage loans and fixed rate mortgage loans may be subject to a greater rate of principal prepayments in a declining interest rate environment and to a lesser rate of principal prepayments in an increasing interest rate environment. Under certain interest rate and prepayment rate scenarios, a Fund may fail to recoup fully its 10 investment in Mortgage-Backed Securities notwithstanding any direct or indirect governmental, agency or other guarantee. When a Fund reinvests amounts representing payments and unscheduled prepayments of principal, it may receive a rate of interest that is lower than the rate on existing adjustable rate mortgage pass-through securities. Thus, Mortgage-Backed Securities, and adjustable rate mortgage pass-through securities in particular, may be less effective than other types of U.S. Government securities as a means of "locking in" interest rates. Conversely, in a rising interest rate environment, a declining prepayment rate will extend the average life of many Mortgage-Backed Securities. This possibility is often referred to as extension risk. Extending the average life of a Mortgage-Backed Security increases the risk of depreciation due to future increases in market interest rates. Risk Associated With Specific Types of Derivative Debt Securities. Different types of derivative debt securities are subject to different combinations of prepayment, extension and/or interest rate risk. Conventional mortgage pass-through securities and sequential pay CMOs are subject to all of these risks, but are typically not leveraged. Thus, the magnitude of exposure may be less than for more leveraged Mortgage-Backed Securities. The risk of early prepayments is the primary risk associated with interest only debt securities ("IOs"), super floaters, other leveraged floating rate instruments and Mortgage-Backed Securities purchased at a premium to their par value. In some instances, early prepayments may result in a complete loss of investment in certain of these securities. The primary risks associated with certain other derivative debt securities are the potential extension of average life and/or depreciation due to rising interest rates. These securities include floating rate securities based on the Cost of Funds Index ("COFI floaters"), other "lagging rate" floating rate securities, floating rate securities that are subject to a maximum interest rate ("capped floaters"), Mortgage-Backed Securities purchased at a discount, leveraged inverse floating rate securities ("inverse floaters"), principal only debt securities ("POs"), certain residual or support tranches of CMOs and index amortizing notes. Index amortizing notes are not Mortgage-Backed Securities, but are subject to extension risk resulting from the issuer's failure to exercise its option to call or redeem the notes before their stated maturity date. Leveraged inverse IOs combine several elements of the Mortgage-Backed Securities described above and thus present an especially intense combination of prepayment, extension and interest rate risks. Planned amortization class ("PAC") and target amortization class ("TAC") CMO bonds involve less exposure to prepayment, extension and interest rate risk than other Mortgage-Backed Securities, provided that prepayment rates remain within expected prepayment ranges or "collars." To the extent that prepayment rates remain within these prepayment ranges, the residual or support tranches of PAC and TAC CMOs assume the extra prepayment, extension and interest rate risk associated with the underlying mortgage assets. Other types of floating rate derivative debt securities present more complex types of interest rate risks. For example, range floaters are subject to the risk that the coupon will be reduced to below market rates if a designated interest rate floats outside of a specified interest rate band or collar. Dual index or yield curve floaters are subject to depreciation in the event of an unfavorable change in the spread between two designated interest rates. X-reset floaters have a coupon that remains fixed for more than one accrual period. Thus, the type of risk involved in these securities depends on the terms of each individual X-reset floater. Ratings as Investment Criteria. In general, the ratings of Moody's and S&P represent the opinions of these agencies as to the quality of the securities which they rate. It should be emphasized however, that ratings are relative and subjective and are not absolute standards of quality. These ratings will be used by the Funds as initial criteria for the selection of portfolio securities. Among the factors which will be considered are the long-term ability of the issuer to pay principal and interest and general economic trends. Appendix A 11 contains further information concerning the rating of Moody's and S&P and their significance. Subsequent to its purchase by the Fund, an issue of securities may cease to be rated or its rating may be reduced below the minimum required for purchase by the Fund. Neither of these events will require the sale of the securities by the Fund, but the Adviser will consider the event in its determination of whether the Fund should continue to hold the securities. Ratings are based largely on the historical financial condition of the issuer. Consequently, the rating assigned to any particular security is not necessarily a reflection of the issuer's current financial condition, which may be better or worse than the rating would indicate. See Appendix A to this Statement of Additional Information which describes the characteristics of corporate bonds in the various ratings categories. The Funds may invest in comparable quality unrated securities which, in the opinion of the Adviser or Subadviser, offer comparable yields and risks to those securities which are rated. Debt obligations rated in the lower ratings categories, or which are unrated, involve greater volatility of price and risk of loss of principal and income. In addition, lower ratings reflect a greater possibility of an adverse change in financial condition affecting the ability of the issuer to make payments of interest and principal. Lending of Securities. The Funds may lend portfolio securities to brokers, dealers, and financial institutions if the loan is collateralized by cash or U.S. Government securities according to applicable regulatory requirements. The Funds may reinvest any cash collateral in short-term securities and money market funds. When a Fund lends portfolio securities, there is a risk that the borrower may fail to return the securities involved in the transaction. As a result, the Fund may incur a loss or, in the event of the borrower's bankruptcy, the Fund may be delayed in or prevented from liquidating the collateral. Each Fund can lend portfolio securities having a total value of 33 1/3% of its total assets. Short-Term Trading. Short-term trading means the purchase and subsequent sale of security after it has been held for a relatively brief period of time. The Funds may engage in short-term trading in response to stock market conditions, changes in interest rates or other economic trends and developments, or take advantage of yield disparities between various fixed income securities in order to realize capital gains or improve income. Short-term turnover (100% or greater) involves correspondingly greater brokerage expenses. Each Fund's portfolio turnover rate is set forth in the table under the caption "Financial Highlights" in the prospectus. 12 INVESTMENT RESTRICTIONS Fundamental Investment Restrictions. Each Fund has adopted the following investment restrictions which may not be changed without the approval of a majority of the applicable Fund's outstanding voting securities which, as used in the Prospectus and this Statement of Additional Information means the approval by the lesser of (1) the holders of 67% or more of a Fund's shares represented at a meeting if more than 50% of a Fund's outstanding shares are present in person or by proxy or (2) more than 50% of the outstanding shares. A Fund may not: 1. Issue senior securities, except as permitted by paragraphs 3, 6 and 7 below. For purposes of this restriction, the issuance of shares of beneficial interest in multiple classes or series, the deferral of trustees' fees, the purchase or sale of options, futures contracts, forward commitments and repurchase agreements entered into in accordance with the Fund's investment policies or within the meaning of paragraph 6 below, are not deemed to be senior securities. 2. Purchase securities on margin or make short sales [see non-fundamental investment restriction (d)], or unless, by virtue of its ownership of other securities, the Fund has the right to obtain securities equivalent in kind and amount to the securities sold and, if the right is conditional, the sale is made upon the same conditions, except (i) in connection with arbitrage transactions, (ii) for hedging the Fund's exposure to an actual or anticipated market decline in the value of its securities, (iii) to profit from an anticipated decline in the value of a security, and (iv) obtaining such short-term credits as may be necessary for the clearance of purchases and sales of securities. 3. Borrow money, except for the following extraordinary or emergency purposes: (i) from banks for temporary or short-term purposes or for the clearance of transactions in amounts not to exceed 33 1/3% of the value of the Fund's total assets (including the amount borrowed) taken at market value; (ii) in connection with the redemption of Fund shares or to finance failed settlements of portfolio trades without immediately liquidating portfolio securities or other assets and (iii) in order to fulfill commitments or plans to purchase additional securities pending the anticipated sale of other portfolio securities or assets. A Fund may not borrow money for the purpose of leveraging the Funds' assets. For purposes of this investment restriction, the deferral of Trustees' fees and transactions in short sales, futures contracts, options on futures contracts, securities or indices and forward commitment transactions shall not constitute borrowing. 4. Act as an underwriter, except to the extent that in connection with the disposition of portfolio securities, the Fund may be deemed to be an underwriter for purpose of the 1933 Act. 5. Purchase or sell real estate except that the Fund may (i) acquire or lease office space for its own use, (ii) invest in securities of issuers that invest in real estate or interests therein, (iii) invest in securities that are secured by real estate or interests therein, (iv) purchase and sell mortgage-related securities and (v) hold and sell real estate acquired by the Fund as a result of the ownership of securities. 6. Invest in commodities, except the Fund may purchase and sell options on securities, securities indices and currency, futures contracts on securities, securities indices and currency and options on such futures, forward foreign currency exchange contracts, forward commitments, securities index put or call warrants and repurchase agreements entered into in accordance with the Fund's investment policies [see non-fundamental investment restriction (f)]. 13 7. Make loans, except that the Fund (1) may lend portfolio securities in accordance with the Fund's investment policies up to 33 1/3% of the Fund's total assets taken at market value, (2) enter into repurchase agreements, and (3) purchase all or a portion of an issue of debt securities, bank loan participation interests, bank certificates of deposit, bankers' acceptances, debentures or other securities, whether or not the purchase is made upon the original issuance of the securities. 8. Purchase the securities of issuers conducting their principal activity in the same industry if, immediately after such purchase, the value of its investments in such industry would exceed 25% of its total assets taken at market value at the time of such investment. This limitation does not apply to investments in obligations of the U.S. Government or any of its agencies, instrumentalities or authorities. 9. For each Fund with respect to 75% of total assets [see non-fundamental investment restriction (e)], purchase securities of an issuer (other than the U.S. Government, its agencies, instrumentalities or authorities), if: (a) such purchase would cause more than 5% of the Fund's total assets taken at market value to be invested in the securities of such issuer; or (b) such purchase would at the time result in more than 10% of the outstanding voting securities of such issuer being held by the Fund. Non-Fundamental Investment Restrictions. The following investment restrictions are designated as non-fundamental and may be changed by the Trustees without shareholder approval. A Fund may not: (a) Purchase a security if, as a result, (i) more than 10% of the Fund's total assets would be invested in the securities of other investment companies, (ii) the Fund would hold more than 3% of the total outstanding voting securities of any one investment company, or (iii) more than 5% of the Fund's total assets would be invested in the securities of any one investment company. These limitations do not apply to (a) the investment of cash collateral, received by the Fund in connection with lending the Fund's portfolio securities, in the securities of open-end investment companies or (b) the purchase of shares of any investment company in connection with a merger, consolidation, reorganization or purchase of substantially all of the assets of another investment company. Subject to the above percentage limitations the Fund may, in connection with the John Hancock Group of Funds Deferred Compensation Plan for Independent Trustees/Directors, purchase securities of other investment companies within the John Hancock Group of Funds. (b) Invest more than 15% of the net assets of the Fund, taken at market value, in illiquid securities. (c) Invest for the purpose of exercising control over or management of any company. In addition: (d) Dividend Performers Fund may not make short sales. (e) Dividend Performers Fund may not invest more than 5% of total assets at time of purchase in any one security (other than U.S. Government securities). (f) Dividend Performers Fund may only purchase or sell stock index options, stock index futures, and stock index options on futures. 14 (g) Under normal conditions, Dividend Performers Fund may not invest more than 10% of total assets in cash and/or cash equivalents (except cash segregated in relation to futures, forward and option contracts). (h) Under normal conditions Dividend Performers Fund will not invest in any debt securities. However, in abnormal conditions, this Fund may temporarily invest in U.S. Government Securities and U.S. Government agency securities with maturities of up to three years, and may also invest more than 10% of total assets in cash and/or cash equivalents (including U.S. Government securities maturing in 90 days or less). Except with respect to borrowing money, if a percentage restriction on investment or utilization of assets as set forth above is adhered to at the time an investment is made, a later change in percentage resulting from changes in the value of the Fund's assets will not be considered a violation of the restriction. The Funds will invest only in countries on the Adviser's Approved Country Listing. The Approved Country Listing is a list maintained by the Adviser's investment department that outlines all countries, including the United States, that have been approved for investment by Funds managed by the Adviser. If allowed by the Fund's other investment policies and restrictions, a Fund may invest up to 5% of its total assets in Russian equity securities and up to 10% of its total assets in Russian fixed income securities. All Russian securities must be: (1) denominated in U.S. or Canadian dollars, euros, sterling, or yen; (2) traded on a major exchange; and (3) held physically outside of Russia. 15 THOSE RESPONSIBLE FOR MANAGEMENT The business of the Funds is managed by the Trustees, who elect officers who are responsible for the day-to-day operations of the Funds and who execute policies formulated by the Trustees. Several of the officers and Trustees of the Funds are also officers or Directors of the Funds' Adviser and/or the Subadviser, or officers and/or directors of the Funds' principal distributor, John Hancock Funds, LLC (prior to February 1, 2002, John Hancock Funds, Inc.) ("John Hancock Funds").
- ---------------------------- ------------- ----------- ------------------------------------------------ --------------- Number of John Hancock Position(s) Trustee/ Funds Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by And Age Funds Since(2) Directorships During Past 5 Years Trustee - ---------------------------- ------------- ----------- ------------------------------------------------ --------------- Independent Trustees - ---------------------------- ------------- ----------- ------------------------------------------------ --------------- James F. Carlin Trustee *1995 Director/Treasurer, Alpha Analytical , Inc. 31 Born: 1940 1995 (Analytical laboratory); Part Owner and Treasurer, Lawrence Carlin Insurance Agency, Inc. (since 1995); Part Owner and Vice President, Mone Lawrence Carlin Insurance Agency, Inc. (since 1996); Director/Treasurer, Rizzo Associates (until 2000); Chairman and CEO, Carlin Consolidated, Inc. (management/investments (since 1987); Director/Partner, Proctor Carlin & Co., Inc. (until 1999); Trustee, Massachusetts Health and Education Tax Exempt Trust (since 1993); Director of the following: Uno Restaurant Corp. (until 2001), Arbella Mutual (insurance) (until 2000), HealthPlan Services, Inc. (until 1999), Flagship Healthcare, Inc. (until 1999), Carlin Insurance Agency, Inc. (until 1999), Chairman, Massachusetts Board of Higher Education (until 1999). - ---------------------------- ------------- ----------- ------------------------------------------------ --------------- *Dividend Performers Fund and Diversified Core Equity Fund II, respectively. (1) Business address for independent and interested Trustees and officers is 101 Huntington Avenue, Boston, Massachusetts 02199. (2) Each Trustee serves until resignation, retirement age or until her or his successor is elected. (3) Interested Trustee: holds positions with the Fund's investment adviser, underwriter, and/or certain other affiliates. 16 - ---------------------------- ------------- ----------- ------------------------------------------------ --------------- Number of John Hancock Position(s) Trustee/ Funds Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by And Age Funds Since(2) Directorships During Past 5 Years Trustee - ------------------------------- -------------- ----------- --------------------------------------------- ---------------- William H. Cunningham Trustee *1995 Former Chancellor, University of Texas 31 Born: 1944 1995 System and former President of the University of Texas, Austin, Texas; Chairman, IBT Technologies; Director of the following: The University of Texas Investment Management Company (until 2000), Hire.com (since 2000), STC Broadcasting, Inc. and Sunrise Television Corp. (since 2000), Symtx, Inc. (since 2001), Adorno/Rogers Technology, Inc. (since 2001), Pinnacle Foods Corporation (since 2000), rateGenius (since 2000), LaQuinta Motor Inns, Inc. (hotel management company) (until 1998), Jefferson-Pilot Corporation (diversified life insurance company), New Century Equity Holdings (formerly Billing Concepts) (until 2001), eCertain (until 2001), ClassMap.com (until 2001), Agile Ventures (until 2001), LBJ Foundation (until 2000), Golfsmith International, Inc. (until 2000), Metamor Worldwide (until 2000), AskRed.com (until 2001), Southwest Airlines and Introgen; Advisory Director, Q Investments; Advisory Director, Chase Bank (formerly Texas Commerce Bank - Austin). - ------------------------------- -------------- ----------- --------------------------------------------- ---------------- Ronald R. Dion Trustee *1998 Chairman and Chief Executive Officer, R.M. 31 Born: 1946 1998 Bradley & Co., Inc.; Director, The New England Council and Massachusetts Roundtable; Trustee, North Shore Medical Center; Director, BJ's Wholesale Club, Inc. and a corporator of the Eastern Bank; Trustee, Emmanuel College. - ------------------------------- -------------- ----------- --------------------------------------------- ---------------- *Dividend Performers Fund and Diversified Core Equity Fund II, respectively. (1) Business address for independent and interested Trustees and officers is 101 Huntington Avenue, Boston, Massachusetts 02199. (2) Each Trustee serves until resignation, retirement age or until her or his successor is elected. (3) Interested Trustee: holds positions with the Fund's investment adviser, underwriter, and/or certain other affiliates. 17 - ---------------------------- ------------- ----------- ------------------------------------------------ --------------- Number of John Hancock Position(s) Trustee/ Funds Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by And Age Funds Since(2) Directorships During Past 5 Years Trustee - ------------------------------- -------------- ----------- --------------------------------------------- ---------------- Charles L. Ladner Trustee *1995 Chairman and Trustee, Dunwoody Village, 31 Born: 1938 1995 Inc. (Retirement Services); Senior Vice President and Chief Financial Officer, UGI Corporation (Public Utility Holding Company)(retired 1998); Vice President and Director for AmeriGas, Inc. (retired 1998); Director of AmeriGas Partners, L.P. (until 1997)(gas distribution); Director, Parks and History Association (since 2001). - ------------------------------- -------------- ----------- --------------------------------------------- ---------------- Steven Pruchansky Trustee *1995 Chairman and Chief Executive Officer, Mast 31 Born: 1944 1995 Holdings, Inc. (since 2000); Director and President, Mast Holdings, Inc. (until 2000); Managing Director, JonJames, LLC (real estate)(since 2001); Director, First Signature Bank & Trust Company (until 1991); Director, Mast Realty Trust (until 1994); President, Maxwell Building Corp. (until 1991). - ------------------------------- -------------- ----------- --------------------------------------------- ---------------- Norman H. Smith Trustee *1995 Lieutenant General, United States Marine 31 Born: 1933 1995 Corps; Deputy Chief of Staff for Manpower and Reserve Affairs, Headquarters Marine Corps; Commanding General III Marine Expeditionary Force/3rd Marine Division (retired 1991). - ------------------------------- -------------- ----------- --------------------------------------------- ---------------- *Dividend Performers Fund and Diversified Core Equity Fund II, respectively. (1) Business address for independent and interested Trustees and officers is 101 Huntington Avenue, Boston, Massachusetts 02199. (2) Each Trustee serves until resignation, retirement age or until her or his successor is elected. (3) Interested Trustee: holds positions with the Fund's investment adviser, underwriter, and/or certain other affiliates. 18 - ---------------------------- ------------- ----------- ------------------------------------------------ --------------- Number of John Hancock Position(s) Trustee/ Funds Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by And Age Funds Since(2) Directorships During Past 5 Years Trustee - ------------------------------- -------------- ----------- --------------------------------------------- ---------------- John P. Toolan Trustee *1995 Director, The Smith Barney Muni Bond Funds, 31 Born: 1930 1995 The Smith Barney Tax-Free Money Funds, Inc., Vantage Money Market Funds (mutual funds), The Inefficient-Market Fund, Inc. (closed-end investment company); Chairman, Smith Barney Trust Company of Florida; Director, Smith Barney, Inc., Mutual Management Company and Smith Barney Advisers, Inc. (investment advisers) (retired 1991); Senior Executive Vice President, Director and member of the Executive Committee, Smith Barney, Harris Upham & Co., Incorporated (investment bankers) (until 1991). - ------------------------------- -------------- ----------- --------------------------------------------- ---------------- Interested Trustees - ------------------------------- -------------- ----------- --------------------------------------------- ---------------- John M. DeCiccio (3) Trustee *2001 Executive Vice President and Chief 52 Born: 1948 2001 Investment Officer, John Hancock Financial Services, Inc.; Director, Executive Vice President and Chief Investment Officer, John Hancock Life Insurance Company; Chairman of the Committee of Finance of John Hancock Life Insurance Company; Director, John Hancock Subsidiaries, LLC, Hancock Natural Resource Group, Independence Investment LLC, Independence Fixed Income LLC, John Hancock Advisers, LLC (the "Adviser") and The Berkeley Financial Group, LLC ("The Berkeley Group"), John Hancock Funds, LLC ("John Hancock Funds"), Massachusetts Business Development Corporation; Director, Insurance Agency, Inc. (until 1999. - ------------------------------- -------------- ----------- --------------------------------------------- ---------------- *Dividend Performers Fund and Diversified Core Equity Fund II, respectively. (1) Business address for independent and interested Trustees and officers is 101 Huntington Avenue, Boston, Massachusetts 02199. (2) Each Trustee serves until resignation, retirement age or until her or his successor is elected. (3) Interested Trustee: holds positions with the Fund's investment adviser, underwriter, and/or certain other affiliates. 19 - ---------------------------- ------------- ----------- ------------------------------------------------ --------------- Number of John Hancock Position(s) Trustee/ Funds Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by And Age Funds Since(2) Directorships During Past 5 Years Trustee - ------------------------------ --------------- ----------- --------------------------------------------- ---------------- Maureen R. Ford (3) Trustee, *2000 Executive Vice President, John Hancock 52 Born: 1955 Chairman, 2000 Financial Services, Inc., John Hancock Life President and Insurance Company; Chairman, Director, Chief President and Chief Executive Officer, the Executive Advisers and The Berkeley Group; Chairman, Officer Director, President and Chief Executive Officer, John Hancock Funds; Chairman, Director and Chief Executive Officer, Sovereign Asset Management Corporation ("SAMCorp."); Director, Independence Investment LLC, Independence Fixed Income LLC and Signature Services, Inc.; Senior Vice President, MassMutual Insurance Co. (until 1999). - ------------------------------ --------------- ----------- --------------------------------------------- ---------------- Principal Officers who are not Trustees - ------------------------------ --------------- ----------- --------------------------------------------- ---------------- William L. Braman Executive *2000 Executive Vice President and Chief N/A Born: 1953 Vice 2000 Investment Officer, the Adviser and each of President and the John Hancock funds; Director, SAMCorp., Chief Executive Vice President and Chief Investment Investment Officer, Baring Asset Officer Management, London U.K. (until 2000). - ------------------------------ --------------- ----------- --------------------------------------------- ---------------- Richard A. Brown Senior Vice *2000 Senior Vice President, Chief Financial N/A Born: 1949 President and 2000 Officer and Treasurer, the Adviser, John Chief Hancock Funds, and The Berkeley Group; Financial Second Vice President and Senior Associate Officer Controller, Corporate Tax Department, John Hancock Financial Services, Inc. (until 2001). - ------------------------------ --------------- ----------- --------------------------------------------- ---------------- Thomas H. Connors Vice *1995 Vice President and Compliance Officer, the N/A Born: 1959 President and 1995 Adviser and each of the John Hancock funds; Compliance Vice President, John Hancock Funds. Officer - ------------------------------ --------------- ----------- --------------------------------------------- ---------------- *Dividend Performers Fund and Diversified Core Equity Fund II, respectively. (1) Business address for independent and interested Trustees and officers is 101 Huntington Avenue, Boston, Massachusetts 02199. (2) Each Trustee serves until resignation, retirement age or until her or his successor is elected. (3) Interested Trustee: holds positions with the Fund's investment adviser, underwriter, and/or certain other affiliates. 20 - ---------------------------- ------------- ----------- ------------------------------------------------ --------------- Number of John Hancock Position(s) Trustee/ Funds Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by And Age Funds Since(2) Directorships During Past 5 Years Trustee - --------------------------- -------------- ----------- -------------------------------------------------- ------------------ William H. King Vice *1995 Vice President and Assistant Treasurer, the N/A Born: 1952 President 1995 Adviser; Vice President and Treasurer of each of and Treasurer the John Hancock funds; Assistant Treasurer of each of the John Hancock funds (until 2001). - --------------------------- -------------- ----------- -------------------------------------------------- ------------------ Susan S. Newton Senior Vice *1995 Senior Vice President, Secretary and Chief Legal N/A Born: 1950 President, 1995 Officer, SAMCorp., the Adviser and each of the Secretary John Hancock funds, John Hancock Funds and The and Chief Berkeley Group; Vice President, Signature Legal Officer Services (until 2000), Director, Senior Vice President and Secretary, NM Capital. - --------------------------- -------------- ----------- -------------------------------------------------- ------------------ *Dividend Performers Fund and Diversified Core Equity Fund II, respectively. (1) Business address for independent and interested Trustees and officers is 101 Huntington Avenue, Boston, Massachusetts 02199. (2) Each Trustee serves until resignation, retirement age or until her or his successor is elected. (3) Interested Trustee: holds positions with the Fund's investment adviser, underwriter, and/or certain other affiliates.
The Funds' Board of Trustees currently has four standing Committees: the Audit Committee, the Administration Committee, the Contracts/Operations Committee and the Investment Performance Committee. Each Committee is comprised of Independent Trustees. The Audit Committee members are Messrs. Ladner and Toolan. The Audit Committee recommends to the full board auditors for the Funds, monitors and oversees the audits of the Funds, communicates with both independent auditors and internal auditors on a regular basis and provides a forum for the auditors to report and discuss any matters they deem appropriate at any time. The Audit Committee held four meetings during the fiscal year ended February 28, 2003. The Administration Committee's members are all of the Independent Trustees of the Funds. The Administration Committee reviews the activities of the other four standing committees and makes the final selection and nomination of candidates to serve as Independent Trustees. The Administration Committee will consider nominees recommended by shareholders to serve as Independent Trustees, provided that shareholders submit recommendations in compliance with all of the pertinent provisions of Rule 14a-8 under the Securities Exchange Act of 1934. The Administration Committee also works with all Trustees on the selection and election of officers of the Funds and reviews Trustee compensation, evaluates Trustee performance and considers committee membership rotations as well as relevant corporate governance issues. The Administration Committee held four meetings during the fiscal year ended February 28, 2003. The Contracts/Operations Committee members are Messrs. Carlin, Smith and Pruchansky. The Contracts/Operations Committee oversees the initiation, operation, and renewal of contracts between each Fund and other entities. These contracts include advisory and subadvisory agreements, custodial and transfer agency agreements and arrangements with other service providers. The Contracts/Operations Committee held five meetings during the fiscal year ended February 28, 2003. The Investment Performance Committee consists of Messrs. Dion and Cunningham. The Investment Performance Committee monitors and analyzes the performance of the Funds generally, consults with the adviser as necessary if each Fund requires special attention, and reviews peer groups and other comparative standards as necessary. The Investment Performance Committee held four meetings during the fiscal year ended February 28, 2003. 21 The following table provides a dollar range indicating each Trustee's ownership of equity securities of the Funds, as well as aggregate holdings of shares of equity securities of all John Hancock Funds overseen by the Trustee, as of December 31, 2002. - -------------------------------------------------------------------------------- Dollar Range of Aggregate dollar range of Fund Shares holdings in John Hancock funds Name of Trustee Owned by Trustee overseen by Trustee (1) - -------------------------------------------------------------------------------- Independent Trustees - -------------------------------------------------------------------------------- James F. Carlin None $10,001-$50,000 - -------------------------------------------------------------------------------- William H. Cunningham None $10,001-$50,000 - -------------------------------------------------------------------------------- Ronald R. Dion None Over $100,000 - -------------------------------------------------------------------------------- Charles L. Ladner None Over $100,000 - -------------------------------------------------------------------------------- Steven R. Pruchansky None Over $100,000 - -------------------------------------------------------------------------------- Norman H. Smith None Over $100,000 - -------------------------------------------------------------------------------- John P. Toolan None $50,001-$100,000 - -------------------------------------------------------------------------------- Interested Trustees - -------------------------------------------------------------------------------- John M. DeCiccio None Over $100,000 - -------------------------------------------------------------------------------- Maureen R. Ford None Over $100,000 - -------------------------------------------------------------------------------- (1) These Funds do not participate in the John Hancock Deferred Compensation Plan for Independent Trustees (the "Plan"). Under the Plan, an Independent Trustee may defer his fees by electing to have the Adviser invest his fees in one of the funds in the John Hancock complex that participates in the Plan. Under these circumstances, the Trustee is not the legal owner of the underlying shares, but does participate in any positive or negative return on those shares to the same extent as all other shareholders. With regard to Trustees participating in the Plan, if a Trustee was deemed to own the shares used in computing the value of his deferred compensation, as of December 31, 2002, the respective "Dollar Range of Fund Shares Owned by Trustee" and the "Aggregate Dollar Range of holdings in John Hancock funds overseen by Trustee" would be as follows: none and over $100,000 for Mr. Cunningham, none and over $100,000 for Mr. Dion, none and over $100,000 for Mr. Pruchansky, none and over $100,000 for Mr. Smith, none and over $100,000 for Mr. Toolan. The following table provides information regarding the compensation paid by the Funds and other investment companies in the John Hancock Fund Complex to the Independent Trustees for their services. Mr. DeCiccio and Ms. Ford, each a non-Independent Trustee, and each of the officers of the Funds are interested persons of the Adviser, and/or affiliates are compensated by the Adviser and receive no compensation from the Fund for their services. Aggregate Total Compensation from Compensation all Funds in John Hancock Trustees From the Fund(1) Fund Complex to Trustees (2) - -------- ---------------- ---------------------------- James F. Carlin $ 541 $ 75,000 William H. Cunningham* 542 75,100 Ronald R. Dion* 541 75,000 Charles L. Ladner 517 72,000 Steven R. Pruchansky* 518 72,100 Norman H. Smith* 565 78,000 John P. Toolan* 517 72,000 -------- ---------- Total $3,741 $519,200 (1) Compensation is for fiscal period ended February 28, 2003. 22 (2) Total compensation paid by the John Hancock Fund Complex to the Independent Trustees is for the calendar year ended December 31, 2002. As of that date, there were sixty-one funds in the John Hancock Fund Complex, with each of these Independent Trustees serving on thirty funds. (*) As of December 31, 2002 the value of the aggregate accrued deferred compensation from all Funds in the John Hancock fund complex for Mr. Cunningham was $428,963, for Mr. Dion was $122,717, for Mr. Pruchansky was $95,779, for Mr. Smith was $204,328 and for Mr. Toolan was $517,774 under the John Hancock Deferred Compensation Plan for Independent Trustees (the "Plan"). All of the officers listed are officers or employees of the Adviser or affiliated companies. Some of the Trustees and officers may also be officers and/or directors and/or Trustees of one or more of the other funds for which the Adviser serves as investment adviser. As of June 2, 2003, the officers and Trustees of the Fund as a group beneficially owned less than 1% of the outstanding shares of each of the Funds. As of that date, the following shareholders of record beneficially owned 5% or more of the outstanding shares of each Fund.
