As filed with the Securities and Exchange Commission on October 14, 1997.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /_X__/
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Pre-Effective Amendment No. __ /____/
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Post-Effective Amendment No. ___ /____/
(Check appropriate box or boxes)
JOHN HANCOCK INVESTMENT TRUST
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(Exact name of registrant as specified in charter)
101 Huntington Avenue, Boston, Massachusetts 02199-7603
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(Address of principal executive office) Zip Code
(617) 375-1700
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(Registrant's Telephone Number, including Area Code)
Susan S. Newton, Esq.
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, MA 02199
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(Name and address of agent for service)
Approximate Date of Proposed Public Offering: As soon as practicable after the
effectiveness of the registration statement.
No filing fee is required because an indefinite number of shares has previously
been registered pursuant to Rule 24f-2 under the Investment Company Act of 1940,
as amended. This Registration Statement relates to shares previously registered
on Form N-1A (File Nos. 2-10156 and 811-0560).
It is proposed that this filing will become effective on September 13, 1997
pursuant to Rule 488 under the Securities Act of 1933.
<PAGE>
JOHN HANCOCK INVESTMENT TRUST
CROSS-REFERENCE SHEET
Items Required by Form N-14
<TABLE>
<CAPTION>
PART A
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Item No. Item Caption Prospectus Caption
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<S> <C> <C>
1. Beginning of Registration COVER PAGE OF REGISTRATION
Statement and Outside Front STATEMENT; FRONT COVER PAGE OF
Cover Page of Prospectus PROSPECTUS
2. Beginning and Outside Back TABLE OF CONTENTS
Cover Page of Prospectus
3. Synopsis and Risk Factors SUMMARY; INVESTMENT RISKS
4. Information About the INTRODUCTION; SUMMARY; INVESTMENT
RISKS; INFORMATION CONCERNING THE
Transaction MEETING; PROPOSAL TO APPROVE THE
AGREEMENT AND PLAN OF REORGANIZATION;
CAPITALIZATION
5. Information About the PROSPECTUS COVER PAGE; INTRODUCTION;
Registrant SUMMARY; ADDITIONAL INFORMATION
ABOUT THE FUNDS' BUSINESSES
6. Information About the PROSPECTUS COVER PAGE; INTRODUCTION;
Company Being Acquired SUMMARY; ADDITIONAL INFORMATION
ABOUT THE FUNDS' BUSINESSES
7. Voting Information PROSPECTUS COVER PAGE; NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS;
SUMMARY; INFORMATION CONCERNING
THE MEETING; VOTING RIGHTS AND
REQUIRED VOTE
8. Interest of Certain Persons EXPERTS
and Experts
9. Additional Information NOT APPLICABLE
Required for Reoffering by
Persons Deemed to be
Underwriters
<PAGE>
PART B
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Caption in Statement of
Item No. Item Caption Additional Information
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10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. Additional Information ADDITIONAL INFORMATION ABOUT
About the Registrant GROWTH AND INCOME FUND
13. Additional Information About ADDITIONAL INFORMATION ABOUT
the Company Being Acquired UTILITIES FUND
14. Financial Statements ADDITIONAL INFORMATION ABOUT
GROWTH AND INCOME FUND; ADDITIONAL
INFORMATION ABOUT UTILITIES FUND;
PRO FORMA COMBINED FINANCIAL STATEMENTS
PART C
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Item No. Item Caption
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15. Indemnification INDEMNIFICATION
16. Exhibits EXHIBITS
17. Undertakings UNDERTAKINGS
</TABLE>
2
<PAGE>
September 22, 1997
Dear Fellow Shareholder:
I am writing to ask for your vote on an important matter that will affect your
investment in the John Hancock Utilities Fund.
Since its inception in February 1994, your Fund has been managed to be a
relatively conservative stock mutual fund, seeking growth and income in
historically lower-risk, dividend-paying utilities stocks. Recent consolidation
and deregulation trends in the public utility industries, however, have
increased the volatility of this sector considerably. Often thought of as a
"safe haven" for conservative stock investors seeking income, utilities stocks
have become more appropriate for more aggressive investors.
Considering these recent fundamental changes to the public utilities sector and
your Fund's specialized investment focus, your Fund's Trustees are concerned
that the Fund's consistent returns and relatively low volatility will be hard to
maintain in the future. Accordingly, your Trustees are recommending the merger
of your Fund into the John Hancock Growth and Income Fund, another growth and
income fund with a broader investment approach. The Growth and Income Fund
offers you the opportunity to participate in a wide range of investment
opportunities, often including utilities stocks, while seeking the highest total
return that is consistent with reasonable safety of capital. The Growth and
Income Fund also offers you a larger asset base, which can help protect your
investment through greater diversification.
This proposed merger has been unanimously approved by your Fund's Board of
Trustees, who believe it will benefit you and your fellow shareholders. The
proposed merger is detailed in the enclosed proxy statement and summarized in
the questions and answers on the following page. I suggest you read both
thoroughly before voting.
Your Vote Makes a Difference!
No matter what the size of your investment may be, your vote is important. I
urge you to review the enclosed materials and to complete, sign and return the
enclosed proxy ballot to us immediately. Your prompt response will help avoid
the need for additional mailings at your Fund's expense. For your convenience,
we have provided a postage-paid envelope.
If you have any questions or need additional information, please call your
investment professional or your Customer Service Representative at
1-800-225-5291, Monday through Friday between 8:00 A.M. and 8:00 P.M. Eastern
Time. I thank you for your prompt vote on this matter.
Sincerely,
Edward J. Boudreau, Jr.
Chairman and CEO
<PAGE>
Q: What has changed in the utilities industry?
A: The utilities industry's new landscape involves increased consolidation and
competition, which could create significant and uncharacteristic volatility for
utilities stocks. This volatility exceeds the risk parameters of your Fund.
Recent legislative changes have decreased the amount of regulation in the
utilities sector, making it more feasible for mergers and acquisitions to occur.
As utilities companies begin to respond to this deregulation, the performance of
utilities stocks is expected to be change significantly. Historically these
stocks have been considered "safe haven" investments for conservative investors,
but we can no longer assume these stocks will deliver their typical consistent
income and stable growth in the future.
Q: What are the benefits of merging the Utilities Fund into the Growth and
Income Fund?
A: As you know, your Fund is limited only to investments in the public utility
sector. The Growth and Income Fund, on the other hand, invests in stocks of
companies from a wide range of industries, including utilities stocks. As a
Growth and Income Fund shareholder, you can continue to participate in the
utilities sector while opening your portfolio to a broad range of opportunities
in other industries. This diversification will provide you with access to many
more investment opportunities, while making your investment less dependent upon
the success of one sector.
Q: How has the Growth and Income Fund performed?
