-----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, ApGV6dbySSb0Nt1WpNJVvjPovX2vciNNdI51lmmsrFMKJK8E4qsgafIqPOT+7Nnq N8AHIdwhDi3fNGJNmcoA5A== 0001010521-96-000044.txt : 19960429 0001010521-96-000044.hdr.sgml : 19960429 ACCESSION NUMBER: 0001010521-96-000044 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19960425 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANCOCK JOHN SERIES INC CENTRAL INDEX KEY: 0000819300 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-16048 FILM NUMBER: 96551015 BUSINESS ADDRESS: STREET 1: 101 HUNTINGTON AVENUE STREET 2: STE 6000 CITY: BOSTON STATE: MA ZIP: 02199 BUSINESS PHONE: 7137512400 MAIL ADDRESS: STREET 1: 101 HUNTINGTON AVENUE STREET 2: 10TH FLOOR CITY: BOSTON STATE: MA ZIP: 02199 FORMER COMPANY: FORMER CONFORMED NAME: TRANSAMERICA SERIES INC DATE OF NAME CHANGE: 19940729 FORMER COMPANY: FORMER CONFORMED NAME: TRANSAMERICA SPECIAL SERIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: CRITERION SPECIAL SERIES INC DATE OF NAME CHANGE: 19890718 485APOS 1 JOHN HANCOCK SERIES, INC. FILE NO. 33-16048 FILE NO. 811-5254 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] Pre-Effective Amendment No. [ ] Post-Effective Amendment No. 22 [X] and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X] Amendment No. 24 [X] (Check appropriate box or boxes) JOHN HANCOCK SERIES, INC. (Exact name of registrant as specified in charter) 101 Huntington Avenue, Boston, Massachusetts 02199-7603 (Address of principal executive office) Registrant's Telephone Number, including Area Code (617) 375-1700 Thomas H. Drohan Senior Vice President and Secretary John Hancock Advisers, Inc. 101 Huntington Avenue Boston, MA 02199-7603 (Name and Address of Agent for Service) It is proposed that this filing will become efective (check appropriate box) [ ] immediately upon filing pursuant to paragraph (b) [ ] on (date) pursuant to paragraph (b) [ ] 60 days after filing pursuant to paragraph (a) [X] on July 1, 1996 pursuant to paragraph (a) of Rule 485 Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant has registered an indefinite number of securities under the Securities Act of 1933. The Registrant filed the notice required by Rule 24f-2 for its most recent fiscal year on or about December 26, 1996. ================================================================================
Item Number Form N-1A, Statement of Additional Part A Prospectus Caption Information Caption ------ ------------------ ------------------- 1 Front Cover Page * 2 Overview; Investor Expenses; * 3 Financial Highlights * 4 Overview; Goal and Strategy; Portfolio * Securities; Risk Factors; Business Structure; More About Risk 5 Overview; Business Structure; * Manager/Subadviser; Investor Expenses 6 Choosing a Share Class; Buying Shares; * Selling Shares; Transaction Policies; Dividends and Account Policies; Additional Investor Services 7 Choosing a Share Class; How Sales Charges * are Calculated; Sales Charge Deductions and Waivers; Opening an Account; Buying Shares; Transaction Policies; Additional Investor Services 8 Selling Shares; Transaction Policies; * Dividends and Account Policies 9 Not Applicable * 10 * Front Cover Page 11 * Table of Contents 12 * Organization of the Fund 13 * Investment Objectives and Policies; Certain Investment Practices; Investment Restrictions 14 * Those Responsible for Management 15 * Those Responsible for Management 16 * Investment Advisory; Subadvisory and Other Services; Distribution Contract; Transfer Agent Services; Custody of Portfolio; Independent Auditors 17 * Brokerage Allocation 18 * Description of Fund's Shares 19 * Net Asset Value; Additional Services and Programs 20 * Tax Status 21 * Distribution Contract 22 * Calculation of Performance 23 * Financial Statements
JOHN HANCOCK GROWTH FUNDS [LOGO] - ------------------------------------------------------------------------------- PROSPECTUS DISCIPLINED GROWTH FUND JULY 1, 1996 DISCOVERY FUND This prospectus gives vital information about these funds. For your own benefit EMERGING GROWTH FUND and protection, please read it before you invest, and keep it on hand for GROWTH FUND future reference. REGIONAL BANK FUND Please note that these funds: * are not bank deposits SPECIAL EQUITIES FUND * are not federally insured * are not endorsed by any bank or SPECIAL OPPORTUNITIES FUND government agency * are not guaranteed to achieve their goal(s) Like all mutual fund shares, these securities have not been approved or disapproved by the Securities and Exchange Commission or any state securities commission, nor has the Securities and Exchange Commission or any state securities commission passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary [LOGO] JOHN HANCOCK FUNDS is a criminal offense. A GLOBAL INVESTMENT MANAGEMENT FIRM 101 Huntington Avanue, Boston, Massachusetts 02199-7603 CONTENTS - ------------------------------------------------------------------------------- A fund-by-fund look at goals, DISCIPLINED GROWTH FUND 4 strategies, risks, expenses and financial history. DISCOVERY FUND 6 EMERGING GROWTH FUND 8 GROWTH FUND 10 REGIONAL BANK FUND 12 SPECIAL EQUITIES FUND 14 SPECIAL OPPORTUNITIES FUND 16 Policies and instructions for opening, YOUR ACCOUNT maintaining and closing an account Choosing a share class 18 in any growth fund. How sales charges are calculated 18 Sales charge reductions and waivers 19 Opening an account 19 Buying shares 20 Selling shares 21 Transaction policies 22 Dividends and account policies 23 Additional investor services 24 Details that apply to the growth FUND DETAILS funds as a group. Business structure 25 Sales compensation 26 More about risk 27 Higher risk securities and practices 29 FOR MORE INFORMATION BACK COVER
OVERVIEW - -------------------------------------------------------------------------------- GOAL OF THE GROWTH FUNDS John Hancock growth funds seek long-term growth by investing primarily in common stocks. Each fund employs its own strategy and has its own risk/reward profile. Because you could lose money by investing in these funds, be sure to read all risk disclosure carefully before investing. WHO MAY WANT TO INVEST John Hancock growth funds may be appropriate for: - - investors with longer time horizons - - investors willing to accept higher short-term risk in exchange for higher potential long-term returns - - investors who want to diversify their portfolios - - investors seeking funds for the growth portion of an asset allocation portfolio - - retirement investors or others whose goals are many years in the future Growth funds may NOT be appropriate if you: - - are investing with a shorter time horizon in mind - - are uncomfortable with an investment that will go up and down in value PORTFOLIO MANAGEMENT All John Hancock growth funds are managed by John Hancock Advisers, Inc. Founded in 1968, John Hancock Advisers is a wholly owned subsidiary of John Hancock Mutual Life Insurance Company and manages more than $16 billion in assets. FUND INFORMATION KEY Concise fund-by-fund descriptions begin on the next page. Each description provides the following information: [A graphic image of a bullseye with an arrow in the middle of it.] GOAL AND STRATEGY The fund's particular investment goals and the strategies it intends to use in pursuing those goals. [A graphic image of a black folder that contains a couple sheets of paper.] PORTFOLIO SECURITIES The primary types of securities in which the fund invests. Secondary investments are described in "More about risk" at the end of the prospectus. [A graphic image of a line chart with a single line that depicts some peaks and valleys.] RISK FACTORS The major risk factors associated with the fund. [A graphic image of a generic person.] PORTFOLIO MANAGER The individual or group (including subadvisers, if any) designated by the investment adviser to handle the fund's day-to-day management. [A graphic image of a percent symbol.] EXPENSES The overall costs borne by an investor in the fund, including sales charges and annual expenses. [A graphic image of a dollar sign.] FINANCIAL HIGHLIGHTS A table showing the fund's financial performance for up to ten years, by share class. There is also a bar graph of year-by-year total return which is intended to show the fund's volatility in recent years. DISCIPLINED GROWTH FUND REGISTRANT NAME:FREEDOM INVESTMENT TRUST TICKER SYMBOL CLASS A:SVAAX CLASSB:FEQVX - ----------------------------------------------------------------------------------------
GOAL AND STRATEGY [A graphic image of a bullseye with an arrow in the middle of it.] The fund seeks long-term capital appreciation. To pursue this goal, the fund invests in established, growing companies that have demonstrated superior earnings growth and stability. In normal circumstances the fund will invest at least 65% of its assets in these companies, without concentration in any one industry. The fund also looks for the following characteristics: - - a low level of debt - - seasoned management - - a strong market position The fund invests for income as a secondary goal. PORTFOLIO SECURITIES [A graphic image of a black folder that contains a couple sheets of paper.] The fund invests primarily in the common stocks of U.S. companies. It may also invest in warrants, preferred stocks and investment-grade convertible debt securities. The fund expects any foreign investments to remain below 10% of assets. For liquidity and flexibility, the fund may place up to 15% of its net assets in cash or in short-term investment-grade securities; in abnormal market conditions, it may invest up to 80% in these securities as a defensive tactic. To a limited extent, the fund also may invest in certain higher risk securities, and may engage in other investment practices. For details, see "More about risk" at the end of this prospectus. RISK FACTORS [A graphic image of a line chart with a single line that depicts some peaks and valleys.] As with any growth fund, the value of your investment will fluctuate with the performance of the stock market and the success or failure of the fund's investment strategies. To the extent that the fund invests in restricted securities, foreign securities, and junk bonds, it takes on additional risks which could adversely affect its performance. PORTFOLIO MANAGERS [A graphic image of a generic person.] Thomas Weary and John Snyder III, leaders of the fund's portfolio management team, are responsible for the day-to-day investment management of the fund. A vice president of the investment adviser, Mr. Weary has been a part of the fund's management team since 1992. He joined John Hancock in 1983. Mr. Snyder is an executive vice president of the investment adviser and has been a team member since 1992. He has been an investment manager since 1971. - -------------------------------------------------------------------------------- INVESTOR EXPENSES [A graphic symbol of a percent symbol.] Fund investors pay various expenses, either directly or indirectly. The figures below show the expenses for the past year, adjusted to reflect any changes. Future expenses may be greater or less.
================================================================================ Shareholder transaction expenses Class A Class B ================================================================================ Maximum sales charge imposed on purchases (as a percentage of offering price) 5.00% none - -------------------------------------------------------------------------------- Maximum sales charge imposed on reinvested dividends none none - -------------------------------------------------------------------------------- Maximum deferred sales charge none(1) 5.00% - -------------------------------------------------------------------------------- Redemption fee(2) none none - -------------------------------------------------------------------------------- Exchange fee none none ================================================================================ Annual fund operating expenses (as a % of average net assets) ================================================================================ Management fee 0.75% 0.75% - -------------------------------------------------------------------------------- 12b-1 fee(3) 0.30% 1.00% - -------------------------------------------------------------------------------- Other expenses 0.40% 0.40% - -------------------------------------------------------------------------------- Total fund operating expenses 1.45% 2.15% - --------------------------------------------------------------------------------
EXAMPLE The table below shows what you would pay if you invested $1,000 over the various time frames indicated. The example assumes you reinvested all dividends and that the average annual return was 5%.
================================================================================ Share class Year 1 Year 3 Year 5 Year 10 ================================================================================ Class A shares $64 $94 $125 $215 - -------------------------------------------------------------------------------- Class B shares - -------------------------------------------------------------------------------- Assuming redemption at end of period $72 $97 $135 $231 - -------------------------------------------------------------------------------- Assuming no redemption $22 $67 $115 $231 - -------------------------------------------------------------------------------- This example is for comparison purposes only and is not a representation of the fund's actual expenses and returns, either past or future. (1) Except for investments of $1 million or more; see "How sales charges are calculated." (2) Does not include wire redemption fee (currently $4.00). (3) May include carry-over of reimbursable costs from previous year(s). Amounts shown are the fund's current annual maximums for 12b-1 fees. Because of the 12b-1 fee, long-term shareholders may indirectly pay more than the equivalent of the maximum permitted front-end sales charge.
4 DISCIPLINED GROWTH FUND FINANCIAL HIGHLIGHTS [A graphic image of a dollar sign.] The figures below have been audited by the fund's independent auditors, Price Waterhouse LLP. VOLATILITY, AS INDICATED BY CLASS B [BAR GRAPH] YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
========================================================================================================== Class A - year ended October 31, 1992(1) 1993 1994 1995 ========================================================================================================== PER SHARE OPERATING PERFORMANCE - --------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $12.81 $10.99 $12.39 $12.02 - --------------------------------------------------------------------------------------------------------- Net investment income (loss) 0.06(2) 0.08(2) 0.10 0.08(2) - --------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (0.06) 1.34 0.07 1.29 - --------------------------------------------------------------------------------------------------------- Total from investment operations 0.00 1.42 0.17 1.37 - --------------------------------------------------------------------------------------------------------- Less distributions: - --------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.07) (0.02) (0.10) (0.10) - --------------------------------------------------------------------------------------------------------- Distributions from net realized gain on investments sold (1.74) -- (0.44) (0.52) - --------------------------------------------------------------------------------------------------------- Distributions from capital paid-in (0.01) -- -- -- - --------------------------------------------------------------------------------------------------------- Total distributions (1.82) (0.02) (0.54) (0.62) - --------------------------------------------------------------------------------------------------------- Net asset value, end of period $10.99 $12.39 $12.02 $12.77 - --------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3)(%) 0.19(4) 12.97 1.35 12.21 - --------------------------------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA - --------------------------------------------------------------------------------------------------------- Net assets, end of period (000s omitted)($) 1,771 23,372 23,292 27,692 - --------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 1.73(5) 1.60 1.53 1.46 - --------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets(%) 0.62(5) 0.64 0.83 0.69 - --------------------------------------------------------------------------------------------------------- Portfolio turnover rate(%) 246 71 60 65 - --------------------------------------------------------------------------------------------------------- Average brokerage commission rate (%) N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------------------
================================================================================================================================= Class B - year ended October 31, 1987(6) 1988 1989 1990 1991 1992 1993 1994 1995 ================================================================================================================================= PER SHARE OPERATING PERFORMANCE - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.00 $ 8.34 $ 10.29 $ 11.52 $ 9.22 $ 11.71 $ 10.97 $ 12.31 $ 11.95 - --------------------------------------------------------------------------------------------------------------------------------- Net investment income (loss) 0.06 0.13 0.19 0.18 0.07 0.01(2) 0.02(2) 0.03 0.01(2) - --------------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (1.70) 2.05 1.25 (2.00) 2.67 1.05 1.33 0.07 1.28 - --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations (1.64) 2.18 1.44 (1.82) 2.74 1.06 1.35 0.10 1.29 - --------------------------------------------------------------------------------------------------------------------------------- Less distributions: - --------------------------------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.02) (0.09) (0.12) (0.20) (0.20) (0.03) (0.01) (0.02) (0.03) - --------------------------------------------------------------------------------------------------------------------------------- Distributions from net realized gain on investments sold -- (0.14) (0.09) (0.28) (0.05) (1.76) -- (0.44) (0.52) - --------------------------------------------------------------------------------------------------------------------------------- Distributions from capital paid-in -- -- -- -- -- (0.01) -- -- -- - --------------------------------------------------------------------------------------------------------------------------------- Total distributions (0.02) (0.23) (0.21) (0.48) (0.25) (1.80) (0.01) (0.46) (0.55) - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 8.34 $ 10.29 $ 11.52 $ 9.22 $ 11.71 $ 10.97 $ 12.31 $ 11.95 $ 12.69 - --------------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) (16.44)(4) 26.69 14.27 (16.46) 30.21 7.22 12.34 0.78 11.51 - --------------------------------------------------------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA - --------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (000s omitted) ($) 14,016 14,927 23,813 17,714 21,826 23,525 93,853 94,431 86,178 - --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 2.56(5,7) 2.61(7) 2.30 2.13 2.24 2.27 2.09 2.10 2.11 - --------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) 0.93(5,7) 1.46(7) 1.75 1.64 0.66 0.10 0.17 0.25 0.06 - --------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (%) 40(5) 54 94 165 217 246 71 60 65 - --------------------------------------------------------------------------------------------------------------------------------- Average brokerage commission rate (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A - --------------------------------------------------------------------------------------------------------------------------------- (1) Class A shares commenced operations on January 3, 1992. (2) Based on the average of the shares outstanding at the end of each month. (3) Assumes dividend reinvestment and does not reflect the effect of sales charges. (4) Not annualized. (5) Annualized. (6) Class B shares commenced operations April 22, 1987. (7) Net of advisory expense reimbursements per share of $0.01 for the fiscal year ended October 31, 1988 and less than $.01 for the fiscal year ended October 31, 1987.
DISCIPLINED GROWTH FUND 5 DISCOVERY FUND REGISTRANT NAME: FREEDOM INVESTMENT TRUST III TICKER SYMBOL CLASS A:FRDAX CLASS B:FRIDX - -----------------------------------------------------------------------------------------------------------
GOAL AND STRATEGY [A graphic image of a bullseye with an arrow in the middle of it.] The fund seeks long-term capital appreciation. To pursue this goal, the fund invests in companies that appear to offer superior growth prospects. Under normal circumstances, the fund will invest at least 65% of its assets in these companies. The fund looks for companies that have broad market opportunities and consistent or accelerating earnings growth. This may include companies that: - - occupy a profitable market niche - - have products or technologies that are new, unique or proprietary - - are in an industry that has a favorable long-term growth outlook - - have a capable management team with a significant equity stake The fund does not invest for income. PORTFOLIO SECURITIES [A graphic image of a black folder that contains a couple sheets of paper.] The fund invests primarily in common stocks of U.S. companies and may also invest in warrants, preferred stocks and investment-grade convertible debt securities. For liquidity and flexibility, the fund may place up to 15% of its net assets in cash or in short-term investment-grade securities; in abnormal market conditions, it may invest up to 80% in these securities as a defensive tactic. The Fund may invest up to 25% of its assets in foreign securities, which carry additional risks; however, foreign securities typically do not exceed 10% of its assets. To a limited extent, the fund also may invest in certain higher-risk securities, including foreign securities, and may engage in other investment practices. For details, see "More about risk" at the end of this prospectus. RISK FACTORS [A graphic image of a line chart that depicts some peaks and valleys.] The value of an investment in the fund will fluctuate with the performance of the stock market. Small and medium-sized company stocks tend to be more volatile than the market as a whole. PORTFOLIO MANAGER [A graphic image of a generic person.] Bernice S. Behar, leader of the fund's portfolio management team since March 1994, is a senior vice president of the investment adviser. She joined the investment adviser in 1991 and has worked as an investment professional since 1986. - -------------------------------------------------------------------------------- INVESTOR EXPENSES [A graphic image of a percent symbol.] Fund investors pay various expenses, either directly or indirectly. The figures below show the expenses for the past year, adjusted to reflect any changes. Future expenses may be greater or less.
================================================================================ Shareholder transaction expenses Class A Class B ================================================================================ Maximum sales charge imposed on purchases (as a percentage of offering price) 5.00% none - -------------------------------------------------------------------------------- Maximum sales charge imposed on reinvested dividends none none - -------------------------------------------------------------------------------- Maximum deferred sales charge none(1) 5.00% - -------------------------------------------------------------------------------- Redemption fee(2) none none - -------------------------------------------------------------------------------- Exchange fee none none - -------------------------------------------------------------------------------- ================================================================================ Annual fund operating expenses (as a % of average net assets) ================================================================================ Management fee 0.75% 0.75% - -------------------------------------------------------------------------------- 12b-1 fee(3) 0.30% 1.00% - -------------------------------------------------------------------------------- Other expenses 0.80% 0.80% - -------------------------------------------------------------------------------- Total fund operating expenses 1.85% 2.55% - --------------------------------------------------------------------------------
EXAMPLE The table below shows what you would pay if you invested $1,000 over the various time frames indicated. The example assumes you reinvested all dividends and that the average annual return was 5%.
================================================================================ Share class Year 1 Year 3 Year 5 Year 10 ================================================================================ Class A shares $68 $105 $145 $256 - -------------------------------------------------------------------------------- Class B shares - -------------------------------------------------------------------------------- Assuming redemption at end of period $76 $109 $155 $271 - -------------------------------------------------------------------------------- Assuming no redemption $26 $ 79 $135 $271 - -------------------------------------------------------------------------------- This example is for comparison purposes only and is not a representation of the fund's actual expenses and returns, either past or future. (1) Except for investments of $1 million or more; see "How sales charges are calculated." (2) Does not include wire redemption fee (currently $4.00). (3) May include carry-over of reimbursable costs from previous year(s). Amounts shown are the fund's current annual maximums for 12b-1 fees. Because of the 12b-1 fee, long-term shareholders may indirectly pay more than the equivalent of the maximum permitted front-end sales charge.
6 DISCOVERY FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS [A graphic image of a dollar sign.] The figures below for the period ended July 31, 1992, were audited by the fund's former independent auditors, Price Waterhouse LLP. Figures for the subsequent years have been audited by the fund's current independent auditors, Ernst & Young LLP. VOLATILITY, AS INDICATED BY CLASS B [BAR GRAPH] YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) ================================================================================
CLASS A - YEAR ENDED JULY 31, 1992(1) 1993 1994 1995 1996(2) ==================================================================================================== PER SHARE OPERATING PERFORMANCE - ---------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.40 $ 8.95 $ 10.81 $ 8.56 $ 12.95 - ---------------------------------------------------------------------------------------------------- Net investment income (loss) (0.05) (0.16) (0.16)(3) (0.17)(3) (0.10)(3) - ---------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments and foreign currency transactions (0.40) 2.15 (0.43) 4.83 0.55 - ---------------------------------------------------------------------------------------------------- Total from investment operations (0.45) 1.99 (0.59) 4.66 0.45 - ---------------------------------------------------------------------------------------------------- Less distributions: - ---------------------------------------------------------------------------------------------------- Distributions from net realized gain on investments sold -- (0.13) (1.66) (0.27) (0.13) - ---------------------------------------------------------------------------------------------------- Net asset value, end of period $ 8.95 $ 10.81 $ 8.56 $12.95 $ 13.27 - ---------------------------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4)(%) (4.79)(5) 22.33 (6.45) 55.80 3.52(5) - ---------------------------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA - ---------------------------------------------------------------------------------------------------- Net assets, end of period (000s omitted) ($) 3,866 4,692 3,266 5,075 6,583 - ---------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 1.78(6) 2.17 2.01 2.10 1.74(6) - ---------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets(%) (1.20)(6) (1.61) (1.64) (1.73) (1.51)(6) - ---------------------------------------------------------------------------------------------------- Portfolio turnover rate (%) 138 148 108 118 73 - ---------------------------------------------------------------------------------------------------- Average brokerage commission rate(%) N/A N/A N/A N/A N/A ==================================================================================================== CLASS B - YEAR ENDED JULY 31, 1992(1) 1993 1994 1995 1996(2) ==================================================================================================== PER SHARE OPERATING PERFORMANCE - ---------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 8.00 $ 8.87 $ 10.65 $ 8.34 $ 12.54 - ---------------------------------------------------------------------------------------------------- Net investment income (loss) (0.11) (0.23) (0.22)(3) (0.22)(3) (0.14)(3) Net realized and unrealized gain (loss) on investments and foreign currency transactions 0.98 2.14 (0.43) 4.69 0.53 - ---------------------------------------------------------------------------------------------------- Total from investment operations 0.87 1.91 (0.65) 4.47 0.39 - ---------------------------------------------------------------------------------------------------- Less distributions: - ---------------------------------------------------------------------------------------------------- Distributions from net realized gain on investments sold -- (0.13) (1.66) (0.27) (0.13) - ---------------------------------------------------------------------------------------------------- Net asset value, end of period $ 8.87 $ 10.65 $ 8.34 $ 12.54 $ 12.80 - ---------------------------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4) (%) 10.88(5) 21.63 (7.18) 54.97 3.15(5) - ---------------------------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000s omitted)($) 34,636 38,672 26,537 31,645 34,452 - ---------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 2.56(6) 2.86 2.62 2.70 2.43(6) - ---------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets(%) (1.56)(6) (2.26) (2.24) (2.34) (2.20)(6) - ---------------------------------------------------------------------------------------------------- Portfolio turnover rate(%) 138 148 108 118 73 - ---------------------------------------------------------------------------------------------------- Average brokerage commission rate(%) N/A N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------------- (1) Class A and Class B shares commenced operations on January 3, 1992 and August 30, 1991, respectively. (2) Six months ended January 31, 1996 (unaudited). (3) Based on the average of the shares outstanding at the end of each month. (4) Assumes dividend reinvestment and does not reflect the effect of sales charges. (5) Not annualized. (6) Annualized.
DISCOVERY FUND 7 EMERGING GROWTH FUND REGISTRANT NAME: JOHN HANCOCK SERIES, INC. TICKER SYMBOL CLASS A:TAEMX CLASS B:TSEGX
- -------------------------------------------------------------------------------- GOAL AND STRATEGY [A graphic image of a bullseye with an arrow in the middle of it.] The fund seeks long-term capital appreciation. To pursue this goal, the fund invests in emerging companies (market capitalization of less than $1 billion). In normal circumstances the fund will invest at least 80% of its assets in a diversified portfolio of these companies. The fund looks for companies that show rapid growth but are not yet widely recognized. The fund also may invest in established companies that, because of new management, products or opportunities, offer the possibility of accelerating earnings. The fund does not invest for income. PORTFOLIO SECURITIES [A graphic image of a black folder that contains a couple sheets of paper.] The fund invests primarily in the common stocks of U.S. and foreign emerging growth companies, although it may invest up to 20% of assets in other types of companies. The fund may also invest in warrants, preferred stocks and investment-grade convertible debt securities. For liquidity and flexibility, the fund may place up to 20% in cash or in short-term investment-grade securities; in abnormal market conditions, it may invest more assets in these securities as a defensive tactic. To a limited extent, the fund also may invest in certain higher-risk securities, including derivatives, and may engage in other investment practices. For details, see "More about risk" at the end of this prospectus. RISK FACTORS [A graphic image of a line chart with a single line that depicts some peaks and valleys.] As with any growth fund, the value of your investment will fluctuate with the performance of the stock market. Stocks of emerging growth companies carry higher risks than stocks of larger companies. This is because emerging growth companies: - - may be in the early stages of development - - may be dependent on a small number of products or services - - may lack substantial capital reserves - - do not have proven track records In addition, stocks of emerging companies are often traded in low volumes, which can increase market and liquidity risks. PORTFOLIO MANAGER [A graphic image of a generic person.] Bernice S. Behar, leader of the fund's portfolio management team since February 1996, is a senior vice president of the investment adviser. She joined the investment adviser in 1991 and has worked as an investment professional since 1986. - -------------------------------------------------------------------------------- INVESTOR EXPENSES [A graphic image of a percent symbol.] Fund investors pay various expenses, either directly or indirectly. The figures below show the expenses for the past year, adjusted to reflect any changes. Future expenses may be greater or less.
================================================================================ Shareholder transaction expenses Class A Class B ================================================================================ Maximum sales charge imposed on purchases (as a percentage of offering price) 5.00% none - -------------------------------------------------------------------------------- Maximum sales charge imposed on reinvested dividends none none - -------------------------------------------------------------------------------- Maximum deferred sales charge none(1) 5.00% - -------------------------------------------------------------------------------- Redemption fee(2) none none - -------------------------------------------------------------------------------- Exchange fee none none - -------------------------------------------------------------------------------- ================================================================================ Annual fund operating expenses (as a % of average net assets) ================================================================================ Management fee 0.75% 0.75% - -------------------------------------------------------------------------------- 12b-1 fee(3) 0.25% 1.00% - -------------------------------------------------------------------------------- Other expenses 0.40% 0.40% - -------------------------------------------------------------------------------- Total fund operating expenses 1.40% 2.15% - --------------------------------------------------------------------------------
EXAMPLE The table below shows what you would pay if you invested $1,000 over the various time frames indicated. The example assumes you reinvested all dividends and that the average annual return was 5%.
================================================================================ Share class Year 1 Year 3 Year 5 Year 10 ================================================================================ Class A shares $64 $92 $123 $210 - -------------------------------------------------------------------------------- Class B shares - -------------------------------------------------------------------------------- Assuming redemption at end of period $72 $97 $135 $229 - -------------------------------------------------------------------------------- Assuming no redemption $22 $67 $115 $229 - -------------------------------------------------------------------------------- This example is for comparison purposes only and is not a representation of the fund's actual expenses and returns, either past or future. (1) Except for investments of $1 million or more; see "How sales charges are calculated." (2) Does not include wire redemption fee (currently $4.00). (3) May include carry-over of reimbursable costs from previous year(s). Amounts shown are the fund's current annual maximums for 12b-1 fees. Because of the 12b-1 fee, long-term shareholders may indirectly pay more than the equivalent of the maximum permitted front-end sales charge.
8 EMERGING GROWTH FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS [A graphic image of a dollar sign.] The figures below have been audited by the fund's current independent auditors, Ernst & Young LLP. VOLATILITY, AS INDICATED BY CLASS B [BAR GRAPH] YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) ====================================================================================================
CLASS A - YEAR ENDED OCTOBER 31, 1991(1) 1992 1993 1994 1995(2) ==================================================================================================== PER SHARE OPERATING PERFORMANCE - ---------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 18.12 $ 19.26 $ 20.60 $ 25.89 $ 26.82 - ---------------------------------------------------------------------------------------------------- Net investment income (loss)(3) (0.03) (0.20) (0.16) (0.18) (0.25) - ---------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 1.17 1.60 5.45 1.11 9.52 - ---------------------------------------------------------------------------------------------------- Total from investment operations 1.14 1.40 5.29 0.93 9.27 - ---------------------------------------------------------------------------------------------------- Less distributions: - ---------------------------------------------------------------------------------------------------- Distributions from net realized gain on investments sold -- (0.06) -- -- -- - ---------------------------------------------------------------------------------------------------- Net asset value, end of period $ 19.26 $ 20.60 $ 25.89 $ 26.82 $ 36.09 - ---------------------------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4) (%) 6.29 7.32 25.68 3.59 34.56 - ---------------------------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA - ---------------------------------------------------------------------------------------------------- Net assets, end of period (000s omitted)($) 38,859 46,137 81,263 131,053 179,481 - ---------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 0.33 1.67 1.40 1.44 1.38 - ---------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) (0.15) (1.03) (0.70) (0.71) (0.83) - ---------------------------------------------------------------------------------------------------- Portfolio turnover rate (%) 66 48 29 25 23 - ---------------------------------------------------------------------------------------------------- Average brokerage commission rate (%) N/A N/A N/A N/A N/A - ----------------------------------------------------------------------------------------------------
================================================================================================================================ CLASS B - YEAR ENDED OCTOBER 31, 1987(5) 1988 1989 1990 1991 1992 1993 1994 1995(2) ================================================================================================================================ PER SHARE OPERATING PERFORMANCE - -------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 7.89 $ 7.89 $10.54 $ 12.76 $ 11.06 $ 19.22 $ 20.34 $ 25.33 $ 26.04 - -------------------------------------------------------------------------------------------------------------------------------- Net investment income (loss)(3) (0.0021) 0.09 (0.08) (0.22) (0.30) (0.38) (0.36) (0.36) (0.45) - -------------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.0021 2.56 2.83 (1.26) 8.46 1.56 5.35 1.07 9.20 - -------------------------------------------------------------------------------------------------------------------------------- Total from investment operations 0.0000 2.65 2.75 (1.48) 8.16 1.18 4.99 0.71 8.75 - -------------------------------------------------------------------------------------------------------------------------------- Less distributions: - -------------------------------------------------------------------------------------------------------------------------------- Dividends from net investment income -- -- (0.04) -- -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------------- Distributions from net realized gain on investments sold -- -- (0.49) (0.22) -- (0.06) -- -- -- - -------------------------------------------------------------------------------------------------------------------------------- Total distributions -- -- (0.53) (0.22) -- (0.06) -- -- -- - -------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 7.89 $10.54 $12.76 $ 11.06 $ 19.22 $ 20.34 $ 25.33 $ 26.04 $ 34.79 - -------------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4) (%) 0.00 33.59 27.40 (11.82) 73.78 6.19 24.53 2.80 33.60 - -------------------------------------------------------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA - -------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (000s omitted) ($) 79 3,232 7,877 11,668 52,743 86,923 219,484 283,435 393,478 - -------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 0.44 5.64 3.51 3.11 2.85 2.64 2.28 2.19 2.11 - -------------------------------------------------------------------------------------------------------------------------------- Ratio of expense reimbursement to average net assets (%) (0.41) (2.59) (0.03) -- -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------------- Ratio of net expenses to average net assets (%) 0.03 3.05 3.48 3.11 2.85 2.64 2.28 2.19 2.11 - -------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) (0.03) 0.81 (0.67) (1.64) (1.83) (1.99) (1.58) (1.46) (1.55) - -------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (%) 0 252 90 82 66 48 29 25 23 - -------------------------------------------------------------------------------------------------------------------------------- Average brokerage commission rate (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A - -------------------------------------------------------------------------------------------------------------------------------- (1) Class A shares commenced operations on August 22, 1991. Financial highlights, including total return, have not been annualized. (2) On December 22, 1994, John Hancock Advisers, Inc. became the investment adviser of the Fund. (3) Based on the average of the shares outstanding at the end of each month. (4) Assumes dividend reinvestment and does not reflect the effect of sales charges. (5) Class B shares commenced operations on October 26, 1987. Financial highlights, including total return, have not been annualized.