Percentage of Total Name and Address of Shareholder Funds Outstanding Shares - ------------------------------- ----- ------------------ Northern Trust Diversified Core Equity Fund II 17.97% FBO AM Castle and Co Pension Plan P.O. Box 92956 Chicago IL 60675-2956 NABANK Diversified Core Equity Fund II 11.33% Dave Dooling P.O. Box 2180 Tulsa OK 74101-2180 Stetson & Co. Diversified Core Equity Fund II 10.86% ABN AMRO Trust Services Co. 161 N Clark Street # 10RTR Chicago IL 60601 Peter Kamin Diversified Core Equity Fund II 9.00% Knowles Electronics Inc. Pension Trust 1151 Maplewood Drive Itasca IL 60143-2058 Wendel & Co. A/C 529160 Diversified Core Equity Fund II 7.28% C/o The Bank of New York Mutual Fund Reorg Dept PO Box 1066 Wall St Station New York NY 10268-1066 23 Jupiter and Co Diversified Core Equity Fund II 6.83% C/o Investors Bank and Trust PO Box 9130 FPG 90 Boston MA Gaylord Brothers Diversified Core Equity Fund II 5.95% PO Box 4901 Syracuse NY 13221 MCB Trust Services Custodian FB Diversified Core Equity Fund II 5.21% The Investment Incentive Plan 700 17th St Ste 150 Denver CO 80202-3502 MCB Trust Services Custodian FB Dividend Performers 77.09% The Investment Incentive Plan 700 17th St Ste 150 Denver CO 80202-3502 The Chase Manhattan Bank Dividend Performers 20.74% FBO ZAPCO 450 West 33rd Street 15th Floor New York NY 10001
Shareholders of a Fund having beneficial ownership of more than 25% of the shares of a Fund may be deemed for purposes of the Investment Company Act of 1940, as amended, to control that Fund. INVESTMENT ADVISORY AND OTHER SERVICES The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603, was organized in 1968 and as of March 31, 2003 has approximately $26 billion in assets under management in its capacity as investment adviser to the Funds and the other funds and publicly traded investment companies in the John Hancock group of funds as well as retail and institutional privately managed accounts. The Adviser is an affiliate of the Life Company, one of the most recognized and respected financial institutions in the nation. With total assets under management of approximately $130 billion, the Life Company is one of the ten largest life insurance companies in the United States, and carries a high rating from Standard & Poor's and A.M. Best. Founded in 1862, the Life Company has been serving clients for over 130 years. Each Fund has entered into an investment management contract (the "Advisory Agreements") with the Adviser which was approved by the Funds' shareholders. Pursuant to the Advisory Agreement, the Adviser will: (a) furnish continuously an investment program for the Fund and determine, subject to the overall supervision and review of the Trustees, which investments should be purchased, held, sold or exchanged, and (b) provide supervision over all aspects of the Fund's operations except those which are delegated to a custodian, transfer agent or other agent. With respect to the Diversified Core Equity Fund II, the Adviser has entered into a Sub-Advisory Agreement with Independence Investment LLC. ("Independence" and the "Sub-Adviser) (formerly Independence Investment Associates, Inc.). Independence, located at 53 State Street, Boston, Massachusetts 02109, and organized in 1982, is a wholly owned indirect subsidiary of John Hancock Subsidiaries, Inc. 24 Under the Sub-Advisory Agreement, the Sub-Adviser, subject to the review of the Trustees and the over-all supervision of the Adviser, is responsible for managing the investment operations of the Diversified Core Equity Fund II and the composition of the Fund's portfolio and furnishing the Fund with advice and recommendations with respect to investments, investment policies and the purchase and sale of securities. Each Fund bears all costs of its organization and operation, including but not limited to expenses of preparing, printing and mailing all shareholders' reports, notices, prospectuses, proxy statements and reports to regulatory agencies; expenses relating to the issuance, registration and qualification of shares; government fees; interest charges; expenses of furnishing to shareholders their account statements; taxes; expenses or redeeming shares; brokerage and other expenses connected with the execution of portfolio securities transactions; expenses pursuant to the Fund's plan of distribution; fees and expenses of custodians including those for keeping books and accounts, maintaining a committed line of credit and calculating the net asset value of shares; fees and expenses of transfer agents and dividend disbursing agents; legal, accounting, financial, management, tax and auditing fees and expenses of the Fund (including an allocable portion of the cost of the Adviser's employees rendering such services to the Fund); the compensation and expenses of Trustees who are not otherwise affiliated with the Trust, the Adviser or any of their affiliates; expenses of Trustees' and shareholders, meetings; trade association membership; insurance premiums; and any extraordinary expenses. As compensation for its services under the Advisory Agreements, each Fund pays the Adviser monthly a fee based on a stated percentage of the average daily net assets of each Fund. Funds Rate - ----- ---- Dividend Performers Fund .60% of average daily net assets up to $500 million .55% of such assets in excess of $500 million Diversified Core Equity Fund II .50% of the average daily net assets up to $1 billion .45% of such assets in excess of $1 billion Under the Sub-Advisory Agreement, the Adviser (not the Fund) pays a portion of its fee to the Sub-Adviser. Sub-Advisory fees are paid at the following rates: Diversified Core Equity Fund II, 35% of the advisory fee payable on the Fund's average daily net assets. Prior to July 1, 2003, the Sub-Advisory fee paid by the Adviser to the Sub-Adviser was equal to 75% of the advisory fee payable on the fund's average daily net assets. Prior to June 7, 2002, the Sub-Advisory fee paid by the Adviser to the Sub-Adviser was equal to 80% of the advisory fee payable on the Fund's average daily net assets. For the period ended February 28, 2001, the Adviser received $29,197 and $1,707,364 in investment management fees after expense limitation from Dividend Performers Fund and Diversified Core Equity Fund II, respectively. For the period ended February 28, 2002, the Adviser waived the entire investment management fee for Dividend Performers Fund. For the period ended February 28, 2002, the Adviser received $588,262 after expense limitation from Diversified Core Equity Fund II. For the period ended February 28, 2003, the Adviser waived the entire investment management fee for Dividend Performers Fund. For the period ended February 28, 2003, the Adviser received $353,818 from Diversified Core Equity Fund II. From time to time, the Adviser may reduce its fee or make other arrangements to limit the Fund's expenses to a specified percentage of average daily net assets. The Adviser retains the right to reimpose a fee and recover any other payments to the extent that, at the end of any fiscal year, the Fund's annual expenses fall below this limit. The Adviser has agreed to limit Dividend Performers Fund's expenses to 1.00% of average daily net assets. This limitation may be terminated in the future. (Prior to July 1, 2003, the Adviser had agreed to limit Dividend Performers Fund's expenses to 0.70 of average daily net assets.) 25 Securities held by the Funds may also be held by other funds or investment advisory clients for which the Adviser, the Sub-Adviser or its affiliates provide investment advice. Because of different investment objectives or other factors, a particular security may be bought for one or more funds or clients when one or more are selling the same security. If opportunities for purchase or sale of securities by the Adviser or Sub-Adviser for a Fund or for other funds or clients for which the Adviser or Sub-Adviser renders investment advice arise for consideration at or about the same time, transactions in such securities will be made, insofar as feasible, for the respective funds or clients in a manner deemed equitable to all of them. To the extent that transactions on behalf of more than one client of the Adviser, the Sub-Adviser or its affiliates may increase the demand for securities being purchased or the supply of securities being sold, there may be an adverse effect on price. Pursuant to each Advisory Agreement, where applicable, Sub-Advisory Agreement, the Adviser and Sub-Adviser are not liable for any error of judgment or mistake of law or for any loss suffered by the Funds in connection with the matters to which their respective Agreements relate, except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the Adviser or Sub-Adviser in the performance of their duties or from their reckless disregard of the obligations and duties under the applicable Agreement. Under each Advisory Agreement, each Fund may use the name "John Hancock" or any name derived from or similar to it only for as long as the Advisory Agreement or any extension, renewal or amendment thereof remains in effect. If a Fund's Advisory Agreement is no longer in effect, the Fund (to the extent that it lawfully can) will cease to use such name or any other name indicating that it is advised by or otherwise connected with the Adviser. In addition, the Adviser or the Life Company may grant the non-exclusive right to use the name "John Hancock" or any similar name to any other corporation or entity, including but not limited to any investment company of which the Life Company or any subsidiary or affiliate thereof or any successor to the business of any subsidiary or affiliate thereof shall be the investment adviser. Under the Sub-Advisory Agreement of the Diversified Core Equity Fund II, the Diversified Core Equity Fund II may use the name "Independence" or any name derived from or similar to it only for as long as the Sub-Advisory Agreement is effect. When the Sub-Advisory Agreement is no longer in effect, the Fund (to the extent that it lawfully can) will cease to use any name indicating that it is advised by or otherwise connected with Independence. In addition, Independence or the Life Company may grant the non-exclusive right to use the name "Independence" or any similar name to any other corporation or entity, including but not limited to any investment company of which Independence or any subsidiary or affiliate thereof or any successor to the business of any subsidiary or affiliate thereof shall be the investment adviser. Board Review of Investment Advisory Agreements Each Fund's Board of Trustees is responsible for overseeing the performance of the Fund's investment adviser (and Sub-adviser with respect to the Diversified Core Equity Fund II) and determining whether to approve and renew the Fund's Advisory Agreement (and Sub-advisory Agreement for the Diversified Core Equity Fund II). The Board has a standing request that the Adviser provide the Board with certain information the Board has deemed important to evaluating the short- and long-term performance of the Adviser and Sub-adviser. This information includes periodic performance analysis and status reports from the Adviser and quarterly Portfolio and Investment Performance Reports. Each Fund's portfolio managers meet with the Board from time to time to discuss the management and performance of the Fund and respond to the Board's questions concerning the performance of the Adviser. When the 26 Board considers whether to renew an investment advisory contract or sub-advisory contract, the Board takes into account numerous factors, including: (1) the nature, extent and quality of the services provided by the Adviser and Sub-adviser; (2) the investment performance of the Fund's assets managed by the Adviser or Sub-adviser; (3) the fair market value of the services provided by the Adviser or Sub-adviser; (4) a comparative analysis of expense ratios of, and advisory fees paid by, similar funds; (5) the extent to which the Adviser has realized or will realize economies of scale as the Fund grows; (6) other sources of revenue to the Adviser or its affiliates from its relationship with the Fund and intangible or "fall-out" benefits that accrue to the Adviser and its affiliates, if relevant; and (7) the Adviser's control of the operating expenses of the fund, such as transaction costs, including ways in which portfolio transactions for the fund are conducted and brokers are selected. Dividend Performers Fund: The primary factors underlying the Board's decision to renew the Dividend Performers Fund's Advisory Agreement were as follows: o The Board determined that the performance results of the Fund and the Adviser's responsive actions were reasonable, as compared with relevant performance standards, including the performance results of comparable institutional large-cap funds derived from data provided by Lipper Inc. and appropriate market indexes. o The Board decided that the advisory fee paid by the Fund was reasonable based on the average advisory fee for comparable funds. The Board also took into account the nature of the fee arrangements which include breakpoints that will adjust the fee downward as the size of the Fund's portfolio increases. o The Board evaluated the Adviser's investment staff and portfolio management process, and reviewed the composition and overall performance of the Fund's portfolio on both a short-term and long-term basis. The Board considered whether the Fund should obtain alternative portfolio management services and concluded that, under all the circumstances and based on its informed business judgement, the most appropriate course of action in the best interest of the Fund's shareholders was to renew the agreement with the Adviser. Diversified Core Equity Fund II The primary factors underlying the Board's decision to renew the Diversified Core Equity Fund II 's Advisory Agreement and Sub-Advisory Agreement were as follows: o The Board determined that the performance results of the Fund and the Adviser's and Sub-Adviser's responsive actions were reasonable, as compared with relevant performance standards, including the performance results of comparable institutional large-cap funds derived from data provided by Lipper Inc. and appropriate market indexes. o The Board decided that the advisory fee paid by the Fund was reasonable based on the average advisory fee for comparable funds. The Board also took into account the nature of the fee arrangements which include breakpoints that will adjust the fee downward as the size of the Fund's portfolio increases. o The Board evaluated the Adviser's and Sub-Adviser's investment staff and portfolio management process, and reviewed the composition and overall performance of the Fund's portfolio on both a short-term and long-term basis. The Board considered whether the Fund should obtain alternative portfolio management services and concluded that, under all the circumstances and based on its informed business judgement, the most appropriate course of action in the best interest of the Fund's shareholders was to renew the agreement with the Adviser and Sub-Adviser. Each Advisory Agreement, the Sub-Advisory Agreement and the Distribution Agreement (discussed below) will continue in effect from year to year if approved by either the vote of the Funds' shareholders or the Trustees, including a vote of a majority of the Trustees who are not parties to the agreement or "interested persons" of any such party, cast at a meeting called for such purposes. These Agreements may be terminated on 60 days written notice by any party or by vote of a majority of the outstanding voting securities of the Fund and will terminate automatically if assigned. 27 Accounting and Legal Services Agreement. The Trust, on behalf of the Funds, is a party to an Accounting and Legal Services Agreement with the Adviser. Pursuant to this Agreement, the Adviser provides the Fund with certain tax, accounting and legal services. For the fiscal years ended February 29, 2001, February 28, 2002 and February 28, 2003, the Funds paid the Adviser the following for services under this Agreement: Diversified Core Equity Fund II $64,547, $24,308, $20,591, Dividend Performers Fund $2,436, $1,107 and $1,126. Personnel of the Adviser and its affiliates may trade securities for their personal accounts. The Funds also may hold, or may be buying or selling, the same securities. To prevent the Fund from being disadvantaged, the adviser(s), principal underwriter and the Funds have adopted a code of ethics which restricts the trading activity of those personnel. DISTRIBUTION CONTRACT Each Fund has a Distribution Agreement with John Hancock Funds. Under the Agreement, John Hancock Funds is obligated to use its best efforts to sell shares of each Fund. Shares of the Fund are also sold by selected broker-dealers (the "Selling Brokers") which have entered into selling agency agreements with John Hancock Funds. These Selling Brokers are authorized to designate other intermediaries to receive purchase and redemption orders on behalf of the Fund. John Hancock Funds accepts orders for the purchase of the shares of the Funds which are continually offered at net asset value next determined. SALES COMPENSATION As part of its business strategy, John Hancock Funds may pay compensation to financial services firms that sell the Fund's shares. These firms typically pass along a portion of this compensation to your financial representative. John Hancock Funds may make a one-time payment at the time of initial purchase out of its own resources to a Selling Broker who sells shares of the Funds. This payment may not exceed 0.15% of the amount invested. In addition, from time to time, John Hancock Funds, at its expense, may provide significant additional compensation to financial services firms in connection with their promotion of the Fund or sale of shares of the Fund. Such compensation provided by John Hancock Funds may include, for example, financial assistance to financial services firms in connection with their marketing and sales development programs for their registered representatives and other employees, as well as payment for travel expenses, including lodging, incurred by registered representatives and other employees for such marketing and sales development programs, as well as assistance for seminars for the public, advertising and sales campaigns regarding one or more Funds, and other financial services firms-sponsored events or activities. From time to time, John Hancock Funds may provide expense reimbursements for special training of a financial services firm's registered representatives and other employees in group meetings. Other compensation, such as asset retention fees, finder's fees and reimbursement for wire transfer fees or other administrative fees and costs may be offered to the extent not prohibited by law or any self-regulatory agency, such as the NASD. 28 NET ASSET VALUE For purposes of calculating the net asset value ("NAV") of a Fund's shares, the following procedures are utilized wherever applicable. Debt investment securities are valued on the basis of valuations furnished by a principal market maker or a pricing service, both of which generally utilize electronic data processing techniques to determine valuations for normal institutional size trading units of debt securities without exclusive reliance upon quoted prices. Equity securities traded on a principal exchange are generally valued at last sale price on the day of valuation or, in the case of securities traded on NASDAQ, the NASDAQ official closing price. Securities in the aforementioned category for which no sales are reported and other securities traded over-the-counter are generally valued at the last available bid price. Short-term debt investments which have a remaining maturity of 60 days or less are generally valued at amortized cost which approximates market value. If market quotations are not readily available or if in the opinion of the Adviser any quotation or price is not representative of true market value, the fair value of the security may be determined in good faith in accordance with procedures approved by the Trustees. Foreign securities are valued on the basis of quotations from the primary market in which they are traded. Any assets or liabilities expressed in terms of foreign currencies are translated into U.S. dollars by the custodian bank based on London currency exchange quotations as of 5:00 p.m., London time (12:00 noon, New York time) on the date of any determination of the Fund's NAV. If quotations are not readily available, or the value has been materially affected by events occurring after the closing of a foreign market, assets are valued by a method that the Trustees believe accurately reflects fair value. The NAV for each Fund is determined each business day at the close of regular trading on the New York Stock Exchange (typically 4 p.m. Eastern Time) by dividing the net assets by the number of its shares outstanding. On any day an international market is closed and the New York Stock Exchange is open, any foreign securities will be valued at the prior day's close with the current day's exchange rate. Trading of foreign securities may take place on Saturdays and U.S. business holidays on which the Fund's NAV is not calculated. Consequently, the Fund's portfolio securities may trade and the NAV of the Fund's redeemable securities may be significantly affected on days when a shareholder has no access to the Fund. ADDITIONAL SERVICES AND PROGRAMS Exchange Privilege. Each Fund permits exchanges of shares of any class of a fund for shares of the same class in any other John Hancock fund offering that class. Investors may exchange between institutional funds and Class I shares. If an investor exchanges institutional fund and Class I shares for Class A shares of Money Market Fund, any future exchanges out of the Money Market Fund Class A must be to another Class I or institutional fund. The Fund reserves the right to require that previously exchanged shares (and reinvested dividends) be in the Fund for 90 days before a shareholder is permitted a new exchange. The Fund may refuse any exchange order. The Fund may change or cancel its exchange policies at any time, upon 60 days' notice to its shareholders. 29 An exchange of shares is treated as a redemption of shares of one fund and the purchase of shares of another for Federal Income Tax purposes. An exchange may result in a taxable gain or loss. See "TAX STATUS". PURCHASES AND REDEMPTIONS THROUGH THIRD PARTIES Shares of the Funds may be purchased or redeemed through certain broker-dealers or Service Agents ("Brokers"). Brokers may charge for their services or place limitations on the extent to which you may use the services of the Funds. A Fund will be deemed to have received a purchase or redemption order when an authorized broker, or if applicable, a broker's authorized designee, receives the order. If a broker is an agent or designee of the Fund, orders are processed at the NAV next calculated after the broker receives the order. The broker must segregate any orders it receives after the close of regular trading on the New York Stock Exchange and transmit those orders to the Fund for execution at NAV next determined. Some brokers that maintain nominee accounts with the Funds for their clients charge an annual fee on the average net assets held in such accounts for accounting, servicing and/or distribution services they provide with respect to the underlying Fund shares. John Hancock Funds, LLC (the Fund's principal distributor), is responsible for paying these fees. SPECIAL REDEMPTIONS Although the Funds would not normally do so, each Fund has the right to pay the redemption price of shares of the Fund in whole or in part in portfolio securities as prescribed by the Trustees. When the shareholder sells portfolio securities received in this fashion, the shareholder will incur a brokerage charge. Any such securities would be valued for the purposes of making such payment at the same value as used in determining net asset value. Each Fund has, however, elected to be governed by Rule 18f-1 under the Investment Company Act. Under that rule, each Fund must redeem its shares for cash except to the extent that the redemption payments to any shareholder during any 90-day period would exceed the lesser of $250,000 or 1% of the Fund's net asset value at the beginning of that period. DESCRIPTION OF THE FUNDS' SHARES The Trustees of the Trust are responsible for the management and supervision of the Funds. The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest of the Funds, without par value. Under the Declaration of Trust, the Trustees have the authority to create and classify shares of beneficial interest in separate series, without further action by shareholders. As of the date of this Statement of Additional Information, the Trustees have authorized shares of three series. Additional series may be added in the future. The Declaration of Trust also authorizes the Trustees to classify and reclassify the shares of the Funds, or any other series of the Trust, into one or more classes. Effective October 1, 1999, existing shares of Diversified Core Equity Fund II were designated "Class I" shares. Each share of a Fund represents an equal proportionate interest in the assets belonging to that Fund. When issued, shares are fully paid and nonassessable. In the event of liquidation of a Fund, shareholders are entitled to share pro rata in the net assets of the Fund available for distribution to such shareholders. Shares of the Trust are freely transferable and have no preemptive, subscription or conversion rights. In accordance with the provisions of the Declaration of Trust, the Trustees have initially determined that shares entitle their holders to one vote per share on any matter on which such shares are entitled to vote. The Trustees may determine in the future, without the vote or consent of shareholders, that each dollar of net asset value (number of shares owned times net asset value per share) will be entitled to one vote on any matter on which such shares are entitled to vote. 30 Unless otherwise required by the Investment Company Act or the Declaration of Trust, the Funds have no intention of holding annual meetings of shareholders. Each Fund's shareholders may remove a Trustee by the affirmative vote of at least two-thirds of the Trust's outstanding shares and the Trustees shall promptly call a meeting for such purpose when requested to do so in writing by the record holders of not less than 10% of the outstanding shares of the Trust. Shareholders may, under certain circumstances, communicate with other shareholders in connection with requesting a special meeting of shareholders. However, at any time that less than a majority of the Trustees holding office were elected by the shareholders, the Trustees will call a special meeting of shareholders for the purpose of electing Trustees. Under Massachusetts law, shareholders of a Massachusetts business trust could, under certain circumstances, be held personally liable for acts or obligations of the trust. However, the Trust's Declaration of Trust contains an express disclaimer of shareholder liability for acts, obligations or affairs of the Trust. The Declaration of Trust also provides for indemnification out of the Trust's assets for all losses and expenses of any shareholder held personally liable by reason of being or having been a shareholder. The Declaration of Trust also provides that no series of the Trust shall be liable for the liabilities of any other series. Liability is therefore limited to circumstances in which a Fund itself would be unable to meet its obligations, and the possibility of this occurrence is remote. A Fund reserves the right to reject any application which conflicts with a Fund's internal policies or the policies of any regulatory authority. John Hancock Funds does not accept starter, credit card or third party checks. All checks returned by the post office as undeliverable will be reinvested in the fund or funds from which a redemption was made or dividend paid. Information provided on the account application may be used by a Fund to verify the accuracy of the information or for background or financial history purposes. A joint account will be administered as a joint tenancy with right of survivorship, unless the joint owners notify Signature Services of a different intent. A shareholder's account is governed by the laws of The Commonwealth of Massachusetts. For telephone transactions, the transfer agent will take measures to verify the identity of the caller, such as asking for name, account number, Social Security or other taxpayer ID number and other relevant information. If appropriate measures are taken, the transfer agent is not responsible for any losses that may occur to any account due to an unauthorized telephone call. Also for your protection telephone transactions are not permitted on accounts whose names or addresses have changed within the past 30 days. Proceeds from telephone transactions can only be mailed to the address of record. Selling activities for the Fund may not take place outside the U.S. except with U.S. military bases, APO addresses and U.S. diplomats. Brokers of record on Non-U.S. investors' accounts with foreign mailing addresses are required to certify that all sales activities have occurred, and in the future will occur, only in the U.S. A Foreign corporation may purchase shares of the Fund only if it has a U.S. mailing address. TAX STATUS Each Fund is treated as a separate entity for accounting and tax purposes, has qualified as a "regulated investment company" under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code") and intends to continue to qualify for each taxable year. As such and by complying with the applicable provisions of the Code regarding the sources of its income, the timing of its distributions, and the diversification of its assets, a Fund will not be subject to Federal income tax on its taxable income (including net realized capital gains) which is distributed to shareholders in accordance with the timing requirements of the Code. Each Fund will be subject to a 4% nondeductible Federal excise tax on certain amounts not distributed (and not treated as having been distributed) on a timely basis in accordance with annual minimum distribution requirements. Each Fund intends, under normal circumstances, to seek to avoid or minimize liability for such tax by satisfying such distribution requirements. 31 Distributions from each Fund's current or accumulated earnings and profits ("E&P") will be taxable under the Code for investors who are subject to tax. If these distributions are paid from a Fund's "investment company taxable income," they will be taxable as ordinary income; and if they are paid from the Fund's "net capital gain," they will be taxable as long-term capital gain. (Net capital gain is the excess (if any) of net long-term capital gain over net short-term capital loss, and investment company taxable income is all taxable income and capital gains, other than those gains and losses included in computing net capital gain, after reduction by deductible expenses.) Some distributions may be paid in January but may be taxable to shareholders as if they had been received on December 31 of the previous year. The tax treatment described above will apply without regard to whether distributions are received in cash or reinvested in additional shares of the Fund. Distributions, if any, in excess of E&P will constitute a return of capital under the Code, which will first reduce an investor's federal tax basis in Fund shares and then, to the extent such basis is exceeded, will generally give rise to capital gains. Shareholders who have chosen automatic reinvestment of their distributions will have a federal tax basis in each share received pursuant to such a reinvestment equal to the amount of cash they would have received had they elected to receive the distribution in cash, divided by the number of shares received in the reinvestment. Foreign exchange gains and losses realized by a Fund in connection with certain transactions involving foreign currency-denominated debt securities, certain foreign currency options and futures, foreign currency forward contracts, foreign currencies, or payables or receivables denominated in a foreign currency are subject to Section 988 of the Code, which generally causes such gains and losses to be treated as ordinary income and losses and may affect the amount, timing and character of distributions to shareholders. Transactions in foreign currencies that are not directly related to a Fund's investment in stock or securities, including speculative currency positions, could under future Treasury regulations produce income not among the types of "qualifying income" from which the Fund must derive at least 90% of its annual gross income for each taxable year. If the net foreign exchange loss for a year treated as ordinary loss under Section 988 were to exceed a Fund's investment company taxable income computed without regard to such loss, the resulting overall ordinary loss for such year would not be deductible by a Fund or its shareholders in future years. If a Fund invests (either directly or through depository receipts such as ADRs, GDRs or EDRs) in stock (including an option to acquire stock such as is inherent in a convertible bond) of certain foreign corporations that receive at least 75% of their annual gross income from passive sources (such as interest, dividends, certain rents and royalties, or capital gain) or hold at least 50% of their assets in investments producing such passive income ("passive foreign investment companies"), the Fund could be subject to Federal income tax and additional interest charges on "excess distributions" received from these passive foreign investment companies or gain from the sale of stock in such companies, even if all income or gain actually received by the Fund is timely distributed to its shareholders. The Funds would not be able to pass through to their respective shareholders any credit or deduction for such a tax. An election may be available to ameliorate these adverse tax consequences, but could require the Funds to recognize taxable income or gain without the concurrent receipt of cash. These investments could also result in the treatment of associated capital gains as ordinary income. Each Fund may limit and/or manage its investments in passive foreign investment companies to minimize its tax liability or maximize its return from these investments. The amount of a Fund's net realized capital gains, if any, in any given year will vary depending upon the current investment strategy of the Adviser and Subadviser and whether the Adviser and the Subadviser believes it to be in the best interest of the Funds to dispose of portfolio securities and/or engage in options, futures or forward transactions that will generate capital gains. At the time of an investor's purchase of Fund shares, a portion of the purchase price is often attributable to realized or unrealized appreciation in a Fund's 32 portfolio or undistributed taxable income of a Fund. Consequently, subsequent distributions on those shares from such appreciation or income may be taxable to such investor even if the net asset value of the investor's shares is, as a result of the distributions, reduced below the investor's cost for such shares, and the distributions in reality represent a return of a portion of the purchase price. Upon a redemption or other disposition of shares of a Fund (including by exercise of the exchange privilege), in a transaction that is treated as a sale for tax purposes, a shareholder may realize a taxable gain or loss depending upon the amount of the proceeds and the investor's basis in his shares. Such gain or loss will be treated as capital gain or loss if the shares are capital assets in the shareholder's hands. Any loss realized on a redemption or exchange may be disallowed to the extent the shares disposed of are replaced with other shares of the same Fund within a period of 61 days beginning 30 days before and ending 30 days after the shares are disposed of, such as pursuant to the automatic dividend reinvestments. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. Also, any loss realized upon the redemption of shares with a tax holding period of six months or less will be treated as a long-term capital loss to the extent of any amounts treated as distributions of long-term capital gain with respect to such shares. Shareholders should consult their own tax advisers regarding their particular circumstances to determine whether a disposition of Fund shares is properly treated as a sale for tax purposes, as is assumed in the foregoing discussion. The Funds reserve the right to retain and reinvest all or any portion of the excess, as computed for Federal income tax purposes, of net long-term capital gain over net short-term capital loss in any year. Although each Fund's present intention is to distribute all net capital gains, if any, the Fund will not in any event distribute net capital gains realized in any year to the extent that a capital loss is carried forward from prior years against such gain. To the extent such excess was retained and not exhausted by the carryforward of prior years' capital losses, it would be subject to Federal income tax in the hands of the Fund. Upon proper designation of this amount by the Fund, each shareholder would be treated for Federal income tax purposes as if such Fund had distributed to him on the last day of its taxable year his pro rata share of such excess, and he had paid his pro rata share of the taxes paid by such Fund and reinvested the remainder in the Fund. Accordingly, each shareholder would (a) include his pro rata share of such excess as long-term capital gain in his return for his taxable year in which the last day of the Fund's taxable year falls, (b) be entitled either to a tax credit on his return for, or a refund of, his pro rata share of the taxes paid by the Fund, and (c) be entitled to increase the adjusted tax basis for his Fund shares by the difference between his pro rata share of such excess and his pro rata share of such taxes. For Federal income tax purposes, each Fund is permitted to carry forward a net realized capital loss in any year to offset net capital gains of that Fund, if any, during the eight years following the year of the loss. To the extent subsequent net capital gains are offset by such losses, they would not result in Federal income tax liability to a Fund and, as noted above, would not be distributed as such to shareholders. The John Hancock Independence Diversified Core Equity Fund II has a $1,722,374 capital loss carryforward available, to the extent provided by regulations, to offset future net realized capital gains. The entire Fund's carryforward expires on February 28, 2011. The John Hancock Dividend Performers Fund has a $ 549,979 capital loss carryforward available, to the extent provided by regulations, to offset future net realized capital gains. The entire Fund's carryforward expires on February 28, 2011. For purposes of dividends received deduction available to corporations, dividends received by a Fund, if any, from U.S. domestic corporations in respect of any share of stock held by the Fund, for U.S. Federal income tax purposes, for at least 46 days (91 days in the case of certain preferred stock) during a prescribed period extending before and after such dividend and distributed and properly designated by the Fund may be treated as qualifying dividends. Corporate shareholders must meet the holding period requirements stated above with respect to their shares of the applicable Fund for each dividend in order to qualify for the deduction and, if they have any debt that is deemed under the Code directly attributable to such shares, may be denied a portion of the 33 dividends-received deduction. The entire qualifying dividend, including the otherwise deductible amount, will be included in determining alternative minimum tax liability, if any. Additionally, any corporate shareholder should consult its tax adviser regarding the possibility that its tax basis in its shares may be reduced, for Federal income tax purposes, by reason of "extraordinary dividends" received with respect to the shares and, to the extent such basis would be reduced below zero, that current recognition of income would be required. Each Fund that invests in securities of foreign issuers may be subject to withholding and other taxes imposed by foreign countries with respect to its investments in foreign securities. Some tax conventions between certain countries and the United States may reduce or eliminate such taxes. With respect to each Fund, because more than 50% of the Fund's total assets at the close of any taxable year will not consist of stock or securities of foreign corporations, the Funds will not be able to pass such taxes through to their shareholders, who in consequence will not include any portion of such taxes in their incomes and will not be entitled to tax credits or deductions with respect to such taxes. However, such Funds will be entitled to deduct such taxes in determining the amounts they must distribute in order to avoid Federal income tax. Each Fund that invests in zero coupon securities or certain PIK or increasing rate securities and any other securities with original issue discount (or with market discount if the Fund elects to include market discount in income currently) accrues income on such securities prior to the receipt of the corresponding cash payments. The mark to market or constructive sale rules applicable to certain options, futures, forwards, short sales or other transactions, may also require the Fund to recognize income or gain without a concurrent receipt of cash. Additionally, some countries restrict repatriation which may make it difficult or impossible for the Fund to obtain cash corresponding to its earnings or assets in those countries. Each Fund must distribute, at least annually, all or substantially all of its net income and net capital gains, including such accrued income or gain, to shareholders to qualify as a regulated investment company under the Code and avoid Federal income and excise taxes. Therefore, a Fund may have to dispose of its portfolio securities under disadvantageous circumstances to generate cash, or may have to borrow cash, to satisfy these distribution requirements. The Federal income tax rules applicable to certain structured or hybrid securities, currency swaps, interest rate swaps, caps, floors and collars, and possibly other investments or transactions are or may be unclear in certain respects, and each Fund will account for these investments or transactions in a manner intended to preserve its qualification as a regulated investment company and avoid material tax liability. Different tax treatment, including penalties on certain excess contributions and deferrals, certain pre-retirement and post-retirement distributions, and certain prohibited transactions is accorded to accounts maintained as qualified retirement plans. Shareholders should consult their tax advisers for more information. With respect to each Fund that may enter into foreign currency positions, forwards, futures and options transactions, limitations imposed by the Code on regulated investment companies may restrict the Funds' ability to enter into options, futures, foreign currency positions, and forward foreign currency contracts. Certain options, futures and forward foreign currency contracts undertaken by a Fund may cause the Fund to recognize gains or losses from marking to market even though its positions have not been sold or terminated and affect their character as long-term or short-term (or in the case of certain foreign currency contracts, as ordinary income or loss) and timing of some capital gains and losses realized by the Fund. Additionally, the Fund may be required to recognize gain, but not loss, if an option, futures contract, short sale or other transaction is treated as a constructive sale of an appreciated financial position in the Fund's portfolio. Also, certain of a Fund's losses on its transactions involving options, futures or forward contracts and/or offsetting 34 or successor portfolio positions may be deferred rather than being taken into account currently in calculating the Fund's taxable income or gains. Certain of such transactions may also cause the Fund to dispose of investments sooner than would otherwise have occurred. These transactions may therefore affect the amount, timing and character of the Funds' distributions to shareholders. A Fund will also take into account the special tax rules (including consideration of available elections) applicable to options, futures and forward contracts in order to minimize any potential adverse tax consequence. A state income (and possibly local income and/or intangible property) tax exemption is generally available to the extent (if any) a Fund's distributions are derived from interest on (or, in the case of intangible property taxes, the value of its assets is attributable to) certain U.S. Government obligations, provided in some states that certain thresholds for holdings of such obligations and/or reporting requirements are satisfied. The Funds will not seek to satisfy any threshold or reporting requirements that may apply in particular taxing jurisdictions, although a Fund may in its sole discretion provide relevant information to shareholders. Each Fund will be required to report to the Internal Revenue Service (the "IRS") all distributions to shareholders, as well as gross proceeds from the redemption or exchange of Fund shares, except in the case of certain exempt recipients, i.e., corporations and certain other investors distributions to which are exempt from the information reporting provisions of the Code. Under the backup withholding provisions of Code Section 3406 and applicable Treasury regulations, all such reportable distributions and proceeds may be subject to backup withholding of federal income tax in the case of non-exempt shareholders who fail to furnish a Fund with their correct taxpayer identification number and certain certifications required by the IRS or if the IRS or a broker notifies the Fund that the number furnished by the shareholder is incorrect or that the shareholder is subject to backup withholding as a result of failure to report interest or dividend income. The Funds may refuse to accept an application that does not contain any required taxpayer identification number or certification that the number provided is correct. If the backup withholding provisions are applicable, any such distributions and proceeds, whether taken in cash or reinvested in shares, will be reduced by the amounts required to be withheld. Any amounts withheld may be credited against a shareholder's U.S. federal income tax liability. Investors should consult their tax advisers about the applicability of the backup withholding provisions. The foregoing discussion relates solely to U.S. Federal income tax law as applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic corporations, partnerships, trusts or estates) subject to tax under such law. The discussion does not address special tax rules applicable to certain types of investors, such as tax-exempt entities, insurance companies, and financial institutions. Dividends, capital gain distributions, and ownership of or gains realized on the redemption (including an exchange) of Fund shares may also be subject to state and local taxes. Shareholders should consult their own tax advisers as to the Federal, state or local tax consequences of ownership of shares of, and receipt of distributions from, the Funds in their particular circumstances. Non-U.S. investors not engaged in a U.S. trade or business with which their investment in the Funds is effectively connected will be subject to U.S. Federal income tax treatment that is different from that described above. These investors may be subject to a non-resident alien withholding tax at the rate of 30% (or a lower rate under an applicable tax treaty) on amounts treated as ordinary dividends from a Fund and unless an effective IRS Form W-8, Form W-8BEN, or other authorized withholding certificate is on file to back up withholding on certain other payments from the Fund. Non U.S. investors should consult their tax advisers regarding such treatment and the application of foreign taxes to an investment in the Funds. The Funds are not subject to Massachusetts corporate excise or franchise taxes. The Funds anticipate that, provided that the Funds qualify as regulated investment companies under the Code, they will also not be required to pay any Massachusetts income tax. 35 CALCULATION OF PERFORMANCE The average annual total return before taxes is computed by finding the average annual compounded rate of return over the 1-year, 5-year, and 10-year periods, or the period since the commencement of operations, that would equate the initial amount invested to the ending redeemable value according to the following formula: P(1+T)n = ERV Where: P= a hypothetical initial payment of $1,000. T= average annual total return n= number of years ERV= ending redeemable value of a hypothetical $1,000 payment made at the beginning of the 1-year, 5-year or 10-year periods (or fractional portion). The average annual total return for the 1 year and 5 year periods and for the life of each Fund for the period ended February 28, 2003 is as follows:
One Year Ended Five Years Ended Commencement of Operations February 28, 2003 February 28, 2003 to February 28, 2003 ----------------- ----------------- -------------------- Dividend Performers Fund -25.00% -4.17% 6.37% (a) Diversified Core Equity Fund II -23.29% -3.68% 7.44% (b)
(a) Commencement of operations, March 30, 1995. (b) Commencement of operations, March 10, 1995. Each Fund discloses average annual total returns after taxes for the one, five and 10 year periods ended December 31, 2002 in the prospectus. After tax returns are computed using the historical highest individual federal marginal income-tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. The average annual total return (after taxes on distributions) is computed by finding the average annual compounded rate of return over the 1-year, 5-year and 10-year periods, or the period since the commencement of operations, that would equate the initial amount invested to the ending redeemable value according to the following formula: 36 P(1+T)n = ATVD Where: P= a hypothetical initial payment of $1,000. T= average annual total return (after taxes on distributions) n= number of years ATVD= ending value of a hypothetical $1,000 payment made at the beginning of the 1-year, 5-year, or 10-year periods (or fractional portion) after taxes on fund distributions but not after taxes on redemption. The average annual total return (after taxes on distributions and redemption) is computed by finding the average annual compounded rate of return over the 1-year, 5-year, and 10-year periods, or the period since the commencement of operations, that would equate the initial amount invested to the ending redeemable value according to the following formula: P(1+T)n = ATVDR Where: P= a hypothetical initial payment of $1,000. T= average annual total return (after taxes on distributions and redemption). n= number of years. ATVDR= ending value of a hypothetical $1,000 payment made at the beginning of the 1-year, 5-year or 10-year periods (or fractional portion), after taxes on fund distributions and redemption. This calculation assumes that all dividends and distributions are reinvested at net asset value on the reinvestment dates during the period. In addition to average annual total returns, the Funds may quote unaveraged or cumulative total returns reflecting the simple change in value of an investment over a stated period. Cumulative total returns may be quoted as a percentage or as a dollar amount, and may be calculated for a single investment, a series of investments, and/or a series of redemptions, over any time period. The Funds may advertise yield, where appropriate. A Fund's yield is computed by dividing its net investment income per share determined for a 30-day period by the maximum offering price per share on the last day of the period, according to the following standard formula: 6 Yield = 2 ( [ ( a - b ) + 1 ] - 1 ) ------- cd Where: a = dividends and interest earned during the period. b = net expenses accrued during the period. c = the average daily number of fund shares outstanding during the period that would be entitled to receive dividends. d = the maximum offering price per share on the last day of the period (NAV). From time to time, in reports and promotional literature, a Fund's total return will be ranked or compared to indices of mutual funds and bank deposit vehicles. Such indices may include Lipper Analytical Services, Inc.'s "Lipper-Mutual Performance Analysis," a monthly publication which tracks net assets and total return on equity mutual funds in the United States, as well as those published by Frank Russell, Callan Associates, Wilshire Associates and SEI. 37 Performance rankings and ratings reported periodically in, and excerpts from, national financial publications such as Money magazine, Forbes, Business Week, The Wall Street Journal, Micropal, Inc., Morningstar, Stanger's, and Barron's, Pensions & Investments and Institutional Investor may also be utilized. The Funds' promotional and sales literature may make reference to a Fund's "beta". Beta is a reflection of the market related risk of the Fund by showing how responsive the Fund is to the market. The performance of the Funds is not fixed or guaranteed. Performance quotations should not be considered to be representations of performance of any Fund for any period in the future. The performance of a Fund is a function of many factors including its earnings, expenses and number of outstanding shares. Fluctuating market conditions; purchases, sales and maturities of portfolio securities; sales and redemptions of shares of beneficial interest; and changes in operating expenses are all examples of items that can increase or decrease a Fund's performance. BROKERAGE ALLOCATION Decisions concerning the purchase and sale of portfolio securities and the allocation of brokerage commissions are made by the Adviser's investment and/or trading personnel. Orders for purchases and sales of securities are placed in a manner, which, in the opinion of such personnel, will offer the best price and market for the execution of each such transaction. The Fund's trading practices and investments are reviewed monthly by the Adviser's Senior Investment Policy Committee which consists of officers of the Adviser and quarterly by the Adviser's Investment Committee which consists of officers and directors of the Adviser and Trustees of the Trust who are interested persons of the Fund. Purchases from underwriters of portfolio securities may include a commission or commissions paid by the issuer and transactions with dealers serving as market maker reflect a "spread." Investments in debt securities are generally traded on a "net" basis through dealers acting for their own account as principals and not as brokers; no brokerage commissions are payable on these transactions. In the U.S. Government securities market, securities are generally traded on a net basis with dealers acting as principal for their own account without a stated commission, although the price of the security usually includes a profit to the dealer. On occasion, certain money market instruments and agency securities may be purchased directly from the issuer, in which case no commissions or premiums are paid. Investments in equity securities are generally traded on exchanges or on over-the-counter markets at fixed commission rates or on a net basis. In other countries, both debt and equity securities are traded on exchanges at fixed commission rates. Commissions on foreign transactions are generally higher than the negotiated commission rates available in the U.S. There is generally less government supervision and regulation of foreign stock exchanges and broker-dealers than in the U.S. The Fund's primary policy is to execute all purchases and sales of portfolio instruments at the most favorable prices consistent with best execution, considering all of the costs of the transaction including brokerage commissions. The policy governs the selection of brokers and dealers and the market in which a transaction is executed. Consistent with the foregoing primary policy, the Conduct Rules of the National Association of Securities Dealers, Inc. and such other policies as the Trustees may determine, the Adviser may consider sales of shares of the Fund as a factor in the selection of broker-dealers to execute the Fund's portfolio transactions. To the extent consistent with the foregoing, the Fund will be governed in the selection of brokers and dealers, and the negotiation of brokerage commission rates and dealer spreads, by the reliability and quality of the services, including primarily the availability and value of research information and, to a lesser extent, statistical assistance furnished to the Adviser of the Fund. 38 As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund may pay to a broker which provides brokerage and research services to the Fund an amount of disclosed commission in excess of the commission which another broker would have charged for effecting that transaction. This practice is subject to a good faith determination by the Trustees that such price is reasonable in light of the services provided and to such policies as the Trustees may adopt from time to time. For the fiscal year ended February 28, 2003, Dividend Performers Fund and Diversified Core Equity Fund II paid commissions in the amount of $1,165 and $40,660, respectively to compensate brokers for research services such as industry, economics and company reviews and evaluations of securities. Research services received from broker-dealers supplement the Adviser's own research (and the research of its affiliates), and may include the following types of information: statistical and background information on the U.S. and foreign economies, industry groups and individual companies; forecasts and interpretations with respect to the U.S. and foreign economies, securities, markets, specific industry groups and individual companies; information on federal, state, local and foreign political developments; portfolio management strategies; performance information on securities, indexes and investment accounts; and information concerning prices and ratings of securities. Broker-dealers may communicate such information electronically, orally, in written form or on computer software. Research services may also include the providing of electronic communication of trade information and the providing of custody services, as well as the providing of equipment used to communicate research information, the providing of specialized consultations with the Adviser's personnel with respect to computerized systems and data furnished as a component of other research services, the arranging of meetings with management of companies, and the providing of access to consultants who supply research information. The outside research assistance is useful to the Adviser since the broker-dealers used by the Adviser tend to follow a broader universe of securities and other matters than the Adviser's staff can follow. In addition, the research provides the Adviser with a diverse perspective on financial markets. Research services provided to the Adviser by broker-dealers are available for the benefit of all accounts managed or advised by the Adviser or by its affiliates. Some broker-dealers may indicate that the provision of research services is dependent upon the generation of certain specified levels of commissions and underwriting concessions by the Adviser's clients, including the Fund. However, the Fund is not under any obligation to deal with any broker-dealer in the execution of transactions in portfolio securities. In some cases, the research services are available only from the broker-dealer providing them. In other cases, the research services may be obtainable from alternative sources in return for cash payments. The Adviser believes that the research services are beneficial in supplementing the Adviser's research and analysis and that they improve the quality of the Adviser's investment advice. It is not possible to place a dollar value on information and services to be received from brokers and dealers, since it is only supplementary to the research efforts of the Adviser. The advisory fee paid by the Fund is not reduced because the Adviser receives such services. The receipt of research information is not expected to reduce significantly the expenses of the Adviser. However, to the extent that the Adviser would have purchased research services had they not been provided by broker-dealers, the expenses to the Adviser could be considered to have been reduced accordingly. The research information and statistical assistance furnished by brokers and dealers may benefit the Life Company or other advisory clients of the Adviser, and conversely, brokerage commissions and spreads paid by other advisory clients of the Adviser may result in research information and statistical assistance beneficial to the Fund. The Fund will make no commitment to allocate portfolio transactions upon any prescribed basis. While the Adviser's officers, in connection with the Subadviser (if applicable), will be primarily responsible for the allocation of the Funds' brokerage business, the policies and practices of the Adviser in this regard must be consistent with the foregoing and will, at all times, be subject to review by the Trustees. For the fiscal years ended February 28, 2001, February 28, 2002 and February 28, 2003, the Funds paid negotiated brokerage commissions in the amount as follows: Diversified Core Equity Fund II $472,531, $164,809, $148,090, Dividend Performers Fund $24,294, $9,494 and $4,977, respectively. 39 The Adviser may determine target levels of commission business with various brokers on behalf of its clients (including the Fund) over a certain time period. The target levels will be based upon the following factors, among others: (1) the execution services provided by the broker; (2) the research services provided by the broker; and (3) the broker's interest in mutual funds in general and in the Fund and other mutual funds advised by the Adviser in particular, including sales of the Fund. In connection with (3) above, the Fund's trades may be executed directly by dealers that sell shares of the John Hancock funds or by other broker-dealers with which such dealers have clearing arrangements, consistent with obtaining best execution and the Conduct Rules of the National Association of Securities Dealers, Inc. The Adviser will not use a specific formula in connection with any of these considerations to determine the target levels. Pursuant to procedures determined by the Trustees and consistent with the above policy of obtaining best net results, the Fund may execute portfolio transactions with or through brokers affiliated with the Adviser ("Affiliated Brokers"). Affiliated Brokers may act as broker for the Fund on exchange transactions, subject, however, to the general policy of the Fund set forth above and the procedures adopted by the Trustees pursuant to the Investment Company Act. Commissions paid to an Affiliated Broker must be at least as favorable as those which the Trustees believe to be contemporaneously charged by other brokers in connection with comparable transactions involving similar securities being purchased or sold. A transaction would not be placed with an Affiliated Broker if the Fund would have to pay a commission rate less favorable than the Affiliated Broker's contemporaneous charges for comparable transactions for its other most favored, but unaffiliated, customers except for accounts for which the Affiliated Broker acts as clearing broker for another brokerage firm, and any customers of the Affiliated Broker not comparable to the Fund as determined by a majority of the Trustees who are not interested persons (as defined in the Investment Company Act) of the Fund, the Adviser, or the Affiliated Broker. Because the Adviser that is affiliated with the Affiliated Broker has, as an investment adviser to the Fund, the obligation to provide investment management services, which includes elements of research and related investment skills such research and related skills will not be used by the Affiliated Broker as a basis for negotiating commissions at a rate higher than that determined in accordance with the above criteria. The Adviser's indirect parent, the Life Company, is the indirect sole shareholder of Signator Investors, Inc., a broker-dealer (until January 1, 1999, John Hancock Distributors, Inc.) ("Signator" or an "Affiliated Broker"). For the fiscal years ended October 31, 2000, 2001 and 2002, the Fund did not execute portfolio transactions with Signator. Other investment advisory clients advised by the Adviser may also invest in the same securities as the Fund. When these clients buy or sell the same securities at substantially the same time, the Adviser may average the transactions as to price and allocate the amount of available investments in a manner which the Adviser believes to be equitable to each client, including the Fund. Because of this, client accounts in a particular style may sometimes not sell or acquire securities as quickly or at the same prices as they might if each were managed and traded individually. For purchases of equity securities, when a complete order is not filled, a partial allocation will be made to each participating account pro rata based on the order size. For high demand issues (for example, initial public offerings), shares will be allocated pro rata by account size as well as on the basis of account objective, account size ( a small account's allocation may be increased to provide it with a meaningful position), and the account's other holdings. In addition, an account's allocation may be increased if that account's portfolio manager was responsible for generating the investment idea or the portfolio manager intends to buy more shares in the secondary market. For fixed income accounts, generally securities will be allocated when appropriate among accounts based on account size, except if the accounts have different objectives or if an account is too small to get a meaningful allocation. For new issues, when a 40 complete order is not filled, a partial allocation will be made to each account pro rata based on the order size. However, if a partial allocation is too small to be meaningful, it may be reallocated based on such factors as account objectives, strategies, duration benchmarks and credit and sector exposure. For example, value funds will likely not participate in initial public offerings as frequently as growth funds. In some instances, this investment procedure may adversely affect the price paid or received by the Fund or the size of the position obtainable for it. On the other hand, to the extent permitted by law, the Adviser may aggregate securities to be sold or purchased for the Fund with those to be sold or purchased for other clients managed by it in order to obtain best execution. TRANSFER AGENT SERVICES John Hancock Signature Services, Inc., John Hancock Way, Suite 1001, Boston, MA 02217-1001, a wholly-owned indirect subsidiary of the Life Company is the transfer and dividend paying agent for each Fund. Each Fund pays Signature Services a fee of 0.05% of its average daily net assets. CUSTODY OF PORTFOLIO Portfolio securities of the Funds are held pursuant to a custodian agreement between each Fund and The Bank of New York, One Wall Street, New York, New York 10286. Under the custodian agreement, The Bank of New York is performing custody, Foreign Custody Manager and fund accounting services. INDEPENDENT AUDITORS The independent auditors of the Funds are Deloitte & Touche LLP, 200 Berkeley Street, Boston, Massachusetts 02116. Deloitte & Touche LLP audits and renders opinions on the Funds' annual financial statements and reviews the Funds' annual Federal income tax returns. 41 APPENDIX A - ---------- Description of Securities Ratings1 Moody's Investors Service, Inc. Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa: Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuations of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. A: Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa: Bonds which are rated Baa are considered as medium grade obligations i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba: Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during other good and bad times over the future. Uncertainty of position characterizes bonds in this class. B: Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa: Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. The ratings described here are believed to be the most recent ratings available at the date of this Statement of Additional Information for the securities listed. Ratings are generally given to securities at the time of issuance. While the rating agencies may from time to time revise these ratings, they undertake no obligation to do so, and the ratings indicated do not necessarily represent those which would be given to these securities on the date of a Fund's fiscal year-end. Ca: Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. - ------------------------------------------- 1 The ratings described here are believed to be the most recent ratings available at the date of this Statement of Additional Information for the securities listed. Ratings are generally given to securities at the time of issuance. While the rating agencies may from time to time revise these ratings, they undertake no obligation to do so, and the ratings indicated do not necessarily represent those which would be given to these securities on the date of a Fund's fiscal year-end. A-1 C: Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Absence of Rating: Where no rating has been assigned or where a rating has been suspended or withdrawn, it may be for reasons unrelated to the quality of the issue. Should no rating be assigned, the reason may be one of the following: 1. An application for rating was not received or accepted. 2. The issue or issuer belongs to a group of securities or companies that are not rated as a matter of policy. 3. There is a lack of essential data pertaining to the issue or issuer. 4. The issue was privately placed, in which case the rating is not published in Moody's publications. Suspension or withdrawal may occur if new and material circumstances arise, the effects of which preclude satisfactory analysis; if there is no longer available reasonable up-to-date data to permit a judgment to be formed; if a bond is called for redemption; or for other reasons. Note: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating classification from Aa through B in its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. Commercial Paper Moody's commercial paper ratings are opinions of the ability of issuers to repay punctually promissory obligations not having an original maturity in excess of nine months. Issuers rated Prime-1 or P-1 (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-I or P-1 repayment ability will often be evidenced by the following characteristics: _ Leading market positions in well established industries. _ High rates of return on funds employed. _ Conservative capitalization structures with moderate reliance on debt and ample asset protection. _ Broad margins in earnings coverage of fixed financial charges and high internal cash generation. _ Well established access to a range of financial markets and assured sources of alternate liquidity. Prime-2 Issuers (or supporting institutions) rated Prime-2 (P-2) have a strong ability for repayment of senior short-term obligations. This will normally be evidenced by many of the characteristics cited above, but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. A-2 Prime-3 Issuers (or supporting institutions) rated Prime-3 (P-3) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. Standard & Poor's Ratings Group Investment Grade AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA: Debt rated AA has a very strong capacity to pay interest and repay principal and differ from the highest rated issues only in small degree. A: Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. Speculative Grade Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal. BB indicates the least degree of speculation and C the highest. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major exposures to adverse conditions. BB: Debt rated BB has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating. B: Debt rated B has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating. CCC: Debt rated CCC has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The CCC rating category is also used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating. A-3 CC: The rating CC is typically applied to debt subordinated to senior debt which is assigned an actual or implied CCC debt rating. C: The rating C is typically applied to debt subordinated to senior debt which is assigned an actual or implied CCC- debt rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued. Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the addition of a plus of minus sign to show relative standing within the major rating categories. Provisional Ratings: The letter "P" indicates that the rating is provisional. A provisional rating assumes the successful completion of the project being financed by the debt being rated and indicates that payment of debt service requirements is largely or entirely dependent upon the successful and timely completion of the project. This rating, however, while addressing credit quality subsequent to completion of the project, makes no comment on the likelihood of, or the risk of default upon failure of such completion. The investor should exercise his own judgment with respect to such likelihood and risk. L: The letter "L" indicates that the rating pertains to the principal amount of those bonds to the extent that the underlying deposit collateral is insured by the Federal Saving & Loan Insurance Corp. or the Federal Deposit Insurance Corp. and interest is adequately collateralized. In the case of certificates of deposit the letter "L" indicates that the deposit, combined with other deposits, being held in the same right and capacity will be honored for principal and accrued pre-default interest up to the federal insurance limits within 30 days after closing of the insured institution or, in the event that the deposit is assumed by a successor insured institution, upon maturity. NR: NR indicates no rating has been requested, that there is insufficient information on which to base a rating, or that Standard & Poor's does not rate a particular type of obligation as a matter of policy. Commercial Paper Standard & Poor's describes its three highest ratings for commercial paper as follows: A-1. This designation indicated that the degree of safety regarding timely payment is very strong. A-2. Capacity for timely payment on issues with this designation is strong. However, the relative degree of safety is not as overwhelming as for issues designated A-1. A-3. Issues carrying this designation have a satisfactory capacity for timely payment. They are, however, somewhat more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations. ******** Notes: Bonds which are unrated expose the investor to risks with respect to capacity to pay interest or repay principal which are similar to the risks of lower-rated speculative bonds. A Portfolio is dependent on the Investment Adviser's judgment, analysis and experience in the evaluation of such bonds. Investors should note that the assignment of a rating to a bond by a rating service may not reflect the effect of recent developments on the issuer's ability to make interest and principal payments. A-4 FINANCIAL STATEMENTS The financial statements listed below are included in the Fund's 2003 Annual Report to Shareholders for the year ended February 28, 2003; (filed electronically on April 25, 2003, accession number 0001010521-03-000125) and are included in and incorporated by reference into Part B of the Registration Statement for John Hancock Institutional Series Trust (file nos. 33-86102 and 811-8852). John Hancock Institutional Series Trust John Hancock Dividend Performers Fund John Hancock Independence Diversified Core Equity Fund II Statement of Assets and Liabilities as of February 28, 2003 (audited). Statement of Operations for the year ended February 28, 2003 (audited). Statement of Changes in Net Asset for each of the two years in the period ended February 28, 2003 (audited). Financial Highlights for each of the 5 years in the period ended February 28, 2003 (audited). Schedule of Investments as of February 28, 2003 (audited). Notes to Financial Statements. Report of Independent Auditors. F-1 John Hancock Large Cap Spectrum Fund ANNUAL REPORT 10.31.02 Sign up for electronic delivery at www.jhancock.com/funds/edelivery [A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower, center middle of page. A tag line below reads "JOHN HANCOCK FUNDS."] [A photo of Maureen R. Ford, Chairman and Chief Executive Officer, flush left next to first paragraph.] WELCOME Table of contents Your fund at a glance page 1 Managers' report page 2 A look at performance page 6 Growth of $10,000 page 7 Fund's investments page 8 Financial statements page 12 Trustees & officers page 25 For your information page 29 Dear Fellow Shareholders, The year 2002 has been an extremely difficult one for the stock market. A steady stream of accounting scandals and corporate misdeeds has shaken investors' faith in corporate America. Plus, questions about the strength of the economic rebound and prospects for corporate earnings have hung over the financial markets, along with increased fears about Middle East tensions and terrorism. With all these concerns, the major stock market indexes have fallen significantly for much of the year. Despite a strong rally in October, the broad Standard & Poor's 500 Index is down 22% year to date through October, the Dow Jones Industrial Average is off 15% and the technology-laden Nasdaq Composite Index has fallen 32%. Investors in equity mutual funds have been unable to escape the market's descent, as 99% of all U.S. diversified equity funds have produced negative results through October, according to Lipper, Inc., and the average equity fund has lost 23%. Bonds, on the other hand, outperformed stocks and gained some ground, as often happens when investors seek safer havens. At such trying times as these, the impulse to flee is understandable, especially after the negative stock market returns in 2000 and 2001. But we urge you to stay the course and keep a well-diversified portfolio and a longer-term investment perspective. Working with your investment professional on your long-term plan is especially critical in turbulent times. Financial markets have always moved in cycles, and even though the current down cycle is painful, it comes after five straight years of 20%-plus returns between 1995 and 1999. As discouraging as conditions may seem in the short-term, history shows us that the bad times do pass. We believe that remains the case today. The economy is sound and the vast majority of U.S. corporations are honest institutions striving to do their best for their shareholders. And the efforts of both the private sector and the U.S. government should address the current issues of corporate governance, so that corporate credibility and therefore investor confidence are restored. Sincerely, /S/ MAUREEN R. FORD Maureen R. Ford, Chairman and Chief Executive Officer YOUR FUND AT A GLANCE The Fund seeks long-term growth of capital by nor mally investing at least 80% of its assets in stocks of large- capitalization companies. The Fund's assets will be managed according to three separate investment strategies -- growth, core and value. Over the last eight months * Stocks fell sharply amid weaker-than-expected economic growth, downward earnings revisions, corporate scandals and fears of war. * Large-cap stocks with their more complex balance sheets declined more than small- and mid-cap stocks. * The Fund's investments in telecommunications, technology and pharmaceuticals hurt performance. [Bar chart with heading "John Hancock Large Cap Spectrum Fund." Under the heading is a note that reads "Fund performance for the year ended October 31, 2002." The chart is scaled in increments of 10% with -30% at the bottom and 0% at the top. The first bar represents the -23.30% total return for Class A. The second bar represents the -23.60% total return for Class B. The third bar represents the -23.60% total return for Class C. A note below the chart reads "Total returns for the Fund are at net asset value with all distributions reinvested.] Top 10 holdings 4.9% Pfizer 4.5% Microsoft 3.9% Freddie Mac 3.1% American International Group 3.0% Viacom 2.8% General Electric 2.8% Citigroup 2.1% Intel 1.9% Bank of America 1.8% American Express As a percentage of net assets on October 31, 2002. John Hancock Large Cap Spectrum Fund MANAGERS' REPORT John Hancock Large Cap Spectrum Fund began operations on February 25, 2002, in the midst of a turbulent market. As the year progressed, the slow pace of the economic recovery, weak corporate spending and earnings disappointments depressed stock prices. Accounting scandals, highlighted by WorldCom's bankruptcy, and talk of war with Iraq further unsettled investors. Large-cap stocks lagged small- and mid-cap names. The Standard & Poor's 500 Index returned -19.28% from the Fund's inception through October 31, 2002. The Russell 1000 Value Index returned -17.24% over the same period, while the Russell 1000 Growth Index returned -23.16%. PERFORMANCE AND STRATEGY REVIEW During the same tumultuous time frame, the Fund's Class A, Class B, and Class C shares returned -23.30%, -23.60% and -23.60%, respectively, at net asset value. By comparison, the average large-cap core fund returned - -19.51%, according to Lipper, Inc.1 Keep in mind that your net asset value return will be different from the Fund's performance if you were not invested in the Fund for the entire period and did not reinvest all distributions. "...Fund began opera- tions on February 25, 2002, in the midst of a turbulent market." The Fund maintained its focus on large-cap companies with market capitalizations over $5 billion. We balance our investments across three investment disciplines, with 50% of our assets allocated to a core portfolio and 25% each invested in aggressive growth stocks and deep value stocks. This consistent asset allocation strategy gives the Fund exposure to whichever area is doing best, while also ensuring we have a stake in out-of-favor sectors that may be tomorrow's leaders. LARGE CAP CORE STRATEGY by Paul J. Berlinguet, John Hancock Advisers The core portfolio trailed the S&P 500 Index, due to weak stock selection early on in technology, media and pharmaceuticals. Lackluster demand hurt software companies like Parametric Technology and Wind River Systems. AOL Time-Warner suffered when the expected synergies from the merger failed to materialize, while Liberty Media declined as some of its core investments in the media and cable areas turned in poor results. Finally, large-cap pharmaceuticals, such as Bristol-Myers Squibb and Schering-Plough, tumbled amid patent expiration, pipeline and manufacturing issues. We sold most of them and focused on higher-quality stocks with predictable earnings that were not tied to the economic recovery. Our biggest investments were in the finance, consumer staples and consumer discretionary sectors. In the finance area, our focus was on insurers like American International Group (AIG) and Ambac Financial Group, which stand to benefit from improved industry pricing. We also added stakes in Fifth Third Bancorp, Wells Fargo and Bank of America, all of which have strong ties to the consumer. We kept a sizable investment in Freddie Mac, a government mortgage agency benefiting from low interest rates. But we sold market-sensitive stocks, such as discount broker Charles Schwab, and trimmed strong performers like Berkshire-Hathaway, Warren Buffet's holding company. "Valuations on large-cap stocks are particularly attractive..." In the consumer discretionary area, we shifted toward more de fensive companies with strong demand. Our purchases included Walt Disney, Wal-Mart Stores and Bed, Bath & Beyond, all of which contributed positively toward performance. We also maintained a sizable investment in Viacom, which rallied as advertising spending began a comeback. On the staples side, we sold CVS, which had been a top performer, and added stakes in names such as Kraft Foods and Coca-Cola, which have predictable earnings. [Table at top left-hand side of page entitled "Top five industry groups." The first listing is Medical 14%, the second is Finance 9%, the third Computers 8%, the fourth Retail 8%, and the fifth Banks--United States 6%.] LARGE CAP GROWTH AND VALUE STRATEGIES by Seth Masters and Stephanie Simon, CFA, AllianceBernstein Together, the growth and value strategies closely tracked the Russell 1000 Index, which returned -19.05% for the reporting period. Our investments in telecom and technology were the biggest detractors from performance. On the value side, WorldCom posted huge losses as it faced bankruptcy. We significantly reduced our holdings, but still held onto Qwest Communications, which stands to benefit from its mix of local service and related businesses. On the growth side, Intel was a poor performer as corporate spending on technology remained weak. Our investment in pharmaceuticals, such as Pfizer and Schering-Plough, also challenged our performance as concerns about generic competition and the lack of new blockbuster drugs mounted. Financials were a sizable stake in both the value and growth portfolios. On the growth side, we maintained a large investment in Citigroup, a global financial services company whose stock price weakened under headline pressure. On the value side, consumer-oriented banks, such as Bank of America, Washington Mutual and Bank One, rallied nicely, generating profits for the Fund. Select health-care names in the growth portfolio, such as UnitedHealth Group and Cardinal Health, also contributed positively to results, as did certain retailers such as Lowe's. [Table at top of page entitled "SCORECARD." The header for the left column is "INVESTMENT" and the header for the right column is "RECENT PERFORMANCE...AND WHAT'S BEHIND THE NUMBERS." The first listing is Liberty Media followed by a down arrow with the phrase "Weak performance among media and cable holdings." The second listing is Pfizer followed by a down arrow with the phrase "Concerns about generic competition, lack of new drugs." The third listing is Bank of America followed by an up arrow with the phrase "Low interest rates, improved margins, low loan defaults."] We took advantage of market volatility to improve the quality of our holdings. On the growth side, we focused on stable companies with strong balance sheets and the ability to generate cash amid the weak economy, including both Microsoft and Dell Computer. We also targeted economically sensitive or cyclical stocks, selecting high-quality companies (such as AIG) that have been unfairly punished by investors. On the value side, we augmented our stake in hybrid electric power utilities with minimal exposure to energy trading. Our focus was on companies with financial strength, such as American Electric Power and Entergy, which have the resources to weather further volatility. "Together, the growth and value strategies closely tracked the Russell 1000 Index..." OPPORTUNITY AHEAD We expect economic growth to pick up in 2003, barring a steep drop in investor confidence or slowdown in the housing market. The market's recent volatility and sharp decline have created new opportunities for investors. Valuations on large-cap stocks are particularly attractive, suggesting they should do well in a rebound. We believe the Fund is well-positioned with exposure to companies that may benefit from new developments, such as improved capital spending, emerging wireless trends and rising insurance prices, as well as defensive investments that should help stabilize the portfolio if volatility continues. This commentary reflects the views of the portfolio managers through the end of the Fund's period discussed in this report. Of course, the managers' views are subject to change as market and other conditions warrant. 1 Figures from Lipper, Inc. include reinvested dividends and do not take into account sales charges. Actual load-adjusted performance is lower. A LOOK AT PERFORMANCE For the period ended October 31, 2002 The index used for comparison is the Standard & Poor's 500 Index, an unman- aged index that includes 500 widely traded common stocks. It is not possible to invest in an index. Class A Class B Class C Index Inception date 2-25-02 2-25-02 2-25-02 -- Average annual returns with maximum sales charge (POP) Since inception 1 -27.16% -27.42% -25.11% -19.11% Cumulative total returns with maximum sales charge (POP) Since inception -27.16% -27.42% -25.11% -19.11% Performance figures assume all distributions are reinvested. Returns with maximum sales charge reflect a sales charge on Class A shares of 5% and Class C shares of 1%, and the applicable contingent deferred sales charge (CDSC) on Class B and Class C shares. The Class B shares' CDSC declines annually between years 1-6 according to the following schedule: 5, 4, 3, 3, 2, 1%. No sales charge will be assessed after the sixth year. Class C shares held for less than one year are subject to a 1% CDSC. The return and principal value of an investment in the Fund will fluctuate, so that shares, when redeemed, may be worth more or less than the original cost. Index figures do not reflect sales charges and would be lower if they did. The returns reflect past results and should not be considered indicative of future performance. The performance table above and the chart on the next page do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The Fund's performance results reflect any applicable expense reductions, without which the expenses would increase and results would have been less favorable. These reductions can be terminated in the future. See the prospectus for details. 1 Not annualized. GROWTH OF $10,000 This chart shows what happened to a hypothetical $10,000 investment in Class A shares for the period indicated. For comparison, we've shown the same investment in the Standard & Poor's 500 Index. Line chart with the heading "GROWTH OF $10,000." Within the chart are three lines. The first line represents the Index and is equal to $8,089 as of October 31, 2002. The second line represents the value of the hypothetical $10,000 investment made in the John Hancock Large Cap Spectrum Fund, before sales charge, and is equal to $7,670 as of October 31, 2002. The second line represents the value of the same hypothetical investment made in the John Hancock Large Cap Spectrum Fund, after sales charge, and is equal to $7,284 as of October 31, 2002. Class B Class C Period beginning 2-25-02 2-25-02 Without sales charge $7,640 $7,640 With maximum sales charge $7,258 $7,488 Index $8,089 $8,089 Assuming all distributions were reinvested for the period indicated, the chart above shows the value of a $10,000 investment in the Fund's Class B and Class C shares, respectively, as of October 31, 2002. Performance of the classes will vary based on the difference in sales charges paid by shareholders investing in the different classes and the fee structure of those classes. FINANCIAL STATEMENTS FUND'S INVESTMENTS Securities owned by the Fund on October 31, 2002 This schedule is divided into two main categories: common stocks and short-term investments. Stocks are further broken down by industry group. Short-term investments, which represent the Fund's cash position, are listed last.