A: Although past performance does not necessarily guarantee future results, the
Growth and Income Fund has been a steady performer over its more than 48-year
history. The Growth and Income Fund is ranked #24 our of 547 funds in Lipper
Analytical Services, Inc.'s Growth & Income funds category over the past year as
of June 30, 1997.* Its Class A shares have posted average annual total returns
of 15.08% over the past year, 12.54% over the past five years and 11.00% over
the past ten years at public offering price as of June 30, 1997. Since the
Fund's Class B shares were first offered to the public on August 22, 1991, they
have compiled an average annual total return of 12.65%, including 12.57% over
the past five years and 15.27% over the past year.** To review the Growth and
Income Fund in greater detail, please refer to the John Hancock Growth and
Income Funds prospectus and the Growth and Income Fund's most recent annual and
semi-annual reports, all of which are enclosed.
Q: What is the Growth and Income Fund's strategy?
A: The Growth and Income Fund seeks the highest total return that is consistent
with reasonable safety of capital. The Fund will typically invest in a wide
array of industries including the utilities sector, seeking stocks that are
selling below what the management team estimates to be their actual value.
Q: How do I vote?
A: Most shareholders typically vote by completing, signing and returning the
enclosed proxy card using the postage-paid envelope provided. If you prefer to
vote in person, you are cordially invited to attend a meeting of shareholders of
your Fund, which will be held at 9:00 A.M. on November 12, 1997 at our 101
Huntington Avenue headquarters in Boston, Massachusetts. If you vote now, you
will help avoid further solicitations at your Fund's expense.
Q: How will the merger happen?
A: If the merger is approved, your Utilities Fund shares will be converted to
Growth and Income Fund shares, using the Funds' net asset value share prices
<PAGE>
excluding sales charges, as of the close of trading on December 5, 1997. This
conversion will not affect the total dollar value of your investment.
Q: Will the merger have tax consequences?
A: Although taxable dividends and capital gains will be paid prior to the
merger, the merger itself is a non-taxable event and does not need to be
reported on your 1997 tax return.
*This ranking is based on the year-to-date total return for the period ending
June 30, 1997. Ranking applies to Class A shares only, and does not account for
sales charges. The Fund is ranked 117 out of 216 for the five-year period, and
48 out of 127 for the ten-year period.
**Performance figures assume all distributions are reinvested and reflect a
maximum sales charge on Class A shares of 5% and the applicable contingent
deferred sales charge on Class B shares. The CDSC declines annually between
years 1-6 according to the following schedule: 5, 4, 3, 3, 2, 1% . No sales
charge will be assessed after the sixth year. The return and principal value of
any mutual fund investment will fluctuate, so that shares, when redeemed, may be
worth more or less than their original cost.
<PAGE>
JOHN HANCOCK UTILITIES FUND
(a series of John Hancock Capital Series)
101 Huntington Avenue
Boston, MA 02199
NOTICE OF MEETING OF SHAREHOLDERS
SCHEDULED FOR NOVEMBER 12, 1997
This is the formal agenda for your fund's shareholder meeting. It tells you what
matters will be voted on and the time and place of the meeting, in case you want
to attend in person.
To the shareholders of John Hancock Utilities Fund:
A meeting of shareholders of your fund will be held at 101 Huntington Avenue,
Boston, Massachusetts on Wednesday, November 12, 1997 at 9:00 a.m., Eastern
Time, to consider the following:
1. A proposal to approve an Agreement and Plan of Reorganization between
your fund and John Hancock Growth and Income Fund. Under this
Agreement your fund would transfer all of its assets to Growth and
Income Fund in exchange for shares of Growth and Income Fund. These
shares would be distributed proportionately to you and the other
shareholders of your fund. Growth and Income Fund would also assume
your fund's liabilities. Your board of trustees recommends that you
vote FOR this proposal.
2. Any other business that may properly come before the meeting.
Shareholders of record as of the close of business on September 17, 1997 are
entitled to vote at the meeting and any related follow-up meetings.
Whether or not you expect to attend the meeting, please complete and return the
enclosed proxy card. If shareholders do not return their proxies in sufficient
numbers, your fund will incur the cost of extra solicitations, which is
indirectly borne by you and other shareholders.
By order of the board of trustees,
Susan S. Newton
Secretary
September 22, 1997
410PX 9/97
1
<PAGE>
PROXY STATEMENT OF
JOHN HANCOCK UTILITIES FUND
(a series of John Hancock Capital Series)
PROSPECTUS FOR
CLASS A AND CLASS B SHARES OF
JOHN HANCOCK GROWTH AND INCOME FUND
(a series of John Hancock Investment Trust)
This proxy statement and prospectus contains the information you should know
before voting on the proposed reorganization of your fund into John Hancock
Growth and Income Fund. Please read it carefully and retain it for future
reference.
How the Reorganization Will Work
o Your fund will transfer all of its assets to Growth and Income
Fund. Growth and Income Fund will assume your fund's
liabilities.
o Growth and Income Fund will issue to your fund Class A shares
in an amount equal to the value of your fund's Class A shares.
These shares will be distributed to your fund's Class A
shareholders in proportion to their holdings on the
reorganization date.
o Growth and Income Fund will issue to your fund Class B shares
in an amount equal to the value of your fund's Class B shares.
These shares will be distributed to your fund's Class B
shareholders in proportion to their holdings on the
reorganization date.
o The reorganization will be tax-free.
o Your fund will be liquidated and you will become a shareholder
of Growth and Income Fund.
Shares of Growth and Income Fund are not deposits or obligations of, or
guaranteed or endorsed by, any bank or other depository institution. These
shares are not federally insured by the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other government agency.
2
<PAGE>
Shares of Growth and Income Fund have not been approved or disapproved by the
Securities and Exchange Commission. The Securities and Exchange Commission
has not passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
Why Your Fund's Trustees are Recommending the Reorganization
The trustees of your fund believe that reorganizing your fund into a larger fund
with similar investment policies would enable the shareholders of your fund to
benefit from increased diversification, the ability to achieve better net prices
on securities trades and economies of scale that could contribute to a lower
expense ratio. Therefore, the trustees recommend that your fund's shareholders
vote FOR the reorganization.
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Investment Objectives
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Utilities Growth and Income
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Investment Current income and, to the Highest total return
objective. extent consistent with this (capital appreciation plus
goal, growth of income and current income) that is
long-term growth of capital. consistent with reasonable
safety of capital.
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Where to Get More Information
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Prospectus of your fund and Growth and In the same envelope as this proxy
Income Fund dated 5/1/97. statement and prospectus.
Incorporated by reference into this
proxy statement and prospectus.
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Growth and Income Fund's annual and
semi-annual reports to shareholders.
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Your fund's annual and semi-annual On file with the Securities and
reports to shareholders. Exchange Commission ("SEC") and
available at no charge by calling
1-800-225-5291. Incorporated by
reference into this proxy statement
and prospectus.
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A statement of additional information
dated 9/22/97. It contains additional
information about your fund and Growth
and Income Fund.
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To ask questions about this proxy Call our toll-free telephone
statement and prospectus. number: 1-800-225-5291
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The date of this proxy statement and prospectus is September 22, 1997.
