John Hancock Tax-Free Income Funds
                          Supplement to the Prospectus
                              dated January 1, 2006



John Hancock California Tax-Free Income Fund
John Hancock High Yield Municipal Bond Fund
John Hancock Massachusetts Tax-Free Income Fund
John Hancock New York Tax-Free Income Fund
John Hancock Tax-Free Bond Fund


The  "Portfolio  Managers"  section for each fund have been deleted and replaced
with the following:

  Dianne Sales, CFA
   Joined fund team in 1995
  Frank A. Lucibella, CFA
   Rejoined fund team in 2005



On page 25, the Management Biography for Barry E. Evans has been deleted.



April 1, 2006



TXFPSc




                  JOHN HANCOCK CALIFORNIA TAX-FREE INCOME FUND
                       Class A, Class B and Class C Shares
                       Statement of Additional Information


                    January 1, 2006 as revised April 1, 2006


This Statement of Additional Information provides information about John Hancock
California  Tax-Free  Income  Fund  (the  "Fund"),  a  non-diversified  open-end
investment  company,  in addition to the  information  that is  contained in the
combined Tax-Free Income Funds' current Prospectus (the "Prospectus").

This Statement of Additional Information is not a prospectus.  It should be read
in conjunction  with the  Prospectus.  This Statement of Additional  Information
incorporates by reference the Fund's Annual Report.  A copy of the Prospectus or
Annual Report can be obtained free of charge by writing or telephoning:

                      John Hancock Signature Services, Inc.
                         1 John Hancock Way, Suite 1000
                        Boston, Massachusetts 02217-1000
                                 1-800-225-5291

                                TABLE OF CONTENTS
                                                                            Page

Organization of the Fund.......................................................2
Investment Objective and Policies..............................................2
Special Risks.................................................................15
Investment Restrictions.......................................................19
Those Responsible for Management..............................................21
Investment Advisory and Other Services........................................31
Additional Information About the Fund's Portfolio Managers....................34
Distribution Contracts........................................................37
Sales Compensation............................................................40
Net Asset Value...............................................................43
Initial Sales Charge on Class A Shares........................................43
Deferred Sales Charge on Class B and Class C..................................47
Special Redemptions...........................................................51
Additional Services and Programs..............................................51
Purchases and Redemptions through Third Parties...............................53
Description of the Fund's Shares..............................................53
Tax Status....................................................................54
State Income Tax Information..................................................59
Brokerage Allocation..........................................................60
Transfer Agent Services.......................................................64
Custody of Portfolio..........................................................64
Independent Registered Public Accounting Firm.................................64
Appendix A-Description of Investment Risk....................................A-1
Appendix B-Description of Bond Ratings.......................................B-1
Appendix C-Description of Equivalent Yields..................................C-1
Appendix D-Proxy Voting Summary..............................................D-1
Appendix E-Policy Regarding Disclosure of Portfolio Holdings.................E-1
Financial Statements.........................................................F-1



                                       1


ORGANIZATION OF THE FUND

The Fund is a non-diversified  open-end investment  management company organized
as  a  Massachusetts  business  trust  in  July  1996  under  the  laws  of  The
Commonwealth of Massachusetts.

John Hancock  Advisers,  LLC (prior to February 1, 2002, John Hancock  Advisers,
Inc.) (the "Adviser") is the Fund's investment adviser.  The Adviser is a wholly
owned  subsidiary  of John Hancock  Financial  Services,  Inc., a subsidiary  of
Manulife Financial  Corporation  ("Manulife  Financial").  Founded in 1862, John
Hancock  Financial  Services and its  subsidiaries  today offer a broad range of
financial products and services,  including whole, term, variable, and universal
life insurance,  as well as college savings  products,  mutual funds,  fixed and
variable  annuities,  long-term  care  insurance  and various  forms of business
insurance.


Manulife Financial  Corporation is a leading  Canadian-based  financial services
group serving  millions of customers in 19 countries and territories  worldwide.
Operating  as  Manulife  Financial  in Canada  and most of Asia,  and  primarily
through John Hancock in the United States,  the Company offers clients a diverse
range of financial  protection  products and wealth management  services through
its extensive  network of employees,  agents and  distribution  partners.  Funds
under management by Manulife Financial and its subsidiaries were Cdn$372 billion
(US$319 billion) as of December 31, 2005.


Manulife  Financial  Corporation  trades as 'MFC' on the TSX,  NYSE and PSE, and
under  '0945' on the SEHK.  Manulife  Financial  can be found on the Internet at
www.manulife.com.


The  Fund  is  sub-advised  by  John  Hancock  Sovereign  Asset  Management  LLC
("Sovereign"  or the  "Sub-Adviser")  which is also a subsidiary of John Hancock
Financial  Services,  Inc.,  a  subsidiary  of Manulife  Financial  Corporation.
Sovereign is responsible for providing  investment advice to the Fund subject to
the review of the Trustees and the overall supervision of the Adviser.


INVESTMENT OBJECTIVE AND POLICIES

The following  information  supplements the discussion of the Fund's  investment
objective and policies discussed in the Prospectus.  Appendix A contains further
information describing investment risks. The investment objective is fundamental
and may only be changed with  shareholder  approval.  There is no assurance that
the Fund will achieve its investment objective.

The Fund's investment  objective is to provide as high a level of current income
exempt from both federal income taxes and California personal income taxes as is
consistent with preservation of capital.

As a fundamental  investment policy, the Fund normally invests substantially all
of its assets (at least 80%) in the following debt  obligations  issued by or on
behalf of the State of California,  its political subdivisions,  municipalities,
agencies,  instrumentalities  or public  authorities and  obligations  issued by
other  governmental   entities  (for  example,   certain  U.S.   territories  or
possessions)  the  interest on which is excluded  from gross  income for federal
income  tax  purposes  and is  exempt  from  California  personal  income  taxes
(collectively referred to as "California Tax Exempt Securities"), subject to the
following quality standards at the time of purchase:


                                       2


     (1)  Bonds  must  be  rated  at  least  BB/Ba  by a  nationally  recognized
          statistical  rating  organization  or, if  unrated,  be of  equivalent
          quality. Not more than 20% of the fund's total assets will be invested
          in bonds rated BB or Ba and no more than 25% of its total assets to be
          invested  in  unrated   debt   obligations   (excluding   pre-refunded
          securities  secured  with high  quality  U.S.  government  or  similar
          securities.)

     (2)  Other types of California Tax Exempt  Securities,  including  variable
          and floating rate  obligations  rated within the  categories set forth
          above  for  bonds,  notes or  commercial  paper or,  if  unrated,  are
          determined to be of comparable quality in the opinion of the Adviser.

As required by SEC Rule 35d-1, the following  fundamental  investment policy has
been added:  The Fund normally  invests at least 80% of its Assets in securities
of any  maturity  exempt from  federal and  California  personal  income  taxes.
"Assets"  is  defined  as net  assets  plus the  amount  of any  borrowings  for
investment purposes.

The Fund may invest in any  combination  of  California  Tax Exempt  Securities;
however, it is expected that during normal investment conditions,  a substantial
portion of the Fund's assets will be invested in municipal bonds (without regard
to  maturities)  and  other  longer-term  obligations.  When  determined  to  be
appropriate,  based upon market conditions,  a substantial portion of the Fund's
holdings  of  California  Tax  Exempt  Securities  will  consist  of  notes  and
commercial paper and other shorter-term  obligations.  The Fund may invest up to
20% of its  total  assets in  "private  activity  bonds"  (meeting  the  quality
standards  noted above),  the interest on which may constitute a preference item
for purposes of determining the alternative minimum tax.

For  liquidity  and  flexibility,  the Fund may place up to 20% of its Assets in
taxable  and  tax-free  investment  grade  short-term  securities.  In  abnormal
circumstances,  it may invest more assets in these  securities.  The income from
some short-term  investments may be subject to California  and/or federal income
taxes. As a result,  distributions  of the fund which are attributable to income
from these  investments  will be subject to  California  and/or  federal  income
taxes. At the end of each quarter of its taxable year, these investments can not
exceed  50% of the  Fund's  total  assets.  The Fund  will not be  pursuing  its
objective  of  obtaining  tax-exempt  income to the extent it invests in taxable
securities.

Non-Diversification.  The Fund is registered as a  "non-diversified"  investment
company,  permitting the Sub-Adviser to invest more than 5% of the assets of the
Fund in the obligations of any one issuer. Since a relatively high percentage of
the Fund's  assets may be invested  in the  obligations  of a limited  number of
issuers,  the  value  of Fund  shares  may be  more  susceptible  to any  single
economic,  political  or  regulatory  event  than the  shares  of a  diversified
investment company.

Tax-Exempt Securities.  In seeking to achieve its investment objective, the Fund
invests in a variety of Tax-Exempt Securities.  "Tax Exempt Securities" are debt
obligations  generally  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,  in the
opinion of the bond issuer's counsel (not the Fund's counsel),  is excluded from
gross income for federal  income tax purposes and (in the case of California Tax
Exempt  Securities)  exempt from  California  personal  income  taxes.  See "TAX
STATUS" below. These securities consist of municipal bonds,  municipal notes and
municipal  commercial paper as well as variable or floating rate obligations and
participation interests.


                                       3


The  two  principal   classifications  of  municipal   obligations  are  general
obligations  and revenue  obligations.  General  obligations  are secured by the
issuer's  pledge of its full faith,  credit and taxing  power for the payment of
principal and interest.  Revenue  obligations are payable only from the revenues
derived from a particular  facility or class of facilities or in some cases from
the  proceeds  of a  special  excise  or  other  tax.  For  example,  industrial
development  and pollution  control bonds are in most cases revenue  obligations
since  payment of principal  and interest is dependent  solely on the ability of
the user of the  facilities  financed  or the  guarantor  to meet its  financial
obligations,  and in certain cases, the pledge of real and personal  property as
security  for  payment.  The  payment of  principal  and  interest by issuers of
certain  obligations  purchased  by the 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.  These  guarantees  and the
creditworthiness  of  guarantors  will  be  considered  by  the  Sub-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 Bonds. Municipal bonds at the time of issuance are generally long-term
securities  with  maturities  of as much as  twenty  years  or more but may have
remaining  maturities  of shorter  duration at the time of purchase by the Fund.
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 excluded from gross income
for federal income tax purposes.

The interest on bonds  issued to finance  essential  state and local  government
operations  is fully  tax-exempt  under the Internal  Revenue  Code of 1986,  as
amended (the "Code"). Interest on certain nonessential or private activity bonds
(including  those for housing and student  loans)  issued  after August 7, 1986,
while still  tax-exempt,  constitutes  a tax  preference  item for  taxpayers in
determining their alternative minimum tax: as a result, the Fund's distributions
attributable  to such interest also  constitute tax preference  items.  The Code
also imposes certain  limitations and restrictions on the use of tax-exempt bond
financing  for  non-governmental   business   activities,   such  as  industrial
development bonds.

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.

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.



                                       4


Callable  Bonds.  The Fund may purchase and hold callable  municipal bonds which
contain a provision in the indenture  permitting  the issuer to redeem the bonds
prior to their maturity dates at a specified  price which  typically  reflects a
premium  over the bonds'  original  issue  price.  These  bonds  generally  have
call-protection  (a period  of time  during  which the bonds may not be  called)
which usually lasts for 7 to 10 years, after which time such bonds may be called
away.  An issuer may  generally  be expected to call its bonds,  or a portion of
them during periods of relatively  declining interest rates, when borrowings may
be replaced at lower rates than those  obtained in prior years.  If the proceeds
of a bond called under such  circumstances  are reinvested,  the result may be a
lower overall yield due to lower current  interest  rates. If the purchase price
of such bonds included a premium related to the appreciated  value of the bonds,
some or all of that  premium may not be recovered  by  bondholders,  such as the
Fund, depending on the price at which such bonds were redeemed.

Ratings as Investment  Criteria.  In general,  the ratings of Moody's  Investors
Services,  Inc.  ("Moody's"),  Fitch  Investors  Services,  Inc.  ("Fitch")  and
Standard & Poor's Ratings Group ("S&P") represent the opinions of these agencies
as to the quality of the  securities  which they rate. It should be  emphasized,
however,  that such  ratings are relative  and  subjective  and are not absolute
standards of quality. These ratings will be used by the Fund as initial criteria
for the  selection  of  portfolio  securities.  Among the factors  which will be
considered are the long-term ability of the issuer to pay principal and interest
and general economic trends.  Appendix B contains further information concerning
the ratings of Moody's, S&P and Fitch and their significance.  Subsequent to its
purchase by the Fund, an issue of securities may cease to be rated or its rating
may be reduced below the minimum  required for purchase by the Fund.  Neither of
these events will require the sale of the securities by the Fund.

Lower  Rated High Yield "High Risk" Debt  Obligations.  The 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. Bonds rated BBB or BB by S&P
or Fitch,  or Baa or Ba by  Moody's,  are  considered  to have some  speculative
characteristics  and,  to varying  degrees,  can pose  special  risks  generally
involving the ability of the issuer to make payment of principal and interest to
a greater extent than higher rated  securities.  The Adviser will purchase bonds
rated BBB or BB or Baa or Ba where,  based upon price,  yield and its assessment
of quality,  investment in these bonds is  determined to be consistent  with the
Fund's  objective of  preservation  of capital.  The Adviser  will  evaluate and
monitor the quality of all  investments,  including bonds rated BBB or BB or Baa
or Ba, and will dispose of these bonds as  determined  to be necessary to assure
that the Fund's overall portfolio is constituted in a manner consistent with the
goal of  preservation of capital.  To the extent that the Fund's  investments in
bonds  rated BBB or BB or Baa or Ba will  emphasize  obligations  believed to be
consistent  with the  goal of  preserving  capital,  these  obligations  may not
provide yields as high as those of other obligations  having these ratings,  and
the  differential  in yields  between  these bonds and  obligations  with higher
quality  ratings  may not be as  significant  as might  otherwise  be  generally
available.  Many  issuers of  securities  choose  not to have their  obligations
rated.  Although  unrated  securities  eligible for purchase by the 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.

Restricted Securities.  The Fund may purchase securities that are not registered
("restricted  securities")  under  the  Securities  Act of  1933  ("1933  Act"),
including  commercial  paper  issued in reliance on Section 4(2) of the 1933 Act
and securities offered and sold to "qualified  institutional  buyers" under Rule
144A  under the 1933  Act.  The Fund  will not  invest  more than 15% of its net


                                       5


assets  in  illiquid  investments.  If  the  Trustees  determine,  based  upon a
continuing review of the trading markets for specific Section 4(2) paper or Rule
144A securities, that they are liquid, they will not be subject to the 15% limit
on illiquid  securities.  The Trustees have adopted  guidelines and delegated to
the Adviser the daily  function of  determining  the monitoring and liquidity of
restricted securities.  The Trustees,  however, will retain sufficient oversight
and  be  ultimately  responsible  for  the  determinations.  The  Trustees  will
carefully monitor the Fund's  investments in these securities,  focusing on such
important  factors,  among others,  as valuation,  liquidity and availability of
information.  This  investment  practice could have the effect of increasing the
level of illiquidity in the Fund if qualified  institutional buyers become for a
time uninterested in purchasing these restricted securities.

Participation  Interests.  The Fund may purchase from financial institutions tax
exempt  participation  interests  in  tax  exempt  securities.  A  participation
interest gives the Fund an undivided  interest in the tax exempt security in the
proportion that the Fund's  participation  interest bears to the total amount of
the tax exempt security. For certain participation interests, the Fund will have
the right to demand payment,  on a specified number of days' notice,  for all or
any part of the Fund's  participation  interest in the tax exempt  security plus
accrued interest. Participation interests, that are determined to be not readily
marketable,  will  be  considered  illiquid  for  purposes  of  the  Fund's  15%
investment restriction on investment in illiquid securities.

The Fund may also invest in Certificates of Participation  (COP's) which provide
participation  interests in lease revenues.  Each COP represents a proportionate
interest in or right to the  lease-purchase  payment made under  municipal lease
obligations  or  installment   sales  contracts.   Typically,   municipal  lease
obligations  are issued by a state or municipal  financing  authority to provide
funds for the construction of facilities  (e.g.,  schools,  dormitories,  office
buildings or prisons) or the acquisition of equipment.  In certain states,  such
as California,  COP's constitute a majority of new municipal  financing  issues.
The  facilities are typically  used by the state or  municipality  pursuant to a
lease with a financing authority.  Certain municipal lease obligations may trade
infrequently. Participation interests in municipal lease obligations will not be
considered  illiquid  for  purposes  of the Fund's 15%  limitation  on  illiquid
securities  provided the Adviser  determines  that there is a readily  available
market for such securities.

In reaching liquidity  decisions,  the Adviser will consider,  among others, the
following factors: (1) the frequency of trades and quotes for the security;  (2)
the number of dealers wishing to purchase or sell the security and the number of
other  potential  purchasers;  (3) dealer  undertakings  to make a market in the
security and (4) the nature of the  security  and the nature of the  marketplace
trades  (e.g.,  the time  needed  to  dispose  of the  security,  the  method of
soliciting  offers and the mechanics of the transfer.) With respect to municipal
lease  obligations,  the Adviser  also  considers:  (1) the  willingness  of the
municipality  to continue,  annually or  biannually,  to  appropriate  funds for
payment of the lease; (2) the general credit quality of the municipality and the
essentiality to the  municipality of the property  covered by the lease;  (3) an
analysis  of  factors  similar  to  that  performed  by  nationally   recognized
statistical rating organizations in evaluating the credit quality of a municipal
lease  obligation,  including  (i)  whether the lease can be  canceled;  (ii) if
applicable, what assurance there is that the assets represented by the lease can
be sold;  (iii) the strength of the lessee's  general  credit  (e.g.,  its debt,
administrative,  economic and financial  characteristics);  (iv) the  likelihood
that the  municipality  will  discontinue  appropriating  funding for the leased
property because the property is no longer deemed essential to the operations of
the municipality (e.g., the potential for an event of nonappropriation); and (v)
the legal  recourse  in the event of failure to  appropriate;  and (4) any other
factors unique to municipal lease obligations as determined by the Adviser.



                                       6


Repurchase  Agreements.  The Fund may enter into  repurchase  agreements for the
purpose of realizing  additional (taxable) income. In a repurchase agreement the
Fund buys a security  for a  relatively  short  period  (usually not more than 7
days)  subject to the  obligation  to sell it back to the issuer at a fixed time
and price plus accrued interest.  The Fund will enter into repurchase agreements
only with member banks of the Federal Reserve System and with "primary  dealers"
in U.S.  Government  securities.  The  Adviser  will  continuously  monitor  the
creditworthiness  of the  parties  with  whom the Fund  enters  into  repurchase
agreements.

The Fund has  established a procedure  providing that the securities  serving as
collateral  for  each  repurchase  agreement  must be  delivered  to the  Fund's
custodian  either  physically or in book-entry form and that the collateral must
be marked to market  daily to ensure  that each  repurchase  agreement  is fully
collateralized  at all times.  In the event of  bankruptcy or other default by a
seller  of  a  repurchase  agreement,   the  Fund  could  experience  delays  in
liquidating the underlying  securities during the period in which the Fund seeks
to enforce its rights thereto,  possible subnormal levels of income,  decline in
value of the  underlying  securities  or lack of access to  income  during  this
period, as well as the expense of enforcing its rights.

Reverse Repurchase  Agreements.  The Fund may also enter into reverse repurchase
agreements  which  involve the sale of U.S.  Government  securities  held in its
portfolio to a bank with an agreement that the Fund will buy back the securities
at a fixed  future  date at a fixed  price plus an agreed  amount of  "interest"
which may be reflected in the repurchase price.  Reverse  repurchase  agreements
are  considered  to be  borrowings by the Fund.  Reverse  repurchase  agreements
involve the risk that the market value of securities  purchased by the Fund with
proceeds  of the  transaction  may  decline  below the  repurchase  price of the
securities  sold by the Fund which it is obligated to repurchase.  The Fund will
also  continue to be subject to the risk of a decline in the market value of the
securities sold under the agreements  because it will reacquire those securities
upon effecting their repurchase. The Fund will not enter into reverse repurchase
agreements  and other  borrowings  exceeding in the  aggregate 15% 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.  To
minimize various risks associated with reverse repurchase  agreements,  the Fund
will  establish  a separate  account  consisting  of highly  liquid,  marketable
securities  in an  amount  at lease  equal  to the  repurchase  prices  of these
securities (plus accrued interest  thereon) under such agreements.  In addition,
the Fund will not purchase additional  securities while all borrowings exceed 5%
of the value of its total  assets.  The Fund will enter into reverse  repurchase
agreements  only with federally  insured banks or savings and loan  associations
which are  approved  in advance as being  creditworthy  by the  Trustees.  Under
procedures   established   by  the  Trustees,   the  Adviser  will  monitor  the
creditworthiness of the banks involved.

Options on Securities  and Securities  Indices.  The Fund may purchase and write
(sell) call and put options on debt  securities in which it may invest or on any
securities index based on debt securities in which it may invest.  These options
may be listed on national domestic  securities  exchanges or foreign  securities
exchanges or traded in the  over-the-counter  market. The Fund may write covered
put and call options and  purchase put and call options as a substitute  for the
purchase or sale of  securities or to protect  against  declines in the value of
portfolio  securities  and against  increases  in the cost of  securities  to be
acquired.

Writing  Covered  Options.  A call  option  on  securities  written  by the Fund
obligates the Fund to sell specified securities to the holder of the option at a
specified  price if the option is  exercised  at any time before the  expiration
date.  A put  option on  securities  written by the Fund  obligates  the Fund to
purchase specified securities from the option holder at a specified price if the
option  is  exercised  at any  time  before  the  expiration  date.  Options  on
securities  indices  are  similar  to  options on  securities,  except  that the


                                       7


exercise of securities index options requires cash settlement  payments and does
not involve the actual purchase or sale of securities.  In addition,  securities
index  options  are  designed  to  reflect  price  fluctuations  in a  group  of
securities or segment of the securities market rather than price fluctuations in
a single  security.  Writing  covered  call  options may deprive the Fund of the
opportunity  to profit from an increase in the market price of the securities in
its  portfolio.  Writing  covered  put  options  may  deprive  the  Fund  of the
opportunity  to profit from a decrease in the market price of the  securities to
be acquired for its portfolio.

All call and put options written by the Fund are covered.  A written call option
or put option may be covered by (i) maintaining  cash or liquid  securities in a
segregated  account with a value at least equal to the Fund's  obligation  under
the option,  (ii) entering into an offsetting  forward  commitment  and/or (iii)
purchasing  an  offsetting  option or any other option  which,  by virtue of its
exercise  price or  otherwise,  reduces  the Fund's net  exposure on its written
option  position.  A written call option on securities  is typically  covered by
maintaining  the  securities  that are  subject  to the  option in a  segregated
account.  The Fund may  cover  call  options  on a  securities  index by  owning
securities  whose  price  changes  are  expected  to be  similar to those of the
underlying index.

The Fund may  terminate  its  obligations  under an exchange  traded call or put
option by purchasing an option identical to the one it has written.  Obligations
under  over-the-counter  options  may be  terminated  only by  entering  into an
offsetting  transaction with the counterparty to such option. Such purchases are
referred to as "closing purchase transactions."

Purchasing   Options.   The  Fund  would  normally   purchase  call  options  in
anticipation  of an  increase,  or put  options  in  anticipation  of a decrease
("protective  puts") in the market value of  securities  of the type in which it
may  invest.  The Fund may also  sell  call  and put  options  to close  out its
purchased options.

The purchase of a call option would  entitle the Fund, in return for the premium
paid, to purchase  specified  securities at a specified  price during the option
period.  The Fund  would  ordinarily  realize a gain on the  purchase  of a call
option if, during the option period,  the value of such securities  exceeded the
sum of the exercise price, the premium paid and transaction costs; otherwise the
Fund would realize either no gain or a loss on the purchase of the call option.

The purchase of a put option would entitle the Fund, in exchange for the premium
paid,  to sell  specified  securities  at a  specified  price  during the option
period. The purchase of protective puts is designed to offset or hedge against a
decline in the market value of the Fund's portfolio  securities.  The Fund would
ordinarily  realize  a gain if,  during  the  option  period,  the  value of the
underlying   securities  or  currency   decreased   below  the  exercise   price
sufficiently  to cover the premium and  transaction  costs;  otherwise  the Fund
would realize either no gain or a loss on the purchase of the put option.  Gains
and  losses on the  purchase  of put  options  may be  offset by  countervailing
changes  in  the  value  of  the  Fund's  portfolio  securities.  Under  certain
circumstances, the Fund may not be treated as the tax owner of a security if the
Fund has  purchase  a put option on the same  security.  If this  occurred,  the
interest on the security would be taxable.

The Fund's options  transactions  will be subject to limitations  established by
each of the exchanges, boards of trade or other trading facilities on which such
options are traded.  These  limitations  govern the maximum number of options in
each class which may be written or  purchased  by a single  investor or group of
investors  acting in concert,  regardless  of whether the options are written or
purchased on the same or different  exchanges,  boards of trade or other trading


                                       8


facilities or are held or written in one or more accounts or through one or more
brokers. Thus, the number of options which the Fund may write or purchase may be
affected by options written or purchased by other investment advisory clients of
the Adviser. An exchange, board of trade or other trading facility may order the
liquidation  of  positions  found to be in  excess of these  limits,  and it may
impose certain other sanctions.

Risks Associated with Options Transactions.  There is no assurance that a liquid
secondary   market  on  an  options  exchange  will  exist  for  any  particular
exchange-traded  option  or at any  particular  time.  If the Fund is  unable to
effect a closing  purchase  transaction  with respect to covered  options it has
written, the Fund will not be able to sell the underlying  securities or dispose
of  assets  held  in a  segregated  account  until  the  options  expire  or are
exercised.

Similarly,  if the Fund is  unable to effect a  closing  sale  transaction  with
respect to options it has  purchased,  it would have to exercise  the options in
order to realize any profit and will incur  transaction  costs upon the purchase
or sale of underlying securities.

Reasons for the absence of a liquid  secondary market on an exchange include the
following:  (i) there may be insufficient  trading  interest in certain options;
(ii)  restrictions  may be imposed by an  exchange  on opening  transactions  or
closing  transactions  or  both;  (iii)  trading  halts,  suspensions  or  other
restrictions  may be imposed  with  respect to  particular  classes or series of
options;   (iv)  unusual  or  unforeseen   circumstances  may  interrupt  normal
operations  on an  exchange;  (v) the  facilities  of an exchange or the Options
Clearing  Corporation may not at all times be adequate to handle current trading
volume;  or (vi) one or more  exchanges  could,  for economic or other  reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options). If trading were discontinued,  the
secondary  market on that exchange (or in that class or series of options) would
cease to exist.  However,  outstanding  options on that  exchange  that had been
issued  by the  Options  Clearing  Corporation  as a result  of  trades  on that
exchange would continue to be exercisable in accordance with their terms.

The Fund's  ability to terminate  over-the-counter  options is more limited than
with  exchange-traded  options  and may  involve  the risk  that  broker-dealers
participating  in such  transactions  will not fulfill  their  obligations.  The
Sub-Adviser  will  determine  the liquidity of each  over-the-counter  option in
accordance with guidelines adopted by the Trustees.

The  writing  and  purchase of options is a highly  specialized  activity  which
involves  investment  techniques and risks different from those  associated with
ordinary  portfolio  securities  transactions.  The  successful  use of  options
depends  in  part  on  the   Sub-Adviser's   ability  to  predict  future  price
fluctuations and, for hedging  transactions,  the degree of correlation  between
the options and securities markets.

Futures Contracts and Options on Futures Contracts.  To hedge against changes in
interest  rates or  securities  prices,  the Fund may  purchase and sell futures
contracts on debt securities and debt securities indices, and purchase and write
call and put options on these  futures  contracts.  The Fund may also enter into
closing  purchase and sale  transactions  with respect to any of these contracts
and options.  All futures  contracts entered into by the Fund are traded on U.S.
exchanges  or boards of trade that are  licensed,  regulated  or approved by the
Commodity Futures Trading Commission ("CFTC").

Futures Contracts. A futures contract may generally be described as an agreement
between  two parties to buy and sell  particular  financial  instruments  for an
agreed price during a designated  month (or to deliver the final cash settlement


                                       9


price,  in the case of a contract  relating to an index or otherwise not calling
for physical delivery at the end of trading in the contract).

Positions taken in the futures markets are not normally held to maturity but are
instead liquidated through offsetting  transactions which may result in a profit
or a loss.  While futures  contracts on securities will usually be liquidated in
this manner,  the Fund may instead  make,  or take,  delivery of the  underlying
securities  whenever it appears  economically  advantageous to do so. A clearing
corporation  associated with the exchange on which futures  contracts are traded
guarantees  that,  if still open,  the sale or purchase will be performed on the
settlement date.