SHARES ISSUER VALUE COMMON STOCKS 94.92% $18,823,195 (Cost $21,192,801) Advertising 0.47% $92,208 1,600 Omnicom Group, Inc. 92,208 Automobile / Trucks 1.35% 267,690 5,500 Genuine Parts Co. 162,470 1,400 Lear Corp.* 51,170 1,000 Magna International, Inc. (Class A) (Canada) 54,050 Banks -- United States 6.31% 1,250,216 5,500 Bank of America Corp. 383,900 2,700 Bank One Corp. 104,139 3,100 Fifth Third Bancorp 196,850 4,800 FleetBoston Financial Corp. 112,272 3,000 National City Corp. 81,390 4,300 Wachovia Corp. 149,597 4,400 Wells Fargo & Co. 222,068 Beverages 1.79% 355,884 1,900 Anheuser-Busch Cos., Inc. 100,244 5,500 Coca-Cola Co. (The) 255,640 Broker Services 1.87% 371,339 1,700 Bear Stearns Cos., Inc. (The) 103,785 2,100 Goldman Sachs Group, Inc. (The) 150,360 2,200 Lehman Brothers Holdings, Inc. 117,194 Building 0.42% 83,816 1,200 Centex Corp. 54,576 1,500 Georgia-Pacific Corp. 18,300 400 Sherwin-Williams Co. (The) 10,940 Chemicals 1.97% 390,681 8,600 Dow Chemical Co. (The) 223,514 2,400 Eastman Chemical Co. 87,216 1,700 PPG Industries, Inc. 79,951 Computers 8.13% 1,611,675 7,900 Dell Computer Corp.* 226,019 19,400 Hewlett-Packard Co. 306,520 1,000 International Business Machines Corp. 78,940 16,800 Microsoft Corp.* 898,296 10,000 Oracle Corp.* 101,900 Cosmetics & Personal Care 1.74% 345,180 8,000 Gillette Co. (The) 239,040 1,200 Procter & Gamble Co. (The) 106,140 Diversified Operations 3.80% 753,485 1,500 3M Co. 190,410 22,300 General Electric Co. 563,075 Electronics 2.63% 521,335 3,700 Avnet, Inc.* 34,410 23,900 Intel Corp. 413,470 11,500 Solectron Corp.* 25,875 3,000 Texas Instruments, Inc. 47,580 Finance 9.31% 1,846,171 10,000 American Express Co. 363,700 14,800 Citigroup, Inc. 546,860 2,500 Golden West Financial Corp. 172,650 4,400 J.P. Morgan Chase & Co. 91,300 15,750 MBNA Corp. 319,883 3,250 Morgan Stanley Dean Witter & Co. 126,490 6,300 Washington Mutual, Inc. 225,288 Food 2.04% 403,940 4,000 Kellogg Co. 127,440 7,000 Kraft Foods, Inc. (Class A) 276,500 Household 0.82% 162,100 5,000 Newell Rubbermaid, Inc. 162,100 Insurance 6.06% 1,201,624 1,450 Aetna, Inc. 58,435 4,500 Ambac Financial Group, Inc. 278,100 9,700 American International Group, Inc. 606,735 1,900 Chubb Corp. (The) 107,179 11,324 Travelers Property Casualty Corp. (Class A)* 151,175 Leisure 1.05% 209,010 3,000 Eastman Kodak Co. 98,850 6,000 Mattel, Inc. 110,160 Machinery 0.25% 50,384 1,600 Cooper Industries, Ltd. (Class A) 50,384 Media 4.45% 882,336 8,400 Comcast Corp. (Class A)* 193,284 6,000 Disney (Walt) Co. (The) 100,200 13,200 Viacom, Inc. (Class B)* 588,852 Medical 14.45% 2,864,603 1,500 Anthem, Inc.* 94,500 2,000 Bard (C.R.), Inc. 111,860 2,700 Cardinal Health, Inc. 186,867 5,400 Johnson & Johnson 317,250 4,500 Medtronic, Inc. 201,600 5,800 Merck & Co., Inc. 314,592 30,300 Pfizer, Inc. 962,631 6,100 Schering-Plough Corp. 130,235 2,600 St. Jude Medical, Inc. * 92,586 4,350 Tenet Healthcare Corp.* 125,062 3,600 UnitedHealth Group, Inc. 327,420 Mortgage Banking 4.60% 912,971 2,050 Fannie Mae 137,063 12,600 Freddie Mac 775,908 Office 0.78% 155,600 2,500 Avery Dennison Corp. 155,600 Oil & Gas 3.92% 777,639 1,300 ChevronTexaco Corp. 87,919 4,600 ConocoPhillips 223,100 8,200 Exxon Mobil Corp. 276,012 5,200 Occidental Petroleum Corp. 148,356 1,200 Valero Energy Corp. 42,252 Paper & Paper Products 0.65% 129,890 6,200 MeadWestvaco Corp. 129,890 Retail 7.71% 1,527,931 4,000 Bed Bath & Beyond, Inc.* 141,840 4,995 Kohl's Corp.* 291,958 7,900 Lowe's Cos., Inc. 329,667 1,600 Sears, Roebuck & Co. 42,016 3,000 Sysco Corp. 95,040 3,100 Target Corp. 93,372 6,700 Walgreen Co. 226,125 5,750 Wal-Mart Stores, Inc. 307,913 Telecommunications 3.42% 678,610 9,500 Corning, Inc.* 17,765 8,100 Nokia Corp., American Depositary Receipt (Finland) 134,622 40,600 Nortel Networks Corp. (Canada)* 49,938 30,225 Qwest Communications International, Inc.* 102,463 5,300 SBC Communications, Inc. 135,998 11,300 Tellabs, Inc.* 86,784 4,000 Verizon Communications, Inc. 151,040 Tobacco 1.33% 262,837 6,450 Philip Morris Cos., Inc. 262,837 Transport 2.01% 398,800 6,000 Burlington Northern Santa Fe Corp. 154,380 12,100 Norfolk Southern Corp. 244,420 Utilities 1.59% 315,240 5,400 American Electric Power Co., Inc. 138,456 2,200 Cinergy Corp. 68,442 1,800 Constellation Energy Group, Inc. 46,044 1,800 PPL Corp. 62,298 INTEREST PAR VALUE ISSUER, DESCRIPTION, MATURITY DATE RATE (000s OMITTED) VALUE SHORT-TERM INVESTMENTS 5.52% $1,094,000 (Cost $1,094,000) Joint Repurchase Agreement 5.52% Investment in a joint repurchase agreement transaction with Barclays Capital, Inc. -- Dated 10-31-02, due 11-01-02 (Secured by U.S. Treasury Inflation Indexed Note, 3.00% due 07-15-12) 1.90% $1,094 1,094,000 TOTAL INVESTMENTS 100.44% $19,917,195 OTHER ASSETS AND LIABILITIES, NET (0.44%) ($86,119) TOTAL NET ASSETS 100.00% $19,831,076
* Non-income producing security. Parenthetical disclosure of a foreign country in the security description represents country of a foreign issuer. The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the Fund. See notes to financial statements. ASSETS AND LIABILITIES October 31, 2002 This Statement of Assets and Liabilities is the Fund's balance sheet. It shows the value of what the Fund owns, is due and owes. You'll also find the net asset value and the maximum offering price per share. ASSETS Investments at value (cost $22,286,801) $19,917,195 Cash 1,602 Receivable for investments sold 30,378 Receivable for shares sold 690 Dividends and interest receivable 19,121 Receivable from affiliates 10,180 Other assets 20 Total assets 19,979,186 LIABILITIES Payable for investments purchased 97,349 Payable for shares repurchased 9,772 Other payables and accrued expenses 40,989 Total liabilities 148,110 NET ASSETS Capital paid-in 26,303,538 Accumulated net realized loss on investments (4,102,856) Net unrealized depreciation of investments (2,369,606) Net assets $19,831,076 NET ASSET VALUE PER SHARE Based on net asset values and shares outstanding Class A ($6,039,508 [DIV] 787,232 shares) $7.67 Class B ($8,266,986 [DIV] 1,082,493 shares) $7.64 Class C ($5,524,582 [DIV] 723,288 shares) $7.64 MAXIMUM OFFERING PRICE PER SHARE Class A 1 ($7.67 [DIV] 95%) $8.07 Class C ($7.64 [DIV] 99%) $7.72 1 On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the offering price is reduced. See notes to financial statements. OPERATIONS For the period ended October 31, 2002 1 This Statement of Operations summarizes the Fund's investment income earned and expenses incurred in oper- ating the Fund. It also shows net gains (losses) for the period stated. INVESTMENT INCOME Dividends (net of foreign withholding taxes of $591) $199,215 Interest 21,284 Total investment income 220,499 EXPENSES Investment management fee 124,294 Class A distribution and service fee 14,185 Class B distribution and service fee 61,773 Class C distribution and service fee 37,171 Registration and filing fee 58,385 Transfer agent fee 54,732 Custodian fee 26,703 Auditing fee 20,000 Printing 16,164 Accounting and legal services fee 3,084 Miscellaneous 2,744 Interest expense 420 Legal fee 215 Trustees' fee 200 Total expenses 420,070 Less expense reductions (131,467) Net expenses 288,603 Net investment loss (68,104) REALIZED AND UNREALIZED LOSS Net realized loss on investments (4,102,856) Change in net unrealized depreciation of investments (2,369,606) Net realized and unrealized loss (6,472,462) Decrease in net assets from operations ($6,540,566) 1 Inception period from 2-25-02 through 10-31-02. See notes to financial statements. CHANGES IN NET ASSETS This Statement of Changes in Net Assets shows how the value of the Fund's net assets has changed since the incep- tion of the Fund. The difference reflects earnings less expenses, any investment gains and losses, distributions paid to share- holders, if any, and any increase or decrease in money share- holders invested in the Fund. PERIOD ENDED 10-31-02 1 INCREASE (DECREASE) IN NET ASSETS From operations Net investment loss ($68,104) Net realized loss (4,102,856) Change in net unrealized depreciation (2,369,606) Decrease in net assets resulting from operations (6,540,566) From Fund share transactions 26,371,642 NET ASSETS Beginning of period -- End of period $19,831,076 1 Inception period from 2-25-02 through 10-31-02. See notes to financial statements.
FINANCIAL HIGHLIGHTS CLASS A SHARES The Financial Highlights show how the Fund's net asset value for a share has changed during the period. PERIOD ENDED 10-31-02 1 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $10.00 Net investment loss 2 -- 3 Net realized and unrealized loss on investments (2.33) Total from investment operations (2.33) Net asset value, end of period $7.67 Total return 4,5 (%) (23.30) 6 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in millions) $6 Ratio of expenses to average net assets (%) 1.50 7 Ratio of adjusted expenses to average net assets 8 (%) 2.40 7 Ratio of net investment loss to average net assets (%) -- 7 Portfolio turnover (%) 70
See notes to financial statements.
FINANCIAL HIGHLIGHTS CLASS B SHARES PERIOD ENDED 10-31-02 1 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $10.00 Net investment loss 2 (0.04) Net realized and unrealized loss on investments (2.32) Total from investment operations (2.36) Net asset value, end of period $7.64 Total return 4,5 (%) (23.60) 6 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in millions) $8 Ratio of expenses to average net assets (%) 2.20 7 Ratio of adjusted expenses to average net assets 8 (%) 3.10 7 Ratio of net investment loss to average net assets (%) (0.69) 7 Portfolio turnover (%) 70
FINANCIAL HIGHLIGHTS CLASS C SHARES PERIOD ENDED 10-31-02 1 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $10.00 Net investment loss 2 (0.04) Net realized and unrealized loss on investments (2.32) Total from investment operations (2.36) Net asset value, end of period $7.64 Total return 4,5 (%) (23.60) 6 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in millions) $6 Ratio of expenses to average net assets (%) 2.20 7 Ratio of adjusted expenses to average net assets 8 (%) 3.10 7 Ratio of net investment loss to average net assets (%) (0.69) 7 Portfolio turnover (%) 70
1 Class A, Class B, and Class C shares began operations on 2-25-02. 2 Based on the average of the shares outstanding. 3 Less than $0.01 per share. 4 Assumes dividend reinvestment and does not reflect the effect of sales charges. 5 Total return would have been lower had certain expenses not been reduced during the period shown. 6 Not annualized. 7 Annualized. 8 Does not take into consideration expense reductions during the period shown. See notes to financial statements. NOTES TO STATEMENTS NOTE A Accounting policies John Hancock Large Cap Spectrum Fund (the "Fund") is a non-diversified series of John Hancock Equity Trust, an open-end investment management company registered under the Investment Company Act of 1940. The investment objective of the Fund is to achieve long-term growth of capital. The Fund's assets will be allocated among three investment styles: growth, core and value. The Trustees have authorized the issuance of multiple classes of shares of the Fund, designated as Class A, Class B and Class C shares. The shares of each class represent an interest in the same portfolio of investments of the Fund and have equal rights as to voting, redemptions, dividends and liquidation, except that certain expenses, subject to the approval of the Trustees, may be applied differently to each class of shares in accordance with current regulations of the Securities and Exchange Commission and the Internal Revenue Service. Shareholders of a class that bears distribution and service expenses under terms of a distribution plan have exclusive voting rights to that distribution plan. Significant accounting policies of the Fund are as follows: Valuation of investments Securities in the Fund's portfolio are valued on the basis of market quotations, valuations provided by independent pricing services, or at fair value as determined in good faith in accordance with procedures approved by the Trustees. Short-term debt investments maturing within 60 days are valued at amortized cost, which approximates market value. Joint repurchase agreement Pursuant to an exemptive order issued by the Securities and Exchange Commission, the Fund, along with other registered investment companies having a management contract with John Hancock Advisers, LLC (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group, LLC, may participate in a joint repurchase agreement transaction. Aggregate cash balances are invested in one or more large repurchase agreements, whose underlying securities are obligations of the U.S. government and/or its agencies. The Fund's custodian bank receives delivery of the underlying securities for the joint account on the Fund's behalf. The Adviser is responsible for ensuring that the agreement is fully collateralized at all times. Investment transactions Investment transactions are recorded as of the date of purchase, sale or maturity. Net realized gains and losses on sales of investments are determined on the identified cost basis. Class allocations Income, common expenses and realized and unrealized gains (losses) are determined at the fund level and allocated daily to each class of shares based on the appropriate net assets of the respective classes. Distribution and service fees, if any, are calculated daily at the class level based on the appropriate net assets of each class and the specific expense rate(s) applicable to each class. Expenses The majority of the expenses are directly identifiable to an individual fund. Expenses that are not readily identifiable to a specific fund will be allocated in such a manner as deemed equitable, taking into consideration, among other things, the nature and type of expense and the relative sizes of the funds. Bank borrowings The Fund is permitted to have bank borrowings for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Fund has entered into a syndicated line of credit agreement with various banks. This agreement enables the Fund to participate with other funds managed by the Adviser in an unsecured line of credit with banks, which permit borrowings of up to $475 million, collectively. Interest is charged to each fund, based on its borrowing. In addition, a commitment fee is charged to each fund based on the average daily unused portion of the line of credit and is allocated among the participating funds. The Fund had no borrowing activity under the line of credit as of October 31, 2002. Securities lending The Fund may lend securities to certain qualified brokers who pay the Fund negotiated lender fees. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay of the loaned securities in recovery or even loss of rights in the collateral, should the borrower of the securities fail financially. There were no securities loaned on October 31, 2002. Federal income taxes The Fund qualifies as a "regulated investment company" by complying with the applicable provisions of the Internal Revenue Code and will not be subject to federal income tax on taxable income that is distributed to shareholders. Therefore, no federal income tax provision is required. For federal income tax purposes, the Fund has $4,063,884 of capital loss carryforward available, to the extent provided by regulations, to offset future net realized capital gains. To the extent such carryforward is used by the Fund, no capital gain distributions will be made. The entire carryforward expires October 31, 2010. Dividends, interest and distributions Dividend income on investment securities is recorded on the ex-dividend date or, in the case of some foreign securities, on the date thereafter when the Fund identifies the dividend. Interest income on investment securities is recorded on the accrual basis. Foreign income may be subject to foreign withholding taxes which are accrued as applicable. The Fund records distributions to shareholders from net investment income and net realized gains on the ex-dividend date. Distributions paid by the Fund with respect to each class of shares are calculated in the same manner, at the same time and are in the same amount, except for the effect of expenses that may be applied differently to each class. As of October 31, 2002, there were no distributable earnings on a tax basis. Such distributions and distributable earnings, on a tax basis, are determined in conformity with income tax regulations, which may differ from accounting principles generally accepted in the United States of America. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Use of estimates The preparation of these financial statements, in accordance with accounting principles generally accepted in the United States of America, incorporates estimates made by management in determining the reported amount of assets, liabilities, revenues and expenses of the Fund. Actual results could differ from these estimates. NOTE B Management fee and transactions with affiliates and others The Fund has an investment management contract with the Adviser. Under the investment management contract, the Fund pays a monthly management fee to the Adviser at an annual rate of 0.85% of the Fund's average daily net asset value. The Adviser has a subadvisory agreement with Alliance Capital Management L.P. The Fund is not responsible for payment of the subadvisory fees. The Adviser has agreed to limit the Fund's expenses, excluding the distribution and service fees, to 1.20% of the Fund's average daily net assets, at least until February 28, 2003. Accordingly, the expense reduction amounted to $131,467 for the period ended October 31, 2002. The Adviser reserves the right to terminate this limitation in the future. The Fund has Distribution Plans with John Hancock Funds, LLC ("JH Funds"), a wholly owned subsidiary of the Adviser. The Fund has adopted Distribution Plans with respect to Class A, Class B and Class C pursuant to Rule 12b-1 under the Investment Company Act of 1940 to reimburse JH Funds for the services it provides as distributor of shares of the Fund. Accordingly, the Fund makes monthly payments to JH Funds at an annual rate not to exceed 0.30% of Class A average daily net assets and 1.00% of Class B and Class C average daily net assets. A maximum of 0.25% of such payments may be service fees as defined by the Conduct Rules of the National Association of Securities Dealers. Under the Conduct Rules, curtailment of a portion of the Fund's 12b-1 payments could occur under certain circumstances. Class A and Class C shares are assessed up-front sales charges. During the period ended October 31, 2002, JH Funds received net up-front sales charges of $85,567 with regard to sales of Class A shares. Of this amount, $84,415 was paid as sales commissions to unrelated broker-dealers and $1,152 was paid as sales commissions to sales personnel of Signator Investors, Inc. ("Signator Investors"), a related broker-dealer. The Adviser's indirect parent, John Hancock Life Insurance Company ("JHLICo"), is the indirect sole shareholder of Signator Investors. During the period ended October 31, 2002, JH Funds received net up-front sales charges of $62,085 with regard to sales of Class C shares. Of this amount, $61,509 was paid as sales commissions to unrelated broker-dealers and $576 was paid as sales commissions to sales personnel of Signator Investors. Class B shares that are redeemed within six years of purchase are subject to a contingent deferred sales charge ("CDSC") at declining rates, beginning at 5.00% of the lesser of the current market value at the time of redemption or the original purchase cost of the shares being redeemed. Class C shares that are redeemed within one year of purchase are subject to a CDSC at a rate of 1.00% of the lesser of the current market value at the time of redemption or the original purchase cost of the shares being redeemed. Proceeds from the CDSCs are paid to JH Funds and are used in whole or in part to defray its expenses for providing distribution related services to the Fund in connection with the sale of Class B and Class C shares. During the period ended October 31, 2002, CDSCs received by JH Funds amounted to $24,230 for Class B shares and $2,149 for Class C shares. The Fund has a transfer agent agreement with John Hancock Signature Services, Inc., an indirect subsidiary of JHLICo. The Fund pays a monthly transfer agent fee based on the number of shareholder accounts, plus certain out-of-pocket expenses. Effective January 1, 2003, the Fund will pay a monthly transfer agent fee at an annual rate of 0.05% of the average daily net asset value, plus a fee based on the number of shareholder accounts and reimbursement for certain out-of- pocket expenses. The Fund has an agreement with the Adviser to perform necessary tax, accounting and legal services for the Fund. The compensation for the period was at an annual rate of 0.02% of the average net assets of the Fund. Ms. Maureen R. Ford and Mr. John M. DeCiccio are directors and/or officers of the Adviser and/or its affiliates, as well as Trustees of the Fund. The compensation of unaffiliated Trustees is borne by the Fund. The unaffiliated Trustees may elect to defer for tax purposes their receipt of this compensation under the John Hancock Group of Funds Deferred Compensation Plan. The Fund makes investments into other John Hancock funds, as applicable, to cover its liability for the deferred compensation. Investments to cover the Fund's deferred compensation liability are recorded on the Fund's books as an other asset. The deferred compensation liability and the related other asset are always equal and are marked to market on a periodic basis to reflect any income earned by the investment as well as any unrealized gains or losses. The Deferred Compensation Plan investments had no impact on the operations of the Fund. NOTE C Fund share transactions This listing illustrates the number of Fund shares sold and repurchased during the period, along with the corresponding dollar value. The Fund has an unlimited number of shares authorized with no par value. PERIOD ENDED 10-31-02 1 SHARES AMOUNT CLASS A SHARES Sold 1,065,563 $10,469,656 Repurchased (278,331) (2,309,288) Net increase 787,232 $8,160,368 CLASS B SHARES Sold 1,455,953 $14,180,950 Repurchased (373,460) (3,099,618) Net increase 1,082,493 $11,081,332 CLASS C SHARES Sold 885,678 $8,455,714 Repurchased (162,390) (1,325,772) Net increase 723,288 $7,129,942 NET INCREASE 2,593,013 $26,371,642 1 Inception period from 2-25-02 through 10-31-02. NOTE D Investment transactions Purchases and proceeds from sales of securities, other than short-term securities and obligations of the U.S. government, during the period ended October 31, 2002, aggregated $37,442,363 and $12,126,706, respectively. The cost of investments owned on October 31, 2002, including short-term investments, for federal income tax purposes was $22,325,772. Gross unrealized appreciation and depreciation of investments aggregated $262,593 and $2,671,170, respectively, resulting in net unrealized depreciation of $2,408,577. The difference between book basis and tax basis net unrealized depreciation of investments is attributable primarily to the tax deferral of losses on wash sales. NOTE E Reclassification of accounts During the period ended October 31, 2002, the Fund reclassified amounts to reflect a decrease in accumulated net investment loss of $68,104 and a decrease in capital paid-in of $68,104. This represents the amount necessary to report these balances on a tax basis, excluding certain temporary differences, as of October 31, 2002. Additional adjustments may be needed in subsequent reporting periods. These reclassifications, which have no impact on the net asset value of the Fund, are primarily attributable to the treatment of net operating loss in the computation of distributable income and capital gains under federal tax rules versus accounting principles generally accepted in the United States of America. The calculation of net investment loss per share in the financial highlights excludes these adjustments. AUDITORS' REPORT Report of Pricewaterhouse- Coopers LLP, Independent Auditors To the Board of Trustees and Shareholders of John Hancock Large Cap Spectrum Fund, In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the John Hancock Large Cap Spectrum Fund (a series of John Hancock Equity Trust) (the "Fund") at October 31, 2002, and the results of its operations, the changes in its net assets and the financial highlights for the period from February 25, 2002 (commencement of operations) through October 31, 2002, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of securities owned at October 31, 2002 by correspondence with the custodian and brokers, provides a reasonable basis for our opinion. PricewaterhouseCoopers LLP Boston, Massachusetts December 13, 2002 TAX INFORMATION Unaudited For federal income tax purposes, the following information is furnished with respect to the distributions of the Fund paid, if any, during its taxable year ended October 31, 2002. With respect to the ordinary dividends paid by the Fund for the fiscal year ended October 31, 2002, none of the dividends qualify for the corporate dividends-received deduction. If the Fund paid dividends during the fiscal year, shareholders will be mailed a 2002 U.S. Treasury Department Form 1099-DIV in January 2003. This will reflect the total of all distributions that are taxable for the calendar year 2002.