EMERGING GROWTH FUND 9 GROWTH FUND REGISTRANT NAME: FREEDOM INVESTMENT TRUST II TICKER SYMBOL CLASS A:JHNGX CLASS B:JHGNX
- -------------------------------------------------------------------------------- GOAL AND STRATEGY [A graphic image of a bullseye with an arrow in the middle of it.] The fund seeks long-term capital appreciation. To pursue this goal, the fund invests in stocks that are diversified with regard to industries and issuers. The fund favors stocks of companies whose operating earnings and revenues have grown more than twice as fast as the Gross Domestic Product (GDP) over the past five years, although not all stocks in the fund's portfolio will meet this criterion. PORTFOLIO SECURITIES [A graphic image of a black folder that contains a couple sheets of paper.] The portfolio invests primarily in the common stocks of U.S. companies. It may also invest in warrants, preferred stocks and convertible debt securities. For liquidity and flexibility, the fund may invest up to 35% of its net assets in short-term investment-grade securities; in abnormal market conditions, it may invest more than 35% in these securities as a defensive tactic. To a limited extent, the fund may also invest in certain higher risk securities, and may engage in other investment practices. For details, see "More about risk" at the end of this prospectus. RISK FACTORS [A graphic image of a line chart with a single line that depicts some peaks and valleys.] As with any growth fund, the value of your investment will fluctuate with the performance of the stock market and the success or failure of the fund's investment strategies. To the extent that the fund invests in restricted securities, foreign securities, and junk bonds, it takes on additional risks which could adversely affect its performance. PORTFOLIO MANAGER [A graphic image of a generic person.] Bernice S. Behar, leader of the fund's portfolio management team since September 1995, is a senior vice president of the investment adviser. She joined the investment adviser in 1991 and has worked as an investment professional since 1986. - -------------------------------------------------------------------------------- INVESTOR EXPENSES [A graphic image of a percent symbol.] Fund investors pay various expenses, either directly or indirectly. The figures below show the expenses for the past year, adjusted to reflect any changes. Future expenses may be greater or less.
================================================================================ Shareholder transaction expenses Class A Class B ================================================================================ Maximum sales charge imposed on purchases (as a percentage of offering price) 5.00% none - -------------------------------------------------------------------------------- Maximum sales charge imposed on reinvested dividends none none - -------------------------------------------------------------------------------- Maximum deferred sales charge none(1) 5.00% - -------------------------------------------------------------------------------- Redemption fee(2) none none - -------------------------------------------------------------------------------- Exchange fee none none ================================================================================ Annual fund operating expenses (as a % of average net assets) ================================================================================ Management fee 0.80% 0.80% - -------------------------------------------------------------------------------- 12b-1 fee(3) 0.30% 1.00% - -------------------------------------------------------------------------------- Other expenses 0.40% 0.40% - -------------------------------------------------------------------------------- Total fund operating expenses 1.50% 2.20% - --------------------------------------------------------------------------------
EXAMPLE The table below shows what you would pay if you invested $1,000 over the various time frames indicated. The example assumes you reinvested all dividends and that the average annual return was 5%.
================================================================================ Share class Year 1 Year 3 Year 5 Year 10 ================================================================================ Class A shares $65 $95 $128 $220 - -------------------------------------------------------------------------------- Class B shares - -------------------------------------------------------------------------------- Assuming redemption at end of period $72 $99 $138 $236 - -------------------------------------------------------------------------------- Assuming no redemption $22 $69 $118 $236 - -------------------------------------------------------------------------------- This example is for comparison purposes only and is not a representation of the fund's actual expenses and returns, either past or future. (1) Except for investments of $1 million or more; see "How sales charges are calculated." (2) Does not include wire redemption fee (currently $4.00). (3) May include carry-over of reimbursable costs from previous year(s). Amounts shown are the fund's current annual maximums for 12b-1 fees. Because of the 12b-1 fee, long-term shareholders may indirectly pay more than the equivalent of the maximum permitted front-end sales charge.
10 GROWTH FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS [A graphic image of a dollar sign.] The figures below have been audited by the fund's independent auditors, Ernst & Young LLP. VOLATILITY, AS INDICATED BY CLASS A [BAR GRAPH] YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
==================================================================================================================================== CLASS A - YEAR ENDED DECEMBER 31, 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 ==================================================================================================================================== PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 14.50 $ 14.03 $ 12.34 $ 13.33 $ 15.18 $ 12.93 $ 17.48 $ 17.32 $ 17.40 $ 15.89 - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income (loss) 0.11 0.22 0.23 0.28 0.16 0.04 (0.06) (0.11) (0.10) (0.09)(1) - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments 1.79 0.64 1.16 3.81 (1.47) 5.36 1.10 2.33 (1.21) 4.40 - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations 1.90 0.86 1.39 4.09 (1.31) 5.40 1.04 2.22 (1.31) 4.31 - ------------------------------------------------------------------------------------------------------------------------------------ Less distributions: - ----------------------------------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.17) (0.28) (0.23) (0.29) (0.16) (0.04) -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Distributions from net realized gain on investments sold (2.20) (2.27) (0.17) (1.95) (0.78) (0.81) (1.20) (2.14) (0.20) (0.69) - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (2.37) (2.55) (0.40) (2.24) (0.94) (0.85) (1.20) (2.14) (0.20) (0.69) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $ 14.03 $12.34 $13.33 $ 15.18 $ 12.93 $ 17.48 $ 17.32 $ 17.40 $ 15.89 $ 19.51 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4) (%) 13.83 6.03 11.23 30.96 (8.34) 41.68 6.06 13.03 (7.50) 27.17 - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS AND SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (000s omitted) ($) 87,468 86,426 101,497 105,014 102,416 145,287 153,057 162,937 146,466 241,700 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%) 1.03 1.00 1.06 0.96 1.46 1.44 1.60 1.56 1.65 1.48 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income (loss) to average net assets (%) 0.77 1.41 1.76 1.73 1.12 0.27 (0.36) (0.67) (0.64) (0.46) - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate (%) 62 68 47 61 102 82 71 68 52 68 - ------------------------------------------------------------------------------------------------------------------------------------ Average brokerage commission rate (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
=============================================================================== CLASS B - YEAR ENDED DECEMBER 31, 1994(2) 1995 =============================================================================== PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------- Net asset value, beginning of period $17.16(3) $ 15.83(1) - ------------------------------------------------------------------------------- Net investment income (loss) (0.20)(1) (0.26) - -------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (0.93) 4.37 - -------------------------------------------------------------------------------- Total from investment operations (1.13) 4.11 - -------------------------------------------------------------------------------- Less distributions: - -------------------------------------------------------------------------------- Distributions from net realized gain on investments sold (0.20) (0.69) - -------------------------------------------------------------------------------- Net asset value, end of period $15.83 $ 19.25 - -------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4)(%) (6.56)(5) 26.01 - -------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Net assets, end of period (000s omitted)($) 3,807 15,913 - -------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 2.38(6) 2.31 - -------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) (1.25)(6) (1.39) - -------------------------------------------------------------------------------- Portfolio turnover rate (%) 52 68 - -------------------------------------------------------------------------------- Average brokerage commission rate (%) N/A N/A (1) Based on the average of the shares outstanding at the end of each month. (2) Class B shares commenced operations on January 3, 1994. (3) Initial price at commencement of operations. (4) Assumes dividend reinvestment and does not reflect the effect of sales charges. (5) Not annualized. (6) Annualized.
GROWTH FUND 11 REGIONAL BANK FUND REGISTRANT NAME: FREEDOM INVESTMENT TRUST TICKER SYMBOL CLASS A:FRBAX CLASS B:FRBFX
- -------------------------------------------------------------------------------- GOAL AND STRATEGY [A graphic image of a bullseye with an arrow in the middle of it.] The fund seeks long-term capital appreciation. To pursue this goal, the fund invests in regional banks and lending institutions, including: - - commercial and industrial banks - - savings and loan associations - - bank holding companies These financial institutions provide full-service banking, have primarily domestic assets, and are typically based outside of New York City and Chicago. They may or may not be members of the Federal Reserve, and their deposits may or may not be FDIC-insured. In normal circumstances the fund will invest at least 65% of its assets in these companies; it may invest up to 35% of assets in other financial services companies, including lending companies and money center banks. Because regional banks typically pay regular dividends, moderate income is an investment goal. PORTFOLIO SECURITIES [A graphic image of a black folder that contains a couple sheets of paper.] The fund invests primarily in the common stocks of U.S. and foreign companies. It may also invest in warrants, preferred stocks, and investment-grade convertible debt securities. For liquidity and flexibility, the fund may place up to 15% of its net assets in cash or in short-term investment-grade securities; in abnormal market conditions, it may invest up to 80% in these securities as a defensive tactic. To a limited extent, the fund may also invest in certain higher risk securities, including derivatives, and may engage in other investment practices. For details, see "More about risk" at the end of this prospectus. RISK FACTORS [A graphic image of a line chart with a single line that depicts some peaks and valleys.] As with any growth fund, the value of your investment will fluctuate. Because the fund concentrates in a single industry, its performance is largely dependent on the industry's performance, which may differ in direction and degree from that of the overall stock market. Falling interest rates or deteriorating economic conditions can adversely affect the performance of bank stocks, while rising interest rates will cause a decline in the value of any debt securities the fund holds. PORTFOLIO MANAGER [A graphic image of a generic person.] James K. Schmidt joined John Hancock in 1985 and has served as the fund's portfolio manager since its inception that year. A senior vice president of the investment adviser, he has worked as an investment professional since 1974. - -------------------------------------------------------------------------------- INVESTOR EXPENSES [A graphic image of a percent symbol.] Fund investors pay various expenses, either directly or indirectly. The figures below show the expenses for the past year, adjusted to reflect any changes. Future expenses may be greater or less.
================================================================================ Shareholder transaction expenses Class A Class B ================================================================================ Maximum sales charge imposed on purchases (as a percentage of offering price) 5.00% none - -------------------------------------------------------------------------------- Maximum sales charge imposed on reinvested dividends none none - -------------------------------------------------------------------------------- Maximum deferred sales charge none(1) 5.00% - -------------------------------------------------------------------------------- Redemption fee(2) none none - -------------------------------------------------------------------------------- Exchange fee none none - -------------------------------------------------------------------------------- ================================================================================ Annual fund operating expenses (as a % of average net assets) ================================================================================ Management fee 0.78% 0.78% - -------------------------------------------------------------------------------- 12b-1 fee(3) 0.30% 1.00% - -------------------------------------------------------------------------------- Other expenses 0.31% 0.31% - -------------------------------------------------------------------------------- Total fund operating expenses 1.39% 2.09% - --------------------------------------------------------------------------------
EXAMPLE The table below shows what you would pay if you invested $1,000 over the various time frames indicated. The example assumes you reinvested all dividends and that the average annual return was 5%.
================================================================================ Share class Year 1 Year 3 Year 5 Year 10 ================================================================================ Class A shares $63 $92 $122 $209 - -------------------------------------------------------------------------------- Class B shares - -------------------------------------------------------------------------------- Assuming redemption at end of period $71 $95 $132 $224 - -------------------------------------------------------------------------------- Assuming no redemption $21 $65 $112 $224 - -------------------------------------------------------------------------------- This example is for comparison purposes only and is not a representation of the fund's actual expenses and returns, either past or future. (1) Except for investments of $1 million or more; see "How sales charges are calculated." (2) Does not include wire redemption fee (currently $4.00). (3) May include carry-over of reimbursable costs from previous year(s). Amounts shown are the fund's current annual maximums for 12b-1 fees. Because of the 12b-1 fee, long-term shareholders may indirectly pay more than the equivalent of the maximum permitted front-end sales charge.
12 REGIONAL BANK FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS [A graphic image of a dollar sign.] The figures below have been audited by the fund's independent auditors, Price Waterhouse LLP. VOLATILITY, AS INDICATED BY CLASS B [BAR GRAPH] YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
=================================================================================================================================== CLASS A - YEAR ENDED OCTOBER 31, 1992(1) 1993 1994 1995 =================================================================================================================================== PER SHARE OPERATING PERFORMANCE - ----------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 13.47 $ 17.47 $ 21.62 $ 21.52 - ----------------------------------------------------------------------------------------------------------------------------------- Net investment income (loss) 0.21 0.26(2) 0.39(2) 0.52(2) - ----------------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 3.98 5.84 0.91 5.92 - ----------------------------------------------------------------------------------------------------------------------------------- Total from investment operations 4.19 6.10 1.30 6.44 - ----------------------------------------------------------------------------------------------------------------------------------- Less distributions: - ----------------------------------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.19) (0.26) (0.34) (0.48) - ----------------------------------------------------------------------------------------------------------------------------------- Distributions from net realized gain on investments sold -- (1.69) (1.06) (0.34) - ----------------------------------------------------------------------------------------------------------------------------------- Total distributions (0.19) (1.95) (1.40) (0.82) - ----------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 17.47 $ 21.62 $ 21.52 $ 27.14 - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 31.26(4) 37.45 6.44 31.00 - ----------------------------------------------------------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA - ----------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (000s omitted)($) 31,306 94,158 216,978 486,631 - ----------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 1.41(5) 1.35 1.34 1.39 - ----------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) 1.64(5) 1.29 1.78 2.23 - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (%) 53 35 13 14 - ----------------------------------------------------------------------------------------------------------------------------------- Average brokerage commission rate (%) N/A N/A N/A N/A
==================================================================================================================================== CLASS B - YEAR ENDED OCTOBER 31, 1987(6) 1987(7) 1988 1989 1990 1991 1992 1993 1994 1995 ==================================================================================================================================== PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 12.51 $ 12.68 $ 10.02 $ 11.89 $ 13.00 $ 8.13 $ 13.76 $ 17.44 $ 21.56 $ 21.43 - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income (loss) 0.20 0.05 0.16 0.20 0.30 0.29 0.18 0.15(2) 0.23(2) 0.36(2) - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investment 1.74 (2.17) 3.12 2.02 (4.19) 5.68 4.56 5.83 0.91 5.89 - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations 1.94 (2.12) 3.28 2.22 (3.89) 5.97 4.74 5.98 1.14 6.25 Less distributions: - ------------------------------------------------------------------------------------------------------------------------------------ Dividends from net investment income (0.26) (0.04) (0.15) (0.16) (0.19) (0.34) (0.28) (0.17) (0.21) (0.32) - ------------------------------------------------------------------------------------------------------------------------------------ Distributions from net realized gain on investments sold (1.51) (0.50) (1.26) (0.95) (0.76) -- (0.78) (1.69) (1.06) (0.34) - ------------------------------------------------------------------------------------------------------------------------------------ Distributions from capital paid-in -- -- -- -- (0.03) -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (1.77) (0.54) (1.41) (1.11) (0.98) (0.34) (1.06) (1.86) (1.27) (0.66) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $ 12.68 $ 10.02 $ 11.89 $ 13.00 $ 8.13 $ 13.76 $ 17.44 $ 21.56 $ 21.43 $ 27.02 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 17.44 (17.36)(4) 36.89 20.46 (32.29) 75.35 37.20 36.71 5.69 30.11 - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS AND SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (000s omitted)($) 54,626 38,721 50,965 81,167 38,992 52,098 56,016 171,808 522,207 1,236,447 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%) 1.48 2.47(5) 2.17 1.99 1.99 2.04 1.96 1.88 2.06 2.09 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income (loss) to average net assets (%) 1.62 0.73(5) 1.50 1.67 2.51 2.65 1.21 0.76 1.07 1.53 - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate (%) 89 58(5) 87 85 56 75 53 35 13 14 - ------------------------------------------------------------------------------------------------------------------------------------ Average brokerage commission rate (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A (1) Class A shares commenced operations on January 3, 1992. (2) Based on the average of the shares outstanding at the end of each month. (3) Assumes dividend reinvestment and does not reflect the effect of sales charges. (4) Not annualized. (5) Annualized. (6) Year ended March 31, 1987. (7) For the period April 1, 1987 to October 31, 1987.
REGIONAL BANK FUND 13 SPECIAL EQUITIES FUND REGISTRANT NAME: JOHN HANCOCK SPECIAL EQUITIES FUND TICKER SYMBOL CLASS A:JHNSX CLASS B:SPQBX
- -------------------------------------------------------------------------------- GOAL AND STRATEGY [A graphic image of a bullseye with an arrow in the middle of it.] The fund seeks long-term capital appreciation. To pursue this goal, the fund invests in small-capitalization companies and companies in situations offering unusual or non-recurring opportunities. In normal circumstances the fund will invest at least 65% of its assets in a diversified portfolio of these companies. The fund looks for companies that dominate an emerging industry or hold a growing market share in a fragmented industry, and that have demonstrated earnings and revenue growth of at least 25%, self-financing capabilities and strong management. The fund does not invest for income. PORTFOLIO SECURITIES [A graphic image of a black folder that contains a couple sheets of paper.] The fund invests primarily in the common stocks of U.S. and foreign companies. It may also invest in warrants, preferred stocks and investment-grade convertible debt securities. For liquidity and flexibility, the fund may place up to 35% of its net assets in cash or in short-term investment-grade securities; in abnormal market conditions, it may invest more than 35% in these securities as a defensive tactic. To a limited extent, the fund also may invest in certain higher risk securities, and may engage in other investment practices. For details, see "More about risk" at the end of this prospectus. RISK FACTORS [A graphic image of a line chart with a single line that depicts some peaks and valleys.] As with any growth fund, the value of your investment will fluctuate with the performance of the stock market. Stocks of small-capitalization and special-situation companies carry higher risks than stocks of larger companies. This is because these companies: - - may lack proven track records - - may be dependent on a small number of products or services - - may be undercapitalized - - may have highly priced stocks which are sensitive to adverse news In addition, stocks of these companies are often traded in low volumes, which can increase market and liquidity risks. PORTFOLIO MANAGER [A graphic image of a generic person.] Michael P. DiCarlo is responsible for the fund's day-to-day investment management. He has served as the fund's portfolio manager since 1988, and has worked as an investment professional since 1984. He is currently one of three principals in DFS Advisors, LLC, which was founded in 1996 and serves as subadviser to the fund. - -------------------------------------------------------------------------------- INVESTOR EXPENSES [A graphic image of a percent symbol.] Fund investors pay various expenses, either directly or indirectly. The figures below show the expenses for the past year, adjusted to reflect any changes. Future expenses may be greater or less.
================================================================================ Shareholder transaction expenses Class A Class B ================================================================================ Maximum sales charge imposed on purchases (as a percentage of offering price) 5.00% none - -------------------------------------------------------------------------------- Maximum sales charge imposed on reinvested dividends none none - -------------------------------------------------------------------------------- Maximum deferred sales charge none(1) 5.00% - -------------------------------------------------------------------------------- Redemption fee(2) none none - -------------------------------------------------------------------------------- Exchange fee none none - -------------------------------------------------------------------------------- ================================================================================ Annual fund operating expenses (as a % of average net assets) ================================================================================ Management fee(3) 0.82% 0.82% - -------------------------------------------------------------------------------- 12b-1 fee(4) 0.30% 1.00% - -------------------------------------------------------------------------------- Other expenses 0.38% 0.40% - -------------------------------------------------------------------------------- Total fund operating expenses 1.50% 2.22% - --------------------------------------------------------------------------------
EXAMPLE The table below shows what you would pay if you invested $1,000 over the various time frames indicated. The example assumes you reinvested all dividends and that the average annual return was 5%.
================================================================================ Share class Year 1 Year 3 Year 5 Year 10 ================================================================================ Class A shares $65 $95 $128 $220 - -------------------------------------------------------------------------------- Class B shares - -------------------------------------------------------------------------------- Assuming redemption at end of period $73 $99 $139 $237 - -------------------------------------------------------------------------------- Assuming no redemption $23 $69 $119 $237 - -------------------------------------------------------------------------------- This example is for comparison purposes only and is not a representation of the fund's actual expenses and returns, either past or future. (1) Except for investments of $1 million or more; see "How sales charges are calculated." (2) Does not include wire redemption fee (currently $4.00). (3) Includes a subadviser fee equal to 25% of the management fee. (4) May include carry-over of reimbursable costs from previous year(s). Amounts shown are the fund's current annual maximums for 12b-1 fees. Because of the 12b-1 fee, long-term shareholders may indirectly pay more than the equivalent of the maximum permitted front-end sales charge.
14 SPECIAL EQUITIES FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS [A graphic image of a dollar sign.] The figures below have been audited by the fund's independent auditors, Ernst & Young LLP. VOLATILITY, AS INDICATED BY CLASS A [BAR GRAPH] YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
==================================================================================================================================== CLASS A - YEAR ENDED OCTOBER 31, 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 ==================================================================================================================================== PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 5.21 $ 6.08 $ 4.30 $ 4.89 $ 6.38 $ 4.97 $ 9.71 $ 10.99 $ 16.13 $ 16.11 - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income (loss)(1) (0.03) (0.03) 0.04 0.01 (0.12) (0.10) (0.19)(2) (0.20)(2) (0.21)(2) (0.18)(2) - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments 0.93 (1.26) 0.55 1.53 (1.27) 4.84 2.14 5.43 0.19 6.22 - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations 0.90 (1.29) 0.59 1.54 (1.39) 4.74 1.95 5.23 (0.02) 6.04 - ------------------------------------------------------------------------------------------------------------------------------------ Less distributions: - ----------------------------------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.02) -- -- (0.05) (0.02) -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Distributions from net realized gain on investments sold (0.01) (0.45) -- -- -- -- (0.67) (0.09) -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Distributions from capital paid-in -- (0.04) -- -- -- -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (0.03) (0.49) -- (0.05) (0.02) -- (0.67) (0.09) -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $ 6.08 $ 4.30 $ 4.89 $ 6.38 $ 4.97 $ 9.71 $ 10.99 $ 16.13 $ 16.11 $ 22.15 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL INVESTMENT RETURN AT NET ASSET VALUE(1,3) (%) 17.38 (28.68) 13.72 31.82 (21.89) 95.37 20.25 47.83 (0.12) 37.49 - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS AND SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (000s omitted) ($) 13,780 10,637 11,714 12,285 8,166 19,713 44,665 296,793 310,625 555,655 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets(1) (%) 1.50 1.50 1.50 1.50 2.63 2.75 2.24 1.84 1.62 1.48 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income (loss) to average net assets(1) (%) (0.57) (0.57) 0.82 0.47 (1.58) (2.12) (1.91) (1.49) (1.40) (0.97) - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate (%) 64 93 91 115 113 163 114 33 66 82 - ------------------------------------------------------------------------------------------------------------------------------------ Average brokerage commission rate (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
========================================================================================================= CLASS B - YEAR ENDED OCTOBER 31, 1993(4) 1994 1995 ========================================================================================================= PER SHARE OPERATING PERFORMANCE - --------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.30 $ 16.08 $ 15.97 - --------------------------------------------------------------------------------------------------------- Net investment income (loss) (0.18)(2) (0.30)(2) (0.31)(2) - --------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 3.96 0.19 6.15 - --------------------------------------------------------------------------------------------------------- Total from investment operations 3.78 (0.11) 5.84 - --------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 16.08 $ 15.97 $ 21.81 - --------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 30.73(5) (0.68) 36.57 - --------------------------------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA - --------------------------------------------------------------------------------------------------------- Net assets, end of period (000s omitted) ($) 158,281 191,979 454,934 - --------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 2.34(6) 2.25 2.20 - --------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) (2.03)(6) (2.02) (1.69) - --------------------------------------------------------------------------------------------------------- Portfolio turnover rate (%) 33 66 82 - --------------------------------------------------------------------------------------------------------- Average brokerage commission rate (%) N/A N/A N/A (1) Reflects expense limitation in effect during the years ended October 31, 1986 through 1991 (see note B to the financial statements in the Statement of Additional Information). As a result of such limitations, expenses of the Fund for the years ended October 31, 1986, 1987, 1988, 1989, 1990, and 1991 reflect reductions of $.09, $.04, $.07, $.03, $.02 and $.002 respectively. Absent of such limitation, for the years ended October 31, 1986, 1987, 1988, 1989, 1990, and 1991, the ratio of net expenses would have been 3.47%, 2.23%, 2.94%, 2.57%, 2.95%, and 2.79% respectively, and the ratio of net investment income (loss) to average net assets would have been (2.55%), (1.30%), (0.62%), (0.60%), (1.90%) and (2.16%), respectively. Without the limitation, total investment return would be lower. (2) Based on the average of the shares outstanding at the end of each month. (3) Assumes dividend reinvestment and does not reflect the effect of sales charges. (4) Class B shares commenced operations on March 1, 1993. (5) Not annualized. (6) Annualized.
SPECIAL EQUITIES FUND 15 SPECIAL OPPORTUNITIES FUND REGISTRANT NAME: FREEDOM INVESTMENT TRUST II TICKER SYMBOL CLASS A:SPOAX CLASS B:SPOBX
- -------------------------------------------------------------------------------- GOAL AND STRATEGY [A graphic image of a bullseye with an arrow in the middle of it.] The fund seeks long-term capital appreciation. To pursue this goal, the fund invests in those economic sectors that appear to have a higher earning potential. Under normal circumstances, at least 90% of the fund's equity securities will be invested within five or fewer sectors (e.g. financial services, energy, technology). Up to 25% may be invested in any one sector. The inclusion and weighting of any sector is determined on the basis of macroeconomic factors as well as the outlook for that sector. The fund may add or drop sectors. Because the fund may invest more than 5% of its assets in a single issuer, it is classified as a non-diversified fund. PORTFOLIO SECURITIES [A graphic image of a black folder that contains a couple sheets of paper.] The fund invests primarily in common stocks of U.S. and foreign companies of any size. It may also invest in warrants, preferred stocks, convertible debt securities, U.S. Government securities and corporate bonds rated at least BBB/Baa, or equivalent. To a limited extent, the fund also may invest in certain higher risk securities, and may engage in other investment practices. For details, see "More about risk" at the end of this prospectus. RISK FACTORS [A graphic image of a line chart with a single line that depicts some peaks and valleys.] By focusing on a relatively small number of industries or issuers, the fund runs the risk that any factor influencing those industries or issuers will have a major effect on performance. The fund may invest in companies with smaller market capitalizations, which represent higher near-term risks than larger capitalization companies. The fund's use of derivatives could expose it to losses substantially in excess of the purchase or sale price of the derivative. These factors make the fund likely to experience higher volatility than most other types of growth funds. PORTFOLIO MANAGER [A graphic image of a generic person.] Kevin R. Baker is leader of the portfolio management for the fund. A second vice president of John Hancock Advisers, he has been an active member of the fund's management team since joining the investment adviser in 1994. He has worked as an investment professional since 1986. - -------------------------------------------------------------------------------- INVESTOR EXPENSES [A graphic image of a percent symbol.] Fund investors pay various expenses, either directly or indirectly. The figures below show the expenses for the past year, adjusted to reflect any changes. Future expenses may be greater or less.
================================================================================ Shareholder transaction expenses Class A Class B ================================================================================ Maximum sales charge imposed on purchases (as a percentage of offering price) 5.00% none - -------------------------------------------------------------------------------- Maximum sales charge imposed on reinvested dividends none none - -------------------------------------------------------------------------------- Maximum deferred sales charge none(1) 5.00% - -------------------------------------------------------------------------------- Redemption fee(2) none none - -------------------------------------------------------------------------------- Exchange fee none none - -------------------------------------------------------------------------------- ================================================================================ Annual fund operating expenses (as a % of average net assets) ================================================================================ Management fee 0.80% 0.80% - -------------------------------------------------------------------------------- 12b-1 fee(3) 0.30% 1.00% - -------------------------------------------------------------------------------- Other expenses 0.49% 0.49% - -------------------------------------------------------------------------------- Total fund operating expenses 1.59% 2.29% - --------------------------------------------------------------------------------
EXAMPLE The table below shows what you would pay if you invested $1,000 over the various time frames indicated. The example assumes you reinvested all dividends and that the average annual return was 5%.
================================================================================ Share class Year 1 Year 3 Year 5 Year 10 ================================================================================ Class A shares $65 $ 98 $132 $229 - -------------------------------------------------------------------------------- Class B shares - -------------------------------------------------------------------------------- Assuming redemption at end of period $73 $102 $143 $245 - -------------------------------------------------------------------------------- Assuming no redemption $23 $ 72 $123 $245 This example is for comparison purposes only and is not a representation of the fund's actual expenses and returns, either past or future. (1) Except for investments of $1 million or more; see "How sales charges are calculated." (2) Does not include wire redemption fee (currently $4.00). (3) May include carry-over of reimbursable costs from previous year(s). Amounts shown are the fund's current annual maximums for 12b-1 fees. Because of the 12b-1 fee, long-term shareholders may indirectly pay more than the equivalent of the maximum permitted front-end sales charge.
16 SPECIAL OPPORTUNITIES FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS [A graphic image of a dollar sign.] The figures below have been audited by the fund's independent auditors, Price Waterhouse LLP. VOLATILITY, AS INDICATED BY CLASS A [BAR GRAPH] YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
================================================================================== CLASS A - YEAR ENDED OCTOBER 31, 1994(1) 1995 ================================================================================== PER SHARE OPERATING PERFORMANCE - ---------------------------------------------------------------------------------- Net asset value, beginning of period $ 8.50 $ 7.93 - ---------------------------------------------------------------------------------- Net investment income (loss) (0.03)(2) (0.07)(2) - ---------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (0.54) 1.46 - ---------------------------------------------------------------------------------- Total from investment operations (0.57) 1.39 - ---------------------------------------------------------------------------------- Net asset value, end of period $ 7.93 $ 9.32 - ---------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4) (%) (6.71)(3) 17.53 - ---------------------------------------------------------------------------------- Total adjusted investment return at net asset value(5) (%) (6.83)(6) -- - ---------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA - ---------------------------------------------------------------------------------- Net assets, end of period (000s omitted) ($) 92,325 101,562 - ---------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 1.50 1.59 - ---------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(5) (%) 1.62 -- - ---------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) (0.41) (0.87) - ---------------------------------------------------------------------------------- Ratio of adjusted net investment loss to average net assets(5) (%) (0.53) -- - ---------------------------------------------------------------------------------- Portfolio turnover rate (%) 57 155 - ---------------------------------------------------------------------------------- Expense reimbursement per share (%) 0.01(2) -- - ---------------------------------------------------------------------------------- Average brokerage commission rate (%) N/A N/A ================================================================================== CLASS B - YEAR ENDED OCTOBER 31, 1994(1) 1995 ================================================================================== PER SHARE OPERATING PERFORMANCE - ---------------------------------------------------------------------------------- Net asset value, beginning of period $ 8.50 $ 7.87 - ---------------------------------------------------------------------------------- Net investment income (loss) (0.09)(2) (0.13)(2) - ---------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (0.54) 1.45 - ---------------------------------------------------------------------------------- Total from investment operations (0.63) 1.32 - ---------------------------------------------------------------------------------- Net asset value, end of period $ 7.87 $ 9.19 - ---------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4)(%) (7.41)(3) 16.77 - ---------------------------------------------------------------------------------- Total adjusted investment return at net asset value(5) (%) (7.53)(6) -- - ---------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA - ---------------------------------------------------------------------------------- Net assets, end of period (000s omitted)($) 131,983 137,363 - ---------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) 2.22 2.30 - ---------------------------------------------------------------------------------- Ratio of adjusted expenses to average net assets(5) (%) 2.34 -- - ---------------------------------------------------------------------------------- Ratio of adjusted net investment income (loss) to average net assets (%) (1.13) (1.55) - ---------------------------------------------------------------------------------- Ratio of adjusted net investment loss to average net assets(5) (%) (1.25) -- - ---------------------------------------------------------------------------------- Portfolio turnover rate (%) 57 155 - ---------------------------------------------------------------------------------- Expense reimbursement per share (%) 0.01(2) -- - ---------------------------------------------------------------------------------- Average brokerage commission rate (%) N/A N/A (1) Class A and B shares commenced operations on November 1, 1993. (2) Based on the average of the shares outstanding at the end of each month. (3) Without the reimbursement, total investment return would be lower. (4) Assumes dividend reinvestment and does not reflect the effect of sales charges. (5) Unreimbursed, without expense reduction. (6) An estimated total return calculation which takes into consideration fees and expenses waived or borne by the adviser during the periods shown.
SPECIAL OPPORTUNITIES FUND 17 YOUR ACCOUNT - -------------------------------------------------------------------------------- CHOOSING A SHARE CLASS All John Hancock growth funds offer two classes of shares, Class A and Class B. Each class has its own cost structure, allowing you to choose the one that best meets your requirements. Your financial representative can help you decide.
================================================================================ CLASS A CLASS B ================================================================================ - - Front-end sales charges, as - No front-end sales charge; all described below. There are of your money goes to work for several ways to reduce these you right away. charges, also described below. - Higher annual expenses than - - Lower annual expenses than Class A shares. Class B shares. - A deferred sales charge on shares you sell within six years of purchase, as described below. - Automatic conversion to Class A shares after eight years, thus reducing future annual expenses. For actual past expenses of Class A and B shares, see the fund-by-fund information earlier in this prospectus. Special Equities Fund offers Class C shares, which have their own sales charge and expense structure and are available to financial institutions only. Call Investor Services or contact your financial representative for more information.
- -------------------------------------------------------------------------------- HOW SALES CHARGES ARE CALCULATED CLASS A Sales charges are as follows: ================================================================================ CLASS A SALES CHARGES ================================================================================
AS A % OF AS A % OF YOUR YOUR INVESTMENTS OFFERING PRICE INVESTMENT - -------------------------------------------------------------------------------- Up to $49,999 5.00% 5.26% - -------------------------------------------------------------------------------- $50,000 - $99,999 4.50% 4.71% - -------------------------------------------------------------------------------- $100,000 - $249,999 3.50% 3.63% - -------------------------------------------------------------------------------- $250,000 - $499,999 2.50% 2.56% - -------------------------------------------------------------------------------- $500,000 - $999,999 2.00% 2.04% - -------------------------------------------------------------------------------- $1,000,000 and over See below
INVESTMENTS OF $1 MILLION OR MORE Class A shares are available with no front-end sales charge. However, there is a contingent deferred sales charge (CDSC) on any shares sold within one year of purchase, as follows: ================================================================================ CDSC ON $1 MILLION+ INVESTMENT ================================================================================
YOUR INVESTMENT CDSC ON SHARES BEING SOLD - -------------------------------------------------------------------------------- First $1M - $4,999,999 1.00% - -------------------------------------------------------------------------------- Next $1 - $5M above that 0.50% - -------------------------------------------------------------------------------- Next $1M or more above that 0.25% For purposes of this CDSC, all purchases made during a calendar month are counted as having been made on the first day of that month.