Hedging and Other  Strategies  with Future  Contracts.  Hedging is an attempt to
establish  with more  certainty  than would  otherwise be possible the effective
price or rate of return on  portfolio  securities  or  securities  that the Fund
proposes to acquire.  When securities  prices are falling,  the Fund can seek to
offset a decline in the value of its current  portfolio  securities  through the
sale of futures contracts.  When securities prices are rising, the Fund, through
the purchase of futures contracts,  can attempt to secure better rates or prices
than  might  later  be  available  in the  market  when it  effects  anticipated
purchases.

The Fund may,  for  example,  take a "short"  position in the futures  market by
selling futures contracts in an attempt to hedge against an anticipated  decline
in market prices that would adversely  affect the value of the Fund's  portfolio
securities. Such futures contracts may include contracts for the future delivery
of securities  held by the Fund or securities  with  characteristics  similar to
those of the Fund's portfolio securities.

If,  in  the  opinion  of the  Sub-Adviser,  there  is a  sufficient  degree  of
correlation between price trends for the Fund's portfolio securities and futures
contracts  based on other debt  securities  or indices,  the Fund may also enter
into such futures contracts as part of its hedging strategy. Although under some
circumstances  prices of securities in the Fund's  portfolio may be more or less
volatile than prices of such futures contracts,  the Sub-Adviser will attempt to
estimate the extent of this volatility  difference based on historical  patterns
and compensate for any  differential  by having the Fund enter into a greater or
lesser  number of futures  contracts or by  attempting to achieve only a partial
hedge against price changes affecting the Fund's portfolio securities.

When a short hedging  position is successful,  any  depreciation in the value of
portfolio  securities will be substantially  offset by appreciation in the value
of the futures position.  On the other hand, any  unanticipated  appreciation in
the value of the Fund's portfolio  securities would be substantially offset by a
decline in the value of the futures position.

On other  occasions,  the Fund may take a "long" position by purchasing  futures
contracts.  This  would be done,  for  example,  when the Fund  anticipates  the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices then available in the applicable  market to be less favorable
than prices that are currently available.

Options on Futures Contracts. The Fund may purchase and write options on futures
for the same purposes as its transactions in futures contracts.  The purchase of
put and call options on futures  contracts will give the Fund the right (but not
the obligation) for a specified price to sell or to purchase,  respectively, the
underlying  futures  contract  at any time  during  the  option  period.  As the
purchaser  of an option on a futures  contract,  the Fund obtains the benefit of
the futures position if prices move in a favorable direction but limits its risk
of loss in the event of an unfavorable price movement to the loss of the premium
and transaction costs.



                                       10


The writing of a call option on a futures contract generates a premium which may
partially offset a decline in the value of the Fund's assets.  By writing a call
option, the Fund becomes  obligated,  in exchange for the premium (upon exercise
of the option) to sell a futures contract if the option is exercised,  which may
have a value higher than the exercise  price.  Conversely,  the writing of a put
option on a futures  contract  generates a premium which may partially offset an
increase in the price of securities that the Fund intends to purchase.  However,
the Fund becomes  obligated  (upon exercise of the option) to purchase a futures
contract  if the  option is  exercised,  which may have a value  lower  than the
exercise  price.  The loss incurred by the Fund in writing options on futures is
potentially unlimited and may exceed the amount of the premium received.

The  holder or writer of an option  on a  futures  contract  may  terminate  its
position by selling or purchasing an offsetting option of the same series. There
is no guarantee  that such  closing  transactions  can be  effected.  The Fund's
ability to establish  and close out positions on such options will be subject to
the development and maintenance of a liquid market.

Other  Considerations.  The Fund will  engage in  futures  and  related  options
transactions  either for bona fide hedging purposes or to seek to increase total
return as  permitted by the CFTC.  To the extent that the Fund is using  futures
and related  options for hedging  purposes,  futures  contracts  will be sold to
protect  against a  decline  in the  price of  securities  that the Fund owns or
futures  contracts  will be purchased to protect the Fund against an increase in
the price of securities it intends to purchase. The Fund will determine that the
price  fluctuations  in the futures  contracts  and options on futures  used for
hedging purposes are substantially  related to price  fluctuations in securities
held by the Fund or securities or instruments  which it expects to purchase.  As
evidence  of its hedging  intent,  the Fund  expects  that on 75% or more of the
occasions on which it takes a long  futures or option  position  (involving  the
purchase of futures contracts),  the Fund will have purchased, or will be in the
process of  purchasing,  equivalent  amounts of related  securities  in the cash
market at the time when the futures or option  position is closed out.  However,
in particular cases, when it is economically advantageous for the Fund to do so,
a long futures  position may be terminated  or an option may expire  without the
corresponding purchase of securities or other assets.

Transactions  in futures  contracts  and  options on futures  involve  brokerage
costs,  require  margin  deposits  and,  in the case of  contracts  and  options
obligating  the Fund to purchase  securities,  require  the Fund to  establish a
segregated account consisting of cash or liquid securities in an amount equal to
the underlying value of such contracts and options.

While  transactions  in futures  contracts  and  options  on futures  may reduce
certain risks,  these  transactions  themselves  entail certain other risks. For
example, unanticipated changes in interest rates or securities prices may result
in a poorer overall performance for the Fund than if it had not entered into any
futures contracts or options transactions.

Perfect correlation between the Fund's futures positions and portfolio positions
will be impossible to achieve. In the event of an imperfect  correlation between
a futures  position and a portfolio  position which is intended to be protected,
the desired  protection  may not be obtained and the Fund may be exposed to risk
of loss.

Some futures  contracts or options on futures may become  illiquid under adverse
market conditions. In addition, during periods of market volatility, a commodity
exchange may suspend or limit trading in a futures  contract or related  option,
which may make the  instrument  temporarily  illiquid  and  difficult  to price.
Commodity exchanges may also establish daily limits on the amount that the price
of a  futures  contract  or  related  option  can vary from the  previous  day's


                                       11


settlement  price.  Once the daily limit is reached,  no trades may be made that
day at a price  beyond the limit.  This may  prevent  the Fund from  closing out
positions and limiting its losses.

Structured  or Hybrid  Notes.  The Fund may invest in  "structured"  or "hybrid"
notes.  The  distinguishing  feature of a structured  or hybrid note is that the
amount  of  interest  and/or  principal  payable  on the  note is  based  on the
performance of a benchmark asset or market other than fixed income securities or
interest  rates.  Examples of these  benchmarks  include stock prices,  currency
exchange rates and physical  commodity  prices.  Investing in a structured  note
allows  the Fund to gain  exposure  to the  benchmark  market  while  fixing the
maximum  loss that the Fund may  experience  in the event that  market  does not
perform as expected. Depending on the terms of the note, the Fund may forego all
or part of the  interest  and  principal  that would be payable on a  comparable
conventional  note; the Fund's loss cannot exceed this foregone  interest and/or
principal. An investment in structured or hybrid notes involves risks similar to
those associated with a direct investment in the benchmark asset.

Indexed  Securities.  The Fund  may  invest  in  indexed  securities,  including
floating rate  securities  that are subject to a maximum  interest rate ("capped
floaters") and leveraged inverse floating rate securities  ("inverse  floaters")
(up to 10% of the Fund's total assets). The interest rate or, in some cases, the
principal  payable at the maturity of an indexed security may change  positively
or inversely in a relation to one or more interest rates,  financial indices, or
other financial  indicators  ("reference  prices").  An indexed  security may be
leveraged to the extent that the magnitude of any change in the interest rate or
principal  payable on an  indexed  security  is a multiple  of the change in the
reference price.  Thus,  indexed  securities may decline in value due to adverse
market charges in interest rates or other reference prices.

Variable or Floating Rate  Obligations.  Certain of the obligations in which the
Fund may  invest may be  variable  or  floating  rate  obligations  on which the
interest rate is adjusted at predesignated periodic intervals (variable rate) or
when there is a change in the market rate of interest on which the interest rate
payable on the obligation is based  (floating  rate).  Variable or floating rate
obligations  may include a demand feature which entitles the purchaser to demand
prepayment of the principal  amount prior to stated  maturity.  Also, the issuer
may have a corresponding right to prepay the principal amount prior to maturity.
Variable  and  floating  rate   instruments  are  generally   considered  to  be
"derivative"  instruments  because they derive their values from the performance
of an underlying asset, index or other benchmark.  See "Derivative  Instruments"
below. As with any other type of debt security, the marketability of variable or
floating rate instruments may vary depending upon a number of factors, including
the type of issuer and the terms of the instruments. The Fund may also invest in
more recently  developed floating rate instruments which are created by dividing
a municipal  security's  interest  rate into two or more  different  components.
Typically,  one component  ("floating rate component" or "FRC") pays an interest
rate that is reset periodically through an auction process or by reference to an
interest rate index. A second  component  ("inverse  floating rate component" or
"IFRC") pays an interest rate that varies inversely with changes to market rates
of  interest,  because  the  interest  paid to the  IFRC  holders  is  generally
determined  by  subtracting  a variable  or floating  rate from a  predetermined
amount (i.e.,  the  difference  between the total interest paid by the municipal
security  and  that  paid by the  FRC).  The  Fund may  purchase  FRC's  without
limitation. Up to 10% of the Fund's total assets may be invested in IFRC's in an
attempt to protect  against a reduction in the income earned on the Fund's other
investments  due to a decline in interest  rates.  The extent of  increases  and
decreases  in the value of an IFRC  generally  will be greater  than  comparable
changes  in the value of an equal  principal  amount of a  fixed-rate  municipal
security having similar credit quality,  redemption  provisions and maturity. To
the  extent  that  IFRCs  are  not  readily  marketable,  as  determined  by the
Sub-Adviser  pursuant to guidelines adopted by the Board of Trustees,  they will


                                       12


be considered illiquid for purposes of the Fund's 15% investment  restriction on
investment in illiquid securities.

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. The risk of early  prepayments
is the primary risk associated with interest only debt securities ("IOs"), super
floaters and other leveraged floating rate instruments. 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.

Derivative debt 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"),  leveraged  inverse floating rate securities  ("inverse  floaters"),
principal only debt securities  ("POs") and certain residual or support branches
of index amortizing notes.  Index amortizing notes 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 present an
especially intense combination of prepayment, extension and interest rate risks.

Other types of floating rate  derivative  debt  securities  present more complex
types of interest  rate risks.  For example,  range  floaters are subject to the
risk that the  coupon  will be  reduced to below  market  rates if a  designated
interest rate floats outside of a specified  interest rate band or collar.  Dual
index or yield curve  floaters  are subject to  depreciation  in the event of an
unfavorable change in the spread between two designated interest rates. X- reset
floaters  have a coupon that  remains  fixed for more than one  accrual  period.
Thus, the type of risk involved in these securities depends on the terms of each
individual X-reset floater.

Forward Commitment and When-Issued Securities.  The Fund may purchase securities
on a  when-issued  basis  and may  purchase  or  sell  securities  on a  forward
commitment  basis to hedge  against  anticipated  changes in interest  rates and
prices.  "When-issued"  refers to  securities  whose terms are available and for
which a market exists,  but which have not been issued.  The Fund will engage in
when-issued  transactions with respect to securities purchased for its portfolio
in order to obtain what is considered to be an  advantageous  price and yield at
the time of the transaction.  For when-issued  transactions,  no payment is made
until  delivery is due,  often a month or more after the purchase.  In a forward
commitment transaction,  the Fund contracts to purchase or sell securities for a
fixed price at a future date beyond customary settlement time.

When the Fund engages in forward  commitment and  when-issued  transactions,  it
relies on the seller to consummate the transaction. The failure of the issuer or
seller  to  consummate  the  transaction  may  result  in the  Fund  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 the Fund  enters  into an  agreement  to  purchase  securities  on a
when-issued or forward  commitment  basis, the Fund will segregate in a separate
account cash or liquid securities equal 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   commitments.
Alternatively, the Fund may enter into offsetting contracts for the forward sale
of other securities that it owns.



                                       13


Swaps,  Caps,  Floors  and  Collars.  As one way of  managing  its  exposure  to
different types of investments, the Fund may enter into interest rate swaps, and
other types of swap  agreements such as caps,  collars and floors.  In a typical
interest  rate  swap,  one party  agrees  to make  regular  payments  equal to a
floating  interest  rate  times a  "notional  principal  amount,"  in return for
payments equal to a fixed rate times the same amount,  for a specified period of
time.  Swaps may also depend on other  prices or rates,  such as the value of an
index or mortgage prepayment rates.

In a typical cap or floor  agreement,  one party  agrees to make  payments  only
under  specified  circumstances,  usually in return for  payment of a fee by the
other party. For example, the buyer of an interest rate cap obtains the right to
receive  payments  to the  extent  that a  specified  interest  rate  exceeds an
agreed-upon  level,  while the seller of an interest  rate floor is obligated to
make  payments  to the extent  that a  specified  interest  rate falls  below an
agreed-upon level. An interest rate collar combines elements of buying a cap and
selling a floor.

Swap agreements will tend to shift the Fund's investment  exposure from one type
of  investment to another.  Caps and floors have an effect  similar to buying or
writing options. Depending on how they are used, swap agreements may increase or
decrease the overall  volatility of a Fund's investments and its share price and
yield.

Swap agreements are sophisticated  hedging  instruments that typically involve a
small  investment  of cash  relative to the  magnitude  of risks  assumed.  As a
result,  swaps can be highly volatile and may have a considerable  impact on the
Fund's  performance.  Swap  agreements  are  subject  to  risks  related  to the
counterpart's  ability to perform, and may decline in value if the counterpart's
credit worthiness deteriorates.  The Fund may also suffer losses if it is unable
to  terminate  outstanding  swap  agreements  or  reduce  its  exposure  through
offsetting transactions. The Fund will maintain in a segregated account with its
custodian,  cash or liquid,  high grade debt securities equal to the net amount,
if any,  of the  excess of the  Fund's  obligations  over its  entitlement  with
respect to swap, cap, collar or floor transactions.

Lending of Securities.  For purposes of realizing  additional  (taxable) income,
the Fund may lend  portfolio  securities  to  brokers,  dealers,  and  financial
institutions if the loan is collateralized by cash or U.S. Government securities
according to applicable regulatory requirements.  The Fund may reinvest any cash
collateral in short-term  securities and money market funds. When the Fund lends
portfolio  securities,  there is a risk that the borrower may fail to return the
securities  involved in the transaction.  As a result, the Fund may incur a loss
or, in the event of the  borrower's  bankruptcy,  the Fund may be  delayed in or
prevented from  liquidating  the collateral.  It is a fundamental  policy of the
Fund not to lend portfolio  securities having a total value exceeding 33 1/3% of
its total assets.

Short-Term Trading and Portfolio Turnover. Short-term trading means the purchase
and subsequent sale of a security after it has been held for a relatively  brief
period of time. The Fund may engage in short-term trading in response to changes
in  interest  rates  or  other  economic  trends  and  developments,  or to take
advantage of yield disparities  between various fixed income securities in order
to realize  capital  gains or improve  income.  Short term  trading may have the
effect of increasing  portfolio turnover rate. A high rate of portfolio turnover
(100% or greater)  involves  correspondingly  greater  brokerage  expenses.  The
Fund's  portfolio  turnover  rate is set  forth in the table  under the  caption
"Financial Highlights" in the Prospectus.


                                       14


SPECIAL RISKS

Special Considerations  relating to California Tax-Exempt Securities.  Since the
Fund concentrates its investments in California Tax-Exempt Securities,  the Fund
will be affected by any political, economic or regulatory developments affecting
the ability of California issuers to pay interest or repay principal.

General

RECENT DEVELOPMENTS REGARDING STATE FINANCES

California has historically  experienced  large  fluctuations in tax revenues in
response  to  economic  changes.  Despite  the  state's  strengths  as a  large,
diversified  and  wealthy  economy,   and  its  relatively   favorable  economic
performance verses the national averages,  the state's fiscal stability has been
periodically  challenged.  Administrative  and legal  restrictions  on  spending
allocations and requirement of a 2/3 majority vote to approve the budget and any
tax initiatives also inhibit the state's financial flexibility.  In the event of
an economic  downturn,  the state can  frequently  be challenged to respond in a
timely fashion with budget adjustments.  As a result, the state has periodically
been subject to multiple year deficits when the economy  slows.  An active voter
initiative process adds additional  volatility to the state.  Beginning in 2001,
the state experienced its most recent economic  downturn.  Results did not begin
to turn upward  until  2004.  In 2003,  Governor  Grey Davis was  recalled  from
office,  and Governor Arnold  Schwarzenegger  took office.  Since that time, the
state has made steady economic and fiscal process,  gradually  rebuilding fiscal
health.  The state  was  upgraded  in 2005 to  (A2/A/A)  from  Moody's/S&P/Fitch
respectively).

Current State Budget

The 2005-06  Governor's  Budget,  estimated a $9.1 billion gap between resources
and expenditures  that was closed  primarily  through the use of $1.7 billion of
Economic  Recovery Bonds,  suspending the $1.3 billion transfer from the General
Fund of sales taxes on fuel pursuant to Proposition 42, not  appropriating  $2.3
billion of Proposition 98 increases, and other spending reductions.  The 2005-06
May  Revision  released on May 13, 2005  reflected  an increase in General  Fund
Revenues  over the  2004-05  and  2005-06  time  periods  due to the tax amnesty
program. With the increased revenues, the May Revision proposed to eliminate the
use of  Economic  Recovery  Bonds,  fully  fund  transportation  programs  under
Proposition 42, and pay back 50% of the Vehicle  License Fee Gap,  (subsequently
increased to 100% at Budget Act) owed to local governments.

Under the 2005 Budget Act,  General Fund revenues and transfers are projected to
increase  5.7% from $79.9  billion in fiscal  year  2004-05 to $84.5  billion in
Fiscal Year 2005-06.  The revenue  projections  assume  continued but moderating
growth in  California's  economy.  The 2005  Budget Act  contains  General  Fund
appropriations  of $90.0  billion,  compared to $81.7  billion in  2004-05.  The
difference between revenues and expenditures in Fiscal year 2005-06 is funded by
using a part of the $7.5 billion  fund  balance at June 30,  2005.  The June 30,
2006 reserve is projected to be $1.302  billion,  compared to an estimated  June
30, 2005  reserve of $6.857  billion.  About $900 million of the reserve will be
set aside for  payment  in fiscal  year  2006-07  of tax  refunds  and other tax
amnesty  adjustments.  The 2005  Budget  Act was  substantially  similar  to the
Governor's  May Revision  proposals,  and contains  fully funded  Proposition 98
enrollment growth and 4.23% cost of living increase. The budget reflects savings
of $3.8 billion in 2004-05,  which will be restored to the Proposition 98 budget
in future  years.  The budget  marks the first  year of  funding  for the Higher


                                       15


Education  Compact,  signed  in spring  2004  with  both UC and CSU to  provided
funding stability for enrollment growth and basis support over the next 6 fiscal
years.  Health and Human Services  spending  increases by 8.5% to $27.1 billion.
The budget  reflects the  suspension of the CalWORKS  grant COLA's,  and federal
fiscal relief of $223 million due to  implementing a statewide  automated  child
support system.  The budget fully funds STRS  obligation,  fully repays the $1.2
billion vehicle  license fee offset program;  and fully funds the Proposition 42
transfer  at $1.3  billion,  (although  it assumes $1  billion is  provided  for
transportation  from Gaming  Compact  Revenues).  Finally the budget assumes the
state's issuance of pension obligation bonds that are subject to litigation. The
Legislative Analysts office "LAO", however, still projects a budget shortfall of
about  $4.1  billion  in fiscal  year  2006-2007  and a deficit of $4 billion in
fiscal year  2007-08,  barring any  budgetary  changes in the  interim.  Several
structural  reform  proposals  from the Governor  were placed on the November 8,
2005 ballot. None of these reforms were approved.

Fiscal 2004-05 Budget

The 2004 Budget Act was adopted by the  Legislature on July 29, 2004, and signed
by the Governor on July 31,  2004.  General Fund  expenditures  were  originally
estimated at $80.7 billion. The June 30, 2005 reserve was initially projected to
be $768  million..  The 2004 budget  addressed a projected  $13.9 billion budget
shortfall  through  expenditures  cuts  ($4.0  billion),  cost  avoidance  ($4.4
billion),  fund shifts ($1.6  billion),  loans or borrowing  ($2.1  billion) and
transfers and other revenues ($1.8 billion).

The May Revision of the 2005-06 Governor's  budget,  (released on May 13, 2005),
projected  that the State would end fiscal year 2004-05 with a reserve of $6.073
billion, up approximately  $5.305 billion from estimates made at the time of the
2004 Budget Act.  General Fund  revenues  were  projected at $79.9  billion,  an
increase  of $2.6  billion  compared  with 2004  Budget Act  estimates.  The May
Revision  incorporated  $3.779  billion  increase  in major tax  revenues;  $281
million loss from delayed tribal gaming compacts;  $577 million loss in revenues
due to pending  litigation  contesting the issuance of pension  obligation bonds
and $3.457 billion gain to beginning  balance for tax amnesty  payments which is
offset by a $1.364  billion  loss in revenues  related to  refunds/accelerations
related  to  amnesty  revenues.  Under the  2005-06  Budget  Act,  General  Fund
expenditures for Fiscal 2004-05 are projected at $81.7 billion,  and increase of
$1.0 billion compared with 2004 Budget Act estimates.

Recent Budgets

Since  mid 2001 the  State  has faced  severe  financial  challenges.  While the
state's  job  losses  have  been less than the  national  average,  California's
relatively high income tax rates translate into revenues that are very sensitive
to changes in personal  income and capital gains and losses.  The State's fiscal
year runs from July 1st to June 30th.  Tax  revenues  plummeted in late FY01 and
FY02,  putting  the state in a  deficit  position  FY 2002  with a $2.3  billion
deficit.  In Fiscal Year  2003-04,  the state  utilized  external  and  internal
borrowings  and payment  deferrals,  accelerations  and transfers to address the
budget deficit, and closed the year with a reserve of $1.7 billion.

Rating  Agencies.  The state's credit ratings are currently A2 by Moody's,  A by
Standard & Poor's and A by Fitch.

Constitutional  Considerations.  Changes in California  laws during the last two
decades have limited the ability of California  State and  municipal  issuers to
obtain sufficient revenue to pay their bond obligations.



                                       16


In 1978, California voters approved an amendment to the California  Constitution
under Article XIIIA known as  Proposition  13.  Proposition 13 limits ad valorem
(according  to value) taxes on real property and restricts the ability of taxing
entities to increase real property taxes and assessments, and limits the ability
of local  governments  to raise other taxes.  In November  1996, the voters also
approved  Proposition 218 which added Articles XIIIC and XIIID to the California
Constitution and further defines and extends situations  limiting the ability of
localities to impose taxes or change tax rates without voter approval.  The full
impact of Prop 218 on  outstanding  and  proposed  taxes  will  require  further
clarification through court rulings on specific legal tests and challenges.

Article  XIII B of  the  California  Constitution  (the  "Appropriation  Limit")
imposes a limit on annual  appropriations.  Originally  adopted in 1979, Article
XIII B was modified by Proposition 98 in 1988 and  Proposition  111 in 1990. The
appropriations  subject to the Article  consist of tax proceeds that include tax
revenues and certain  other funds.  Excluded from the  Appropriation  Limits are
prior (pre 1979) debt  service  and  subsequent  debt  incurred as the result of
voter  authorizations,  court  mandates,  qualified  capital outlay projects and
certain increases in gasoline taxes and motor vehicle weight fees. Certain civil
disturbance  emergencies declared by the Governor and appropriations approved by
a two-thirds  vote of the  legislature  are excluded from the  determination  of
excess  appropriations,  and the appropriations limit may be overridden by local
voter approval for up to a four-year period.

On November  8, 1988,  California  voters  approved  Proposition  98, a combined
initiative   constitutional   amendment  and  statute   called  "the   Classroom
Instruction  Improvement and Accountability  Act." This amendment changed school
funding below the University level by guaranteeing  K-14 schools a minimum share
of General Fund  Revenues.  Suspension  of the  Proposition  98 funding  formula
requires  a  two-thirds  vote of  Legislature  and the  Governor's  concurrence.
Proposition 98 also contains provisions  transferring certain funds in excess of
the Article III B limit to K-14 schools.

As amended by Proposition 111, the Appropriation Limit recalculated  annually by
taking the actual  FY1986-1987  limit and applying the  Proposition  111 cost of
living and  population  adjustments  as if that  limit had been in  effect.  The
Appropriations  Limit is tested over  consecutive  two-year  periods  under this
amendment.  Any excess  "proceeds of taxes"  received over such two-year  period
above the  Appropriation  Limits  for the  two-year  period is  divided  equally
between transfers to K-14 and taxpayers.

At a special  election  held in October  2003,  the Governor of the State,  Gray
Davis,  was recalled and replaced by Arnold  Schwarzenegger,  who took office in
November.  The new Governor  proposed a  Constitutional  spending  limit for the
State's 2004-05 Budget. In March 2004,  California voters approved two companion
ballot  propositions  that were  sponsored by the new Governor.  Proposition  57
authorizes  the  issuance  of up to $15 billion in  economic  recovery  bonds to
finance  previous budget deficits.  Proposition 58, a  constitutional  amendment
called the  "Balanced  Budget  Amendment,"  implemented  changes in State budget
procedures designed to mandate balanced budgets in the future, to allow mid-year
budget  adjustment  powers,  to require the creation of a special budget reserve
account,  and to prohibit  future  long-term  bond  issuances for the purpose of
funding budget deficits once the bonds approved by Proposition 57 are issued.

California  voters also approved in March 2004 a constitutional  amendment,  ACA
11, which  requires the transfer of General Fund  revenues to finance  state and
local  infrastructure  projects,  subject to the General Fund meeting  specified
levels.  The transfer  could  increase  annually until it reaches a maximum of 3


                                       17


percent by  2013-14.  ACA 11 also  provides  for a portion of  one-time  revenue
windfalls to be set aside for one-time infrastructure expenditures.

Certain  debt  obligations  held by the Fund may be  payable  solely  from lease
payments  on real  property  leased to the  State,  counties,  cities or various
public  entities  structured  in such a way as to not  constitute  a debt to the
leasing entity. To ensure that a debt is not technically created, California law
requires that the lessor can  proportionally  reduce its lease payments equal to
its loss of beneficial use and occupancy. Moreover, the lessor does not agree to
pay lease payments  beyond the current  period;  it only agrees to include lease
payments in its annual  budget every year.  In the event of a default,  the only
remedy  available  against the lessor is that of reletting the property or suing
annually for the rents due; no acceleration of lease payments is permitted.

The Fund also holds debt obligations  payable solely from the revenues of health
care  institutions.  Certain provisions under California state law may adversely
affect these revenues and, consequently, payment of those debt obligations.

The Federally  sponsored  Medicaid  program for health care services to eligible
welfare  recipients is known as the Medi-Cal program.  In the past, the Medi-Cal
program has provided a cost-based  system of  reimbursement  for impatient  care
furnished  to Medi-Cal  beneficiaries  by any eligible  hospital.  The State now
selectively   contracts   by  county  with   California   hospitals  to  provide
reimbursement for non-emergency  inpatient  services to Medi-Cal  beneficiaries,
generally on a flat per-diem  payment basis  regardless of cost.  California law
also permits  private  health plans and  insurers to contract  selectively  with
hospitals for services to beneficiaries on negotiated terms,  generally at rates
lower than standard charges.

Debt  obligations  payable solely from revenues of health care  institutions may
also be insured by the state  pursuant to an insurance  program  operated by the
Office of Statewide Health Planning and Development (the "Office"). Most of such
debt  obligations  are  secured by a mortgage  of real  property in favor of the
Office and the holders.  If a default  occurs on such insured debt  obligations,
the Office has the option of either continuing to meet debt service  obligations
or  foreclosing  the  mortgage  and  requesting  the  State  Treasurer  to issue
debentures  payable from a reserve fund established  under the insurance fund or
payable from appropriated state funds.

Security  for  certain  debt  obligations  held by the  Fund may be in form of a
mortgage or deed of trust on real property.  California has statutory provisions
which limit the  remedies of a creditor  secured by a mortgage or deed of trust.
Principally,  the  provisions  establish  conditions  governing  the limits of a
creditor's  right  to a  deficiency  judgment.  In the  case of a  default,  the
creditor's rights under the mortgage or deed of trust are subject to constraints
imposed by California real property law upon transfers of title to real property
by private  power of sale.  These laws  require  that the loan must have been in
arrears for at least seven  months  before  foreclosure  proceedings  can begin.
Under California's  anti-deficiency  legislation,  there is no personal recourse
against a  mortgagor  of  single-family  residence  regardless  of  whether  the
creditor chooses judicial or non-judicial  foreclosure.  These disruptions could
disrupt the stream of revenues available to the issuer for paying debt service.

Under  California law,  mortgage loans secured by  single-family  owner-occupied
dwellings may be prepaid at any time.  Prepayment changes on such mortgage loans
may be imposed  only with respect to  voluntary  payments  made during the first
five years of the  mortgage  loan,  and cannot in any event  exceed six  months,
advance  interest  on the  amount  prepaid  in  excess  of  20% of the  original
principal  amount of the mortgage loan. This limitation could affect the flow of
revenues  available  to the issuer for debt  service on these  outstanding  debt
obligations.