3
<PAGE>
TABLE OF CONTENTS
Page
INTRODUCTION 5
SUMMARY 5
INVESTMENT RISKS 17
PROPOSAL TO APPROVE AGREEMENT
AND PLAN OF REORGANIZATION 18
CAPITALIZATION 26
ADDITIONAL INFORMATION ABOUT
THE FUNDS' BUSINESSES 27
BOARDS' EVALUATION AND RECOMMENDATION 27
VOTING RIGHTS AND REQUIRED VOTE 28
INFORMATION CONCERNING THE MEETING 29
OWNERSHIP OF SHARES OF THE FUNDS 31
EXPERTS 32
AVAILABLE INFORMATION 32
EXHIBITS
A - Agreement and Plan of Reorganization between John Hancock Utilities
Fund and John Hancock Growth and Income Fund (attached to this
document).
4
<PAGE>
INTRODUCTION
This proxy statement and prospectus is being used by the board of trustees of
your fund to solicit proxies to be voted at a special meeting of shareholders of
your fund. This meeting will be held at 101 Huntington Avenue, Boston,
Massachusetts on Wednesday, November 12, 1997 at 9:00 a.m., Eastern Time. The
purpose of the meeting is to consider a proposal to approve an Agreement and
Plan of Reorganization providing for the reorganization of your fund into John
Hancock Growth and Income Fund. This proxy statement and prospectus is being
mailed to your fund's shareholders on or about September 22, 1997.
Who is Eligible to Vote?
Shareholders of record on September 17, 1997 are entitled to attend and vote at
the meeting or any adjourned meeting. Each share is entitled to one vote. Shares
represented by properly executed proxies, unless revoked before or at the
meeting, will be voted according to shareholders' instructions. If you sign a
proxy, but do not fill in a vote, your shares will be voted to approve the
Agreement and Plan of Reorganization. If any other business comes before the
meeting, your shares will be voted at the discretion of the persons named as
proxies.
SUMMARY
The following is a summary of more complete information appearing later in this
proxy statement. You should read the entire proxy statement, Exhibit A and the
enclosed documents carefully because they contain details that are not in the
summary.
5
<PAGE>
Comparison of Utilities Fund to Growth and Income Fund
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Utilities Growth and Income
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Business: Your fund is a diversified Growth and Income Fund is a
series of John Hancock diversified series of John
Capital Series. The trust is Hancock Investment Trust.
an open-end investment The trust is an open-end
company organized as a investment company organized
Massachusetts business as a Massachusetts business
trust. trust.
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Net assets as of $67.0 million. $427.2 million.
June 30, 1997:
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Investment Your fund's investment Growth and Income Fund's
adviser and adviser is John Hancock investment adviser is John
portfolio Advisers, Inc. Gregory K. Hancock Advisers, Inc.
managers: Phelps, leader of your Timothy E. Keefe, CFA, has
fund's portfolio management been the leader of Growth
team since April 1996, is a and Income Fund's portfolio
vice president of the management team since
adviser. Mr. Phelps joined joining John Hancock Funds
John Hancock Funds in in July 1996. He is a
January 1995 and has been in senior vice president of the
the investment business adviser and has been in the
since 1981. investment business since
1987.
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Investment Current income and, to the Highest total return
objective: extent consistent with this (capital appreciation plus
goal, growth of income and current income) that is
long-term growth of consistent with reasonable
capital. This objective can safety of capital. Growth
be changed without and Income Fund's objective
shareholder approval. can be changed without
shareholder approval.
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6
<PAGE>
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Utilities Growth and Income
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Primary At least 65% of assets in Growth and Income Fund
investments: common stocks, warrants, invests primarily in common
preferred stocks and stocks, but may invest in
convertible securities of most types of securities,
U.S. and foreign public including common and
utility companies, such as preferred stocks, warrants
those whose principal and convertible securities;
business involves the U.S. Government and agency
generation, handling or sale debt securities including
of electricity, natural gas, mortgage- backed securities;
water, waste management corporate bonds, notes and
services or non-broadcast other debt obligations of
telecommunications any maturity.
services. Your fund may
invest in other industries
if fund management believes
it would help the fund
achieve its investment
objective.
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Investments in Your fund may invest up to Growth and Income Fund may
debt securities: 25% of assets in invest, without limitation,
investment-grade debt in investment grade debt
securities. For temporary securities and may invest up
defensive purposes your fund to 15% of net assets in junk
may invest up to 100% of bonds.
assets in these securities.
Your fund may not invest in
junk bonds.
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Foreign Your fund may invest up to Growth and Income Fund may
securities: 25% of assets in securities invest up to 25% of assets
issued by foreign companies in securities issued by
as well as American or foreign companies as well as
European depository receipts. American or European
depository receipts and up
to 35% of assets in these
securities during adverse
U.S. market conditions.
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7
<PAGE>
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Utilities Growth and Income
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Illiquid Your fund may invest up to Growth and Income Fund may
securities: 15% of net assets in invest up to 10% of net
illiquid securities. This assets in illiquid
limitation does not apply to securities. This limitation
liquid Rule 144A securities, does not apply to liquid
but does apply to other Rule 144A securities, but
restricted securities. does apply to other
restricted securities.
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Financial futures Your fund may, but typically Growth and Income Fund may
and related does not, use financial use financial futures,
options; options futures, options on futures options on futures and
on securities and and options on securities options on securities and
indices: and indices. There are no indices. Growth and Income
percentage limits on the Fund may not purchase
amounts of fund assets that additional call or put
the fund may invest in these options on securities or
instruments. indices if the premium paid
on all such options held by
the fund would exceed 10% of
net assets.
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Currency Both funds may enter into currency contracts for hedging,
contracts: but not speculative, purposes.
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Short sales: Your fund may, but typically Growth and Income Fund may
does not, engage in short not engage in short sales.
sales for hedging purposes
only.
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When-issued and Both funds may purchase when-issued securities and purchase
forward or sell securities in forward commitment transactions.
commitment
transactions:
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Short-term Neither fund is subject to any limitations on short- term
trading: trading.
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Repurchase Both funds may invest without limitation in repurchase
agreements: agreements.
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Securities Your fund may lend portfolio Growth and Income Fund may
lending: securities representing up lend portfolio securities
to 33.3% of assets. representing up to 33% of
assets.
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Borrowing and Both funds may temporarily borrow from banks or through
reverse reverse repurchase agreements for extraordinary or
repurchase emergency purposes. These borrowings may not exceed 33.3%
agreements: of assets.
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8
<PAGE>
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CLASSES OF SHARES
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Utilities Growth and Income
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Class A shares: The Class A shares of both funds have the same
characteristics and fee structure except for Class A 12b-1
fees.
o Class A shares are offered with front-end sales charges
ranging from 2% to 5% of each fund's offering price,
depending on the amount invested.
o There is no front-end sales charge for investments of
$1 million or more, but there is a contingent deferred
sales charge ranging from 0.25% to 1.00% on shares sold
within one year of purchase.
o Investors can combine multiple purchases of Class A
shares to take advantage of breakpoints in the sales
charge schedule.
o Sales charges are waived for the categories of
investors listed in the funds' prospectus.