TRUSTEES & OFFICERS This chart provides information about the Trustees and Officers who oversee your John Hancock fund. Officers elected by the Trustees manage the day-to-day operations of the Fund and execute policies formulated by the Trustees. INDEPENDENT TRUSTEES NUMBER OF NAME, AGE TRUSTEE JOHN HANCOCK PRINCIPAL OCCUPATION(S) AND OTHER OF FUND FUNDS OVERSEEN DIRECTORSHIPS DURING PAST 5 YEARS SINCE 1 BY TRUSTEE Dennis S. Aronowitz, Born: 1931 2001 31 Professor of Law, Emeritus, Boston University School of Law (as of 1996); Director, Brookline Bancorp. Richard P. Chapman, Jr., Born: 1935 2001 31 President and Chief Executive Officer, Brookline Bancorp Inc. (lending) (since 1972); Trustee, Northeastern University (education); Chairman and Director, Lumber Insurance Co. (insurance) (until 2000); Chairman and Director, Northeast Retirement Services, Inc. (retirement administration) (since 1998). William J. Cosgrove, Born: 1933 2001 31 Vice President, Senior Banker and Senior Credit Officer, Citibank, N.A. (retired 1991); Executive Vice President, Citadel Group Representatives, Inc.; Director, Hudson City Bancorp; Trustee, Scholarship Fund for Inner City Children (since 1986). Richard A. Farrell 2, Born: 1932 2001 31 President, Farrell, Healer & Co., Inc. (venture capital management firm) (since 1980) and General Partner of the Venture Capital Fund of NE (since 1980); Trustee, Marblehead Savings Bank (since 1994); prior to 1980, headed the venture capital group at Bank of Boston Corporation. Gail D. Fosler 2, Born: 1947 2001 31 Senior Vice President and Chief Economist, The Conference Board (non-profit economic and business research) (since 1989); Director, Unisys Corp. (since 1993); Director, H.B. Fuller Company (since 1992) and DBS Holdings (Singapore) (banking and financial services) (since 1999); Director, National Bureau of Economic Research (academic) (since 1989); Director, Baxter International (medical health care) (since 2001). William F. Glavin, Born: 1932 2001 31 President Emeritus, Babson College (as of 1998); Vice Chairman, Xerox Corporation (until 1989); Director, Reebok, Inc. (until 2002) and Inco Ltd. (until 2002). Patti McGill Peterson, Born: 1943 2001 39 Executive Director, Council for International Exchange of Scholars (since 1998), Vice President, Institute of International Education (since 1998); Senior Fellow, Cornell Institute of Public Affairs, Cornell University (until 1997); President Emerita of Wells College and St. Lawrence University; Director, Niagara Mohawk Power Corporation (electric utility). John A. Moore 2, Born: 1939 2001 39 President and Chief Executive Officer, Institute for Evaluating Health Risks, (nonprofit institution) (until 2001); Senior Scientist, Sciences International (health research) (since 1998); Principal, Hollyhouse (consulting) (since 2000); Director, CIIT (nonprofit research) (since 2002). John W. Pratt, Born: 1931 2001 31 Professor of Business Administration Emeritus, Harvard University Graduate School of Business Administration (as of 1998). INTERESTED TRUSTEES 3 NAME, AGE NUMBER OF POSITION(S) HELD WITH FUND TRUSTEE JOHN HANCOCK PRINCIPAL OCCUPATION(S) AND OTHER OF FUND FUNDS OVERSEEN DIRECTORSHIPS DURING PAST 5 YEARS SINCE 1 BY TRUSTEE John M. DeCiccio, Born: 1948 2001 61 Trustee Executive Vice President and Chief Investment Officer, John Hancock Financial Services, Inc.; Director, Executive Vice President and Chief Investment Officer, John Hancock Life Insurance Company; Chairman of the Committee of Finance of John Hancock Life Insurance Company; Director, John Hancock Subsidiaries, LLC, Hancock Natural Resource Group, Independence Investment LLC, Independence Fixed Income LLC, John Hancock Advisers, LLC (the "Adviser") and The Berkeley Financial Group, LLC ("The Berkeley Group"), John Hancock Funds, LLC ("John Hancock Funds"), Massachusetts Business Development Corporation; Director, John Hancock Insurance Agency, Inc. ("Insurance Agency, Inc.") (until 1999) and John Hancock Signature Services, Inc. ("Signature Services") (until 1997). Maureen R. Ford, Born: 1955 2001 61 Trustee, Chairman, President and Chief Executive Officer Executive Vice President, John Hancock Financial Services, Inc., John Hancock Life Insurance Company; Chairman, Director, President and Chief Executive Officer, the Adviser and The Berkeley Group; Chairman, Director and Chief Executive Officer, John Hancock Funds; Chairman, Director and Chief Executive Officer, Sovereign Asset Management Corporation ("SAMCorp."); Director, Independence Investment LLC, Independence Fixed Income LLC and Signature Services; Senior Vice President, MassMutual Insurance Co. (until 1999). PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES NAME, AGE POSITION(S) HELD WITH FUND OFFICER PRINCIPAL OCCUPATION(S) AND OF FUND DIRECTORSHIPS DURING PAST 5 YEARS SINCE William L. Braman, Born: 1953 2001 Executive Vice President and Chief Investment Officer Executive Vice President and Chief Investment Officer, the Adviser and each of the John Hancock funds; Director, SAMCorp., Executive Vice President and Chief Investment Officer, Baring Asset Management, London UK (until 2000). Richard A. Brown, Born: 1949 2001 Senior Vice President and Chief Financial Officer Senior Vice President, Chief Financial Officer and Treasurer, the Adviser, John Hancock Funds, and The Berkeley Group; Second Vice President and Senior Associate Controller, Corporate Tax Department, John Hancock Financial Services, Inc. (until 2001). Thomas H. Connors, Born: 1959 2001 Vice President and Compliance Officer Vice President and Compliance Officer, the Adviser and each of the John Hancock funds; Vice President, John Hancock Funds. William H. King, Born: 1952 2001 Vice President and Treasurer Vice President and Assistant Treasurer, the Adviser; Vice President and Treasurer of each of the John Hancock funds; Assistant Treasurer of each of the John Hancock funds (until 2001). Susan S. Newton, Born: 1950 2001 Senior Vice President, Secretary and Chief Legal Officer Senior Vice President, Secretary and Chief Legal Officer, SAMCorp., the Adviser and each of the John Hancock funds, John Hancock Funds and The Berkeley Group; Vice President, Signature Services (until 2000); Director, Senior Vice President and Secretary, NM Capital.
The business address for all Trustees and Officers is 101 Huntington Avenue, Boston, Massachusetts 02199. The Statement of Additional Information of the Fund includes additional information about members of the Board of Trustees of the Fund and is available, without charge, upon request, by calling 1-800-225-5291. 1 Each Trustee serves until resignation, retirement age or until his or her successor is elected. 2 Member of Audit Committee. 3 Interested Trustees hold positions with the Fund's investment adviser, underwriter and certain other affiliates. OUR FAMILY OF FUNDS - ------------------------------------------------------- Equity Balanced Fund Classic Value Fund Core Equity Fund Focused Equity Fund Growth Trends Fund Large Cap Equity Fund Large Cap Growth Fund Large Cap Spectrum Fund Mid Cap Growth Fund Multi Cap Growth Fund Small Cap Equity Fund Small Cap Growth Fund Sovereign Investors Fund U.S. Global Leaders Growth Fund - ------------------------------------------------------- Sector Biotechnology Fund Financial Industries Fund Health Sciences Fund Real Estate Fund Regional Bank Fund Technology Fund - ------------------------------------------------------- Income Bond Fund Government Income Fund High Income Fund High Yield Bond Fund Investment Grade Bond Fund Strategic Income Fund - ------------------------------------------------------- International European Equity Fund Global Fund International Fund Pacific Basin Equities Fund - ------------------------------------------------------- Tax-Free Income California Tax-Free Income Fund High Yield Municipal Bond Fund Massachusetts Tax-Free Income Fund New York Tax-Free Income Fund Tax-Free Bond Fund - ------------------------------------------------------- Money Market Money Market Fund U.S. Government Cash Reserve FOR YOUR INFORMATION INVESTMENT ADVISER John Hancock Advisers, LLC 101 Huntington Avenue Boston, Massachusetts 02199-7603 INVESTMENT SUBADVISER Alliance Capital Management, L.P. 1345 Avenue of the Americas New York, New York 10105 PRINCIPAL DISTRIBUTOR John Hancock Funds, LLC 101 Huntington Avenue Boston, Massachusetts 02199-7603 CUSTODIAN The Bank of New York One Wall Street New York, New York 10286 TRANSFER AGENT John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1000 Boston, Massachusetts 02217-1000 LEGAL COUNSEL Hale and Dorr LLP 60 State Street Boston, Massachusetts 02109-1803 INDEPENDENT AUDITORS PricewaterhouseCoopers LLP 160 Federal Street Boston, Massachusetts 02110 HOW TO CONTACT US On the Internet www.jhfunds.com By regular mail John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1000 Boston, MA 02217-1000 By express mail John Hancock Signature Services, Inc. Attn: Mutual Fund Image Operations 529 Main Street Charlestown, MA 02129 Customer service representatives 1-800-225-5291 24-hour automated information 1-800-338-8080 TDD line 1-800-554-6713 [A 1 1/2" x 1/2" John Hancock (Signature) logo in upper left hand corner. A tag line below reads "JOHN HANCOCK FUNDS."] 1-800-225-5291 1-800-554-6713 (TDD) 1-800-338-8080 EASI-Line www.jhfunds.com Now available: electronic delivery www.jhancock.com/funds/edelivery This report is for the information of the shareholders of the John Hancock Large Cap Spectrum Fund. 6700A 10/02 12/02 John Hancock Dividend PERFORMERS FUND ANNUAL REPORT 2.28.03 Sign up for electronic delivery at www.jhancock.com/funds/edelivery [LOGO] John Hancock - -------------------------------------------------------------------------------- [A photo of Maureen R. Ford, Chairman and Chief Executive Officer, flush left next to first paragraph.] - -------------------------------------------------------------------------------- Dear Fellow Shareholders, After a robust start to 2003, the stock market quickly gave in to the continuing pressures that plagued it throughout 2002. The threat of war with Iraq increased and became a reality in mid- March. The uncertainty surrounding these and other geopolitical issues became uppermost in investors' minds and caused the market to continue the tumble that marked 2002. In the first two months of 2003, the Dow Jones Industrial Average returned -4.98%, the Standard & Poor's 500 Index lost 4.08% and the Nasdaq Composite Index was relatively flat, at 0.15%. Bonds advanced in the same period as investors sought safety. The market's results through February 2003 matched the trend of the last three years, in which stocks lost ground every year as the economy stalled, corporate spending and profits were lackluster and investor confidence plunged amid corporate scandals. Bonds, on the other hand, outperformed stocks for a third straight year and produced positive results in 2002, while 96% of U.S. diversified stock mutual funds lost money. These results only confirm the importance of having a portfolio well diversified among stocks, bonds and cash. In fact, the disparity between stock and bond results over the last three years means that many investors' portfolios may have shifted substantially in their mix between stocks and bonds. We recommend working with your investment professional to rebalance your assets according to your long-term goals. After three down years - one of the longest declines in modern history - no one can predict when the bear market cycle will turn. Currently, uncertainties abound, with ongoing concerns about the economy and the risks of war. While all these factors are beyond our control, investors can take charge of how they maneuver through the inevitable bull and bear market cycles. We've said it before, but it bears repeating: the key is to keep a long-term perspective and work with your investment professional to develop and maintain a properly diversified portfolio. We believe this offers the best protection in the tough times and the best means to reach your long-term goals. Sincerely, /s/Maureen R. Ford - ------------------ Maureen R. Ford, Chairman and Chief Executive Officer Over the last twelve months [ ] Widespread nervousness continued to plague the stock market, which again produced negative results. [ ] The Fund's relative underperformance was due to its heavier emphasis on large-capitalization stocks. [ ] We began to see some compelling values that meet our strict investment standards. - -------------------------------------------------------------------------------- [Bar chart with heading "John Hancock Dividend Performers Fund." Under the heading is a note that reads "Fund performance for the year ended February 28, 2003." The chart is scaled in increments of 10% with -30% at the bottom and 0% at the top. The first bar represents the -25.00% total return for Class A. A note below the chart reads "The total return for the Fund is at net asset value with all distributions reinvested."] - -------------------------------------------------------------------------------- Top 10 holdings 3.7% Standard & Poor's Depositary Receipts, Trust Series 1 3.1% General Electric 3.0% AFLAC 2.9% Microsoft 2.8% Pfizer 2.7% American International Group 2.6% Citigroup 2.6% ExxonMobil 2.5% Altria Group 2.5% Cisco Systems As a percentage of net assets on February 28, 2003. YOUR FUND AT A GLANCE The Fund seeks long-term growth of capital with income as a secondary objective by investing primarily in "dividend performers" - dividend-paying companies that have typically increased their dividend payments over time or that the managers believe have the potential to increase their dividend payments. 1 BY JOHN F. SNYDER, III, AND PETER SCHOFIELD, CFA, PORTFOLIO MANAGERS John Hancock Dividend Performers Fund - --------- MANAGERS' REPORT - --------- Widespread nervousness continued to plague the stock market during the 12 months ended February 28, 2003. Optimism about the economic turnaround faded when economic reports painted a picture of a more anemic recovery. Accounting scandals continued to unnerve investors as the focus shifted from corporations such as Enron and WorldCom early in the year to Wall Street firms such as Citigroup and CS First Boston later. Finally, the looming prospect of war with Iraq further fueled investors' fears. The net result was another year of negative returns. For the year ended February 28, 2003, the broad Standard & Poor's 500 Index fell 22.67%. PERFORMANCE REVIEW For the same period, John Hancock Dividend Performers Fund returned -25.00% at net asset value. By comparison, the average large-cap core fund returned - -23.80%, according to Lipper, Inc. Keep in mind that your net asset value return will be different from the Fund's performance if you were not invested in the Fund for the entire period and did not reinvest all distributions. See pages six and seven for historical performance information. "Widespread nervousness continued to plague the stock market..." LARGE CAPITALIZATION AND TECHNOLOGY STOCKS SUFFER The Fund's relative underperformance can be explained by its heavier emphasis on large-capitalization stocks. Many of our large-cap names were spared during the market's decline in 2001. As the end of a market downturn approaches, however, there's often indiscriminate selling. That's what happened this year as many large-cap names fell during what was believed to be the last stages of the market's capitulation. What's more, in the wake of 2 - -------------------------------------------------------------------------------- [Photos' of John Snyder and Pete Schofield flush right next to first paragraph.] - -------------------------------------------------------------------------------- corporate scandals, many large-cap companies with complex balance sheets suffered as investors began to question their accounting practices. Because the Fund tends to hold more large-cap names than its peers, its performance was slightly below average. General Electric and American International Group (AIG) were among the large-cap names that disappointed us most. Technology stocks also detracted from performance. With the continued weak economy, many corporations have drastically reduced their capital expenditures on technology. Semicon- ductor maker Texas Instruments, which we sold, started to see shortfalls in the third quarter of last year as their customers began to curtail spending. UTILITIES AND BASIC MATERIALS OUTPERFORM Despite the broadly negative results, we had good performances from our utility and basic materials stocks. In the utility sector, stock selection helped us minimize the Fund's downside risk, including avoiding utilities with credit problems such as El Paso and Williams. Our position in Questar also boosted performance. This integrated utility climbed more than 28% during the year, thanks to double-digit growth in its non-regulated businesses. "Despite the broadly negative results, we had good performances from our utility and basic materials stocks." Our overweight position in basic materials also contributed to performance. In particular, Praxair - which is a relatively new holding in the portfolio - performed strongly. This industrial gas company has not only benefited from improving pricing power and increasing revenues, but is also well insulated from the rising energy prices that have hurt its peers. 3 - -------------------------------------------------------------------------------- [Table at top left-hand side of page entitled "Top five industry groups." The first listing is Computers 12%, the second is Medical 11%, the third Insurance 10%, the fourth Finance 8% and the fifth Oil & gas 7%.] - -------------------------------------------------------------------------------- NEW OPPORTUNITIES Given the stock market's prolonged downturn, we've begun to see some compelling values that meet our strict investment standards. The decline has allowed us to add several new stocks to the portfolio that we've long admired, but haven't bought because of their high valuations. Coca-Cola is a perfect example. The stock's valuation has just recently come down to a level where we feel comfortable buying it. What's more, under new management, this world-class company has improved its relationship with its bottlers, successfully expanded into water and other non-carbonated beverages and continued to produce volume growth worldwide in an - -------------------------------------------------------------------------------- [Pie chart at middle of page with heading "Portfolio diversification As a percentage of net assets on 2-28-03." The chart is divided into two sections (from top to left): Common stocks 91% and Short-term investments & other 9%.] - -------------------------------------------------------------------------------- extremely challenging environment. Unilever is another new holding. After struggling for the last few years, this consumer products powerhouse has improved volume growth by rationalizing its product offerings and focusing on its leading brands. A LOOK AHEAD With pervasive worries still overhanging the market, there are plenty of challenges ahead for stocks. First and foremost are concerns about the war with Iraq, which began shortly after the period ended. Second, investors are still nervous about the 4 - -------------------------------------------------------------------------------- [Table at top of page entitled "SCORECARD". The header for the left column is "INVESTMENT" and the header for the right column is "PERIOD'S PERFORMANCE...AND WHAT'S BEHIND THE NUMBERS." The first listing is AIG followed by a down arrow with the phrase "Worries about complex accounting." The second listing is Texas Instruments followed by a down arrow with the phrase "Cuts in corporate capital spending." The third listing is Praxair followed by an up arrow with the phrase "Improving pricing power and revenues."] - -------------------------------------------------------------------------------- anemic economic recovery. Over the last few years, the refinancing boom has put the money in consumers' pockets to purchase automobiles and houses. That spending has propped up the lackluster economy. With much of the refinancing opportunities behind us, many are wondering whether consumers can maintain the same level of spending, especially in the face of rising energy prices. The good news is that interest rates are at 40-year lows and inflation remains in check, which creates a positive backdrop for stocks. In addition, President Bush's proposed tax relief plan should provide some level of economic stimulus. What's more, if the proposed elimination of the dividend tax passes, that should be a boon to our "dividend performers" stocks - those companies that have consistently raised their dividends over time or have the potential to. In this difficult environment, it will be critical to own high-quality companies with strong balance sheets, steady earnings growth and the ability to leverage the gradual upturn in the economy. "In this difficult environment, it will be critical to own high-quality companies..." This commentary reflects the views of the portfolio managers through the end of the Fund's period discussed in this report. Of course, the managers' views are subject to change as market and other conditions warrant. 5 - ----------- A LOOK AT PERFORMANCE - ----------- For the period ended February 28, 2003 The index used for comparison is the Standard & Poor's 500 Index, an unmanaged index that includes 500 widely traded common stocks. It is not possible to invest directly in an index. Fund Index Inception date 3-30-95 - - -------------------------------------------------------------------------------- Average annual returns - -------------------------------------------------------------------------------- One year -25.00% -22.67% Three years -10.43% -13.71% Five years -4.17% -2.98% Since inception 6.37% 8.55% - -------------------------------------------------------------------------------- Cumulative total returns - -------------------------------------------------------------------------------- One year -25.00% -22.67% Three years -28.14% -35.76% Five years -19.19% -14.04% Since inception 63.09% 91.47% Performance figures assume all distributions are reinvested. The return and principal value of an investment in the Fund will fluctuate, so that shares, when redeemed, may be worth more or less than the original cost. The returns reflect past results and should not be considered indicative of future performance. The performance table above and the chart on the next page do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The Fund's performance results reflect any applicable expense reductions, without which the expenses would increase and results would have been less favorable. These reductions can be terminated in the future. See the prospectus for details. 6 This chart shows what happened to a hypothetical $10,000 investment in the Fund for the period indicated. For comparison, we've shown the same investment in the Standard & Poor's 500 Index. - -------------------------------------------------------------------------------- Line chart with the heading "GROWTH OF $10,000." Within the chart are two lines. The first line represents the Index and is equal to $19,147 as of February 28, 2003. The second line represents the value of the hypothetical $10,000 investment made in the John Hancock Dividend Performers Fund, and is equal to $16,309 as of February 28, 2003. - -------------------------------------------------------------------------------- Assuming all distributions were reinvested for the period indicated, the chart above shows the value of a $10,000 investment in the Fund, as of February 28, 2003. 7 FINANCIAL STATEMENTS - ----------- FUND'S INVESTMENTS - ----------- Securities owned by the Fund on February 28, 2003 This schedule is divided into two main categories: common stocks and short-term investments. Common stocks are further broken down by industry group. Short-term investments, which represent the Fund's cash position, are listed last.
SHARES ISSUER VALUE - ---------------------------------------------------------------------------------------------------------------------- COMMON STOCKS 91.35% $3,070,037 - ---------------------------------------------------------------------------------------------------------------------- (Cost $3,176,372) Advertising 1.66% 55,629 1,050 Omnicom Group, Inc. 55,629 Banks - United States 2.79% 93,638 900 Bank of America Corp. 62,316 850 State Street Corp. 31,322 Beverages 2.06% 69,150 1,100 Coca-Cola Co. (The) 44,242 650 PepsiCo, Inc. 24,908 Building 0.98% 33,084 1,800 Masco Corp. 33,084 Business Services - Misc. 1.51% 50,712 1,250 Block, H & R, Inc. 50,712 Chemicals 3.11% 104,654 600 Air Products & Chemicals, Inc. 23,256 900 PPG Industries, Inc. 41,760 750 Praxair, Inc. 39,638 Computers 12.07% 405,678 6,080 Cisco Systems, Inc.* 84,998 1,900 Dell Computer Corp.* 51,224 1,000 First Data Corp. 34,650 4,000 Hewlett-Packard Co. 63,400 400 International Business Machines Corp. 31,180 See notes to financial statements. 8 SHARES ISSUER VALUE Computers (continued) $405,678 4,100 Microsoft Corp. 97,170 3,600 Oracle Corp.* 43,056 Cosmetics & Personal Care 4.22% 141,851 1,500 Avon Products, Inc. 78,000 780 Procter & Gamble Co. (The) 63,851 Diversified Operations 2.72% 91,499 450 3M Co. 56,417 450 Johnson Controls, Inc. 35,082 Electronics 3.11% 104,617 4,350 General Electric Co. 104,617 Finance 7.81% 262,482 500 Capital One Financial Corp. 15,485 2,666 Citigroup, Inc. 88,884 950 Morgan Stanley Dean Witter & Co. 35,008 1,450 SPDR Trust, Series 1 123,105 Food 2.55% 85,847 1,655 Kraft Foods, Inc. (Class A) 49,005 650 Unilever NV, American Depositary Receipts (ADR) (Netherlands) 36,842 Insurance 9.85% 330,934 3,250 AFLAC, Inc. 101,562 1,820 American International Group, Inc. 89,708 1,000 Hartford Financial Services Group, Inc. (The) 36,130 900 Marsh & McLennan Cos., Inc. 36,630 4,275 Travelers Property Casualty Corp. (Class A) 66,904 Manufacturing 1.26% 42,263 650 Danaher Corp. 42,263 Media 1.88% 63,121 1,700 Viacom, Inc. (Class B)* 63,121 Medical 10.67% 358,590 1,700 Abbott Laboratories 60,554 700 Amgen, Inc.* 38,248 1,000 Cardinal Health, Inc. 57,290 1,300 Johnson & Johnson 68,185 870 Medtronic, Inc. 38,889 3,200 Pfizer, Inc. 95,424 Mortgage Banking 2.64% 88,590 700 Fannie Mae 44,870 800 Freddie Mac 43,720 Office 2.08% 69,902 650 Avery Dennison Corp. 37,310 1,050 Pitney Bowes, Inc. 32,592 Oil & Gas 6.52% 219,073 1,600 Anadarko Petroleum Corp. 73,728 1,500 BP Plc (ADR) (United Kingdom) 57,165 2,592 ExxonMobil Corp. 88,180 See notes to financial statements. 9 SHARES ISSUER VALUE Retail 4.30% $144,621 1,300 Lowe's Cos., Inc. 51,090 1,000 Target Corp. 28,650 1,350 Wal-Mart Stores, Inc. 64,881 Telecommunications 2.91% 97,700 2,000 Nokia Corp. (ADR) (Finland) 26,460 1,430 SBC Communications, Inc. 29,744 1,200 Verizon Communications, Inc. 41,496 Tobacco 2.53% 85,030 2,200 Altria Group, Inc. 85,030 Utilities 2.12% 71,372 600 Dominion Resources, Inc. 32,340 1,400 Questar Corp. 39,032 INTEREST PAR VALUE ISSUER, DESCRIPTION, MATURITY DATE RATE (000s OMITTED) VALUE - ---------------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS 9.11% $306,000 - ---------------------------------------------------------------------------------------------------------------------- (Cost $306,000) Joint Repurchase Agreement 9.11% Investment in a joint repurchase agreement transaction with State Street Bank & Trust Co. - Dated 02-28-03 due 03-03-03 (Secured by U.S. Treasury Bonds 7.250% due 05-15-16 and 7.125% due 02-15-23, U.S. Treasury Note 1.500% due 02-28-05, U.S. Treasury Inflation Indexed Bond 3.875% due 04-15-29, U.S. Treasury Inflation Indexed Notes 3.375% due 01-15-07 and 4.250% due 01-15-10) 1.31% $306 306,000 - ---------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS 100.46% $3,376,037 - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES, NET (0.46%) ($15,476) - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- TOTAL NET ASSETS 100.00% $3,360,561 - ---------------------------------------------------------------------------------------------------------------------- * Non-income-producing security. Parenthetical disclosure of a foreign country in the security description represents country of a foreign issuer. The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the Fund. See notes to financial statements. 10 FINANCIAL STATEMENTS - ----------- ASSETS AND LIABILITIES - ----------- February 28, 2003 This Statement of Assets and Liabilities is the Fund's balance sheet. It shows the value of what the Fund owns, is due and owes as well as the net asset value per share. - -------------------------------------------------------------------------------- ASSETS - -------------------------------------------------------------------------------- Investments at value (cost $3,482,372) $3,376,037 Cash 190 Dividends and interest receivable 5,169 Receivable from affiliates 4,890 Other assets 1,890 Total assets 3,388,176 - -------------------------------------------------------------------------------- LIABILITIES - -------------------------------------------------------------------------------- Other payables and accrued expenses 27,615 Total liabilities 27,615 - -------------------------------------------------------------------------------- NET ASSETS - -------------------------------------------------------------------------------- Capital paid-in 4,084,284 Accumulated net realized loss on investments (622,207) Net unrealized depreciation of investments (106,335) Accumulated net investment income 4,819 Net assets $3,360,561 - -------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE - -------------------------------------------------------------------------------- Based on 573,859 shares outstanding $5.86 See notes to financial statements. 11 FINANCIAL STATEMENTS - ---------- OPERATIONS - ---------- For the year ended February 28, 2003 This Statement of Operations summarizes the Fund's investment income earned and expenses incurred in operating the Fund. It also shows net gains (losses) for the period stated. - -------------------------------------------------------------------------------- INVESTMENT INCOME - -------------------------------------------------------------------------------- Dividends (net of foreign withholding taxes of $322) $58,712 Interest 3,960 Total investment income 62,672 - -------------------------------------------------------------------------------- EXPENSES - -------------------------------------------------------------------------------- Investment management fee 23,270 Auditing fee 16,025 Custodian fee 14,271 Registration and filing fee 11,998 Printing 8,568 Transfer agent fee 7,413 Accounting and legal services fee 1,126 Trustees' fee 203 Miscellaneous 121 Legal fee 51 Total expenses 83,046 Less expense reductions (55,897) Net expenses 27,149 Net investment income 35,523 - -------------------------------------------------------------------------------- REALIZED AND UNREALIZED LOSS - -------------------------------------------------------------------------------- Net realized loss on investments (488,252) Change in net unrealized appreciation (depreciation) of investments (676,822) Net realized and unrealized loss (1,165,074) Decrease in net assets from operations ($1,129,551) See notes to financial statements. 12 FINANCIAL STATEMENTS - ---------- CHANGES IN NET ASSETS - ---------- This Statement of Changes in Net Assets shows how the value of the Fund's net assets has changed since the end of the previous period. The difference reflects earnings less expenses, any investment gains and losses, distributions, if any, paid to shareholders and any increase or decrease in money shareholders invested in the Fund. YEAR YEAR ENDED ENDED 2-28-02 2-28-03 - -------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS - -------------------------------------------------------------------------------- From operations Net investment income $45,380 $35,523 Net realized loss (30,504) (488,252) Change in net unrealized appreciation (depreciation) (452,843) (676,822) Decrease in net assets resulting from operations (437,967) (1,129,551) Distributions to shareholders From net investment income (50,241) (36,853) From net realized gain (1,164,106) - (1,214,347) (36,853) From Fund share transactions 326,641 (349,669) - -------------------------------------------------------------------------------- NET ASSETS - -------------------------------------------------------------------------------- Beginning of period 6,202,307 4,876,634 End of period1 $4,876,634 $3,360,561 1 Includes accumulated net investment income of $6,135 and $4,819, respectively. See notes to financial statements. 13 COMMON SHARES The Financial Highlights show how the Fund's net asset value for a share has changed since the end of the previous period. PERIOD ENDED 2-28-99 2-29-00 2-28-01 2-28-02 2-28-03 - ---------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE - ---------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $14.92 $14.46 $13.51 $11.14 $7.89 Net investment income 1 0.15 0.11 0.10 0.08 0.06 Net realized and unrealized gain (loss) on investments 1.04 0.60 0.45 (0.77) (2.03) Total from investment operations 1.19 0.71 0.55 (0.69) (1.97) Less distributions From net investment income (0.15) (0.11) (0.11) (0.10) (0.06) From net realized gain (1.50) (1.55) (2.81) (2.46) - (1.65) (1.66) (2.92) (2.56) (0.06) Net asset value, end of period $14.46 $13.51 $11.14 $7.89 $5.86 Total return 2,3 (%) 7.97 4.17 2.94 (6.93) (25.00) - ---------------------------------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA - ---------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $18 $15 $6 $5 $3 Ratio of expenses to average net assets (%) 0.70 0.70 0.70 0.70 0.70 Ratio of adjusted expenses to average net assets 4% 0.95 1.05 1.08 1.91 2.14 Ratio of net investment income to average net assets (%) 0.95 0.71 0.73 0.84 0.92 Portfolio turnover (%) 64 46 58 51 53 1 Based on the average of the shares outstanding. 2 Assumes dividend reinvestment. 3 Total returns would have been lower had certain expenses not been reduced during the periods shown. 4 Does not take into consideration expense reductions during the periods shown. See notes to financial statements. 14 - ---------- NOTES TO STATEMENTS - ---------- NOTE A Accounting policies John Hancock Dividend Performers Fund (the "Fund") is a separate portfolio of John Hancock Institutional Series Trust (the "Trust"), an open-end management investment company registered under the Investment Company Act of 1940. The investment objective of the Fund is to seek long-term growth of capital. Significant accounting policies of the Fund are as follows: Valuation of investments Securities in the Fund's portfolio are valued on the basis of market quotations, valuations provided by independent pricing services or at fair value as determined in good faith in accordance with procedures approved by the Trustees. Short-term debt investments maturing within 60 days are valued at amortized cost, which approximates market value. Joint repurchase agreement Pursuant to an exemptive order issued by the Securities and Exchange Commission, the Fund, along with other registered investment companies having a management contract with John Hancock Advisers, LLC (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group, LLC, may participate in a joint repurchase agreement transaction. Aggregate cash balances are invested in one or more large repurchase agreements, whose underlying securities are obligations of the U.S. government and/or its agencies. The Fund's custodian bank receives delivery of the underlying securities for the joint account on the Fund's behalf. The Adviser is responsible for ensuring that the agreement is fully collateralized at all times. Investment transactions Investment transactions are recorded as of the date of purchase, sale or maturity. Net realized gains and losses on sales of investments are determined on the identified cost basis. Expenses The majority of the expenses are directly identifiable to an individual fund. Expenses that are not readily identifiable to a specific fund will be allocated in such a manner as deemed equitable, taking into consideration, among other things, the nature and type of expense and the relative sizes of the funds. 15 Bank borrowings The Fund is permitted to have bank borrowings for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Fund has entered into a syndicated line of credit agreement with various banks. This agreement enables the Fund to participate with other funds managed by the Adviser in an unsecured line of credit with banks, which permits borrowings of up to $250 million, collectively. Interest is charged to each fund, based on its borrowing. In addition, a commitment fee is charged to each fund based on the average daily unused portion of the line of credit and is allocated among the participating funds. The Fund had no borrowing activity under the line of credit during the year ended February 28, 2003. Securities lending The Fund may lend securities to certain qualified brokers who pay the Fund negotiated lender fees. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay of the loaned securities in recovery or even loss of rights in the collateral, should the borrower of the securities fail financially. There were no securities loaned on February 28, 2003. Federal income taxes The Fund qualifies as a "regulated investment company" by complying with the applicable provisions of the Internal Revenue Code and will not be subject to federal income tax on taxable income that is distributed to shareholders. Therefore, no federal income tax provision is required. For federal income tax purposes, the Fund has $549,979 of a capital loss carryforward available, to the extent provided by regulations, to offset future net realized capital gains. To the extent that such carryforward is used by the Fund, no capital gain distributions will be made. The entire amount of the loss carryforward expires February 28, 2011. Net capital losses of $69,324 that are attributable to security transactions incurred after October 31, 2002, are treated as arising on March 1, 2003, the first day of the Fund's next taxable year. Dividends, interest and distributions Dividend income on investment securities is recorded on the ex-dividend date or, in the case of some foreign securities, on the date thereafter when the Fund identifies the dividend. Interest income on investment securities is recorded on the accrual basis. Foreign income may be subject to foreign withholding taxes, which are accrued as applicable. The Fund records distributions to shareholders from net investment income and net realized gains on the ex-dividend date. During the year ended February 28, 2003, the tax character of distributions paid was as follows: ordinary income $36,853. As of February 28, 2003, the components of distributable earnings on a tax basis included $5,960 of undistributed ordinary income. Such distributions and distributable earnings, on a tax basis, are determined in conformity with income tax regulations, which may differ from accounting principles generally accepted in the United States of America. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Use of estimates The preparation of these financial statements, in accordance with accounting principles generally accepted in the United States of America, incorporates estimates made by management in determining the reported amount of assets, liabilities, revenues and expenses of the Fund. Actual results could differ from these estimates. 16 NOTE B Management fee and transactions with affiliates and others The Fund has an investment management contract with the Adviser. Under the investment management contract, the Fund pays a monthly management fee to the Adviser equivalent, on an annual basis, to the sum of: (a) 0.60% of the first $500,000,000 of the Fund's average daily net asset value, and (b) 0.55% of the Fund's average daily net asset value in excess of $500,000,000. The Adviser has agreed to limit the Fund's expenses to 0.70% of the Fund's average daily net assets, at least until June 30, 2003. Accordingly, the expense reduction amounted to $55,897 for the year ended February 28, 2003. The Adviser reserves the right to terminate this limitation in the future. The Fund has a distribution agreement with John Hancock Funds, LLC ("JH Funds"), a wholly owned subsidiary of the Adviser. For the year ended February 28, 2003, all sales of shares of beneficial interest were sold at net asset value. The Fund pays all expenses of printing prospectuses and other sales literature, all fees and expenses in connection with qualification as a dealer in various states, and all other expenses in connection with the sale and offering for sale of the shares of the Funds that have not been herein specifically allocated to the Trust. The Fund has a transfer agent agreement with John Hancock Signature Services, Inc., an indirect subsidiary of John Hancock Life Insurance Company ("JHLICo."). The Fund pays a monthly transfer agent fee at an annual rate of 0.05% of the average daily net asset value, plus reimbursement for certain out-of-pocket expenses. The Fund has an agreement with the Adviser to perform necessary tax, accounting and legal services for the Fund. The compensation for the year was at an annual rate of approximately 0.03% of the average daily net assets of the Fund. Ms. Maureen R. Ford and Mr. John M. DeCiccio are directors and/or officers of the Adviser and/or its affiliates, as well as Trustees of the Fund. The compensation of unaffiliated Trustees is borne by the Fund. The unaffiliated Trustees may elect to defer for tax purposes their receipt of this compensation under the John Hancock Group of Funds Deferred Compen- sation Plan. The Fund makes investments into other John Hancock funds, as applicable, to cover its liability for the deferred compensation. Investments to cover the Fund's deferred compensation liability are recorded on the Fund's books as an other asset. The deferred compensation liability and the related other asset are always equal and are marked to market on a periodic basis to reflect any income earned by the investment as well as any unrealized gains or losses. The Deferred Compensation Plan investments had no impact on the operations of the Fund. 17 NOTE C Fund share transactions This listing illustrates the number of Fund shares sold, reinvested and repurchased during the last two periods, along with the corresponding dollar value. The Fund has an unlimited number of shares authorized with no par value. YEAR ENDED 2-28-02 YEAR ENDED 2-28-03 SHARES AMOUNT SHARES AMOUNT Shares sold 85,696 $902,545 77,742 $508,461 Distributions reinvested 148,181 1,214,347 5,598 36,853 Shares repurchased (172,441) (1,790,251) (127,521) (894,983) Net increase (decrease) 61,436 $326,641 (44,181) ($349,669) NOTE D Investment transactions Purchases and proceeds from sales of securities, other than short-term securities and obligations of the U.S. government, during the year ended February 28, 2003, aggregated $1,929,697 and $2,378,287, respectively. The cost of investments owned on February 28, 2003, including short-term investments, for federal income tax purposes was $3,485,276. Gross unrealized appreciation and depreciation of investments aggregated $261,975 and $371,214, respectively, resulting in net unrealized depreciation of $109,239. The difference between book basis and tax basis net unrealized depreciation of investments is attributable primarily to the tax deferral of losses on wash sales. NOTE E Reclassification of accounts During the year ended February 28, 2003, the Fund reclassified amounts to reflect a decrease in accumulated net realized loss on investments of $39, an increase in accumulated net investment income of $14 and a decrease in capital paid-in of $53. This represents the amount necessary to report these balances on a tax basis, excluding certain temporary differences, as of February 28, 2003. Additional adjustments may be needed in subsequent reporting periods. These reclassifications, which have no impact on the net asset value of the Fund, are primarily attributable to treatment of deferred compensation in the computation of distributable income and capital gains under federal tax rules versus accounting principles generally accepted in the United States of America and book and tax differences in accounting for deferred compensation. The calculation of net investment income per share in the financial highlights excludes these adjustments. 18 - --------- AUDITORS' REPORT - --------- Report of Deloitte & Touche LLP, Independent Auditors To The Board of Trustees and Shareholders of John Hancock Dividend Performers Fund We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of John Hancock Dividend Performers Fund (the "Fund") as of February 28, 2003, the related statement of operations for the year then ended, the statements of changes in net assets for the years ended February 28, 2003 and 2002, and the financial highlights for each of the years in the five-year period ended February 28, 2003. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned at February 28, 2003, by correspondence with the custodian and broker; where replies were not received, we performed alternative auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of February 28, 2003, the results of its operations, the changes in its net assets, and its financial highlights for the respective stated periods in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Boston, Massachusetts April 4, 2003 19 - ----------- TAX INFORMATION - ----------- Unaudited For federal income tax purposes, the following information is furnished with respect to the distributions of the Fund, if any, paid during its taxable year ended February 28, 2003. With respect to the ordinary dividends paid by the Fund for the fiscal year ended February 28, 2003, 100% of the dividends qualify for the corporate dividends-received deduction. Shareholders will be mailed a 2003 U.S. Treasury Department Form 1099-DIV in January 2004. This will reflect the total of all distributions that are taxable for the calendar year 2003. 20 - ---------- TRUSTEES & OFFICERS - ---------- This chart provides information about the Trustees and Officers who oversee your John Hancock Fund. Officers elected by the Trustees manage the day-to-day operations of the Fund and execute policies formulated by the Trustees. INDEPENDENT TRUSTEES NUMBER OF NAME, AGE TRUSTEE JOHN HANCOCK PRINCIPAL OCCUPATION(S) AND OTHER OF FUND FUNDS OVERSEEN DIRECTORSHIPS DURING PAST 5 YEARS SINCE 1 BY TRUSTEE - ---------------------------------------------------------------------------------------------------- James F. Carlin, Born: 1940 1995 30 - ---------------------------------------------------------------------------------------------------- Director/Treasurer, Alpha Analytical Laboratories (analytical laboratory); Part Owner and Treasurer, Lawrence Carlin Insurance Agency, Inc. (since 1995); Part Owner and Vice President, Mone Lawrence Carlin Insurance Agency, Inc. (since 1996); Director/Treasurer, Rizzo Associates (until 2000); Chairman and CEO, Carlin Consolidated, Inc. (management/investments) (since 1987); Director/Partner, Proctor Carlin & Co., Inc. (until 1999); Trustee, Massachusetts Health and Education Tax Exempt Trust (since 1993); Director of the following: Uno Restaurant Corp. (until 2001), Arbella Mutual (insurance) (until 2000), HealthPlan Services, Inc. (until 1999), Flagship Healthcare, Inc. (until 1999), Carlin Insurance Agency, Inc. (until 1999), Chairman, Massachusetts Board of Higher Education (until 1999). - -------------------------------------------------------------------------------------------------- William H. Cunningham, Born: 1944 1995 30 - -------------------------------------------------------------------------------------------------- Former Chancellor, University of Texas System and former President of the University of Texas, Austin, Texas; Chairman and CEO, IBT Technologies (until 2001); Director of the following: The University of Texas Investment Management Company (until 2000), Hire.com (since 2000), STC Broadcasting, Inc. and Sunrise Television Corp. (until 2001), Symtx, Inc. (since 2001), Adorno/ Rogers Technology, Inc. (since 2001), Pinnacle Foods Corporation (since 2001), rateGenius (since 2001), LaQuinta Motor Inns, Inc. (hotel management company) (until 1998), Jefferson-Pilot Corporation (diversified life insurance company) (since 1985), New Century Equity Holdings (formerly Billing Concepts) (until 2001), eCertain (until 2001), ClassMap.com (until 2001), Agile Ventures (until 2001), LBJ Foundation (until 2000), Golfsmith International, Inc. (until 2000), Metamor - Worldwide (until 2000); AskRed.com (until 2001), Southwest Airlines (since 2000) and Introgen (since 2000); Advisory Director, Q Investments (since 2000); Advisory Director, Chase Bank (formerly Texas Commerce Bank - Austin) (since 1988), LIN Television (since 2002) and WilTel Communications (since 2002). 21 - -------------------------------------------------------------------------------------------------- Ronald R. Dion, Born: 1946 1998 30 - -------------------------------------------------------------------------------------------------- Chairman and Chief Executive Officer, R.M. Bradley & Co., Inc.; Director, The New England Council and Massachusetts Roundtable; Trustee, North Shore Medical Center; Director, BJ's Wholesale Club, Inc. and a corporator of the Eastern Bank; Trustee, Emmanuel College. - -------------------------------------------------------------------------------------------------- Charles L. Ladner2, Born: 1938 1995 30 - -------------------------------------------------------------------------------------------------- Chairman and Trustee, Dunwoody Village, Inc. (retirement services); Senior Vice President and Chief Financial Officer, UGI Corporation (Public Utility Holding Company) (retired 1998); Vice President and Director for AmeriGas, Inc. (retired 1998); Director of AmeriGas Partners, L.P. (until 1997) (gas distribution); Director, EnergyNorth, Inc. (until 1995); Director, Parks and History Association (since 2001). - -------------------------------------------------------------------------------------------------- Steven Pruchansky, Born: 1944 1995 30 - -------------------------------------------------------------------------------------------------- Chairman and Chief Executive Officer, Mast Holdings, Inc. (since 2000); Director and President, Mast Holdings, Inc. (until 2000); Managing Director, JonJames, LLC (real estate) (since 2001); Director, First Signature Bank & Trust Company (until 1991); Director, Mast Realty Trust (until 1994); President, Maxwell Building Corp. (until 1991). - -------------------------------------------------------------------------------------------------- Norman H. Smith, Born: 1933 1995 30 - -------------------------------------------------------------------------------------------------- Lieutenant General, United States Marine Corps; Deputy Chief of Staff for Manpower and Reserve Affairs, Headquarters Marine Corps; Commanding General III Marine Expeditionary Force/3rd Marine Division (retired 1991). - -------------------------------------------------------------------------------------------------- John P. Toolan2, Born: 1930 1995 30 - -------------------------------------------------------------------------------------------------- Director, The Smith Barney Muni Bond Funds, The Smith Barney Tax-Free Money Funds, Inc., Vantage Money Market Funds (mutual funds), The Inefficient-Market Fund, Inc. (closed-end investment company) and Smith Barney Trust Company of Florida; Chairman, Smith Barney Trust Company (retired 1991); Director, Smith Barney, Inc., Mutual Management Company and Smith Barney Advisers, Inc. (investment advisers) (retired 1991); Senior Executive Vice President, Director and member of the Executive Committee, Smith Barney, Harris Upham & Co., Incorporated (investment bankers) (until 1991). INTERESTED TRUSTEES3 NAME, AGE NUMBER OF POSITION(S) HELD WITH FUND TRUSTEE JOHN HANCOCK PRINCIPAL OCCUPATION(S) AND OTHER OF FUND FUNDS OVERSEEN DIRECTORSHIPS DURING PAST 5 YEARS SINCE 1 BY TRUSTEE - -------------------------------------------------------------------------------------------------- John M. DeCiccio, Born: 1948 2001 61 - -------------------------------------------------------------------------------------------------- Trustee Executive Vice President and Chief Investment Officer, John Hancock Financial Services, Inc.; Director, Executive Vice President and Chief Investment Officer, John Hancock Life Insurance Company; Chairman of the Committee of Finance of John Hancock Life Insurance Company; Director, John Hancock Subsidiaries, LLC ("Subsidiaries, LLC"), Hancock Natural Resource Group, Independence Investment LLC, Independence Fixed Income LLC, John Hancock Advisers, LLC (the "Adviser") and The Berkeley Financial Group, LLC ("The Berkeley Group"), John Hancock Funds, LLC ("John Hancock Funds"), Massachusetts Business Development Corporation; Director, John Hancock Insurance Agency, Inc. ("Insurance Agency, Inc.") (until 1999). 22 NAME, AGE NUMBER OF POSITION(S) HELD WITH FUND TRUSTEE JOHN HANCOCK PRINCIPAL OCCUPATION(S) AND OTHER OF FUND FUNDS OVERSEEN DIRECTORSHIPS DURING PAST 5 YEARS SINCE 1 BY TRUSTEE - -------------------------------------------------------------------------------------------------- Maureen R. Ford, Born: 1955 2000 61 - -------------------------------------------------------------------------------------------------- Trustee, Chairman, President and Chief Executive Officer Executive Vice President, John Hancock Financial Services, Inc., John Hancock Life Insurance Company; Chairman, Director, President and Chief Executive Officer, the Adviser and The Berkeley Group; Chairman, Director, President and Chief Executive Officer, John Hancock Funds; Chairman, Director and Chief Executive Officer, Sovereign Asset Management Corporation ("SAMCorp."); Director, Independence Investment LLC, Subsidiaries, LLC, Independence Fixed Income LLC and Signature Services; Senior Vice President, MassMutual Insurance Co. (until 1999). PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES NAME, AGE POSITION(S) HELD WITH FUND OFFICER PRINCIPAL OCCUPATION(S) AND OTHER OF FUND DIRECTORSHIPS DURING PAST 5 YEARS SINCE - -------------------------------------------------------------------------------------------------- William L. Braman, Born: 1953 2000 - -------------------------------------------------------------------------------------------------- Executive Vice President and Chief Investment Officer Executive Vice President and Chief Investment Officer, the Adviser and each of the John Hancock funds; Director, SAMCorp., Executive Vice President and Chief Investment Officer, Baring Asset Management, London U.K. (until 2000). - -------------------------------------------------------------------------------------------------- Richard A. Brown, Born: 1949 2000 - -------------------------------------------------------------------------------------------------- Senior Vice President and Chief Financial Officer Senior Vice President, Chief Financial Officer and Treasurer, the Adviser, John Hancock Funds, and The Berkeley Group; Second Vice President and Senior Associate Controller, Corporate Tax Department, John Hancock Financial Services, Inc. (until 2001). - -------------------------------------------------------------------------------------------------- Thomas H. Connors, Born: 1959 1995 - -------------------------------------------------------------------------------------------------- Vice President and Compliance Officer Vice President and Compliance Officer, the Adviser and each of the John Hancock funds; Vice President, John Hancock Funds. - -------------------------------------------------------------------------------------------------- William H. King, Born: 1952 1995 - -------------------------------------------------------------------------------------------------- Vice President and Treasurer Vice President and Assistant Treasurer, the Adviser; Vice President and Treasurer of each of the John Hancock funds; Assistant Treasurer of each of the John Hancock funds (until 2001). - -------------------------------------------------------------------------------------------------- Susan S. Newton, Born: 1950 1995 - -------------------------------------------------------------------------------------------------- Senior Vice President, Secretary and Chief Legal Officer Senior Vice President, Secretary and Chief Legal Officer, SAMCorp., the Adviser and each of the John Hancock funds, John Hancock Funds and The Berkeley Group; Vice President, Signature Services (until 2000), Director, Senior Vice President and Secretary, NM Capital.
The business address for all Trustees and Officers is 101 Huntington Avenue, Boston, Massachusetts 02199. The Statement of Additional Information of the Fund includes additional information about members of the Board of Trustees of the Fund and is available, without charge, upon request, by calling 1-800-225-5291. 1 Each Trustee serves until resignation, retirement age or until his or her successor is elected. 2 Member of Audit Committee. 3 Interested Trustees hold positions with the Fund's investment adviser, underwriter and certain other affiliates. 23 - ---------- OUR FAMILY OF FUNDS - ---------- - -------------------------------------------------------------------------------- Equity Balanced Fund Classic Value Fund Core Equity Fund Focused Equity Fund Growth Trends Fund Large Cap Equity Fund Large Cap Growth Fund Large Cap Spectrum Fund Mid Cap Growth Fund Multi Cap Growth Fund Small Cap Equity Fund Small Cap Growth Fund Sovereign Investors Fund U.S. Global Leaders Growth Fund - -------------------------------------------------------------------------------- Sector Biotechnology Fund Financial Industries Fund Health Sciences Fund Real Estate Fund Regional Bank Fund Technology Fund - -------------------------------------------------------------------------------- Income Bond Fund Government Income Fund High Income Fund High Yield Bond Fund Investment Grade Bond Fund Strategic Income Fund - -------------------------------------------------------------------------------- International International Fund Pacific Basin Equities Fund - -------------------------------------------------------------------------------- Tax-Free Income California Tax-Free Income Fund High Yield Municipal Bond Fund Massachusetts Tax-Free Income Fund New York Tax-Free Income Fund Tax-Free Bond Fund - -------------------------------------------------------------------------------- Money Market Money Market Fund U.S. Government Cash Reserve For more complete information on any John Hancock Fund and a prospectus, which includes charges and expenses, call your financial professional, or John Hancock Funds at 1-800-225-5291. Please read the prospectus carefully before investing or sending money. 24 INVESTMENT ADVISER John Hancock Advisers, LLC 101 Huntington Avenue Boston, Massachusetts 02199-7603 PRINCIPAL DISTRIBUTOR John Hancock Funds, LLC 101 Huntington Avenue Boston, Massachusetts 02199-7603 CUSTODIAN ----------- The Bank of New York FOR YOUR One Wall Street INFORMATION New York, New York 10286 ----------- TRANSFER AGENT John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1001 Boston, Massachusetts 02217-1001 LEGAL COUNSEL Hale and Dorr LLP 60 State Street Boston, Massachusetts 02109-1803 INDEPENDENT AUDITORS Deloitte & Touche LLP 200 Berkeley Street Boston, Massachusetts 02116-5022 - -------------------------------------------------------------------------------- HOW TO CONTACT US On the Internet www.jhfunds.com By regular mail John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1001 Boston, MA 02217-1001 By express mail John Hancock Signature Services, Inc. Attn: Mutual Fund Image Operations 529 Main Street Charlestown, MA 02129 Customer service representatives 1-888-972-8696 24-hour automated information 1-800-597-1897 TDD line 1-800-554-6713 - -------------------------------------------------------------------------------- 25 [LOGO] John Hancock 1-800-972-8696 1-800-554-6713 (TDD) 1-800-597-1897 EASI-Line www.jhfunds.com - ---------------------------------- Now available: electronic delivery www.jhancock.com/funds/edelivery - ---------------------------------- 4420A 2/03 4/03 This report is for the information of the shareholders of the John Hancock Dividend Performers Fund. John Hancock Large Cap Spectrum Fund SEMI ANNUAL REPORT 4.30.03 Sign up for electronic delivery at www.jhancock.com/funds/edelivery [A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower, center middle of page. A tag line below reads "JOHN HANCOCK FUNDS."] [A photo of Maureen R. Ford, Chairman and Chief Executive Officer, flush left next to first paragraph.] WELCOME Table of contents Your fund at a glance page 1 Managers' report page 2 A look at performance page 6 Growth of $10,000 page 7 Fund's investments page 8 Financial statements page 12 For your information page 25 Dear Fellow Shareholders, After a strong start to 2003, the stock market succumbed to the pressures of a weak economy, rising oil prices, concerns about corporate earnings and uncertainties about the war in Iraq. The tide turned in April, when the war ended and first-quarter corporate earnings came in better than expected. As a result, the major indexes all gained some ground year to date through April 30, 2003, with the Dow Jones Industrial Average returning 2.50%, the Standard & Poor's 500 Index returning 4.82% and the tech-heavy Nasdaq Composite Index up 9.64%. Bonds, which have outperformed stocks for the last three years, continued their upward trend this year, as investors still sought their relative safety. After the jarring stock market losses of the last three years, it's a relief for investors to be reminded that the market is indeed cyclical, and does eventually move up -- not just down. But while the stock market has been clawing its way back, the ride has been extremely volatile. Uncertainty still abounds about the strength of the economy, geopolitical issues, corporate governance problems, rising unemployment and the sustainability of corporate earnings growth. And despite rallies late last year and in April, many investors are still so bruised and skeptical that they have remained on the sidelines. Even though the statistics suggest we might be emerging from this long, difficult bear market, we're not quite ready to call it history. While no one can predict when this bear market cycle will turn, investors can take charge of how they maneuver through such uncertain times. First, take a look at how your portfolio is allocated among stocks, bonds and cash to make sure it's in the proper balance. Work with your investment professional, who knows your long-term goals and can help keep you on the right track, rather than being lured by today's stars, which could wind up tomorrow's laggards. And as always, keep a long-term investment horizon. We believe this offers the best way for you to survive the tough times and reach your investment objectives. Sincerely, /S/ MAUREEN R. FORD Maureen R. Ford, Chairman and Chief Executive Officer This commentary reflects the chairman's views as of April 30, 2003. They are subject to change at any time. YOUR FUND AT A GLANCE The Fund seeks long-term growth of capital by normally investing at least 80% of its assets in stocks of large- capitalization companies. The Fund's assets are managed according to three separate investment strategies -- growth, core and value. Over the last six months * Stock prices rebounded following a period of prolonged pessimism related to war and economic uncertainty. * Large-cap, multinational stocks benefited from the weak U.S. dollar. * The Fund's value strategy helped it post especially strong gains as bargain stocks made strong comebacks. [Bar chart with heading "John Hancock Large Cap Spectrum Fund." Under the heading is a note that reads "Fund performance for the six months ended April 30, 2003." The chart is scaled in increments of 1% with 0% at the bottom and 3% at the top. The first bar represents the 2.22% total return for Class A. The second bar represents the 1.83% total return for Class B. The third bar represents the 1.83% total return for Class C. A note below the chart reads "Total returns for the Fund are at net asset value with all distributions reinvested.] Top 10 holdings 3.8% Microsoft Corp. 3.8% Pfizer, Inc. 3.5% General Electric Co. 3.4% Citigroup, Inc. 2.5% Wal-Mart Stores, Inc. 2.4% Freddie Mac 2.3% Bank of America Corp. 2.0% Viacom, Inc. 1.8% Goldman Sachs Group, Inc. (The) 1.8% American International Group, Inc. As a percentage of net assets on April 30, 2003. MANAGERS' REPORT John Hancock Large Cap Spectrum Fund Despite continued volatility, stocks closed up for the six months ended April 30, 2003, with the Standard & Poor's 500 Index returning 4.47%. After rallying late last year, stock prices trended down as the war with Iraq, higher oil prices, the SARS virus and economic uncertainty dominated headlines. Investors favored cheap stocks with less downside risk. In April, however, stocks rebounded nicely, following success in Iraq, a decline in oil prices and better-than-expected earnings reports. Large, multinational stocks benefited from the weak U.S. dollar. The Russell 1000 Value Index returned 5.25% for the six-month period, slightly ahead of the Russell 1000 Growth Index's 4.28% return. PERFORMANCE AND STRATEGY REVIEW John Hancock Large Cap Spectrum Fund's Class A, Class B, and Class C shares returned 2.22%, 1.83% and 1.83%, respectively, at net asset value over the six-month period ended April 30, 2003. By comparison, the average large-cap core fund returned 2.96%, according to Lipper, Inc.1 Keep in mind that your net asset value return will be different from the Fund's performance if you were not invested in the Fund for the entire period and did not reinvest distributions. See pages six and seven for historical performance information. "The core portfolio posted a modestly positive return..." In a volatile market, our strategy of allocating 50% of the Fund's assets to a core portfolio and 25% each to growth and value stocks helped the Fund maintain exposure to the best-performing asset classes. LARGE CAP CORE STRATEGY by Paul J. Berlinguet, John Hancock Advisers The core portfolio posted a modestly positive return, but lagged the S&P 500 due to stock selection in the financial, consumer staples and technology sectors. In the financial area, we focused on banks with more predictable earnings growth, which trailed more economically sensitive brokers. State Street, which handles transactions and custodial services for investment managers, was a particular disappointment as investors worried about a recent acquisition. In the consumer staples sector, Kraft Foods declined due to problems at parent company Altria, while Coca-Cola suffered from slower sales growth. Our technology investments focused on market leaders with strong balance sheets, such as Microsoft, which lagged more aggressive names. "Our focus on high-quality growth stocks hampered performance as low- quality stocks rallied early..." Positive returns came from the health-care sector, where we targeted large-cap pharmaceuticals with cheap stock prices, such as Merck, as well as more expensive equipment and service stocks with the potential for faster growth. Our slightly above-average stake in consumer discretionary stocks also did well, thanks to Wal-Mart Stores, which continued to gain market share, and Comcast, a leading cable provider benefiting from improved financial controls. Selected financials, including Travelers Property Casualty and Citigroup, also helped returns as their outlooks brightened. LARGE CAP GROWTH STRATEGY by Stephanie Simon, CFA, AllianceBernstein The portfolio, which is comprised of mainly high-quality growth stocks, modestly underperformed the Russell 1000 Growth Index during an unusual market rally of lower-quality stocks late in 2002. In the health-care sector, Tenet Healthcare sank amid revelations of deceptive pricing practices, causing us to sell. Cardinal Health, a drug distributor, suffered amid revised growth prospects, while Pfizer, a large pharmaceutical company, disappointed as investors worried about future patent expirations. Our strongest performers were economically sensitive consumer discretionary and industrial stocks, including Comcast and General Electric. [Table at top left-hand side of page entitled "Top five industry groups." The first listing is medical 15%, the second is Retail 10%, the third Computers 10%, the fourth Finance 8%, and the fifth Banks-United States 8%.] We kept an above-average stake in financials, where returns were mixed. One of our largest and best investments was Citigroup. MBNA, the credit card company, however, slid as investors reacted to deterioration in a small segment of its business, even as prospects for its core business strengthened. Freddie Mac, a government-backed mortgage lender, tumbled amid concerns that it would suffer as the refinancing cycle ended. American International Group, a large multi-line insurer, also declined as weak financial markets hurt certain business units. We believe prospects for all remain strong and even added to our investment in MBNA. We kept a below-average stake in technology where we found little evidence of recovery. We did, however, own Intel, which rallied on the expectation that corporations would soon upgrade their personal computers. LARGE CAP VALUE STRATEGY by Marilyn Fedak, CFA, AllianceBernstein The value portfolio, which focuses on identifying and selecting bargains, nicely outpaced the Russell 1000 Value Index. Stock selection was strong across most sectors. Within financials, we focused on regional banks and savings and loans (S&Ls) that had tumbled on concerns that the weak economy would increase loan losses. When earnings came in better than expected, stocks like Washington Mutual, a leading S&L, rallied nicely. Other top performers included Lehman Brothers and Morgan Stanley, investment bankers that benefited from strong cost controls and an improving market outlook. [Table at top of page entitled "SCORECARD." The header for the left column is "INVESTMENT" and the header for the right column is "PERIOD'S PERFORMANCE...AND WHAT'S BEHIND THE NUMBERS." The first listing is Nortel Networks followed by an up arrow with the phrase "Improved balance sheet, lifting of pessimism." The second listing is Johnson & Johnson followed by a sideways arrow with the phrase "Awaiting approval of new drug-coated stents." The third listing is American International Group followed by a down arrow with the phrase "Weak financial markets, increased liability claims."] Our above-average stake in the beaten-down technology sector also helped performance, as many of these stocks rallied. Our strongest returns came from telecommunications equipment companies, such as Nortel Networks and Corning, that had strengthened their balance sheets. Other telecom-related stocks, however, disappointed, including Tellabs, a well- capitalized equipment company, and SBC Communications, a service provider. Schering-Plough, a large pharmaceutical company, also faltered amid concerns that its antihistamine products would lose market share. "The value portfolio...nicely outpaced the Russell 1000 Value Index." MANAGERS' OUTLOOK We believe the market outlook is improving now that the war with Iraq is over. Oil prices have come down, lowering expenses for both consumers and corporations. Although unemployment still hovers around 6%, wage and income growth has continued, and inflation has remained benign. Corporations have reaped strong productivity gains, while recent economic data appears encouraging. In our view, investors' risk aversion has made long-term expected returns for stocks very attractive compared to bonds. We think these trends -- along with reasonable valuations and a weakening U.S. dollar -- bode well for large-cap stocks. This commentary reflects the views of the portfolio managers through the end of the Fund's period discussed in this report. The managers' statements reflect their own opinions. As such, they are in no way guarantees of future events, and are not intended to be used as investment advice or a recommendation regarding any specific security. They are also subject to change at any time as market and other conditions warrant. 1 Figures from Lipper, Inc. include reinvested dividends and do not take into account sales charges. Actual load-adjusted performance is lower. A LOOK AT PERFORMANCE For the period ended April 30, 2003 The index used for comparison is the Standard & Poor's 500 Index, an unman- aged index that includes 500 widely traded common stocks. It is not possible to invest in an index. Class A Class B Class C Index Inception date 2-25-02 2-25-02 2-25-02 -- Average annual returns with maximum sales charge (POP) One year -21.21% -21.71% -19.26% -13.30% Since inception -22.20% -21.99% -19.91% -13.49% Cumulative total returns with maximum sales charge (POP) Six months -2.85% -3.17% -0.21% 4.47% One year -21.21% -21.71% -19.26% -13.30% Since inception -25.55% -25.31% -22.97% -15.66% Performance figures assume all distributions are reinvested. Returns with maximum sales charge reflect a sales charge on Class A shares of 5% and Class C shares of 1%, and the applicable contingent deferred sales charge (CDSC) on Class B and Class C shares. The Class B shares' CDSC declines annually between years 1-6 according to the following schedule: 5, 4, 3, 3, 2, 1%. No sales charge will be assessed after the sixth year. Class C shares held for less than one year are subject to a 1% CDSC. The return and principal value of an investment in the Fund will fluctuate, so that shares, when redeemed, may be worth more or less than the original cost. Index figures do not reflect sales charges and would be lower if they did. The returns reflect past results and should not be considered indicative of future performance. The performance table above and the chart on the next page do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The Fund's performance results reflect any applicable expense reductions, without which the expenses would increase and results would have been less favorable. These reductions can be terminated in the future. See the prospectus for details. GROWTH OF $10,000 This chart shows what happened to a hypothetical $10,000 investment in Class A shares for the period indicated. For comparison, we've shown the same investment in the Standard & Poor's 500 Index. Line chart with the heading "GROWTH OF $10,000." Within the chart are three lines. The first line represents the Index and is equal to $8,434 as of April 30, 2003. The second line represents the value of the hypothetical $10,000 investment made in the John Hancock Large Cap Spectrum Fund, before sales charge, and is equal to $7,840 as of April 30, 2003. The third line represents the value of the same hypothetical investment made in the John Hancock Large Cap Spectrum Fund, after sales charge, and is equal to $7,445 as of April 30, 2003. Class B Class C 1 Period beginning 2-25-02 2-25-02 Without sales charge $7,780 $7,780 With maximum sales charge $7,469 $7,702 Index $8,434 $8,434 Assuming all distributions were reinvested for the period indicated, the table above shows the value of a $10,000 investment in the Fund's Class B and Class C shares, respectively, as of April 30, 2003. Performance of the classes will vary based on the difference in sales charges paid by shareholders investing in the different classes and the fee structure of those classes. 1 No contingent deferred sales charge applicable. FINANCIAL STATEMENTS FUND'S INVESTMENTS Securities owned by the Fund on April 30, 2003 (unaudited) This schedule is divided into two main categories: common stocks and short-term investments. Stocks are further broken down by industry group. Short-term investments, which represent the Fund's cash position, are listed last.