                                       18


Substantially  all of California  is located  within an active  geologic  region
subject to major seismic activity.  Any California  municipal  obligation in the
Fund  could be  affected  by an  interruption  of  revenues  because  of damaged
facilities,  or,  consequently,  income tax  deductions  for casualty  losses or
property tax assessment  reductions.  Compensatory financial assistance could be
constrained  by the  inability  of (1) an  issuer  to have  obtained  earthquake
insurance coverage at reasonable rates; (2) an issuer to perform on its contract
of  insurance  in the event of  widespread  losses;  or (3) the Federal or State
government  to  appropriate  sufficient  funds  within their  respective  budget
limitations.

As described in the summary above,  the Fund's  investments  are  susceptible to
possible  adverse  effects of the complex  political,  economic  and  regulatory
matters  affecting  California  issuers.  In  the  view  of the  Adviser,  it is
impossible  to determine the impact of any  legislation,  voter  initiatives  or
other similar measures which have been or may be introduced to limit or increase
the taxing or spending  authority of state and local  governments  or to predict
such  governments'  abilities to pay the interest on, or repay the principal of,
their obligations.

Legislation   limiting   taxation  and  spending   may,   however,   affect  the
creditworthiness  of state or local agencies in the future. If either California
or any of its  local  governmental  entities  is  unable  to meet its  financial
obligations, the income derived by the Fund, its net asset value, its ability to
preserve or realize  capital  appreciation  or its liquidity  could be adversely
affected.

Portfolio  Holdings  Disclosure  Policy.  A description of the Fund's  portfolio
holding   disclosure   policy  is  attached  to  this  Statement  of  Additional
Information as Appendix E.

INVESTMENT RESTRICTIONS

Fundamental Investment Restrictions.  The following investment restrictions will
not be changed without approval of a majority of the Fund's  outstanding  voting
securities  which,  as used in the  Prospectus  and this Statement of Additional
Information,  means  approval by the lesser of (1) the holders of 67% or more of
the  Fund's  shares  represented  at a meeting  if more  than 50% of the  Fund's
outstanding shares are present in person or by proxy at that meeting or (2) more
than 50% of the Fund's outstanding shares.

The Fund may not:

     (1)  Borrow money,  except: (i) for temporary or short-term purposes or for
          the clearance of  transactions in amounts not to exceed 33 1/3% of the
          value of the fund's total assets (including the amount borrowed) taken
          at market value; (ii) in connection with the redemption of fund shares
          or  to  finance  failed   settlements  of  portfolio   trades  without
          immediately liquidating portfolio securities or other assets, (iii) in
          order  to  fulfill   commitments  or  plans  to  purchase   additional
          securities pending the anticipated sale of other portfolio  securities
          or assets;  (iv) in connection  with entering into reverse  repurchase
          agreements  and dollar  rolls,  but only if after each such  borrowing
          there is asset  coverage  of at least 300% as defined in the 1940 Act;
          and (v) as  otherwise  permitted  under the 1940 Act.  For purposes of
          this  investment  restriction,  the  deferral  of  trustees'  fees and
          transactions  in short sales,  futures  contracts,  options on futures
          contracts,  securities or indices and forward commitment  transactions
          shall not constitute borrowing.



                                       19


     (2)  Invest in  commodities  or  commodity  futures  contracts,  except for
          transactions in financial derivative contracts.  Financial derivatives
          include forward currency  contracts;  financial  futures contracts and
          options on  financial  futures  contracts;  options  and  warrants  on
          securities,  currencies and financial  indices;  swaps,  caps, floors,
          collars and  swaptions;  and  repurchase  agreements  entered  into in
          accordance with the fund's investment policies.

     (3)  Make loans, except that the fund may (i) lend portfolio  securities in
          accordance  with the fund's  investment  policies up to 33 1/3% of the
          fund's total assets taken at market value,  (ii) enter into repurchase
          agreements,  and  (iii)  purchase  all or a  portion  of an  issue  of
          publicly  distributed  debt  securities,   interests  in  bank  loans,
          including   without   limitation,    participation   interests,   bank
          certificates  of deposit,  bankers'  acceptances,  debentures or other
          securities,  whether  or not the  purchase  is made upon the  original
          issuance of the securities.

     (4)  The fund may not  invest 25% or more of the value of its assets in any
          one  industry,  provided  that this  limitation  does not apply to (i)
          tax-exempt  municipal securities other than those tax-exempt municipal
          securities  backed  only by assets and  revenues  of  non-governmental
          issuers  and (ii)  obligations  of the U.S.  Government  or any of its
          agencies, instrumentalities or authorities.

     (5)  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.

     (6)  Purchase or sell real estate, real estate investment trust securities.
          This limitation shall not prevent the Fund from investing in municipal
          securities  secured  by real  estate or  interests  in real  estate or
          holding  real estate  acquired  as a result of owning  such  municipal
          securities.

     (7)  Issue any senior securities,  except insofar as the Fund may be deemed
          to have  issued a  senior  security  by:  entering  into a  repurchase
          agreement;  purchasing securities on a when-issued or delayed delivery
          basis;   purchasing  or  selling  any  options  or  financial  futures
          contract;  borrowing  money or lending  securities in accordance  with
          applicable investment restrictions.

Non-Fundamental  Investment Restrictions.  The following investment restrictions
are  designated as  non-fundamental  and may be changed by the Trustees  without
shareholder approval.

The Fund may not:

1.   Purchase a security if, as a result,  (i) more than 10% of the fund's total
     assets would be invested in the securities of other  investment  companies,
     (ii) the fund  would  hold  more than 3% of the  total  outstanding  voting
     securities  of any one  investment  company,  or (iii)  more than 5% of the
     Fund's  total  assets  would  be  invested  in the  securities  of any  one
     investment company. These limitations do not apply to (a) the investment of
     cash  collateral,  received by the fund in  connection  with lending of the
     fund's  portfolio  securities,  in the  securities  of open-end  investment
     companies  or (b) the  purchase  of shares  of any  investment  company  in
     connection  with a merger,  consolidation,  reorganization  or  purchase of
     substantially all of the assets of another investment  company.  Subject to
     the above percentage limitations, the fund may, in connection with the John
     Hancock  Group  of  Funds  Deferred   Compensation   Plan  for  Independent


                                       20


     Trustees/Directors,  purchase  securities  of  other  investment  companies
     within the John Hancock Group of Funds.

2.   Invest for the  purpose of  exercising  control  or  management  of another
     company.

3.   Purchase  securities  on  margin,  except  that the Fund  may  obtain  such
     short-term  credits as may be necessary  for the  clearance  of  securities
     transactions.

4.   Invest more than 15% of its net assets in securities which are illiquid.

Except  with  respect  to  borrowing  money,  if  a  percentage  restriction  on
investment or utilization of assets as set forth above is adhered to at the time
an investment is made, a later change in  percentage  resulting  from changes in
the  value of the  Fund's  assets  will not be  considered  a  violation  of the
restriction.

THOSE RESPONSIBLE FOR MANAGEMENT

The business of the Fund is managed by its Trustees,  including certain Trustees
who are not  "interested  persons"  of the Fund or the Trust (as  defined by the
Investment Company Act of 1940) (the "Independent Trustees"), who elect officers
who are  responsible  for the day-to-day  operations of the Fund and who execute
policies formulated by the Trustees. Several of the officers and Trustees of the
Fund are also officers or Directors of the Adviser, or officers and Directors of
the Fund's principal distributor,  John Hancock Funds, LLC (prior to February 1,
2002, John Hancock Funds, Inc.) ("John Hancock Funds or the "Distributor").



                                       21




                                                                                             
- ---------------------------- -------------- ----------- ------------------------------------------------ -------------
                                                                                                         Number of
                                                                                                         John
                                                                                                         Hancock
                             Position(s)    Trustee/                                                     Funds
Name, Address (1)            Held with      Officer     Principal Occupation(s) and other                Overseen by
And Age                      Fund           since (2)   Directorships  During Past 5 Years               Trustee
- ---------------------------- -------------- ----------- ------------------------------------------------ -------------
Independent Trustees
- ---------------------------- -------------- ----------- ------------------------------------------------ -------------
James F. Carlin              Trustee        1994        Director and Treasurer, Alpha Analytical         53
Born:  1940                                             Laboratories (chemical analysis); Part Owner
                                                        and Treasurer, Lawrence Carlin Insurance
                                                        Agency, Inc. (since 1995); Part Owner and Vice
                                                        President, Mone Lawrence Carlin Insurance
                                                        Agency, Inc. (since 1996); Director/Treasurer,
                                                        Rizzo Associates (engineering) (until 2000);
                                                        Chairman and CEO, Carlin Consolidated, Inc.
                                                        (management/investments); Director/Partner,
                                                        Proctor Carlin & Co., Inc. (until 1999);
                                                        Trustee, Massachusetts Health and Education
                                                        Tax Exempt Trust; Director of the following:
                                                        Uno Restaurant Corp. (until 2001), Arbella
                                                        Mutual (insurance) (until 2000), HealthPlan
                                                        Services, Inc. (until 1999), Flagship
                                                        Healthcare, Inc. (until 1999), Carlin
                                                        Insurance Agency, Inc. (until 1999); Chairman,
                                                        Massachusetts Board of Higher Education (until
                                                        1999)

- ---------------------------- -------------- ----------- ------------------------------------------------ -------------
Richard P. Chapman, Jr.      Trustee        2005        President and Chief Executive Officer,           53
Born:  1935                                             Brookline Bancorp., Inc.  (lending) (since
                                                        1972); Chairman and Director, Lumber Insurance
                                                        Co. (insurance) (until 2000); Chairman and
                                                        Director, Northeast Retirement Services, Inc.
                                                        (retirement administration) (since 1998).

- ---------------------------- -------------- ----------- ------------------------------------------------ -------------

(1)  Business address for independent and non-independent  Trustees and officers
     is 601 Congress Street, Boston, Massachusetts 02210-2805.
(2)  Each Trustee serves until  resignation,  retirement age or until her or his
     successor is elected.
(3)  Non-Independent   Trustee:  holds  positions  with  the  Fund's  investment
     adviser, underwriter, and/ or certain other affiliates.


                                       22




                                                                                             
- ---------------------------- -------------- ----------- ------------------------------------------------ -------------
                                                                                                         Number of
                                                                                                         John
                                                                                                         Hancock
                             Position(s)    Trustee/                                                     Funds
Name, Address (1)            Held with      Officer     Principal Occupation(s) and other                Overseen by
And Age                      Fund           since (2)   Directorships  During Past 5 Years               Trustee
- ---------------------------- -------------- ----------- ------------------------------------------------ -------------
Independent Trustees
- ---------------------------- -------------- ----------- ------------------------------------------------ -------------

William H. Cunningham        Trustee        1989        Former Chancellor, University of Texas System    143
Born:  1944                                             and former  President  of the  University  of
                                                        Texas, Austin,  Texas;  Chairman and CEO, IBT
                                                        Technologies  (until  2001);  Director of the
                                                        following: The University of Texas Investment
                                                        Management  Company  (until  2000),  Hire.com
                                                        (until  2004),  STC  Broadcasting,  Inc.  and
                                                        Sunrise Television Corp. (until 2001), Symtx,
                                                        Inc.(electronic  manufacturing) (since 2001),
                                                        Adorno/Rogers Technology,  Inc. (until 2004),
                                                        Pinnacle  Foods  Corporation   (until  2003),
                                                        rateGenius  (until  2003),  Lincoln  National
                                                        Corporation    (insurance)    (since   2006),
                                                        Jefferson-Pilot Corporation (diversified life
                                                        insurance  company) (until 2006), New Century
                                                        Equity Holdings  (formerly  Billing Concepts)
                                                        (until   2001),    eCertain   (until   2001),
                                                        ClassMap.com  (until  2001),  Agile  Ventures
                                                        (until 2001),  LBJ  Foundation  (until 2000),
                                                        Golfsmith  International,  Inc. (until 2000),
                                                        Metamor  Worldwide  (until 2000),  AskRed.com
                                                        (until 2001),  Southwest  Airlines,  Introgen
                                                        and  Viasystems   Group,   Inc.   (electronic
                                                        manufacturer)    (until    2003);    Advisory
                                                        Director,  Interactive Bridge, Inc., (college
                                                        fundraising) (until 2001);Advisory  Director,
                                                        Q   Investments   (until   2003);    Advisory
                                                        Director,  JP  Morgan  Chase  Bank  (formerly
                                                        Texas Commerce Bank - Austin), LIN Television
                                                        (since 2002),  WilTel  Communications  (until
                                                        2003) and Hayes Lemmerz  International,  Inc.
                                                        (diversified automotive parts supply company)
                                                        (since 2003).

- ---------------------------- -------------- ----------- ------------------------------------------------ -------------

(1)  Business address for independent and non-independent  Trustees and officers
     is 601 Congress Street, Boston, Massachusetts 02210-2805.
(2)  Each Trustee serves until  resignation,  retirement age or until her or his
     successor is elected.
(3)  Non-Independent   Trustee:  holds  positions  with  the  Fund's  investment
     adviser, underwriter, and/ or certain other affiliates.

                             23




                                                                                             
- ---------------------------- ------------- ------------- ------------------------------------------- -----------------
                                                                                                     Number of
                                                                                                     John
                                                                                                     Hancock
                             Position(s)   Trustee/                                                  Funds
Name, Address (1)            Held with     Officer      Principal Occupation(s) and other            Overseen by
And Age                      Fund          since (2)    Directorships  During Past 5 Years           Trustee
- ---------------------------- ------------- ------------- ------------------------------------------- -----------------

- ---------------------------- ------------- ------------- ------------------------------------------- -----------------
Ronald R. Dion               Chairman      2005          Chairman and Chief Executive Officer,       53
Born:  1946                  and Trustee   1998          R.M. Bradley & Co., Inc.; Director, The
                                                         New England Council and Massachusetts
                                                         Roundtable; Director, Boston Stock
                                                         Exchange; Trustee, North Shore Medical
                                                         Center; Director, BJ's Wholesale Club,
                                                         Inc. and a corporator of the Eastern
                                                         Bank; Trustee, Emmanuel College;
                                                         Director, Boston Municipal Research
                                                         Bureau; Member of the Advisory Board,
                                                         Carroll Graduate School of Management at
                                                         Boston College.

- ---------------------------- ------------- ------------- ------------------------------------------- -----------------
Charles L. Ladner            Trustee       1994          Chairman and Trustee, Dunwoody Village,     143
Born:  1938                                              Inc. (retirement services) (until 2003);
                                                         Senior Vice President and Chief Financial
                                                         Officer, UGI Corporation (public utility
                                                         holding company) (retired 1998); Vice
                                                         President and Director for AmeriGas, Inc.
                                                         (retired 1998); Director of AmeriGas
                                                         Partners, L.P. (until 1997)(gas
                                                         distribution); Director, EnergyNorth,
                                                         Inc. (until 1995); Director, Parks and
                                                         History Association (since 2001).

- ---------------------------- ------------- ------------- ------------------------------------------- -----------------
John A. Moore                Trustee       2005          President and Chief Executive Officer,      53
Born:  1939                                              Institute for Evaluating Health Risks,
                                                         (nonprofit institution) (until 2001);
                                                         Senior Scientist, Sciences International
                                                         (health research)(since 1998); Principal,
                                                         Hollyhouse (consulting)(since 2000);
                                                         Director, CIIT(nonprofit research) (since
                                                         2002).

- ---------------------------- ------------- ------------- ------------------------------------------- -----------------

(1)  Business address for independent and non-independent  Trustees and officers
     is 601 Congress Street, Boston, Massachusetts 02210-2805.
(2)  Each Trustee serves until  resignation,  retirement age or until her or his
     successor is elected.
(3)  Non-Independent   Trustee:  holds  positions  with  the  Fund's  investment
     adviser, underwriter, and/ or certain other affiliates.


                             24




                                                                                             
- ---------------------------- -------------- ----------- ------------------------------------------------ -------------
                                                                                                         Number of
                                                                                                         John
                                                                                                         Hancock
                             Position(s)    Trustee/                                                     Funds
Name, Address (1)            Held with      Officer     Principal Occupation(s) and other                Overseen by
And Age                      Fund           since (2)   Directorships  During Past 5 Years               Trustee
- ---------------------------- -------------- ----------- ------------------------------------------------ -------------
Patti McGill Peterson          Trustee      2005        Executive Director, Council for                  53
Born:  1943                                             International Exchange of Scholars and
                                                        Vice President, Institute of International
                                                        Education (since 1998); Senior Fellow,
                                                        Cornell Institute of Public Affairs,
                                                        Cornell University (until 1997); Former
                                                        President of Wells College and St.
                                                        Lawrence University; Director, Niagara
                                                        Mohawk Power Corporation (until 2003);
                                                        Director, Ford Foundation, International
                                                        Fellowships Program (since 2002);
                                                        Director, Lois Roth Endowment (since
                                                        2002); Director, Council for International
                                                        Exchange (since 2003).
- ---------------------------- -------------- ----------- ------------------------------------------------ -------------
Steven Pruchansky              Trustee      1994        Chairman and Chief Executive Officer,            53
Born:  1944                                             Greenscapes of Southwest Florida, Inc.
                                                        (since 2000); Director and President,
                                                        Greenscapes of Southwest Florida, Inc.
                                                        (until 2000); Managing Director, JonJames,
                                                        LLC (real estate) (since 2001); Director,
                                                        First Signature Bank & Trust Company
                                                        (until 1991); Director, Mast Realty Trust
                                                        (until 1994); President, Maxwell Building
                                                        Corp. (until 1991).
- ---------------------------- -------------- ----------- ------------------------------------------------ -------------
Non-Independent Trustees
- ---------------------------- -------------- ----------- ------------------------------------------------ -------------
James R. Boyle (3)             Trustee      2005        Chairman and Director, John Hancock              184
Born:  1959                                             Advisers, LLC (the "Adviser"), The
                                                        Berkeley Financial Group, LLC ("The
                                                        Berkeley Group") (holding company) and
                                                        John Hancock Funds, LLC. ("John Hancock
                                                        Funds"); President, John Hancock
                                                        Annuities; Executive Vice President, John
                                                        Hancock Life Insurance Company (since
                                                        June, 2004); President U.S. Annuities;
                                                        Senior Vice President, The Manufacturers
                                                        Life Insurance Company (U.S.A) (prior to
                                                        2004).
- ---------------------------- -------------- ----------- ------------------------------------------------ -------------

(1)  Business address for independent and non-independent  Trustees and officers
     is 601 Congress Street, Boston, Massachusetts 02210-2805.
(2)  Each Trustee serves until  resignation,  retirement age or until her or his
     successor is elected.
(3)  Non-Independent   Trustee:  holds  positions  with  the  Fund's  investment
     adviser, underwriter, and/ or certain other affiliates.


                             25




                                                                                             
- ---------------------------- -------------- ----------- ------------------------------------------------ -------------
                                                                                                         Number of
                                                                                                         John
                                                                                                         Hancock
                             Position(s)    Trustee/                                                     Funds
Name, Address (1)            Held with      Officer     Principal Occupation(s) and other                Overseen by
And Age                      Fund           since (2)   Directorships  During Past 5 Years               Trustee
- ---------------------------- -------------- ----------- ------------------------------------------------ -------------
Principal Officers who are
not Trustees
- ---------------------------- -------------- ----------- ------------------------------------------------ -------------
Keith F. Hartstein           President and   2005       Senior Vice President, Manulife                  N/A
Born:  1956                  Chief Executive            Financial Corporation (since 2004);
                             Officer                    Director, President and Chief Executive
                                                        Officer, the Adviser and The Berkeley
                                                        Group (holding company); Director,
                                                        President and Chief Executive Officer,
                                                        John Hancock Funds; Director, President
                                                        and Chief Executive Officer, Sovereign
                                                        Asset Management LLC ("Sovereign");
                                                        Director, John Hancock Signature
                                                        Services, Inc.; Director, Chairman and
                                                        President, NM Capital Management, Inc.
                                                        (NM Capital); Chairman, Investment
                                                        Company Institute Sales Force Marketing
                                                        Committee (since 2003); Executive Vice
                                                        President, John Hancock Funds, LLC
                                                        (until 2005).

- ---------------------------- -------------- ----------- ------------------------------------------------ -------------
William H. King              Vice President  1994       Vice President and Assistant Treasurer,          N/A
Born:  1952                  and Treasurer              the Adviser; Vice President and
                                                        Treasurer of each of the John Hancock
                                                        funds advised by the Adviser; Assistant
                                                        Treasurer of each of the John Hancock
                                                        funds advised by the Adviser (until
                                                        2001).
- ---------------------------- -------------- ----------- ------------------------------------------------ -------------

(1)  Business address for independent and non-independent  Trustees and officers
     is 601 Congress Street, Boston, Massachusetts 02210-2805.
(2)  Each Trustee serves until  resignation,  retirement age or until her or his
     successor is elected.
(3)  Non-Independent   Trustee:  holds  positions  with  the  Fund's  investment
     adviser, underwriter, and/ or certain other affiliates.


                             26




                                                                                             
- ---------------------------- -------------- ----------- ------------------------------------------------ -------------
                                                                                                         Number of
                                                                                                         John
                                                                                                         Hancock
                             Position(s)    Trustee/                                                     Funds
Name, Address (1)            Held with      Officer     Principal Occupation(s) and other                Overseen by
And Age                      Fund           since (2)   Directorships  During Past 5 Years               Trustee
- ---------------------------- -------------- ----------- ------------------------------------------------ -------------
Francis V. Knox, Jr.         Vice President  2005       Vice President and Chief Compliance              N/A
Born:  1947                  and Chief                  Officer for John Hancock Investment
                             Compliance                 Company, John Hancock Life Insurance
                             Officer                    Company (U.S.A.), John Hancock Life
                                                        Insurance Company and John Hancock
                                                        Funds (since 2005); Fidelity
                                                        Investments - Vice President and
                                                        Assistant Treasurer, Fidelity Group of
                                                        Funds (until 2004); Fidelity
                                                        Investments - Vice President and Ethics
                                                        & Compliance Officer (until 2001).

- ---------------------------- -------------- ----------- ------------------------------------------------ -------------
John G. Vrysen               Executive Vice  2005       Director, Executive Vice President and           N/A
Born:  1955                  President and              Chief Financial Officer, the Adviser,
                             Chief Financial            Sovereign, the Berkeley Group (holding
                             Officer                    company) and John Hancock Funds (since
                                                        2005);Vice President and General
                                                        Manager, Fixed Annuities, U.S. Wealth
                                                        Management (until 2005).Vice President,
                                                        Operations Manulife Wood Logan
                                                        7/00-9/04.

- ---------------------------- -------------- ----------- ------------------------------------------------ -------------

(1)  Business address for independent and non-independent  Trustees and officers
     is 601 Congress Street, Boston, Massachusetts 02210-2805.
(2)  Each Trustee serves until  resignation,  retirement age or until her or his
     successor is elected.
(3)  Non-Independent   Trustee:  holds  positions  with  the  Fund's  investment
     adviser, underwriter, and/ or certain other affiliates.

The Fund's Board of Trustees currently has four standing  Committees:  the Audit
Committee, the Governance Committee, the Contracts/Operations  Committee and the
Investment  Performance  Committee.  Each  Committee is comprised of Independent
Trustees who are not "interested persons" of the Fund.

The Audit Committee members are Messrs.  Chapman,  Ladner,  Moore and Ms. McGill
Peterson.  All of the members of the Audit  Committee are  independent  and each
member is financially  literate with at least one having accounting or financial
management  expertise.  The Board has  adopted a written  charter  for the Audit
Committee.  The Audit  Committee  recommends to the full board  auditors for the
Fund,  monitors  and  oversees  the audits of the Fund,  communicates  with both
independent  auditors  and internal  auditors on a regular  basis and provides a
forum for the auditors to report and discuss any matters  they deem  appropriate
at any time. The Audit Committee held four meetings during the fiscal year ended
August 31, 2005.


The  Governance  Committee  members  are all of the  independent  Trustees.  The
Governance  Committee  makes  recommendations  to the Board on issues related to
corporate  governance   applicable  to  the  Independent  Trustees  and  to  the
composition  and operation of the Board and to assume  duties,  responsibilities



                                       27



and functions to nominate  candidates to the Board,  together with such addition
duties, responsibilities and functions as are delegated to it from time to time.
Among other things, the Governance  Committee acts as a nominating  committee of
the Board. In reviewing a potential  nominee and in evaluating the  renomination
of current Independent  Trustees,  the Governance Committee will generally apply
the following criteria: (i) the nominee's reputation for integrity,  honesty and
adherence  to high  ethical  standards,  (ii)  the  nominee's  business  acumen,
experience  and ability to  exercise  sound  judgments,  (iii) a  commitment  to
understand  the Fund and the  responsibilities  of a  trustee  of an  investment
company,  (iv) a commitment to regularly  attend and  participate in meetings of
the Board and its committees,  (v) the ability to understand potential conflicts
of interest involving  management of the Fund and to act in the interests of all
shareholders,  and (vi) the absence of a real or  apparent  conflict of interest
that would impair the  nominee's  ability to represent  the interests of all the
shareholders and to fulfill the  responsibilities of an Independent Trustee. The
Governance  Committee  does not  necessarily  place  the same  emphasis  on each
criteria and each nominee may not have each of these  qualities.  The Governance
Committee does not discriminate on the basis of race, religion, national origin,
sex, sexual  orientation,  disability or any other basis  proscribed by law. The
Governance  Committee  held four meeting during the fiscal year ended August 31,
2005.


As long as an  existing  Independent  Trustee  continues,  in the opinion of the
Governance Committee,  to satisfy these criteria,  the Fund anticipates that the
Committee would favor the  renomination of an existing Trustee rather than a new
candidate.  Consequently,  while the Governance Committee will consider nominees
recommended by shareholders to serve as trustees,  the Governance  Committee may
only act upon such  recommendations  if there is a  vacancy  on the Board or the
Administration  Committee  determines  that the selection of a new or additional
Independent  Trustee is in the best  interests of the Fund.  In the event that a
vacancy  arises or a change in Board  membership  is determined to be advisable,
the Governance  Committee will, in addition to any shareholder  recommendations,
consider candidates identified by other means,  including candidates proposed by
members of the Governance  Committee.  While it has not done so in the past, the
Governance Committee may retain a consultant to assist the Committee in a search
for a qualified candidate.

Any shareholder  recommendation  must be submitted in compliance with all of the
pertinent provisions of Rule 14a-8 under the Securities Exchange Act of 1934, as
amended, to be considered by the Governance  Committee.  In evaluating a nominee
recommended  by a  shareholder,  the  Governance  Committee,  in addition to the
criteria  discussed  above,  may consider the  objectives of the  shareholder in
submitting  that  nomination and whether such objectives are consistent with the
interests  of  all   shareholders.   If  the  Board   determines  to  include  a
shareholder's  candidate among the slate of nominees,  the candidate's name will
be placed on the Fund's  proxy card.  If the  Governance  Committee or the Board
determines not to include such candidate among the Board's  designated  nominees
and  the  shareholder  has  satisfied  the   requirements  of  Rule  14a-8,  the
shareholder's  candidate  will be treated as a nominee  of the  shareholder  who
originally  nominated the  candidate.  In that case,  the candidate  will not be
named on the proxy card distributed with the Fund's proxy statement.

Shareholders  may  communicate  with  the  members  of the  Board  as a group or
individually.  Any  such  communication  should  be  sent  to  the  Board  or an
individual Trustee c/o The Secretary of the Fund at the following  address:  601
Congress  Street,  Boston,  MA  02210-2805.  The  Secretary may determine not to
forward  any  letter to the  members  of the Board  that does not  relate to the
business of the Fund.



                                       28


The Contracts/Operations  Committee members are Messrs. Carlin, Cunningham, Dion
and  Pruchansky.  The  Contracts/Operations  Committee  oversees the initiation,
operation,  and renewal of contracts between the Fund and other entities.  These
contracts  include  advisory  and  subadvisory   agreements  (if,   applicable),
custodial and transfer  agency  agreements and  arrangements  with other service
providers.  The  Contracts/Operations  Committee  held five meetings  during the
fiscal year ended August 31, 2005.

The  Investment  Performance  Committee  members  are  all  of  the  independent
Trustees.  The  Investment  Performance  Committee  monitors  and  analyzes  the
performance of the Fund generally, consults with the Adviser as necessary if the
Fund requires special  attention,  and reviews peer groups and other comparative
standards as necessary.  The Investment Performance Committee held four meetings
during the fiscal year ended August 31, 2005.

The following table provides a dollar range indicating each Trustee's  ownership
of equity  securities  of the Fund,  as well as aggregate  holdings of shares of
equity  securities of all funds in the John Hancock Fund Complex overseen by the
Trustee, as of December 31, 2004.