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Class A shares are subject Class A shares are subject
to a 12b-1 distribution fee to a 12b-1 distribution fee
equal to 0.30% annually of equal to 0.25% annually of
average net assets. average net assets.
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Class B shares: The Class B shares of both funds have the same
characteristics and fee structure.
o Class B shares are offered without a front-end sales
charge, but are subject to a contingent deferred sales
charge (CDSC) if sold within six years after purchase.
The CDSC ranges from 1.00% to 5.00% depending on how
long they are held. No CDSC is imposed on shares held
more than six years.
o CDSCs are waived for the categories of investors listed
in the funds' prospectus.
o Class B shares are subject to 12b-1 distribution and
service fees equal to 1.00% annually of average net
assets.
o Class B shares automatically convert to Class A shares
after eight years.
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9
<PAGE>
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BUYING, SELLING AND EXCHANGING SHARES
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Both Utilities and Growth and Income Funds
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Buying shares: The procedures for buying shares of both funds are
identical. Investors may buy shares at their public
offering price through a financial representative or the
funds' transfer agent, John Hancock Signature Services,
Inc. After September 17, 1997, investors will not be
allowed to open new accounts in your fund but can add to
existing accounts.
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Minimum initial The funds have the same initial investment minimums, which
investments: are $1,000 for non-retirement accounts and $250 for
retirement accounts and group investments.
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Exchanging shares: Shareholders of both funds may exchange their shares
at net asset value with no sales charge for shares of the
same class of any other John Hancock fund.
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Selling shares: Shareholders of both funds may sell their shares by
submitting a proper written or telephone request to John
Hancock Signature Services, Inc.
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Net asset value: All purchases, exchanges and sales of each fund's shares are
made at a price based on the next determined net asset value
per share (NAV) of the fund. Both funds' NAVs are determined
at the close of regular trading on the New York Stock
Exchange, which is normally 4:00 p.m. Eastern Time.
- ------------------- ------------------------------------------------------------
The Funds' Expenses
Shareholders of both funds pay various expenses, either directly or indirectly.
The first two expense tables appearing below show the expenses for the twelve
month period ended June 30, 1997, adjusted to reflect any changes. Future
expenses may be greater or less. The examples contained in each expense table
show what you would pay if you invested $1,000 over the various time periods
indicated. Each example assumes that you reinvested all dividends and that the
average annual return was 5%. The examples are for comparison purposes only and
are not a representation of either fund's actual expenses or returns, either
past or future.
10
<PAGE>
Utilities Fund
Shareholder transaction expenses Class A Class B
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
Annual fund operating expenses
(as a % of average net assets) Class A Class B
Management fee (after expense limitation)(3) 0.27% 0.27%
12b-1 fee(4) 0.30% 1.00%
Other expenses 0.50% 0.50%
Total fund operating expenses (after expense
limitation)(3) 1.07% 1.77%
Example
Share class Year 1 Year 3 Year 5 Year 10
Class A shares $60 $82 $106 $174
Class B shares
Assuming redemption
at end of period $68 $86 $116 $190
Assuming no redemption $18 $56 $96 $190
Growth and Income Fund
Shareholder transaction expenses Class A Class B
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
11
<PAGE>
Annual fund operating expenses
(as a % of average net assets) Class A Class B
Management fee 0.625% 0.625%
12b-1 fee(4) 0.250% 1.000%
Other expenses 0.245% 0.245%
Total fund operating expenses 1.12% 1.87%
Example
Share class Year 1 Year 3 Year 5 Year 10
Class A shares $61 $84 $109 $180
Class B shares
Assuming redemption
at end of period $69 $89 $121 $199
Assuming no redemption $19 $59 $101 $199
(1) Except for investments of $1 million or more.
(2) Does not include wire redemption fee (currently $4.00).
(3) Reflects the adviser's voluntary agreement to limit expenses (except
for 12b-1 and transfer agent expenses). Without this limitation,
management fees would be 0.70% for each class of your fund and total
fund operating expenses would be 1.50% for Class A and 2.20% for Class
B. The adviser may discontinue this limitation at any time.
(4) Because of the 12b-1 fee, long-term shareholders may pay more than the
equivalent of the maximum permitted front-end sales charge.
Pro Forma Expense Table
The next expense table shows the pro forma expenses of Growth and Income Fund
assuming that a reorganization with your fund occurred on June 30, 1997. The
expenses shown in the table are based on fees and expenses incurred during the
twelve months ended June 30, 1997, adjusted to reflect any changes. Growth and
Income Fund's actual expenses after the reorganization may be greater or less
than those shown. The example contained in the pro forma expense table shows
what you would pay on a $1,000 investment if the reorganization had occurred on
June 30, 1997. The example assumes that you reinvested all dividends and that
the average annual return was 5%. The pro forma example is for comparison
purposes only and is not a representation of Growth and Income Fund's actual
expenses or returns, either past or future.
12
<PAGE>
Growth and Income Fund (PRO FORMA)
(Assuming reorganization with Utilities Fund)
Shareholder transaction expenses Class A Class B
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
Annual fund operating expenses
(as a % of average net assets) Class A Class B
Management fee 0.625% 0.625%
12b-1 fee(3) 0.250% 1.000%
Other expenses 0.275% 0.275%
Total fund operating expenses 1.15% 1.90%
Pro Forma Example
Share class Year 1 Year 3 Year 5 Year 10
Class A shares $61 $85 $110 $183
Class B shares
Assuming redemption
at end of period $69 $90 $123 $202
Assuming no redemption $19 $60 $103 $202
(1) Except for investments of $1 million or more.
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may pay more than
the equivalent of the maximum permitted front-end sales charge.
The Reorganization
o The reorganization is scheduled to occur at 5:00 p.m., Eastern
time, on December 5, 1997, but may occur on any later date
before June 1, 1998. Your fund will transfer all of its assets
to Growth and Income Fund. Growth and Income Fund will assume
your fund's liabilities. The net asset value of both funds
will be computed as of 5:00 p.m., Eastern time, on the
reorganization date.
13
<PAGE>
o Growth and Income Fund will issue to your fund Class A shares
in an amount equal to the aggregate net asset value of your
fund's Class A shares. These shares will immediately be
distributed to your fund's Class A shareholders in proportion
to their holdings on the reorganization date. As a result,
Class A shareholders of your fund will end up as Class A
shareholders of Growth and Income Fund.
o Growth and Income Fund will issue to your fund Class B shares
in an amount equal to the aggregate net asset value of your
fund's Class B shares. These shares will immediately be
distributed to your fund's Class B shareholders in proportion
to their holdings on the reorganization date. As a result,
Class B shareholders of your fund will end up as Class B
shareholders of Growth and Income Fund.
o After the reorganization is over, your fund will be
terminated.
o The reorganization will be tax-free and will not take place
unless both funds receive a satisfactory opinion concerning
the tax consequences of the reorganization from Hale and Dorr
LLP, counsel to the funds.