The CDSC is based on the lesser of the original purchase cost or the current market value of the shares being sold, and is not charged on shares you acquired by reinvesting your dividends. To keep your CDSC as low as possible, each time you place a request to sell shares we will first sell any shares in your account that are not subject to a CDSC. CLASS B Shares are offered at their net asset value per share, without any initial sales charge. However, there is a contingent deferred sales charge (CDSC) on shares you sell within six years of buying them. 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 longer the time between the purchase and the sale of shares, the lower the rate of the CDSC: ================================================================================ CLASS B DEFERRED CHARGES ================================================================================
YEARS AFTER PURCHASE CDSC ON SHARES BEING SOLD - -------------------------------------------------------------------------------- 1 year 5.0% - -------------------------------------------------------------------------------- 2 years 4.0% - -------------------------------------------------------------------------------- 3 or 4 years 3.0% - -------------------------------------------------------------------------------- 5 years 2.0% - -------------------------------------------------------------------------------- 6 years 1.0% - -------------------------------------------------------------------------------- 7 or more years None - -------------------------------------------------------------------------------- For purposes of this CDSC, all purchases made during a calendar month are counted as having been made on the LAST 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. 18 YOUR ACCOUNT - -------------------------------------------------------------------------------- SALES CHARGE REDUCTIONS AND WAIVERS REDUCING YOUR CLASS A SALES CHARGES There are several ways you can combine multiple purchases of Class A shares in John Hancock funds to take advantage of the breakpoints in the sales charge schedule. The first three ways can be combined in any manner. - - Accumulation Privilege -- lets you add the value of any Class A shares you already own to the amount of your next Class A investment for purposes of calculating the sales charge. - - 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. - - Combination Privilege -- lets you combine Class A shares of multiple funds for purposes of calculating the sales charge. To utilize: complete the appropriate section on your application, or contact your financial representative or Investor Services to add these options to an existing account. GROUP INVESTMENT PROGRAM Allows four or more accountholders to declare themselves a group. Each has an individual account, but for sales charge purposes, their investments are lumped together, making the investors potentially eligible for reduced sales charges. There is no charge, no obligation to invest (although initial aggregate investments must be at least $250), and you may terminate the program at any time. To utilize: contact your financial representative or Investor Services to find out how to qualify. CDSC WAIVERS In general, the CDSC for either share class may be waived on shares you sell for the following reasons: - - to make payments through certain Systematic Withdrawal Plans - - to make distributions from a retirement plan - - because of shareholder death or disability To utilize: contact your financial representative or Investor Services. REINSTATEMENT PRIVILEGE If you sell shares in a John Hancock fund, you may invest some or all of the proceeds in the same share class of any John Hancock fund within 120 days without a sales charge. 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 Investor Services. WAIVERS FOR CERTAIN INVESTORS Class A shares may be offered without front-end sales charges or CDSCs to various individuals and institutions, including: - - government entities who are prohibited from paying mutual fund sales charges - - financial institutions or common trust funds investing $1 million or more for non-discretionary accounts - - selling brokers and their employees and sales representatives - - financial representatives utilizing fund shares in fee-based investment products under agreement with John Hancock Funds - - fund trustees and other individuals who are affiliated with these or other John Hancock funds - - individuals transferring assets to a John Hancock growth fund from an employee benefit plan that has John Hancock funds To utilize: if you think you may be eligible for a sales charge waiver, contact Investor 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 growth funds are as follows: - non-retirement account: $1,000 - retirement account: $250 - group investments: $250 - Monthly Automatic Accumulation Plan (MAAP): $25 to open; you must invest at least $25 a month 3 Complete the appropriate parts of the Account Application, carefully following the instructions. If you have questions, please contact your financial representative or call Investor 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 on. 5 Make your initial investment using the table on the next page. You can initiate any purchase, exchange or sale of shares through your financial representative. YOUR ACCOUNT 19
=============================================================================================================================== BUYING SHARES =============================================================================================================================== OPENING AN ACCOUNT ADDING TO AN ACCOUNT - ------------------------------------------------------------------------------------------------------------------------------- BY CHECK - ------------------------------------------------------------------------------------------------------------------------------- [A graphic image of a blank check.] - - Make out a check for the investment amount, payable - Make out a check for the investment amount payable to "John Hancock Investor Services Corporation." to "John Hancock Investor Services Corporation." - - Deliver the check and your completed application to - Fill out the detachable investment slip from an account your financial representative, or mail to Investor Services statement. If no slip is available, include a note specifying (address on next page). the fund name, your share class, your account number, and the name(s) in which the account is registered. - Deliver the check and your investment slip or note to your financial representative, or mail to Investor Services (address on next page). - --------------------------------------------------------------------------------------------------------------------------------- BY EXCHANGE - --------------------------------------------------------------------------------------------------------------------------------- [A graphic image of a white arrow outlined in black that points to the right above a black that points to the left.] - - Call your financial representative or Investor Services - Call Investor Services to request an exchange. to request an exchange. - --------------------------------------------------------------------------------------------------------------------------------- BY WIRE - --------------------------------------------------------------------------------------------------------------------------------- [A graphic image of a jagged white arrow outlined in black that points upwards at a 45 degree angle.] - - Deliver your completed application to your financial - Instruct your bank to wire the amount of your representative, or mail it to Investor Services. investment to: First Signature Bank & Trust - - Obtain your account number by calling your financial Account #900000260 representative or Investor Services. Routing #211475000 Specify the fund name, your share class, your account - - Instruct your bank to wire the amount of your number, and the name(s) in which the account is registered. investment to: Your bank may 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 PHONE - ------------------------------------------------------------------------------------------------------------------------------- [A graphic image of a telephone.] See "By wire" and "By exchange." - Verify that your bank or credit union is a member of the Automated Clearing House (ACH) system. - Complete the "Invest-By-Phone" and "Bank Information" sections on your Account Privileges Application. - Call Investor Services to verify that these features are in place on your account. - Tell the Investor Services representative the fund name, your share class, your account number, the name(s) in which the account is registered, and the amount of your investment. To open or add to an account using the Monthly Automatic Accumulation Program, see "Additional investor services."
20 YOUR ACCOUNT
=============================================================================================================================== SELLING SHARES =============================================================================================================================== DESIGNED FOR TO SELL SOME OR ALL OF YOUR SHARES - ------------------------------------------------------------------------------------------------------------------------------- BY LETTER - ------------------------------------------------------------------------------------------------------------------------------- [A graphic image of the back of an envelope.] - - Accounts of any type. - Write a letter of instruction or stock power indicating the fund name, your share class, your account number, - - Sales of any amount. the name(s) in which the account is registered, and the dollar value or number of shares you wish to sell. - Include all signatures and any additional documents that may be required (see next page). - Mail the materials to Investor Services. - A check will be mailed to the name(s) and address in which the account is registered, or otherwise according to your letter of instruction. - ------------------------------------------------------------------------------------------------------------------------------- BY PHONE - ------------------------------------------------------------------------------------------------------------------------------- [A graphic image of a telephone.] - - Most accounts. - For automated service 24 hours a day using your Touch-Tone phone, call the John Hancock Funds - - Sales of up to $100,000. EASI-Line at 1-800-338-8080. - To place your order with a representative at John Hancock Funds, call Investor Services between 8 a.m. and 4 p.m. on most business days. - ------------------------------------------------------------------------------------------------------------------------------- BY WIRE OR ELECTRONIC FUNDS TRANSFER (EFT) - ------------------------------------------------------------------------------------------------------------------------------- [A graphic image of a jagged white arrow outlined in black that points upwards at a 45 degree angle.] - - Requests by letter to sell any amount (accounts of - Fill out the "Telephone redemption" section of your any type). new account application. - - Requests by phone to sell up to $100,000 (accounts - To verify that the telephone redemption privilege is in with telephone redemption privileges). place on an account, or to request the forms to add it to an existing account, call Investor Services. - Amounts of $1,000 or more will be wired on the next business day. A $4 fee will be deducted from your account. - Amounts of less than $1,000 may be sent by EFT or by check. Funds from EFT transactions are generally available by the second business day. Your bank may charge a fee for this service. - ------------------------------------------------------------------------------------------------------------------------------- BY EXCHANGE - ------------------------------------------------------------------------------------------------------------------------------- [A graphic image of a white arrow outlined in black that points to the right above a black that points to the left.] - - Accounts of any type. - Obtain a current prospectus for the fund into which you are exchanging by calling your financial representative - - Sales of any amount. Investor Services. - Call Investor Services to request an exchange. ============================================ Address for opening an account John Hancock Investor Services Corporation P.O. Box 9115 Boston, MA 02205-9115 Address for all other transactions John Hancock Investor Services Corporation P.O. Box 9116 Boston, MA 02205-9116 Phone number for all transactions 1-800-225-5291 Or contact your financial representative for To sell shares through a systematic withdrawal plan, instructions and assistance see "Additional investor services." ============================================
YOUR ACCOUNT 21 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. You may also need to include a signature guarantee, which protects you against fraudulent orders. You will need a signature guarantee if: - - your address of record has changed within the past 30 days - - you are selling more than $100,000 worth of shares - - you are requesting payment other than by a check mailed to the address of record and payable to the registered owner(s) - - you are an executor You can generally obtain a signature guarantee from the following sources: - - a broker or securities dealer - - a federal savings, cooperative or other type of bank - - a savings and loan or other thrift institution - - a credit union - - a securities exchange or clearing agency A notary public cannot provide a signature guarantee.
=================================================================================================================================== SELLER REQUIREMENTS FOR WRITTEN REQUESTS [A graphic image of the back of an envelope.] =================================================================================================================================== Owners of individual, joint, sole proprietorship, UGMA/UTMA - Letter of instruction (custodial accounts for minors) or general partner accounts. - On the letter, the signatures and titles of all persons authorized to sign for the account, exactly as the account is registered. - ----------------------------------------------------------------------------------------------------------------------------------- Owners of corporate or association accounts. - Letter of instruction. - Corporate resolution. - On the letter and the resolution, the signature of the person(s) authorized to sign for the account. - ----------------------------------------------------------------------------------------------------------------------------------- Owners or trustees of trust accounts. - Letter of instruction. - On the letter, the signature(s) of the trustee(s). - If the names of all trustees are not registered on the account, please also provide a copy of the trust document certified within the last 60 days. - ----------------------------------------------------------------------------------------------------------------------------------- Joint tenancy shareholders whose co-tenants are deceased. - Letter of instruction signed by surviving tenant. - Copy of death certificate. - ----------------------------------------------------------------------------------------------------------------------------------- Executors of shareholder estates. - Letter of instruction signed by executor. - Copy of order appointing executor. - ----------------------------------------------------------------------------------------------------------------------------------- Administrators, conservators, guardians and other sellers or - Call 1-800-225-5291 for instructions. account types not listed above. - -----------------------------------------------------------------------------------------------------------------------------------
22 YOUR ACCOUNT - ------------------------------------------------------------------------------- TRANSACTION POLICIES VALUATION OF SHARES The net asset value per share (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 p.m. Eastern Time) by dividing a class's net assets by the number of its shares outstanding. 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, as described earlier. EXECUTION OF REQUESTS Each fund is open on those days when the New York Stock Exchange is open, typically Monday-Friday. Buy and sell requests are executed at the next NAV to be calculated after your request is accepted by Investor Services. At times of peak activity, it may be difficult to place requests by phone. During these times, consider using EASI-Line or sending your request in writing. In unusual circumstances, 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. In addition, Investor Services will take measures to verify the identity of the caller, such as asking for name, account number, Social Security or taxpayer ID number, and other relevant information. If these measures are not taken, Investor Services is 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. EXCHANGES You may exchange shares of your John Hancock fund for shares of the same class in any other John Hancock fund. You will not be charged any front-end sales charges, and in general any CDSC calculations will be based on the date of your original investment (although the CDSC will generally be that of the fund with the higher rates). Class B shares that are exchanged into a fund that has no CDSC will retain their original CDSC terms. To protect the interests of other investors in the fund, a fund may cancel the exchange privileges 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. A fund may change or cancel its exchange privilege at any time, upon 60 days' notice to its shareholders. A fund may also refuse any exchange order. CERTIFICATED SHARES Most shares are electronically recorded. If you wish to have certificates for your shares, please write to Investor Services. Certificated shares can only be sold by returning the certificates to Investor 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 calendar days after the purchase. FOREIGN CURRENCIES Purchases must be made in U.S. dollars. Purchases in foreign currencies must be converted, which may result in a fee and delayed execution. - ------------------------------------------------------------------------------- DIVIDENDS AND ACCOUNT POLICIES ACCOUNT STATEMENTS In general, you will receive account statements as follows: - - after every transaction (except a dividend reinvestment) that affects your account balance - - after any changes of name or address of the registered owner(s) - - every quarter during which there is a transaction, an automatic investment/withdrawal plan activity or a dividend reinvestment - - in all other circumstances, once a year Every year you should also receive, if applicable, a Form 1099 tax information statement, mailed by January 31. DIVIDENDS The funds generally distribute most or all of their net earnings in the form of dividends.Capital gains dividends, if any, are typically paid once a year. Most of the funds do not typically pay income dividends, with the exception of Disciplined Growth Fund and Regional Bank Fund, which typically pay income dividends quarterly and semi-annually respectively. YOUR ACCOUNT 23 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 mailed to you. However, if the check is not deliverable, your dividends will be reinvested. TAXABILITY OF DIVIDENDS As long as a fund meets the requirements for being a tax-qualified regulated investment company, which each fund has in the past and intends to in the future, it pays no federal income tax on the earnings it distributes to shareholders. Consequently, any dividends you receive from a fund, whether reinvested or taken as cash, are considered taxable. Dividends from a fund's long-term capital gains are taxable as capital gains; dividends from other sources are generally taxable as ordinary income. Some dividends paid in January may be taxable as if they had been paid the previous December. Corporations may be entitled to take a dividends-received deduction for a portion of certain dividends they receive. The Form 1099 that is mailed to you every January details your dividends and their federal tax category, although you should verify your tax liability with your tax professional. TAXABILITY OF TRANSACTIONS Any time you sell or exchange shares, it is considered a taxable event for you. Depending on the purchase price and the sale price of the shares you sell or exchange, you may have a gain or a loss on the transaction. You are responsible for any tax liabilities generated by your transactions. SMALL ACCOUNTS (NON-RETIREMENT ONLY) If you draw down a non-retirement account so that its total value is less than $1,000, you may be asked to purchase more shares within 30 days. If you do not take action, your fund may close out your account and mail you the proceeds. Alternatively, your fund's transfer agent 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) Lets you set up regular investments from your paycheck or bank account to the John Hancock fund(s) of your choice. You determine the frequency and amount of your investments, and you can terminate your program at any time. To establish: - - Complete the appropriate parts of your Account Privileges Application. - - If you are using MAAP to open an account, make out a check ($25 minimum) for your first investment amount payable to "John Hancock Investor Services Corporation" and deliver your check and application to your financial services representative or Investor Services. SYSTEMATIC WITHDRAWAL PLAN May be used for routine bill payment or periodic withdrawals from your account. To establish: - - Make sure you have at least $5,000 worth of shares in your account. - - Make sure you are not planning to invest more money in this account (buying shares during a period when you are also selling shares of the same fund is not advantageous to you, because of sales charges). - - Specify the payee(s). The payee may be yourself or any other party, and there is no limit to the number of payees you may have, as long as they are all on the same payment schedule. - - Determine the schedule: monthly, quarterly, semi-annually, annually, or in certain selected months. - - Fill out the relevant part of the Account Privileges Application. To add a Systematic Withdrawal Plan to an existing account, contact your financial representative or Investor Services. RETIREMENT PLANS John Hancock Funds offers a range of qualified retirement plans, including IRAs, SEPs, SARSEPs, TSAs, 401(k) plans, 403(b) plans, and other pension and profit-sharing plans. Using these plans, you can invest in any John Hancock fund with a low minimum investment of $250 or, for some group plans, no minimum investment at all. To find out more, call Investor Services at 1-800-225-5291. 24 YOUR ACCOUNT FUND DETAILS - ------------------------------------------------------------------------------- BUSINESS STRUCTURE HOW THE FUNDS ARE ORGANIZED Each John Hancock growth fund is an open-end management investment company or a series of such a company. Each fund is supervised by a Board of Trustees or a Board of Directors, an independent body which has ultimate responsibility for the fund's activities. The board retains various companies to carry out the fund's operations, including the investment adviser, custodian, transfer agent, and others (see diagram). The board has the right, and the obligation, to terminate the fund's relationship with any of these companies and to retain a different company if the board believes that it is in the shareholders' best interests. At a mutual fund's inception, the initial shareholder (typically the adviser) appoints the fund's board. Thereafter, the board and the shareholders determine the board's membership. The boards of the John Hancock growth funds may include individuals who are affiliated with the investment adviser. However, the majority of board members must be independent. The funds do not hold annual shareholder meetings, but may hold special meetings for such purposes as electing or removing board members, changing fundamental policies, approving a management contract, or approving a 12b-1 plan (12b-1 fees are explained in "Sales compensation"). [A flow chart that contains 9 rectangular-shaped boxes and illustrates the hierarchy of how the funds are organized. Within the flowchart, there are 5 tiers. The tiers are connected by shaded lines. Shareholders represent the first tier. There is a shaded vertical arrow on the left-hand side of the page. The arrow has arrowheads on both ends and is contained within two horizontal, shaded lines. This is meant to highlight tiers two and three which focus on Distribution and Shareholder Services. Financial Services Firms and their Representatives is shown on the second tier. Principal Distributor and Transfer Agent are shown on the third tier. A shaded vertical arrow on the right-hand side of the page denotes those entities involved in Asset Management. The arrow has arrowheads on both ends and is contained within two horizontal, shaded lines. This fourth tier includes the Subadvisor, Investment Advisor and the Custodian. The fifth tier contains the Trustees/Directors.] FUND DETAILS 25 ACCOUNTING COMPENSATION The funds compensate the adviser for performing tax and financial management services. Annual compensation for 1996 is estimated to be 0.01875% of each fund's average net assets. PORTFOLIO TRADES In placing portfolio trades, the adviser may give preference to brokerage firms that market the fund's shares or that are affiliated with John Hancock Mutual Life Insurance Company, but only in cases where no other firm appears to offer a better combination of quality execution (i.e., timeliness and completeness) and favorable price. ADVERTISEMENT OF PERFORMANCE The funds may include figures for yield (where appropriate) and total return in advertisements and other sales materials, as follows:
=============================================================================== DEFINITIONS OF PERFORMANCE MEASURES =============================================================================== Measure Definition Cumulative total Overall dollar or percentage change of a return hypothetical investment over the stated time period. Average annual Cumulative total return divided by the total return number of years in the period. The result is an average and is not the same as the actual year-to-year results. Yield A measure of income, calculated by taking the net investment income per share for a 30-day period, dividing it by the offering price per share on the last day of the period (if there is more than one offering price, the highest price is used), and annualizing the result. While this is the standard accounting method for calculating yield, it does not reflect the fund's actual bookkeeping; as a result, the income reported or paid by the fund may be different.
All performance figures assume that dividends are reinvested, and show the effect of all applicable sales charges. Class A performance figures generally are calculated using the maximum sales charge. Because each share class has its own sales charge structure, the classes have different performance results. - ------------------------------------------------------------------------------- SALES COMPENSATION As part of their business strategies, the funds, along with John Hancock Funds, pay compensation to financial services firms that sell the funds' shares. These firms typically pass along a portion of this compensation to your financial representative. Compensation payments originate from two sources: from sales charges and from 12b-1 fees that are paid out of the fund in assets (the name refers to the federal securities regulation that authorizes annual fees of this type). The 12b-1 fee rates vary by fund and by share class, according to Rule 12b-1 plans adopted by the funds' respective boards. The sales charges and 12b-1 fees paid by investors are detailed in the fund-by-fund information. The portions of these expenses that are reallowed to financial services firms are shown below. INITIAL COMPENSATION Whenever you make an investment in a fund or funds, the financial services firm receives either a reallowance from the initial sales charge or a commission, as described below. The firm also receives the first year's service fee at this time. From time to time, as an additional incentive to these firms, John Hancock Funds may increase the reallowance on Class A shares to as much as the entire front-end sales charge. ANNUAL COMPENSATION Beginning with the second year after an investment is made, the financial services firm receives an annual service fee of 0.25% of its total eligible net assets. This fee is paid quarterly in arrears. Firms affiliated with John Hancock, which include Tucker Anthony, Sutro & Company and John Hancock Distributors, may receive an additional fee of up to 0.05% a year of their total eligible net assets. STATE REGISTRATION OF FUNDS You may only invest in or exchange into funds that are registered in the state in which you live. INVESTMENT GOALS Except for Discovery Fund, Special Opportunities Fund and Emerging Growth Fund, each fund's investment goal is fundamental, meaning that it may only be changed with shareholder approval. 26 FUND DETAILS
========================================================================================================================== CLASS A INVESTMENTS ========================================================================================================================== MAXIMUM SALES CHARGE REALLOWANCE MAXIMUM PAID BY INVESTORS OR COMMISSION SERVICE FEE TOTAL COMPENSATION (1) (% of offering price) (% of offering price) (% of net investment) (% 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% - -------------------------------------------------------------------------------------------------------------------------- Regular investments of $1 million or more - -------------------------------------------------------------------------------------------------------------------------- First $1M - $4,999,999 -- 1.00% 0.25% 1.24% - -------------------------------------------------------------------------------------------------------------------------- Next $1 - $5M above that -- 0.50% 0.25% 0.74% - -------------------------------------------------------------------------------------------------------------------------- Next $1M and more above that -- 0.25% 0.25% 0.49% - -------------------------------------------------------------------------------------------------------------------------- Waiver investments(2) -- 0.00% 0.25% 0.25% ========================================================================================================================== CLASS B INVESTMENTS ========================================================================================================================== MAXIMUM REALLOWANCE MAXIMUM OR COMMISSION SERVICE FEE TOTAL COMPENSATION (1) (% of offering price) (% of net investment) (% of offering price) - -------------------------------------------------------------------------------------------------------------------------- All amounts 3.75% 0.25% 4.00% - -------------------------------------------------------------------------------------------------------------------------- (1) Reallowance/commission percentages and service fee percentages are calculated from different amounts, and therefore may not equal total compensation percentages if combined using simple addition. (2) Refers to any investments made by municipalities, financial institutions and trusts that take advantage of the sales charge waivers described earlier in this prospectus. CDSC revenues collected by John Hancock Funds may be used to fund commission payments when there is no initial sales charge.
FUND DETAILS 27 - ------------------------------------------------------------------------------- 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 each fund's risk profile in the fund-by-fund information. The funds are 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 a fund utilizes these securities or practices, its overall performance may be affected, either positively or negatively. On the following page are brief descriptions of these securities and practices, along with the risks associated with them. The funds follow certain policies which may reduce these risks. As with any mutual fund, there is no guarantee that the performance of a John Hancock growth fund will be positive over any period of time -- days, months, or years. However, stock funds as a category have historically performed better over the long term than bond or money market funds. Below are definitions of the types of investment risk associated with higher risk securities and practices: 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 leverage risk. 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. 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. INFORMATION RISK The risk that key information about a security or market is inaccurate or unavailable. INTEREST RATE RISK The risk of losses attributable to the behavior of 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. LEVERAGE RISK Associated with securities or practices (such as borrowing) that "leverage" small changes in the value of a given index or security into large changes. - - HEDGED When a derivative (a security whose value is based on another security or index) is used as a hedge against an opposite position which the fund also holds, any loss generated by the derivative should be substantially offset by gains on the hedged investment, and vice versa. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. - - SPECULATIVE To the extent that a derivative is not used as a hedge, the fund is directly exposed to the risks of that derivative. Gains or losses from speculative positions in a derivative may be substantially greater than the derivative's original cost. LIQUIDITY RISK The risk that certain securities may be difficult or impossible to sell at the time and the price that the seller would like. The seller may have to lower the price, sell other securities instead, or forego an investment opportunity, any of which could have a negative affect on fund management or performance. MANAGEMENT RISK The risk that 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 operates on all levels of a market; it 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. NATURAL EVENT RISK The risk of losses attributable to natural disasters, crop failures and similar events. OPPORTUNITY RISK The risk of missing out on an investment opportunity because the assets necessary to take advantage of it are tied up in other investments. POLITICAL RISK The risk of losses directly attributable to government or political actions of any sort. These actions may range from changes in tax or trade statutes to expropriation, governmental collapse and war. VALUATION RISK The risk that a fund has valued certain of its securities at a higher price than it can sell them for. 28 FUND DETAILS
==================================================================================================================================== HIGHER RISK SECURITIES AND PRACTICES ==================================================================================================================================== This table shows each funs's investment limitations as a percent of portfolio assets italic type if gross assets, roman type if net assets). "NPL" indicates there is no policy limit. In each case the principal types of DISICI- risk are listed (see previous page for definitions). PLINED EMERGING REGIONAL SPECIAL SPECIAL GROWTH DISCOVERY GROWTH GROWTH BANK EQUITIES OPPORTUNITIES - ------------------------------------------------------------------------------------------------------------------------------------ INVESTMENT PRACTICES REPURCHASE AGREEMENTS The purchase of a security that must later be sold back to the issuer at the same price plus interest. Credit risk. NPL NPL NPL NPL NPL NPL NPL REVERSE REPURCHASE AGREEMENTS The sale of a security that must later be bought back at the same price minus interest. Leverage, credit risks. 33.3% 5% 33.3% 33.3% 33.3% 33.3% 33.3% SECURITIES LENDING The lending of securities to financial institutions, which provide cash or government securities as collateral. Credit risk. 5% 33.3% 30% 33.3% 0% 33.3% 33.3% SHORT SALES The selling of securities which have been borrowed on the expectation that the market price will drop. - - Hedged. Hedged leverage, market, correlation, liquidity, opportunity risks. 0% NPL NPL NPL 0% NPL NPL - - Speculative. Speculative leverage, market, liquidity risks. 0% 0% 0% 0% 0% 0% 5% SHORT-TERM TRADING Selling a security soon after purchase. A portfolio engaging in short-term trading will have higher turnover and transaction expenses. Market risk. NPL NPL NPL NPL NPL NPL NPL WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS The purchase or sale of securities for delivery at a future date; market value may change before delivery. Market, opportunity, leverage risks. NPL NPL NPL NPL NPL NPL NPL - ------------------------------------------------------------------------------------------------------------------------------------ SECURITIES -- NON-DERIVATIVE NON-INVESTMENT GRADE CONVERTIBLE SECURITIES Debt securities that convert into equity securities at a future time. Convertibles rated below BBB/Baa are considered "junk" bonds. Credit, market, interest rate risks, liquidity, valuation and information risks. 0% 0% 10% 5% 0% 0% 0% FOREIGN EQUITIES - - Stocks issued by foreign corporations. Market, currency, information, natural event, political risks. 0% 25% NPL 0% 0% NPL NPL - - American or European depository receipts, which are dollar-denominated securities typically issued by American or European banks and are based on ownership of securities issued by a foreign corporation. Market, currency, information, natural event, political risks. 10% 25% NPL 15% 0% NPL NPL RESTRICTED AND ILLIQUID SECURITIES Securities not traded on the open market. May include illiquid Rule 144A securities. Liquidity, market risks. 15% 15% 10% 15% 10% 15% 15% - ----------------------------------------------------------------------------------------------------------------------------------- SECURITIES -- DERIVATIVE FINANCIAL FUTURES AND OPTIONS; SECURITIES AND INDEX OPTIONS Contracts involving the right or obligation to deliver or receive assets or money depending on the performance of one or more assets or an economic index. - - Futures and related options. Market, hedged or speculative leverage, correlation, liquidity, opportunity risks. NPL NPL NPL NPL NPL NPL NPL - - Options on securities and indices. Market, hedged or speculative leverage, correlation, liquidity, opportunity risks. 5% 5%(1) 10%(1) NPL 5% NPL NPL CURRENCY CONTRACTS Contracts involving the right or obligation to buy or sell a given amount of foreign currency at a specified price and future date. - - Hedged. Currency, hedged leverage, correlation, liquidity, opportunity risks. 0% 25% NPL NPL 0% NPL NPL - - Speculative. Currency, speculative leverage, liquidity risks. 0% 0% 0% 0% 0% 0% 0% (1) Applies to purchases only.