                                                                    
- -------------------------------------- ---------------------------------- -----------------------------------
                                                                          Aggregate Dollar Range of
                                       Dollar Range of Fund shares        holdings in John Hancock funds
Name of Trustee                        Owned by Trustee (1)               overseen by Trustee (1)
- -------------------------------------- ---------------------------------- -----------------------------------
Independent Trustees
- -------------------------------------- ---------------------------------- -----------------------------------
James F. Carlin                        none                               Over $100,00
- -------------------------------------- ---------------------------------- -----------------------------------
Richard P. Chapman, Jr.*               none                               Over $100,000
- -------------------------------------- ---------------------------------- -----------------------------------
William H. Cunningham                  none                               $10,001-50,000
- -------------------------------------- ---------------------------------- -----------------------------------
Ronald R. Dion                         none                               Over $100,000
- -------------------------------------- ---------------------------------- -----------------------------------
Charles L. Ladner                      none                               Over $100,000
- -------------------------------------- ---------------------------------- -----------------------------------
Dr. John A. Moore*                     none                               Over $100,000
- -------------------------------------- ---------------------------------- -----------------------------------
Patti McGill Peterson*                 none                               Over $100,000
- -------------------------------------- ---------------------------------- -----------------------------------
Steven R. Pruchansky                   none                               Over $100,000
- -------------------------------------- ---------------------------------- -----------------------------------
Non-Independent Trustee
- -------------------------------------- ---------------------------------- -----------------------------------

James R. Boyle*                        none                               $10,000-$50,000

- -------------------------------------- ---------------------------------- -----------------------------------

(1)  This Fund does not  participate in the John Hancock  Deferred  Compensation
     Plan for Independent Trustees (the "Plan").  Under the Plan, an Independent
     Trustee may defer his fees by electing to have the Adviser  invest his fees
     in one of the funds in the John Hancock  complex that  participates  in the
     Plan. Under these circumstances,  the Trustee is not the legal owner of the
     underlying  shares, but does participate in any positive or negative return
     on those shares to the same extent as all other  shareholders.  With regard
     to Trustees  participating  in the Plan, if a Trustee was deemed to own the
     shares used in  computing  the value of his  deferred  compensation,  as of
     December 31, 2004,  the  respective  "Dollar  Range of Fund Shares Owned by
     Trustee" and the "Aggregate  Dollar Range of holdings in John Hancock funds
     overseen by Trustee"  would be as follows:  none and over  $100,000 for Mr.
     Chapman, none and over $100,000 for Mr. Cunningham,  none and over $100,000
     for Mr.  Dion,  none  and over  $100,000  for Dr.  Moore  and none and over
     $100,000  for Mr.  Pruchansky.

*Messrs.  Chapman,  Moore and Ms.  McGill  Peterson were elected to the Board by
shareholders on December 1, 2004, effective January 1, 2005. As of September 13,
2005, the Independent  Trustees elected Mr. Boyle as a Non-Independent  Trustee.

The following table provides information  regarding the compensation paid by the
Fund and the other investment  companies in the John Hancock Fund Complex to the
Independent Trustees for their services.  Any Non-Independent  Trustee, and each
of the officers of the Fund who are  interested  persons of the Adviser,  and/or
affiliates are compensated by the Adviser and receive no  compensation  from the
Fund for their services.


                                       29



                                                                    
                                                                          Total Compensation from all
                                        Aggregate Compensation            Funds in John Hancock Fund
Trustees                                From the Fund (1)                 Complex to Trustees (2)
                                        ----------------------            ---------------------------
James F. Carlin                                 $2,418                               $ 76,500
Richard P. Chapman*++                              531                                 79,500
William J. Cosgrove*+  ++                          410                                 89,500
William H. Cunningham*                           2,426                                 77,500
Ronald R. Dion* +++                              2,440                                 76,500
Charles L. Ladner +++                            3,066                                104,150
Dr. John A. Moore*++                               549                                 79,900
Patti McGill Peterson++                            503                                 74,900
Steven R. Pruchansky*                            2,484                                 79,500
Norman H. Smith*+                                2,350                                 76,500
John P. Toolan*+                                   286                                 75,650
                                              --------                               --------
Total                                         $ 17,463                               $890,100


(1)  Compensation is for the fiscal year ended August 31, 2005.

(2)  Total   compensation  paid  by  the  John  Hancock  Funds  Complex  to  the
     Independent  Trustees is as of December  31, 2004.  As of this date,  there
     were  forty-nine  funds in the John Hancock Fund Complex:  Messrs.  Carlin,
     Cunningham,  Dion,  Pruchansky,  Smith and Toolan  serving on  twenty-eight
     funds; Messrs.  Chapman and Cosgrove serving on twenty-one funds; Dr. Moore
     and Ms. McGill  Peterson  serving on thirty funds and Mr. Ladner serving on
     forty-nine funds.

*    As of  December  31,  2004,  the value of the  aggregate  accrued  deferred
     compensation  from all  Funds  in the John  Hancock  Fund  Complex  for Mr.
     Chapman was $69,035, for Mr. Cosgrove was $232,538,  for Mr. Cunningham was
     $627,144,  for Mr. Dion was $242,968,  for Dr. Moore was $273,394,  for Mr.
     Pruchansky was $194,392,  for Mr. Smith was $331,243 and for Mr. Toolan was
     $686,931 under the John Hancock Group of Funds Deferred  Compensation  Plan
     for Independent Trustees (the "Plan").

+    Mr.  Toolan  retired as of December 31, 2004.  Mr.  Cosgrove  retired as of
     March 31, 2005. Mr. Smith retired as of June 30, 2005.

++   Messrs. Chapman, Moore and Ms. McGill Peterson were elected to the Board by
     the  shareholders  on  December  1, 2004,  effective  January 1, 2005.  Mr.
     Cosgrove  was  appointed  by the Trustees on December 14, 2004 to the Board
     effective January 1, 2005.

+++  As of September  12, 2005,  the  Independent  Trustees  elected Mr. Dion as
     Independent  Chairman of the Board. As of June 16, 2004 and until September
     12, 2005, Mr. Ladner was the Independent Chairman of the Board.

All of the  officers  listed  are  officers  or  employees  of  the  Adviser  or
affiliated  companies.  Some of the  Trustees  and officers may also be officers
and/or directors and/or Trustees of one or more of the other funds for which the
Adviser or an affiliate of the Adviser.

As of December 2, 2005,  the  officers and Trustees of the Fund as a group owned
beneficially  less than 1% of these  outstanding  shares.  As of that date,  the
following  shareholders were the only record holders that beneficially  owned 5%


                                       30


or more of the outstanding shares of each class of the Fund:



                                                                                
- --------------------------------------------------------- --------------- -------------- --------------
Name and Address of Owners of More than 5% of Shares      Class A         Class B        Class C
- --------------------------------------------------------- --------------- -------------- --------------
A G Edwards & Sons, Inc.                                  7.70%           --             --
Ethel R. Wells
1 North Jefferson Ave
Saint Louis MO 63101-2205

- --------------------------------------------------------- --------------- -------------- --------------
MLPF&S For The                                            5.82%           19.66%         46.61%
Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deerlake Drive East 2nd Floor
Jacksonville FL 32246-6484

- --------------------------------------------------------- --------------- -------------- --------------
Citigroup Global Markets, Inc.                            --              5.19%          8.80%
Att: Cindy Tempesta 7th Floor
333 West 34th Street
New York NY 10001-2402
- --------------------------------------------------------- --------------- -------------- --------------


INVESTMENT ADVISORY AND OTHER SERVICES


The Adviser, located at 601 Congress Street, Boston, Massachusetts 02210-2805, a
premier  investment  management  company,  managed  approximately $28 billion in
open-end funds, closed-end funds, private accounts, retirement plans and related
party assets for individual and institutional investors as of December 31, 2005.
Additional  information about John Hancock Advisers can be found on the website:
www.jhfunds.com.

The  Sub-Adviser,   Sovereign,   located  at  101  Huntington  Avenue,   Boston,
Massachusetts  02199,  was  organized  in  1979  and  as of  December  31,  2005
approximately  $25 billion in assets  under  management.  The  Sub-Adviser  is a
wholly-owned  indirect subsidiary of John Hancock Financial  Services,  Inc. (an
indirect wholly-owned subsidiary of Manulife Financial Corporation).

The Board of Trustees  appointed  Sovereign as Sub-Adviser to the Fund effective
December 31, 2005. As of that date, the investment personnel of the Adviser were
reassigned  to  Sovereign.  The Adviser  will  continue  to serve as  investment
adviser to the Fund and will be responsible  for the  supervision of Sovereign's
services to the Fund.


The Fund has entered  into an  investment  management  contract  (the  "Advisory
Agreement"),  with the Adviser  which was  approved by the Fund's  shareholders.
Pursuant to the Advisory  Agreement,  in conjunction with the  Sub-Adviser,  the
Adviser will: (a) furnish  continuously  an investment  program for the Fund and
determine,  subject to the overall supervision and review of the Trustees, which
investments  should be  purchased,  held,  sold or  exchanged,  and (b)  provide
supervision  over all  aspects of the Fund's  operations  except  those that are
delegated to a custodian, transfer agent or other agent.

The Adviser has entered into a Sub-Advisory Agreement with the Sub-Adviser under
which the  Sub-Adviser,  subject to the review of the  Trustees  and the overall
supervision  of  the  Adviser,   is  responsible  for  managing  the  investment
operations  of the  Fund  and  the  composition  of  the  Fund's  portfolio  and


                                       31


furnishing the Fund with advice and recommendations with respect to investments,
investment policies and the purchase and sale of securities.

The Fund bears all costs of its  organization  and operation,  including but not
limited to  expenses  of  preparing,  printing  and  mailing  all  shareholders'
reports,  notices,  prospectuses,  proxy  statements  and reports to  regulatory
agencies;  expenses relating to the issuance,  registration and qualification of
shares;   government  fees;   interest   charges;   expenses  of  furnishing  to
shareholders  their account  statements;  taxes;  expenses of redeeming  shares;
brokerage  and  other  expenses   connected  with  the  execution  of  portfolio
securities  transactions;  expenses pursuant to the Fund's plan of distribution;
fees and expenses of custodians  including those for keeping books and accounts,
maintaining a committed line of credit,  and  calculating the net asset value of
shares;  fees and expenses of transfer  agents and dividend  disbursing  agents;
legal, accounting,  financial, management, tax and auditing fees and expenses of
the Fund (including an allocable portion of the cost of the Adviser's  employees
rendering such services to the Fund);  the compensation and expenses of Trustees
who are not  otherwise  affiliated  with the Trust,  the Adviser or any of their
affiliates;  expenses of Trustees' and shareholders' meetings; trade association
membership; insurance premiums; and any extraordinary expenses.

As compensation for its services under the Advisory Agreement, the Fund pays the
Adviser  monthly a fee based on a stated  percentage  of the  average  daily net
assets of the Fund as follows:

         Average Daily Net Assets                Annual Rate

         First $500,000,000                      0.55%
         Amount over $500,000,000*               0.50%

*Breakpoint added as of the close of business on June 30, 2003.

From time to time, the Adviser may reduce its fee or make other  arrangements to
limit the Fund's  expenses to a specified  percentage  of its average  daily net
assets.  The  Adviser  retains the right to reimpose a fee and recover any other
payments to the extent that,  at the end of any fiscal year,  the Fund's  annual
expenses fall below this limit.

For the fiscal  years ended August 31, 2003,  2004 and 2005,  the advisory  fees
payable to the Fund's Adviser amounted to $2,232,900, $2,030,444 and $1,931,969,
respectively.


As compensation for its services under the Sub-Advisory  Agreement,  the Adviser
(not the Fund) pays the Sub-Adviser quarterly a fee based on a stated percentage
of the average daily net assets of the Fund as follows:

         Average Daily Net Assets                Annual Rate

         First $500,000,000                      0.20%
         Amount over $500,000,000*               0.15%




Securities  held by the  Fund may  also be held by  other  funds  or  investment
advisory  clients for which the Adviser,  the  Sub-Adviser  or their  respective
affiliates provide investment advice. Because of different investment objectives
or other factors,  a particular  security may be bought for one or more funds or
clients when one or more are selling the same  security.  If  opportunities  for
purchase or sale of securities by the Adviser or the Sub-Adviser for the Fund or


                                       32


for other  funds or  clients  for  which  the  Adviser  or  Sub-Adviser  renders
investment  advice,   arise  for  consideration  at  or  about  the  same  time,
transactions  in such  securities  will be made,  insofar as  feasible,  for the
respective  funds or clients in a manner deemed equitable to all of them. To the
extent that  transactions on behalf of more than one client of the Adviser,  the
Sub-Adviser  or  their  respective   affiliates  may  increase  the  demand  for
securities  being purchased or the supply of securities being sold, there may be
an adverse effect on price.


Pursuant to the Advisory Agreement and Sub-Advisory  Agreement,  the Adviser and
Sub-Adviser  are not liable for any error of  judgment  or mistake of law or for
any loss  suffered  by the Fund in  connection  with the  matters to which their
respective Agreements relates, except a loss resulting from willful misfeasance,
bad faith or gross  negligence on the part of the Adviser or  Sub-Adviser in the
performance of their duties or from their reckless  disregard of the obligations
and duties under the applicable Agreements.


Under the Advisory  Agreement,  the Fund may use the name "John  Hancock" or any
name derived from or similar to it only for so long as the Advisory Agreement or
any extension,  renewal or amendment  thereof remains in effect. If the Advisory
Agreement is no longer in effect,  the Fund (to the extent that it lawfully can)
will cease to use such name or any other name  indicating  that it is advised by
or otherwise  connected with the Adviser.  In addition,  the Adviser or the John
Hancock Life Insurance  Company (the "Life Company") may grant the non-exclusive
right  to  use  the  name  "John  Hancock"  or any  similar  name  to any  other
corporation or entity,  including but not limited to any  investment  company of
which the Life Company or any  subsidiary or affiliate  thereof or any successor
to the business of any  subsidiary or affiliate  thereof shall be the investment
adviser.


The  continuation  of the  Advisory  Agreement  and the  Distribution  Agreement
(discussed  below) and the initial approval of the  Sub-Advisory  Agreement were
approved by all Trustees. The Advisory Agreement, Sub-Advisory Agreement and the
Distribution Agreement, will continue in effect from year to year, provided that
their  continuance is approved annually both (i) by the holders of a majority of
the outstanding voting securities of the Trust or by the Trustees, and (ii) by a
majority of the  Trustees who are not parties to the  Agreement  or  "interested
persons" of any such  parties.  Both  Agreements  may be  terminated  on 60 days
written notice by any party or by vote of a majority to the  outstanding  voting
securities  of the  Fund and  will  terminate  automatically  if  assigned.  The
Sub-Advisory  Agreement  terminates  automatically  upon the  termination of the
Advisory Agreement.

Accounting and Legal Services Agreement.  The Trust, on behalf of the Fund, is a
party to an Accounting and Legal Services  Agreement with the Adviser.  Pursuant
to this Agreement,  the Adviser  provides the Fund with certain tax,  accounting
and legal  services.  For the fiscal years ended August 31, 2003, 2004 and 2005,
the Fund paid Adviser $137,986, $103,350 and $83,356, respectively, for services
under this Agreement.

Proxy Voting. The Fund's Trustees have delegated to the Adviser the authority to
vote proxies on behalf of the Fund who in turn has made contractual arrangements
for the Fund's  Sub-Adviser to vote proxies  relating to securities  held by the
Fund. A summary of the Sub-Adviser's proxy voting guidelines is attached to this
statement of additional information as Appendix D. Information regarding how the
Fund voted proxies relating to portfolio  securities  during the 12-month period
ending June 30, 2005 is  available  by calling  1-800-225-5291  or on the Fund's
website: www.jhfunds.com/proxy or on the SEC's website at www.sec.gov.




                                       33



Personnel  of the  Adviser and its  affiliates  may trade  securities  for their
personal accounts. The Fund also may hold, or may be buying or selling, the same
securities.  To  prevent  the  Fund  from  being  disadvantaged,   the  Adviser,
Sub-Adviser,  principal  underwriter  and the Fund have adopted a code of ethics
which restricts the trading activity of those personnel.


ADDITIONAL INFORMATION ABOUT THE PORTFOLIO MANAGERS

Other Accounts the Portfolio  Managers are Managing.  The table below  indicates
for each  portfolio  manager  information  about  the  accounts  over  which the
portfolio manager has day-to-day investment  responsibility.  All information on
the number of accounts  and total  assets in the table is as of August 31, 2005.
For  purposes  of the table,  "Other  Pooled  Investment  Vehicles"  may include
investment  partnerships  and group  trusts,  and "Other  Accounts"  may include
separate accounts for institutions or individuals,  insurance company general or
separate accounts, pension funds and other similar institutional accounts.



                           

- ----------------------------- --------------------------------------------------------------------------------------
   PORTFOLIO MANAGER NAME                       OTHER ACCOUNTS MANAGED BY THE PORTFOLIO MANAGERS
- ----------------------------- --------------------------------------------------------------------------------------
Dianne M. Sales, CFA          Other Registered Investment Companies:  Four (4) funds with total assets of
                              approximately $800.6 million.

                              Other Pooled Investment Vehicles:  None

                              Other Accounts:  None.

- ----------------------------- --------------------------------------------------------------------------------------
Frank A. Lucibella, CFA       Other Registered Investment Companies:  Four (4) funds with total assets of
                              approximately $800.6 million.

                              Other Pooled Investment Vehicles:  None

                              Other Accounts:  None.

- ----------------------------- --------------------------------------------------------------------------------------



Neither the Adviser nor the Sub-Adviser receives a fee based upon the investment
performance of any of the accounts included under "Other Accounts Managed by the
Portfolio Managers" in the table above.


When a portfolio  manager is  responsible  for the  management  of more than one
account,  the potential  arises for the  portfolio  manager to favor one account
over another.  The principal  types of potential  conflicts of interest that may
arise are discussed  below.  For the reasons  outlined below,  the Fund does not
believe  that any  material  conflicts  are  likely to arise out of a  portfolio
manager's  responsibility  for the management of the Fund as well as one or more
other accounts. The Adviser and the Sub-Adviser have adopted procedures that are
intended to monitor  compliance  with the policies  referred to in the following
paragraphs. Generally, the risks of such conflicts of interests are increased to
the extent that a  portfolio  manager  has a  financial  incentive  to favor one
account  over  another.  The  Adviser  and  Sub-Adviser  have  structured  their
compensation  arrangements  in a manner that is intended to limit such potential
for conflicts of interests. See "Compensation of Portfolio Managers" below.


  o  A portfolio  manager could favor one account over another in allocating new
     investment  opportunities that have limited supply,  such as initial public
     offerings  and  private  placements.  If, for  example,  an initial  public


                                       34


     offering  that was expected to appreciate  in value  significantly  shortly
     after the offering was allocated to a single  account,  that account may be
     expected to have better investment performance than other accounts that did
     not receive an allocation on the initial public  offering.  The Sub-Adviser
     has policies that require a portfolio  manager to allocate such  investment
     opportunities  in an  equitable  manner  and  generally  to  allocate  such
     investments  proportionately  among all accounts  with  similar  investment
     objectives.

  o  A portfolio  manager  could favor one account  over another in the order in
     which trades for the accounts are placed. If a portfolio manager determines
     to  purchase a security  for more than one account in an  aggregate  amount
     that  may  influence  the  market  price  of the  security,  accounts  that
     purchased or sold the  security  first may receive a more  favorable  price
     than accounts that made subsequent transactions. The less liquid the market
     for the security or the greater the percentage that the proposed  aggregate
     purchases or sales represent of average daily trading  volume,  the greater
     the  potential  for  accounts  that make  subsequent  purchases or sales to
     receive a less favorable price.  When a portfolio  manager intends to trade
     the  same  security  for  more  than  one  account,  the  policies  of  the
     Sub-Adviser  generally  require that such trades be "bunched,"  which means
     that the trades for the individual accounts are aggregated and each account
     receives  the same  price.  There are some  types of  accounts  as to which
     bunching  may not be possible  for  contractual  reasons  (such as directed
     brokerage  arrangements).  Circumstances  may also  arise  where the trader
     believes  that  bunching  the orders  may not  result in the best  possible
     price. Where those accounts or circumstances are involved,  the Sub-Adviser
     will place the order in a manner intended to result in as favorable a price
     as possible for such client.

  o  A  portfolio  manager  could  favor an account if the  portfolio  manager's
     compensation  is tied to the  performance  of that account  rather than all
     accounts managed by the portfolio manager.  If, for example,  the portfolio
     manager  receives a bonus based upon the  performance  of certain  accounts
     relative  to a benchmark  while other  accounts  are  disregarded  for this
     purpose,  the portfolio manager will have a financial  incentive to seek to
     have the accounts that determine the portfolio  manager's bonus achieve the
     best  possible  performance  to the possible  detriment of other  accounts.
     Similarly,  if the Adviser receives a  performance-based  advisory fee, the
     portfolio manager may favor that account, whether or not the performance of
     that account directly determines the portfolio manager's compensation.  The
     investment  performance on specific accounts is not a factor in determining
     the  portfolio  manager's  compensation.  See  "Compensation  of  Portfolio
     Managers"  below.  Neither  the  Adviser  nor the  Sub-Adviser  receives  a
     performance-based  fee with respect to one of the other accounts managed by
     a portfolio manager.

  o  A portfolio  manager could favor an account if the portfolio  manager has a
     beneficial  interest in the account,  in order to benefit a large client or
     to compensate a client that had poor returns. For example, if the portfolio
     manager held an interest in an investment  partnership  that was one of the
     accounts managed by the portfolio manager, the portfolio manager would have
     an economic  incentive to favor the account in which the portfolio  manager
     held an interest.  The Sub-Adviser imposes certain trading restrictions and
     reporting requirements for accounts in which a portfolio manager or certain
     family  members  have a personal  interest  in order to  confirm  that such
     accounts are not favored over other accounts.



                                       35


  o  If the  different  accounts have  materially  and  potentially  conflicting
     investment  objectives or strategies,  a conflict of interest may arise. In
     making portfolio manager  assignments,  the Sub-Adviser seeks to avoid such
     potentially conflicting  situations.  However, where a portfolio manager is
     responsible for accounts with differing investment objectives and policies,
     it is possible that the  portfolio  manager will conclude that it is in the
     best  interest of one account to sell a portfolio  security  while  another
     account continues to hold or increase the holding in such security.

Compensation  of Portfolio  Managers.  The  Sub-Adviser  has adopted a system of
compensation  for  portfolio  managers  and others  involved  in the  investment
process that is applied  systematically among investment  professionals.  At the
Sub-Adviser,  the  structure of  compensation  of  investment  professionals  is
currently  comprised of the  following  basic  components:  base salary,  and an
annual  investment  bonus plan,  as well as customary  benefits that are offered
generally to all full-time  employees of the  Sub-Adviser.  A limited  number of
senior portfolio managers, who serve as officers of both the Sub-Adviser and its
parent company,  may also receive  options or restricted  stock grants of common
shares of Manulife  Financial.  The following  describes  each  component of the
compensation  package for the individuals  identified as a portfolio manager for
the fund.

  o

     Base salary.  Base  compensation  is fixed and normally  reevaluated  on an
     annual basis.  The Sub-Adviser  seeks to set  compensation at market rates,
     taking into account the experience and  responsibilities  of the investment
     professional.

  o

     Investment  Bonus  Plan.  Only  investment  professionals  are  eligible to
     participate  in the  Investment  Bonus  Plan.  Under the  plan,  investment
     professionals  are  eligible for an annual  bonus.  The plan is intended to
     provide a competitive  level of annual bonus  compensation  that is tied to
     the investment  professional  achieving superior investment performance and
     aligns  the  financial   incentives  of  the  Adviser  and  the  investment
     professional. Any bonus under the plan is completely discretionary,  with a
     maximum  annual bonus that may be well in excess of base salary.  While the
     amount of any bonus is  discretionary,  the following factors are generally
     used in determining bonuses under the plan:

     o    Investment  Performance:  The  investment  performance of all accounts
          managed  by the  investment  professional  over  one and  three-  year
          periods are  considered.  The pre-tax  performance  of each account is
          measured  relative to an appropriate peer group benchmark (for example
          a  Morningstar  large  cap  growth  peer  group  if the  fund  invests
          primarily in large cap stocks with a growth strategy). With respect to
          fixed  income  accounts,  relative  yields  are also  used to  measure
          performance.

     o    The  Profitability  of  the  Sub-Adviser:  The  profitability  of  the
          Sub-Adviser  and its parent company are also considered in determining
          bonus awards,  with greater emphasis placed upon the  profitability of
          the Adviser.

     o    Non-Investment  Performance:  The more intangible  contributions of an
          investment professional to the Sub-Adviser's  business,  including the
          investment   professional's   support   of   sales   activities,   new
          fund/strategy  idea generation,  professional  growth and development,
          and management,  where  applicable,  are evaluating in determining the
          amount of any bonus award.


                                       36


  o  Options  and  Stock  Grants.   A  limited   number  of  senior   investment
     professionals may receive options to purchase shares of Manulife  Financial
     stock.  Generally,  such option would permit the investment professional to
     purchase a set  amount of stock at the  market  price on the date of grant.
     The option can be exercised for a set period (normally a number of years or
     until  termination of employment)  and the  investment  professional  would
     exercise  the  option  if the  market  value of  Manulife  Financial  stock
     increases.  Some  investment  professionals  may receive  restricted  stock
     grants,  where the investment  professional is entitle to receive the stock
     at no or nominal cost, provided that the stock is forgone if the investment
     professional's employment is terminated prior to a vesting date.

The  Sub-Adviser  also permits  investment  professionals  to  participate  on a
voluntary  basis in a deferred  compensation  plan,  under which the  investment
professional may elect on an annual basis to defer receipt of a portion of their
compensation  until  retirement.  Participation  in the  plan is  voluntary.  No
component of the  compensation  arrangements  for the  investment  professionals
involves mandatory deferral arrangements.

While the profitability of the Sub-Adviser and the investment performance of the
accounts that the investment  professionals  maintain are factors in determining
an investment professional's overall compensation, the investment professional's
compensation is not linked directly to the net asset value of any fund.

Share  Ownership by Portfolio  Managers.  The  following  table  indicates as of
August 31, 2005 the value,  within the indicated  range, of shares  beneficially
owned by the  portfolio  managers in the Fund.  For purposes of this table,  the
following letters represent the range indicated below:

         A        -        $0
         B        -        $1 - $10,000
         C        -        $10,001 - $50,000
         D        -        $50,001 - $100,000
         E        -        $100,001 - $500,000
         F        -        $500,001 - $1,000,000
         G        -        More than $1 million


- ---------------------------------------- --------------------------------------
Portfolio Manager                        Range of Beneficial Ownership
- ---------------------------------------- --------------------------------------
Dianne M. Sales, CFA                                           A
- ---------------------------------------- --------------------------------------
Frank A. Lucibella                                             A
- ---------------------------------------- --------------------------------------



DISTRIBUTION CONTRACTS

The Fund has a  Distribution  Agreement  with  John  Hancock  Funds.  Under  the
agreement John Hancock Funds is obligated to use its best efforts to sell shares
of each  class  of the  Fund.  Shares  of the Fund  are  also  sold by  selected
broker-dealers,  banks and registered investment advisors ("Selling Firms") that
have entered into selling  agreements  with John Hancock  Funds.  These  Selling
Firms are authorized to designate other  intermediaries  to receive purchase and
redemption  orders on behalf of the Fund.  John Hancock Funds accepts orders for
the purchase of the shares of the Fund that are continually offered at net asset
value next determined,  plus any applicable sales charge,  if any. In connection
with the sale of Fund  shares,  John  Hancock  Funds and Selling  Firms  receive
compensation from a sales charge imposed,  in the case of Class A shares, at the
time of sale.  (Prior to July 15,  2004,  Class C shares were also  subject to a


                                       37


sales load imposed at the time of  purchase.)  In the case of Class B or Class C
shares,  the Selling Firm  receives  compensation  immediately  but John Hancock
Funds is compensated on a deferred basis.


Total  underwriting  commissions (sales charges) for sales of the Fund's Class A
shares for the fiscal years ended August 31, 2003,  2004 and 2005 were $344,225,
$236,983 and  $250,259,  respectively,  and $44,422,  $31,740 and $33,013,  were
retained  by John  Hancock  Funds in 2003,  2004 and 2005,  respectively.  Total
underwriting  commissions (sales charges) for sales of the Fund's Class C shares
for the fiscal years ended August 31, 2003,  2004 and 2005 were $38,251,  $2,944
and $0,  respectively.  No Class C  commissions  were  retained by John  Hancock
Funds; the underwriting commissions were paid/reallowed to Selling Firms.