Other Consequences of the Reorganization. Each fund pays monthly advisory fees
equal to the following annual percentage of average daily net assets:
- ---------------------------------------------- ---------------- ----------------
Fund Asset
Breakpoints Growth and
Utilities Income
- ---------------------------------------------- ---------------- ----------------
First $250 million 0.70% 0.625%
- ---------------------------------------------- ---------------- ----------------
Over $250 million 0.65% 0.625%
- ---------------------------------------------- ---------------- ----------------
Thus, at all asset levels, the advisory fee rates paid by Growth and Income Fund
are lower than the rates paid by your fund. In addition, your fund's historical
growth pattern suggests that its asset size probably would not have increased
significantly in the near future to qualify for the 0.65% fee rate, which would
still be higher than the fee rate paid by Growth and Income Fund.
In addition to lower advisory fee rates, Growth and Income Fund's other expenses
of 0.245%, as well as its pro forma other expenses of 0.275%, are lower than
your fund's other expenses of 0.50%. Furthermore, Growth and Income Fund's 12b-1
fee rate of 0.25% for Class A shares is below your fund's Class A fee rate of
14
<PAGE>
0.30%. Both funds pay the same Class B 12b-1 fee rate of 1.00%. However, Growth
and Income Fund's current annual Class A and Class B expense ratios (equal to
1.12% and 1.87%, respectively, of average net assets) are higher than your
fund's current expense ratios (equal to 1.07% and 1.77%, respectively, of
average net assets).
The reason Growth and Income Fund's annual total expenses are higher than your
fund's (even though Growth and Income Fund's management fees, Class A 12b-1 fees
and other expenses are lower) is that the adviser has voluntarily agreed to
limit your fund's expenses. If the adviser had not limited your fund's expenses,
your fund's annual Class A and Class B expense ratios would have been equal to
1.50% and 2.20%, respectively, of average net assets and would have been
substantially higher than Growth and Income Fund's current expense ratios. In
light of your fund's inability to attract a significant amount of new assets,
the adviser does not plan to continue to subsidize a portion of your fund's
expenses indefinitely. When the adviser discontinues this voluntary limitation,
your fund's expense ratio will rise above Growth and Income Fund's current
expense ratio.
15
<PAGE>
The following diagram shows how the reorganization would be carried out.
Utilities Fund transfers Utilities Fund Growth and Income
assets & liabilities to assets and Fund receives assets &
Growth and Income liabilities assumes liabilities of
Fund Utilities Fund
Class A Class B Issues Class Issues Class
shareholders shareholders A Shares B Shares
Your fund receives Growth and Income Fund
Class B shares and
distributes them to your fund's Class B shareholders
Your fund receives Growth and Income Fund
Class A shares and
distributes them to your fund's Class A shareholders
[This diagram represents a graphical illustration of the reorganization]
16
<PAGE>
INVESTMENT RISKS
The funds are exposed to various risks that could cause shareholders to lose
money on their investments in the funds. The following table indicates that the
risk effecting each fund are similar.
- ------------------- ------------------------------ -----------------------------
Utilities Growth and Income
- ------------------- ------------------------------------------------------------
Stock As with any fund that invests primarily in stocks, the
market risk value of each fund's portfolio will change in response to
stock market movements.
- ------------------- ------------------------------------------------------------
Credit risk The debt securities held by each fund are subject to
the risk that the issuer of a security will default or
otherwise fail to meet its obligations.
- ------------------- ------------------------------------------------------------
Interest A rise in interest rates typically causes the value of debt
rate risk securities to fall. A fall in interest rates typically
causes the value of debt securities to rise.
- ------------------- ------------------------------------------------------------
Foreign Each fund's investments in foreign securities are subject
securities and to the risks of adverse foreign government actions,
currency risks political instability or a lack of adequate and accurate
information. Also, currency exchange rate movements could
reduce gains or create losses.
- ------------------- ------------------------------------------------------------
Risks of The funds' investments in restricted and illiquid
restricted and securities may be difficult or impossible to sell at a
illiquid desirable time or a fair price. Restricted and illiquid
securities securities also present a greater risk of inaccurate
valuation.
- ------------------- ------------------------------------------------------------
17
<PAGE>
- ------------------- ------------------------------ -----------------------------
Utilities Growth and Income
- ------------------- ------------------------------ -----------------------------
Risks of Most derivative instruments involve leverage, which
derivative increases market risks. Leverage magnifies gains and
instruments, losses on derivatives relative to changes in the value of
including underlying assets. If a derivative is used for hedging
financial purposes, changes in the value of the derivative may not
futures, match those of the hedged asset. Over the counter
options on derivatives may be illiquid or hard to value accurately.
futures, In addition, the other party may default on its
securities and obligations. If markets for underlying assets do not move
index options, in the right direction, a fund's performance may be worse
currency than if it had not used derivatives. Since both funds may
contracts and enter into currency contracts, they are exposed to the risk
short sales that fluctuations in exchange rates may adversely affect
the value of contracts held by the funds.
------------------------------ -----------------------------
Since your fund may, but Since Growth and Income Fund
typically does not, enter may not enter into short
into short sales, it could sales, it is not exposed to
be exposed to the risks of the risks of those
those transactions. transactions.
- ------------------- ------------------------------ -----------------------------
PROPOSAL TO APPROVE THE AGREEMENT
AND PLAN OF REORGANIZATION
Description of Reorganization
You are being asked to approve an Agreement and Plan of Reorganization, a copy
of which is attached as Exhibit A. The Agreement provides for a reorganization
on the following terms:
o The reorganization is scheduled to occur at 5:00 p.m., Eastern
time, on December 5, 1997, but may occur on any later date
before June 1, 1998. Your fund will transfer all of its assets
to Growth and Income Fund and Growth and Income Fund will
assume all of your fund's liabilities. This will result in the
addition of your fund's assets to Growth and Income Fund's
portfolio. The net asset value of both funds will be computed
as of 5:00 p.m., Eastern time, on the reorganization date.
18
<PAGE>
o Growth and Income Fund will issue to your fund Class A shares
in an amount equal to the aggregate net asset value of your
fund's Class A shares. As part of the liquidation of your
fund, these shares will immediately be distributed to Class A
shareholders of record of your fund in proportion to their
holdings on the reorganization date. As a result, Class A
shareholders of your fund will end up as Class A shareholders
of Growth and Income Fund.
o Growth and Income Fund will issue to your fund Class B shares
in an amount equal to the aggregate net asset value of your
fund's Class B shares. As part of the liquidation of your
fund, these shares will immediately be distributed to Class B
shareholders of record of your fund in proportion to their
holdings on the reorganization date. As a result, Class B
shareholders of your fund will end up as Class B shareholders
of Growth and Income Fund.
o After the reorganization is over, the existence of your fund
will be terminated.