FUND DETAILS 29 FOR MORE INFORMATION - ------------------------------------------------------------------------------- Two documents are available that offer further information on John Hancock Growth Funds: ANNUAL/SEMI-ANNUAL REPORT TO SHAREHOLDERS Includes financial statements, detailed performance information, portfolio holdings, a statement from the portfolio manager, and the auditor's report. STATEMENT OF ADDITIONAL INFORMATION (SAI) The SAI contains more detailed information on all aspects of the funds. The current annual/semi-annual report is included in the SAI. The Statement of Additional Information has been filed with the Securities and Exchange Commission and is incorporated by reference into this prospectus (is legally part of this prospectus). To request a free copy of the current annual/semi-annual report or the SAI, please write or call: John Hancock Investor Services Corporation P.O. Box 9116 Boston, MA 02205-9116 Telephone: 1-800-225-5291 TDD: 1-800-544-6713 Email: http://jhancockfunds.com [LOGO] JOHN HANCOCK FUNDS A GLOBAL INVESTMENT MANAGEMENT FIRM 101 Huntington Avenue Boston, Massachusetts 02199-7603 [LOGO] JOHN HANCOCK SERIES, INC. 101 Huntington Avenue Boston, Massachusetts 02199-7603 consisting of six series, John Hancock Money Market Fund John Hancock Global Resources Fund John Hancock Government Income Fund John Hancock High Yield Bond Fund John Hancock High Yield Tax-Free Fund John Hancock Emerging Growth Fund (each, a "Fund" and collectively, the "Funds") CLASS A AND CLASS B SHARES STATEMENT OF ADDITIONAL INFORMATION JULY 1, 1996 This Statement of Additional Information ("SAI") provides information about John Hancock Series, Inc. (the "Corporation") and the Funds, in addition to the information that is contained in the Funds' Prospectuses dated July 1, 1996 (collectively, the "Prospectuses"). Each Fund is a series portfolio of the Corporation. This SAI is not a prospectus. It should be read in conjunction with the Prospectuses, copies of which can be obtained free of charge by writing or telephoning: John Hancock Investor Services Corporation P.O. Box 9116 Boston, Massachusetts 02205-9116 1-800-225-5291 TABLE OF CONTENTS Page Organization of the Corporation........................................... 2 Investment Objectives and Policies........................................ 2 Certain Investment Practices.............................................. 4 Investment Restrictions................................................... 24 Those Responsible for Management.......................................... 29 Investment Advisory and Other Services.................................... 38 Distribution Agreement.................................................... 42 Net Asset Value........................................................... 45 Initial Sales Charge on Class A Shares.................................... 46 Deferred Sales Charge on Class B Shares................................... 47 Special Redemptions....................................................... 48 Additional Services and Programs.......................................... 48 Description of the Corporation's Shares................................... 49 Tax Status................................................................ 51 Calculation of Performance................................................ 56 Brokerage Allocation...................................................... 60 Transfer Agent Services................................................... 62 Custody of Portfolio...................................................... 62 Independent Auditors...................................................... 62 Appendix.................................................................. 63 Financial Statements ORGANIZATION OF THE CORPORATION The Corporation is an open-end management investment company organized as a Maryland corporation on June 22, 1987. The Corporation currently has six series: John Hancock Emerging Growth Fund, John Hancock Global Resources Fund, John Hancock Government Income Fund, John Hancock High Yield Bond Fund, John Hancock High Yield Tax-Free Fund and John Hancock Money Market Fund. Prior to September 12, 1995, the John Hancock Money Market Fund was called John Hancock Money Market Fund B. Prior to December 22, 1994, the Funds were called Transamerica Emerging Growth Fund, Transamerica Global Resources Fund, Transamerica Government Income Fund, Transamerica High Yield Bond Fund, Transamerica High Yield Tax-Free Fund and Transamerica Money Market Fund B. Each Fund is managed by John Hancock Advisers, Inc. (the "Adviser"), a wholly- owned indirect subsidiary of John Hancock Mutual Life Insurance Company (the "Life Company"), chartered in 1862 with national headquarters at John Hancock Place, Boston, Massachusetts. John Hancock Funds, Inc. ("John Hancock Funds") acts as principal distributor of the shares of the Funds. INVESTMENT OBJECTIVES AND POLICIES John Hancock Money Market Fund ("Money Market Fund") seeks to provide maximum current income consistent with capital preservation and liquidity. The Fund's investments will be subject to the market fluctuation and risks inherent in all securities. John Hancock Global Resources Fund's ("Global Resources Fund") investment objectives are to protect the purchasing power of shareholders' capital and to achieve growth of capital. The first of these objectives means that the Fund seeks to protect generally shareholders' invested capital against erosion of the value of the U.S. dollar through inflation. Current income will not be a primary consideration in selecting securities. However, it will be an important factor in making selections among securities believed otherwise comparable by the Adviser. Investment Philosophy of Global Resources Fund. The Adviser believes that, based upon past performance, the securities of specific companies that hold different types of substantial resource assets or engage in resource- related or energy-related activities may move relatively independently of one another during different stages of inflationary or deflationary cycles because of different degrees of demand for, or market values of, their respective resource holdings or resource-related or energy-related business during particular portions of such cycles. For example, during the period 1976 to 1980, the prices of oil company stocks increased relatively more than the prices of coal company stocks when compared to the performance of relevant stock market indices. The Adviser will seek to identify companies or asset- based securities which it believes are attractively priced relative to the intrinsic value of the underlying resource assets or resource-related or energy-related business or are especially well positioned to benefit during particular portions of inflationary or deflationary cycles. It is expected that when management of the Fund anticipates significant economic, political or financial instability, such as high inflationary or deflationary pressures or major dislocations in the foreign currency exchange -2- markets, the Fund may, in seeking to protect the purchasing power of shareholders' capital, invest a majority of its assets in companies that explore for, extract, process or deal in gold or in asset-based securities indexed to the value of gold bullion. Such a switch in investment strategies could result in substantial liquidation of portfolio securities and significant transaction costs. The Fund's approach of active investment management enables it to switch its emphasis among various industry groups, depending upon the Adviser's outlook with respect to prevailing trends and developments. The Fund may seek to hedge its portfolio partially by writing covered call options or purchasing put options on its portfolio holdings. John Hancock Government Income Fund's ("Government Income Fund") investment objective is to earn a high level of current income consistent with preservation of capital by investing primarily in securities that are issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities. The Fund may seek to enhance its current return and may seek to hedge against changes in interest rates by engaging in transactions involving options (subject to certain limits), futures and options on futures. The Fund expects that under normal market conditions it will invest at least 80% of its total assets in U.S. Government securities (and related repurchase agreements and forward commitments). John Hancock High Yield Bond Fund's ("High Yield Bond Fund") primary investment objective is to maximize current income without assuming undue risk by investing in a diversified portfolio consisting primarily of lower-rated, high yielding, fixed income securities, such as: domestic and foreign corporate bonds; debentures and notes; convertible securities; preferred stocks; and domestic and foreign government obligations. As a secondary objective, the Fund seeks capital appreciation, but only when it is consistent with the primary objective of maximizing current income. John Hancock High Yield Tax-Free Fund's ("High Yield Tax-Free Fund") primary investment objective is to obtain a high level of current income that is largely exempt from federal income taxes and is consistent with the preservation of capital. The Fund pursues this objective by normally investing substantially all of its assets in medium and lower quality obligations, including bonds, notes and commercial paper, issued by or on behalf of states, territories and possessions of the United States, The District of Columbia and their political subdivisions, agencies or instrumentalities, the interest on which is exempt from federal income tax ("tax-exempt securities"). The Fund seeks as its secondary objective preservation of capital by purchasing and selling interest rate futures contracts ("financial futures") and tax-exempt bond index futures contracts ("index futures"), and by purchasing and writing put and call options on debt securities, financial futures, tax-exempt bond indices and index futures to hedge against changes in the general level of interest rates. John Hancock Emerging Growth Fund ("Emerging Growth Fund") seeks long-term growth of capital through investing primarily (at least 80% of its assets in normal circumstances) in the common stocks of emerging companies (those with a market capitalization of less than $1 billion). Current income is not a factor of consequence in the selection of stocks for the Fund. In order to achieve its objective, the Fund invests in a diversified group of companies whose growth rates are expected to significantly exceed that of the average industrial company. It invests in these companies early in their corporate life cycle before they become widely recognized and well known, and while their reputations and track records are still emerging ("emerging companies"). Consequently, the Fund invests in the stocks of emerging companies whose capitalization, sales and earnings are smaller than those of the Fortune 500 companies. Further, the Fund's investments in emerging company stocks may include those of more established companies which offer the possibility of rapidly accelerating earnings because of revitalized management, new products, or structural changes in the economy. -3- The nature of investing in emerging companies involves greater risk than is customarily associated with investments in more established companies. In particular, the value of securities of emerging companies tends to fluctuate more widely than other types of investments. Because emerging companies may be in the early stages of their development, they may be dependent on a relatively few products or services. They may also lack adequate capital reserves or may be dependent on one or two management individuals. Their stocks are often traded "over-the-counter" or on a regional exchange, and may not be traded in volumes typical of trading on a national exchange. Consequently, the investment risk is higher than that normally associated with larger, older, better-known companies. In order to help reduce this risk, the Fund allocates its investments among different industries. Most of the Fund's investments will be in equity securities of U.S. companies. However, since many emerging companies are located outside the United States, a significant portion of the Fund's investments may occasionally be invested in equity securities of non-U.S. companies. While the Fund will invest primarily in emerging companies, the balance of the Fund's assets may be invested in: (1) other common stocks; (2) preferred stocks; (3) convertible securities (up to 10% of the Fund's total assets may be invested in convertible securities rated as low as "B" by Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc. ("Moody's") to be comparable in quality to those rated "B"); (4) warrants; and (5) debt obligations of the U.S. Government, its agencies and instrumentalities. In order to provide liquidity for the purchase of new investments and to effect redemptions of its shares, the Fund will invest a portion of its assets in high quality, short-term debt securities with remaining maturities of one year or less, including U.S. Government securities, certificates of deposit, bankers' acceptances, commercial paper, corporate debt securities and related repurchase agreements. During periods of unusual market conditions when the Adviser believes that investing for temporary defensive purposes is appropriate, part or all of the Fund's assets may be invested in cash or cash equivalents consisting of: (1) obligations of banks (including certificates of deposit, bankers' acceptances and repurchase agreements) with assets of $100,000,000 or more; (2) commercial paper rated within the two highest rating categories of a nationally recognized rating organization; (3) investment grade short-term notes; (4) obligations issued or guaranteed by the U.S. Government or any of its agencies or instrumentalities; and (5) related repurchase agreements. There can be no assurance that the Funds will achieve their respective investment objectives. CERTAIN INVESTMENT PRACTICES Government Securities. Each Fund may invest in U.S. Government securities, which are obligations issued or guaranteed by the U.S. Government and its agencies, authorities or instrumentalities. Certain U.S. Government securities, including U.S. Treasury bills, notes and bonds, and Government National Mortgage Association certificates ("Ginnie Maes"), are supported by the full faith and credit of the United States. Certain other U.S. Government securities, issued or guaranteed by Federal agencies or government sponsored enterprises, are not supported by the full faith and credit of the United States, but may be supported by the right of the issuer to borrow from the U.S. Treasury. These securities include obligations of the Federal Home Loan Mortgage Corporation ("Freddie Macs"), and obligations supported by the credit of the instrumentality, such as Federal National Mortgage Association Bonds ("Fannie Maes"). No assurance can be given that the U.S. Government will provide financial support to such Federal agencies, authorities, instrumentalities and government sponsored enterprises in the future. -4- Custodial Receipts. The Funds may each acquire custodial receipts in respect of U.S. government securities. Such custodial receipts evidence ownership of future interest payments, principal payments or both on certain notes or bonds. These custodial receipts are known by various names, including Treasury Receipts, Treasury Investors Growth Receipts ("TIGRs"), and Certificates of Accrual on Treasury Securities ("CATS"). For certain securities law purposes, custodial receipts are not considered U.S. government securities. Bank and Corporate Obligations. Each of the Funds may invest in commercial paper. Commercial paper represents short-term unsecured promissory notes issued in bearer form by banks or bank holding companies, corporations and finance companies. The commercial paper purchased by the Funds consists of direct U.S. dollar denominated obligations of domestic or foreign issuers. Bank obligations in which a 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 on maturity. Fixed time deposits are bank obligations payable at a stated maturity date and bearing interest at a fixed rate. Fixed time deposits may be withdrawn on demand by the investor, but may be subject to early withdrawal penalties which vary depending upon market conditions and the remaining maturity of the obligation. There are no contractual restrictions on the right to transfer a beneficial interest in a fixed time deposit to a third party, although there is no market for such deposits. Bank notes and bankers' acceptances rank junior to domestic deposit liabilities of the bank and pari passu with other senior, unsecured obligations of the bank. Bank notes are not insured by the Federal Deposit Insurance Corporation or any other insurer. Deposit notes are insured by the Federal Deposit Insurance Corporation only to the extent of $100,000 per depositor per bank. Municipal Obligations. Money Market Fund, High Yield Bond Fund and High Yield Tax- Free Fund may invest in a variety of municipal obligations which consist of municipal bonds, municipal notes and municipal commercial paper. Municipal Bonds. Municipal bonds are issued to obtain funds for various public purposes including the construction of a wide range of public facilities such as airports, highways, bridges, schools, hospitals, housing, mass transportation, streets and water and sewer works. Other public purposes for which municipal bonds may be issued include refunding outstanding obligations, obtaining funds for general operating expenses and obtaining funds to lend to other public institutions and facilities. In addition, certain types of industrial development bonds are issued by or on behalf of public authorities to obtain funds for many types of local, privately operated facilities. Such debt instruments are considered municipal obligations if the interest paid on them is exempt from federal income tax. The payment of principal and interest by issuers of certain obligations purchased by a Fund may be guaranteed by a letter of credit, note repurchase agreement, insurance or other credit facility agreement offered by a bank or other financial institution. Such guarantees and the creditworthiness of guarantors will be considered by the Adviser in determining whether a municipal obligation meets the Fund's investment quality requirements. No assurance can be given that a municipality or guarantor will be able to satisfy the payment of principal or interest on a municipal obligation. Municipal Notes. Municipal notes are short-term obligations of municipalities, generally with a maturity ranging from six months to three years. The principal types of such notes include tax, bond and revenue anticipation notes and project notes. -5- Municipal Commercial Paper. Municipal commercial paper is a short-term obligation of a municipality, generally issued at a discount with a maturity of less than one year. Such paper is likely to be issued to meet seasonal working capital needs of a municipality or interim construction financing. Municipal commercial paper is backed in many cases by letters of credit, lending agreements, note repurchase agreements or other credit facility agreements offered by banks and other institutions. Federal tax legislation enacted in the 1980s placed substantial new restrictions on the issuance of the bonds described above and in some cases eliminated the ability of state or local governments to issue municipal obligations for some of the above purposes. Such restrictions do not affect the Federal income tax treatment of municipal obligations in which a Fund may invest which were issued prior to the effective dates of the provisions imposing such restrictions. The effect of these restrictions may be to reduce the volume of newly issued municipal obligations. Issuers of municipal obligations are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors, such as the Federal Bankruptcy Act, and laws, if any, which may be enacted by Congress or state legislatures extending the time for payment of principal or interest, or both, or imposing other constraints upon enforcement of such obligations. There is also the possibility that as a result of litigation or other conditions the power or ability of any one or more issuers to pay when due the principal of and interest on their municipal obligations may be affected. The yields of municipal bonds depend upon, among other things, general money market conditions, general conditions of the municipal bond market, size of a particular offering, the maturity of the obligation and rating of the issue. The ratings of Standard & Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc. ("Moody's") and Fitch Investors Service ("Fitch") represent their respective opinions on the quality of the municipal bonds they undertake to rate. It should be emphasized, however, that ratings are general and not absolute standards of quality. Consequently, municipal bonds with the same maturity, coupon and rating may have different yields and municipal bonds of the same maturity and coupon with different ratings may have the same yield. See the Appendix for a description of ratings. Many issuers of securities choose not to have their obligations rated. Although unrated securities eligible for purchase by a Fund must be determined to be comparable in quality to securities having certain specified ratings, the market for unrated securities may not be as broad as for rated securities since many investors rely on rating organizations for credit appraisal. Mortgage-Backed Securities. Government Income Fund and High Yield Bond Fund 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 Government National Mortgage Association ("Ginnie Mae"), the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac"). Ginnie Mae certificates are guaranteed by the full faith and credit of the U.S. Government for timely payment of principal and interest on the certificates. Fannie Mae certificates are guaranteed by Fannie Mae, a federally chartered and privately owned corporation, for full and timely payment of principal and interest on the certificates. Freddie Mac certificates are guaranteed by Freddie Mac, a corporate -6- 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 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 Ginnie Mae, Fannie Mae or Freddie Mac 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 Internal Revenue Code of 1986, as amended (the "Code") and invests in certain mortgages primarily secured by interests in real property and other permitted investments. 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. Government Income Fund, High Yield Bond Fund and High Yield Tax-Free Fund may invest in "structured" or "hybrid" notes. The distinguishing feature of a structured or hybrid note is that the amount of interest and/or principal payable on the note is based on the performance of a benchmark asset or market other than fixed income securities or interest rates. Examples of these 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. -7- 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 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 -8- 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. Asset-Backed Securities. Government Income Fund and High Yield Bond Fund may invest a portion of their assets in asset-backed securities which are rated in one of the two highest rating categories by a nationally recognized statistical rating organization (e.g., S&P or Moody's) or if not so rated, of equivalent investment quality in the opinion of the Adviser. 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, a Fund's ability to maintain positions in such 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 servicers to retain possession of the underlying obligations. If the servicer 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. Asset-Based Securities. Global Resources Fund may invest in debt securities, preferred stocks or convertible securities, the principal amount, redemption terms or conversion terms of which are related to the market price of some resource asset such as gold bullion. For the purposes of the Fund's investment policies, these securities are referred to as asset-based securities. If the asset-based security is backed by a bank letter of credit or other similar facility, the Adviser may take such backing into account in determining the credit quality of the asset-based security. Although an asset-based security and the related natural resource asset generally are expected to move in the same direction, there may not be perfect correlation in the two price movements. Asset-based securities may not be secured by a security interest in or claim on the underlying natural resource assets. The Fund's holdings of such securities may not generate appreciable current income and the return from such securities primarily will be from any profit on the sale, maturity or conversion thereof at a time when the price of the related asset is higher than it was when the Fund purchased such securities. The asset-based securities in which the Fund may invest may bear interest or pay preferred dividends at below market (or even relatively nominal) rates. Certain asset-based securities may be payable at maturity in cash at the stated principal amount or, at the option of the holder, directly in a stated amount of the asset to which it is related. In such instance, because the Fund presently does not intend to invest directly in natural resource assets other than gold bullion, the Fund would sell the asset-based security in the secondary market, to the extent one exists, prior to maturity if the value of the stated amount of the asset exceeds the stated principal amount and thereby realize the appreciation in the underlying asset. -9- The Fund will not acquire asset-based securities for which no established secondary trading market exists if at the time of acquisition more than 10% of its total assets are invested in securities which are not readily marketable. The Fund may invest in asset-based securities without limit when it has the right to sell such securities to the issuer or a stand-by bank or broker and receive the principal amount or redemption price thereof less transaction costs on no more than seven days notice or when the Fund has the right to convert such securities into a readily marketable security in which it could otherwise invest upon not more than seven days notice. Special Considerations Related to Investment in Gold. Under certain circumstances, Global Resources Fund may invest a majority of its assets in gold, gold related securities or securities of gold-related companies. Based on historic experience, during periods of economic or financial instability the securities of such companies may be subject to extreme price fluctuations, reflecting the high volatility of gold prices during such periods. Gold may be affected by unpredictable international monetary and political policies, social conditions within a particular country, trade imbalances or trade or currency restrictions between countries. In addition, the instability of gold prices may result in volatile earnings of gold-related companies which, in turn, may affect adversely the financial condition of such companies. Gold mining companies also are subject to the risks generally associated with mining operations. The major producers of gold include the Republic of South Africa, Russia, Canada, the United States, Brazil and Australia. Sales of gold by Russia are largely unpredictable and often relate to political and economic considerations rather than to market forces. Economic, social and political developments within South Africa may affect significantly South African gold production and the markets for South African gold which may in turn significantly affect the price of gold. The Fund is currently authorized to invest up to 10% of its assets in gold bullion and coins, although it does not currently intend to invest in coins. The Fund may seek to increase this limit to 25% through negotiation with a certain state which imposes the 10% limit as a condition for qualifying the shares of the Fund for sale in that state. Investments in gold may help to hedge against inflation and major fluctuations in the Fund's shares because at certain times the price of gold has fluctuated less widely than the value of the securities which are permitted investments. When the Fund purchases bullion, the Adviser currently intends that it will be only in a form that is readily marketable and that it will be delivered to and stored with a qualified U.S. bank. An investment in bullion earns no investment income and involves higher custody and transaction costs than investments in securities. The Fund will also incur the cost of insurance in connection with holding gold. The market for gold bullion is presently unregulated which could affect the ability of the Fund to acquire or dispose of gold bullion. In order to qualify as a regulated investment company for federal income taxes, the Fund may receive no more than 10% of its yearly gross income from gains caused by selling gold bullion or coins and from certain other sources that do not produce "qualifying" income. The Fund may be required, therefore, either to hold its gold bullion or sell it at a loss, or to sell its portfolio securities at a gain, when it would not otherwise do so for investment reasons. The Fund may also purchase precious metal warehouse receipts that may be convertible into cash or gold bullion as an alternative to a direct investment in gold. Whereas gold bullion is traded in the form of contracts to buy or sell bullion which are in the nature of futures or commodities contracts, warehouse receipts represent ownership of a specified quantity of identified gold bars held in storage. Although ownership of gold in this manner entails storage and insurance expense, there is an active over-the-counter market in such receipts so that they are a liquid investment. For purposes of the Fund's investment limitations, such warehouse receipts would be considered to be equivalent to direct investments in the precious metals. Foreign Securities and Emerging Countries. Emerging Growth Fund, Global Resources Fund and High Yield Bond Fund may invest in securities of foreign issuers. These Funds may also -10- invest in debt and equity securities of corporate and governmental issuers of countries with emerging economies or securities markets. Government Income Fund may invest in foreign currency denominated securities of foreign governments considered stable by the Adviser and may hedge such investments through various options and futures transactions involving foreign currencies. Money Market Fund may invest in foreign securities and in certificates of deposit, bankers' acceptances and fixed time deposits and other obligations issued by foreign banks and their U.S. and foreign branches and foreign branches of U.S. banks. Money Market Fund may also invest in municipal instruments backed by letters of credit issued by certain of such banks. Under current Securities and Exchange Commission ("SEC") rules relating to the use of the amortized cost method of portfolio securities valuation, Money Market Fund is restricted to purchasing U.S. dollar denominated securities. Investing in obligations of non-U.S. issuers and foreign banks, particularly securities of issuers located in emerging countries, may entail greater risks than investing in similar securities of U.S. issuers. These risks include (i) social, political and economic instability; (ii) the small current size of the markets for many such securities and the currently low or nonexistent volume of trading, which may result in a lack of liquidity and in greater price volatility; (iii) certain national policies which may restrict a Fund's investment opportunities, including restrictions on investment in issuers or industries deemed sensitive to national interests; (iv) foreign taxation; and (v) the absence of developed structures governing private or foreign investment or allowing for judicial redress for injury to private property. Investing in securities of non-U.S. companies may entail additional risks due to the potential political and economic instability of certain countries and the risks of expropriation, nationalization, confiscation or the imposition of restrictions on foreign investment and on repatriation of capital invested. In the event of such expropriation, nationalization or other confiscation by any country, a Fund could lose its entire investment in any such country. In addition, even though opportunities for investment may exist in foreign countries, and in particular emerging markets, any change in the leadership or policies of the governments of those countries or in the leadership or policies of any other government which exercises a significant influence over those countries, may halt the expansion of or reverse the liberalization of foreign investment policies now occurring and thereby eliminate any investment opportunities which may currently exist. Investors should note that upon the accession to power of authoritarian regimes, the governments of a number of Latin American countries previously expropriated large quantities of real and personal property similar to the property which may be represented by the securities purchased by the Funds. The claims of property owners against those governments were never finally settled. There can be no assurance that any property represented by foreign securities purchased by a Fund will not also be expropriated, nationalized, or otherwise confiscated. If such confiscation were to occur, a Fund could lose a substantial portion of its investments in such countries. A Fund's investments would similarly be adversely affected by exchange control regulation in any of those countries. Certain countries in which the Funds may invest may have vocal minorities that advocate radical religious or revolutionary philosophies or support ethnic independence. Any disturbance on the part of such individuals could carry the potential for widespread destruction or confiscation of property owned by individuals and entities foreign to such country and could cause the loss of a Fund's investment in those countries. Certain countries prohibit or impose substantial restrictions on investments in their capital markets, particularly their equity markets, by foreign entities such as the Funds. As illustrations, certain countries require governmental approval prior to investments by foreign persons, or limit -11- the amount of investment by foreign persons in a particular company, or limit the investment by foreign persons to only a specific class of securities of a company that may have less advantageous terms than securities of the company available for purchase by nationals. Moreover, the national policies of certain countries may restrict investment opportunities in issuers or industries deemed sensitive to national interests. In addition, some countries require governmental approval for the repatriation of investment income, capital or the proceeds of securities sales by foreign investors. A Fund could be adversely affected by delays in, or a refusal to grant, any required governmental approval for repatriation, as well as by the application to it of other restrictions on investments. Foreign companies are subject to accounting, auditing and financial standards and requirements that differ, in some cases significantly, from those applicable to U.S. companies. In particular, the assets, liabilities and profits appearing on the financial statements of such a company may not reflect its financial position or results of operations in the way they would be reflected had such financial statements been prepared in accordance with U.S. generally accepted accounting principles. Most foreign securities held by the Funds will not be registered with the SEC and such issuers thereof will not be subject to the SEC's reporting requirements. Thus, there will be less available information concerning foreign issuers of securities held by the Funds than is available concerning U.S. issuers. In instances where the financial statements of an issuer are not deemed to reflect accurately the financial situation of the issuer, the Adviser or Subadviser will take appropriate steps to evaluate the proposed investment, which may include on- site inspection of the issuer, interviews with its management and consultations with accountants, bankers and other specialists. There is substantially less publicly available information about foreign companies than there are reports and ratings published about U.S. companies and the U.S. government. In addition, where public information is available, it may be less reliable than such information regarding U.S. issuers. Because the Funds (other than Money Market Fund) may invest, and Global Resources Fund will (under normal circumstances) invest a substantial portion of their total assets, in securities which are denominated or quoted in foreign currencies, the strength or weakness of the U.S. dollar against such currencies may account for part of the Funds' investment performance. A decline in the value of any particular currency against the U.S. dollar will cause a decline in the U.S. dollar value of a Fund's holdings of securities denominated in such currency and, therefore, will cause an overall decline in the Fund's net asset value and any net investment income and capital gains to be distributed in U.S. dollars to shareholders of the Fund. The rate of exchange between the U.S. dollar and other currencies is determined by several factors including the supply and demand for particular currencies, central bank efforts to support particular currencies, the movement of interest rates, the pace of business activity in certain other countries and the U.S., and other economic and financial conditions affecting the world economy. Although the Funds value their respective assets daily in terms of U.S. dollars, the Funds do not intend to convert their holdings of foreign currencies into U.S. dollars on a daily basis. However, the Funds may do so from time to time, and investors should be aware of the costs of currency conversion. Although currency dealers do not charge a fee for conversion, they do realize a profit based on the difference ("spread") between the prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to a Fund at one rate, while offering a lesser rate of exchange should the Fund desire to sell that currency to the dealer. Securities of foreign issuers, and in particular many emerging country issuers, may be less liquid and their prices more volatile than securities of comparable U.S. issuers. In addition, foreign securities exchanges and brokers are generally subject to less governmental supervision and regulation than in the U.S., and foreign securities exchange transactions are usually subject to fixed commissions, which are generally higher than negotiated commissions on U.S. transactions. -12- In addition, foreign securities exchange transactions may be subject to difficulties associated with the settlement of such transactions. Delays in settlement could result in temporary periods when assets of a Fund are uninvested and no return is earned thereon. The inability of a Fund to make intended security purchases due to settlement problems could cause the Fund to miss attractive investment opportunities. Inability to dispose of a portfolio security due to settlement problems either could result in losses to a Fund due to subsequent declines in value of the portfolio security or, if the Fund has entered into a contract to sell the security could result in possible liability to the purchaser. The Funds' investment income or, in some cases, capital gains from foreign issuers may be subject to foreign withholding or other taxes, thereby reducing the Funds' net investment income and/or net realized capital gains. See "Tax Status." Depositary Receipts. As discussed in the Prospectuses, Emerging Growth Fund, Global Resources Fund and High Yield Bond Fund may invest in the securities of foreign issuers in the form of American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") or other securities convertible into securities of foreign issuers. These securities may not necessarily be denominated in the same currency as the securities into which they may be converted but rather in the currency of the market in which they are traded. ADRs are receipts typically issued by an American bank or trust company which evidence ownership of underlying securities issued by a foreign corporation. EDRs are receipts issued in Europe by banks or depositories which evidence a similar ownership arrangement. Generally, ADRs, in registered form, are designed for use in U.S. securities markets and EDRs, in bearer form, are designed for use in European securities markets. Options on Foreign Currencies. Global Resources Fund may purchase and write put and call options on foreign currencies for the purpose of protecting against declines in the dollar value of portfolio securities and against increases in the dollar cost of securities to be acquired. As in the case of other types of options, however, the writing of an option on foreign currency will constitute only a partial hedge, such as the amount of the premium received and the Fund could be required to purchase or sell foreign currencies at disadvantageous exchange rates, thereby incurring losses. The purchase of an option on foreign currency may constitute an effective hedge against fluctuations in exchange rates although, in the event of rate movements adverse to the Fund's position, it may forfeit the entire amount of the premium plus related transaction costs. Options on foreign currencies are traded in a manner substantially similar to options on securities. In particular, an option on foreign currency provides the holder with the right to purchase, in the case of a call option, or to sell, in the case of a put option, a stated quantity of a particular currency for a fixed price up to a stated expiration date. The writer of the option undertakes the obligation to deliver, in the case of a call option, or to purchase, in the case of a put option, the quantity of the currency called for in the option, upon exercise of the option by the holder. As in the case of other types of options, the holder of an option on foreign currency is required to pay a one-time, non-refundable premium, which represents the cost of purchasing the option. The holder can lose the entire amount of this premium, as well as related transaction costs, but not more than this amount. The writer of the option, in contrast, generally is required to make initial and variation margin payments similar to margin deposits required in the trading of futures contracts and the writing of other types of options. The writer is therefore subject to risk of loss beyond the amount originally invested and above the value of the option at the time it is entered into. Certain options on foreign currencies like forward contracts are traded over-the-counter through financial institutions acting as market- makers in such options and the underlying currencies. Such transactions therefore involve risks not generally associated with exchange-traded instruments. Options on foreign currencies may also be traded on national -13- securities exchanges regulated by the SEC or commodities exchanges regulated by the Commodity Futures Trading Commission. Forward Foreign Currency Contracts. Emerging Growth Fund, Global Resources Fund and High Yield Bond Fund may engage in forward foreign currency transactions. Generally, the foreign currency exchange transactions of the Funds 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. A Fund may also deal in forward foreign currency exchange contracts involving currencies of the different countries in which it may invest as a hedge against possible variations in the foreign exchange rate between these currencies. This is accomplished through contractual agreements to purchase or sell a specified currency at a specified future date and price set at the time of the contract. The Funds' dealings in forward foreign currency exchange contracts will be limited to hedging either specified transactions or portfolio positions. Transaction hedging is the purchase or sale of forward foreign currency contracts with respect to specific receivables or payables of a Fund accruing in connection with the purchase and sale of its portfolio securities denominated in foreign currencies. Portfolio hedging is the use of forward foreign currency contracts to offset portfolio security positions denominated or quoted in such foreign currencies. A Fund will not attempt to hedge all of its foreign portfolio positions and will enter into such transactions only to the extent, if any, deemed appropriate by the Adviser. The Board of Directors has adopted a policy of monitoring the Funds' foreign currency contract income to assure that the Funds qualify as regulated investment companies under the Code. The Fund will not engage in speculative forward foreign currency exchange transactions. If a Fund purchases a forward contract, its custodian bank will segregate cash or high grade liquid debt securities in a separate account of the Fund in an amount equal to the value of the Fund's total assets committed to the consummation of such forward contract. Those assets 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 with respect to such contracts. Hedging against a decline in the value of 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 a 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. The cost to a Fund of engaging in foreign currency exchange transactions varies with such factors as the currency involved, the length of the contract period and the market conditions then prevailing. Since transactions in foreign currency are usually conducted on a principal basis, no fees or commissions are involved. Repurchase Agreements. Each Fund may enter into repurchase agreements. A repurchase agreement is a contract under which the Fund would acquire a security for a relatively short period (generally not more than seven days) subject to the obligation of the seller to repurchase and the Fund to resell such security at a fixed time and price (representing the Fund's cost plus interest). The Fund will enter into repurchase agreements only with member banks of the Federal Reserve System and with securities dealers. The Adviser will continuously monitor the creditworthiness of the parties with whom the Fund enters into repurchase agreements. The Fund has established a procedure providing that the securities serving as collateral for each repurchase agreement must be delivered to the Fund's custodian either physically or in book-entry form and that the collateral must be marked to market daily to ensure that each repurchase agreement is fully collateralized at all times. In the event of bankruptcy or other default by a seller of a repurchase agreement, the Fund could experience delays in liquidating the underlying securities and could experience losses, including the possible decline in the value of the underlying securities during -14- the period which the Fund seeks to enforce its rights thereto, possible subnormal levels of income and lack of access to income during this period, and the expense of enforcing its rights. The Fund will not invest in a repurchase agreement maturing in more than seven days, if such investment, together with other illiquid securities held by the Fund (including restricted securities) would exceed 10% of the Fund's total assets. Reverse Repurchase Agreements. Each Fund may also enter into reverse repurchase agreements which involve the sale of government securities held in its portfolio to a bank or securities firm 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. The Fund will use proceeds obtained from the sale of securities pursuant to reverse repurchase agreements to purchase other investments. The use of borrowed funds to make investments is a practice known as "leverage," which is considered speculative. Use of reverse repurchase agreements is an investment technique that is intended to increase income. Thus, a Fund will enter into a reverse repurchase agreement only when the Adviser determines that the interest income to be earned from the investment of the proceeds is greater than the interest expense of the transaction. However, there is a risk that interest expense will nevertheless exceed the income earned. Reverse repurchase agreements involve the risk that the market value of securities purchased by a 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. A 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, a Fund will establish and maintain with the Fund's custodian a separate account consisting of highly liquid, marketable securities 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 and other borrowings exceeding in the aggregate more than 33 1/3% of the market value of its total net assets. A Fund will enter into reverse repurchase agreements only with selected registered broker/dealers or with federally insured banks or savings and loan associations which are approved in advance as being creditworthy by the Board of Directors. Under procedures established by the Board of Directors, the Adviser will monitor the creditworthiness of the firms involved. 