The Fund's  Trustees  adopted  Distribution  Plans with respect to each class of
shares (the "Plans"), pursuant to Rule 12b-1 under the Investment Company Act of
1940  (the  "Investment  Company  Act").  Under  the  Plans,  the Fund  will pay
distribution  and service  fees at an  aggregate  annual rate of up to 0.15% for
Class A shares and 1.00% for Class B and Class C shares,  of the Fund's  average
daily net assets attributable to shares of that class.  However, the service fee
will not exceed 0.25% of the Fund's  average  daily net assets  attributable  to
each  class of shares.  John  Hancock  Funds has agreed to limit the  payment of
expenses  under the Fund's Class B Plan to 0.90% of the average daily net assets
of its Class B shares.  Effective  January 1, 2002,  the limitation was removed.
The  distribution  fee will be used to  reimburse  John  Hancock  Funds  for its
distribution  expenses,  including  but not  limited to: (i) initial and ongoing
sales  compensation  to Selling Firms and others  (including  affiliates of John
Hancock Funds) engaged in the sale of Fund shares;  (ii) marketing,  promotional
and overhead  expenses  incurred in  connection  with the  distribution  of Fund
shares;  and (iii)  with  respect to Class B and Class C shares  only,  interest
expenses on unreimbursed distribution expenses. The service fees will be used to
compensate   Selling  Firms  and  others  for  providing  personal  and  account
maintenance services to shareholders. In the event the John Hancock Funds is not
fully reimbursed for payments or expenses under the Class A Plan, these expenses
will not be  carried  beyond  twelve  months  from the date they were  incurred.
Unreimbursed  expenses  under  the  Class B and  Class C Plans  will be  carried
forward  together with interest on the balance of these  unreimbursed  expenses.
The Fund  does not  treat  unreimbursed  expenses  under the Class B and Class C
Plans as a liability  of the Fund because the  Trustees  may  terminate  Class B
and/or Class C Plans expenses at any time with no additional liability for these
expenses to the  shareholders and the Fund. For the fiscal year ended August 31,
2005,  an  aggregate of  $5,322,739  of  distribution  expenses or 14.18% of the
average net assets of the Fund's Class B shares was not  reimbursed or recovered
by John  Hancock  Funds  through the receipt of deferred  sales  charges or Rule
12b-1 fees in prior  periods.  For the fiscal  year ended  August 31,  2005,  an
aggregate of $68,096 distribution expenses or 0.97% of the average net assets of
the Class C shares of the Fund was not  reimbursed  or recovered by John Hancock
Funds through receipt of deferred sales charges or 12b-1 fees in prior periods.

The Plans and all amendments were approved by the Trustees, including a majority
of the  Trustees  who are not  interested  persons  of the  Fund and who have no
direct or  indirect  financial  interest  in the  operation  of the  Plans  (the
"Independent  Trustees"),  by votes  cast in person at  meetings  called for the
purpose of voting on such Plans.

Pursuant to the Plans, at least quarterly,  John Hancock Funds provides the Fund
with a written  report of the amounts  expended  under the Plans and the purpose
for which these  expenditures  were made. The Trustees review these reports on a
quarterly basis to determine their continued appropriateness.



                                       38


The  Plans  provide  that  they will  continue  in effect  only so long as their
continuance is approved at least annually by a majority of both the Trustees and
the Independent Trustees.  The Plans provide that they may be terminated without
penalty, (a) by the vote of a majority of the Independent  Trustees,  (b) by the
vote of a majority of the Fund's outstanding shares of the applicable class upon
60 days' written  notice to John Hancock  Funds,  and (c)  automatically  in the
event of assignment.  The Plans further  provide that they may not be amended to
increase  the  maximum  amount of the fees for the  services  described  therein
without the approval of a majority of the outstanding shares of the class of the
Fund which has voting rights with respect to that Plan. Each Plan provides, that
no material  amendment to the Plans will be effective unless it is approved by a
majority  vote of the Trustees  and the  Independent  Trustees of the Fund.  The
holders of Class A, Class B and Class C shares have exclusive voting rights with
respect to the Plan applicable to their respective class of shares.  In adopting
the Plans, the Trustees concluded that, in their judgment, there is a reasonable
likelihood  that the Plans will benefit the holders of the  applicable  class of
shares of the Fund.

Amounts paid to John  Hancock  Funds by any class of shares of the Fund will not
be used to pay the expenses  incurred  with respect to any other class of shares
of the Fund;  provided,  however,  that expenses  attributable  to the Fund as a
whole will be allocated,  to the extent permitted by law, according to a formula
based upon gross  sales  dollars  and/or  average  daily net assets of each such
class,  as may be approved  from time to time by vote of a majority of Trustees.
From time to time,  the Fund may  participate in joint  distribution  activities
with other Funds and the costs of those activities will be borne by each Fund in
proportion to the relative net asset value of the participating Fund.



                                       39


During the fiscal year ended August 31, 2005,  the Fund paid John Hancock  Funds
the following amounts of expenses in connection with their services.

                                  Expense Items


                                                                                       
                                           Printing and                                                 Interest,
                                            Mailing of                            Expenses of John     Carrying or
                                        Prospectus to New                           Hancock Funds     Other Finance
                                           Shareholders       Compensation to                            Charges
                        Advertising                            Selling Firms
      Class A             $25,914              $316               $311,892             122,116              $0
      Class B              21,079               257                253,691              99,327              $0
      Class C               3,945                48                 47,479              18,589              $0


SALES COMPENSATION


As part of their business strategies, the Fund, along with the Distributor, pays
compensation to Selling Firms that sell the Fund's shares. These firms typically
pass  along  a  portion  of  this  compensation  to  your  broker  or  financial
representative.

The two primary sources of Selling Firm compensation  payments are (1) the 12b-1
fees  that are paid out of the  Fund's  assets  and (2)  sales  charges  paid by
investors.  The sales charges and 12b-1 fees are detailed in the  prospectus and
under  "Distribution  Contracts",  "Initial Sales Charges on Class A Shares" and
"Deferred  Sales  Charge on Class Ba and Class C Shares"  in this  Statement  of
Additional Information.  The portions of these expenses that are paid to Selling
Firms are shown on the next page.


Initial  compensation  Whenever  you make an  investment  in Class A, Class B or
Class   C   shares   of   the   Fund,    the    Selling    Firm    receives    a
reallowance/payment/commission  as described on the next page.  The Selling Firm
also receives the first year's 12b-1 service fee at this time.

Annual  compensation  For  Class  A,  Class B and  Class C shares  of the  Fund,
beginning  in the second year after an  investment  is made,  the  Selling  Firm
receives an annual  12b-1  service fee of 0.25% of its average  daily net (aged)
assets. In addition, beginning in the second year after an investment is made in
Class C shares,  the Distributor will pay the Selling Firm a distribution fee in
an amount not to exceed  0.75% of the  average  daily net (aged)  assets.  These
service and distribution fees are paid quarterly in arrears.

Selling  Firms  receive  service  and  distribution  fees if, for the  preceding
quarter, (1) their clients/shareholders have invested combined average daily net
assets  of no  less  than  $1,000,000  in  eligible  (aged)  assets;  or  (2) an
individual  registered  representative  of the  Selling  Firm  has no less  than
$250,000 in eligible (aged) assets. The reason for these criteria is to save the
Fund the  expense of paying out de minimus  amounts.  As a result,  if a Selling
Firm does not meet one of the criteria  noted  above,  the money for that firm's
fees remains in the Fund.


Additional compensation. The Distributor, at its expense, and without additional
cost to the Fund or its shareholders,  may provide additional  compensation to a
Selling Firm in connection with their promotion of the Fund or sale of shares of
the Fund.  The  Distributor  may make  payments to selling  firms for  marketing
support and/or  shareholder  administrative  services.  These marketing  support
payments may include  financial  assistance to Selling Firms in connection  with



                                       40



their   marketing   and  sales   development   programs  for  their   registered
representatives  and other  employees,  as well as payment for travel  expenses,
including lodging incurred by registered representatives and other employees for
such  marketing  and  sales  development  programs,  as well as  assistance  for
seminars for the public,  advertising and sales campaigns  regarding one or more
Funds,  and other Selling Firm - sponsored  events or  activities.  From time to
time, the Distributor may provide expense reimbursements for special training of
a  Selling  Firm's  registered  representatives  and  other  employees  in group
meetings.  Non-cash  compensation  may also take the form of  occasional  gifts,
meals, tickets or other entertainment as limited by NASD requirements.  Payments
may include amounts for  sub-administration  and other services for shareholders
whose  shares  are held of record in  omnibus  or other  group  accounts.  Other
compensation,  such as asset retention fees, finder's fees and reimbursement for
wire transfer fees or other  administrative fees and costs may be offered to the
extent not prohibited by law or any self-regulatory agency such as the NASD. The
Distributor  compensates  Selling Firms differently  depending upon, among other
factors,  the level  and/or type of  marketing  support  provided by the Selling
Firm.  The level of payments  made to a Selling Firm in any given year will vary
and may be  substantial.  These  payments  may provide an incentive to a Selling
Firm  to  actively  promote  the  Funds  or  cooperate  with  the  Distributor's
promotional  efforts.  Depending on the  arrangements in place at any particular
time,  Selling  Firms may have a financial  incentive  to recommend a particular
fund or a share class.  You should ask your  Selling  Firm for more  information
about any  services  it  provides,  as well as about  fees,  commissions  and/or
marketing support payments.




                                       41


              First Year Broker or Other Selling Firm Compensation



                                                                                                  
                                     Investor pays                                     Selling Firm
                                     sales charge             Selling Firm receives    receives 12b-1         Total Selling Firm
Class A investments                  (% of offering price)    commission (1)           service fee (2)        compensation (3)(4)
Up to $99,999                        4.50%                    3.76%                    0.25%                  4.00%
$100,000 - $249,999                  3.75%                    3.01%                    0.25%                  3.25%
$250,000 - $499,999                  3.00%                    2.26%                    0.25%                  2.50%
$500,000 - $999,999                  2.00%                    1.51%                    0.25%                  1.75%

Investments of Class A shares  of
$1 million or more (5)

First $1M - $4,999,999               --                       0.75%                    0.25%                  1.00%
Next $1 - $5M above that             --                       0.25%                    0.25%                  0.50%
Next $1 and more above that          --                       0.00%                    0.25%                  0.25%

Class B investments
All amounts                          --                       3.75%                    0.25%                  4.00%

Class C investments

All amounts                          --                       0.75%                    0.25%                  1.00%


(1) For Class A investments  under $1 million,  a portion of the Selling  Firm's
commission is paid out of the sales charge.


(2) For Class A, B and C shares,  the Selling  Firm  receives  12b-1 fees in the
first  year as a % of the  amount  invested  and after the first  year as a % of
average  daily net  eligible  assets.  For Selling  Firms with a  fee-based/WRAP
program  agreement with John Hancock Funds,  LLC the Selling Firm receives 12b-1
fees in the first  year as a % of average  daily net  eligible  assets.  Certain
retirement platforms also receive 12b-1 fees in the first year as a % of average
daily net eligible assets. Quarterly payments are made in arrears.


(3) Selling Firm  commission  and 12b-1 service fee  percentages  are calculated
from  different  amounts,  and  therefore  may not equal the total  Selling Firm
compensation percentages if combined using simple addition.

(4) Underwriter retains the balance.


(5) See  "Initial  Sales  Charge on Class A  Shares"  for  discussion  on how to
qualify for a reduced  sales  charge.  John Hancock  Funds,  LLC may take recent
redemptions  into account in  determining  if an  investment  qualifies as a new
investment.


CDSC revenues  collected by John Hancock  Funds,  LLC may be used to pay Selling
Firm commissions when there is no initial sales charge.



                                       42


NET ASSET VALUE

The NAV for each class of the Fund is determined  each business day at the close
of regular trading on the New York Stock Exchange  (typically 4:00 p.m.  Eastern
Time) by dividing a class's net assets by the number of its shares  outstanding.
Trading of fixed income securities may take place on Saturdays and U.S. business
holidays  on which the Fund's NAV is not  calculated.  Consequently,  the Fund's
portfolio  securities may trade and the NAV of the Fund's redeemable  securities
may be  significantly  affected on days when a shareholder  has no access to the
Fund.

For purposes of  calculating  the net asset value ("NAV") of the Fund's  shares,
the following procedures are utilized wherever applicable.

Debt investment  securities are valued on the basis of valuations furnished by a
principal  market maker or a pricing  service,  both of which generally  utilize
electronic  data  processing  techniques  to  determine  valuations  for  normal
institutional  size trading units of debt securities  without exclusive reliance
upon  quoted  prices.  In  addition,  because of the amount of time  required to
collect  and  process  trading  information  as to large  numbers of  securities
issues,  the values of  certain  securities  (such as  convertible  bonds,  U.S.
government securities and tax-exempt  securities) are determined based on market
quotations  collected prior to the close of the Exchange.  Occasionally,  events
affecting  the  value  of such  securities  may  occur  between  the time of the
determination of value and the close of the Exchange which will not be reflected
in the computation of the Fund's net asset value. If events materially affecting
the value of such  securities  occur during such period,  then these  securities
will be  valued  at  their  fair  value  following  procedures  approved  by the
Trustees.


Short-term debt investments  which have a remaining  maturity of 60 days or less
may be valued at  amortized  cost which  approximates  market  value.  If market
quotations are not readily available or if in the opinion of the Sub-Adviser any
quotation or price is not representative of true market value, the fair value of
the security  may be  determined  in good faith in  accordance  with  procedures
approved by the Trustees.


If any securities  held by the Fund are restricted as to resale,  the fair value
of such  securities  is generally  determined as the amount which the Fund could
reasonably expect to realize from an orderly disposition of such securities over
a reasonable  period of time. The valuation  procedures  applied in any specific
instance  are  likely  to vary  from  case to case.  However,  consideration  is
generally  given to the financial  position of the issuer and other  fundamental
analytical data relating to the investment and to the nature of the restrictions
on disposition of the securities (including any registration expenses that might
be borne by the Fund in connection with such disposition). In addition, specific
factors are also generally considered,  such as the cost of the investment,  the
market value of any  unrestricted  securities of the same class, the size of the
holding,  the prices of any recent  transactions  or offers with respect to such
securities and any available analysts' reports regarding the issuer.

INITIAL SALES CHARGE ON CLASS A SHARES


Shares of the Fund are  offered at a price equal to their net asset value plus a
sales charge which, at the option of the purchaser, may be imposed either at the
time of purchase (the "initial sales charge") or on a contingent  deferred basis
(the  "contingent  deferred sales charge" or "CDSC").  The Trustees  reserve the
right to change or waive  the  Fund's  minimum  investment  requirements  and to



                                       43



reject any order to purchase shares (including purchase by exchange) when in the
judgment of the Adviser such rejection is in the Fund's best interest.

The sales  charges  applicable  to  purchases  of Class A shares of the Fund are
described in the Prospectus. Methods of obtaining reduced sales charges referred
to generally in the Prospectus are described in detail below. In calculating the
sales charge  applicable to current purchases of Class A shares of the Fund, the
investor is entitled to accumulate  current  purchases with the current offering
price of the Class A,  Class B,  Class C, Class I, or Class R shares of the John
Hancock mutual funds owned by the investor (see  "Combination  and  Accumulation
Privileges" below).


In order to receive the reduced sales charge,  the investor must notify  his/her
financial  adviser  and/or  the  financial  adviser  must  notify  John  Hancock
Signature Services,  Inc. ("Signature  Services") at the time of purchase of the
Class A shares, about any other John Hancock mutual funds owned by the investor,
the investor's  spouse and their children under the age of 21 living in the same
household (see "Combination and Accumulation  Privilege"  below).  This includes
investments  held in a  retirement  account,  an employee  benefit  plan or at a
broker or financial  adviser other than the one handling your current  purchase.
John Hancock will credit the combined value,  at the current  offering price, of
all  eligible  accounts to  determine  whether  you qualify for a reduced  sales
charge on your current  purchase.  John Hancock  Signature  Services,  Inc. will
automatically link certain accounts registered in the same client name, with the
same taxpayer identification number, for the purpose of qualifying you for lower
initial sales charge rates. You must notify John Hancock Signature Services Inc.
and  your  broker-dealer  (financial  adviser)  at the time of  purchase  of any
eligible  accounts held by your spouse or children  under 21, living in the same
household in order to insure these assets are linked to your accounts.

Without Sales Charge.  Class A shares may be offered  without a front-end  sales
charge or contingent  deferred sales charges ("CDSC") to various individuals and
institutions as follows:

o    A Trustee or officer of the Trust; a Director or officer of the Adviser and
     its   affiliates,   sub-adviser  or  Selling  Firms;   employees  or  sales
     representatives  of any of the foregoing;  retired  officers,  employees or
     Directors  of  any of the  foregoing;  a  member  of the  immediate  family
     (spouse, child, grandparent,  grandchild,  parent, sibling,  mother-in-law,
     father-in-law,  daughter-in-law,  son-in-law,  niece,  nephew  and same sex
     domestic partner; "Immediate Family") of any of the foregoing; or any fund,
     pension, profit sharing or other benefit plan for the individuals described
     above.

o    A broker,  dealer,  financial planner,  consultant or registered investment
     advisor that has entered into a signed  agreement  with John Hancock  Funds
     providing  specifically for the use of fund shares in fee-based  investment
     products or services made available to their clients.

o    Individuals  transferring  assets  held in a SIMPLE  IRA,  SEP,  or  SARSEP
     invested in John Hancock Funds directly to an IRA.

o    Individuals  converting  assets held in an IRA,  SIMPLE IRA, SEP, or SARSEP
     invested in John Hancock Funds directly to a ROTH IRA.

NOTE:  Rollover  investments to Class A shares from assets withdrawn from SIMPLE
401(k), TSA, 457, 403(b),  401(k),  Money Purchase Pension Plan,  Profit-Sharing
Plan and any other  qualified  plans as described in the Internal  Revenue Codes


                                       44


401(a), 403(b), 457 and not specified above as waiver eligible,  will be subject
to applicable sales charges.

o    A member of a class  action  lawsuit  against  insurance  companies  who is
     investing settlement proceeds.

o    Certain retirement plans  participating in Merrill Lynch servicing programs
     offered in Class A shares,  including  transferee  recording  arrangements,
     Merrill  Lynch   Connect   Arrangements   and  third  party   administrator
     recordkeeping arrangements. See your Merrill Lynch financial consultant for
     further information.

o    Retirement plans investing through the PruSolutionssm program.

o    Participants  in certain 529 Plans that have a signed  agreement  with John
     Hancock Funds.  No CDSC will be due for  redemptions on plan purchases made
     at NAV with no  finder's  fee.  However,  if a plan had a  finder's  fee or
     commission,  and the  entire  plan  redeemed  within 12 months of the first
     investment in the plan, a CDSC would be due.

o    Participant  directed retirement plans with at least 100 eligible employees
     at the inception of the Fund account.  Each of these employees may purchase
     Class A shares with no initial sales charge,  if the plan sponsor  notifies
     Signature  Services of the number of  employees  at the time the account is
     established.  However,  if the shares are redeemed  within 12 months of the
     inception of the plan, a CDSC will be imposed at the following rate:

     Amount Invested                            CDSC Rate
     ---------------                            ---------
     First $1 to $4,999,999                     1.00%
     Next $1 to $5M above that                  0.50%
     Next $1 or more above that                 0.25%

As of July 15, 2004, no Class C shares paid a front-end sales charge.

Class A shares  may  also be  purchased  without  an  initial  sales  charge  in
connection  with  certain  liquidation,   merger  or  acquisition   transactions
involving other investment companies or personal holding companies.

In Kind Re-registrations. A shareholder who withdraws funds via a tax reportable
transaction,  from one John Hancock fund  account,  that has  previously  paid a
sales charge, and reregisters those assets directly to another John Hancock Fund
account,  without the assets ever leaving John Hancock Funds,  may do so without
paying a sales charge. The beneficial owner must remain the same, i.e., in kind.

Note:  Rollover  investments to Class A shares from assets withdrawn from SIMPLE
401(k), TSA, 457, 403(b),  401(k),  Money Purchase Pension Plan,  Profit-Sharing
Plan and any other  qualified  plans as described in the Internal  Revenue Codes
401(a), 403(b), 457 are not eligible for this provision,  and will be subject to
applicable sales charges.

Reducing Your Class A Sales Charges
- -----------------------------------


                                       45


Combination  and  Accumulation  Privileges.  In  calculating  the  sales  charge
applicable to purchases of Class A shares made at one time,  the purchases  will
be combined to reduce  sales  charges if made by (a) an  individual,  his or her
spouse  and their  children  under  the age of 21 living in the same  household,
purchasing  securities  for his or their own  account,  (b) a  trustee  or other
fiduciary  purchasing  for a single trust,  estate or fiduciary  account and (c)
groups which qualify for the Group Investment Program (see below). Qualified and
non-qualified  retirement plan  investments can be combined to take advantage of
this privilege.  Class A investors may also reduce their Class A sales charge by
taking into  account  not only the amount  being  invested  but also the current
offering  price of all the Class A, Class B, Class C, Class I and Class R shares
of all John Hancock funds already held by such person.  However,  Class A shares
of John Hancock  money  market funds will only be eligible for the  accumulation
privilege if the investor  has  previously  paid a sales charge on the amount of
those shares. To receive a reduced sales charge,  the investor must tell his/her
financial  adviser or Signature  Services at the time of the purchase  about any
other John  Hancock  mutual  funds held by that  investor  his or her spouse and
their  children  under  the age of 21  living  in the  same  household.  Further
information about combined purchases, including certain restrictions on combined
group  purchases,  is  available  from  Signature  Services or a Selling  Firm's
representative.

Group Investment Program. Under the Combination and Accumulation Privileges, all
members of a group may combine their  individual  purchases of Class A shares to
potentially  qualify for breakpoints in the sales charge schedule.  This feature
is  provided  to any  group  which (1) has been in  existence  for more than six
months,  (2) has a  legitimate  purpose  other than the  purchase of mutual fund
shares at a discount for its members,  (3) utilizes salary  deduction or similar
group methods of payment, and (4) agrees to allow sales materials of the fund in
its mailings to members at a reduced or no cost to John Hancock Funds.

Letter of Intention.  Reduced Class A sales  charges under the  Combination  and
Accumulation  Privilege are also  applicable to  investments  made pursuant to a
Letter of Intention  (the "LOI"),  which should be read  carefully  prior to its
execution by an investor.  The Fund offers two options  regarding  the specified
period for making  investments  under the LOI. All investors  have the option of
making  their  investments  over a  specified  period of thirteen  (13)  months.
Investors  who are using the Fund as a funding  medium  for a  retirement  plan,
however, may opt to make the necessary  investments called for by the LOI over a
forty-eight (48) month period. These retirement plans include traditional,  Roth
IRAs and Coverdell ESAs, SEP, SARSEP,  401(k),  403(b) (including TSAs),  SIMPLE
IRA,  SIMPLE  401(k),  Money  Purchase  Pension,  Profit Sharing and Section 457
plans. An individual's  non-qualified and qualified  retirement plan investments
can be  combined  to  satisfy  an  LOI  (either  13 or 48  months).  Since  some
retirement  plans are held in an omnibus  account,  an investor wishing to count
retirement  plan  holdings  towards a Class A  purchase  must  notify  Signature
Services and his/her  financial  adviser of these  holdings.  Such an investment
(including accumulations,  combinations and reinvested dividends) must aggregate
$100,000 or more during the specified  period from the date of the LOI or from a
date within ninety (90) days prior  thereto,  upon written  request to Signature
Services.  Purchases  made within 90 days prior to the signing of an LOI will be
counted towards fulfillment of the LOI, however,  the original sales charge will
not be recalculated for these previous purchases. The sales charge applicable to
all amounts  invested  after an LOI is signed is  computed  as if the  aggregate
amount intended to be invested had been invested immediately.  If such aggregate
amount is not actually  invested,  the  difference in the sales charge  actually
paid and the sales charge payable had the LOI not been in effect is due from the
investor.  However,  for the purchases actually made within the specified period
(either 13 or 48 months)  the sales  charge  applicable  will not be higher than
that which would have applied (including accumulations and combinations) had the
LOI been for the amount actually invested.



                                       46


The LOI  authorizes  Signature  Services  to hold in escrow  sufficient  Class A
shares  (approximately  5% of the  aggregate) to make up any difference in sales
charges on the amount intended to be invested and the amount actually  invested,
until such investment is completed  within the specified  period,  at which time
the escrowed Class A shares will be released.  If the total investment specified
in the LOI is not  completed,  the Class A shares held in escrow may be redeemed
and the  proceeds  used as required  to pay such sales  charge as may be due. By
signing  the LOI,  the  investor  authorizes  Signature  Services  to act as his
attorney-in-fact  to redeem  any  escrowed  Class A shares  and adjust the sales
charge,  if  necessary.  A LOI does not  constitute a binding  commitment  by an
investor to purchase,  or by the Fund to sell, any additional Class A shares and
may be terminated at any time.

DEFERRED SALES CHARGE ON CLASS B AND CLASS C SHARES

Investments  in Class B and Class C shares are  purchased at net asset value per
share  without the  imposition  of an initial sales charge so that the Fund will
receive the full amount of the purchase payment.

Contingent Deferred Sales Charge.  Class B and Class C shares which are redeemed
within  six years or one year of  purchase,  respectively,  will be subject to a
contingent  deferred  sales  charge  ("CDSC")  at the  rates  set  forth  in the
Prospectus as a percentage of the dollar amount  subject to the CDSC. The charge
will be assessed on an amount equal to the lesser of the current market value or
the original  purchase cost of the Class B or Class C shares being redeemed.  No
CDSC will be imposed on  increases in account  value above the initial  purchase
prices or on shares  derived from  reinvestment  of  dividends or capital  gains
distributions.

Class B shares  are not  available  to  retirement  plans that had more than 100
eligible  employees  at the  inception  of the Fund  account.  You  must  notify
Signature  Services of the number of eligible employees at the time your account
is established.

The amount of the CDSC, if any, will vary  depending on the number of years from
the  time of  payment  for the  purchase  of Class B  shares  until  the time of
redemption  of such  shares.  Solely for purposes of  determining  the number of
years from the time of any payment for the purchases of both Class B and Class C
shares,  all payments  during a month will be aggregated and deemed to have been
made on the first day of the month.

In determining  whether a CDSC applies to a redemption,  the calculation will be
determined in a manner that results in the lowest  possible rate being  charged.
It will be assumed  that your  redemption  comes first from shares you have held
beyond  the  six-year  CDSC  redemption  period  for  Class B or one  year  CDSC
redemption period for Class C or those you acquired through dividend and capital
gain reinvestment, and next from the shares you have held the longest during the
six-year  period for Class B. For this purpose,  the amount of any increase in a
share's value above its initial  purchase price is not subject to a CDSC.  Thus,
when a share that has appreciated in value is redeemed during the CDSC period, a
CDSC is assessed only on its initial purchase price.

When  requesting a redemption for a specific  dollar amount,  please indicate if
you require the proceeds to equal the dollar amount requested. If not indicated,
only the  specified  dollar  amount will be redeemed  from your  account and the
proceeds will be less any applicable CDSC.

Example:


                                       47


You have  purchased  100 Class B shares at $10 per share.  The second year after
your purchase,  your  investment's net asset value per share has increased by $2
to $12, and you have gained 10 additional shares through dividend  reinvestment.
If you redeem 50 shares at this time your CDSC will be calculated as follows:



                                                                                         
      o Proceeds of 50 shares redeemed at $12 per shares (50 x 12)                          $600.00
      o *Minus Appreciation ($12 - $10) x 100 shares                                        (200.00)
      o Minus proceeds of 10 shares not subject to CDSC (dividend reinvestment)             (120.00)
                                                                                            --------
      o >Amount subject to CDSC                                                             $280.00


*The  appreciation is based on all 100 shares in the account not just the shares
being redeemed.

Proceeds  from the CDSC are paid to John Hancock  Funds and are used in whole or
in part by John  Hancock  Funds to defray  its  expenses  related  to  providing
distribution-related  services  to the Fund in  connection  with the sale of the
Class B and  Class C  shares,  such as the  payment  of  compensation  to select
Selling Firms for selling  Class B and Class C shares.  The  combination  of the
CDSC and the  distribution  and service fees facilitates the ability of the Fund
to sell the Class B and Class C shares  without a sales charge being deducted at
the time of the purchase.

Waiver  of  Contingent  Deferred  Sales  Charge.  The  CDSC  will be  waived  on
redemptions of Class B and Class C shares and Class A shares that are subject to
a CDSC, unless indicated otherwise, in the circumstances defined below:

For all account types:

*    Redemptions  made pursuant to the Fund's right to liquidate your account if
     you own shares worth less than $1,000.

*    Redemptions   made  under  certain   liquidation,   merger  or  acquisition
     transactions  involving  other  investment  companies  or personal  holding
     companies.

*    Redemptions  due to death or disability.  (Does not apply to Trust accounts
     unless Trust is being dissolved.)

*    Redemptions made under the Reinstatement  Privilege, as described in "Sales
     Charge Reductions and Waivers" of the Prospectus.