Reasons for the Proposed Reorganization
The board of trustees of your fund believes that the proposed reorganization
will be advantageous to the shareholders of your fund for several reasons. The
board of trustees considered the following matters, among others, in approving
the proposal.
First, that shareholders may be better served by a fund offering greater
diversification. Your fund has a policy of concentrating its investments in
public utilities industries. Over the last year, efforts to deregulate the
public utilities industries have intensified. These efforts have introduced a
degree of uncertainty to companies in those industries which have traditionally
been quite stable as a result of their protected monopoly status. Because of
your fund's concentration policy and small asset size, the trustees believe that
your fund may experience increased volatility as the fundamental structure of
those industries changes to accommodate competition.
Growth and Income Fund has a significantly larger asset size than your fund and
invests in a much broader range of industries. Combining the funds' assets into
a single investment portfolio will allow your fund's shareholders to diversify
their investments to a greater degree than is currently possible through your
fund alone. Greater diversification is expected to benefit the shareholders of
your fund because it may reduce the negative effect that the adverse performance
19
<PAGE>
of any one security or specific industry may have on the performance of the
entire portfolio.
Second, that Growth and Income Fund has performed significantly better than your
fund since its inception. While past performance cannot predict future results,
the trustees believe that Growth and Income Fund is better positioned than your
fund to continue to generate strong returns because of its superior
diversification and greater flexibility to choose from among a broader range of
investment opportunities. Relative to Growth and Income Fund, your fund may be
hampered by its focus on companies in public utilities industries, where
performance has trailed that of the stock market generally.
Third, that if, as expected, the voluntary limitation on your fund's expenses is
discontinued, Growth and Income Fund's pro forma total expenses would be lower
than your fund's total expenses. Shareholders of your fund would then pay
indirectly less in fees each month as shareholders of Growth and Income Fund
than they would if the reorganization did not occur and the voluntary expense
limitation on your fund's expenses were discontinued.
Fourth, that a combined fund offers economies of scale that are expected to lead
to better control over expenses than is possible for your fund. Both funds incur
substantial costs for accounting, legal, transfer agency services, insurance,
and custodial and administrative services.
Fifth, that Growth and Income Fund is more widely recognized in the broker
community as a John Hancock stock fund for investors seeking a combination of
capital appreciation and current income. By offering both funds simultaneously,
it has been increasingly difficult to attract assets to your fund.
Sixth, that the Growth and Income Fund shares received in the reorganization
will provide your fund's shareholders with substantially the same investment at
a comparable level of risk. The board of trustees also considered the
performance history of each fund.
The board of trustees of Growth and Income Fund considered that the
reorganization presents an excellent opportunity for Growth and Income Fund to
acquire investment assets without the obligation to pay commissions or other
transaction costs that are normally associated with the purchase of securities.
The trustees believe that Growth and Income Fund shareholders will also benefit
from improved diversification as a result of the reorganization. While
investments in securities of public utilities companies may become increasingly
volatile as deregulation occurs, the trustees believe that the increased
volatility will not affect Growth and Income Fund's portfolio in the same way as
20
<PAGE>
it would your fund's portfolio. Because Growth and Income Fund is a
significantly larger fund than your fund and because it does not concentrate its
investments in any one industry, the trustees feel that the addition of your
fund's assets will improve the diversification of Growth and Income Fund's
overall portfolio. This opportunity provides an economic benefit to Growth and
Income Fund and its shareholders.
The boards of trustees of both funds also considered that the adviser and the
funds' distributor will also benefit from the reorganization. For example, the
adviser might realize time savings from a consolidated portfolio management
effort and from the need to prepare fewer reports and regulatory filings as well
as prospectus disclosure for one fund instead of two. The trustees believe,
however, that these savings will not amount to a significant economic benefit.
Comparative Fees and Expense Ratios. As discussed above in the Summary, Growth
and Income Fund pays a lower advisory fee rate at all asset levels than does
your fund. In addition, your fund's historical growth pattern suggests that its
asset size probably would not have increased significantly in the near future to
qualify for the 0.65% fee rate, which would still be higher than the fee rate
paid by Growth and Income Fund.
In addition to lower advisory fee rates, Growth and Income Fund's other expenses
of 0.245%, as well as its pro forma other expenses of 0.275%, are lower than
your fund's other expenses of 0.50%. Furthermore, Growth and Income Fund's 12b-1
fee rate of 0.25% for Class A shares is below your fund's Class A fee rate of
0.30%. Both funds pay the same Class B 12b-1 fee rate of 1.00% of assets.
However, Growth and Income Fund's current annual Class A and Class B expense
ratios (equal to 1.12% and 1.87%, respectively, of average net assets) are
higher than your fund's current expense ratios (equal to 1.07% and 1.77%,
respectively, of average net assets).
The reason Growth and Income Fund's annual total expenses are higher than your
fund's (even though Growth and Income Fund's management fees, Class A 12b-1 fees
and other expenses are lower) is that the adviser has voluntarily agreed to
limit your fund's expenses. If the adviser had not limited your fund's expenses,
your fund's annual Class A and Class B expense ratios would have been equal to
1.50% and 2.20%, respectively, of average net assets and would have been
substantially higher than Growth and Income Fund's current expense ratios. The
adviser had decided to voluntarily limit your fund's expenses in combination
with a concerted marketing effort by your fund's distributor, John Hancock
Funds, Inc., in order to promote asset growth in your fund.
21
<PAGE>
In spite of these efforts, your fund has not been able to significantly increase
its asset size. The trustees do not believe, given your fund's current size and
historical growth rate, that your fund will grow to an asset size that would
allow your fund to realize the benefits of economies of scale, including better
control over expenses. The trustees also do not believe that your fund will
reach an asset size which will allow your fund to significantly improve the
diversification of its investment portfolio. In light of your fund's inability
to attract a significant amount of new assets, the adviser does not plan to
continue to subsidize a portion of your fund's expenses indefinitely. When the
adviser discontinues this voluntary limitation, your fund's expense ratio will
rise above Growth and Income Fund's current expense ratio.
Comparative Performance. The trustees also took into consideration the relative
performance of your fund and Growth and Income Fund. As shown in the table
below, Growth and Income Fund has had substantially better performance than your
fund over all periods.
- -------------------------------- ------------------------ ----------------------
Average Annual
Total Return Utilities Growth and Income
(without including sales
charges)
----------- ---------- ------------ -----------
Class A Class B Class A Class B
- -------------------------------- ----------- ---------- ------------ -----------
1 year ended 6/30/97 13.43% 12.56% 36.29% 35.26%
- -------------------------------- ----------- ---------- ------------ -----------
3 years ended 6/30/97 13.71% 12.91% 27.12% 26.21%
- -------------------------------- ----------- ---------- ------------ -----------
5 years ended 6/30/97 10.08%(a) 9.32%(a) 17.25% 16.35%
- -------------------------------- ----------- ---------- ------------ -----------
10 years ended 6/30/97 N/A N/A 13.22% 15.42%(b)
- -------------------------------- ----------- ---------- ------------ -----------
(a) Since commencement of operations on February 1, 1994.