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 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 a separate account cash or liquid, high grade debt securities 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. -15- Alternatively, a Fund may enter into offsetting contracts for the forward sale of other securities that it owns. Short Sales. Global Resources Fund may engage in short sales in order to profit from an anticipated decline in the value of a security. Each of Global Resources Fund and Emerging Growth Fund may engage in short sales to attempt to limit its exposure to a possible market decline in the value of its portfolio securities through short sales of securities which the Adviser believes possess volatility characteristics similar to those being hedged. To effect such a transaction, the Fund must borrow the security sold short to make delivery to the buyer. The Fund then is obligated to replace the security borrowed by purchasing it at the market price at the time of replacement. Until the security is replaced, the Fund is required to pay to the lender any accrued interest and may be required to pay a premium. A Fund will realize a gain if the security declines in price between the date of the short sale and the date on which the Fund replaces the borrowed security. On the other hand, the Fund will incur a loss as a result of the short sale if the price of the security increases between those dates. The amount of any gain will be decreased, and the amount of any loss increased, by the amount of any premium or interest or dividends the Fund may be required to pay in connection with a short sale. The successful use of short selling as a hedging device may be adversely affected by imperfect correlation between movements in the price of the security sold short and the securities being hedged. Under applicable guidelines of the staff of the SEC, if a Fund engages in short sales, it must put in a segregated account (not with the broker) an amount of cash or U.S. Government securities equal to the difference between (a) the market value of the securities sold short at the time they were sold short and (b) any cash or U.S. Government securities required to be deposited as collateral with the broker in connection with the short sale (not including the proceeds from the short sale). In addition, until the Fund replaces the borrowed security, it must daily maintain the segregated account at such a level that (1) the amount deposited in it plus the amount deposited with the broker as collateral will equal the current market value of the securities sold short, and (2) the amount deposited in it plus the amount deposited with the broker as collateral will not be less than the market value of the securities at the time they were sold short. Short selling may produce higher than normal portfolio turnover which may result in increased transaction costs to a Fund and may result in gains from the sale of securities deemed to have been held for less than three months, which gains must be less than 30% of the Fund's gross income in order for the Fund to qualify as a regulated investment company under the Code. Lower Rated High Yield Debt Obligations. Emerging Growth Fund, Government Income Fund, High Yield Bond Fund and High Yield Tax-Free Fund may invest in high yielding, fixed income securities rated below investment grade (e.g., rated Baa or lower by Moody's or BBB or lower 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 the Appendix to this SAI which describes the characteristics of corporate bonds in the various rating categories. The Fund may invest in comparable quality unrated securities which, in the opinion of the Adviser, 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 -16- 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 a Fund's assets. The reduced availability of reliable, objective data may increase a Fund's reliance on management's judgment in valuing high yield bonds. In addition, a 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. Credit and Interest Rate Risks. In addition to the information contained in the Prospectuses, investors should note that while ratings by a rating institution provide a generally useful guide to credit risks, they do not, nor do they purport to, offer any criteria for evaluating interest rate risk. Changes in the general level of interest rates cause fluctuations in the prices of fixed-income securities already outstanding and will therefore result in fluctuation in net asset value of the shares of Funds to the extent the Funds invest in these securities. The extent of the fluctuation is determined by a complex interaction of a number of factors. The Adviser will evaluate those factors it considers relevant and will make portfolio changes when it deems it appropriate in seeking to reduce the risk of depreciation in the value of a Fund's portfolio. However, in seeking to achieve a Fund's primary objectives, there will be times, such as during periods of rising interest rates, when depreciation and realization of comparable losses on securities in the portfolio will be unavoidable. Moreover, medium and lower- rated securities and unrated securities of comparable quality tend to be subject to wider fluctuations in yield and market values than higher rated securities. Such fluctuations after a security is acquired do not affect the cash income received from that security but are reflected in the net asset value of the Fund's portfolio. Other risks of lower quality securities include: (i) subordination to the prior claims of banks and other senior lenders and (ii) the operation of mandatory sinking fund or call/redemption provisions during periods of declining interest rates whereby the Funds may reinvest premature redemption proceeds in lower yielding portfolio securities. In determining which securities to purchase or hold in a Fund's portfolio (including, in the case of High Yield Bond Fund, investments in either unrated or rated securities which are in default) and in seeking to reduce credit and interest rate risk consistent with a Fund's investment objective and policies, the Adviser will rely on information from various sources, including: the rating of the security; research, analysis and appraisals of brokers and dealers; the views of the Fund's Directors and others regarding economic developments and interest rate trends; and the Adviser's own analysis of factors it deems relevant as it pertains to achieving a Fund's investment objective(s). Purchases of Warrants. Emerging Growth Fund's and Global Resources Fund's investment policies permit the purchase of rights and warrants, which represent rights to purchase the common stock of companies at designated prices. No such purchase will be made by a Fund, however, if the Fund's holdings of warrants (valued at lower of cost or market) would exceed 5% of the value of the Fund's total net assets as a result of the purchase. In addition, no Fund will -17- purchase a warrant or right which is not listed on the New York or American Stock Exchanges if the purchase would result in the Fund's owning unlisted warrants in an amount exceeding 2% of its net assets. Convertible Securities. Emerging Growth Fund, Global Resources Fund and High Yield Bond Fund may invest in convertible securities. Convertible securities are securities that may be converted at either a stated price or stated rate into underlying shares of common stock of the same issuer. Convertible securities have general characteristics similar to both fixed income and equity securities. Although to a lesser extent than with straight debt securities, the market value of convertible securities tends to decline as interest rates increase, and, conversely, tends to increase as interest rates decline. In addition, because of the conversion feature, the market value of convertible securities tends to vary with fluctuations in the market value of the underlying common stocks and therefore will also react to variations in the general market for equity securities. A unique feature of convertible securities is that as the market price of the underlying common stock declines, convertible securities tend to trade increasingly on a yield basis, and consequently may not experience market value declines to the same extent as the underlying common stock. When the market price of the underlying common stock increases, the prices of the convertible securities tend to rise as a reflection of the value of the underlying common stock. While no securities investments are without risk, investments in convertible securities generally entail less risk than investments in common stock of the same issuer. However, the issuers of convertible securities may default on their obligations. Mortgage "Dollar Roll" Transactions. Government Income Fund and High Yield Bond Fund may enter into mortgage "dollar roll" transactions with selected banks and broker-dealers pursuant to which a Fund sells Mortgage-Backed Securities for delivery in the future (generally within 30 days) and simultaneously contracts to repurchase substantially similar (same type, coupon and maturity) securities on a specified future date. These Funds will only enter into covered rolls. A "covered roll" is a specific type of dollar roll for which there is an offsetting cash position or a cash equivalent security position which matures on or before the forward settlement date of the dollar roll transaction. Covered rolls are not treated as a borrowing or other senior securities. Dollar rolls in which the Funds may invest will be limited to covered rolls. For financial reporting and tax purposes, the Funds propose to treat mortgage dollar rolls as two separate transactions; one involving the purchase of a security and a separate transaction involving a sale. The Funds do not currently intend to enter into mortgage dollar rolls that are accounted for as a financing. Mortgage dollar rolls involve certain risks including the following: if the broker-dealer to whom a Fund sells the security becomes insolvent, the Fund's right to purchase or repurchase the Mortgage-Backed Securities subject to the mortgage dollar roll may be restricted and the instrument which the Fund is required to repurchase may be worth less than an instrument which the Fund originally held. Successful use of mortgage dollar rolls will depend upon the Adviser's ability to predict correctly interest rates and mortgage prepayments. For these reasons, there is no assurance that mortgage dollar rolls can be successfully employed. Financial Futures Contracts. To the extent set forth in their Prospectuses, the Funds (other than Money Market Fund) may buy and sell futures contracts (and related options) on stocks, stock indices, debt securities, currencies, interest rate indices, and other instruments. Each Fund may hedge its portfolio by selling or purchasing financial futures contracts as an offset against the effects of changes in interest rates or in security or foreign currency values. Although other techniques could be used to reduce exposure to interest rate fluctuations, a Fund may be able to hedge its exposure more effectively and perhaps at a lower cost by using financial futures contracts. The Funds may enter into financial futures contracts for hedging and other purposes to the extent permitted by regulations of the Commodity Futures Trading Commission ("CFTC"). -18- Financial futures contracts have been designed by boards of trade which have been designated "contract markets" by the CFTC. Futures contracts are traded on these markets in a manner that is similar to the way a stock is traded on a stock exchange. The boards of trade, through their clearing corporations, guarantee that the contracts will be performed. Currently, financial futures contracts are based on interest rate instruments such as long-term U.S. Treasury bonds, U.S. Treasury notes, Government National Mortgage Association ("GNMA") modified pass-through mortgage-backed securities, three-month U.S. Treasury bills, 90-day commercial paper, bank certificates of deposit and Eurodollar certificates of deposit. It is expected that if other financial futures contracts are developed and traded the Funds may engage in transactions in such contracts. Although some financial futures contracts by their terms call for actual delivery or acceptance of financial instruments, in most cases the contracts are closed out prior to delivery by offsetting purchases or sales of matching financial futures contracts (same exchange, underlying security and delivery month). Other financial futures contracts, such as futures contracts on securities indices, by their terms call for cash settlements. If the offsetting purchase price is less than a Fund's original sale price, the Fund realizes a gain, or if it is more, the Fund realizes a loss. Conversely, if the offsetting sale price is more than a Fund's original purchase price, the Fund realizes a gain, or if it is less, the Fund realizes a loss. The transaction costs must also be included in these calculations. Each Fund will pay a commission in connection with each purchase or sale of financial futures contracts, including a closing transaction. For a discussion of the Federal income tax considerations of trading in financial futures contracts, see the information under the caption "Tax Status" below. At the time a Fund enters into a financial futures contract, it is required to deposit with its custodian a specified amount of cash or U.S. Government securities, known as "initial margin," ranging upward from 1.1% of the value of the financial futures contract being traded. The margin required for a financial futures contract is set by the board of trade or exchange on which the contract is traded and may be modified during the term of the contract. The initial margin is in the nature of a performance bond or good faith deposit on the financial futures contract which is returned to the Fund upon termination of the contract, assuming all contractual obligations have been satisfied. The Funds expect to earn interest income on their initial margin deposits. Each day, the futures contract is valued at the official settlement price of the board of trade or exchange on which it is traded. Subsequent payments, known as "variation margin," to and from the broker are made on a daily basis as the market price of the financial futures contract fluctuates. This process is known as "mark to market." Variation margin does not represent a borrowing or lending by the Funds but is instead settlement between the Funds and the broker of the amount one would owe the other if the financial futures contract expired. In computing net asset value, the Funds will mark to market their respective open financial futures positions. Successful hedging depends on a strong correlation between the market for the underlying securities and the futures contract market for those securities. There are several factors that will probably prevent this correlation from being a perfect one, and even a correct forecast of general interest rate trends may not result in a successful hedging transaction. There are significant differences between the securities and futures markets which could create an imperfect correlation between the markets and which could affect the success of a given hedge. The degree of imperfection of correlation depends on circumstances such as: variations in speculative market demand for financial futures and debt securities, including technical influences in futures trading and differences between the financial instruments being hedged and the instruments underlying the standard financial futures contracts available for trading in such respects as interest rate levels, maturities and creditworthiness of issuers. The degree of imperfection may be increased where the underlying debt securities are lower-rated and, thus, subject to greater fluctuation in price than higher-rated securities. -19- A decision as to whether, when and how to hedge involves the exercise of skill and judgment, and even a well-conceived hedge may be unsuccessful to some degree because of market behavior or unexpected interest rate trends. The Funds will bear the risk that the price of the securities being hedged will not move in complete correlation with the price of the futures contracts used as a hedging instrument. Although the Adviser believes that the use of financial futures contracts will benefit the Funds, an incorrect prediction could result in a loss on both the hedged securities in the respective Fund's portfolio and the hedging vehicle so that the Fund's return might have been better had hedging not been attempted. However, in the absence of the ability to hedge, the Adviser might have taken portfolio actions in anticipation of the same market movements with similar investment results but, presumably, at greater transaction costs. The low margin deposits required for futures transactions permit an extremely high degree of leverage. A relatively small movement in a futures contract may result in losses or gains in excess of the amount invested. Futures exchanges may limit the amount of fluctuation permitted in certain futures contract prices during a single trading day. The daily limit establishes the maximum amount the price of a futures contract may vary either up or down from the previous day's settlement price, at the end of the current trading session. Once the daily limit has been reached in a futures contract subject to the limit, no more trades may be made on that day at a price beyond that limit. The daily limit governs only price movements during a particular trading day and, therefore, does not limit potential losses because the limit may work to prevent the liquidation of unfavorable positions. For example, futures prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of positions and subjecting some holders of futures contracts to substantial losses. Finally, although the Funds engage in financial futures transactions only on boards of trade or exchanges where there appears to be an adequate secondary market, there is no assurance that a liquid market will exist for a particular futures contract at any given time. The liquidity of the market depends on participants closing out contracts rather than making or taking delivery. In the event participants decide to make or take delivery, liquidity in the market could be reduced. In addition, the Funds could be prevented from executing a buy or sell order at a specified price or closing out a position due to limits on open positions or daily price fluctuation limits imposed by the exchanges or boards of trade. If a Fund cannot close out a position, it will be required to continue to meet margin requirements until the position is closed. Options on Financial Futures Contracts. To the extent set forth in their Prospectuses, the Funds (other than Money Market Fund) may buy and sell options on financial futures contracts on stocks, stock indices, debt securities, currencies, interest rate indices, and other instruments. An option on a futures contract gives the purchaser the right, in return for the premium paid, to assume a position in a futures contract at a specified exercise price at any time during the period of the option. Upon exercise, the writer of the option delivers the futures contract to the holder at the exercise price. The Funds would be required to deposit with their custodian initial and variation margin with respect to put and call options on futures contracts written by them. Options on futures contracts involve risks similar to the risks relating to transactions in financial futures contracts. Also, an option purchased by a Fund may expire worthless, in which case a Fund would lose the premium it paid for the option. Other Considerations. The Funds will engage in futures and options transactions for bona fide hedging or other purposes to the extent permitted by CFTC regulations. 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 which it expects to purchase. Except as stated below, the Funds' futures transactions will be entered into for traditional hedging purposes -- i.e., futures contracts will be sold to protect against a decline in the price of securities that the Funds own, or futures contracts will be purchased to protect the Funds against an increase in the price of securities, or the currency in which they are denominated, the -20- Fund intends to purchase. As evidence of this hedging intent, the Funds expect that on 75% or more of the occasions on which they take a long futures or option position (involving the purchase of futures contracts), the Funds will have purchased, or will be in the process of purchasing equivalent amounts of related securities or assets denominated in the related currency in the cash market at the time when the futures contract or option position is closed out. However, in particular cases, when it is economically advantageous for a 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. As an alternative to literal compliance with the bona fide hedging definition, a CFTC regulation permits the Funds to elect to comply with a different test, under which the aggregate initial margin and premiums required to establish nonhedging positions in futures contracts and options on futures will not exceed 5% of the net asset value of the respective Fund's portfolio, after taking into account unrealized profits and losses on any such positions and excluding the amount by which such options were in-the-money at the time of purchase. The Funds will engage in transactions in futures contracts only to the extent such transactions are consistent with the requirements of the Code for maintaining their qualifications as regulated investment companies for Federal income tax purposes. When the Funds purchase financial futures contracts, or write put options or purchase call options thereon, cash or liquid, high grade debt securities will be deposited in a segregated account with the Funds' custodian in an amount that, together with the amount of initial and variation margin held in the account of its broker, equals the market value of the futures contracts. Options Transactions. To the extent set forth in their Prospectuses, the Funds (other than Money Market Fund) may write listed and over-the-counter covered call options and covered put options on securities in order to earn additional income from the premiums received. In addition, to the extent set forth in their Prospectuses, the Funds may purchase listed and over-the- counter call and put options. The extent to which covered options will be used by the Funds will depend upon market conditions and the availability of alternative strategies. A Fund will write listed and over-the-counter call options only if they are "covered," which means that the Fund owns or has the immediate right to acquire the securities underlying the options without additional cash consideration upon conversion or exchange of other securities held in its portfolio. A call option written by a Fund may also be "covered" if the Fund holds on a share-for-share basis a covering call on the same securities where (i) the exercise price of the covering call held is equal to or less than the exercise price of the call written if the difference is maintained by the Fund in cash, U.S. Treasury bills or high grade liquid debt obligations in a segregated account with the Fund's custodian, and (ii) the covering call expires at the same time as the call written. If a covered call option is not exercised, a Fund would keep both the option premium and the underlying security. If the covered call option written by a Fund is exercised and the exercise price, less the transaction costs, exceeds the cost of the underlying security, the Fund would realize a gain in addition to the amount of the option premium it received. If the exercise price, less transaction costs, is less than the cost of the underlying security, a Fund's loss would be reduced by the amount of the option premium. As the writer of a covered put option, each Fund will write a put option only with respect to securities it intends to acquire for its portfolio and will maintain in a segregated account with its custodian bank cash, U.S. Government securities or high-grade liquid debt securities with a value equal to the price at which the underlying security may be sold to the Fund in the event the put option is exercised by the purchaser. The Funds may also write a "covered" put option by purchasing on a share-for-share basis a put on the same security as the put written by the Fund if the exercise price of the covering put held is equal to or greater than the exercise price of the put written and the covering put expires at the same time or later than the put written. -21- When writing listed and over-the-counter covered put options on securities, the Funds would earn income from the premiums received. If a covered put option is not exercised, the Funds would keep the option premium and the assets maintained to cover the option. If the option is exercised and the exercise price, including transaction costs, exceeds the market price of the underlying security, a Fund would realize a loss, but the amount of the loss would be reduced by the amount of the option premium. If the writer of an exchange-traded option wishes to terminate its obligation prior to its exercise, it may effect a "closing purchase transaction." This is accomplished by buying an option of the same series as the option previously written. The effect of the purchase is that a Fund's position will be offset by the Options Clearing Corporation. The Funds may not effect a closing purchase transaction after they have been notified of the exercise of an option. There is no guarantee that a closing purchase transaction can be effected. Although the Funds will generally write only those options for which there appears to be an active secondary market, there is no assurance that a liquid secondary market on an exchange or board of trade will exist for any particular option or at any particular time, and for some options no secondary market on an exchange may exist. In the case of a written call option, effecting a closing transaction will permit a Fund to write another call option on the underlying security with either a different exercise price, expiration date or both. In the case of a written put option, it will permit a Fund to write another put option to the extent that the exercise price thereof is secured by deposited cash or short- term securities. Also, effecting a closing transaction will permit the cash or proceeds from the concurrent sale of any securities subject to the option to be used for other investments. If a Fund desires to sell a particular security from its portfolio on which it has written a call option, it will effect a closing transaction prior to or concurrent with the sale of the security. A Fund will realize a gain from a closing transaction if the cost of the closing transaction is less than the premium received from writing the option. The Funds will realize a loss from a closing transaction if the cost of the closing transaction is more than the premium received for writing the option. However, because increases in the market price of a call option will generally reflect increases in the market price of the underlying security, any loss resulting from the repurchase of a call option is likely to be offset in whole or in part by appreciation of the underlying security owned by the Fund. Over-the-Counter Options. Funds that may engage in options transactions may engage in options transactions on exchanges and in the over-the-counter markets. In general, exchange-traded options are third-party contracts (i.e., performance of the parties' obligations is guaranteed by an exchange or clearing corporation) with standardized strike prices and expiration dates. Over-the-counter ("OTC") transactions are two-party contracts with price and terms negotiated by the buyer and seller. A Fund will acquire only those OTC options for which management believes the Fund can receive on each business day at least two separate bids or offers (one of which will be from an entity other than a party to the option) or those OTC options valued by an independent pricing service. The Funds will write and purchase OTC options only with member banks of the Federal Reserve System and primary dealers in U.S. Government securities or their affiliates which have capital of at least $50 million or whose obligations are guaranteed by an entity having capital of at least $50 million. The SEC has taken the position that OTC options are illiquid securities subject to each Fund's restriction that illiquid securities are limited to not more than 10% of the Fund's net assets. The SEC, however, has a partial exemption from the above restrictions on transactions in OTC options. The SEC allows a Fund to exclude from the 10% limitation on illiquid securities a portion of the value of the OTC options written by the Fund, provided that certain conditions are met. First, the other party to the OTC options has to be a primary U.S. Government securities dealer designated as such by the Federal Reserve Bank. Second, the Fund must have an absolute contractual right to repurchase -23- the OTC options at a formula price. If the above conditions are met, a Fund may treat as illiquid only that portion of the OTC option's value (and the value of its underlying securities) which is equal to the formula price for repurchasing the OTC option, less the OTC option's intrinsic value. Restricted Securities. Emerging Growth Fund may purchase securities that are not registered ("restricted securities") under the Securities Act of 1933 ("1933 Act"), including securities offered and sold to "qualified institutional buyers" under Rule 144A under the 1933 Act. However, the Fund will not invest more than 10% of its assets in illiquid investments, which include repurchase agreements maturing in more than seven days, securities that are not readily marketable and restricted securities. However, if the Board of Directors determines, based upon a continuing review of the trading markets for specific Rule 144A securities, that they are liquid, then such securities may be purchased without regard to the 10% limit. The Directors may adopt guidelines and delegate to the Adviser the daily function of determining the monitoring and liquidity of restricted securities. The Directors, however, will retain sufficient oversight and be ultimately responsible for the determinations. The Directors 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 may acquire other restricted securities including securities for which market quotations are not readily available. These securities may be sold only in privately negotiated transactions or in public offerings with respect to which a registration statement is in effect under the Securities Act of 1933. Where registration is required, the Fund may be obligated to pay all or part of the registration expenses and a considerable period may elapse between the time of the decision to sell and the time the Fund may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, the Fund might obtain a less favorable price than prevailed when it decided to sell. Restricted securities will be priced at fair market value as determined in good faith by the Fund's Directors. If through the appreciation of restricted securities or the depreciation of unrestricted securities, the Fund should be in a position where more than 10% of the value of its assets is invested in illiquid securities (including repurchase agreements which mature in more than seven days and options which are traded over-the-counter and their underlying securities), the Fund will bring its holdings of illiquid securities below the 10% limitation. 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. A 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 corresponding higher transaction expenses and may make it more difficult for a Fund to qualify as a regulated investment company for federal income tax purposes. Lending of Securities. To the extent permitted by their respective Prospectuses, 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. A Fund may reinvest any cash collateral in short-term securities. 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 -23- of the borrower's bankruptcy, the Fund may be delayed in or prevented from liquidating the collateral. INVESTMENT RESTRICTIONS Fundamental Investment Restrictions Each Fund has adopted certain fundamental investment restrictions upon its investments as set forth below which cannot be changed as to any Fund without the approval of the holders of a majority of that Fund's outstanding shares. A majority for this purpose means: (a) more than 50% of the outstanding shares of a Fund, or (b) 67% or more of the shares represented at a meeting where more than 50% of the outstanding shares of a Fund are represented, whichever is less. If a percentage restriction or rating restriction on investment or utilization of assets is adhered to at the time an investment is made or assets are so utilized, a later change in percentage resulting from changes in the value of a Fund's portfolio securities or a later change in the rating of a portfolio security will not be considered a violation of policy. For the purpose of these restrictions, High Yield Bond Fund, Government Income Fund and Money Market Fund are referred to as the "Fixed Income Funds" and Emerging Growth Fund and Global Resources Fund are referred to as the "Equity Funds." The restrictions applicable to High Yield Tax-Free Fund are set out subsequently. Each Fixed Income Fund and each Equity Fund may not: (1) Borrow money in an amount in excess of 33-1/3% of its total assets, and then only as a temporary measure for extraordinary or emergency purposes (except that it may enter into a reverse repurchase agreement within the limits described in the Prospectus or this SAI), or pledge, mortgage or hypothecate an amount of its assets (taken at market value) in excess of 15% of its total assets, in each case taken at the lower of cost or market value. For the purpose of this restriction, collateral arrangements with respect to options, futures contracts, options on futures contracts and collateral arrangements with respect to initial and variation margins are not considered a pledge of assets. (2) Underwrite securities issued by other persons except insofar as such Fund may technically be deemed an underwriter under the Securities Act of 1933 in selling a portfolio security. (3) Purchase or retain real estate (including limited partnership interests but excluding securities of companies, such as real estate investment trusts, which deal in real estate or interests therein and securities secured by real estate), or mineral leases, commodities or commodity contracts except, in the case of Resources Fund, precious metals (except contracts for the future delivery of fixed income securities, stock index and currency futures and options on such futures) in the ordinary course of its business. Each Fund reserves the freedom of action to hold and to sell real estate or mineral leases, commodities or commodity contracts acquired as a result of the ownership of securities. (4) Invest in direct participation interests in oil, gas or other mineral exploration or development programs. (5) Make loans to other persons except by the purchase of obligations in which such Fund is authorized to invest and by entering into repurchase agreements; provided that a Fund may lend its portfolio securities not in excess of 30% of its total assets (taken at market value). Not more than 10% of a Fund's total assets (taken at market value) will be subject to repurchase agreements maturing in more than seven days. For these purposes the purchase of all or a portion of an issue -24- of debt securities shall not be considered the making of a loan. In addition, the Equity Funds may purchase a portion of an issue of debt securities of types commonly distributed privately to financial institutions. (6) Purchase the securities of any issuer if such purchase, at the time thereof, would cause more than 5% of its total assets (taken at market value) to be invested in the securities of such issuer, other than securities issued or guaranteed by the United States or, in the case of the Fixed Income Funds, any state or political subdivision thereof, or any political subdivision of any such state, or any agency or instrumentality of the United States, any state or political subdivision thereof, or any political subdivision of any such state. In applying these limitations, a guarantee of a security will not be considered a security of the guarantor, provided that the value of all securities issued or guaranteed by that guarantor, and owned by the Fund, does not exceed 10% of the Fund's total assets. In determining the issuer of a security, each state and each political subdivision agency, and instrumentality of each state and each multi-state agency of which such state is a member is a separate issuer. Where securities are backed only by assets and revenues of a particular instrumentality, facility or subdivision, such entity is considered the issuer. (7) Invest in companies for the purpose of exercising control or management. (8) Purchase or retain in its portfolio any securities issued by an issuer any of whose officers, directors, trustees or security holders is an officer or Director of such Fund, or is a member, partner, officer or Director of the Adviser, if after the purchase of the securities of such issuer by such Fund one or more of such persons owns beneficially more than 1/2 of 1% of the shares or securities, or both, all taken at market value, of such issuer, and such persons owning more than 1/2 of 1% of such shares or securities together own beneficially more than 5% of such shares or securities, or both, all taken at market value. (9) Purchase any securities or evidences of interest therein on margin, except that each Fund may obtain such short-term credit as may be necessary for the clearance of purchases and sales of securities and each Fund (other than the Money Market Fund) may make deposits on margin in connection with Futures Contracts and related options. (10) Sell any security which such Fund does not own unless by virtue of its ownership of other securities it has at the time of sale a right to obtain securities without payment of further consideration equivalent in kind and amount to the securities sold and provided that if such right is conditional the sale is made upon equivalent conditions. (11) Purchase securities issued by any other investment company or investment trust except by purchase in the open market where no commission or profit to a sponsor or dealer results from such purchase other than the customary broker's commission, or except when such purchase, though not made in the open market, is part of a plan of merger or consolidation; provided, however, that a Fund will not purchase such securities if such purchase at the time thereof would cause more than 10% of its total assets (taken at market value) to be invested in the securities of such issuers; provided, further, that a Fund will not purchase securities issued by an open-end investment company; and provided, further, that the foregoing fundamental investment restriction shall not apply to Emerging Growth Fund. (12) Knowingly invest in securities which are subject to legal or contractual restrictions on resale or for which there is no readily available market (e.g., trading in the security is suspended or market makers do not exist or will not entertain bids or offers), except for repurchase agreements, if, as a result thereof more than 10% of such Fund's total assets (taken at market value) would be so invested. (The Staff of the Securities and Exchange Commission has taken the position that a money market fund may not invest more than 10% of its net assets in illiquid -25- securities. The Money Market Fund has undertaken with the Staff to require, that as a matter of operating policy, it will not invest in illiquid securities in an amount exceeding 10% of its net assets.) (13) Issue any senior security (as that term is defined in the Investment Company Act of 1940 (the "1940 Act")) if such issuance is specifically prohibited by the 1940 Act or the rules and regulations promulgated thereunder. For the purpose of this restriction, collateral arrangements with respect to options, Futures Contracts and Options on futures contracts and collateral arrangements with respect to initial and variation margins are not deemed to be the issuance of a senior security. In addition, no Fixed Income Fund (except for Money Market Fund and High Yield Bond Fund) may invest more than 25% of its total assets (taken at market value) in the securities of issuers engaged in any one industry. Money Market Fund may not invest more than 25% of its total assets in obligations issued by (i) foreign banks or (ii) foreign branches of U.S. banks where the Adviser has determined that the U.S. bank is not unconditionally responsible for the payment obligations of the foreign branch. High Yield Bond Fund may not invest more than 25% of its total assets (taken at market value) in the securities of issuers engaged in any one industry, except that High Yield Bond Fund may invest up to 40% of the value of its total assets in the securities of issuers engaged in the electric utility and telephone industries. Obligations issued or guaranteed by the U.S. Government or its agencies or instrumentalities are not subject to the Fixed Income Fund's limitations on industry concentration. Determinations of industries for purposes of the foregoing limitations are made in accordance with specific industry codes set forth in the Standard Industrial Classification Manual and without considering groups of industries (e.g., all utilities or all finance companies) to be an industry. Also, a Fixed Income Fund may not purchase securities of any issuer (other than securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities) if such purchase, at the time thereof, would cause a Fund to hold more than 10% of any class of securities of such issuer. For this purpose, all indebtedness of an issuer (for the Money Market Fund, all indebtedness of an issuer maturing in less than one year) shall be deemed a single class and all preferred stock of an issuer shall be deemed a single class. In addition, an Equity Fund may not: (1) Concentrate its investments in any particular industry, but if it is deemed appropriate for the attainment of its investment objective, such Fund may invest up to 25% of its assets (taken at market value at the time of each investment) in securities of issuers in any one industry. (2) Purchase voting securities of any issuer if such purchase, at the time thereof, would cause more than 10% of the outstanding voting securities of such issuer to be held by such Fund; or purchase securities of any issuer if such purchase at the time thereof would cause more than 10% of any class of securities of such issuer to be held by such Fund. For this purpose all indebtedness of an issuer shall be deemed a single class and all preferred stock of an issuer shall be deemed a single class. In applying these limitations, a guarantee of a security will not be considered a security of the guarantor, provided that the value of all securities issued or guaranteed by that guarantor, and owned by the Fund, does not exceed 10% of the Fund's total assets. In determining the issuer of a security, each state and each political subdivision agency, and instrumentality of each state and each multi- state agency of which such state is a member is a separate issuer. Where securities are backed only by assets and revenues of a particular instrumentality, facility or subdivision, such entity is considered the issuer. -26- High Yield Tax-Free Fund may not: (1) Borrow money except from banks for temporary or emergency (not leveraging) purposes, including the meeting of redemption requests that might otherwise require the untimely disposition of securities, in an amount up to 15% of the value of the Fund's total assets (including the amount borrowed) valued at market less liabilities (not including the amount borrowed) at the time the borrowing was made. While borrowings exceed 5% of the value of the Fund's total assets, the Fund will not purchase any additional securities. Interest paid on borrowings will reduce the Fund's net investment income. The borrowing restriction set forth above does not prohibit the use of reverse repurchase agreements, in an amount (including any borrowings) not to exceed 33-1/3% of net assets. (2) Pledge, hypothecate, mortgage or otherwise encumber its assets, except in an amount up to 10% of the value of its total assets but only to secure borrowings for temporary or emergency purposes as may be necessary in connection with maintaining collateral in connection with writing put or call options or making initial margin deposits in connection with the purchase or sale of financial futures or index futures contracts and related options. (3) Purchase securities (except obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities) if the purchase would cause the Fund at the time to have more than 5% of the value of its total assets invested in the securities of any one issuer or to own more than 10% of the outstanding debt securities of any one issuer; provided, however, that up to 25% of the value of the Fund's asset may be invested without regard to these restrictions. (4) Purchase or retain the securities of any issuer, if to the knowledge of the Fund, any officer or director of the Fund or its Adviser owns more than 1/2 of 1% of the outstanding securities of such issuer, and all such officers and directors own in the aggregate more than 5% of the outstanding securities of such issuer. (5) Write, purchase or sell puts, calls or combinations thereof, except put and call options on debt securities, futures contracts based on debt securities, indices of debt securities and futures contracts based on indices of debt securities, sell securities on margin or make short sales of securities or maintain a short position, unless at all times when a short position is open it owns an equal amount of such securities or securities convertible into or exchangeable, without payment of any further consideration, for securities of the same issue as, and equal in amount to, the securities sold short, and unless not more than 10% of the Fund's net assets (taken at current value) is held as collateral for such sales at any one time. (6) Underwrite the securities of other issuers, except insofar as the Fund may be deemed an underwriter under the Securities Act of 1933 in disposing of a portfolio security. (7) Purchase the securities of any issuer if as a result more than 10% of the value of the Fund's total assets would be invested in securities that are subject to legal or contractual restrictions on resale ("restricted securities") and in securities for which there are no readily available market quotations; or enter into a repurchase agreement maturing in more than seven days, if as a result such repurchase agreement together with restricted securities and securities for which there are no readily available market quotations would constitute more than 10% of the Fund's total assets. (8) Purchase or sell real estate, real estate investment trust securities, commodities or commodity contracts, except commodities and commodities contracts which are necessary to enable the Fund to engage in permitted futures and options transactions necessary to implement hedging strategies, or oil and gas interests, but this shall not prevent the Fund from investing in municipal obligations secured by real estate or interests in real estate. -27- (9) Make loans to others, except insofar as the Fund may enter in repurchase agreements as set forth in the Prospectus or this SAI. The purchase of an issue of publicly distributed bonds or other securities, whether or not the purchase was made upon the original issuance of securities, is not to be considered the making of a loan. (10) Invest more than 25% of its assets in the securities of the "issuers" in any single industry; provided that there shall be no limitation on the purchase of municipal obligations and obligations issued or guaranteed by the United States Government, its agencies or instrumentalities. For purposes of this limitation and that set forth in investment restriction (3) above, when the assets and revenues of an agency, authority, instrumentality or other political subdivision are separate from those of the government creating the issuing entity and a security is backed only by the assets and revenues of the entity, the entity would be deemed to be the sole issuer of the security. Similarly, in the case of an industrial development or pollution control bond, if that bond is backed only by the assets and revenues of the nongovernmental user, then such non governmental user would be deemed to be the sole issuer. If, however, in either case, the creating government or some other entity guarantees a security, such a guarantee would be considered a separate security and would be treated as an issue of such government or other entity. (11) Invest in securities of other investment companies, except as they may be acquired as part of a merger, consolidation or acquisition of assets, and except for the purchase, to the extent permitted by Section 12 of the 1940 Act, of shares of registered unit investment trusts whose assets consist substantially of municipal obligations. (12) Invest more than 5% of the value of its total assets in the securities of issuers having a record, including predecessors, of fewer than three years of continuous operation, except obligations issued or guaranteed by the United States Government, its agencies or instrumentalities, unless the securities are rated by a nationally recognized rating service. (13) Invest for the purpose of exercising control or management of another company. (14) Issue any senior security (as that term is defined in the 1940 Act) if such issuance is specifically prohibited by the 1940 Act or the rules and regulations promulgated thereunder. For the purpose of this restriction, collateral arrangements with respect to options, futures contracts and options on futures contracts and collateral arrangements with respect to initial and variation margins are not deemed to be the issuance of a senior security. Other Operating Policies Each of the Equity Funds (whose investment restrictions permit holdings in warrants not to exceed 10% of its assets) may, due to an undertaking with a state in which the Fund's shares are currently qualified for sale, purchase warrants not to exceed 5% of such Fund's net assets. Included within that amount, but not exceeding 2% of a Fund's net assets, may be warrants for which there is no public market. Any such warrants which are attached to securities at the time such securities are acquired by a Fund will be deemed to be without value for the purpose of this restriction. Each Fund (other than High Yield Tax-Free Fund) will not invest more than 5% of its total assets in companies which, including their respective predecessors, have a record of less than three years' continuous operation. In order to comply with certain state regulatory policies, no Fund will, as a matter of operating policy, pledge, mortgage or hypothecate its portfolio securities if the percentage of securities so pledged, mortgaged or hypothecated would exceed 15%. -28- In order to comply with certain state regulatory policies, the cost of investments in options, financial futures, stock index futures and currency futures, other than those acquired for hedging purposes, may not exceed 10% of a Fund's total net assets. As a nonfundamental investment restriction, Emerging Growth Fund may not 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. The Fund may not purchase the shares of any closed-end investment company except in the open market where no commission or profit to a sponsor or dealer results from the purchase, other than customary brokerage fees. These operating policies are not fundamental and may be changed without shareholder approval. In order to comply with certain state regulatory practices, certain policies, if changed, would require advance written notice to shareholders. The Corporation's Board of Directors has approved the following nonfundamental investment policy pursuant to an order of the SEC: Notwithstanding any investment restriction to the contrary, each 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 provided that, as a result, (i) no more than 10% of the Fund's assets would be invested in securities of all other investment companies, (ii) such purchase would not result in more than 3% of the total outstanding voting securities of any one such investment company being held by the Fund and (iii) no more than 5% of the Fund's assets would be invested in any one such investment company. THOSE RESPONSIBLE FOR MANAGEMENT The business of the Corporation is managed by its Directors who elect officers who are responsible for the day-to-day operations of the Corporation and the Funds and who execute policies formulated by the Directors. Several of the officers and Directors of the Corporation are also officers and directors of the Adviser or officers and directors of the Funds' principal distributor, John Hancock Funds, Inc. ("John Hancock Funds"). Set forth below is the principal occupation or employment of the Directors and principal officers of the Corporation during the past five years: -29-
Position Held with Principal Occupation(s) Name and Address the Corporation During Past Five Years - ---------------- --------------- ---------------------- Edward J. Boudreau, Jr.* Director, Chairman and Chief Chairman and Chief Executive 101 Huntington Avenue Executive Officer(1)(2) Officer, the Adviser and The Boston, MA 02199 Berkeley Financial Group ("The Berkeley Group"); Chairman, NM Capital Management, Inc. ("NM Capital"); John Hancock Advisers International Limited ("Advisers International"); John Hancock Funds, Inc.; John Hancock Investor Services Corporation ("Investor Services"); and Sovereign Asset Management Corporation ("SAMCorp"); (hereinafter the Adviser, the Berkeley Group, NM Capital, Advisers International, John Hancock Funds, Inc., Investor Services and SAMCorp are collectively referred to as the "Affiliated Companies"); Chairman, First Signature Bank & Trust; Director, John Hancock Freedom Securities Corporation, John Hancock Capital Corporation, New England/ Canada Business Council; Member, Investment Company Institute Board of Governors; Trustee, Museum of Science; President, the Adviser (until July 1992); and Chairman, John Hancock Distributors, Inc. (until April, 1994).