*    Redemptions of Class B and Class C shares made under a periodic  withdrawal
     plan, or redemptions  for fees charged by planners or advisors for advisory
     services,  as long as your  annual  redemptions  do not  exceed 12% of your
     account value, including reinvested dividends,  at the time you established
     your  periodic   withdrawal  plan  and  12%  of  the  value  of  subsequent
     investments  (less  redemptions)  in that  account  at the time you  notify
     Signature  Services.  (Please note,  this waiver does not apply to periodic
     withdrawal plan redemptions of Class A shares that are subject to a CDSC.)

*    Certain retirement plans  participating in Merrill Lynch servicing programs
     offered  in Class  A,  Class B and  Class C  shares,  including  transferee
     recording arrangements,  Merrill Lynch Connect Arrangements and third party
     administrator recordkeeping arrangements.  See your Merrill Lynch Financial
     Consultant for further information.


                                       48


*    Redemption of Class A shares by retirement  plans that invested through the
     PruSolutions(sm) program.

*    Redemption of Class A shares made after one year from the inception date of
     a retirement plan at John Hancock.

For Retirement  Accounts  (such as  traditional,  Roth IRAs and Coverdell  ESAs,
SIMPLE IRAs,  SIMPLE  401(k),  Rollover  IRA, TSA, 457,  403(b),  401(k),  Money
Purchase  Pension Plan and  Profit-Sharing  Plan and other plans as described in
the Internal Revenue Code) unless otherwise noted.

*    Redemptions made to effect mandatory or life expectancy distributions under
     the Internal Revenue Code.  (Waiver based on required minimum  distribution
     calculations for John Hancock Mutual Fund IRA assets only.)

*    Returns of excess contributions made to these plans.

*    Redemptions made to effect certain distributions,  as outlined in the chart
     on the  following  page, to  participants  or  beneficiaries  from employer
     sponsored  retirement  plans under sections  401(a) (such as Money Purchase
     Pension Plans and  Profit-Sharing/401(k)  Plans), 403(b), 457 and 408 (SEPs
     and SIMPLE IRAs) of the Internal Revenue Code.

Please see matrix for some examples.



                                       49




                                                                                
- ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Type of                 401 (a) Plan      403 (b)           457              IRA, IRA          Non-retirement
Distribution            (401 (k), MPP,                                       Rollover
                        PSP) 457 & 408
                        (SEPs & Simple
                        IRAs)
- ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Death or Disability     Waived            Waived            Waived           Waived            Waived
- ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Over 70 1/2             Waived            Waived            Waived           Waived for        12% of account
                                                                             required          value annually
                                                                             minimum           in periodic
                                                                             distributions*    payments
                                                                             or 12% of
                                                                             account value
                                                                             annually in
                                                                             periodic
                                                                             payments.
- ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Between 59 1/2          Waived            Waived            Waived           Waived for Life   12% of account
and 70 1/2                                                                   Expectancy or     value annually
                                                                             12% of account    in periodic
                                                                             value annually    payments
                                                                             in periodic
                                                                             payments.
- ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Under 59 1/2            Waived for        Waived for        Waived for       Waived for        12% of account
(Class B and Class C    annuity           annuity           annuity          annuity           value annually
only)                   payments (72t)    payments (72t)    payments (72t)   payments (72t)    in periodic
                        or 12% of         or 12% of         or 12% of        or 12% of         payments
                        account value     account value     account value    account value
                        annually in       annually in       annually in      annually in
                        periodic          periodic          periodic         periodic
                        payments          payments.         payments.        payments.
- ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Loans                   Waived            Waived            N/A              N/A               N/A
- ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Termination of Plan     Not Waived        Not Waived        Not Waived       Not Waived        N/A
- ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Hardships               Waived            Waived            Waived           N/A               N/A
- ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Qualified Domestic      Waived            Waived            Waived           N/A               N/A
Relations Orders
- ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Termination of          Waived            Waived            Waived           N/A               N/A
Employment Before
Normal Retirement Age
- ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Return of Excess        Waived            Waived            Waived           Waived            N/A
- ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------


*Required  minimum  distributions  based on John Hancock  Mutual Fund IRA assets
only.


                                       50


If you qualify for a CDSC waiver under one of these situations,  you must notify
Signature  Services  at the time you make your  redemption.  The waiver  will be
granted  once  Signature  Services  has  confirmed  that you are entitled to the
waiver.

SPECIAL REDEMPTIONS

Although  it  would  not  normally  do so,  the  Fund  has the  right to pay the
redemption  price  of  shares  of the  Fund in  whole  or in  part in  portfolio
securities as prescribed by the Trustees.  When the shareholder  sells portfolio
securities  received in this  fashion,  the  shareholder  will incur a brokerage
charge.  Any such  securities  would be valued for the  purposes  of making such
payment at the same value as used in determining net asset value.  The Fund has,
however,  elected to be governed by Rule 18f-1 under the Investment Company Act.
Under that rule,  the Fund must  redeem its shares for cash except to the extent
that the redemption  payments to any shareholder  during any 90-day period would
exceed  the  lesser of  $250,000  or 1% of the  Fund's  net  asset  value at the
beginning of such period.

ADDITIONAL SERVICES AND PROGRAMS

Exchange Privilege. The Fund permits exchanges of shares of any class for shares
of the same  class in any other John  Hancock  fund  offering  that  class.  The
registration   for  both  accounts   involved   must  be  identical.   Identical
registration is determined by having the same beneficial  owner on both accounts
involved in the exchange.

Exchanges between funds are based on their respective net asset values. No sales
charge is imposed,  except on exchanges of Class A shares from Money Market Fund
or U.S.  Government  Cash Reserve Fund to another John Hancock  fund, if a sales
charge  has not  previously  been  paid on those  shares.  However,  the  shares
acquired  in an  exchange  will be  subject to the CDSC  schedule  of the shares
acquired if and when such shares are  redeemed.  For purposes of  computing  the
CDSC  payable upon  redemption  of shares  acquired in an exchange,  the holding
period of the  original  shares  is added to the  holding  period of the  shares
acquired in an exchange.

If a retirement  plan  exchanges the plan's Class A account in its entirety from
the Fund to a non-John Hancock investment, the one-year CDSC applies.

The Fund  reserves the right to require that  previously  exchanged  shares (and
reinvested  dividends)  be in the  Fund  for 90 days  before  a  shareholder  is
permitted a new exchange.

An exchange of shares is treated as a  redemption  of shares of one fund and the
purchase of shares of another for Federal  Income Tax purposes.  An exchange may
result in a taxable gain or loss. See "TAX STATUS".

Systematic  Withdrawal Plan. The Fund permits the  establishment of a Systematic
Withdrawal  Plan.  Payments under this plan represent  proceeds arising from the
redemption of Fund shares,  which may result in  realization of gain or loss for
purposes  of  Federal,  state and  local  income  taxes.  The  maintenance  of a
Systematic  Withdrawal Plan  concurrently with purchases of additional shares of
the Fund could be disadvantageous to a shareholder  because of the initial sales
charge  payable  on the  purchases  of Class A shares  and the CDSC  imposed  on
redemptions  of Class B and Class C shares and because  redemptions  are taxable
events.  Therefore, a shareholder should not purchase shares at the same time as
a Systematic Withdrawal Plan is in effect. The Fund reserves the right to modify
or discontinue  the Systematic  Withdrawal  Plan of any  shareholder on 30 days'
prior written notice to such shareholder,  or to discontinue the availability of


                                       51


such plan in the future.  The  shareholder may terminate the plan at any time by
giving proper notice to Signature Services.

Monthly Automatic  Accumulation  Program ("MAAP").  This program is explained in
the Prospectus.  The program,  as it relates to automatic  investment checks, is
subject to the following conditions:

The investments will be drawn on or about the day of the month indicated.

The privilege of making investments through the MAAP may be revoked by Signature
Services  without  prior  notice  if  any  investment  is  not  honored  by  the
shareholder's  bank.  The  bank  shall  be under no  obligation  to  notify  the
shareholder as to the non-payment of any checks.

The program may be discontinued by the shareholder  either by calling  Signature
Services or upon written notice to Signature Services which is received at least
five (5) business days prior to the order date of any investment.

Reinstatement  or  Reinvestment   Privilege.  If  Signature  Services  and  your
financial  adviser are notified  prior to  reinvestment,  a shareholder  who has
redeemed Fund shares may, within 120 days after the date of redemption, reinvest
without payment of a sales charge any part of the redemption  proceeds in shares
back into the same share class of the same John  Hancock  Fund and account  from
which it was removed,  subject to the minimum investment limit in that fund. The
proceeds  from the  redemption  of Class A shares may be reinvested at net asset
value without paying a sales charge in Class A shares of the Fund. If a CDSC was
paid upon a  redemption,  a  shareholder  may reinvest  the  proceeds  from this
redemption  at net asset value in  additional  shares of the same class and fund
and account from which the redemption was made. The  shareholder's  account will
be credited  with the amount of any CDSC charged upon the prior  redemption  and
the new shares will  continue to be subject to the CDSC.  The holding  period of
the shares  acquired  through  reinvestment  will, for purposes of computing the
CDSC  payable upon a subsequent  redemption,  include the holding  period of the
redeemed shares.

The Fund may  refuse  any  reinvestment  request  and may  change or cancel  its
reinvestment policies at any time.

A  redemption  or exchange of Fund shares is a taxable  transaction  for Federal
income tax purposes even if the  reinvestment  privilege is  exercised,  and any
gain or loss realized by a shareholder on the redemption or other disposition of
Fund shares will be treated for tax purposes as described under the caption "TAX
STATUS."

Retirement plans participating in Merrill Lynch's servicing programs:

Class A shares are  available  at net asset value for Merrill  Lynch  retirement
plans,  including  transferee  recording  arrangements,  Merrill Lynch  Contract
Arrangements and third party administrator recordkeeping arrangements.  See your
Merrill Lynch Financial Consultant for further information.

For  participating  retirement  plans  investing in Class B shares,  shares will
convert  to Class A shares  after  eight  years,  or sooner if the plan  attains
assets of $5 million (by means of a CDSC-free  redemption/purchase  at net asset
value).



                                       52


PURCHASES AND REDEMPTIONS THROUGH THIRD PARTIES

Shares of the Fund may be purchased or redeemed  through  certain Selling Firms.
Selling Firms may charge the investor  additional fees for their  services.  The
Fund will be deemed to have  received a  purchase  or  redemption  order when an
authorized Selling Firm, or if applicable, a Selling Firm's authorized designee,
receives the order. Orders may be processed at the NAV next calculated after the
Selling Firm receives the order.  The Selling Firm must  segregate any orders it
receives  after the close of regular  trading on the New York Stock Exchange and
transmit  those orders to the Fund for  execution at NAV next  determined.  Some
Selling Firms that maintain  network/omnibus/nominee  accounts with the Fund for
their  clients  charge an annual  fee on the  average  net  assets  held in such
accounts for accounting,  servicing, and distribution services they provide with
respect to the underlying Fund shares. This fee is paid by the Adviser, the Fund
and/or John Hancock Funds, LLC (the Fund's principal distributor).

DESCRIPTION OF THE FUND'S SHARES

The Trustees of the Trust are  responsible for the management and supervision of
the Fund.  The  Declaration  of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest of the Fund, without
par value.  Under the  Declaration of Trust,  the Trustees have the authority to
create and  classify  shares of  beneficial  interest  in separate  series,  and
classes without further action by shareholders. As of the date of this Statement
of  Additional  Information,  the Trustees have  authorized  the issuance of one
series of shares of the Fund.  Additional series may be added in the future. The
Trustees  have also  authorized  the issuance of three  classes of shares of the
Fund, designated as Class A, Class B and Class C.


The shares of each class of the Fund represent an equal  proportionate  interest
in the aggregate net assets  attributable to that class of the Fund.  Holders of
each class of shares have certain exclusive voting rights on matters relating to
their respective  distribution plans. The different classes of the Fund may bear
different  expenses  relating  to  the  cost  of  holding  shareholder  meetings
necessitated by the exclusive voting rights of any class of shares.  The Fund no
longer issues share certificates. Shares are electronically recorded.

Dividends paid by the Fund, if any, with respect to each class of shares will be
calculated in the same manner,  at the same time and on the same day and will be
in the same amount, except for differences resulting from the facts that (i) the
distribution  and  service  fees  relating to each class of shares will be borne
exclusively  by that  class  (ii)  Class B and  Class C shares  will pay  higher
distribution and service fees than Class A shares and (iii) each class of shares
will bear any other class expenses  properly  allocable to that class of shares,
subject to the conditions the Internal  Revenue  Service imposes with respect to
multiple-class  structures.  Similarly,  the net asset  value per share may vary
depending on which class of shares are  purchased.  No interest  will be paid on
uncashed dividend or redemption checks.


In the event of  liquidation,  shareholders  of each class are entitled to share
pro rata in the net  assets  of the Fund  available  for  distribution  to these
shareholders.  Shares  entitle their  holders to one vote per share,  are freely
transferable  and have no preemptive,  subscription or conversion  rights.  When
issued,  shares are fully  paid and  non-assessable  by the Fund,  except as set
forth below.

Unless  otherwise  required by the Investment  Company Act or the Declaration of
Trust,  the Fund has no intention of holding  annual  meetings of  shareholders.
Fund  shareholders  may  remove a Trustee  by the  affirmative  vote of at least


                                       53


two-thirds of the Fund's outstanding shares and the Trustees shall promptly call
a meeting  for such  purpose  when  requested  to do so in writing by the record
holders of not less than 10% of the outstanding shares of the Fund. Shareholders
may,  under  certain  circumstances,  communicate  with  other  shareholders  in
connection with requesting a special meeting of  shareholders.  However,  at any
time that less than a majority of the  Trustees  holding  office were elected by
the  shareholders,  the Trustees will call a special meeting of shareholders for
the purpose of electing Trustees.

Under Massachusetts law,  shareholders of a Massachusetts  business trust could,
under certain  circumstances,  be held personally liable for acts or obligations
of the Trust.  However,  The Fund's  Declaration  of Trust  contains  an express
disclaimer  of  shareholder  liability for acts,  obligations  or affairs of the
Fund.  The  Declaration  of Trust also provides for  indemnification  out of the
Fund's  assets  for  all  losses  and  expenses  of any  Fund  shareholder  held
personally  liable  by  reason  of  being  or  having  been a  shareholder.  The
Declaration  of Trust also  provides  that no series of the Fund shall be liable
for the liabilities of any other series.  Furthermore,  no Fund included in this
Fund's  prospectus shall be liable for the liabilities of any other John Hancock
fund.  Liability is therefore  limited to circumstances in which the Fund itself
would be unable to meet its obligations,  and the possibility of this occurrence
is remote.

The Fund reserves the right to reject any  application  which conflicts with the
Fund's  internal  policies or the  policies of any  regulatory  authority.  John
Hancock Funds does not accept  starter,  credit card or third party checks.  All
checks  returned by the post office as  undeliverable  will be reinvested at net
asset  value in the fund or funds from which a  redemption  was made or dividend
paid. Information provided on the account application may be used by the Fund to
verify the accuracy of the  information or for  background or financial  history
purposes.  A joint account will be administered as a joint tenancy with right of
survivorship,  unless the joint owners notify Signature  Services of a different
intent.  A shareholder's  account is governed by the laws of The Commonwealth of
Massachusetts. For telephone transactions, the transfer agent will take measures
to verify the identity of the caller,  such as asking for name,  account number,
Social Security or other taxpayer ID number and other relevant  information.  If
appropriate  measures are taken,  the transfer agent is not  responsible for any
losses that may occur to any account due to an authorized  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.

Shares of the Fund generally may be sold only to U.S. citizens,  U.S. residents,
and U.S. Domestic corporations, partnerships, trusts or estates.

TAX STATUS

Federal Income Taxation

The Fund is treated as a separate  entity for accounting  and tax purposes,  has
qualified and elected to be treated as a "regulated  investment  company"  under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"),  and
intends  to  continue  to so  qualify  for  each  taxable  year.  As such and by
complying  with the  applicable  provisions of the Code regarding the sources of
its income,  the timing of its  distributions,  and the  diversification  of its
assets,  the Fund will not be subject to  Federal  income tax on its  tax-exempt
interest and taxable income (including net realized capital gains, if any) which
is distributed to shareholders in accordance with the timing requirements of the
Code.


                                       54


The Fund will be subject to a 4%  non-deductible  Federal  excise tax on certain
amounts not distributed (and not treated as having been distributed) on a timely
basis in accordance  with annual  minimum  distribution  requirements.  The Fund
intends under normal  circumstances  to seek to avoid or minimize  liability for
such tax by satisfying such distribution requirements.

The Fund expects to qualify to pay  "exempt-interest  dividends,"  as defined in
the Code.  To qualify to pay  exempt-interest  dividends,  the Fund must, at the
close of each quarter of its taxable year, have at least 50% of the value of its
total assets  invested in municipal  securities  whose interest is excluded from
gross  income  under  Section  103(a)  of  the  Code.  In  purchasing  municipal
securities,  the Fund intends to rely on opinions of nationally  recognized bond
counsel for each issue as to the  excludability  of interest on such obligations
from gross  income for  federal  income tax  purposes  and,  if  available,  the
exemption of such interest from California  personal income  taxation.  The Fund
will not undertake independent  investigations  concerning the tax-exempt status
of such  obligations,  nor does it guarantee or  represent  that bond  counsels'
opinions are correct.  Bond  counsels'  opinions will generally be based in part
upon  covenants  by  the  issuers  and  related  parties  regarding   continuing
compliance with federal tax requirements.  Tax laws enacted  principally  during
the 1980's not only had the effect of limiting the purposes for which tax-exempt
bonds could be issued and reducing the supply of such bonds,  but also increased
the number and complexity of requirements that must be satisfied on a continuing
basis in order for bonds to be and remain tax-exempt. If the issuer of a bond or
a user of a bond-financed facility fails to comply with such requirements at any
time,  interest on the bond could become  taxable,  retroactive  to the date the
obligation  was  issued.  In that event,  a portion of the Fund's  distributions
attributable to interest the Fund received on such bond for the current year and
for prior years could be characterized or recharacterized as taxable income. The
availability of tax-exempt obligations and the value of the Fund's portfolio may
be affected by  restrictive  federal  income tax  legislation  enacted in recent
years or by similar future legislation.

If the Fund  satisfies the applicable  requirements,  dividends paid by the Fund
which are  attributable  to tax exempt  interest  on  municipal  securities  and
designated by the Fund as  exempt-interest  dividends in a written notice mailed
to its shareholders within sixty days after the close of its taxable year may be
treated by shareholders as items of interest  excludable from their gross income
under Section 103(a) of the Code. The recipient of tax-exempt income is required
to report such income on his federal income tax return.  However,  a shareholder
is advised to consult his tax adviser  with  respect to whether  exempt-interest
dividends retain the exclusion under Section 103(a) if such shareholder would be
treated as a  "substantial  user" or a "related  person"  thereof  under Section
147(a) with respect to any of the tax-exempt  obligations  held by the Fund. The
Code provides that interest on indebtedness incurred or continued to purchase or
carry shares of the Fund is not deductible to the extent it is deemed related to
the Fund's exempt- interest  dividends.  Pursuant to published  guidelines,  the
Internal  Revenue  Service may deem  indebtedness  to have been incurred for the
purpose of  purchasing  or carrying  shares of the Fund even though the borrowed
funds may not be directly traceable to the purchase of shares.

Although all or a substantial  portion of the dividends  paid by the Fund may be
excluded by the Fund's  shareholders  from their gross income for federal income
tax  purposes,  the Fund may purchase  specified  private  activity  bonds,  the
interest from which  (including the Fund's  distributions  attributable  to such
interest)  may be a  preference  item for  purposes of the  federal  alternative
minimum tax (both individual and corporate).  All exempt-interest dividends from
the Fund,  whether or not  attributable to private  activity bond interest,  may
increase a corporate shareholder's  liability, if any, for corporate alternative
minimum tax and will be taken into account in determining  the extent to which a
shareholder's  Social  Security  or certain  railroad  retirement  benefits  are
taxable.


                                       55


Distributions  other than  exempt-interest  dividends from the Fund's current or
accumulated  earnings  and profits  ("E&P")  will be taxable  under the Code for
investors who are subject to tax. Taxable  distributions  include  distributions
from the Fund that are  attributable  to (i) taxable  income,  including but not
limited to taxable bond interest,  recognized  market discount income,  original
issue  discount  income  accrued  with  respect to taxable  bonds,  income  from
repurchase agreements, income from securities lending, income from dollar rolls,
income from interest rate swaps, caps, floors and collars,  and a portion of the
discount from certain stripped  tax-exempt  obligations or their coupons or (ii)
capital  gains  from  the  sale or  constructive  sale of  securities  or  other
investments  (including from the disposition of rights to when-issued securities
prior to issuance) or from options and futures contracts. If these distributions
are paid from the  Fund's  "investment  company  taxable  income,"  they will be
taxable as ordinary  income;  and if they are paid from the Fund's "net  capital
gain," they will be taxable as long-term  capital gain. (Net capital gain is the
excess (if any) of net long-term capital gain over net short-term  capital loss,
and investment company taxable income is all taxable income and capital gains or
losses,  other than those  gains and losses  included in  computing  net capital
gain, after reduction by deductible expenses.) Some distributions may be paid in
January  but may be  taxable to  shareholders  as if they had been  received  on
December 31 of the previous year. The tax treatment  described  above will apply
without  regard to whether  distributions  are received in cash or reinvested in
additional shares of the Fund.

Distributions,  if any,  in excess of E&P will  constitute  a return of  capital
under the Code, which will first reduce an investor's  federal tax basis in Fund
shares and then, to the extent such basis is exceeded,  will generally give rise
to capital  gains.  Amounts  that are not  allowable as a deduction in computing
taxable income,  including expenses  associated with earning tax-exempt interest
income,  do not  reduce  the  Fund's  current  earnings  and  profits  for these
purposes.  Consequently,  the portion, if any, of the Fund's  distributions from
gross tax-exempt  interest income that exceeds its net tax-exempt interest would
be taxable as ordinary income to the extent of such  disallowed  deductions even
though  such  excess  portion  may  represent  an  economic  return of  capital.
Shareholders who have chosen automatic  reinvestment of their distributions will
have a federal tax basis in each share received  pursuant to such a reinvestment
equal to the amount of cash they would have received had they elected to receive
the  distribution  in cash,  divided  by the  number of shares  received  in the
reinvestment.

After the close of each calendar year, the Fund will inform  shareholders of the
federal  income tax status of its  dividends  and  distributions  for such year,
including the portion of such  dividends  that  qualifies as tax-exempt  and the
portion, if any, that should be treated as a tax preference item for purposes of
the federal  alternative  minimum tax.  Shareholders who have not held shares of
the Fund for its full taxable year may have designated as tax-exempt or as a tax
preference item a percentage of  distributions  which is not equal to the actual
amount of a pro rata share of tax-exempt  income or tax  preference  item income
earned by the Fund during the period of their investment in the Fund.

The amount of the Fund's net realized  capital gains,  if any, in any given year
will vary depending upon the Adviser's current  investment  strategy and whether
the  Adviser  believes  it to be in the best  interest of the Fund to dispose of
portfolio  securities  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. Consequently,  subsequent distributions on
these shares from such  appreciation may be taxable to such investor even if the
net asset value of the investor's  shares is, as a result of the  distributions,


                                       56


reduced below the  investor's  cost for such shares,  and the  distributions  in
reality represent a return of a portion of the purchase price.

Upon a  redemption  or other  disposition  of shares of the Fund  (including  by
exercise of the exchange  privilege) in a transaction  that is treated as a sale
for tax purposes,  a shareholder will ordinarily  realize a taxable gain or loss
depending  upon the  amount  of the  proceeds  and the  investor's  basis in his
shares.  Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands. A sales charge paid in purchasing
shares of the Fund cannot be taken into account for purposes of determining gain
or loss on the  redemption or exchange of such shares within 90 days after their
purchase  to the extent  shares of the Fund or  another  John  Hancock  Fund are
subsequently  acquired  without  payment  of a  sales  charge  pursuant  to  the
reinvestment or exchange  privilege.  This disregarded  charge will result in an
increase in the  shareholder's  tax basis in the shares  subsequently  acquired.
Also,  any loss  realized on a redemption  or exchange may be  disallowed to the
extent the shares  disposed of are replaced with other shares of the Fund within
a period of 61 days beginning 30 days before and ending 30 days after the shares
are disposed of, such as pursuant to automatic dividend reinvestments. In such a
case,  the  basis  of the  shares  acquired  will be  adjusted  to  reflect  the
disallowed loss.

Any loss realized upon the redemption of shares with a tax holding period of six
months or less will be disallowed to the extent of all exempt-interest dividends
paid with  respect  to such  shares  and,  to the extent in excess of the amount
disallowed,  will be treated as a  long-term  capital  loss to the extent of any
amounts treated as distributions of long-term  capital gain with respect to such
shares.  Shareholders  should  consult  their own tax advisers  regarding  their
particular  circumstances  to determine  whether a disposition of Fund shares is
properly  treated as a sale for tax  purposes,  as is  assumed in the  foregoing
discussion.

Although its present  intention is to  distribute,  at least  annually,  all net
capital  gain, if any, the Fund reserves the right to retain and reinvest all or
any  portion of the excess of net  long-term  capital  gain over net  short-term
capital loss in any year. The Fund will not in any event  distribute net capital
gain  realized in any year to the extent that a capital loss is carried  forward
from prior years  against such gain.  To the extent such excess was retained and
not exhausted by the  carryforward of prior years' capital  losses,  it would be
subject to Federal income tax in the hands of the Fund. Upon proper  designation
of this amount by the Fund, each shareholder would be treated for Federal income
tax  purposes  as if the  Fund  had  distributed  to him on the  last day of its
taxable  year his pro rata  share of such  excess,  and he had paid his pro rata
share of the taxes paid by the Fund and  reinvested  the  remainder in the Fund.
Accordingly,  each  shareholder  would (a)  include  his pro rata  share of such
excess as long-term capital gain in his return for his taxable year in which the
last day of the Fund's  taxable  year  falls,  (b) be  entitled  either to a tax
credit on his  return  for,  or to a refund  of, his pro rata share of the taxes
paid by the Fund, and (c) be entitled to increase the adjusted tax basis for his
shares in the Fund by the  difference  between his pro rata share of such excess
and his pro rata share of such taxes.

For Federal  income tax  purposes,  the Fund is permitted to carry forward a net
capital  loss in any year to offset its net capital  gains,  if any,  during the
eight years  following  the year of the loss. To the extent  subsequent  capital
gains are offset by such  losses,  they  would not result in Federal  income tax
liability  to the  Fund  and,  as  noted  above,  would  not be  distributed  to
shareholders.  The Fund has $3,168,360 of capital loss carryforwards  available,
to the extent  provided by  regulations,  to offset future net realized  capital
gains. These  carryforwards  expire at various times and amounts from August 31,
2006 through August 31, 2012.


                                       57


The  Fund's  dividends  and  capital  gain  distributions  will not  qualify  as
qualified  dividend  income as  provided  under the Jobs and  Growth  Tax Relief
Reconciliation Act of 2003.

The Fund's  dividends  and capital gain  distributions  will not qualify for the
corporate dividends-received deduction.

The Fund may invest in debt obligations that are in the lower rating  categories
or are  unrated.  Investments  in debt  obligations  that are at risk of default
present  special tax issues for the Fund. Tax rules are not entirely clear about
issues  such as when the  Fund may  cease to  accrue  interest,  original  issue
discount,  or market discount,  when and to what extent  deductions may be taken
for bad debts or worthless  securities,  how payments received on obligations in
default should be allocated between principal and income,  and whether exchanges
of debt  obligations  in a workout  context are taxable.  If the Fund invests in
these debt obligations,  it will address these issues in order to seek to ensure
that it  distributes  sufficient  income to  preserve  its status as a regulated
investment company and seek to avoid Federal income or excise tax.

The Fund is required to accrue  original issue discount  ("OID") on certain debt
securities (including zero coupon or deferred payment obligations) that have OID
prior to the receipt of the corresponding  cash payments.  The mark to market or
constructive  sale rules applicable to certain options and futures  contracts or
other transactions may also require the Fund to recognize income or gain without
a concurrent receipt of cash. However,  the Fund must distribute to shareholders
for each taxable year substantially all of its net income and net capital gains,
including such income or gain, to qualify as a regulated  investment company and
avoid  liability for any federal income or excise tax.  Therefore,  the Fund may
have to dispose of its portfolio securities under disadvantageous  circumstances
to  generate   cash,  or  borrow  the  cash,   to  satisfy  these   distribution
requirements.

The  Federal  income  tax rules  applicable  to  certain  structured  or indexed
securities,  interest  rate swaps,  caps,  floors and collars,  dollar rolls and
possibly other investments or transactions are unclear in certain respects,  and
the Fund will account for these investments or transactions in a manner intended
to  preserve  its  qualification  as a  regulated  investment  company and avoid
material tax liability.