(b) Since commencement of operations on August 22, 1991.
Your fund's performance has lagged behind the performance of Growth and Income
Fund for all of the periods shown above. In addition, the gap between your
fund's performance and Growth and Income Fund's performance has widened over the
last three years. For the three year period, the difference between Growth and
Income Fund's total return and your fund's total return is 13.41% for Class A
shares. For the one year period, that difference has risen to 22.86% for Class A
shares. Your fund's specific objective of investing primarily in public
utilities companies does not give your fund the same degree of flexibility that
Growth and Income Fund has to pursue investment opportunities across a range of
different industries. As a result, the trustees believe that Growth and Income
Fund is better positioned than your fund to continue to generate strong returns
for its shareholders in the future.
22
<PAGE>
Unreimbursed Distribution and Shareholder Service Expenses
The boards of trustees of your fund and Growth and Income Fund have determined
that, if the reorganization occurs, unreimbursed distribution and shareholder
service expenses incurred under your fund's Rule 12b-1 Plans will be
reimbursable expenses under Growth and Income Fund's Rule 12b-1 Plans. However,
the maximum amounts payable annually under Growth and Income Fund's Rule 12b-1
Plans (0.25% and 1.00% of average daily net assets attributable to Class A
shares and Class B shares, respectively) will not increase.
The following table shows the actual and pro forma unreimbursed distribution and
shareholder service expenses of both classes of your fund and Growth and Income
Fund. The table shows both the dollar amount of these expenses and the
percentage of each class' average net assets that they represent.
- -------------------------------- ------------------------ ----------------------
Unreimbursed Distribution and Growth and Income
Shareholder Service Expenses Utilities
----------- ------------ ---------- -----------
Class A Class B Class A Class B
- -------------------------------- ----------- ------------ ---------- -----------
Actual expenses as of June 30, $36,850 $2,378,334 $234,827 $3,589,232
1997 0.16% 5.34% 0.11% 1.70%
- -------------------------------- ----------- ------------ ---------- -----------
Pro forma combined expenses as $271,677 $5,967,566
of June 30, 1997 0.11% 2.33%
- -------------------------------- ------------------------ ---------- -----------
Thus, if the reorganization had taken place on June 30, 1997, the pro forma
combined unreimbursed expenses of Growth and Income Fund's Class A and Class B
shares would have been higher than if no reorganization had occurred.
Nevertheless, Growth and Income Fund's assumption of your fund's unreimbursed
Rule 12b-1 expenses will have no immediate effect upon the payments made under
Growth and Income Fund's Rule 12b-1 Plans. There payments will continue to be
0.25% and 1.00% of average daily net assets attributable to Class A and Class B
shares, respectively.
John Hancock Funds, Inc. hopes to recover unreimbursed distribution and
shareholder service expenses for Class B shares over an extended period of time.
However, if Growth and Income Fund's board terminates either class' Rule 12b-1
Plan, that class will not be obligated to reimburse these distribution and
shareholder service expenses. Accordingly, until they are paid or accrued,
unreimbursed distribution and shareholder service expenses do not and will not
appear as an expense or liability in the financial statements of either fund. In
23
<PAGE>
addition, unreimbursed expenses are not reflected in a fund's net asset value or
the formula for calculating Rule 12b-1 payments. The staff of the SEC has not
approved or disapproved the treatment of the unreimbursed distribution and
shareholder service expenses described in this proxy statement.
Tax Status of the Reorganization
The reorganization will be tax-free for federal income tax purposes and will not
take place unless both funds receive a satisfactory opinion from Hale and Dorr
LLP, counsel to the funds, substantially to the effect that:
o The reorganization described above will be a "reorganization"
within the meaning of Section 368(a)(1)(C) of the Internal
Revenue Code of 1986 (the "Code"), and each fund will be "a
party to a reorganization" within the meaning of Section 368
of the Code;
o No gain or loss will be recognized by your fund upon (1) the
transfer of all of its assets to Growth and Income Fund as
described above or (2) the distribution by your fund of Growth
and Income Fund shares to your fund's shareholders;
o No gain or loss will be recognized by Growth and Income Fund
upon the receipt of your fund's assets solely in exchange for
the issuance of Growth and Income Fund shares and the
assumption of all of your fund's liabilities by Growth and
Income Fund;
o The basis of the assets of your fund acquired by Growth and
Income Fund will be the same as the basis of those assets in
the hands of your fund immediately before the transfer;
o The tax holding period of the assets of your fund in the hands
of Growth and Income Fund will include your fund's tax holding
period for those assets;
o The shareholders of your fund will not recognize gain or loss
upon the exchange of all their shares of your fund solely for
Growth and Income Fund shares as part of the reorganization;
o The basis of Growth and Income Fund shares received by your
fund's shareholders in the reorganization will be the same as
the basis of the shares of your fund surrendered in exchange;
and
24
<PAGE>
o The tax holding period of the Growth and Income Fund shares
received by you will include the tax holding period of the
shares of your fund surrendered in the exchange, provided that
shares of your fund were held as capital assets on the
reorganization date.
Additional Terms of Agreement and Plan of Reorganization
Surrender of Share Certificates. If your shares are represented by one or more
share certificates before the reorganization date, either surrender the
certificates to your fund or deliver to your fund a lost certificate affidavit,
in the form and accompanied by the surety bonds that your fund may require
(collectively, an "Affidavit"). On the reorganization date, all certificates
that have not been surrendered will be canceled, will no longer evidence
ownership of your fund's shares and will evidence ownership of Growth and Income
Fund shares. Shareholders may not redeem or transfer Growth and Income Fund
shares received in the reorganization until they have surrendered their fund
share certificates or delivered an Affidavit. Growth and Income Fund will not
issue share certificates in the reorganization.
Conditions to Closing the Reorganization. The obligation of your fund to
consummate the reorganization is subject to the satisfaction of certain
conditions, including the performance by Growth and Income Fund of all its
obligations under the Agreement and the receipt of all consents, orders and
permits necessary to consummate the reorganization (see Agreement, paragraph 6).
The obligation of Growth and Income Fund to consummate the reorganization is
subject to the satisfaction of certain conditions, including your fund's
performance of all of its obligations under the Agreement, the receipt of
certain documents and financial statements from your fund and the receipt of all
consents, orders and permits necessary to consummate the reorganization (see
Agreement, paragraph 7).
The obligations of both funds are subject to the approval of the Agreement by
the necessary vote of the outstanding shares of your fund, in accordance with
the provisions of your fund's declaration of trust and by-laws. The funds'
obligations are also subject to the receipt of a favorable opinion of Hale and
Dorr LLP as to the federal income tax consequences of the reorganization. (see
Agreement, paragraph 8).
Termination of Agreement. The board of trustees of either your fund or Growth
25
<PAGE>
and Income Fund may terminate the Agreement (even if the shareholders of your
fund have already approved it) at any time before the reorganization date, if
that board believes that proceeding with the reorganization would no longer be
advisable.