SHARES ISSUER VALUE COMMON STOCKS 98.88% $17,516,703 (Cost $18,498,264) Advertising 0.70% 123,800 2,000 Omnicom Group, Inc. 123,800 Automobiles/Trucks 0.94% 167,033 1,400 Lear Corp.* 55,636 1,900 Magna International, Inc. (Class A) (Canada) 111,397 Banks -- United States 7.53% 1,333,194 5,500 Bank of America Corp. 407,275 4,800 FleetBoston Financial Corp. 127,296 3,000 J.P. Morgan Chase & Co. 88,050 3,000 National City Corp. 89,880 2,850 State Street Corp. 99,836 7,600 U.S. Bancorp 168,340 4,300 Wachovia Corp. 164,303 3,900 Wells Fargo & Co. 188,214 Beverages 1.65% 292,980 1,500 Anheuser-Busch Cos., Inc. 74,820 5,400 Coca-Cola Co. (The) 218,160 Broker Services 3.57% 632,769 4,300 Goldman Sachs Group, Inc. (The) 326,370 2,200 Lehman Brothers Holdings, Inc. 138,534 1,800 Merrill Lynch & Co., Inc. 73,890 2,100 Morgan Stanley 93,975 Building 0.13% 23,160 1,500 Georgia-Pacific Corp. 23,160 Chemicals 1.13% 199,971 3,600 Dow Chemical Co. (The) 117,504 1,700 PPG Industries, Inc. 82,467 Computers 9.62% 1,704,049 3,200 Affiliated Computer Services, Inc.* 152,640 10,600 Cisco Systems, Inc.* 159,424 6,100 Dell Computer Corp.* 176,351 1,500 Electronic Data Systems Corp. 27,225 17,800 Hewlett-Packard Co. 290,140 2,000 International Business Machines Corp. 169,800 1,800 Mercury Interactive Corp.* 61,092 26,100 Microsoft Corp. 667,377 Cosmetics & Personal Care 2.91% 515,449 1,000 Avon Products, Inc. 58,170 1,200 Colgate-Palmolive Co. 68,604 1,300 Estee Lauder Cos., Inc. (The) (Class A) 42,250 4,000 Gillette Co. (The) 121,800 2,500 Procter & Gamble Co. (The) 224,625 Diversified Operations 4.02% 712,568 700 3M Co. 88,228 21,200 General Electric Co. 624,340 Electronics 3.43% 607,591 6,000 Applied Materials, Inc.* 87,600 3,700 Avnet, Inc.* 47,175 15,100 Intel Corp. 277,840 1,200 KLA-Tencor Corp.* 49,200 11,500 Solectron Corp.* 36,685 5,900 Texas Instruments, Inc. 109,091 Finance 7.91% 1,400,390 2,500 American Express Co. 94,650 15,500 Citigroup, Inc. 608,375 2,000 Golden West Financial Corp. 150,840 15,750 MBNA Corp. 297,675 6,300 Washington Mutual, Inc. 248,850 Food 0.47% 83,430 2,700 Kraft Foods, Inc. (Class A) 83,430 Household 0.36% 63,551 2,085 Newell Rubbermaid, Inc. 63,551 Insurance 4.97% 880,710 5,400 American International Group, Inc. 312,930 1,900 Chubb Corp. (The) 100,491 4,800 CIGNA Corp. 251,040 13,324 Travelers Property Casualty Corp. (Class A) 216,249 Leisure 0.58% 102,178 4,700 Mattel, Inc. 102,178 Machinery 0.34% 59,360 1,600 Cooper Industries, Ltd. (Class A) 59,360 Media 6.42% 1,137,586 3,450 Clear Channel Communications, Inc.* 134,930 6,400 Comcast Corp. (Class A)* 204,224 8,400 Comcast Corp. (Special Class A)* 252,504 1,100 Gannett Co., Inc. 83,292 2,300 New York Times Co. (The) (Class A) 106,674 8,200 Viacom, Inc. (Class B)* 355,962 Medical 15.06% 2,667,402 4,450 Aetna, Inc. 221,610 1,500 Amgen, Inc.* 91,965 1,200 Bard (C.R.), Inc. 76,056 1,200 Barr Laboratories, Inc.* 66,720 1,500 Biovail Corp. (Canada)* 54,225 1,600 Cardinal Health, Inc. 88,448 2,500 Gilead Sciences, Inc.* 115,350 2,800 IDEC Pharmaceuticals Corp.* 91,700 4,400 Johnson & Johnson 247,984 4,594 Medtronic, Inc. 219,318 3,200 Merck & Co., Inc. 186,176 2,200 Novartis AG, American Depositary Receipt (ADR) (Switzerland) 86,856 21,700 Pfizer, Inc. 667,275 6,100 Schering-Plough Corp. 110,410 1,100 St. Jude Medical, Inc. * 57,706 3,100 UnitedHealth Group, Inc. 285,603 Mortgage Banking 3.22% 571,070 2,050 Fannie Mae 148,400 7,300 Freddie Mac 422,670 Oil & Gas 3.99% 706,677 2,200 BJ Services Co.* 80,322 4,600 ConocoPhillips 231,380 7,000 Exxon Mobil Corp. 246,400 3,500 Occidental Petroleum Corp. 104,475 1,200 Valero Energy Corp. 44,100 Paper & Paper Products 0.69% 122,668 5,200 MeadWestvaco Corp. 122,668 Retail 10.45% 1,851,685 3,200 Bed Bath & Beyond, Inc.* 126,432 2,700 Gap, Inc. (The) 44,901 4,800 Genuine Parts Co. 153,456 4,995 Kohl's Corp.* 283,716 5,500 Lowe's Cos., Inc. 241,395 10,800 McDonald's Corp. 184,680 1,300 Safeway, Inc.* 21,606 2,600 Sears, Roebuck & Co. 73,684 1,300 Target Corp. 43,472 5,100 Walgreen Co. 157,386 7,850 Wal-Mart Stores, Inc. 520,957 Telecommunications 4.24% 751,715 5,500 Corning, Inc.* 29,810 13,100 Nokia Corp. (ADR) (Finland) 217,067 17,200 Nortel Networks Corp. (Canada)* 44,376 21,200 Qwest Communications International, Inc.* 79,924 6,900 SBC Communications, Inc. 161,184 11,300 Tellabs, Inc.* 69,834 4,000 Verizon Communications, Inc. 149,520 Tobacco 0.32% 56,906 1,850 Altria Group, Inc. 56,906 Transportation 2.40% 425,601 6,000 Burlington Northern Santa Fe Corp. 168,960 12,100 Norfolk Southern Corp. 256,641 Utilities 1.83% 323,210 5,400 American Electric Power Co., Inc. 142,452 1,100 Cinergy Corp. 37,554 1,800 Constellation Energy Group, Inc. 52,704 2,500 PPL Corp. 90,500 INTEREST PAR VALUE ISSUER, DESCRIPTION, MATURITY DATE RATE (000s OMITTED) VALUE SHORT-TERM INVESTMENTS 3.06% $542,000 (Cost $542,000) Joint Repurchase Agreement 3.06% Investment in a joint repurchase agreement transaction with State Street Bank & Trust Co. - -- Dated 04-30-03, due 05-01-03 (Secured by U.S. Treasury Inflation Indexed Bond 3.875% due 04-15-29, U.S. Treasury Inflation Indexed Notes 3.375% due 01-15-07 and 3.000% due 07-15-12) 1.280% $542 542,000 TOTAL INVESTMENTS 101.94% $18,058,703 OTHER ASSETS AND LIABILITIES, NET (1.94%) ($343,783) TOTAL NET ASSETS 100.00% $17,714,920
* Non-income-producing security. Parenthetical disclosure of a foreign country in the security description represents country of a foreign issuer. The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the Fund. See notes to financial statements. ASSETS AND LIABILITIES April 30, 2003 (unaudited) This Statement of Assets and Liabilities is the Fund's balance sheet. It shows the value of what the Fund owns, is due and owes. You'll also find the net asset value and the maximum offering price per share. ASSETS Investments at value (cost $19,040,264) $18,058,703 Cash 1,745 Receivable for investments sold 161,812 Receivable for shares sold 982 Dividends and interest receivable 16,090 Other assets 20 Total assets 18,239,352 LIABILITIES Payable for investments purchased 432,244 Payable for shares repurchased 45,420 Payable to affiliates 24,717 Other payables and accrued expenses 22,051 Total liabilities 524,432 NET ASSETS Capital paid-in 23,950,399 Accumulated net realized loss on investments (5,231,588) Net unrealized depreciation of investments (981,561) Accumulated net investment loss (22,330) Net assets $17,714,920 NET ASSET VALUE PER SHARE Based on net asset values and shares outstanding Class A ($5,466,638 [DIV] 697,414 shares) $7.84 Class B ($7,422,524 [DIV] 954,490 shares) $7.78 Class C ($4,825,758 [DIV] 620,513 shares) $7.78 MAXIMUM OFFERING PRICE PER SHARE Class A 1 ($7.84 [DIV] 95%) $8.25 Class C ($7.78 [DIV] 99%) $7.86 1 On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the offering price is reduced. See notes to financial statements. OPERATIONS For the period ended April 30, 2003 (unaudited) 1 This Statement of Operations summarizes the Fund's investment income earned and expenses incurred in operat- ing the Fund. It also shows net gains (losses) for the period stated. INVESTMENT INCOME Dividends (net of foreign withholding taxes of $872) $153,964 Interest 4,368 Total investment income 158,332 EXPENSES Investment management fee 77,289 Class A distribution and service fee 8,305 Class B distribution and service fee 38,321 Class C distribution and service fee 24,923 Transfer agent fee 49,984 Registration and filing fee 21,310 Custodian fee 13,858 Auditing fee 9,918 Printing 7,279 Accounting and legal services fee 2,431 Trustees' fee 873 Miscellaneous 685 Legal fees 120 Total expenses 255,296 Less expense reductions (74,634) Net expenses 180,662 Net investment loss (22,330) REALIZED AND UNREALIZED GAIN (LOSS) Net realized loss on investments (1,128,732) Change in net unrealized appreciation (depreciation) of investments 1,388,045 Net realized and unrealized gain 259,313 Increase in net assets from operations $236,983 1 Semiannual period from 11-1-02 through 4-30-03. See notes to financial statements. CHANGES IN NET ASSETS This Statement of Changes in Net Assets shows how the value of the Fund's net assets has changed since the end of the previous period. The dif- ference reflects earnings less expenses, any investment gains and losses, distributions, if any, paid to shareholders and any increase or decrease in money share- holders invested in the Fund. PERIOD PERIOD ENDED ENDED 10-31-02 1 4-30-03 2 INCREASE (DECREASE) IN NET ASSETS From operations Net investment loss ($68,104) ($22,330) Net realized loss (4,102,856) (1,128,732) Change in net unrealized appreciation (depreciation) (2,369,606) 1,388,045 Increase (decrease) in net assets resulting from operations (6,540,566) 236,983 From Fund share transactions 26,371,642 (2,353,139) NET ASSETS Beginning of period -- 19,831,076 End of period 3 $19,831,076 $17,714,920 1 Inception period 2-25-02 through 10-31-02. 2 Semiannual period from 11-1-02 through 4-30-03. Unaudited. 3 Includes accumulated net investment loss of none and $22,330, respectively. See notes to financial statements.
FINANCIAL HIGHLIGHTS CLASS A SHARES The Financial Highlights show how the Fund's net asset value for a share has changed since the end of the previous period. PERIOD ENDED 10-31-02 1 4-30-03 2 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $10.00 $7.67 Net investment income 3 -- 4 0.01 Net realized and unrealized gain (loss) on investments (2.33) 0.16 Total from investment operations (2.33) 0.17 Net asset value, end of period $7.67 $7.84 Total return 5,6 (%) (23.30)7 2.22 7 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in millions) $6 $5 Ratio of expenses to average net assets (%) 1.50 8 1.50 8 Ratio of adjusted expenses to average net assets 9 (%) 2.40 8 2.32 8 Ratio of net investment income to average net assets (%) -- 8 0.24 8 Portfolio turnover (%) 70 40
See notes to financial statements.
FINANCIAL HIGHLIGHTS CLASS B SHARES PERIOD ENDED 10-31-02 1 4-30-03 2 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $10.00 $7.64 Net investment loss 3 (0.04) (0.02) Net realized and unrealized gain (loss) on investments (2.32) 0.16 Total from investment operations (2.36) 0.14 Net asset value, end of period $7.64 $7.78 Total return 5,6 (%) (23.60)7 1.83 7 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in millions) $8 $7 Ratio of expenses to average net assets (%) 2.20 8 2.20 8 Ratio of adjusted expenses to average net assets 9 (%) 3.10 8 3.02 8 Ratio of net investment loss to average net assets (%) (0.69)8 (0.45)8 Portfolio turnover (%) 70 40
See notes to financial statements.
FINANCIAL HIGHLIGHTS CLASS C SHARES PERIOD ENDED 10-31-02 1 4-30-03 2 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $10.00 $7.64 Net investment loss 3 (0.04) (0.02) Net realized and unrealized gain (loss) on investments (2.32) 0.16 Total from investment operations (2.36) 0.14 Net asset value, end of period $7.64 $7.78 Total return 5,6 (%) (23.60)7 1.83 7 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in millions) $6 $5 Ratio of expenses to average net assets (%) 2.20 8 2.20 8 Ratio of adjusted expenses to average net assets 9 (%) 3.10 8 3.02 8 Ratio of net investment loss to average net assets (%) (0.69)8 (0.46)8 Portfolio turnover (%) 70 40 1 Class A, Class B, and Class C shares began operations on 2-25-02. 2 Semiannual period from 11-1-02 through 4-30-03. Unaudited. 3 Based on the average of the shares outstanding. 4 Less than $0.01 per share. 5 Assumes dividend reinvestment and does not reflect the effect of sales charges. 6 Total returns would have been lower had certain expenses not been reduced during the periods shown. 7 Not annualized. 8 Annualized. 9 Does not take into consideration expense reductions during the periods shown.
See notes to financial statements. NOTES TO STATEMENTS (Unaudited) NOTE A Accounting policies John Hancock Large Cap Spectrum Fund (the "Fund") is a non-diversified series of John Hancock Equity Trust, an open-end management investment company registered under the Investment Company Act of 1940. The investment objective of the Fund is to achieve long-term growth of capital. The Fund's assets will be allocated among three investment styles: growth, core and value. The Trustees have authorized the issuance of multiple classes of shares of the Fund, designated as Class A, Class B and Class C shares. The shares of each class represent an interest in the same portfolio of investments of the Fund and have equal rights as to voting, redemptions, dividends and liquidation, except that certain expenses, subject to the approval of the Trustees, may be applied differently to each class of shares in accordance with current regulations of the Securities and Exchange Commission and the Internal Revenue Service. Shareholders of a class that bears distribution and service expenses under terms of a distribution plan have exclusive voting rights to that distribution plan. Significant accounting policies of the Fund are as follows: Valuation of investments Securities in the Fund's portfolio are valued on the basis of market quotations, valuations provided by independent pricing services or at fair value as determined in good faith in accordance with procedures approved by the Trustees. Short-term debt investments maturing within 60 days are valued at amortized cost, which approximates market value. Joint repurchase agreement Pursuant to an exemptive order issued by the Securities and Exchange Commission, the Fund, along with other registered investment companies having a management contract with John Hancock Advisers, LLC (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group, LLC, may participate in a joint repurchase agreement transaction. Aggregate cash balances are invested in one or more large repurchase agreements, whose underlying securities are obligations of the U.S. government and/or its agencies. The Fund's custodian bank receives delivery of the underlying securities for the joint account on the Fund's behalf. The Adviser is responsible for ensuring that the agreement is fully collateralized at all times. Investment transactions Investment transactions are recorded as of the date of purchase, sale or maturity. Net realized gains and losses on sales of investments are determined on the identified cost basis. Class allocations Income, common expenses and realized and unrealized gains (losses) are determined at the fund level and allocated daily to each class of shares based on the appropriate net assets of the respective classes. Distribution and service fees, if any, are calculated daily at the class level based on the appropriate net assets of each class and the specific expense rate(s) applicable to each class. Expenses The majority of the expenses are directly identifiable to an individual fund. Expenses that are not readily identifiable to a specific fund will be allocated in such a manner as deemed equitable, taking into consideration, among other things, the nature and type of expense and the relative sizes of the funds. Bank borrowings The Fund is permitted to have bank borrowings for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Fund has entered into a syndicated line of credit agreement with various banks. This agreement enables the Fund to participate with other funds managed by the Adviser in an unsecured line of credit with banks, which permits borrowings of up to $250 million, collectively. Interest is charged to each fund, based on its borrowing. In addition, a commitment fee is charged to each fund based on the average daily unused portion of the line of credit and is allocated among the participating funds. The Fund had no borrowing activity under the line of credit during the period ended April 30, 2003. Federal income taxes The Fund qualifies as a "regulated investment company" by complying with the applicable provisions of the Internal Revenue Code and will not be subject to federal income tax on taxable income that is distributed to shareholders. Therefore, no federal income tax provision is required. For federal income tax purposes, the Fund has $4,063,884 of a capital loss carryforward available, to the extent provided by regulations, to offset future net realized capital gains. To the extent that such carryforward is used by the Fund, no capital gain distributions will be made. The entire amount of the loss carryforward expires October 31, 2010. Dividends, interest and distributions Dividend income on investment securities is recorded on the ex-dividend date or, in the case of some foreign securities, on the date thereafter when the Fund identifies the dividend. Interest income on investment securities is recorded on the accrual basis. Foreign income may be subject to foreign withholding taxes, which are accrued as applicable. The Fund records distributions to shareholders from net investment income and net realized gains on the ex-dividend date. Distributions paid by the Fund with respect to each class of shares are calculated in the same manner, at the same time and are in the same amount, except for the effect of expenses that may be applied differently to each class. Such distributions, on a tax basis, are determined in conformity with income tax regulations, which may differ from accounting principles generally accepted in the United States of America. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Use of estimates The preparation of these financial statements, in accordance with accounting principles generally accepted in the United States of America, incorporates estimates made by management in determining the reported amount of assets, liabilities, revenues and expenses of the Fund. Actual results could differ from these estimates. NOTE B Management fee and transactions with affiliates and others The Fund has an investment management contract with the Adviser. Under the investment management contract, the Fund pays a monthly management fee to the Adviser at an annual rate of 0.85% of the Fund's average daily net asset value. The Adviser has a subadvisory agreement with Alliance Capital Management LP. The Fund is not responsible for payment of the subadvisory fees. The Adviser has agreed to limit the Fund's expenses, excluding distribution and service fees, to 1.20% of the Fund's average daily net assets, at least until February 28, 2004. Accordingly, the expense reduction amounted to $74,634 for the period ended April 30, 2003. The Adviser reserves the right to terminate this limitation in the future. The Fund has Distribution Plans with John Hancock Funds, LLC ("JH Funds"), a wholly owned subsidiary of the Adviser. The Fund has adopted Distribution Plans with respect to Class A, Class B and Class C pursuant to Rule 12b-1 under the Investment Company Act of 1940 to reimburse JH Funds for the services it provides as distributor of shares of the Fund. Accordingly, the Fund makes monthly payments to JH Funds at an annual rate not to exceed 0.30% of Class A average daily net assets and 1.00% of Class B and Class C average daily net assets. A maximum of 0.25% of such payments may be service fees as defined by the Conduct Rules of the National Association of Securities Dealers. Under the Conduct Rules, curtailment of a portion of the Fund's 12b-1 payments could occur under certain circumstances. Class A and Class C shares are assessed up-front sales charges. During the period ended April 30, 2003, JH Funds received net up-front sales charges of $12,942 with regard to sales of Class A shares. Of this amount, $1,876 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $9,179 was paid as sales commissions to unrelated broker-dealers and $1,887 was paid as sales commissions to sales personnel of Signator Investors, Inc. ("Signator Investors"), a related broker-dealer. The Adviser's indirect parent, John Hancock Life Insurance Company ("JHLICo"), is the indirect sole shareholder of Signator Investors. During the period ended April 30, 2003, JH Funds received net up-front sales charges of $3,802 with regard to sales of Class C shares. Of this amount, $3,776 was paid as sales commissions to unrelated broker-dealers and $26 was paid as sales commissions to sales personnel of Signator Investors. Class B shares that are redeemed within six years of purchase are subject to a contingent deferred sales charge ("CDSC") at declining rates, beginning at 5.00% of the lesser of the current market value at the time of redemption or the original purchase cost of the shares being redeemed. Class C shares that are redeemed within one year of purchase are subject to a CDSC at a rate of 1.00% of the lesser of the current market value at the time of redemption or the original purchase cost of the shares being redeemed. Proceeds from the CDSCs are paid to JH Funds and are used in whole or in part to defray its expenses for providing distribution related services to the Fund in connection with the sale of Class B and Class C shares. During the period ended April 30, 2003, CDSCs received by JH Funds amounted to $21,517 for Class B shares and $2,525 for Class C shares. The Fund has a transfer agent agreement with John Hancock Signature Services, Inc., an indirect subsidiary of JHLICo. The Fund pays a monthly transfer agent fee at an annual rate of 0.05% of the average daily net asset value, plus a fee based on the number of shareholder accounts and reimbursement for certain out-of-pocket expenses. The Fund has an agreement with the Adviser to perform necessary tax, accounting and legal services for the Fund. The compensation for the period was at an annual rate of approximately 0.03% of the average net assets of the Fund. Ms. Maureen R. Ford and Mr. John M. DeCiccio are directors and/or officers of the Adviser and/or its affiliates, as well as Trustees of the Fund. The compensation of unaffiliated Trustees is borne by the Fund. The unaffiliated Trustees may elect to defer for tax purposes their receipt of this compensation under the John Hancock Group of Funds Deferred Compensation Plan. The Fund makes investments into other John Hancock funds, as applicable, to cover its liability for the deferred compensation. Investments to cover the Fund's deferred compensation liability are recorded on the Fund's books as an other asset. The deferred compensation liability and the related other asset are always equal and are marked to market on a periodic basis to reflect any income earned by the investments as well as any unrealized gains or losses. The Deferred Compensation Plan investments had no impact on the operations of the Fund. NOTE C Fund share transactions This listing illustrates the number of Fund shares sold and repurchased during the last two periods, along with the corresponding dollar value. The Fund has an unlimited number of shares authorized with no par value.
PERIOD ENDED 10-31-02 1 PERIOD ENDED 4-30-03 2 SHARES AMOUNT SHARES AMOUNT CLASS A SHARES Sold 1,065,563 $10,469,656 88,621 $676,568 Repurchased (278,331) (2,309,288) (178,439) (1,344,146) Net increase (decrease) 787,232 $8,160,368 (89,818) ($667,578) CLASS B SHARES Sold 1,455,953 $14,180,950 95,719 $723,843 Repurchased (373,460) (3,099,618) (223,722) (1,656,506) Net increase (decrease) 1,082,493 $11,081,332 (128,003) ($932,663) CLASS C SHARES Sold 885,678 $8,455,714 55,398 $425,246 Repurchased (162,390) (1,325,772) (158,173) (1,178,144) Net increase (decrease) 723,288 $7,129,942 (102,775) ($752,898) NET INCREASE (DECREASE) 2,593,013 $26,371,642 (320,596) ($2,353,139) 1 Inception period from 2-25-02 through 10-31-02. 2 Semiannual period from 11-1-02 through 4-30-03. Unaudited.