The Fund will be required to report to the Internal  Revenue Service (the "IRS")
all taxable  distributions to  shareholders,  as well as gross proceeds from the
redemption  or exchange  of Fund  shares,  except in the case of certain  exempt
recipients,  i.e.,  corporations  and certain other investors  distributions  to
which are exempt from the information  reporting  provisions of the Code.  Under
the backup withholding  provisions of Code Section 3406 and applicable  Treasury
regulations,  all such reportable  distributions  and proceeds may be subject to
backup withholding of federal income tax in the case of non-exempt  shareholders
who fail to furnish the Fund with their correct taxpayer  identification  number
and  certain  certifications  required  by the  IRS or if  the  IRS or a  broker
notifies the Fund that the number  furnished by the  shareholder is incorrect or
that the shareholder is subject to backup  withholding as a result of failure to
report interest or dividend income.  However,  the Fund's taxable  distributions
may not be subject to backup  withholding  if the Fund can  reasonably  estimate
that at least  95% of its  distributions  for the year  will be  exempt-interest
dividends.  The Fund may refuse to accept an  application  that does not contain
any required  taxpayer  identification  number or certification  that the number
provided is correct.  If the backup withholding  provisions are applicable,  any
such distributions and proceeds,  whether taken in cash or reinvested in shares,
will be reduced by the amounts required to be withheld. Any amounts withheld may
be credited against a shareholder's U.S. federal income tax liability. Investors


                                       58


should  consult  their  tax  advisers  about  the  applicability  of the  backup
withholding provisions.

Certain  options and futures  transactions  undertaken by the Fund may cause the
Fund to  recognize  gains or losses  from  marking  to market  even  though  its
positions have not been sold or terminated and affect the character as long-term
or short-term and timing of some capital gains and losses  realized by the Fund.
Additionally,  the  Fund may be  required  to  recognize  gain  (subject  to tax
distribution  requirements) if an option, future, notional principal contract or
a  combination  thereof  is  treated as a  constructive  sale of an  appreciated
financial  position in the Fund's portfolio.  Also, certain of the Fund's losses
on its transactions  involving options or futures contracts and/or offsetting or
successor  portfolio  positions  may be  deferred  rather  than being taken into
account  currently in calculating  the Fund's  taxable income or gains.  Some of
these transactions may also cause the Fund to dispose of investments sooner than
would  otherwise  have occurred.  These  transactions  may therefore  affect the
amount,  timing and character of the Fund's  distributions to shareholders.  The
Fund will take into account the special tax rules  (including  consideration  of
available elections)  applicable to options and futures transactions in order to
seek to minimize any potential adverse tax consequences.

The  foregoing  discussion  relates  solely to U.S.  Federal  income  tax law as
applicable to U.S. persons (i.e.,  U.S.  citizens or residents and U.S. domestic
corporations,  partnerships,  trusts or estates)  subject to tax under such law.
The discussion does not address special tax rules applicable to certain types of
investors,  such as insurance  companies and financial  institutions.  Dividends
(including exempt-interest 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,  except as  described  below under
"State Taxation."  Shareholders  should consult their own tax advisers as to the
Federal,  state or local tax consequences of ownership of shares of, and receipt
of distributions from, the Fund in their particular circumstances.

Non-U.S.  investors  not engaged in a U.S.  trade or  business  with which their
investment in the Fund is effectively  connected will be subject to U.S. Federal
income  tax  treatment  that is  different  from  that  described  above.  These
investors may be subject to nonresident alien withholding tax at the rate of 30%
(or a lower rate under an applicable tax treaty) on amounts  treated as ordinary
dividends  from the Fund and,  unless an effective  IRS Form W-8, Form W-8BEN or
other authorized withholding certificate is on file and to backup withholding on
certain other payments from the Fund.  Non-U.S.  investors  should consult their
tax advisers regarding such treatment and the application of foreign taxes to an
investment in the Fund.

STATE INCOME TAX INFORMATION

The Fund is not subject to  Massachusetts  corporate  excise or franchise taxes.
The Fund  anticipates  that,  provided  that the Fund  qualifies  as a regulated
investment  company  under the Code,  it will  also not be  required  to pay any
Massachusetts income tax.

California Taxes

The following  discussion assumes that the Fund will be qualified as a regulated
investment  company  under  subchapter  M of the  Code  and  will  be  qualified
thereunder to pay exempt interest dividends.

Individual  shareholders  of the Fund who are  subject  to  California  personal
income taxation will not be required to include in their California gross income
that portion of their federal  exempt-interest  dividends which the Fund clearly


                                       59


and  accurately  identifies  as  directly  attributable  to  interest  earned on
obligations  the  interest on which is exempt from  California  personal  income
taxation,  provided that at least 50% of the value of the Fund's total assets at
the close of each  quarter of its taxable  year  consists  of such  obligations.
Distributions  to  individual  shareholders  derived from interest on Tax-Exempt
Securities issued by governmental authorities in states other than California or
on other obligations or investments the interest or other income on which is not
exempt from California  personal  income  taxation and short-term  capital gains
will be taxed as dividends for purposes of California  personal income taxation.
The Fund's  long-term  capital  gains for Federal  income tax purposes  that are
distributed  to the  shareholders  will be taxed as long-term  capital  gains to
individual  shareholders of the Fund for purposes of California  personal income
taxation.  Gain or loss, if any,  resulting  from a sale or redemption of shares
will be recognized in the year of the sale or redemption. Present California law
taxes both  long-term and  short-term  capital gains at the rates  applicable to
ordinary income. Interest on indebtedness incurred or continued by a shareholder
in connection with the purchase of shares of the Fund will not be deductible for
California personal income tax purposes.

Generally,  corporate  shareholders  of  the  Fund  subject  to  the  California
franchise  tax will be required to include any gain on a sale or  redemption  of
shares and all distributions of exempt interest, capital gains and other taxable
income, if any, as income subject to such tax.

The Fund will not be subject to California  franchise or corporate income tax on
interest income or net capital gain distributed to the shareholders.

Shares of the Fund will be exempt from local property taxes in California.

Shares of the Fund will not be excludable  from the taxable  estates of deceased
California  resident  shareholders  for  purposes of the  California  estate and
generation  skipping taxes.  California estate and generation skipping taxes are
creditable against the corresponding Federal taxes.

The foregoing is a general,  abbreviated summary of certain of the provisions of
California  law  presently in effect as it directly  governs the taxation of the
shareholders of the Fund.  These provisions are subject to change by legislative
or administrative action, and any such change may be retroactive with respect to
the Fund's transactions.  Shareholders are advised to consult with their own tax
advisers for more detailed information concerning California tax matters.

BROKERAGE ALLOCATION


Decisions  concerning  the  purchase and sale of  portfolio  securities  and the
allocation of brokerage  commissions are made by the Adviser's or  Sub-Adviser's
investment  and/or  trading  personnel.   Orders  for  purchases  and  sales  of
securities are placed in a manner, which, in the opinion of such personnel, will
offer the best price and market for the execution of each such transaction.  The
Fund's  trading  practices  and  investments  are reviewed  periodically  by the
Sub-Adviser's  Senior  Investment  Policy Committee and its Brokerage  Practices
Committee  which  consists  of officers  of the  Adviser  and  quarterly  by the
Adviser's  Investment  Committee  which  consists of officers of the Adviser and
Trustees of the Trust who are interested persons of the Fund.


Purchases from underwriters of portfolio  securities may include a commission or
commissions paid by the issuer and  transactions  with dealers serving as market
maker reflect a "spread." Investments in debt securities are generally traded on
a "net" basis through dealers acting for their own account as principals and not
as brokers; no brokerage  commissions are payable on these transactions.  In the
U.S.  Government  securities  market,  securities are generally  traded on a net


                                       60


basis with dealers  acting as principal  for their own account  without a stated
commission,  although the price of the security usually includes a profit to the
dealer. On occasion,  certain money market instruments and agency securities may
be purchased  directly from the issuer, in which case no commissions or premiums
are paid.  Investments in equity securities are generally traded on exchanges or
on  over-the-counter  markets at fixed  commission  rates or on a net basis.  In
other  countries,  both debt and equity  securities  are traded on  exchanges at
fixed commission rates. Commissions on foreign transactions are generally higher
than the negotiated  commission  rates  available in the U.S. There is generally
less  government  supervision  and  regulation  of foreign  stock  exchanges and
broker-dealers than in the U.S.


The Fund's  primary  policy is to execute all  purchases  and sales of portfolio
instruments  at the  most  favorable  prices  consistent  with  best  execution,
considering all of the costs of the transaction including brokerage commissions.
The policy  governs the selection of brokers and dealers and the market in which
a transaction is executed. Consistent with best execution, the Fund's trades may
be executed by dealers that also sell shares of John Hancock funds. However, the
Adviser and  Sub-Adviser do not consider sales of shares of the Fund as a factor
in the selection of broker-dealers to execute the Fund's portfolio transactions.
To the extent  consistent  with the foregoing,  the Fund will be governed in the
selection of brokers and dealers,  and the  negotiation of brokerage  commission
rates and dealer spreads, by the reliability and quality of the services and may
include, to a lesser extent, the availability and value of research  information
and statistical assistance furnished to the Adviser and Sub-Adviser of the Fund.
The Adviser and Sub-Adviser have implemented  policies and procedures  (approved
by the Fund's board of Trustees)  reasonably  designed to ensure that the Fund's
selection of the  broker-dealer  is not influenced by  considerations  about the
sales of Fund shares.


Where research is available for cash payments,  the Adviser or Sub-Adviser  pays
for such research from its own resources, and not with brokerage commissions. In
other cases,  as permitted by Section  28(e) of the  Securities  Exchange Act of
1934,  the  Fund may pay to a  broker  which  provides  brokerage  and  research
services  to the  Fund an  amount  of  disclosed  commission  in  excess  of the
commission   which  another   broker  would  have  charged  for  effecting  that
transaction.  This  practice  is subject to a good  faith  determination  by the
Trustees that such price is reasonable in light of the services  provided and to
such  policies as the Trustees may adopt from time to time.  For the fiscal year
ended August 31, 2005, the Fund paid $0 as  compensation to brokers for research
services  such as industry,  economic  and company  reviews and  evaluations  of
securities.  "Commissions",  as  interpreted  by the SEC,  include  fees paid to
brokers  for  trades  conducted  on  an  agency  basis,  and  certain  mark-ups,
mark-downs,  commission  equivalents  and other  fees  received  by  dealers  in
riskless principal transactions placed in the over-the-counter market.

The term "brokerage and research  services"  includes research services received
from broker-dealers which supplement the Adviser's or Sub-Adviser's own research
(and the research of its  affiliates),  and may include the  following  types of
information:  statistical  and  background  information  on the U.S. and foreign
economies,   industry   groups   and   individual   companies;   forecasts   and
interpretations  with  respect to the U.S.  and foreign  economies,  securities,
markets,  specific  industry  groups and  individual  companies;  information on
federal, state, local and foreign political  developments;  portfolio management
strategies;  performance  information  on  securities,  indexes  and  investment
accounts;   and  information   concerning  prices  and  ratings  of  securities.
Broker-dealers  may communicate  such  information  electronically,  orally,  in
written  form or on computer  software.  Research  services may also include the
providing of electronic communication of trade information and, the providing of
specialized  consultations  with the Adviser's or  Sub-Adviser's  personnel with
respect to  computerized  systems and data  furnished  as a  component  of other


                                       61


research services,  the arranging of meetings with management of companies,  and
the providing of access to consultants who supply research information.

The outside  research  assistance is useful to the Adviser or Sub-Adviser  since
the broker-dealers  used by the Adviser or Sub-Adviser tends to follow a broader
universe of securities  and other  matters than the  Adviser's or  Sub-Adviser's
staff can follow. In addition,  the research provides the Adviser or Sub-Adviser
with a diverse  perspective on financial markets.  Research services provided to
the Adviser or Sub-Adviser's by broker-dealers  are available for the benefit of
all accounts  managed or advised by the Adviser or by its  affiliates  or by the
Sub-Adviser  or by its  affiliates.  Some  broker-dealers  may indicate that the
provision  of research  services is  dependent  upon the  generation  of certain
specified levels of commissions and underwriting concessions by the Adviser's or
Sub-Adviser's  clients,  including the Fund. However,  the Fund is not under any
obligation to deal with any  broker-dealer  in the execution of  transactions in
portfolio securities.

The Advisers and Sub-Adviser  believe that the research  services are beneficial
in supplementing  the Adviser's  research and analysis and that they improve the
quality of the Adviser's or Sub-Adviser's  investment advice. It is not possible
to place a dollar value on information  and services to be received from brokers
and  dealers,  since it is only  supplementary  to the  research  efforts of the
Adviser or Sub-Adviser. The advisory fee paid by the Fund is not reduced because
the Adviser receives such services.  The receipt of research  information is not
expected to reduce  significantly  the expenses of the Adviser and  Sub-Adviser.
However,  to the extent that the  Adviser or  Sub-Adviser  would have  purchased
research  services had they not been provided by  broker-dealers,  or would have
developed  comparable  information  through its own staff,  the  expenses to the
Adviser or Sub-Adviser could be considered to have been reduced accordingly. The
research information and statistical assistance furnished by brokers and dealers
may  benefit  the Life  Company  or other  advisory  clients  of the  Adviser or
Sub-Adviser,  and  conversely,  brokerage  commissions and spreads paid by other
advisory   clients  of  the  Adviser  or  Sub-Adviser  may  result  in  research
information  and  statistical  assistance  beneficial to the Fund. The Fund will
make no commitment to allocate portfolio transactions upon any prescribed basis.


Broker-dealers may be willing to furnish statistical, research and other factual
information or service to the Adviser for no consideration  other than brokerage
or underwriting commissions.  Securities may be bought or sold from time to time
through  such   broker-dealers   on  behalf  of  the  Fund  or  the  Adviser  or
Sub-Adviser's other clients.


In effecting  portfolio  transactions  on behalf of the Fund and the Adviser and
Sub-Adviser's  other clients,  the Adviser and Sub-Adviser may from time to time
instruct the  broker-dealer  that  executes  the  transaction  to  allocate,  or
"step-out",  a  portion  of  the  transaction  to  another  broker-dealer.   The
broker-dealer to which the Adviser  "stepped-out" would then settle and complete
the designated portion of the transaction.  Each  broker-dealer  would receive a
commission or brokerage fee with respect to that portion of the transaction that
it settles and completes.

While the Adviser and/or the Sub-Adviser  will be primarily  responsible for the
allocation of the Fund's brokerage  business,  the policies and practices of the
Adviser or Sub-Adviser in this regard must be consistent  with the foregoing and
at all times be subject to review by the  Trustees.  For the fiscal  years ended
August 31, 2003, 2004 and 2005, the Fund paid negotiated  brokerage  commissions
of $140, $0 and $0, respectively.

Pursuant to procedures  determined by the Trustees and consistent with the above
policy  of  obtaining  best  net  results,   the  Fund  may  execute   portfolio
transactions  with or through  brokers  affiliated  with the Adviser  and/or the
Sub-Adviser ("Affiliated Brokers"). Affiliated Brokers may act as broker for the


                                       62


Fund on exchange  transactions,  subject,  however, to the general policy of the
Fund set forth above and the procedures  adopted by the Trustees pursuant to the
Investment  Company Act.  Commissions  paid to an  Affiliated  Broker must be at
least as favorable as those which the Trustees  believe to be  contemporaneously
charged by other brokers in connection  with comparable  transactions  involving
similar  securities  being purchased or sold. A transaction  would not be placed
with an Affiliated  Broker if the Fund would have to pay a commission  rate less
favorable than the Affiliated  Broker's  contemporaneous  charges for comparable
transactions for its other most favored, but unaffiliated,  customers except for
accounts  for which the  Affiliated  Broker acts as clearing  broker for another
brokerage firm, and any customers of the Affiliated Broker not comparable to the
Fund as determined by a majority of the Trustees who are not interested  persons
(as  defined  in the  Investment  Company  Act) of the  Fund,  the  Adviser  the
Sub-Adviser or the Affiliated Broker. Because the Adviser or Sub-Adviser that is
affiliated with the Affiliated Broker has, as an investment adviser to the Fund,
the  obligation  to  provide  investment  management  services,  which  includes
elements of research  and related  investment  skills such  research and related
skills  will not be used by the  Affiliated  Broker as a basis  for  negotiating
commissions at a rate higher than that  determined in accordance  with the above
criteria.

The  Adviser's  indirect  parent,  the  Life  Company,   is  the  indirect  sole
shareholder  of Signator  Investors,  Inc., a  broker-dealer  ("Signator"  or an
"Affiliated Broker"). The Adviser's indirect parent,  Manulife Financial, is the
parent of another  broker-dealer,  John Hancock Distributors LLC (until December
31, 2004, Manulife Financial Securities,  LLC) ("JH Distributors" or "Affiliated
Broker").  For the fiscal years ended August 31, 2003,  2004 and 2005,  the Fund
paid no brokerage commissions to any Affiliated Broker.

Other investment advisory clients advised by the Adviser or Sub-Adviser may also
invest in the same  securities  as the Fund.  When these clients buy or sell the
same securities at  substantially  the same time, the Adviser or Sub-Adviser may
average  the  transactions  as to price and  allocate  the  amount of  available
investments  in a  manner  which  the  Adviser  or  Sub-Adviser  believes  to be
equitable to each client,  including the Fund.  Because of this, client accounts
in a particular style may sometimes not sell or acquire securities as quickly or
at the same prices as they might if each were managed and traded individually.

For  purchases  of equity  securities,  when a complete  order is not filled,  a
partial allocation will be made to each participating  account pro rata based on
the order size. For high demand issues (for example,  initial public offerings),
shares  will be  allocated  pro rata by account  size as well as on the basis of
account objective,  account size ( a small account's allocation may be increased
to provide it with a meaningful position),  and the account's other holdings. In
addition,  an account's  allocation may be increased if that account's portfolio
manager was  responsible  for generating  the  investment  idea or the portfolio
manager  intends to buy more shares in the  secondary  market.  For fixed income
accounts, generally securities will be allocated when appropriate among accounts
based on account size, except if the accounts have different objectives or if an
account is too small to get a  meaningful  allocation.  For new  issues,  when a
complete order is not filled, a partial  allocation will be made to each account
pro rata based on the order size.  However, if a partial allocation is too small
to be  meaningful,  it may be  reallocated  based  on such  factors  as  account
objectives,  strategies, duration benchmarks and credit and sector exposure. For
example,  value funds will likely not participate in initial public offerings as
frequently as growth funds.  In some instances,  this  investment  procedure may
adversely  affect  the  price  paid or  received  by the Fund or the size of the
position  obtainable for it. On the other hand, to the extent  permitted by law,
the Adviser or Sub-Adviser may aggregate  securities to be sold or purchased for


                                       63


the Fund with those to be sold or purchased for other  clients  managed by it in
order to obtain best execution.

TRANSFER AGENT SERVICES

John Hancock Signature  Services,  Inc., 1 John Hancock Way, Suite 1000, Boston,
MA 02217-1000,  a wholly owned indirect  subsidiary of the Life Company,  is the
transfer  and  dividend  paying  agent  for the Fund.  The Fund  pays  Signature
Services an annual fee of $17.00 for each Class A shareholder account and $19.50
for each Class B  shareholder  account  and $18.50 for each Class C  shareholder
account. The Fund also pays Signature Services an annual fee of 0.01% of average
daily net assets  attributable to Class A, Class B and Class C shares. For Class
A, B, and C shares, the Fund also pays certain out-of pocket expenses.  Expenses
are  aggregated  and allocated to each class on the basis of their  relative net
asset  values.  Signature  Services  agreed to  voluntarily  reduce  the  Fund's
asset-based  portion of the transfer  agent fee if the total  transfer agent fee
exceeds the Lipper,  Inc. median transfer agency fee for comparable mutual funds
by 0.05%.  For shares  held of record in omnibus or other group  accounts  where
administration  and other shareholder  services are provided by the Selling Firm
or group administrator,  the Selling Firm or administrator will charge a service
fee to the Fund. For such  shareholders,  Signature Services does not charge its
account fee.

CUSTODY OF PORTFOLIO

Portfolio  securities  of the Fund are held  pursuant to a  custodian  agreement
between the Fund and The Bank of New York,  One Wall Street,  New York, New York
10286.  Under  the  custodian  agreement,  The  Bank of New  York is  performing
custody, Foreign Custody Manager and fund accounting services.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The   independent   registered   public   accounting   firm   of  the   Fund  is
PricewaterhouseCoopers  LLP,  125  High  Street,  Boston,  Massachusetts  02110.
PricewaterhouseCoopers  LLP audits and  renders an opinion on the Fund's  annual
financial  statements  and reviews the Fund's annual  Federal income tax return.
Until August 31, 2005, the independent  registered public accounting firm of the
Fund was  Deloitte & Touche LLP,  200  Berkeley  Street,  Boston,  Massachusetts
02116.



                                       64


APPENDIX A - DESCRIPTION OF INVESTMENT RISK

MORE ABOUT RISK

A fund's risk profile is largely  defined by the fund's  primary  securities and
investment  practices.  You may find the most concise  description of the fund's
risk profile in the prospectus.

A fund is permitted to utilize -- within limits  established  by the trustees --
certain other  securities  and  investment  practices that have higher risks and
opportunities  associated  with them. To the extent that the Fund utilizes these
securities  or  practices,  its  overall  performance  may be  affected,  either
positively  or  negatively.  On the  following  pages are brief  definitions  of
certain  associated  risks with them with  examples  of related  securities  and
investment  practices included in brackets.  See the "Investment  Objectives and
Policies" and "Investment Restrictions" sections of this Statement of Additional
Information  for a  description  of this Fund's  investment  policies.  The Fund
follows certain policies that may reduce these risks.

As with any mutual fund, there is no guarantee that the Fund will earn income or
show a positive return over any period of time -- days, months or years.

TYPES OF INVESTMENT RISK

Correlation risk The risk that changes in the value of a hedging instrument will
not match those of the asset being hedged  (hedging is the use of one investment
to offset the effects of another investment).  Incomplete correlation can result
in unanticipated risks. (e.g., futures and related options; securities and index
options, swaps, caps, floors, collars).

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.  Common to all debt securities.(e.g.  borrowing;  reverse repurchase
agreements, repurchase agreements, financial futures and options; securities and
index options, securities lending, non-investment grade debt securities, private
activity bonds, participation interests and structured securities,  swaps, caps,
floors, collars).

Information  risk The risk that key  information  about a security  or market is
inaccurate  or   unavailable.   Common  to  all  municipal   securities.   (e.g.
non-investment  grade debt securities,  private activity bonds and participation
interests).

Interest rate risk The risk of market losses attributable to changes in interest
rates. With fixed-rate  securities,  a rise in interest rates typically causes a
fall in values,  while a fall in rates typically causes a rise in values.  (e.g.
financial  futures and options;  securities  and index  options,  non-investment
grade  debt  securities,   private  activity  bonds,   participation  interests,
structured securities and swaps, caps, floors and collars).

Leverage risk  Associated  with securities or practices (such as borrowing) that
multiply  small index or market  movements  into large  changes in value.  (e.g.
borrowing;  reverse repurchase  agreements,  when-issued  securities and forward
commitments).

o    Hedged  When a  derivative  (a  security  whose  value is based on  another
     security or index) is used as a hedge against an opposite position that the
     fund  also  holds,   any  loss  generated  by  the  derivative   should  be
     substantially  offset by gains on the hedged  investment,  and vice  versa.
     While  hedging  can  reduce  or  eliminate  losses,  it can also  reduce or
     eliminate gains.

o    Speculative  To the extent that a  derivative  is not used as a hedge,  the
     fund is directly exposed to the risks of that  derivative.  Gains or losses
     from  speculative  positions in a derivative may be  substantially  greater
     than the derivative's original cost.


                                       A-1


o    Liquidity  risk  The risk  that  certain  securities  may be  difficult  or
     impossible  to sell at the time and the price that the seller  would  like.
     The seller may have to lower the price, sell other securities  instead,  or
     forego an investment opportunity, any of which could have a negative effect
     on fund management or  performance.  (e.g.  financial  futures and options;
     securities  and  index  options,   non-investment-grade   debt  securities,
     restricted and illiquid securities,  participation interests,  swaps, caps,
     floors, collars , structured securities).

Management risk The risk that a strategy used by a fund's management may fail to
produce the intended result. Common to all mutual funds.

Market risk The risk that the market  value of a security  may move up and down,
sometimes rapidly and unpredictably.  These fluctuations may cause a security to
be worth less than the price  originally  paid for it, or less than it was worth
at an earlier time. Market risk may affect a single issuer, industry,  sector of
the  economy  or the  market as a whole.  Common to all stocks and bonds and the
mutual  funds  that  invest  in  them.  (e.g.  financial  futures  and  options;
securities and index options,  short-term  trading,  when-issued  securities and
forward  commitments,   non-investment-grade  debt  securities,  restricted  and
illiquid securities, structured securities).

Natural event risk The risk of losses attributable to natural disasters, such as
earthquakes and similar events. (e.g. private activity bonds).

Opportunity  risk The risk of missing out on an investment  opportunity  because
the assets  necessary to take  advantage of it are tied up in less  advantageous
investments.  (e.g. financial futures and options; securities and index options,
when-issued securities and forward commitments).

Political  risk The risk of  losses  attributable  to  government  or  political
actions of any sort. (e.g. private activity bonds).

Valuation  risk The risk that a fund has valued  certain of its  securities at a
higher  price  than  it  can  sell  them  for.(e.g.   non-investment-grade  debt
securities,   Restricted  and  illiquid  securities,   participation  interests,
structured securities, swaps, caps, floors, collars).


                                       A-2


APPENDIX B - DESCRIPTION OF BOND RATINGS

TAX EXEMPT BOND RATINGS

     Below is a  description  of the five  ratings  that may apply to the Fund's
investments in Tax-Exempt Bonds.

Tax-Exempt Bond Ratings

     Moody's describes its five highest ratings for Tax-Exempt Bonds as follows:

     Bonds which are rated Aaa are judged to be of the best quality.  They carry
the smallest  degree of investment  risk and are generally  referred to as 'gilt
edge'.  Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change,  such changes as can be  visualized  are most  unlikely to impair the
fundamentally strong position of such issues.

     Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds.  They are rated lower than the best bonds  because  margins of protection
may not be as large as in Aaa securities or  fluctuation of protective  elements
may be of greater  amplitude or there may be other  elements  present which make
the long term risks appear somewhat larger than in Aaa securities.

     Bonds which are rated A possess many  favorable  investment  attributes and
are to be considered as upper medium grade obligations.  Factors giving security
to principal  and interest are  considered  adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.

     Bonds which are rated Baa are considered as medium grade obligations; i.e.,
they are neither  highly  protected nor poorly  secured.  Interest  payments and
principal  security  appear  adequate  for the present  but  certain  protective
elements may be lacking or may be  characteristically  unreliable over any great
length of time. Such bonds lack outstanding  investment  characteristics  and in
fact have speculative characteristics as well.

     Bonds  which are rated Ba are judged to have  speculative  elements;  their
future cannot be considered  as well assured.  Often the  protection of interest
and  principal  payments may be very  moderate and thereby not well  safeguarded
during  both  good  and bad  times  over the  future.  Uncertainty  of  position
characterizes bonds in this class.

     The five highest ratings of Standard & Poor's for Tax-Exempt  Bonds are AAA
(Prime), AA (High Grade), A (Good Grade), BBB (Medium Grade) and BB:

     AAA  This is the  highest  rating  assigned  by Standard & Poor's to a debt
          obligation and indicates an extremely strong capacity to pay principal
          and interest.

     AA   Bonds rated AA also qualify as high-quality debt obligations. Capacity
          to pay principal  and interest is very strong,  and in the majority of
          instances they differ from AAA issues only in small degree.

     A    Bonds rated A have a strong  capacity to pay  principal  and interest,
          although they are somewhat more  susceptible to the adverse effects of
          changes in circumstances and economic conditions.

     BBB  Bonds rated BBB are  regarded  as having an  adequate  capacity to pay
          principal  and  interest.  Whereas they  normally  exhibit  protection
          parameters,  adverse economic conditions or changing circumstances are
          more  likely  to lead to a  weakened  capacity  to pay  principal  and


                                       B-1


          interest for bonds in this category than for bonds in the A category.

     BB   Debt rated BB has less near-term  vulnerability  to default than other
          speculative issues.  However, it faces major ongoing  uncertainties or
          exposure to adverse business,  financial, or economic conditions which
          could  lead  to  inadequate  capacity  to  meet  timely  interest  and
          principal  payments.  The BB  rating  category  is also  used for debt
          subordinated  to senior  debt that is  assigned  an actual or  implied
          BBB-rating.

Fitch describes its ratings for Tax-Exempt Bonds as follows:

     AAA  Bonds  considered  to be  investment  grade and of the highest  credit
          quality.  The  obligor  has an  exceptionally  strong  ability  to pay
          interest  and repay  principal,  which is  unlikely  to be affected by
          reasonably foreseeable events.

     AA   Bonds  considered  to be  investment  grade  and of very  high  credit
          quality.  The obligor's ability to pay interest and repay principal is
          very  strong,  although  not  quite as strong  as bonds  rated  "AAA".
          Because  bonds  rated  in  the  "AAA"  and  "AA"  categories  are  not
          significantly  vulnerable to foresee future  developments,  short-term
          debt of these issuers is generally rated F-1+.