* An "interested person" of the Portfolio, as such term is defined in the 1940 Act. (1) Member of the Executive Committee. Under the Trust's Declaration of Trust, the Executive Committee may generally exercise most of the powers of the Board of Directors. (2) A Member of the Investment Committee of the Adviser. (3) Member of the Audit Committee and the Administration Committee. -30-
Position Held with Principal Occupation(s) Name and Address the Corporation During Past Five Years - ---------------- --------------- ---------------------- James F. Carlin Director(3) Chairman and CEO, Carlin 233 West Central Street Consolidated, Inc. (insurance); Natick, MA 01760 Chairman, Massachusetts Higher Education Coordinating Council (since 1995); Trustee, Massachusetts Health and Education Tax-Exempt Trust (Financial); Director, Rizzo Associates, Inc. (Engineering), Arbella Mutual Insurance Company (insurance), Consolidated Group Trust (group health plan), Carlin Insurance Agency, Inc., West Insurance Agency, Inc., Allied American Agency, Inc. (insurance); Treasurer, Alpha Analytical, Inc. (Chemistry Lab); Receiver, the City of Chelsea (until August 1992). William H. Cunningham Director(3) Chancellor, University of Texas 601 Colorado Street System and former President of the O'Henry Hall University of Texas, Austin, Texas; Austin, TX 78701 Regents Chair for Free Enterprise; Director, LaQuinta Motor Inns, Inc. (hotel management company); Director, Jefferson-Pilot Corporation (diversified life insurance company); Director, Freeport-McMoran Inc. (oil and gas company); LBJ Foundation Board (education foundation); and Advisory Director, Texas Commerce Bank - Austin. Harold R. Hiser, Jr. Director(3) Executive Vice President, Schering-Plough Corporation Schering-Plough Corporation One Giralda Farms (pharmaceuticals) (until 1995); Madison, NJ 07940-1000 Director, ReCapital Corporation (reinsurance).
* An "interested person" of the Portfolio, as such term is defined in the 1940 Act. (1) Member of the Executive Committee. Under the Trust's Declaration of Trust, the Executive Committee may generally exercise most of the powers of the Board of Directors. (2) A Member of the Investment Committee of the Adviser. (3) Member of the Audit Committee and the Administration Committee. -31-
Position Held with Principal Occupation(s) Name and Address the Corporation During Past Five Years - ---------------- --------------- ---------------------- Charles L. Ladner Director(3) Director, Energy North, Inc. UGI Corporation (public utility holding 460 North Gulph Road company)(until 1992); Senior Vice King of Prussia, PA 19406 President, Finance UGI Corp. (public utility holding company). Leo E. Linbeck, Jr. Director(3) Chairman, President, Chief 3810 W. Alabama Executive Officer and Director, Houston, TX 77027 Linbeck Corporation (a holding company engaged in various phases of the construction industry and warehousing interests); Director and Chairman, Federal Reserve Bank of Dallas; Chairman of the Board and Chief Executive Officer, Linbeck Construction Corporation; Director, Panhandle Eastern Corporation (a diversified energy company), Daniel Industries, Inc. (manufacturer of gas measuring products and energy related equipment), GeoQuest International, Inc. (a geophysical consulting firm); and Director, Greater Houston Partnership. Patricia P. McCarter Director(3) Director and Secretary, the Swedesford Road McCarter Corp. (machine RD #3, Box 121 manufacturer). Malvern, PA 19355 Steven R. Pruchansky Director(1)(3) Director and President, Mast 360 Horse Creek Drive, #208 Holdings, Inc.; Director, First Naples, FL 33942 Signature Bank & Trust Company (until August 1991); General Partner, Mast Realty Trust (until 1994); President, Maxwell Building Corp. (until 1991).
* An "interested person" of the Portfolio, as such term is defined in the 1940 Act. (1) Member of the Executive Committee. Under the Trust's Declaration of Trust, the Executive Committee may generally exercise most of the powers of the Board of Directors. (2) A Member of the Investment Committee of the Adviser. (3) Member of the Audit Committee and the Administration Committee. -32-
Position Held with Principal Occupation(s) Name and Address the Corporation During Past Five Years - ---------------- --------------- ---------------------- Norman H. Smith Director(3) Lieutenant General, USMC, Deputy Rt. 1, Box 249 E Chief of Staff for Manpower and Linden, VA 22642 Reserve Affairs, Headquarters Marine Corps; Commanding General III Marine Expeditionary Force/3rd Marine Division (retired 1991). John P. Toolan Director(3) Director, The Smith Barney Muni 13 Chadwell Place Bond Funds, The Smith Barney Morristown, NJ 07960 Tax-Free Money Fund, 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 December, 1991); Director, Smith Barney, Inc., Mutual Management Company and Smith, Barney Advisers, Inc. (investment advisers) (retired 1991); and Senior Executive Vice President, Director and member of the Executive Committee, Smith Barney, Harris Upham & Co., Incorporated (investment bankers) (until 1991). Robert G. Freedman* Vice Chairman and Chief Vice Chairman and Chief Investment 101 Huntington Avenue Investment Officer(2) Officer, the Adviser; President, Boston, MA 02199 the Adviser (until December 1994). Anne C. Hodsdon* President(2) President and Chief Operating 101 Huntington Avenue Officer, the Adviser; Executive Boston, MA 02199 Vice President, the Adviser (until December 1994); Senior Vice President, the Adviser (until December 1993; Vice President, the Adviser (until 1991).
* An "interested person" of the Portfolio, as such term is defined in the 1940 Act. (1) Member of the Executive Committee. Under the Trust's Declaration of Trust, the Executive Committee may generally exercise most of the powers of the Board of Directors. (2) A Member of the Investment Committee of the Adviser. (3) Member of the Audit Committee and the Administration Committee. -33-
Position Held with Principal Occupation(s) Name and Address the Corporation During Past Five Years - ---------------- --------------- ---------------------- James B. Little* Senior Vice President and Senior Vice President, the Adviser 101 Huntington Avenue Chief Financial Officer Boston, MA 02199 Thomas H. Drohan* Senior Vice President Senior Vice President and 101 Huntington Avenue and Secretary Secretary, the Adviser. Boston, MA 02199 James J. Stokowski* Vice President and Treasurer Vice President, the Adviser. 101 Huntington Avenue President(2) Adviser. Boston, MA 02199 Susan S. Newton* Vice President and Compliance Vice President and Assistant 101 Huntington Avenue Officer Senior Vice President, Secretary, the Adviser. Boston, MA 02199 the Adviser. John A. Morin* Vice President Vice President, the Adviser. 101 Huntington Avenue Boston, MA 02199
* An "interested person" of the Portfolio, as such term is defined in the 1940 Act. (1) Member of the Executive Committee. Under the Trust's Declaration of Trust, the Executive Committee may generally exercise most of the powers of the Board of Directors. (2) A Member of the Investment Committee of the Adviser. All of the officers listed are officers or employees of the Adviser or affiliated companies. Some of the Directors 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 March 31, 1996, the officers and Directors of the Corporation as a group beneficially owned less than 1% of the outstanding shares of the Corporation and of each of the Funds. On such date, the following shareholders were the only record holders and beneficial owners of 5% or more of the shares of the respective Funds: Number of Shares held (expressed as Percentage of Fund's outstanding shares) Emerging Growth Fund: Class A 758,924 Shares National Westminster Bank PLC as Trustee of 15.16% American Smaller Companies Trust Juno Court 24 Prescott Street London, England E18BB -34- 713,078 Shares Merrill Lynch Pierce Fenner & Smith 14.02% 4800 Deerlake Drive East Jacksonville, Florida 32246-6484 Class B 3,047,100 Shares Merrill Lynch Pierce Fenner & Smith 25.70% 4800 Deerlake Drive East Jacksonville, Florida 32246-6484 Global Resources Fund: Class A 17,804 Shares Oscar L. Faircloth TTEE 8.82% Chartered Pension Trust 5927 Indian Queen Pt. Rd. Fort Washington, Maryland Class B 115,449 Shares Merrill Lynch Pierce Fenner & Smith 5.82% 4800 Deerlake Drive East Jacksonville, Florida 32246-6484 Government Income Fund: Class B 2,998,359 Shares Merrill Lynch Pierce Fenner & Smith 12.69% 4800 Deerlake Drive East Jacksonville, Florida 32246-6484 High Yield Bond Fund: Class A 700,333 Shares Novell Incorporated 16.88% 1555 North Technology Way Orem, Utah 84057 475,233 Shares National City Bank TTEE 11.33% FBO Building Laborers Local 310 Pension Plan P.O. Box 94777 Cleveland, Ohio -35- 308,858 Shares National City Bank TTEE 7.36% Building Laborer Local 310 Health & Welfare Plan P.O. Box 94777 Cleveland, Ohio Class B 2,454,852 Shares Merrill Lynch Pierce Fenner & Smith 9.56% 4800 Deerlake Drive East Jacksonville, Florida 32246-6484 High Yield Tax-Free Fund: Class A 176,464 Shares The Private Bank & Trust Co. 9.68% as Custodian for Daniel R. Lee 10 Dearborn Street Chicago, Illinois 60602-4209 Class B 2,955,422 Shares Merrill Lynch Pierce Fenner & Smith 17.80% 4800 Deerlake Drive East Jacksonville, Florida 32246-6484 At such date, no other person(s), owned of record or was known by the Corporation to beneficially own as much as 5% of the outstanding shares of the Corporation or of any of the Funds. As of December 22, 1994, the Directors have established an Advisory Board which acts to facilitate a smooth transition of management over a two-year period (between Transamerica Fund Management Company ("TFMC"), the prior investment adviser, and the Adviser). The members of the Advisory Board are distinct from the Board of Directors, do not serve the Funds in any other capacity and are persons who have no power to determine what securities are purchased or sold and behalf of the Funds. Each member of the Advisory Board may be contacted at 101 Huntington Avenue, Boston, Massachusetts 02199. Members of the Advisory Board and their respective principal occupations during the past five years are as follows: R. Trent Campbell, President, FMS, Inc. (financial and management services); former Chairman of the Board, Mosher Steel Company. Mrs. Lloyd Bentsen, Formerly National Democratic Committeewoman from Texas; co-founder, Houston Parents' League; former board member of various civic and cultural organizations in Houston, including the Houston Symphony, Museum of Fine Arts and YWCA. Mrs. Bentsen is presently active in various civic and cultural activities in the Washington, D.C. area, including membership on the Area Board for The March of Dimes and is a National Trustee for the Botanic Gardens of Washington, D. C. -36- Thomas R. Powers, Formerly Chairman of the Board, President and Chief Executive Officer, TFMC; Director, West Central Advisory Board, Texas Commerce Bank; Trustee, Memorial Hospital System; Chairman of the Board of Regents of Baylor University; Member, Board of Governors, National Association of Securities Dealers, Inc.; Formerly, Chairman, Investment Company Institute; formerly, President, Houston Chapter of Financial Executive Institute. Thomas B. McDade, Chairman and Director, TransTexas Gas Company; Director, Houston Industries and Houston Lighting and Power Company; Director, TransAmerican Companies (natural gas producer and transportation); Member, Board of Managers, Harris County Hospital District; Advisory Director, Commercial State Bank, El Campo; Advisory Director, First National Bank of Bryan; Advisory Director, Sterling Bancshares; Former Director and Vice Chairman, Texas Commerce Bancshares; and Vice Chairman, Texas Commerce Bank. Compensation of the Board of Directors and Advisory Board. The following tables provide information regarding the compensation paid by the Funds and the other investment companies in the John Hancock Fund Complex to the Independent Directors and the Advisory Board members for their services for the Funds' most recently completed fiscal year. Mr. Boudreau, a non- Independent Director, and each of the officers of the Funds are interested persons of the Adviser, are compensated by the Adviser and receive no compensation from the Funds for their services. Pension or Total Compensation Retirement from all Funds in Aggregate Benefits Accrued John Hancock Compensation as Part of the Fund Complex to Directors from the Funds* Funds' Expenses* Directors** - --------- --------------- ---------------- ----------- James F. Carlin $ 8,411 $ 0 $ 60,700 William H. Cunningham 6,080 16,964 $ 69,700 Charles F. Fretz 789 0 $ 56,200 Harold R. Hiser. Jr. 0 1,099 $ 60,200 Charles L. Ladner 10,776 0 $ 60,700 Leo E. Linbeck, Jr. 25,263 0 $ 73,200 Patricia P. McCarter 10,776 0 $ 60,700 Steven R. Pruchansky 11,157 0 $ 62,700 Norman H. Smith 11,142 0 $ 62,700 John P. Toolan 56 8,340 $ 60,700 ------- ------- -------- Total $84,450 $26,403 $627,500 * Compensation made pursuant to different compensation arrangements then in effect for the fiscal year ended October 31, 1995. ** The total compensation paid by the John Hancock Fund Complex to the Independent Trustees is $627,500 as of the calendar year ended December 31, 1995. All Trustees/Directors except Messrs. Cunningham and Linbeck are Trustees/Directors of 32 funds in the John Hancock Fund Complex. Messrs. Cunningham and Linbeck are Trustees/Directors of 30 funds. -37- Pension or Total Compensation Retirement from all Funds in Aggregate Benefits Accrued John Hancock Compensation as Part of the Fund Complex to Advisory Board*** from the Funds* Funds' Expenses* Directors** - ----------------- --------------- ---------------- ----------- R. Trent Campbell $ 29,238 $ 0 $70,000 Mrs. Lloyd Bentsen 25,683 0 63,000 Thomas R. Powers 26,237 0 63,000 Thomas B. McDade 26,737 0 63,000 TOTAL $107,895 $ 0 $259,000 * For the fiscal year ended October 31, 1995. ** As of December 31, 1995. INVESTMENT ADVISORY AND OTHER SERVICES As described in the Funds' Prospectuses, the Funds receive their investment advice from the Adviser. Investors should refer to the Prospectuses for a description of certain information concerning the Funds' investment management contracts. Each of the Directors and principal officers affiliated with the Corporation who is also an affiliated person of the Adviser is named above, together with the capacity in which such person is affiliated with the Corporation and the Adviser. The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199- 7603, was organized in 1968 and has more than $16 billion in total assets under management in its capacity as investment adviser to the Funds and the other mutual funds and publicly traded investment companies in the John Hancock group of funds having a combined total of over 1,080,000 shareholders. The Adviser is a wholly-owned subsidiary of The Berkeley Financial Group, which is in turn a wholly-owned subsidiary of John Hancock Subsidiaries, Inc., which is in turn a wholly-owned subsidiary of John Hancock Mutual Life Insurance Company (the "Life Company"), one of the most recognized and respected financial institutions in the nation. With total assets under management of more than $80 billion, the Life Company is one of the ten largest life insurance companies in the United States, and carries high ratings from Standard & Poor's and A.M. Best's. Founded in 1862, the Life Company has been serving clients for over 130 years. As described in the Prospectuses, the Corporation, on behalf of each Fund, has entered into investment management contracts with the Adviser. Under each investment management contract, the Adviser provides the Funds with (i) a continuous investment program, consistent with each Fund's stated investment objective and policies, (ii) supervision of all aspects of each Fund's operations except those that are delegated to a custodian, transfer agent or other agent and (iii) such executive, administrative and clerical personnel, officers and equipment as are necessary for the conduct of their business. The Adviser is responsible for the day-to-day management of each Fund's portfolio assets. No person other than the Adviser and its directors and employees regularly furnish advice to the Funds with respect to the desirability of a Fund investing in, purchasing or selling securities. The Adviser may from time to time receive statistical or other similar factual information, and information regarding general economic factors and trends, from the Life Company and its affiliates. -38- Under the terms of the investment management contracts with the Corporation, on behalf of each Fund, the Adviser provides the Corporation with office space, equipment and supplies and other facilities required for the business of the Funds. The Adviser pays the compensation of all officers and employees of the Corporation, and pays the expenses of clerical services relating to the administration of the Funds. All expenses which are not specifically paid by the Adviser and which are incurred in the operation of the Funds including, but not limited to, (i) the fees of the Directors of the Corporation who are not "interested persons," as such term is defined in the 1940 Act (the "Independent Directors"), (ii) the fees of the members of the Corporation's Advisory Board (described above) and (iii) the continuous public offering of the shares of each Fund are borne by the Funds. As provided by the investment management contracts, each Fund pays the Adviser an investment management fee, which is accrued daily and paid monthly in arrears at the following rates of the Funds' average daily net assets: John Hancock Emerging Growth Fund Fee John Hancock Global Resources Fund (Annual Rate) Average Daily Net Assets 0.75% John Hancock Government Income Fund Fee Average Daily Net Assets (Annual Rate) The first $200 million 0.65% The next $300 million 0.625% Over $500 million 0.60% John Hancock High Yield Tax-Free Fund John Hancock High Yield Bond Fund Fee Average Daily Net Assets (Annual Rate) The first $75 million 0.625% The next $75 million 0.5625% Over $150 million 0.50% John Hancock Money Market Fund Fee Average Daily Net Assets (Annual rate) The first $500 million 0.50%* The next $250 million 0.425% The next $250 million 0.375% The next $500 million 0.35% The next $500 million 0.325% The next $500 million 0.30% Over $2.5 billion 0.275% * The Adviser has reduced the fee to 0.40% of the Fund's average daily net assets and can not reinstate the fee to 0.50% without the Directors' consent. -39- The Adviser may temporarily reduce its advisory fee or make other arrangements to reduce a Fund's expenses to a specified percentage of average daily net assets. The Adviser retains the right to re-impose the advisory fee and recover any other payments to the extent that, at the end of any fiscal year, a Fund's annual expenses fall below this limit. In the event normal operating expenses of a Fund, exclusive of certain expenses prescribed by state law, are in excess of any state limit where such Fund is registered to sell shares of common stock, the fee payable to the Adviser will be reduced to the extent of such excess and the Adviser will make any additional arrangements necessary to eliminate any remaining excess expenses. The most restrictive limit applicable to the Funds is 2.5% of the first $30,000,000 of a Fund's average daily net asset value, 2% of the next $70,000,000 of such assets and 1.5% of the remaining average daily net asset value. Pursuant to the investment management contracts, the Adviser is not liable for any error of judgment or mistake of law or for any loss suffered by a Fund in connection with the matters to which their respective contracts relate, 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 its reckless disregard of the obligations and duties under the applicable contract. The initial term of the investment management contracts expires on December 22, 1996, and will continue in effect from year to year thereafter if approved annually by a vote of a majority of the Independent Directors, cast in person at a meeting called for the purpose of voting on such approval, and by either a majority of the Directors or the holders of a majority of the affected Fund's outstanding voting securities. Each management contract may be terminated without penalty on 60 days' notice at the option of either party or by vote of a majority of the outstanding voting securities of the Fund. Each management contract terminates automatically in the event of its assignment. Securities held by a Fund may also be held by other funds or investment advisory clients for which the 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 for the Funds 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 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. Under the investment management contracts, the Funds may use the name "John Hancock" or any name derived from or similar to it only for as long as the investment management contract or any extension, renewal or amendment thereof remains in effect. If a Fund's investment management contract 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. For the period from November 1, 1994 to December 22, 1994(a) and for the fiscal years ended October 31, 1994(b), and 1993(c) advisory fees payable by the Funds to TFMC, each Fund's former investment adviser, were as follows: (1) Emerging Growth Fund - (a) $496,208 (b) $2,706,438 and (c) $1,668,514 -40- (2) Global Resources Fund - (a) $50,516 (b) $220,869 and (c) $95,411 (3) Government Income Fund - (a) $256,721(b) $1,728,997 and (c) $1,698,937 (4) High Yield Bond Fund - (a) $162,374 (b) $976,834 and (c) $777,673 (5) High Yield Tax-Free Fund - (a) $161,643 (b) $886,380 and (c) $541,737 (6) Money Market Fund - (a) $50,611 (b) $214,088 and (c) $142,298 For the period from December 22, 1994 to October 31, 1995 advisory fees payable by the Funds to the Adviser, were as follows: (1) Emerging Growth Fund - $2,978,791 (2) Global Resources Fund - $212,918 (3) Government Income Fund - $1,612,806 (4) High Yield Bond Fund - $897,349 (5) High Yield Tax-Free Fund - $830,016 (6) Money Market Fund - $221,171 During the period of December 22, 1994 to April 17, 1995, the Adviser paid subadvisory fees to Transamerica Investment Services, Inc. $147,903. Administrative Services Agreement. The Corporation, on behalf of each Fund, was a party to an administrative services agreement with TFMC (the "Services Agreement"), pursuant to which TFMC performed bookkeeping and accounting services and functions, including preparing and maintaining various accounting books, records and other documents and keeping such general ledgers and portfolio accounts as are reasonably necessary for the operation of the Funds. Other administrative services included communications in response to shareholder inquiries and certain printing expenses of various financial reports. In addition, such staff and office space, facilities and equipment was provided as necessary to provide administrative services to the Funds. The Services Agreement was amended in connection with the appointment of the Adviser as adviser to the Fund to permit services under the Agreement to be provided to the Funds by the Adviser and its affiliates. The Services Agreement was terminated during the fiscal year 1995. The following amounts for each of the following Funds for their respective periods reflect (a) the total of administrative services fees paid to TFMC ( and to the Adviser during the period December 22, 1994 to January 16, 1995): Emerging Growth Fund- For the fiscal years ended October 31, 1995, 1994 and 1993 fees paid were $34,231, $222,044, and $157,911, respectively. Global Resources Fund -For the fiscal years ended October 31, 1995, 1994 and 1993 fees paid were $9,309, $54,259 and $44,306, respectively. Government Income Fund - For the fiscal years ended October 31, 1995, 1994 and 1993 fees paid were $16,694, $132,786 , and $116,354, respectively. -41- High Yield Bond Fund -For the fiscal years ended October 31, 1995, 1994, and 1993 fees paid were $13,697, $100,822, and $82,030. High Yield Tax-Free Fund -For the fiscal years ended October 31, 1995 , 1994 and 1993 fees paid were $10,565, $88,709, and $69,485, respectively. Money Market Fund - For the fiscal years ended October 31, 1995, 1994 and 1993 fee paid were $7,517, $46,621, and $42,511, respectively. DISTRIBUTION AGREEMENT Distribution Agreement. As discussed in the Prospectuses, each Fund's shares are sold on a continuous basis at the public offering price. John Hancock Funds, a wholly-owned subsidiary of the Adviser, has the exclusive right, pursuant to the Distribution Agreement dated December 22, 1994 (the "Distribution Agreement"), to purchase shares from the Funds at net asset value for resale to the public or to broker-dealers at the public offering price. Upon notice to all broker-dealers with whom it has sales agreements ("Selling Brokers"), John Hancock Funds may allow such Selling Brokers up to the full applicable sales charge during periods specified in such notice. During these periods, such Selling Brokers may be deemed to be underwriters as that term is defined in the Securities Act of 1933. The Distribution Agreement was initially adopted by the affirmative vote of the Corporation's Board of Directors including the vote of a majority of Directors who are not parties to the agreement or interested persons of any such party, cast in person at a meeting called for such purpose. The Distribution Agreement shall continue in effect with respect to each Fund until December 22, 1996 and from year to year if approved by either the vote of the Fund's shareholders or the Board of Directors including the vote of a majority of the Directors who are not parties to the agreement or interested persons of any such party, cast in person at a meeting called for such purpose. The Distribution Agreement may be terminated at any time as to one or more of the Funds, without penalty, by either party upon sixty (60) days' written notice or by a vote of a majority of the outstanding voting securities of the affected Fund and terminates automatically in the case of an assignment by John Hancock Funds. For the fiscal year ended October 31, 1995, the following amounts for each of Emerging Growth and High Yield Bond Fund reflect (a) the total underwriting commissions for sales of the Fund's Class A shares and (b) the portion of such amount retained by the Fund's distributor, John Hancock Funds Inc. and the former distributor, Transamerica Fund Distributors, Inc. In each case, the remainder of such underwriting commissions was reallowed to dealers. Emerging Growth Fund (a) $604,527 and (b) $67,705 High Yield Bond Fund (a) $239,238 and (b) $19,285 Global Resources Fund (a) $13,467 and (b) $2,273 High Yield Tax Free Fund (a) $118,032 and (b) $15,719 Government Income Fund (a) $35,314 and (b) $6,442 -42- Distribution Plans. The Board of Directors approved distribution plans pursuant to Rule 12b-1 under the 1940 Act for Class A Shares ("Class A Plans") and Class B Shares ("Class B Plans") of each Fund. Such Plans were approved by a majority of the outstanding shares of each respective class of each Fund (except for the Class A Plan for Money Market Fund) on December 16, 1994 and became effective on December 22, 1994. The Class A Plan for Money Market Fund was approved by the sole shareholder of the Class A shares of the Fund on September 12, 1995 and became effective on September 12, 1995. Under each Class A Plan, the distribution or service fee will not exceed an annual rate of 0.25% of the average daily net asset value of the Class A shares of a Fund (determined in accordance with the Fund's Prospectus as from time to time in effect). Money Market Fund has determined that it will pay distribution and service fees of 0.15% to John Hancock Funds but may in the future determine to pay up to 0.25% under the Class A Plan. Any expenses under the Class A Plan not reimbursed within 12 months of being presented to the Fund for repayment are forfeited and not carried over to future years. Under each Class B Plan, the distribution or services fee to be paid by the applicable Fund will not exceed an annual rate of 1.00% of the average daily net assets of the Class B shares of the Fund (in each case, determined in accordance with such Fund's prospectus as from time to time in effect); provided that the portion of such fee used to cover Service Expenses (described below) shall not exceed an annual rate of 0.25% of the average daily net asset value of the Class B Shares of the Fund. In accordance with generally accepted accounting principles, the Fund does not treat unreimbursed distribution expenses attributable to Class B shares as a liability of the Fund and does not reduce the current net assets of Class B by such amount although the amount may be payable under the Class B Plan in the future. Under the Plans, expenditures shall be calculated and accrued daily and paid monthly or at such other intervals as the Directors shall determine. The fee may be spent by John Hancock Funds on Distribution Expenses or Service Expenses. "Distribution Expenses" include any activities or expenses primarily intended to result in the sale of shares of the relevant class of the Fund, including, but not limited to: (i) initial and ongoing sales compensation payable out of such fee as such compensation is received by John Hancock Funds or by Selling Brokers, (ii) direct out-of-pocket expenses incurred in connection with the distribution of shares, including expenses related to printing of prospectuses and reports; (iii) preparation, printing and distribution of sales literature and advertising material; (iv) an allocation of overhead and other branch office expenses of John Hancock Funds related to the distribution of Fund Shares; (v) distribution expenses that were incurred by the Fund's former distributor and not recovered through payments under the Class A or Class B former plans or through receipt of contingent deferred sales charges ("CDSCs"); and (vi) in the event that any other investment company (the "Acquired Fund") sells all or substantially all of its assets, merges with or otherwise engages in a combination with the Fund, distribution expenses originally incurred in connection with the distribution of the Acquired Fund's shares. Service Expenses under the Plans include payments made to, or on account of, account executives of selected broker-dealers (including affiliates of John Hancock Funds) and others who furnish personal and shareholder account maintenance services to shareholders of the relevant class of the Fund. During the fiscal year ended October 31, 1995, the Funds paid the Distributors the following amounts of expenses with respect to the Class A shares and Class B shares of each of the Funds: -43-
Expense Items Interest, Printing and Mailing Carrying or of Prospectuses to Compensation to Expenses of Other Finance Advertising New Shareholders Selling Brokers John Hancock Funds Charges Money Market Fund Class A Shares Class B Shares 0 0 $ 7,724 $ 6,107 NONE $ 5,434 $6,766 $ 226,733 $ 3,472 $ 203,757 Global Resources Fund Class A Shares $ 2,777 $ 157 $ 934 $ 4,414 NONE Class B Shares $19,510 $9,541 $ 112,225 $ 48,249 $ 116,252 Government Income Fund $18,322 $5,106 $ 65,653 $ 58,444 NONE $41,081 $3,224 $ 985,054 $153,626 $1,109,310 Class A Shares Class B Shares High Yield Bond Fund Class A Shares $ 11,193 $ 1,229 $ 3,830 $ 30,680 NONE Class B Shares $113,854 $10,183 $ 529,660 $365,331 $ 601,737 Emerging Growth Fund Class A Shares $ 60,215 $ 6,025 $ 86,447 $205,221 NONE Class B Shares $191,492 $22,622 $1,142,644 $690,198 $1,093,651 High Yield Tax Free Class A Shares $ 5,882 $ 1,187 $ 5,714 $ 24,657 NONE Class B Shares $62,187 $ 6,679 $ 525,782 $258,750 $ 666,273
Each of the Plans provides that it will continue in effect only so long as its continuance is approved at least annually by a majority of both the Directors and the Independent Directors. Each of the Plans provides that it may be terminated without penalty (a) by vote of a majority of the Independent Directors, (b) by a majority of the respective Class' outstanding voting securities upon 60 days' written notice to John Hancock Funds, and (c) automatically in the event of assignment. Each of the Plans further provides that it 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 of the Plans provides that no material amendment to the Plan will, in any event, be effective unless it is approved by a majority vote of the Directors and the Independent Directors of the Corporation. The holders of Class A Shares and Class B Shares have exclusive voting rights with respect to the Plan applicable to their respective class of shares. In adopting the Plans, the Board of Directors has determined that, in their judgment, there is a reasonable likelihood that each Plan will benefit the holders of the applicable class of shares of the affected Fund. Information regarding the services rendered under the Plans and the Distribution Agreement and the amounts paid therefore by the respective Class of the Funds are provided to, and reviewed by, the Board of Directors on a quarterly basis. In its quarterly review, the Board of Directors considers the continued appropriateness of the Plans and the Distribution Agreement and the level of compensation provided therein. -44- NET ASSET VALUE For purposes of calculating the net asset value ("NAV") of the shares of the Funds, the following procedures are utilized wherever applicable. Debt investment securities are valued on the basis of valuations furnished by a principal market maker or a pricing service, both of which generally utilize electronic data processing techniques to determine valuations for normal institutional size trading units of debt securities without exclusive reliance upon quoted prices. Equity securities traded on a principal exchange or NASDAQ National Market Issues are generally valued at last sale price on the day of valuation. Securities in the aforementioned category for which no sales are reported and other securities traded over-the-counter are generally valued at the mean between the current closing bid and asked prices. Short-term debt investments which have a remaining maturity of 60 days or less are generally valued at amortized cost which approximates market value. If market quotations are not readily available or if in the opinion of the Adviser any quotation or price is not representative of true market value, the fair value of the security may be determined in good faith in accordance with procedures approved by the Directors. 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. The Funds will not price their securities on the following national holidays: New Year's Day; Presidents' Day; Good Friday; Memorial Day; Independence Day; Labor Day; Thanksgiving Day; and Christmas Day. 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, a 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. Amortized Cost Method of Portfolio Valuation Money Market Fund utilizes the amortized cost valuation method of valuing portfolio instruments in the absence of extraordinary or unusual circumstances. Under the amortized cost method, assets are valued by constantly amortizing over the remaining life of an instrument the difference between the principal amount due at maturity and the cost of the instrument to the Fund. The Directors will from time to time review the extent of any deviation of the net asset value, as determined on the basis of the amortized cost method, from net asset value as it would be determined on the basis of available market quotations. If any deviation occurs which may result in unfairness either to new investors or existing shareholders, the Directors will take such actions as they deem appropriate to eliminate or reduce such unfairness to the extent reasonably practicable. These actions may include selling portfolio instruments prior to maturity to realize gains or losses or to shorten the Fund's average portfolio maturity, withholding dividends, splitting, combining or otherwise recapitalizing outstanding shares or utilizing available market quotations to determine net asset value per share. Since a dividend is declared to shareholders each time net asset value is determined, the net asset value per share of each class of the Money Market Fund will normally remain constant at $1.00 per share. There is no assurance that the Fund can maintain the $1.00 per share value. Monthly, any increase in the value of a shareholder's investment in either class from dividends is reflected -45- as an increase in the number of shares of such class in the shareholder's account or is distributed as cash if a shareholder has so elected. It is expected that the Fund's net income will be positive each time it is determined. However, if because of a sudden rise in interest rates or for any other reason the net income of the Fund determined at any time is a negative amount, the Fund will offset the negative amount against income and accrued during the month for each shareholder account. If at the time of payment of a distribution such negative amount exceeds a shareholder's portion of accrued income, the Fund may reduce the number of its outstanding shares by treating the shareholder as having contributed to the capital of the Fund that number of full or fractional shares which represent the amount of excess. By investing in either class of shares of the Fund, shareholders are deemed to have agreed to make such a contribution. This procedure permits the Fund to maintain its net asset value at $1.00 per share. If in the view of the Directors it is inadvisable to continue the practice of maintaining net asset value at $1.00 per share, the Directors reserve the right to alter the procedures for determining net asset value. The Fund will notify shareholders of any such alteration. The Fund is permitted to redeem shares of either class in kind. Nevertheless, the Fund has filed with the Securities and Exchange Commission a notification of election committing itself to pay in cash on redemption by a shareholder of record, limited during any 90-day period to the lesser of $250,000 or 1% of the net asset value of the Fund at the beginning of such period. The Fund will not price its securities on the following national holidays: New Year's Day; President's Day; Good Friday; Memorial Day; Independence Day; Labor Day; Thanksgiving Day and Christmas Day. INITIAL SALES CHARGE ON CLASS A SHARES Class A shares of the Funds (except for Money Market 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"). Class A shares of Money Market Fund will be sold at their net asset value without a sales charge. Share certificates will not be issued unless requested by the shareholder in writing, and then only will be issued for full shares. The Directors reserve the right to change or waive a Fund's minimum investment requirements and to reject any order to purchase shares (including purchase by exchange) when in the judgment of the Adviser such rejection is in the Fund's best interest. The sales charges applicable to purchases of Class A shares of the Funds are described in each Fund's Prospectus. Methods of obtaining reduced sales charges referred to generally in the Prospectuses are described in detail below. In calculating the sales charge applicable to current purchases of Class A shares, 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, or if Investor 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. Combined Purchases. In calculating the sales charge applicable to purchases of Class A shares made at one time, the purchases will be combined if made by (a) an individual, his or her spouse and their children under the age of 21 purchasing securities for his or her own account, (b) a trustee or other fiduciary purchasing for a single trust, estate or fiduciary account and (c) certain groups of four or more individuals making use of salary deductions or similar group methods of payment whose funds are combined for the purchase of mutual fund shares. Further information -46- about combined purchases, including certain restrictions on combined group purchases, is available from Investor Services or a Selling Broker's representative. Without Sales Charge. As described in the Prospectuses, Class A shares of the Funds may be sold without a sales charge to persons described in the Prospectuses. 