NOTE D Investment transactions Purchases and proceeds from sales or maturities of securities, other than short-term securities and obligations of the U.S. government, during the period ended April 30, 2003, aggregated $7,067,421 and $8,633,226, respectively. The cost of investments owned on April 30, 2003, including short-term investments, for federal income tax purposes was $19,079,236. Gross unrealized appreciation and depreciation of investments aggregated $716,176 and $1,736,709, respectively, resulting in net unrealized depreciation of $1,020,533. The difference between book basis and tax basis net unrealized depreciation of investments is attributable primarily to the tax deferral of losses on wash sales. OUR FAMILY OF FUNDS - ----------------------------------------------------------------- Equity Balanced Fund Classic Value Fund Core Equity Fund Focused Equity Fund Growth Trends Fund Large Cap Equity Fund Large Cap Growth Fund Large Cap Spectrum Fund Mid Cap Growth Fund Multi Cap Growth Fund Small Cap Equity Fund Small Cap Growth Fund Sovereign Investors Fund U.S. Global Leaders Growth Fund - ----------------------------------------------------------------- Sector Biotechnology Fund Financial Industries Fund Health Sciences Fund Real Estate Fund Regional Bank Fund Technology Fund - ----------------------------------------------------------------- Income Bond Fund Government Income Fund High Income Fund High Yield Bond Fund Investment Grade Bond Fund Strategic Income Fund - ----------------------------------------------------------------- International International Fund Pacific Basin Equities Fund - ----------------------------------------------------------------- Tax-Free Income California Tax-Free Income Fund High Yield Municipal Bond Fund Massachusetts Tax-Free Income Fund New York Tax-Free Income Fund Tax-Free Bond Fund - ----------------------------------------------------------------- Money Market Money Market Fund U.S. Government Cash Reserve For more complete information on any John Hancock Fund and a prospectus, which includes charges and expenses, call your financial professional, or John Hancock Funds at 1-800-225-5291. Please read the prospectus carefully before investing or sending money. ELECTRONIC DELIVERY Now available from John Hancock Funds Instead of receiving annual and semiannual reports and prospectuses through the U.S. mail, we'll notify you by e-mail when these documents are available for online viewing. How does electronic delivery benefit you? * No more waiting for the mail to arrive; you'll receive an e-mail notification as soon as the document is ready for online viewing. * Reduces the amount of paper mail you receive from John Hancock Funds. * Reduces costs associated with printing and mailing. Sign up for electronic delivery today at www.jhancock.com/funds/edelivery FOR YOUR INFORMATION TRUSTEES Dennis S. Aronowitz Richard P. Chapman, Jr. William J. Cosgrove John M. DeCiccio Richard A. Farrell Maureen R. Ford William F. Glavin* Dr. John A. Moore* Patti McGill Peterson* John W. Pratt *Members of the Audit Committee OFFICERS Maureen R. Ford Chairman, President and Chief Executive Officer William L. Braman Executive Vice President and Chief Investment Officer Richard A. Brown Senior Vice President and Chief Financial Officer Susan S. Newton Senior Vice President and Secretary William H. King Vice President and Treasurer Thomas H. Connors Vice President and Compliance Officer INVESTMENT ADVISER John Hancock Advisers, LLC 101 Huntington Avenue Boston, Massachusetts 02199-7603 SUBADVISER Alliance Capital Management, L.P. 1345 Avenue of the Americas New York, New York 10105 PRINCIPAL DISTRIBUTOR John Hancock Funds, LLC 101 Huntington Avenue Boston, Massachusetts 02199-7603 CUSTODIAN The Bank of New York One Wall Street New York, New York 10286 TRANSFER AGENT John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1000 Boston, Massachusetts 02217-1000 LEGAL COUNSEL Hale and Dorr LLP 60 State Street Boston, Massachusetts 02109-1803 HOW TO CONTACT US On the Internet www.jhfunds.com By regular mail John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1000 Boston, MA 02217-1000 By express mail John Hancock Signature Services, Inc. Attn: Mutual Fund Image Operations 529 Main Street Charlestown, MA 02129 Customer service representatives 1-800-225-5291 24-hour automated information 1-800-338-8080 TDD line 1-800-554-6713 [A 1 1/2" x 1/2" John Hancock (Signature) logo in upper left hand corner. A tag line below reads "JOHN HANCOCK FUNDS."] 1-800-225-5291 1-800-554-6713 (TDD) 1-800-338-8080 EASI-Line www.jhfunds.com Now available: electronic delivery www.jhancock.com/funds/edelivery This report is for the information of the shareholders of the John Hancock Large Cap Spectrum Fund. 670SA 4/03 6/03 PART C OTHER INFORMATION ITEM 15. INDEMNIFICATION No change from the information set forth in Item 27 of the Registration Statement of John Hancock Investment Trust (the "Registrant") on Form N-1A under the Securities Act of 1933 and the Investment company Act of 1940 (File Nos. 2-10156 and 811-0560), which information is incorporated herein by reference. ITEM 16. EXHIBITS: 1 Registrant's Amended and Restated Filed as Exhibit 99.a to Registrant's Declaration of Trust Registration Statement on Form N-1A and incorporated herein by reference to post-effective amendment no. 94 (file nos. 811-0560 and 2-10156 on February 28, 2003 accession no. 0001010521-03-000102) ("PEA 94") 1.1 Amendment to Amended and Restated Filed as Exhibit 99.a.1 to Registrant's Declaration of Trust Registration Statement on Form N-1A and incorporated herein by reference to post-effective amendment no. 95 (file nos. 811-0560 and 2-10156 on August 5, 2003 accession no. 0001010521-03-000256) ("PEA 95") 2 Amended and Restated By-Laws of Filed as Exhibit 99.b to Registrant's Registrant. Registration Statement on Form N-1A and incorporated herein by reference to post-effective amendment no. 77 (file nos. 811-0560 and 2-10156 on December 20, 1997, accession no. 0001010521-96-000224) ("PEA 77") 2.1 Amendment to Amended and Restated Filed as Exhibit b.1 to PEA 94 and By-Laws of Registrant incorporated herein by reference 3 Not applicable 4 Form of Agreement and Plan of Filed herewith as Exhibit B to the Proxy reorganization Statement and Prospectus included as Part A of this Registration Statement 5 Not applicable 6 Investment Management Contract Filed as Exhibit 99.d to Registrant's between Large Cap Equity Fund and Registration Statement on Form N-1A and John Hancock Advisers, LLC incorporated herein by reference to post-effective amendment no. 73 (file nos. 811-0560 and 2-10156 on May 10, 1995, accession no. 0000950135-95-001122) ("PEA 73") 6.1 Investment Management Contract Filed as Exhibit 99.d.1 to Registrant's between the John Hancock Sovereign Registration Statement on Form N-1A and Investors Fund, John Hancock Balanced incorporated herein by reference to Fund and John Hancock Advisers, LLC post-effective amendment no. 78 (file nos. 811-0560 and 2-10156 on February 27, 1997, accession no. 0001010521-97-000228) ("PEA 78") 6.2 Investment Management Contract Filed as Exhibit 99.d.2 to Registrant's between the John Hancock Real Estate Registration Statement on Form N-1A and Fund and John Hancock Advisers, LLC incorporated herein by reference to post-effective amendment no. 84 (file nos. 811-0560 and 2-10156 on April 27, 1999, accession no. 0001010521-00-000194) ("PEA 84") 6.3 Investment Management Contract Filed as Exhibit 99.d.3 to Registrant's between the John Hancock Fundamental Registration Statement on Form N-1A and Value Fund and John Hancock Advisers, incorporated herein by reference to LLC post-effective amendment no. 90 (file nos. 811-0560 and 2-10156 on June 25, 2001, accession no. 0001010521-01-500061) ("PEA 90") 6.4 Investment Management Contract Filed as Exhibit 99.d.4 to Registrant's between the John Hancock Strategic Registration Statement on Form N-1A and Growth Fund and John Hancock incorporated herein by reference to Advisers, LLC post-effective amendment no. 93 (file nos. 811-0560 and 2-10156 on February 27, 2002, accession no. 0001010521-02-000112) ("PEA 93") 7 Distribution Agreement between the Filed as Exhibit 99.e to PEA 73 and Registrant and John Hancock Funds, LLC incorporated herein by reference 7.1 Amendment to Distribution Agreement Filed as Exhibit 99.e.1 to PEA 78 and between the Registrant and John incorporated herein by reference Hancock Funds, LLC 7.2 Form of Soliciting Dealer Agreement Filed as Exhibit 99.e.2 to PEA 73 and between John Hancock Funds LLC and incorporated herein by reference Selected Dealers 7.3 Form of Financial Institution Sales Filed as Exhibit 99.e.3 to PEA 73 and and Service agreement between John incorporated herein by reference Hancock Funds, LLC and John Hancock funds 7.4 Amendment to Distribution Agreement Filed as Exhibit 99.e.4 to PEA 84 and between the John Hancock Real Estate incorporated herein by reference Fund and John Hancock Funds, LLC 7.5 Amendment to Distribution Agreement Filed as Exhibit 99.e.5 to PEA 90 and between the John Hancock Fundamental incorporated herein by reference Value Fund and John Hancock Funds LLC 7.6 Amendment to Distribution Agreement Filed as Exhibit 99.e.6 to PEA 93 and between the John Hancock Strategic incorporated herein by reference Growth Fund and John Hancock Funds, LLC 8 Not applicable. 9 Master Custodian Agreement between Filed as Exhibit 99.g to Registrant's John Hancock Mutual Funds (including Registration Statement on Form N-1A and Registrant) and The Bank of New York incorporated herein by reference to post-effective amendment no. 92 (file nos. 811-0560 and 2-10156 on December 27, 2001, accession no. 0001010521-01-500301) ("PEA 92") 10 Amended & Restate Master Transfer Filed as Exhibit 99.h to Registrant's Agent Service Agreement between John Registration Statement on Form N-1A and Hancock Mutual Funds (including incorporated herein by reference to Registrant) and John Hancock Funds, post-effective amendment no. 82 (file LLC nos. 811-0560 and 2-10156 on July 15, 1998, accession no. 0001010521-98-000292) ("PEA 82") 10.1 Amended & Restate Master Transfer Filed as Exhibit 99.h.1 to PEA 84 and Agent Service Agreement between John incorporated herein by reference Hancock Mutual Funds (including Registrant) and John Hancock Funds, LLC 10.2 Service Agreement between Charles Filed as Exhibit 99.h.2 to Registrant's Schwab, John Hancock Funds, LLC and Registration Statement on Form N-1A and John Hancock Large Cap Equity Fund incorporated herein by reference to post-effective amendment no. 88 (file nos. 811-0560 and 2-10156 on March 15, 2001, accession no. 0001010521-01-000199) ("PEA 88") 10.3 Amendment to Amended & Restate Master Filed as Exhibit 99.h.3 to PEA 90 and Transfer Agent Service Agreement incorporated herein by reference between John Hancock Fundamental Value Fund and John Hancock Funds, LLC 10.4 Amended & Restate Master Transfer Filed as Exhibit 99.h.4 to PEA 93 and Agent Service Agreement between John incorporated herein by reference Hancock Strategic Growth and John Hancock Funds, LLC 11 Class A and Class B Distribution Filed as Exhibit 99.m to PEA 78 and Plans between John Hancock Sovereign incorporated herein by reference. Investors Fund and John Hancock Funds, LLC 11.1 Class A and Class B Distribution Filed as Exhibit 99.m.1 to PEA 78 and Plans between John Hancock Balanced incorporated herein by reference Fund and John Hancock Funds, LLC 11.2 Class A and Class B Distribution Filed as Exhibit 99.m.2 to PEA 73 and Plans between John Hancock Large Cap incorporated herein by reference Equity Fund and John Hancock Funds, LLC 11.3 Class C Distribution Plans between Filed as Exhibit 99.m.3 to PEA 82 and John Hancock Large Cap Equity Fund, incorporated herein by reference John Hancock Sovereign Investors and John Hancock Funds, LLC 11.4 Class C Distribution Plans between Filed as Exhibit 99.m.4 to PEA 84 and John Hancock Balanced Fund and John incorporated herein by reference Hancock Funds, LLC 11.5 Class A, Class B and Class C Filed as Exhibit 99.m.5 to PEA 90 and Distribution Plans between John incorporated herein by reference Hancock Fundamental Value Fund and John Hancock Funds, LLC 11.6 Class A, Class B and Class C Filed as Exhibit 99.m.6 to PEA 93 and Distribution Plans between John incorporated herein by reference Hancock Strategic Growth Fund and John Hancock Funds, LLC 11.7 Class R Distribution Plans between Filed as Exhibit 99.m.7 to PEA 95 John Hancock Sovereign Investors Fund and incorporated herein by reference and John Hancock Funds, LLC 11.8 Class R Service Plan between Filed as Exhibit 99.m.8 to PEA 95 John Hancock Sovereign Investors Fund and incorporated herein by reference and John Hancock Funds, LLC 12 John Hancock Funds Class A, Class B Filed as Exhibit 99.o to PEA 93 and and Class C Amended and restated incorporated herein by reference Multiple Class Plan pursuant to Rule 18f-3 12.1 John Hancock Funds Class A, Class B, Filed as Exhibit 99.o.1 to PEA 88 and Class C and Class I Amended and incorporated herein by reference restated Multiple Class Plan pursuant to Rule 18f-3 12.2 John Hancock Funds Class A, Class B, Filed as Exhibit 99.o.2 to PEA 95 and Class C, Class I and Class R Amended incorporated herein by reference and Restated Multiple Class Plan pursuant to Rule 18f-3 13 Revised Code of Ethics John Hancock Filed as Exhibit 99.p to PEA 78 and Funds, LLC incorporated herein by reference 14 Opinion as to legality of shares and Filed herewith as Exhibit 14 consent 15 Form of opinion as to tax matters and Filed herewith as Exhibit 15 consent 16 Not applicable 17 Consent of Ernst & Young LLP Filed herewith as Exhibit 17 regarding the audited financial statements of John Hancock Sovereign Investors Fund and Consent of Deloitte & Touche LLP regarding the audited financial statements of John Hancock Dividend Performers Fund and consent of PricewaterhouseCoopers LLP regarding the audited financial statements of John Hancock Large Cap Spectrum Fund 18 Not applicable 19 Powers of Attorney Filed as addendum to signature pages and incorporated herein by reference 20 Prospectus of John Hancock Sovereign Filed herewith as Exhibit B to Part B of Investors Fund dated March 1, 2003 this Registration Statement. as revised October 1, 2003 20.1 Class I Prospectus of John Hancock Filed herewith as Exhibit B to Part B of Sovereign Investors Fund dated March this Registration Statement. 1, 2003 as revised October 1, 2003 20.2 Prospectus of John Hancock Filed herewith as Exhibit B to Part B of Dividend Performers Fund, dated this Registration Statement July 1, 2003 20.3 Prospectus of John Hancock Large Filed herewith as Exhibit B to Part B of Cap Spectrum Fund, dated March 1, this Registration Statement 2003 as revised October 1, 2003 21 Statement of Additional Filed herewith as Exhibit A and B Information of John Hancock to Part B of this Registration Institutional Series Trust dated Statement. July 1, 2003 21.1 Class A, B, C and R Statement of Filed herewith as Exhibit A and B to Part Additional Information of John B of this Registration Statement Hancock Sovereign Investors Fund dated August 5, 2003 21.2 Class I Statement of Additional Filed herewith as Exhibit A and B to Part Information of Sovereign Investors B of this Registration Statement Fund dated March 1, 2003 21.3 Class A, B and C Statement of Filed herewith as Exhibit A and B to Part Additional Information of John B of this Registration Statement Hancock Large Cap Spectrum Fund dated March 1, 2003 ITEM 17. UNDERTAKINGS. (1) The undersigned Registrant agrees that prior to any public reoffering of the securities registered through the use of a prospectus which is part of this registration statement by any person or party which is deemed to be an underwriter within the meaning of Rule 145(c) under the Securities Act of 1933, the reoffering prospectus will contain the information called for by the applicable registration form for reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (2) The undersigned Registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as part of an amendment to the registration statement and will not be used until the amendment is effective, and that, in determining any liability under the Securities Act of 1933, each post-effective amendment shall be deemed to be a new registration statement for the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them. (3) The undersigned Registrant agrees to file, by post-effective amendment, an opinion of counsel supporting the tax consequence of each proposed reorganization within a responsible time after receipt of such opinion. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has caused this Registration Statement on Form N-14 to be signed on its behalf by the undersigned, duly authorized, in the City of Boston, and The Commonwealth of Massachusetts on the 28th day of August, 2003. JOHN HANCOCK INVESTMENT TRUST By: * ------------------------------------- Maureen Ford Goldfarb Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- * - ----------------------- Trustee, Chairman, President and August 28, 2003 Maureen Ford Goldfarb Chief Executive Officer * - ----------------------- Senior Vice President and Richard A. Brown Chief Financial Officer /s/William H. King Vice President, Treasurer - ----------------------- (Chief Accounting Officer) William H. King * Trustee - ------------------------ James F. Carlin * Trustee - ------------------------ William H. Cunningham * Trustee - ------------------------ Ronald R. Dion * Trustee - ------------------------ John M. DeCiccio * Trustee - ------------------------ Charles L. Ladner * Trustee - ------------------------ Steven R. Pruchansky * Trustee - ------------------------ Norman H. Smith * Trustee - ------------------------ John P. Toolan *By: /s/Susan S. Newton ------------------ August 28, 2003 Susan S. Newton Attorney-in-Fact Power of Attorney dated June 23, 2001 and September 12, 2001. Panel A - ------- John Hancock Capital Series John Hancock Strategic Series John Hancock Declaration Trust John Hancock Tax-Exempt Series Fund John Hancock Income Securities Trust John Hancock World Fund John Hancock Investors Trust John Hancock Investment Trust II John Hancock Equity Trust John Hancock Investment Trust III John Hancock Sovereign Bond Fund Panel B - ------- John Hancock Bank and Thrift Opportunity Fund John Hancock Patriot Global Dividend Fund John Hancock Bond Trust John Hancock Patriot Preferred Dividend Fund John Hancock California Tax-Free Income Fund John Hancock Patriot Premium Dividend Fund I John Hancock Current Interest John Hancock Patriot Premium Dividend Fund II John Hancock Institutional Series Trust John Hancock Patriot Select Dividend Trust John Hancock Investment Trust John Hancock Series Trust John Hancock Cash Reserve, Inc. John Hancock Tax-Free Bond Trust POWER OF ATTORNEY ----------------- The undersigned Officer of each of the above listed Trusts, each a Massachusetts business trust, or Maryland Corporation, does hereby severally constitute and appoint SUSAN S. NEWTON, WILLIAM H. KING, AND AVERY P. MAHER, and each acting singly, to be my true, sufficient and lawful attorneys, with full power to each of them, and each acting singly, to sign for me, in my name and in the capacity indicated below, any Registration Statement on Form N-1A and any Registration Statement on Form N-14 to be filed by the Trust under the Investment Company Act of 1940, as amended (the "1940 Act"), and under the Securities Act of 1933, as amended (the "1933 Act"), and any and all amendments to said Registration Statements, with respect to the offering of shares and any and all other documents and papers relating thereto, and generally to do all such things in my name and on my behalf in the capacity indicated to enable the Trust to comply with the 1940 Act and the 1933 Act, and all requirements of the Securities and Exchange Commission thereunder, hereby ratifying and confirming my signature as it may be signed by said attorneys or each of them to any such Registration Statements and any and all amendments thereto. IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument as of the 23rd day of June, 2001. /s/Richard A. Brown ------------------- Richard A. Brown Chief Financial Officer Commonwealth of Massachusetts )ss - ---------------------------------------------------------- COUNTY OF Suffolk ) ------------------------------------------------ Then personally appeared the above-named Richard A. Brown, who acknowledged the foregoing instrument to be his free act and deed, before me, this 23rd day of June, 2001. /s/Erika L. Nager ----------------- Notary Public My Commission Expires: June 14, 2007 ------------- s:\general\prwattn\01June23.doc John Hancock Bank and Thrift Opportunity Fund John Hancock Patriot Global Dividend Fund John Hancock Bond Trust John Hancock Patriot Preferred Dividend Fund John Hancock California Tax-Free Income Fund John Hancock Patriot Premium Dividend Fund I John Hancock Current Interest John Hancock Patriot Premium Dividend Fund II John Hancock Institutional Series Trust John Hancock Patriot Select Dividend Trust John Hancock Investment Trust John Hancock Series Trust John Hancock Cash Reserve, Inc. John Hancock Tax-Free Bond Trust POWER OF ATTORNEY The undersigned Trustee/Officer of each of the above listed Trusts, each a Massachusetts business trust or Maryland corporation, does hereby severally constitute and appoint Susan S. Newton, WILLIAM H. KING, and AVERY P. MAHER, and each acting singly, to be my true, sufficient and lawful attorneys, with full power to each of them, and each acting singly, to sign for me, in my name and in the capacity indicated below, any Registration Statement on Form N-1A and any Registration Statement on Form N-14 to be filed by the Trust under the Investment Company Act of 1940, as amended (the "1940 Act"), and under the Securities Act of 1933, as amended (the "1933 Act"), and any and all amendments to said Registration Statements, with respect to the offering of shares and any and all other documents and papers relating thereto, and generally to do all such things in my name and on my behalf in the capacity indicated to enable the Trust to comply with the 1940 Act and the 1933 Act, and all requirements of the Securities and Exchange Commission thereunder, hereby ratifying and confirming my signature as it may be signed by said attorneys or each of them to any such Registration Statements and any and all amendments thereto. IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument as of the 12th day of September, 2001. /s/Maureen R. Ford /s/Charles L. Ladner - ------------------ -------------------- Maureen R. Ford, as Charles L. Ladner Chairman and Chief Executive Officer /s/John M. DeCiccio /s/Steven R. Pruchansky - ------------------- ----------------------- John M. DeCiccio, as Trustee Steven R. Pruchansky /s/James F. Carlin /s/Norman H. Smith - ------------------ ------------------ James F. Carlin Norman H. Smith /s/William H. Cunningham /s/John P. Toolan - ------------------------ ----------------- William H. Cunningham John P. Toolan /s/Ronald R. Dion - ----------------- Ronald R. Dion COMMONWEALTH OF MASSACHIUSETTS) - ------------------------------ )ss COUNTY OF SUFFOLK ) - ----------------- Then personally appeared the above-named Richard A. Brown, who acknowledged the foregoing instrument to be his free act and deed, before me, this 23rd day of June, 2001. /s/Erika Nager -------------- Notary Public My Commission Expires: June 14, 2007 ------------- s:\general\prwattn\01Sept12.doc EXHIBIT INDEX The following exhibits are filed as part of this Registration Statement: Exhibit No. Description 4 Form of Agreement and Plan of Reorganization between John Hancock Sovereign Investors ("the Acquiring Fund") and John Hancock Large Cap Spectrum Fund and John Hancock Dividend Performers Fund (each an "Acquired Fund") (filed as EXHIBIT A to Part A of this Registration Statement). 14 Opinion as to legality of shares and consent. 15 Form of opinion as to tax matters and consents. 17 Consent of Ernst & Young LLP regarding the audited financial statements and highlights of John Hancock Sovereign Investors Fund. Consent of Deloitte & Touche LLP regarding the audited financial statements and highlights of the John Hancock Dividend Performers Fund. Consent of PricewaterhouseCoopers LLP regarding the audited financial statements and highlights of the John Hancock Large Cap Spectrum Fund.
EX-99.I 3 ex14.txt LEGAL OPINION August 28, 2003 John Hancock Investment Trust on behalf of John Hancock Sovereign Investors Fund 101 Huntington Avenue Boston, MA 02199 Ladies and Gentlemen: In connection with the filing of a registration statement under the Securities Act of 1933, as amended (the "Act"), on Form N-14, with respect to the shares of beneficial interest of John Hancock Sovereign Investors Fund (the "Fund"), a series of John Hancock Investment Trust (the "Trust"), a Massachusetts business trust, it is the opinion of the undersigned that these shares when issued, will be legally issued, fully paid and non-assessable. 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." 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 any shareholder of the Fund, with this indemnification to be paid solely out of the assets of the Fund. Therefore, the shareholder's risk is limited to circumstances in which the assets of the Fund are insufficient to meet the obligations asserted against the Fund's assets. The undersigned hereby consents to the filing of a copy of this opinion as an exhibit to the Trust's registration statement on Form N-14 and with the Securities and Exchange Commission. Sincerely, /s/Brian E. Langenfeld - ---------------------- Brian E. Langenfeld Attorney and Assistant Secretary EX-99 4 ex15.txt TAX OPINION HALE AND DORR LLP COUNSELLORS AT LAW www.haledorr.com 60 STATE STREET o BOSTON, MA 02109 617-526-6000 o FAX 617-526-5000 DRAFT of August 26, 2003 ------------------------ ____________, 2003 John Hancock Sovereign Investors Fund John Hancock Large Cap Spectrum Fund 101 Huntington Avenue Boston, MA 02199 Ladies and Gentlemen: This opinion is being delivered to you in connection with the Agreement and Plan of Reorganization (the "Agreement") made as of __________, 2003 by and between John Hancock Investment Trust, a Massachusetts business trust, on behalf of its series, John Hancock Sovereign Investors Fund ("Acquiring Fund") and John Hancock Equity Trust, a Massachusetts business trust, on behalf of its series, John Hancock Large Cap Spectrum Fund ("Acquired Fund"). Pursuant to the Agreement, Acquiring Fund will acquire all of the assets of Acquired Fund in exchange solely for (i) the assumption by Acquiring Fund of all of the liabilities of Acquired Fund (the "Acquired Fund Liabilities") and (ii) the issuance of Class A shares, Class B shares and Class C shares of beneficial interest of Acquiring Fund (the "Acquiring Fund Shares") to Acquired Fund, followed by the distribution by Acquired Fund, in liquidation of Acquired Fund, of the Acquiring Fund Shares to the shareholders of Acquired Fund and the termination of Acquired Fund (the foregoing together constituting the "Transaction"). All section references, unless otherwise indicated, are to the United States Internal Revenue Code of 1986, as amended (the "Code"). In rendering this opinion, we have examined and relied upon (i) the prospectus for Acquiring Fund dated _________; (ii) the statement of additional information for Acquiring Fund dated _________; (iii) the prospectus for Acquired Fund dated ________; (iv) the statement of additional information for Acquired Fund dated _________; (v) the Notice of Meeting of Shareholders Scheduled for ________, 2003 and the accompanying proxy statement and prospectus on Form N-14 (the "Proxy Statement"); (vi) the Agreement; (vii) the tax representation certificates delivered pursuant to the Agreement and relevant to this opinion (the "Representation Certificates"); and (viii) such other documents as we deemed necessary or relevant to our analysis. In our examination of documents, we have assumed the authenticity of original documents, the accuracy of copies, the genuineness of signatures, and the legal capacity of signatories. We have assumed that all parties to the Agreement and to any other documents examined by us have acted, and will act, in accordance with the terms of such Agreement and documents and that the Transaction will be consummated pursuant to the terms and conditions set forth in the Agreement without the waiver or modification of any such terms and conditions. Furthermore, we have assumed that all representations contained in
BOSTON LONDON MUNICH NEW YORK OXFORD PRINCETON RESTON WALTHAM WASHINGTON - ------------------------------------------------------------------------------------------------------------------- Hale and Dorr LLP is a Massachusetts Limited Liability Partnership John Hancock Sovereign Investors Fund John Hancock Large Cap Spectrum Fund ______________, 2003 Page 2 the Agreement, as well as those representations contained in the Representation Certificates are, on the date hereof, and will be, at the consummation of the Transaction, true and complete in all material respects, and that any representation made in any of the documents referred to herein "to the knowledge and belief" (or similar qualification) of any person or party is, and at the consummation of the Transaction will be, correct without such qualification. We have also assumed that as to all matters for which a person or entity has represented that such person is not a party to, does not have, or is not aware of any plan, intention, understanding, or agreement, there is no such plan, intention, understanding, or agreement. We have not attempted to verify independently any of the above assumptions or representations. The conclusions expressed herein represent our judgment regarding the proper treatment of the Transaction under the income tax laws of the United States based upon the Code, case law, Treasury Regulations, and the rulings and other pronouncements of the Internal Revenue Service (the "Service") in effect on the date of this opinion. No assurances can be given that such laws will not be amended or otherwise changed after the consummation of the Transaction or that such changes will not affect the conclusions expressed herein. Nevertheless, we undertake no responsibility to advise you of any developments after the consummation of the Transaction in the application or interpretation of the income tax laws of the United States. Our opinion represents our best judgment regarding how a court would decide if presented with the issues addressed herein and is not binding upon the Service or any court. Moreover, our opinion does not provide any assurance that a position taken in reliance on such opinion will not be challenged by the Service and does not constitute any representation or warranty that such position, if so challenged, will not be rejected by a court. This opinion addresses only the specific United States federal income tax consequences of the Transaction set forth below, and does not address any other federal, state, local, or foreign income, estate, gift, transfer, sales, or other tax consequences that may result from the Transaction or any other action (including any action taken in connection with the Transaction). On the basis of and subject to the foregoing and in reliance upon the representations, facts and assumptions described above, we are of the opinion that the acquisition by Acquiring Fund of the assets of Acquired Fund solely in exchange for the issuance of Acquiring Fund Shares to Acquired Fund and the assumption of the Acquired Fund Liabilities by Acquiring Fund, followed by the distribution by Acquired Fund, in liquidation of Acquired Fund, of Acquiring Fund Shares to Acquired Fund shareholders in exchange for their Acquired Fund Shares and the termination of Acquired Fund, will constitute a "reorganization" within the meaning of Section 368(a) of the Code. John Hancock Sovereign Investors Fund John Hancock Large Cap Spectrum Fund ______________, 2003 Page 3 This opinion is being delivered to you solely in connection with the closing condition set forth in Section 8.6 of the Agreement. It may not be relied upon for any other purpose or by any other person or entity, and may not be made available to any other person or entity without our prior written consent. Very truly yours, /s/HALE AND DORR LLP -------------------- HALE AND DORR LLP COUNSELLORS AT LAW www.haledorr.com 60 STATE STREET o BOSTON, MA 02109 617-526-6000 o FAX 617-526-5000 DRAFT of August 26 2003 ----------------------- ____________, 2003 John Hancock Sovereign Investors Fund John Hancock Dividend Performers Fund 101 Huntington Avenue Boston, MA 02199 Ladies and Gentlemen: This opinion is being delivered to you in connection with the Agreement and Plan of Reorganization (the "Agreement") made as of __________, 2003 by and between John Hancock Investment Trust, a Massachusetts business trust, on behalf of its series, John Hancock Sovereign Investors Fund ("Acquiring Fund") and John Hancock Institutional Series Trust, a Massachusetts business trust, on behalf of its series, John Hancock Dividend Performers Fund ("Acquired Fund"). Pursuant to the Agreement, Acquiring Fund will acquire all of the assets of Acquired Fund in exchange solely for (i) the assumption by Acquiring Fund of all of the liabilities of Acquired Fund (the "Acquired Fund Liabilities") and (ii) the issuance of Class I shares of beneficial interest of Acquiring Fund (the "Acquiring Fund Shares") to Acquired Fund, followed by the distribution by Acquired Fund, in liquidation of Acquired Fund, of the Acquiring Fund Shares to the shareholders of Acquired Fund and the termination of Acquired Fund (the foregoing together constituting the "Transaction"). All section references, unless otherwise indicated, are to the United States Internal Revenue Code of 1986, as amended (the "Code"). In rendering this opinion, we have examined and relied upon (i) the prospectus for Acquiring Fund dated _________; (ii) the statement of additional information for Acquiring Fund dated _________; (iii) the prospectus for Acquired Fund dated ________; (iv) the statement of additional information for Acquired Fund dated _________; (v) the Notice of Meeting of Shareholders Scheduled for ________, 2003 and the accompanying proxy statement and prospectus on Form N-14 (the "Proxy Statement"); (vi) the Agreement; (vii) the tax representation certificates delivered pursuant to the Agreement and relevant to this opinion (the "Representation Certificates"); and (viii) such other documents as we deemed necessary or relevant to our analysis. In our examination of documents, we have assumed the authenticity of original documents, the accuracy of copies, the genuineness of signatures, and the legal capacity of signatories. We have assumed that all parties to the Agreement and to any other documents examined by us have acted, and will act, in accordance with the terms of such Agreement and documents and that the Transaction will be consummated pursuant to the terms and conditions set forth in the Agreement without the waiver or modification of any such terms and conditions. Furthermore, we have assumed that all representations contained in BOSTON LONDON MUNICH NEW YORK OXFORD PRINCETON RESTON WALTHAM WASHINGTON - ------------------------------------------------------------------------------------------------------------------- Hale and Dorr LLP is a Massachusetts Limited Liability Partnership
John Hancock Sovereign Investors Fund John Hancock Dividend Performers Fund ______________, 2003 Page 2 the Agreement, as well as those representations contained in the Representation Certificates are, on the date hereof, and will be, at the consummation of the Transaction, true and complete in all material respects, and that any representation made in any of the documents referred to herein "to the knowledge and belief" (or similar qualification) of any person or party is, and at the consummation of the Transaction will be, correct without such qualification. We have also assumed that as to all matters for which a person or entity has represented that such person is not a party to, does not have, or is not aware of any plan, intention, understanding, or agreement, there is no such plan, intention, understanding, or agreement. We have not attempted to verify independently any of the above assumptions or representations. The conclusions expressed herein represent our judgment regarding the proper treatment of the Transaction under the income tax laws of the United States based upon the Code, case law, Treasury Regulations, and the rulings and other pronouncements of the Internal Revenue Service (the "Service") in effect on the date of this opinion. No assurances can be given that such laws will not be amended or otherwise changed after the consummation of the Transaction or that such changes will not affect the conclusions expressed herein. Nevertheless, we undertake no responsibility to advise you of any developments after the consummation of the Transaction in the application or interpretation of the income tax laws of the United States. Our opinion represents our best judgment regarding how a court would decide if presented with the issues addressed herein and is not binding upon the Service or any court. Moreover, our opinion does not provide any assurance that a position taken in reliance on such opinion will not be challenged by the Service and does not constitute any representation or warranty that such position, if so challenged, will not be rejected by a court. This opinion addresses only the specific United States federal income tax consequences of the Transaction set forth below, and does not address any other federal, state, local, or foreign income, estate, gift, transfer, sales, or other tax consequences that may result from the Transaction or any other action (including any action taken in connection with the Transaction). John Hancock Sovereign Investors Fund John Hancock Dividend Performers Fund ______________, 2003 Page 3 On the basis of and subject to the foregoing and in reliance upon the representations, facts and assumptions described above, we are of the opinion that the acquisition by Acquiring Fund of the assets of Acquired Fund solely in exchange for the issuance of Acquiring Fund Shares to Acquired Fund and the assumption of the Acquired Fund Liabilities by Acquiring Fund, followed by the distribution by Acquired Fund, in liquidation of Acquired Fund, of Acquiring Fund Shares to Acquired Fund shareholders in exchange for their Acquired Fund Shares and the termination of Acquired Fund, will constitute a "reorganization" within the meaning of Section 368(a) of the Code. This opinion is being delivered to you solely in connection with the closing condition set forth in Section 8.6 of the Agreement. It may not be relied upon for any other purpose or by any other person or entity, and may not be made available to any other person or entity without our prior written consent. Very truly yours, /s/HALE AND DORR LLP -------------------- EX-99 5 ex17.txt AUDITOR'S CONSENT INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of John Hancock Investment Trust on Form N-14 of our report dated April 4, 2003, relating to the John Hancock Dividend Performers Fund, appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the headings "Financial Statements" and "Experts" in such Prospectus. /s/DELOITTE & TOUCHE LLP - ------------------------ Boston, Massachusetts August 27, 2003 EX-99 6 ex172.txt AUDITOR'S CONSENT CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the references to our firm under the captions "Financial Highlights" in the Prospectus dated March 1, 2003 of the John Hancock Sovereign Investors Fund and "Independent Auditors" and "Financial Statements" in the Statements of Additional Information Class I dated March 1, 2003, and Class A, B, C and R dated August 5, 2003 of the John Hancock Sovereign Investors Fund and our report dated February 7, 2003 for the John Hancock Sovereign Investors Fund with respect to the financial statements and financial highlights in the annual report dated December 31, 2002 which Prospectus and Statements of Additional Information are included in the Combined Prospectus/Proxy Statement included in this Registration Statement on Form N-14 of John Hancock Investment Trust. We further consent to the reference to our firm under the caption "Experts" in such Combined Prospectus/Proxy included in this Registration Statement. /s/ERNST & YOUNG LLP -------------------- Boston, Massachusetts August 25, 2003 EX-99 7 ex173.txt AUDITOR'S CONSENT CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus, Proxy Statement and Statement of Additional Information constituting parts of this Registration Statement on Form N-14 of our report dated December 13, 2002, relating to the financial statements and financial highlights which appears in the Annual Report to Shareholders of the John Hancock Large Cap Spectrum Fund, which is also incorporated by reference into the Registration Statement. We also consent to the references to us under the headings "Financial Highlights", "Experts" and "Independent Auditors" in such Registration Statement. /s/ PricewaterhouseCoopers LLP - ------------------------------ Boston, Massachusetts August 28, 2003 -----END PRIVACY-ENHANCED MESSAGE-----