     A    Bonds  considered to be investment  grade and of high credit  quality.
          The  obligor's   ability  to  pay  interest  and  repay  principal  is
          considered  strong,  but may be more  vulnerable to adverse changes in
          economic conditions and circumstances than bonds with higher ratings.

     BBB  Bonds  considered to be investment  grade and of  satisfactory  credit
          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 have  adverse  impact on
          these bonds and, therefore, impair timely payment. The likelihood that
          the ratings of these bonds will fall below  investment grade is higher
          than for bonds with higher ratings.

     BB   Bonds  are  considered  speculative.  The  obligor's  ability  to  pay
          interest  and repay  principal  may be  affected  over time by adverse
          economic changes.  However, business and financial alternatives can be
          identified  that could  assist  the  obligor  in  satisfying  its debt
          service requirements.

     Moody's  ratings for state and municipal notes and other  short-term  loans
are  designated   Moody's   Investment  Grade  (MIG).  This  distinction  is  in
recognition  of the  differences  between  short-term  credit risk and long-term
risk.  Factors  affecting  the  liquidity  of  the  borrower  are  uppermost  in
importance  in  short-term  borrowing,   while  various  factors  of  the  first
importance in bond risk are of lesser  importance in the short-term run. Symbols
used will be as follows:

    MIG 1 Loans  bearing  this  designation  are of the best  quality,  enjoying
          strong  protection  from  established  cash  flows of funds  for their
          servicing or from established and broad-based access to the market for
          refinancing, or both.

    MIG 2 Loans bearing this  designation  are of high quality,  with margins of
          protection ample although not so large as in the preceding group.

    MIG 3 Loans  bearing this  designation  are of favorable  quality,  with all
          securities  elements accounted for but lacking the undeniable strength
          of the preceding grades. Market access for refinancing, in particular,
          is likely to be less well established.

                                       B-2


     Standard  &  Poor's  ratings  for  state  and  municipal  notes  and  other
short-term loans are designated Standard & Poor's Grade (SP).

     SP-1 Very strong or strong  capacity to pay principal  and interest.  Those
          issues determined to possess overwhelming safety  characteristics will
          be given a plus (+) designation.

     SP-2 Satisfactory capacity to pay principal and interest.

     SP-3 Speculative capacity to pay principal and interest.

     Fitch Ratings for short-term debt obligations that are payable on demand or
have  original  maturities  of up to three  years  including  commercial  paper,
certificates of deposits,  medium term notes and municipal and investment  notes
are designated by the following ratings:

     F-1+ Exceptionally  Strong Credit Quality.  Issues assigned this rating are
          regarded  as having  the  strongest  degree of  assurance  for  timely
          payment.

     F-1  Very Strong Credit  Quality.  Issues  assigned this rating  reflect an
          assurance of timely  payment only  slightly less in degree than issues
          rated F-1+.

     F-2  Good Credit  Quality.  Issues assigned this rating have a satisfactory
          degree of assurance for timely  payment,  but the margin for safety is
          not as great as for issues assigned F-1+ and F-1 ratings.

     F-S  Weak Credit Quality.  Issues assigned this rating have characteristics
          suggesting a minimal  degree of assurance  for timely  payment and are
          vulnerable  to near-term  adverse  changes in  financial  and economic
          conditions.


                                       B-3

APPENDIX C

EQUIVALENT YIELDS:
Tax Exempt Versus Taxable Income for 2005

The table  below  shows the  effect of the tax status of  California  Tax Exempt
Securities  on the yield  received by their  holders  under the regular  federal
income tax and  California  personal  income tax laws. It gives the  approximate
yield a taxable  security  must  earn at  various  income  brackets  to  produce
after-tax  yields  equivalent  to  those of  California  Tax  Exempt  Securities
yielding from 4.0% to 10.0%.



                                                IN CALIFORNIA, A TAX-EXEMPT YIELD OF:
                                                ------------------------------------------------------------------------------------
                                                                                                
                                                    2005
                                                  Marginal
                                                  Combined
Single Return            Joint Return            California
                                                And Federal
(Taxable Income)                                 Income Tax   4.0%     5.0%     6.0%       7.0%      8.0%       9.0%       10.0%
                                                  Bracket*
- ----------------------------------------------- ------------- -------- -------- ---------- --------- ---------- ---------- ---------
                                                IS EQUIVALENT TO A TAXABLE YIELD OF:
$     0 - 6,319          $   0 - 12,638         10.90%        4.49%    5.61%    6.73%      7.86%     8.98%      10.10%    11.22%
$     6,319 - 7,300      $   12,639 - 14,600    11.80%        4.54%    5.67%    6.80%      7.94%     9.07%      10.20%    11.34%
$     7,300 - 14,979     $   14,601 - 29,958    16.70%        4.80%    6.00%    7.20%      8.40%     9.60%      10.80%    12.00%
$     14,980 - 23,641    $   29,959 - 47,282    18.40%        4.90%    6.13%    7.35%      8.58%     9.80%      11.03%    12.25%
$     23,642 - 29,700    $   47,283 - 59,400    20.10%        5.01%    6.26%    7.51%      8.76%     10.01%     11.26%    12.52%
$     29,701 - 32,819    $   59,401 - 65,638    29.50%        5.67%    7.09%    8.51%      9.93%     11.35%     12.77%    14.18%
$     32,820 - 41,476    $   65,639 - 82,952    31.00%        5.80%    7.25%    8.70%      10.14%    11.59%     13.04%    14.49%
$     41,477 - 71,950    $   82,953 - 119,950   31.98%        5.88%    7.35%    8.82%      10.29%    11.76%     13.23%    14.70%
$     71,951 - 150,150   $   119,951 - 182,800  34.70%        6.13%    7.66%    9.19%      10.72%    12.25%     13.78%    15.31%
$     150,151 - 326,450  $   182,801 - 326,450  39.23%        6.58%    8.23%    9.87%      11.52%    13.16%     14.81%    16.46%
$     326,451- OVER      $   326,451 - OVER     41.05%        6.78%    8.48%    10.18%     11.87%    13.57%     15.27%    16.96%

- ----------------------------
* The marginal  combined bracket includes the effect of deducting state taxes on
your federal tax return.

     The chart is for illustrative  purposes only and is not intended to project
     performance of the Fund.

     While the Fund principally  invests in obligations  exempt from federal and
     California state income taxes, a portion of the Fund's distributions may be
     subject to these taxes or to the alternative minimum tax.

     California  state income tax rates and  brackets  have not yet been set for
     2005.  This may result in higher or lower actual rates.  The above chart is
     intended for estimation only.



                                       C-1


APPENDIX D
                           John Hancock Advisers, LLC
                         Sovereign Asset Management LLC
                              Proxy Voting Summary

We  believe in  placing  our  clients'  interests  first.  Before we invest in a
particular stock or bond, our team of portfolio  managers and research  analysts
look closely at the company by examining its earnings  history,  its  management
team and its place in the market.  Once we invest,  we monitor all our  clients'
holdings,  to ensure that they maintain their  potential to produce  results for
investors.

As part of our active  investment  management  strategy,  we keep a close eye on
each company we invest in. Routinely,  companies issue proxies by which they ask
investors  like us to vote for or  against  a change,  such as a new  management
team, a new business  procedure or an acquisition.  We base our decisions on how
to vote these  proxies  with the goal of  maximizing  the value of our  clients'
investments.

Currently, John Hancock Advisers, LLC ("JHA") and Sovereign Asset Management LLC
("Sovereign")  manage  open-end  funds,  closed-end  funds  and  portfolios  for
institutions  and  high-net-worth  investors.   Occasionally,   we  utilize  the
expertise of an outside asset manager by means of a  subadvisory  agreement.  In
all  cases,  JHA or  Sovereign  makes the final  decision  as to how to vote our
clients'  proxies.  There is one  exception,  however,  and that pertains to our
international   accounts.  The  investment  management  team  for  international
investments  votes the proxies for the accounts  they manage.  Unless  voting is
specifically  retained by the named  fiduciary of the client,  JHA and Sovereign
will vote proxies for ERISA clients.

In order to ensure a consistent,  balanced  approach  across all our  investment
teams, we have  established a proxy oversight group comprised of associates from
our  investment,  operations  and legal teams.  The group has developed a set of
policies and procedures that detail the standards for how JHA and Sovereign vote
proxies.  The  guidelines  of JHA have been  approved  and  adopted by each fund
client's board of trustees who have voted to delegate proxy voting  authority to
their investment adviser, JHA. JHA and Sovereign's other clients have granted us
the authority to vote proxies in our advisory contracts or comparable documents.

JHA and Sovereign  have hired a third party proxy voting  service which has been
instructed to vote all proxies in  accordance  with our  established  guidelines
except as otherwise instructed.

In evaluating proxy issues,  our proxy oversight group may consider  information
from many  sources,  including the  portfolio  manager,  management of a company
presenting  a proposal,  shareholder  groups,  and  independent  proxy  research
services.  Proxies for securities on loan through  securities  lending  programs
will generally not be voted, however a decision may be made to recall a security
for voting purposes if the issue is material.

Below are the guidelines we adhere to when voting  proxies.  Please keep in mind
that  these  are  purely  guidelines.  Our  actual  votes  will be driven by the
particular  circumstances of each proxy.  From time to time votes may ultimately
be cast on a case-by-case  basis,  taking into consideration  relevant facts and
circumstances at the time of the vote. Decisions on these matters (case-by-case,
abstention,  recall)  will  normally  be made by a portfolio  manager  under the
supervision of the chief  investment  officer and the proxy oversight  group. We
may abstain  from voting a proxy if we conclude  that the effect on our clients'
economic  interests or the value of the portfolio  holding is  indeterminable or
insignificant.


                                       D-1


Proxy Voting Guidelines

Board of Directors


We believe good corporate governance evolves from an independent board.

We support the election of uncontested director nominees,  but will withhold our
vote for any nominee attending less than 75% of the board and committee meetings
during the previous  fiscal year.  Contested  elections  will be considered on a
case by case  basis by the  proxy  oversight  group,  taking  into  account  the
nominee's  qualifications.  We will support management's ability to set the size
of the board of directors and to fill vacancies without shareholder approval but
will not  support a board  that has fewer  than 3  directors  or allows  for the
removal of a director without cause.

We will  support  declassification  of a board  and  block  efforts  to  adopt a
classified  board  structure.  This structure  typically  divides the board into
classes with each class serving a staggered term.

In addition,  we support proposals for board  indemnification  and limitation of
director  liability,  as long as they  are  consistent  with  corporate  law and
shareholders'  interests. We believe that this is necessary to attract qualified
board members.

Selection of Auditors


We believe an  independent  audit  committee  can best  determine  an  auditor's
qualifications.

We will  vote for  management  proposals  to ratify  the  board's  selection  of
auditors, and for proposals to increase the independence of audit committees.


Capitalization

We will  vote for a  proposal  to  increase  or  decrease  authorized  common or
preferred  stock and the  issuance  of  common  stock,  but will vote  against a
proposal to issue or convert preferred or multiple classes of stock if the board
has unlimited  rights to set the terms and  conditions of the shares,  or if the
shares have voting rights inferior or superior to those of other shareholders.

In  addition,  we will  support a  management  proposal  to:  create or  restore
preemptive rights; approve a stock repurchase program;  approve a stock split or
reverse stock split; and, approve the issuance or exercise of stock warrants

Acquisitions, mergers and corporate restructuring

Proposals  to  merge  with  or  acquire  another  company  will  be  voted  on a
case-by-case  basis,  as will  proposals  for  recapitalization,  restructuring,
leveraged  buyout,  sale of  assets,  bankruptcy  or  liquidation.  We will vote
against a  reincorporation  proposal if it would reduce  shareholder  rights. We
will vote against a  management  proposal to ratify or adopt a poison pill or to
establish a supermajority voting provision to approve a merger or other business
combination.  We would  however  support a  management  proposal to opt out of a
state takeover statutory provision,  to spin-off certain operations or divisions
and to establish a fair price provision.



                                       D-2


Corporate Structure and Shareholder Rights

In  general,  we  support  proposals  that  foster  good  corporate   governance
procedures and that provide shareholders with voting power equal to their equity
interest in the company.

To preserve  shareholder  rights, we will vote against a management  proposal to
restrict  shareholders'  right to:  call a special  meeting  and to  eliminate a
shareholders' right to act by written consent. In addition,  we will not support
a  management  proposal  to adopt a  supermajority  vote  requirement  to change
certain by-law or charter provisions or a non-technical  amendment to by-laws or
a charter that reduces shareholder rights.

Equity-based compensation

Equity-based  compensation is designed to attract,  retain and motivate talented
executives  and  independent  directors,  but should not be so significant as to
materially dilute shareholders' interests.

We will vote against the adoption or amendment of a stock option plan if:
  o  the compensation committee is not fully independent
  o  plan dilution is more than 10% of outstanding common stock,
  o  the  company  allows  or has  allowed  the  re-pricing  or  replacement  of
     underwater  options  in the past three  fiscal  years (or the  exchange  of
     underwater options) without shareholder approval.
  o  the  option is not  premium  priced or  indexed,  or does not vest based on
     future performance

With respect to the adoption or amendment of employee  stock purchase plans or a
stock award plan, we will vote against management if:
  o  the plan  allows  stock to be  purchased  at less  than 85% of fair  market
     value;
  o  this plan dilutes outstanding common equity greater than 10%
  o  all stock  purchase  plans,  including  the  proposed  plan,  exceed 15% of
     outstanding common equity
  o  the potential dilution from all company plans is more than 85%

With  respect to director  stock  incentive/option  plans,  we will vote against
management if:
  1. the minimum vesting period for options or time lapsing  restricted stock is
     less than one year
  2. the potential dilution for all company plans is more than 85%

Other Business

For  routine  business  matters  which are the  subject  of many  proxy  related
questions, we will vote with management proposals to:

  o  change the company name;
  o  approve other business;
  o  adjourn meetings;
  o  make technical amendments to the by-laws or charters;
  o  approve financial statements;
  o  approve an employment agreement or contract.



                                       D-3


Shareholder Proposals

Shareholders are permitted per SEC regulations to submit proposals for inclusion
in a company's  proxy  statement.  We will  generally  vote against  shareholder
proposals  and in accordance  with the  recommendation  of management  except as
follows where we will vote for proposals:

  o  calling for shareholder ratification of auditors;
  o  calling for auditors to attend annual meetings;
  o  seeking to increase board independence;
  o  requiring minimum stock ownership by directors;
  o  seeking to create a nominating committee or to increase the independence of
     the nominating committee;
  o  seeking to increase the independence of the audit committee.

Corporate and social policy issues

We believe that "ordinary  business matters" are primarily the responsibility of
management  and  should  be  approved  solely  by  the  corporation's  board  of
directors.


Proposals  in this  category,  initiated  primarily by  shareholders,  typically
request  that the  company  disclose or amend  certain  business  practices.  We
generally vote against business practice  proposals and abstain on social policy
issues,  though we may make  exceptions in certain  instances where we believe a
proposal has substantial economic implications.




                                       D-4


                           John Hancock Advisers, LLC
                         Sovereign Asset Management LLC
                             Proxy Voting Procedures

The role of the proxy voting service
John  Hancock   Advisers,   LLC  ("JHA")  and  Sovereign  Asset  Management  LLC
("Sovereign")  have hired a proxy  voting  service to assist  with the voting of
client proxies.  The proxy service  coordinates with client custodians to ensure
that proxies are received for securities held in client accounts and acted on in
a timely manner. The proxy service votes all proxies received in accordance with
the proxy voting guidelines  established and adopted by JHA and Sovereign.  When
it is  unclear  how to  apply a  particular  proxy  voting  guideline  or when a
particular  proposal is not covered by the guidelines,  the proxy voting service
will contact the proxy oversight group coordinator for a resolution.

The role of the proxy oversight group and coordinator
The coordinator will interact  directly with the proxy voting service to resolve
any issues the proxy voting service brings to the attention of JHA or Sovereign.
When a question  arises  regarding  how a proxy should be voted the  coordinator
contacts the firm's investment professionals and the proxy oversight group for a
resolution.  In addition the  coordinator  ensures that the proxy voting service
receives responses in a timely manner.  Also, the coordinator is responsible for
identifying  whether,  when a voting issue arises, there is a potential conflict
of interest  situation  and then  escalating  the issue to the firm's  Executive
Committee.  For securities out on loan as part of a securities  lending program,
if a  decision  is  made  to vote a  proxy,  the  coordinator  will  manage  the
return/recall of the securities so the proxy can be voted.

The role of mutual fund trustees
The boards of trustees of our mutual fund clients have  reviewed and adopted the
proxy voting guidelines of the funds' investment adviser, JHA. The trustees will
periodically  review the proxy voting  guidelines and suggest  changes they deem
advisable.

Conflicts of interest



Conflicts of interest are resolved in the best interest of clients.

With  respect to  potential  conflicts  of  interest,  proxies  will be voted in
accordance with JHA's or Sovereign's  predetermined  policies. If application of
the predetermined policy is unclear or does not address a particular proposal, a
special  internal review by the JHA Executive  Committee or Sovereign  Executive
Committee  will determine the vote.  After voting,  a report will be made to the
client (in the case of an investment  company, to the fund's board of trustees),
if  requested.  An example of a conflict of interest  created  with respect to a
proxy  solicitation  is when JHA or Sovereign must vote the proxies of companies
that they  provide  investment  advice to or are  currently  seeking  to provide
investment advice to, such as to pension plans.



                                       D-5


APPENDIX E

                               John Hancock Funds

               Description of Portfolio Holdings Disclosure Policy

     General.  The Board of Trustees  has adopted a policy that governs when and
by whom portfolio  holdings  information  may be provided to investors,  service
providers  to the fund or market  participants.  It is the policy of the fund to
provide nonpublic  information  regarding fund's portfolio  holdings only in the
limited  circumstances  permitted  by the  policy  and  only  where  there  is a
legitimate business purpose for providing the information. The policy applies to
the officers of the fund, the adviser,  any subadviser,  John Hancock Funds, its
affiliates  and their  employees.  This is a summary of the fund's  policy.  The
Board of  Trustees  has  approved  this  policy and must  approve  any  material
changes.  In doing so, the Board has  concluded  that the limited  circumstances
where  disclosure  of  non-public  information  is  permitted  are in  the  best
interests  of  the  fund.  Under  no   circumstances   may  any  person  receive
compensation for providing non-public  information regarding the fund's holdings
to any person.

     The Board is responsible for overseeing the policy and has delegated to the
Chief Compliance  Officer ("CCO") the  responsibility  for monitoring the use of
nonpublic  information  and the fund's and the  Adviser's  compliance  with this
policy.

     The following defined terms are used in the policy and this summary.

Nonpublic  Information.  Portfolio holdings are considered Nonpublic Information
until  such  holdings  are  posted  on a  publicly  available  website  which is
disclosed in the fund prospectus or until filed with the SEC via Edgar on either
Form N-CSR or Form N-Q.

"Affiliated  Persons" are: (a) persons affiliated with the Funds, (b) the Funds'
investment  adviser or principal  underwriter or any affiliate of either entity,
(c) the investment  adviser's ultimate parent,  Manulife  Financial  Corporation
("MFC")  or any  affiliate  thereof,  (d)  in  the  case  of a  particular  Fund
portfolio,  the subadviser to the portfolio, or any affiliate of the subadviser,
(e) the Funds' custodian and (f) the Funds' certified public accountants.

"Nonaffiliated Persons" is any person who is not an Affiliated Person.

Public  Disclosure.  The Funds'  portfolio  holdings  are  disclosed in publicly
available  filings  with the SEC (e.g.  Form N-CSR or Form N-Q).  The Funds also
publish the following information on their website jhfunds.com:

(1)  On the fifth business day after  month-end,  the following  information for
     each fund will be posted on  www.jhfunds.com:  top ten  holdings (% of each
     position);   top  ten  sector  analysis;   total   return/yield;   top  ten
     countries/SIC;  average  quality/maturity;  beta/alpha/r2  (open-end  funds
     only); top ten portfolio composition

(2)  The following  information  regarding  portfolio holdings will be posted on
     www.jhfunds.com  each month on a  one-month  lag (i.e.,  information  as of
     December 31 will be posted on February 1):  security  name;  cusip;  market
     value; shares/amount; coupon rate; maturity date

(3)  With respect to Money Market Fund and U.S.  Government  Cash  Reserve,  the
     following information regarding portfolio holdings will be posted weekly on


                                       E-1


     www.jhfunds.com:  net assets; seven day yield; thirty day yield; % maturing
     in last seven  days;  portfolio  breakdown  by  securities  type;  weighted
     average maturity

The  information  referenced in (1), (2), and (3) above will be available on the
funds'  website  until a fund  files  its next  Form  N-CSR or Form N-Q with the
Securities and Exchange Commission.


Disclosure of Portfolio Holdings to Nonaffiliated Persons

     Subject to monitoring and  authorization by the CCO, persons subject to the
policy  may  provide  Nonpublic  Information  regarding  portfolio  holdings  to
Nonaffiliated  Persons in the  circumstances  listed below.  Each  Nonaffiliated
Person must agree to keep such  information  confidential  and to  prohibit  its
employees from trading on such information for personal or proprietary purposes.

     Rating  Organizations.  Nonpublic  Information regarding portfolio holdings
will be provided to ratings organizations,  such as Moodys, S&P, Morningstar and
Lipper,  for the  purpose  of  reviewing  the  portfolio,  the  adviser  or,  if
applicable,  subadviser.  Generally,  this  information is provided on a monthly
basis,  as soon as  practical  after the end of each month.  The fund  generally
expects that it will  continue to provide these rating  organizations  with such
information.


     Risk  Management,   Attribution,   Portfolio   Analysis  Tools.   Nonpublic
Information  regarding portfolio holdings may be provided to Factset,  BondEdge,
Investools,  Salomon Yieldbook, Lehman Brothers Municipal Index Group, Wilshire,
or other  entities for the purpose of compiling  reports and preparing  data for
use by the  fund and its  service  providers.  Generally,  this  information  is
provided on a daily or monthly basis, as soon as practical after the end of each
day or month  respectively.  The fund generally expects that it will continue to
provide these service providers with such information.

     Proxy Voting Services.  Nonpublic  Information regarding portfolio holdings
may be provided to ISS,  the fund's  proxy  voting  service,  for the purpose of
voting  proxies  relating to portfolio  holdings.  The proxy voting  service has
regular access to the fund's  portfolio  holdings in order to determine if there
are any  securities  held by the fund as to which there is upcoming  shareholder
action in which the fund is entitled to vote. The provision of this  information
is  necessary in order to carry out the fund's  proxy  voting  policy.  The fund
expects that it will continue to provide ISS with such information.


     Computer Products and Services.  Nonpublic  Information regarding portfolio
holdings may be provided to entities providing computer products and services to
the Funds (for  example,  for the purpose of  generating  compliance  reports or
reports relating to proxy voting). These services may require regular,  normally
daily,  access  to the  fund's  portfolio  holdings  in  order  to  provide  the
contracted services to the fund.

     Institutional  Traders.  Nonpublic Information regarding portfolio holdings
may be  provided  to  institutional  traders  to  assist in  research  and trade
execution.  This information,  which identifies  current holdings without a time
lag,  is provided on an  irregular  basis and is normally  only used to identify
portfolio positions as to which the fund would welcome bids.

     Courts and Regulators.  Nonpublic  Information regarding portfolio holdings
may be provided to any court or regulator  with  appropriate  jurisdiction.  The
frequency and time lag depends upon the request.  In providing this information,


                                       E-2


the fund is merely complying with its legal obligations.

     Other Persons.  Nonpublic  Information  regarding portfolio holdings may be
provided  to other  persons or  entities  if  approved  by the Chief  Compliance
Officer  of the  Fund  or his or her  designee  (collectively,  the  "CCO").  In
determining  whether to approve such disclosure the CCO shall consider:  (a) the
purpose of providing such  information,  (b) the procedures that will be used to
ensure that such information remains confidential and is not traded upon and (c)
whether such disclosure is in the best interest of the shareholders of the Fund.
In the case of a conflict  between (a) the interests of the  shareholders of the
Fund,  on the one hand,  and (b) the interests of any  affiliated  person of the
Fund,  the Fund's  investment  adviser  (including any  subadviser),  the Fund's
principal  underwriter or any of their  affiliated  persons,  on the other,  the
procedures set forth under  "Resolution of Conflicts of Interest" below shall be
followed.

The CCO shall report to the Board of Trustees whenever additional disclosures of
portfolio  holdings  are  approved.  This report  shall be at the board  meeting
following such approval.

Disclosure of Portfolio Holdings to Affiliated Persons

The Board or the CCO may authorize  the  provision of any Nonpublic  Information
regarding  portfolio holdings to other Affiliated  Persons. If authorized by the
CCO, the CCO must report such  approval to the Board of  Trustees.  The CCO must
pre-approve  the  provision of any  Nonpublic  Information  regarding  portfolio
holdings to any  Affiliated  Persons (other than those listed in Appendix A) and
report such  approval to the Board of  Trustees at the board  meeting  following
such  approval.  The  persons  listed in  Appendix A have been  exempt from such
pre-approval.  In the  case of  persons  listed  in  Section  II,  III and IV of
Appendix A, their  employers  shall provide the CCO reasonable  assurances  that
Nonpublic  Information  will be kept  confidential  and that such  employees are
prohibited from trading on such information.

In  determining  whether to approve such  disclosure  of  Nonpublic  Information
regarding  portfolio  holdings to any Affiliated Persons the CCO shall consider:
(a) the purpose of providing such  information,  (b) the procedures that will be
used to ensure that such information remains confidential and is not traded upon
and (c) whether such  disclosure is in the best interest of the  shareholders of
the  Fund.  In  the  case  of a  conflict  between  (a)  the  interests  of  the
shareholders  of the  Fund,  on the  one  hand,  and (b)  the  interests  of any
affiliated  person of the Fund,  the Fund's  investment  adviser  (including any
subadviser),  the  Fund's  principal  underwriter  or  any of  their  affiliated
persons,  on the other, the procedures set forth under  "Resolution of Conflicts
of Interest" below shall be followed.

Resolution of Conflicts of Interest

If the Fund or its adviser or principal underwriter or any of its subadviser (or
any of their affiliates) desire to provide Nonpublic  Information regarding Fund
portfolio  holdings to a  Nonaffiliated  Person and the CCO believes  there is a
potential conflict between (a) the interests of the shareholders of the Fund, on
the one hand,  and (b) the interests of any  affiliated  person of the Fund, the
Fund's  investment  adviser  (including any  subadviser),  the Fund's  principal
underwriter  or any of their  affiliated  persons,  on the other,  the CCO shall
refer the  conflict  to the Board of  Trustees of the Fund who shall only permit
such  disclosure of the Nonpublic  Information if in their  reasonable  business
judgment  they conclude such  disclosure  will be in the best  interests of Fund
shareholders.



                                       E-3


Changes to Policy

Any  material  changes to this policy  must be  approved by the Fund's  Board of
Trustees. Reports to the Trust's Board of Trustees

The CCO shall report any material issues that may arise under this policy to the
Board of Trustees no later than the Board  meeting  following the arising of the
issue. Applicability of Policy to a Fund's Adviser and Subadvisers

This policy  shall apply to the Fund's  Adviser and each of its  subadvisers  as
applicable.


Appendix A

I.  Employees*  of John  Hancock  Advisers,  LLC who are  subject to the Code of
Ethics of the Fund,  the Funds'  investment  adviser,  or the  Fund's  principal
underwriter, John Hancock Funds, LLC.

II.  Employees*  of a Subadviser  or any  Affiliate of a Subadviser  who provide
services to a Fund.

III. Employees* of the Funds' custodian who provide services to the Funds.

IV.  Employees* and partners of a Fund's  certified  public  accounting firm who
provide services to the Fund.

V.  Employees*  and partners of a Fund's legal counsel who provides  services to
the Fund. *Includes temporary employees


                                       E-4


FINANCIAL STATEMENTS

The  financial  statements  listed  below are included in the Fund's 2005 Annual
Report to Shareholders for the year ended August 31, 2005; (filed electronically
on October 28, 2005, accession number  0000928816-05-001353) and are included in
and incorporated by reference into Part B of the Registration Statement for John
Hancock California Tax-Free Income Fund (file nos. 811-5979 and 33-31675).

John Hancock California Tax-Free Income Fund (the "Trust")
  On behalf of John Hancock California Tax-Free Income Fund (the "Fund")

Statement of Assets and Liabilities as of August 31, 2005.
Statement of Operations for the year ended August 31, 2005.
Statement of Changes in Net Assets for each of the two years in the period ended
August 31, 2005.
Notes to Financial Statements.
Financial  Highlights  for each of the five years in the period ended August 31,
2005.
Schedule of Investments as of August 31, 2005.
Report of Independent Registered Public Accounting Firm.





                                       F-1