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 then being invested but also the purchase price or value of the Class A shares already held by such person. Combination Privilege. Reduced sales charges (according to the schedule set forth in the Prospectuses) also are available to an investor based on the aggregate amount of his concurrent and prior investments in Class A shares of a Fund and shares of all other John Hancock funds which carry a sales charge. Letter of Intention. The reduced sales loads are also applicable to investments made over a specified period pursuant to a Letter of Intention (LOI), which should be read carefully prior to its execution by an investor. Each Fund (other than Money Market 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 qualified retirement plan, however, may opt to make the necessary investments called for by the LOI over a forty-eight (48) month period. These qualified retirement plans include IRA's, SEP, SARSEP, TSA, 401(k) plans, TSA plans and Section 457 plans. Such an investment (including accumulations and combinations) must aggregate $100,000 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 Investor Services ($50,000 in the case of Emerging Growth Fund and Global Resources Fund). The sales charge applicable to all amounts invested under the LOI is computed as if the aggregate amount intended to be invested had been invested immediately. If such aggregate amount is not actually invested, the difference in the sales charge actually paid and the sales charge payable had the LOI not been in effect is due from the investor. However, for the purchases actually made with the specified period (either 13 or 48 months), the sales charge applicable will not be higher than that which would have been applied (including accumulations and combinations) had the LOI been for the amount actually invested. The LOI authorizes Investor 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 escrow shares will be released. If the total investment specified in the LOI is not completed, the Class A shares held in escrow may be redeemed and the proceeds used as required to pay such sales charges as may be due. By signing the LOI, the investor authorizes Investor Services to act as his attorney-in-fact to redeem any escrowed shares and adjust the sales charge, if necessary. A LOI does not constitute a binding commitment by an investor to purchase, or by a Fund to sell, any additional shares and may be terminated at any time. DEFERRED SALES CHARGE ON CLASS B SHARES Investments in Class B shares are purchased at net asset value per share without the imposition of a sales charge so that the Fund will receive the full amount of the purchase payment. -47- Contingent Deferred Sales Charge. Class B shares which are redeemed within six years of purchase will be subject to a CDSC at the rates set forth in the Funds' respective Prospectuses 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 shares being redeemed. Accordingly, no CDSC will be imposed on increases in account value above the initial purchase prices, including Class B shares derived from reinvestment of dividends or capital gains distributions. 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 shares, all payments during a month will be aggregated and deemed to have been made on the last day of the month. Class B shares of Money Market Fund, not purchased directly, will be subject upon redemption to the CDSC set forth in the Prospectus of the John Hancock fund from which the investor initially exchanged his/her shares. 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 shares, such as the payment of compensation to select Selling Brokers for selling Class B shares. The combination of the CDSC and the distribution and service fees facilitates the ability of the Fund to sell the Class B shares without a sales charge being deducted at the time of the purchase. See the Prospectuses for additional information regarding the CDSC. 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 Directors. When the shareholder sells portfolio securities received in this fashion, he would incur a brokerage charge. Any such security would be valued for the purpose of making such payment at the same value as used in determining the Fund's net asset value. Each Fund has elected to be governed by Rule 18f-1 under the 1940 Act, pursuant to which the Fund is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the net asset value of the Fund during any 90- day period for any one account. ADDITIONAL SERVICES AND PROGRAMS Exchange Privilege. As described more fully in the Prospectuses, the Funds permit exchanges of shares of any class for shares of the same class in any other John Hancock fund offering that class. Systematic Withdrawal Plan. As described briefly in the Prospectuses, the Funds permit the establishment of a Systematic Withdrawal Plan. Payments under this plan represent proceeds arising from the redemption of Fund shares. Since the redemption price of Fund shares may be more or less than the shareholder's cost, depending upon the market value of the securities owned by the Fund at the time of redemption, the distribution of cash pursuant to this plan 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 Class A (except with respect to the Money Market Fund) or Class B shares of a 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 shares and because redemptions are taxable events. Therefore, a shareholder should not purchase Fund shares at the same time as a Systematic Withdrawal Plan is in effect. Each Fund reserves the right to modify or discontinue the -48- 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 Investor Services. Monthly Automatic Accumulation Program ("MAAP"). This program is explained fully in each Fund's Prospectus and the Account Privileges Application. 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 Monthly Automatic Accumulation Program may be revoked by Investor 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 Investor Services or upon written notice to Investor Services which is received at least five (5) business days prior to the due date of any investment. Reinvestment Privilege. 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 mutual 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 another John Hancock mutual fund. If a CDSC was paid upon a redemption, a shareholder may reinvest the proceeds from that redemption at net asset value in additional shares of the class from which the redemption was made. The shareholder's account will be credited with the amount of any CDSC charged upon the prior redemption and the new shares will continue to be subject to the CDSC. The holding period of the shares acquired through reinvestment will, for purposes of computing the CDSC payable upon a subsequent redemption, include the holding period of the redeemed shares. The Fund may modify or terminate the reinvestment privilege 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." DESCRIPTION OF THE CORPORATION'S SHARES Each Fund operates as one series of the Corporation. All shares of stock of the Corporation ($.01 par value per share) have equal voting rights among shares of the same series (except that each class of shares within a series has sole voting rights with respect to matters solely affecting that class). On September 12, 1995, the Corporation's Articles of Incorporation were amended to increase the authorized common stock of the Corporation from 375,000,000 to 2,500,000,000 shares of Class A Common Stock, from 625,000,000 to 3,000,000,000 shares of Class B Common Stock; and from 0 to 1,000,000,000 shares of Class S Common Stock. No shares of any series or class have pre- emptive or conversion rights. Each series of shares represents interests in a separate portfolio of investments. Each is entitled to all income and gains (or losses) and bears all of the expenses associated with the operations of that portfolio except that each class of a series bears its own distribution expenses. Common expenses of the Corporation are allocated among the series, based upon the respective net assets or ratably or a combination of both whichever is more appropriate, of each series. -49- The Board of Directors is authorized to create additional series of shares and classes within any series at any time without approval by shareholders. Six series of shares representing interests in the Corporation are presently authorized. Each share of each series or class of the Corporation represents an equal proportionate interest with each other share in that series or class, none having priority or preference over other shares of the same series or class. The interest of investors in the various series or classes of the Corporation is separate and distinct. All consideration received for the sales of shares of a particular series or class of the Corporation, all assets in which such consideration is invested and all income, earnings and profits derived from such investments will be allocated to and belong to that series or class. As such, each share is entitled to dividends and distributions out of the net income belonging to that series or class as declared by the Board of Directors. The assets of each series are charged with the liabilities of that series and with a share of the Corporation's general liabilities. The Board of Directors determines those assets and liabilities deemed to be general assets or liabilities of the Corporation, and these items are allocated among each series in proportion to the relative total net assets of each series. In the unlikely event that the liabilities allocable to a series exceed the assets of that series, the amount to be deemed available for distribution to each affected series shall be determined by the Board of Directors in order to effect an equitable allocation among each series of the Corporation. The directors of the Corporation have authorized the issuance of two classes of common stock for each Fund, designated as Class A and Class B shares, and, in the case of the Money Market Fund has authorized the issuance of a third class of common stock, designated as Class S shares. Class A, Class B shares and, in the case of Money Market Fund, Class S shares each represent an interest in the same assets of the respective Funds and are identical in all respects except that each class bears certain expenses related to the distribution of such shares and certain expenses related to transfer agency services. Class S shares of Money Market Fund are available exclusively to investors who maintain brokerage accounts with certain brokers who offer shares of Money Market Fund as part of a sweep account arrangement. Class S shares of Money Market Fund are not subject to a sales charge on purchases, redemptions or reinvested dividends, nor are they subject to deferred sales charges or an exchange fee. The holders of Class A and Class B shares and, in the case of Money Market Fund, Class S shares have certain exclusive voting rights on matters relating to their respective distribution plans. The different classes of the Funds may bear different expenses relating to the cost of holding shareholder meetings necessitated by the exclusive voting rights of any class of shares. The Directors of the Corporation may classify and reclassify the shares of all Funds into additional classes of common stock at a future date. Voting Rights. Each shareholder of the Corporation is entitled to a full vote for each full share held (and fractional votes for fractional shares). Shareholders of each series or class vote separately from other shareholders of the Corporation with respect to all matters which affect solely the interests of that series or class. After Directors have been elected by shareholders, they will continue to serve indefinitely and they may appoint their own successors, provided that always at least a majority of the Directors have been elected by the Corporation's shareholders. The voting rights of stockholders are not cumulative, so that the holders of more than 50 percent of the shares voting can, if they choose, elect all Directors being selected, while the holders of the remaining shares would be unable to elect any Directors. It is the intention of the Corporation not to hold annual meetings of shareholders. The Directors may call annual or special meetings of shareholders of the Corporation or any class of a series for action by shareholder vote as may be required by the Investment Company Act of 1940. Pursuant to an undertaking to the Securities and Exchange Commission, the Corporation will call a meeting of shareholders for any purpose, including voting to remove one or more Directors, on the written request of the holders of at least -50- 10% of the outstanding shares of the Corporation. The Funds, under certain circumstances, will assist shareholders with communications including shareholder proposals. Director and Officer Liability. Under the Corporation's Articles of Incorporation and the Maryland General Corporation Law, the directors, officers, employees and agents of the Corporation are entitled to indemnification under certain circumstances against liabilities, claims and expenses arising from any threatened, pending or completed action, suit or proceeding to which they are made parties by reason of the fact that they are or were such directors, officers, employees or agents of the Corporation except as such liability may arise from their own bad faith, willful misfeasance, gross negligence or reckless disregard of duties. The Corporation is not required to issue stock certificates. The Corporation shall continue without limitation of time subject to the provisions in the Articles of Incorporation concerning termination by action of the shareholders. TAX STATUS Each Fund is treated as a separate entity for accounting and tax purposes. Each Fund has qualified and elected to be treated as a "regulated investment company" under Subchapter M of 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, each Fund will not be subject to Federal income tax on taxable income (including net realized capital gains) which is distributed to shareholders at least annually in accordance with the timing requirements of the Code. Each Fund will be subject to a 4% non-deductible Federal excise tax on certain amounts not distributed (and not treated as having been distributed) on a timely basis in accordance with annual minimum distribution requirements. Each Fund intends under normal circumstances to avoid liability for such tax by satisfying such distribution requirements. Distributions from a Fund's current or accumulated earnings and profits ("E&P"), as computed for Federal income tax purposes, will be taxable as described in such Fund's Prospectus whether taken in shares or in cash. Distributions, if any, in excess of E&P will constitute a return of capital, which will first reduce an investor's tax basis in Fund shares and thereafter (after such basis is reduced to zero) will generally give rise to capital gains. Shareholders electing to receive distributions in the form of additional shares will have a cost basis for Federal income tax purposes in each share so received equal to the amount of cash they would have received had they elected to receive the distributions in cash, divided by the number of shares received. Distributions of tax-exempt interest ("exempt-interest dividends") timely designated as such by High Yield Tax-Free Fund will be treated as tax-exempt interest under the Code, provided that such Fund qualifies as a regulated investment company and at least 50% of the value of its assets at the end of each quarter of its taxable year is invested in tax-exempt obligations. Shareholders are required to report their receipt of tax-exempt interest, including such distributions, on their Federal income tax returns. The portion of High Yield Tax-Free Fund's distributions designated as exempt- interest dividends may differ from the actual percentage that its tax-exempt income comprised of its total income during the period of any particular shareholder's investment. High Yield Tax-Free Fund will report to shareholders the amount designated as exempt-interest dividends for each year. Interest income from certain types of tax-exempt bonds that are private activity bonds in which High Yield Tax-Free Fund may invest is treated as an item of tax preference for purposes of the Federal alternative minimum tax. To the extent that High Yield Tax-Free Fund invests in -51- these types of tax- exempt bonds, shareholders will be required to treat as an item of tax preference for Federal alternative minimum purposes that part of such Fund's exempt-interest dividends which is derived from interest on these tax-exempt bonds. Exempt-interest dividends derived from interest income from all tax- exempt bonds may be included in corporate "adjusted current earnings" for purposes of computing the alternative minimum tax liability, if any, of corporate shareholders of High Yield Tax-Free Fund. If Global Resources Fund or Emerging Growth Fund acquires stock in certain non- U.S. corporations that receive at least 75% of their annual gross income from passive sources (such as interest, dividends, rents, royalties or capital gain) or hold at least 50% of their assets in investments producing such passive income ("passive foreign investment companies"), that 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. Certain elections may, if available, ameliorate these adverse tax consequences, but any such election would require the applicable Fund to recognize taxable income or gain without the concurrent receipt of cash. Any Fund that is permitted to acquire stock in foreign corporations may limit and/or manage its holdings in passive foreign investment companies to minimize its tax liability or maximize its return from these investments. Foreign exchange gains and losses realized by Emerging Growth Fund, Global Resources Fund, Government Income Fund or High Yield Bond Fund in connection with certain transactions involving foreign currency-denominated debt securities, certain foreign currency futures and options, foreign currency forward contracts, foreign currencies, or payables or receivables denominated in a foreign currency are subject to Section 988 of the Code, which generally causes such gains and losses to be treated as ordinary income and losses and may affect the amount, timing and character of distributions to shareholders. Any such transactions that are not directly related to a Fund's investment in stock or securities, possibly including speculative currency positions or currency derivatives not used for hedging purposes, may increase the amount of gain it is deemed to recognize from the sale of certain investments held for less than three months, which gain is limited under the Code to less than 30% of its annual gross income, and 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. Income from investments in commodities, such as gold and certain related derivative instruments, is also not treated as qualifying income under this test. 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 but after considering the post-October loss regulations (i.e., all of the Fund's net income other than any excess of net long-term capital gain over net short-term capital loss) the resulting overall ordinary loss for such year would not be deductible by the Fund or its shareholders in future years. Global Resources Fund, Emerging Growth Fund, Government Income Fund and High Yield Bond 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. Investors may be entitled to claim U.S. foreign tax credits or deductions with respect to such taxes, subject to certain provisions and limitations contained in the Code. Specifically, if more than 50% of the value of a Fund's total assets at the close of any taxable year consists of stock or securities of foreign corporations, the Fund may file an election with the Internal Revenue Service pursuant to which shareholders of the Fund will be required to (i) include in ordinary gross income (in addition to taxable dividends actually received) their pro rata shares of foreign income taxes paid by the Fund even though not actually received by them, and (ii) treat such respective pro rata portions as foreign income taxes paid by them. Global -52- Resources Fund or Emerging Growth Fund may, but the other Funds probably will not satisfy this 50% requirement. If a Fund makes this election, shareholders may then deduct such pro rata portions of foreign income taxes in computing their taxable incomes, or, alternatively, use them as foreign tax credits, subject to applicable limitations, against their U.S. Federal income taxes. Shareholders who do not itemize deductions for Federal income tax purposes will not, however, be able to deduct their pro rata portion of foreign income taxes paid by the Fund, although such shareholders will be required to include their share of such taxes in gross income. Shareholders who claim a foreign tax credit for such foreign taxes may be required to treat a portion of dividends received from the Fund as a separate category of income for purposes of computing the limitations on the foreign tax credit. Tax-exempt shareholders will ordinarily not benefit from this election. Each year that a Fund files the election described above, its shareholders will be notified of the amount of (i) each shareholder's pro rata share of foreign income taxes paid by the Fund and (ii) the portion of Fund dividends which represents income from each foreign country. A Fund that cannot or does not make this election may deduct such taxes in computing its taxable income. The amount of a 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 such Fund to dispose of portfolio securities or enter into options or futures 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, in the case of Global Resources Fund and Emerging Growth Fund, to undistributed taxable income of the Fund. Consequently, subsequent distributions from such appreciation or income may be taxable to such investor even if the net asset value of the investor's shares is, as a result of the distributions, reduced below the investor's cost for such shares, and the distributions in reality represent a return of a portion of the purchase price. Upon a redemption of shares of a Fund (including by exercise of the exchange privilege) a shareholder may realize a taxable gain or loss depending upon his basis in his shares, except that a redemption of shares of Money Market Fund may not result in a gain or loss if the Fund always successfully maintains a constant net asset value per share, although a loss may still arise if a CDSC is paid. Any 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. A sales charge paid in purchasing Class A shares of a 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. Such disregarded load 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 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 an election to reinvest dividends in additional shares. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. Any loss realized upon the redemption of shares with a tax holding period of six months or less will be disallowed (in the case of High Yield Tax-Free Fund) to the extent of all exempt-interest dividends paid with respect to such shares and, if not thus disallowed, will (in the case of any Fund) 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. Although its present intention is to distribute all net capital gains, if any, each 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 Funds will not in any event distribute net long-term capital gain realized in any year to the -53- 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. 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 income in his return for his taxable year in which the last day of such 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 such Fund, and (c) be entitled to increase the adjusted tax basis for his shares in such 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, each Fund is generally permitted to carry forward a net capital loss in any year to offset its own 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 applicable Fund and, as noted above, would not be distributed as such to shareholders. As of October 31, 1995, Emerging Growth Fund had capital loss carryforwards of $6,354,280, which will expire in 2003. As of October 31, 1995, Global Resources Fund had capital loss carryforwards of $421,721, of which $16,520 will expire in 2000, $90,341 will expire in 2002 and $314,860 will expire in 2003. As of December 31, 1995, High Yield Bond Fund had capital loss carryforwards of $20,325,151, of which $9,184,152 expires in 2002 and $11,140,999 expires in 2003, High Yield Tax- Free Fund had capital loss carryforwards of $3,699,525, of which $2,785,979 expires in 2002 and $913,546 expires in 2003 and Government Income Fund had capital loss carryforwards of $116,730,193 of which $19,146,203 expires in 1996, $6,921,927 expires in 1997, $66,593,890 expires in 2000, $6,699,901 expires in 2001, $15,347,195 expires in 2002 and $2,021,077 expires in 2003. All of the capital loss carryforwards expiring in 1996, 1997, 2000 and 2001, respectively, were acquired on September 15, 1995, in the merger with John Hancock Government Securities Trust. Their availability maybe limited in a given year. Interest on indebtedness incurred by a shareholder to purchase or carry shares of High Yield Tax-Free Fund will not be deductible for Federal income tax purposes to the extent it is deemed related to exempt-interest dividends paid by such Fund. Pursuant to published guidelines, the Internal Revenue Service may deem indebtedness to have been incurred for the purpose of purchasing or carrying shares of this Fund even though the borrowed funds may not be directly traceable to the purchase of shares. For purposes of the dividends-received deduction available to corporations, dividends received by a 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) and distributed and designated by the Fund may be treated as qualifying dividends. Only Emerging Growth Fund or Global Resources Fund may sometimes have any significant portion of its distributions treated as qualifying dividends. Corporate shareholders must meet the minimum holding period requirement stated above (46 or 91 days) with respect to their shares of the applicable Fund in order to qualify for the deduction and, if they borrow to acquire 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, for the purpose of computing its gain or loss on redemption or other disposition of the shares. -54- Each Fund that invests in certain PIKs, zero coupon securities or certain increasing rate securities (and, in general, any other securities with original issue discount or with market discount if the Fund elects to include market discount in income currently) must accrue income on such investments prior to the receipt of the corresponding cash payments. However, each Fund must distribute, at least annually, all or substantially all of its net income, including such accrued income, 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 leverage itself by borrowing the cash, to satisfy distribution requirements. Investments in debt obligations that are at risk of or are in default present special tax issues for any Fund that may hold such obligations, such as High Yield Bond Fund and High Yield Tax-Free Fund. Tax rules are not entirely clear about issues such as when the Funds 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 any Fund that may hold such obligations 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. Limitations imposed by the Code on regulated investment companies like the Funds may restrict a Fund's ability to enter into futures, options and currency forward transactions. Certain options, futures and forward foreign currency transactions undertaken by a Fund may cause such Fund to recognize gains or losses from marking to market even though its positions have not been sold or terminated and affect the character as long-term or short-term (or, in the case of certain currency forwards, options and futures, as ordinary income or loss) and timing of some capital gains and losses realized by the Fund. Also, certain of a Fund's losses on its transactions involving options, futures and forward foreign currency contracts and/or offsetting portfolio positions may be deferred rather than being taken into account currently in calculating the Fund's taxable income or gains. These transactions may therefore affect the amount, timing and character of a Fund's distributions to shareholders. Certain of the applicable tax rules may be modified if the Fund is eligible and chooses to make one or more of certain tax elections that may be available. The Funds will take into account the special tax rules (including consideration of available elections) applicable to options, futures or forward contracts in order to minimize any potential adverse tax consequences. Different tax treatment, including penalties on certain excess contributions and deferrals, certain pre-retirement and post-retirement distributions and certain prohibited transactions, is accorded to accounts maintained as qualified retirement plans. Shareholders should consult their tax advisers for more information. The foregoing discussion relates solely to U.S. Federal income tax law as applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic corporations, partnerships, trusts or estates) subject to tax under such law. The discussion does not address special tax rules applicable to certain classes 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, a Fund in their particular circumstances. -55- Non-U.S. investors not engaged in a U.S. trade or business with which their investment in a Fund is effectively connected will be subject to U.S. Federal income tax treatment that is different from that described above. These investors may be subject to nonresident alien withholding tax at the rate of 30% (or a lower rate under an applicable tax treaty) on amounts treated as ordinary dividends from a Fund and, unless an effective IRS Form W-8 or authorized substitute is on file, to 31% 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 Funds. Provided that each Fund qualifies as a regulated investment company under the Code, it will not be required to pay any Massachusetts income, corporate excise or franchise taxes. CALCULATION OF PERFORMANCE Yield (Except for the Money Market Fund). For the 30-day period ended October 31, 1995, the yields of (a) High Yield Bond Fund's Class A and Class B shares were 9.35% and 9.09%, respectively, (b) High Yield Tax-Free Fund's Class A and Class B shares were 5.78% and 5.35%, respectively and (c) Government Income Fund's Class A and Class B shares were 5.36% and 4.91%, respectively. Each Fund's yield (except for Money Market Fund) 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: Yield = 2 [(a-b + 1 )6 -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). High Yield Tax-Free Fund may advertise a tax-equivalent yield, which is computed by dividing that portion of the yield of that Fund which is tax- exempt by one minus a stated income tax rate and adding the product to that portion, if any, of the yield of the Fund that is not tax-exempt. The tax- equivalent yields for the High Yield Tax-Free Fund's Class A and Class B Shares at the 36% federal income tax rate for the 30-day period ended October 31, 1995 were 9.03% and 8.36%, respectively. Money Market Fund Yield. For the purposes of calculating yield for both classes of Money Market Fund, daily income per share consists of interest and discount earned on the Fund's investments less provision for amortization of premiums and applicable expenses, divided by the number of shares outstanding, but does not include realized or unrealized appreciation or depreciation. -56- In any case in which the Fund reports its annualized yield, it will also furnish information as to the average portfolio maturities of the Fund. It will also report any material effect of realized gains or losses or unrealized appreciation on dividends which have been excluded from the computation of yield. Yield calculations are based on the value of a hypothetical preexisting account with exactly one share at the beginning of the seven day period. Yield is computed by determining the net change in the value of the account during the base period and dividing the net change by the value of the account at the beginning of the base period to obtain the base period return. Base period is multiplied by 365/7 and the resulting figure is carried to the nearest 100th of a percent. Net change in account value during the base period includes dividends declared on the original share, dividends declared on any shares purchased with dividends of that share and any account or sales charges that would affect an account of average size, but excludes any capital changes. Effective yield is computed by determining the net change, exclusive of capital changes, in the value of a hypothetical preexisting account having a balance of one share at the beginning of the period, subtracting a hypothetical charge reflecting deductions from shareholder accounts, and dividing the difference by the value of the account at the beginning of the base period to obtain the base period return, and then compounding the base period return by adding 1, raising the sum to a power equal to 365 divided by 7, and subtracting 1 from the result, according to the following formula: EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)365/7]-1 The yield of the Fund is not fixed or guaranteed. Yield quotations should not be considered to be representations of yield of the Fund for any period in the future. The yield of the Fund is a function of available interest rates on money market instruments, which can be expected to fluctuate, as well as of the quality, maturity and types of portfolio instruments held by the Fund and of changes in operating expenses. The Fund's yield may be affected if, through net sales of its shares, there is a net investment of new money in the Fund which the Fund invests at interest rates different from that being earned on current portfolio instruments. Yield could also vary if the Fund experiences net redemptions, which may require the disposition of some of the Fund's current portfolio instruments. Total Return. Average annual total return is determined separately for each class of shares. Set forth below are tables showing the performance on a total return basis (i.e., with all dividends and distributions reinvested) of a hypothetical $1,000 investment in the Class A and Class B shares of the Global Resources, Government Income, High Yield Bond, High Yield Tax-Free and Emerging Growth Fund. The performance information for each Fund is stated for the fiscal year ended October 31, 1995 and for the five year period ended October 31, 1995 with respect to the Class B shares of each Fund for the one year period of Class A shares of each Fund and for the period from the commencement of operations (indicated by an asterisk), or the ten year period, of the Class A and Class B shares of each Fund to October 31, 1995. -57- Global Resources Fund Class A Shares Class A Shares Class B Shares Class B Shares Class B Shares One Year Ended 6/15/94* to One Year Ended Five Years Ended 10/31/87* to 10/31/95 10/31/95 10/31/95 10/31/95 10/31/95 (14.84%) (7.87%) (15.49%) 4.43% 7.39% Government Income Fund Class A Shares Class A Shares Class B Shares Class B Shares Class B Shares One Year Ended 9/30/94* to One Year Ended Five Years Ended 2/23/88* to 10/31/95 10/31/95 10/31/95 10/31/95 10/31/95 10.13% 8.15% 9.47% 7.64% 7.27% High Yield Bond Fund Class A Shares Class A Shares Class B Shares Class B Shares Class B Shares One Year Ended 6/30/93* to One Year Ended Five Years Ended 10/26/87* to 10/31/95 10/31/95 10/31/95 10/31/95 10/31/95 3.85% 3.54% 2.94% 13.95% 8.13% High Yield Tax-Free Fund Class A Shares Class A Shares Class B Shares Class B Shares Class B Shares One Year Ended 12/31/93* to One Year Ended Five Years Ended 8/29/86* to 10/31/95 10/31/95 10/31/95 10/31/95 10/31/95 9.61% 2.39% 8.96% 7.72% 6.71% Emerging Growth Fund Class A Shares Class A Shares Class B Shares Class B Shares Class B Shares One Year Ended 8/22/91* to One Year Ended Five Years Ended 10/26/87* to 10/31/95 10/31/95 10/31/95 10/31/95 10/31/95 27.84% 16.53% 28.60% 25.69% 21.43% * Commencement of operations. Total Return. Each Fund's total return is computed by finding the average annual compounded rate of return over the 1-year, 5-year, and 10-year periods that would equate the initial amount invested to the ending redeemable value according to the following formula: P(1+T)n = ERV -58- 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 investment made at the beginning of the 1-year and life-of-fund periods. In the case of Class A shares or Class B shares, this calculation assumes the maximum sales charge is included in the initial investment or the CDSC is applied at the end of the period. This calculation also assumes 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 a Fund during the period stated by the maximum offering price or net asset value at the end of the period. The total return in the case of Class B shares of each Fund is calculated by determining the net asset value of all shares held at the end of the period for each share held from the beginning of the period (assuming reinvestment of all dividends and distributions at net asset value during the period and the deduction of any applicable contingent deferred sales charge as if the shares were redeemed at the end of the period), subtracting the maximum offering price per share (net asset value per share) at the beginning of such period and then dividing the result by the maximum offering price per share (net asset value per share) at the beginning of the same period. Total return for Class A shares of each of Emerging Growth Fund, Global Resources Fund, Government Income Fund, High Yield Bond Fund and High Yield Tax-Free Fund is calculated in the same manner except the maximum offering price reflects the deduction of the maximum initial sales charge and the redemption value is at net asset value. In addition to average annual total returns, a 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 maximum sales charge on Class A shares or the CDSC on Class B shares into account. A Fund's "distribution rate" is determined by annualizing the result of dividing the declared dividends of the Fund during the stated period by the maximum offering price or net asset value at the end of the period. Excluding a Fund's sales charge on Class A shares and the CDSC on Class B shares from a total return calculation produces a higher total return figure. From time to time, in reports and promotional literature, a 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 as the Russell and Wilshire Indices. Performance rankings and ratings reported periodically in national financial publications such as MONEY MAGAZINE, FORBES, BUSINESS WEEK, THE WALL STREET JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRON'S, etc. will also be utilized. A Fund's promotional and sales literature may make reference to the Fund's "beta." Beta reflects the market-related risk of the Fund by showing how responsive the Fund is to the market. The performance of a Fund is not fixed or guaranteed. Performance quotations should not be considered to be representations of performance of a Fund for any period in the future. The -59- 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 and officers of the Corporation pursuant to recommendations made by its investment committee, which consists of officers and directors of the Adviser and affiliates and officers and Directors who are interested persons of the Funds. Orders for purchases and sales of securities are placed in a manner which, in the opinion of the Adviser, will offer the best price and market for the execution of each such transaction. Purchases from underwriters of portfolio securities may include a commission or commissions paid by the issuer and transactions with dealers serving as market makers 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 such transactions. Each 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. This policy governs the selection of brokers and dealers and the market in which a transaction is executed. Consistent with the foregoing primary policy, the Rules of Fair Practice of the NASD and other policies that the Directors may determine, the Adviser may consider sales of shares of the Funds as a factor in the selection of broker-dealers to execute a Fund's portfolio transactions. Purchase of securities for Government Income Fund, High Yield Bond Fund and High Yield Tax-Free Fund are normally principal transactions made directly from the issuer or from an underwriter or market maker for which no brokerage commissions are usually paid. Purchases from underwriters will include a commission or concession paid by the issuer to the underwriter, and purchases and sales from dealers serving as market makers will usually include a mark up or mark down. Purchases and sales of options and futures will be effected through brokers who charge a commission for their services and are reflected in amounts for Government Income Fund and High Yield Bond Fund below. To the extent consistent with the foregoing, each 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, and their value and expected contribution to the performance of the Fund. 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 receipt of research information is not expected to reduce significantly the expenses of the Adviser. 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 Funds. The Funds will make no commitments to allocate portfolio transactions upon any prescribed basis. While the Adviser's officers will be primarily responsible for the allocation of each Fund's brokerage business, their 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 Directors. -60- Brokerage commissions of those Funds which pay such commissions for their respective reporting periods, as follows, amounted to: Emerging Growth Fund - (a) $263,019 for the fiscal year ended October 31, 1995; (b) $318,023 for the fiscal year ended October 31, 1994; and (c) $330,454 for the fiscal year ended October 31, 1993. Global Resources Fund - (a) $214,507 for the fiscal year ended October 31, 1995; (b) $148,469 for the fiscal year ended October 31, 1994; and (c) $54,463 for the fiscal year ended October 31, 1993. Government Income Fund - (a) $15,814 for the fiscal year ended October 31, 1995; (b) $96,931 for the fiscal year ended October 31, 1994; and (c) $254,859 for the fiscal year ended October 31, 1993. High Yield Bond Fund - (a) $40,228 for the fiscal year ended October 31, 1995; (b) $2,320 for the fiscal year ended October 31, 1994; and (c) $13,320 for the fiscal year ended October 31, 1993. High Yield Tax Free Fund - (a) $6,650 for the fiscal year ended October 31, 1995, no commissions were paid for 1994 and 1993. 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 Directors that the price is reasonable in light of the services provided and to policies that the Directors may adopt from time to time. During the fiscal year ended October 31, 1995, John Hancock Emerging Growth Fund directed commissions in the amount of $10,036 and John Hancock Global Resources Fund directed commissions in the amount of $4,542 to compensate brokers for research services such as industry, economic and company reviews and evaluations of securities. The Adviser's indirect parent, the Life Company, is the indirect sole shareholder of John Hancock Freedom Securities Corporation and its subsidiaries, three of which, Tucker Anthony Incorporated ("Tucker Anthony") John Hancock Distributors, Inc. ("John Hancock Distributors") and Sutro & Company, Inc. ("Sutro"), are broker-dealers ("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 Tucker Anthony, Sutro or John Hancock Distributors. During the year ended October 31, 1995, the Fund did not execute any portfolio transactions with then affiliated brokers. Any of the Affiliated Brokers may act as broker for a Fund on exchange transactions, subject, however, to the general policy of the Fund set forth above and the procedures adopted by the Directors pursuant to the 1940 Act. Commissions paid to an Affiliated Broker must be at least as favorable as those which the Directors 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 a clearing broker for another brokerage firm, and any customers of the Affiliated Broker not comparable to a Fund as determined by a majority of the Directors who are not "interested persons" (as defined in the 1940 Act) of the Funds, the Adviser or the Affiliated Brokers. Because the Adviser, which is affiliated with the Affiliated Brokers, has, as an investment adviser to the Fund, the obligation to provide investment -61- management services, which includes elements of research and related investment skills, such research and related skills will not be used by the Affiliated Brokers as a basis for negotiating commissions at a rate higher than that determined in accordance with the above criteria. The Funds will not effect principal transactions with Affiliated Brokers. The Funds may, however, purchase securities from other members of underwriting syndicates of which Tucker Anthony and Sutro are members, but only in accordance with the policy set forth above and procedures adopted and reviewed periodically by the Directors. Brokerage or other transactions costs of a Fund are generally commensurate with the rate of portfolio activity. The portfolio turnover rates for each of the following Funds for (a) the fiscal year ended October 31, 1995 and (b) the fiscal year ended October 31, 1994 were: Emerging Growth Fund - (a) 23% and (b) 25%. Global Resources Fund - (a) 101% and (b) 96%. Government Income Fund - (a) 102% and (b) 92%. High Yield Bond Fund - (a) 98% and (b) 153%*. High Yield Tax-Free Fund - (a) 64% and (b) 62%. * Higher turnover rates were due to volatile market conditions. TRANSFER AGENT SERVICES John Hancock Investor Services Corporation, P.O. Box 9116, Boston, MA 02205- 9116, a wholly owned indirect subsidiary of the Life Company, is the transfer and dividend paying agent for the Funds. Emerging Growth Fund and Global Resources Fund pay Investor Services monthly a transfer agent fee equal to $16 per account for the Class A Shares and $18.50 per account for the Class B shares on an annual basis, plus out-of-pocket expenses. Government Income Fund and High Yield Bond Fund pay Investor Services monthly a transfer agent fee equal to $20 per account for the Class A shares and $22.50 per account for the Class B shares on an annual basis, plus out-of-pocket expenses. High Yield Tax-Free Fund pays Investor Services monthly a transfer agent fee of $19 per account for the Class A shares and $21.50 per account for the Class B shares on an annual basis, plus out-of-pocket expenses. Money Market Fund pays Investor Services monthly a transfer agent fee of $25 per account for the Class A shares and $27 per account for the Class B shares on an annual basis, plus out-of-pocket expenses. These expenses are aggregated and charged to the Fund and allocated to each class on the basis of the relative net asset values. CUSTODY OF PORTFOLIO Portfolio securities of Money Market Fund are held pursuant to a custodian agreement between the Corporation and State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110. Portfolio securities of the Emerging Growth Fund, Global Resources Fund, Government Income Fund, High Yield Bond Fund and High Yield Tax-Free Fund are held pursuant to a custodian agreement between the Corporation and Investors Bank & Trust Company, 24 Federal Street, Boston, Massachusetts. Under the custodian agreements, the custodians perform custody, portfolio and fund accounting services. -62- INDEPENDENT AUDITORS The independent auditors of the Funds are Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts 02116. The independent auditors audit and render an opinion on the Funds' annual financial statements and prepares the Funds' annual income tax returns. The financial statements of the Funds included in the Prospectuses and this Statement of Additional Information have been audited by Ernst & Young LLP for the periods indicated in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. APPENDIX A CORPORATE AND TAX-EXEMPT BOND RATINGS Moody's Investors Service, Inc. ("Moody's) Aaa, Aa, A and Baa - Tax-exempt bonds rated Aaa are judged to be of the "best quality." The rating of Aa is assigned to bonds that are of "high quality by all standards," but long-term risks appear somewhat larger than Aaa rated bonds. The Aaa and Aa rated bonds are generally known as "high grade bonds." The foregoing ratings for tax-exempt bonds are rated conditionally. Bonds for which the security depends upon the completion of some act or upon the fulfillment of some condition are rated conditionally. These are bonds secured by (a) earnings of projects under construction, (b) earnings of projects unseasoned in operation experience, (c) rentals that begin when facilities are completed, or (d) payments to which some other limiting condition attaches. Such conditional ratings denote the probable credit stature upon completion of construction or elimination of the basis of the condition. Bonds rated A are considered as upper medium grade obligations. Principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. Bonds rated Baa are considered a medium grade obligations; i.e., they are neither highly protected or 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. Standard & Poor's Ratings Group ("S&P") AAA, AA, A and BBB - Bonds rated AAA bear the highest rating assigned to debt obligations, which indicates an extremely strong capacity to pay principal and interest. Bonds rated AA are considered "high grade," are only slightly less marked than those of AAA ratings and have the second strongest capacity for payment of debt service. Bonds rated A have a strong capacity to pay principal and interest, although they are somewhat susceptible to the adverse effects of changes in circumstances and economic conditions. The foregoing ratings are sometimes followed by a "p" indicating that the rating is provisional. A provisional rating assumes the successful completion of the project financed by the bonds being rated and indicates that payment of debt service requirements is largely or entirely dependent upon the successful and timely completion of the project. Although a provisional rating addresses credit quality subsequent to completion of the project, it makes no comment on the likelihood of, or the risk of default upon failure of, such completion. Bonds rated BBB are regarded as having an adequate capacity to repay principal and pay interest. Whereas they normally exhibit protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to repay principal and pay interest for bonds in this category than for bonds in the A category. -63- Fitch Investors Service ("Fitch") AAA, AA, A, BBB - Bonds rated AAA are considered to be investment grade and of the highest quality. The obligor has an extraordinary ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. Bonds rated AA are considered to be investment grade and of high quality. The obligor's ability to pay interest and repay principal, while very strong, is somewhat less than for AAA rated securities or more subject to possible change over the term of the issue. Bonds rated A are considered to be investment grade and of good quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. Bonds rated BBB are considered to be investment grade and of satisfactory quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to weaken this ability than bonds with higher ratings. TAX-EXEMPT NOTE RATINGS Moody's - MIG-1 and MIG-2. Notes rated MIG-1 are judged to be of the best quality, enjoying strong protection from established cash flow or funds for their services or from established and broad-based access to the market for refinancing or both. Notes rated MIG-2 are judged to be of high quality with ample margins of protection, though not as large as MIG-1. S&P - SP-1 and SP-2. SP-1 denotes a very strong or strong capacity to pay principal and interest. Issues determined to possess overwhelming safety characteristics are given a plus (+) designation (SP-1+). SP-2 denotes a satisfactory capacity to pay principal and interest. Fitch - FIN-1 and FIN-2. Notes assigned FIN-1 are regarded as having the strongest degree of assurance for timely payment. A plus symbol may be used to indicate relative standing. Notes assigned FIN-2 reflect a degree of assurance for timely payment only slightly less in degree than the highest category. CORPORATE AND TAX-EXEMPT COMMERCIAL PAPER RATINGS 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. Prime-1, indicates highest quality repayment capacity of rated issue and Prime-2 indicates higher quality. S&P - Commercial Paper ratings are a current assessment of the likelihood of timely payment of debts having an original maturity of no more than 365 days. Issues rated A have the greatest capacity for a timely payment and the designation 1, 2 and 3 indicates the relative degree of safety. Issues rated "A-1+" are those with an "overwhelming degree of credit protection." Fitch - Commercial Paper ratings reflect current appraisal of the degree of assurance of timely payment. F-1 issues are regarded as having the strongest degree of assurance for timely payment. (+) is used to designate the relative position of an issuer within the rating category. F-2 issues reflect an assurance of timely payment only slightly less in degree than the strongest issues. The symbol (LOC) may follow either category and indicates that a letter of credit issued by a commercial bank is attached to the commercial paper note. Other Considerations - The ratings of S&P, Moody's, and Fitch represent their respective opinions of the quality of the municipal securities they undertake to rate. It should be emphasized, however, that ratings are general and are not absolute standards of quality. Consequently, municipal securities with the same maturity, coupon and ratings may have different yields and -64- municipal securities of the same maturity and coupon with different ratings may have the same yield. -65- JOHN HANCOCK SERIES, INC. PART C. OTHER INFORMATION Item 24. Financial Statements and Exhibits (a) The financial statements listed below are included in and incorporated by reference into Part B of the Registration Statement from the 1995 Annual Report to Shareholders for the year ended October 31, 1995 (filed electronically on January 3, 1996; file nos. 811-5254 and 33-16048; accession numbers 0000950135-96-000055): John Hancock Emerging Growth Fund Statement of Assets and Liabilities as of October 31, 1995. Statement of Operations for the year ended October 31, 1995. Statement of Changes in Net Assets for the years ended October 31, 1995. Notes to Financial Statements. Financial Highlights for the years ended October 31, 1995. Schedule of Investments as of October 31, 1995. (b) Exhibits: The exhibits to this Registration Statement are listed in the Exhibit Index hereto and are incorporated herein by reference. Item 25. Persons Controlled by or under Common Control with Registrant No person is directly or indirectly controlled by or under common control with Registrant. Item 26. Number of Holders of Securities As of March 29, 1996, the number of record holders of shares of Registrant was as follows: Title of Class Number of Record Holders John Hancock Emerging Growth Fund Class A Shares - 11,553 Class B Shares - 24,865 John Hancock High Yield Tax-Free Fund Class A Shares 3,015 Class B Shares 502 C-1 John Hancock High Yield Bond Fund Class A Shares 978 Class B Shares 7,260 Title of Class Number of Record Holders John Hancock Money Market Fund B Class A Shares 26,235 Class B Shares 3,281 Class S Shares 1 John Hancock Global Resources Fund Class A Shares 337 Class B Shares 3,284 John Hancock Government Income Fund Class A Shares 23,177 Class B Shares 7,621 Item 27. Indemnification (a) Indemnification provisions relating to the Registrant's Directors, officers, employees and agents is set forth in Article V of the Registrant's By Laws included as Exhibit 2 herein. (b) Under Section 12 of the Distribution Agreement, John Hancock Funds, Inc. ("John Hancock Funds" ) has agreed to indemnify the Registrant and its Directors, officers and controlling persons against claims arising out of certain acts and statements of John Hancock Funds. C-2 Section 9(a) of the By-Laws of the John Hancock Mutual Life Insurance Company (" the "Insurance Company") provides, in effect, that the Insurance Company will, subject to limitations of law, indemnify each present and former director, officer and employee of the of the Insurance Company who serves as a Directors or officer of the Registrant at the direction or request of the Insurance Company against litigation expenses and liabilities incurred while acting as such, except that such indemnification does not cover any expense or liability incurred or imposed in connection with any matter as to which such person shall be finally adjudicated not to have acted in good faith in the reasonable belief that his action was in the best interests of the Insurance Company. In addition, no such person will be indemnified by the Insurance Company in respect of any liability or expense incurred in connection with any matter settled without final adjudication unless such settlement shall have been approved as in the best interests of the Insurance Company either by vote of the Board of Directors at a meeting composed of directors who have no interest in the outcome of such vote, or by vote of the policyholders. The Insurance Company may pay expenses incurred in defending an action or claim in advance of its final disposition, but only upon receipt of an undertaking by the person indemnified to repay such payment if he should be determined to be entitled to indemnification. Article IX of the respective By-Laws of John Hancock Funds and John Hancock Advisers, Inc. (the "Adviser") provide as follows: "Section 9.01. Indemnity: Any person made or threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was at any time since the inception of the Corporation a director, officer, employee or agent of the Corporation, or is or was at any time since the inception of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall be indemnified by the Corporation against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and the liability was not incurred by reason of gross negligence or reckless disregard of the duties involved in the conduct of his office, and expenses in connection therewith may be advanced by the Corporation, all to the full extent authorized by the law." "Section 9.02. Not Exclusive; Survival of Rights: The indemnification provided by Section 9.01 shall not be deemed exclusive of any other right to which those indemnified may be entitled, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person." Insofar as indemnification for liabilities under the Securities Act of 1933 (the "Act") may be permitted to Directors, officers and controlling persons of the Registrant pursuant to the Registrant's Amended and Restated Articles of Incorporation and By-Laws, the Distribution Agreement, the By-Laws of John Hancock Funds, the Adviser, or the Insurance Company or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant in the successful defense of any action, suit or proceeding) is asserted by such Directors, officer or controlling person in connection with the securities being registered, C-3 the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Item 28. Business and Other Connections of Investment Advisers For information as to the business, profession, vocation or employment of a substantial nature of each of the officers and Directors of the Adviser, reference is made to Form ADV (801-8124) filed under the Investment Advisers Act of 1940, which is incorporated herein by reference. Item 29. Principal Underwriters (a) John Hancock Funds acts as principal underwriter for the Registrant and also serves as principal underwriter or distributor of shares for John Hancock Cash Reserve, Inc., John Hancock Bond Fund, John Hancock Current Interest, John Hancock Series, Inc., John Hancock Tax-Free Bond Fund, John Hancock California Tax-Free Income Fund, John Hancock Capital Series, John Hancock Limited-Term Government Fund, John Hancock Tax-Exempt Income Fund, John Hancock Sovereign Investors Fund, Inc., John Hancock Special Equities Fund, John Hancock Sovereign Bond Fund, John Hancock Tax-Exempt Series, John Hancock Strategic Series, John Hancock Technology Series, Inc., John Hancock World Fund, John Hancock Investment Trust, John Hancock Institutional Series Trust, Freedom Investment Trust, Freedom Investment Trust II and Freedom Investment Trust III. (b) The following table lists, for each director and officer of John Hancock Funds, the information indicated. C-4
Name and Principal Positions and Offices Positions and Offices Business Address with Underwriter with Registrant Edward J. Boudreau, Jr. Chairman, President and Chief Chairman 101 Huntington Avenue Executive Officer Boston, Massachusetts Robert H. Watts Director and Executive None John Hancock Place Vice President and Chief P.O. Box 111 Compliance Officer Boston, Massachusetts Robert G. Freedman Director Vice Chairman, Chief 101 Huntington Avenue Investment Officer Boston, Massachusetts Stephen M. Blair Executive Vice President None 101 Huntington Avenue Boston, Massachusetts Thomas H. Drohan Senior Vice President Senior Vice President and 101 Huntington Avenue Secretary Boston, Massachusetts James W. McLaughlin Senior Vice President None 101 Huntington Avenue and Boston, Massachusetts Chief Financial Officer David A. King Director and Senior Vice President None 101 Huntington Avenue Boston, Massachusetts Anthony P. Petrucci Senior Vice President None 101 Huntington Avenue Boston, Massachusetts James B. Little Senior Vice President Senior Vice President and 101 Huntington Avenue Chief Financial Officer Boston, Massachusetts C-5 Name and Principal Positions and Offices Positions and Offices Business Address with Underwriter with Registrant Charles H. Womack Senior Vice President None 6501 Americans Parkway Albuquerque, New Mexico William S. Nichols Senior Vice President None 101 Huntington Avenue Boston, Massachusetts John A. Morin Vice President Vice President 101 Huntington Avenue Boston, Massachusetts Susan S. Newton Vice President and Secretary Vice President, 101 Huntington Avenue Assistant Secretary Boston, Massachusetts and Compliance Officer Keith Harstein Vice President None 101 Huntington Avenue Boston, Massachusetts Griselda Lyman Vice President None 101 Huntington Avenue Boston, Massachusetts Christopher M. Meyer Treasurer None 101 Huntington Avenue Boston, Massachusetts Stephen L. Brown Director None John Hancock Place P.O. Box 111 Boston, Massachusetts Thomas E. Moloney Director None John Hancock Place P.O. Box 111 Boston, Massachusetts C-6 Jeanne M. Livermore Director None John Hancock Place P.O. Box 111 Boston, Massachusetts Richard S. Scipione Director Trustee John Hancock Place P.O. Box 111 Boston, Massachusetts John Goldsmith Director None John Hancock Place P.O. Box 111 Boston, Massachusetts Richard O. Hansen Director None John Hancock Place P.O. Box 111 Boston, Massachusetts John M. DeCiccio Director None John Hancock Place P.O. Box 111 Boston, Massachusetts Foster Aborn Director None John Hancock Place P.O. Box 111 Boston, Massachusetts David F. D'Alessandro Director None John Hancock Place P.O. Box 111 Boston, Massachusetts William C. Fletcher Director None 53 State Street Boston, Massachusetts James V. Bowhers Executive Vice President None 101 Huntington avenue Boston, Massachusetts Michael T. Carpenter Senior Vice President None 101 Huntington Avenue Boston, Massachusetts
C-7 (c) None. Item 30. Location of Accounts and Records The Registrant maintains the records required to be maintained by it under Rules 31a-1 (a), 31a-1(b), and 31a-2(a) under the Investment Company Act of 1940 at its principal executive offices at 101 Huntington Avenue, Boston Massachusetts 02199-7603. Certain records, including records relating to Registrant's shareholders and the physical possession of its securities, may be maintained pursuant to Rule 31a-3 at the main offices of Registrant's Transfer Agent and Custodian. Item 31. Management Services Not applicable. Item 32. Undertakings (a) Not applicable (b) Not applicable (c) Registrant hereby undertakes to furnish each person to whom a prospectus with respect to a series of the Registrant is delivered with a copy of the latest annual report to shareholders with respect to that series upon request and without charge. (d) Registrant undertakes to comply with Section 16(c) of the Investment Company Act of 1940, as amended which relates to the assistance to be rendered to shareholders by the Trustees of the Registrant in calling a meeting of shareholders for the purpose of voting upon the question of the removal of a trustee. C-8 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereto duly authorized, in the City of Boston, and the Commonwealth of Massachusetts on the 25th day of April, 1996. JOHN HANCOCK SERIES, INC. By: * Edward J. Boudreau, Jr. Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. Signature Title Date * Chairman and Chief Executive Edward J. Boudreau, Jr. Officer (Principal Executive Officer) /s/James B. Little James B. Little Senior Vice President and Chief April 25, 1996 Financial Officer (Principal Financial and Accounting Officer) * Director James F. Carlin * Director William H. Cunningham Director Anne C. Hodsdon * Director Charles L. Ladner C-9 Signature Title Date * Director Leo E. Linbeck, Jr. * Director Patricia P. McCarter * Director Steven R. Pruchansky * Director Norman H. Smith Director Richard S. Scipione * Director John P. Toolan *By: /s/Thomas H. Drohan April 25, 1996 ------------------- Thomas H. Drohan, Attorney-in-Fact C-10 EXHIBIT INDEX Exhibit No. Description 99.B1 Articles of Amendment and Restatement dated June 29, 1987; Articles of Amendment dated July 23, 1987; Articles Supplementary dated August 5, 1987; Articles of Amendment dated October 5, 1987; Articles of Amendment dated June 14, 1989; Articles Supplementary dated June 5, 1991; Articles Supplementary dated October 22, 1993; Articles Supplementary dated May 17, 1994; Articles of Amendment dated May 20, 1994; Articles of Amendment dated December 16, 1994; Articles Supplementary dated September 11, 1995.** 99.B2 Amended and Restated By-Laws dated December 22, 1994.* 99.B3 Not Applicable. 99.B4 Specimen share certificate for Emerging Growth Fund, High Yield Tax-Free Fund, High Yield Bond Fund, Global Resources Fund and Government Income Fund (Classes A and B).** . 99.B5 Investment Management Contract between John Hancock Advisers, Inc. and the Registrant on behalf of Global Resources Fund dated December 22, 1994.* 99.B5.1 Investment Management Contract between John Hancock Advisers, Inc. and the Registrant on behalf of Emerging Growth Fund dated December 22, 1994.* 99.B5.2 Investment Management Contract between John Hancock Advisers, Inc. and the Registrant on behalf of High Yield Bond Fund dated December 22, 1994.* 99.B5.3 Investment Management Contract between John Hancock Advisers, Inc. and the Registrant on behalf of High Yield Tax-Free Fund dated December 22, 1994.* 99.B5.4 Investment Management Contract between John Hancock Advisers, Inc. and the Registrant on behalf of Government Income Fund dated December 22, 1994.* 99.B5.5 Investment Management Contract between John Hancock Advisers, Inc. and the Registrant on behalf of Money Market Fund Fund.* Exhibit No. Description 99.B6 Distribution Agreement between Registrant and John Hancock Broker Distribution Services, Inc.* 99.B6.1 Form of Soliciting Dealer Agreement between John Hancock Funds, Inc. and the John Hancock funds.* 99.B6.2 Form of Financial Institution Sales and Service Agreement between John Hancock Fund's, Inc. and the John Hancock funds.* 99.B7 Not Applicable 99.B8 Master Custodian agreement between the John Hancock funds and Investor Bank & Trust Company.* 99.B9 Transfer Agency and Service Agreement with John Hancock Fund Services, Inc.* 99.B9.1 Accounting and Legal Services Agreement between John Hancock Advisers, Inc. and Registrant as of January 1, 1996.+ 99.B10 None 99.B11 Consent of Independent Auditors.+ 99.B12 Not Applicable 99.B13 None 99.B15 Plan of Distribution pursuant to Rule 12b-1 as amended and restated January 1, 1994.* 99.B15.1 Class A and Class B Distribution Plan between Global Resources Fund and John Hancock Funds, Inc.* 99.B15.2 Class A and Class B Distribution Plan between Emerging Growth Fund and John Hancock Funds, Inc.* 99.B15.3 Class A and Class B Distribution Plan between Government Income Fund and John Hancock Funds, Inc.* 99.B15.4 Class A and Class B Distribution Plan between High Yield Bond Fund and John Hancock Funds, Inc.* 99.B15.5 Class A and Class B Distribution Plan between High Yield Tax-Free Fund and John Hancock Funds, Inc.* Exhibit No. Description 99.B15.6 Class B Distribution Plan between Money Market Fund and John Hancock Funds, Inc.* 99.B15.7 Class A and Class S Distribution Plan between Money Market Fund and John Hancock Funds, Inc.** 99.B16 Schedule for computation of each performance quotation provided in the Registration Statement in response to Item 22 for each series of the Registrant.** 27.2A John Hancock Emerging Growth Fund 27.2B John Hancock Emerging Growth Fund * Previously filed electronically with post-effective amendment number 20 (file nos. 33-16048 811-5254) on July 7, 1995, accession number 0000950135-95-001497. ** Previously filed electronically with post-effective amendment number 21 (file nos. 33-16048 and 811-5254) on February 28, 1996, accession number 0000950135-96-001194. + Filed herewith. EX-99.B9.1 2 As of January 1, 1996 ACCOUNTING & LEGAL SERVICES AGREEMENT John Hancock Advisers, Inc. 101 Huntington Avenue Boston, Massachusetts 02199 Dear Sir: The John Hancock Funds listed on Schedule A (the "Funds") have selected John Hancock Advisers, Inc. (the "Administrator") to provide certain accounting and legal services for the Funds, as more fully set forth below, and you are willing to provide such services under the terms and conditions hereinafter set forth. Accordingly, the Funds agree with you as follows: 1. Services. Subject to the general supervision of the Board of Trustees/Directors of the Funds, you will provide certain tax, accounting and legal services (the "Services") to the Funds. You will, to the extent such services are not required to be performed by you pursuant to an investment advisory agreement, provide: (A) such tax, accounting, recordkeeping and financial management services and functions as are reasonably necessary for the operation of each Fund. Such services shall include, but shall not be limited to, supervision, review and/or preparation and maintenance of the following books, records and other documents: (1) journals containing daily itemized records of all purchases and sales, and receipts and deliveries of securities and all receipts and disbursements of cash and all other debits and credits, in the form required by Rule 31a-1(b) (1) under the Act; (2) general and auxiliary ledgers reflecting all asset, liability, reserve, capital, income and expense accounts, in the form required by Rules 31a-1(b) (2) (i)-(iii) under the Act; (3) a securities record or ledger reflecting separately for each portfolio security as of trade date all "long" and "short" positions carried by each Fund for the account of the Funds, if any, and showing the location of all securities long and the off-setting position to all securities short, in the form required by Rule 31a-1(b) (3) under the Act; (4) a record of all portfolio purchases or sales, in the form required by Rule 31a-1(b) (6) under the Act; (5) a record of all puts, calls, spreads, straddles and all other options, if any, in which any Fund has any direct or indirect interest or which the Funds have granted or guaranteed, in the form required by Rule 31a-1(b) (7) under the Act; (6) a record of the proof of money balances in all ledger accounts maintained pursuant to this Agreement, in the form required by Rule 31a-1(b) (8) under the Act; (7) price make-up sheets and such records as are necessary to reflect the determination of each Funds' net asset value; and (8) arrange for, or participate in (a) the preparation for the Fund of all required tax returns, (b) the preparation and submission of reports to existing shareholders and (c) the preparation of financial data or reports required by the Securities and Exchange Commission and other regulatory authorities; (B) certain legal services as are reasonably necessary for the operation of each Funds. Such services shall include, but shall not be limited to; (1) maintenance of each Fund's registration statement and federal and state registrations; (2) preparation of certain notices and proxy materials furnished to shareholders of the Funds; (3) preparation of periodic reports of each Fund to regulatory authorities, including Form N-SAR and Rule 24f-2 legal opinions; (4) preparation of materials in connection with meetings of the Board of Trustees/Directors of the Funds; (5) preparation of written contracts, distribution plans, compliance procedures, corporate and trust documents and other legal documents; (6) research advice and consultation about certain legal, regulatory and compliance issues, (7) supervision, coordination and evaluation of certain services provided by outside counsel. (C) provide the Funds with staff and personnel to perform such accounting, bookkeeping and legal services as are reasonably necessary to effectively service the Fund. Without limiting the generality of the foregoing, such staff and personnel shall be deemed to include officers of the Administrator, and persons employed or otherwise retained by the Administrator to provide or assist in providing of the services to the Fund. (D) maintain all books and records relating to the foregoing services; and (E) provide the Funds with all office facilities to perform tax, accounting and legal services under this Agreement. 2. Compensation of the Administrator The Funds shall reimburse the Administrator for: (1) a portion of the compensation, including all benefits, of officers and employees of the Administrator based upon the amount of time that such persons actually spend in providing or assisting in providing the Services to the Funds (including necessary supervision and review); and (2) such other direct and indirect expenses, including, but not limited to, those listed in paragraph (1) above, incurred on behalf of the Fund that are associated with the providing of the Services and (3) 10% of the reimbursement amount. In no event, however, shall such reimbursement exceed levels that are fair and reasonable in light of the usual and customary charges made by others for services of the same nature and quality. Compensation under this Agreement shall be calculated and paid monthly in a arrears. 3. No Partnership or Joint Venture. The Funds and you are not partners of or joint ventures with each other and nothing herein shall be construed so as to make you such partners or joint venturers or impose any liability as such on any of you. 4. Limitation of Liability of the Administrator. You shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Funds in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on your part in the performance of your duties or from reckless disregard by you of your obligations and duties under this Agreement. Any person, even though also employed by you, who may be or become an employee of and paid by the Funds shall be deemed, when acting within the scope of his or her employment by the Funds, to be acting in such employment solely for the Funds and not as your employee or agent. 5. Duration and Termination of this Agreement. This Agreement shall remain in force until the second anniversary of the date upon which this Agreement was executed by the parties hereto, and from year to year thereafter, but only so long as such continuance is specifically approved at least annually by a majority of the Trustees/Directors. This Agreement may, on 60 days' written notice, be terminated at any time without the payment of any penalty by the Funds by vote of a majority of the Trustees/Directors, or by you. This Agreement shall automatically terminate in the event of its assignment. 6. Amendment of this Agreement. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver or termination is sought. 7. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts without regard to the choice of law provisions thereof. 8. Miscellaneous. The captions in this Agreement are included for convenience of reference only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. A copy of the Declaration of Trust of each Fund organized as Massachusetts business trusts is on file with the Secretary of State of the Commonwealth of Massachusetts. The obligations of each such Fund are not personally binding upon, nor shall resort be had to the private property of, any of the Trustees, shareholders, officers, employees or agents of the Fund, but only the Fund's property shall be bound. Yours very truly, JOHN HANCOCK FUNDS (See Schedule A) By: /s/ James B. Little James B. Little Senior Vice President The foregoing contract is hereby agreed to as of the date hereof. JOHN HANCOCK ADVISERS, INC. By: /s/ Anne C. Hodsdon Anne C. Hodsdon President January 1, 1996 SCHEDULE A John Hancock Capital Series - John Hancock Growth Fund - John Hancock Special Value Fund John Hancock Limited Term Government Fund John Hancock Sovereign Bond Fund John Hancock Sovereign Investors Fund, Inc. - John Hancock Sovereign Investors Fund - John Hancock Sovereign Balanced Fund John Hancock Special Equities Fund John Hancock Strategic Series - John Hancock Independence Diversified Core Equity Fund - John Hancock Strategic Income Fund - John Hancock Utilities Fund John Hancock Tax-Exempt Income Fund John Hancock World Fund - John Hancock Pacific Basin Equities Fund - John Hancock Global Rx Fund - John Hancock Global Marketplace Fund John Hancock Cash Reserve, Inc. John Hancock Series, Inc. - John Hancock Emerging Growth Fund - John Hancock Global Resources Fund - John Hancock Government Income Fund - John Hancock High Yield Bond Fund - John Hancock High Yield Tax-Free Fund - John Hancock Money Market Fund John Hancock Institutional Series Trust - John Hancock Active Bond Fund - John Hancock Dividend Performers Fund - John Hancock Fundamental Value Fund - John Hancock Global Bond Fund - John Hancock International Equity Fund - John Hancock Multi-Sector Growth Fund - John Hancock Small Capitalization Equity Fund - John Hancock Independence Diversified Core Equity Fund II - John Hancock Independence Value Fund - John Hancock Independence Balanced Fund - John Hancock Independence Medium Capitalization Fund - John Hancock Independence Growth Fund John Hancock Declartion Trust - John Hancock V.A. 500 Index Fund - John Hancock V.A. Discovery Fund - John Hancock V.A. Diversified Core Equity Fund - John Hancock V.A. Emerging Equities Fund - John Hancock V.A. Global Income Fund - John Hancock V.A. International Fund - John Hancock V.A. Money Market Fund - John Hancock V.A. Sovereign Bond Fund - John Hancock V.A. Strategic Income Fund - John Hancokc V.A. Sovereign Investors Fund EX-99.B11 3 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Financial Highlights" for Emerging Growth Fund in the John Hancock Growth Funds prospectus and "Independent Auditors" in the John Hancock Series, Inc. Class A and Class B Shares Statement of Additional Information with respect to the John Hancock Emerging Growth Fund and to the use of our report dated December 15, 1995, on the financial statements and financial highlights of the John Hancock Emerging Growth Fund (one of the portfolios constituting John Hancock Series, Inc.) in this Post-Effective Amendment Number 22 to Registration Statement (Form N-1A No. 33-16048) dated July 1, 1996. /s/ ERNST & YOUNG LLP ERNST & YOUNG LLP Boston, Massachusetts April 22, 1996 EX-27 4
6 101 JOHN HANCOCK EMERGING GROWTH FUND - A 12-MOS OCT-31-1995 NOV-01-1994 OCT-31-1995 328,885,300 574,927,900 2,319,284 517,792 245,565,411 577,287,787 3,706,000 0 623,030 623,030 0 333,863,246 4,973,680 4,886,971 0 0 (6,469,900) 0 245,565,411 572,958,757 2,174,731 403,533 0 8,734,994 (6,156,730) 10,693,222 134,216,496 138,752,988 0 0 0 0 5,389,301 5,302,592 0 158,471,110 0 (17,163,122) 0 0 3,509,539 0 0 463,333,235 26.82 (0.25) 9.52 0 0 0 36.09 1.38 0 0
EX-27 5
6 102 JOHN HANCOCK EMERGING GROWTH FUND - B 12-MOS OCT-31-1995 NOV-01-1994 OCT-31-1995 328,885,300 574,927,900 2,319,284 517,792 245,565,411 577,287,787 3,706,000 0 623,030 623,030 0 333,863,246 11,309,413 10,883,600 0 0 (6,469,900) 0 245,565,411 572,958,757 2,174,731 403,533 0 8,734,994 (6,156,730) 10,693,222 134,216,496 138,752,988 0 0 0 0 7,378,294 6,952,481 0 158,471,110 0 (17,163,122) 0 0 3,509,539 0 0 463,333,235 26.04 (0.45) 9.20 0 0 0 34.79 2.11 0 0
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