Expenses of the Reorganization. Growth and Income Fund and your fund will each
be responsible for its own expenses incurred in connection with entering into
and carrying out the provisions of the Agreement, whether or not the
reorganization occurs. These expenses are estimated to be approximately $103,895
in total.
CAPITALIZATION
The following table sets forth the capitalization of each fund as of
June 30, 1997, and the pro forma combined capitalization of both funds as if the
reorganization had occurred on such date. The table reflects pro forma exchange
ratios of approximately 0.487767 Class A Growth and Income Fund shares being
issued for each Class A share of your fund and approximately 0.484809 Class B
Growth and Income Fund shares being issued for each Class B share of your fund.
If the reorganization is consummated, the actual exchange ratios on the
reorganization date may vary from the exchange ratios indicated due to changes
in the market value of the portfolio securities of both Growth and Income Fund
and your fund between June 30, 1997 and the reorganization date, changes in the
amount of undistributed net investment income and net realized capital gains of
Growth and Income Fund and your fund during that period resulting from income
and distributions, and changes in the accrued liabilities of Growth and Income
Fund and your fund during the same period.
JUNE 30, 1997
Growth and
Utilities Income Pro Forma(1)
Net Assets $66,972,839 $427,200,271 $494,158,464
Net Asset Value Per Share
Class A $ 9.32 $ 19.10 $ 19.10
Class B $ 9.29 $ 19.16 $ 19.16
Shares Outstanding
Class A 2,411,722 11,293,531 12,469,712
Class B 4,790,787 11,037,162 13,359,351
(1) The deferred organization expense of John Hancock Utilities Fund was
written off as the Fund would no longer be in existence. As a result,
the net assets of the surviving fund after the reorganization will be
26
<PAGE>
less than the combined net assets of the surviving fund and the
acquired fund prior to the reorganization.
It is impossible to predict how many Class A shares and Class B shares of Growth
and Income Fund will actually be received and distributed by your fund on the
reorganization date. The table should not be relied upon to determine the amount
of Growth and Income Fund shares that will actually be received and distributed.
ADDITIONAL INFORMATION ABOUT THE FUNDS' BUSINESSES
The following table shows where in the funds' combined prospectus you can find
additional information about the business of each fund.
- ---------------------------- ---------------------------------------------------
Type of Information Headings in Combined Prospectus
-------------------------- ------------------------
Utilities Growth and Income
- ---------------------------- ---------------------------------------------------
Organization Fund Details: Business Structure: How the Funds
and operation are Organized
- ---------------------------- ---------------------------------------------------
Investment objective and Goal and Strategy, Portfolio Securities, Risk
policies Factors; Fund Details: Business Structure:
Portfolio Trades, Investment Goals,
Diversification; More About Risk
- ---------------------------- -------------------------- ------------------------
Portfolio Portfolio Management
management
- ---------------------------- -------------------------- ------------------------
Expenses Investor Expenses
- ---------------------------- ---------------------------------------------------
Custodian and Fund Details: Business Structure: How the Funds
transfer agent are Organized
- ---------------------------- ---------------------------------------------------
Shares of beneficial Your Account: Choosing a Share Class
interest
- ---------------------------- ---------------------------------------------------
Redemption Your Account: Selling Shares, How Sales Charges
or sale of shares are Calculated; Transaction Policies; Additional
Investor Services; Systematic Withdrawal Plan
- ---------------------------- ---------------------------------------------------
Dividends, distributions Dividends and Account Policies
and taxes
- ---------------------------- ---------------------------------------------------
BOARDS' EVALUATION AND RECOMMENDATION
For the reasons described above, the board of trustees of your fund, including
the trustees who are not "interested persons" of either fund or the adviser
("independent trustees"), approved the reorganization. In particular, the
trustees determined that the reorganization was in the best interests of your
fund and that the interests of your fund's shareholders would not be diluted as
27
<PAGE>
a result of the reorganization. Similarly, the board of trustees of Growth and
Income Fund, including the independent trustees, approved the reorganization.
They also determined that the reorganization was in the best interests of Growth
and Income Fund and that the interests of Growth and Income Fund's shareholders
would not be diluted as a result of the reorganization.
- --------------------------------------------------------------------------------
The trustees of your fund recommend that the
shareholders of your fund vote for the proposal to
approve the agreement and plan of reorganization.
- --------------------------------------------------------------------------------
VOTING RIGHTS AND REQUIRED VOTE
Each share of your fund is entitled to one vote. Approval of the above proposal
requires the affirmative vote of a majority of the shares of your fund
outstanding and entitled to vote. For this purpose, a majority of the
outstanding shares of your fund means the vote of the lesser of
(1) 67% or more of the shares present at the meeting, if the holders of more
than 50% of the shares of the fund are present or represented by proxy, or
(2) more than 50% of the outstanding shares of the fund.
Shares of your fund represented in person or by proxy, including shares which
abstain or do not vote with respect to the proposal, will be counted for
purposes of determining whether there is a quorum at the meeting. Accordingly,
an abstention from voting has the same effect as a vote against the proposal.
However, if a broker or nominee holding shares in "street name" indicates on the
proxy card that it does not have discretionary authority to vote on the
proposal, those shares will not be considered present and entitled to vote on
the proposal. Thus, a "broker non-vote" has no effect on the voting in
determining whether the proposal has been adopted in accordance with clause (1)
above, if more than 50% of the outstanding shares (excluding the "broker
non-votes") are present or represented. However, for purposes of determining
whether the proposal has been adopted in accordance with clause (2) above, a
"broker non-vote" has the same effect as a vote against the proposal because
shares represented by a "broker non-vote" are considered to be outstanding
shares.
If the required approval of shareholders is not obtained, your fund will
continue to engage in business as a separate mutual fund and the board of
trustees will consider what further action may be appropriate.
28
<PAGE>
INFORMATION CONCERNING THE MEETING
Solicitation of Proxies
In addition to the mailing of these proxy materials, proxies may be solicited by
telephone, by fax or in person by the trustees, officers and employees of your
fund; by personnel of your fund's investment adviser, John Hancock Advisers,
Inc. and its transfer agent, John Hancock Signature Services, Inc.; or by
broker-dealer firms. Signature Services, together with a third party
solicitation firm, has agreed to provide proxy solicitation services to your
fund at a cost of approximately $3,000.
Revoking Proxies
A Utilities Fund shareholder signing and returning a proxy has the power to
revoke it at any time before it is exercised:
o By filing a written notice of revocation with your fund's
transfer agent, John Hancock Signature Services, Inc., 1 John
Hancock Way, Suite 1000, Boston, Massachusetts 02217- 1000, or
o By returning a duly executed proxy with a later date before
the time of the meeting, or
o If a shareholder has executed a proxy but is present at the
meeting and wishes to vote in person, by notifying the
secretary of your fund (without complying with any
formalities) at any time before it is voted.
Being present at the meeting alone does not revoke a previously executed and
returned proxy.
Outstanding Shares and Quorum
As of September 17, 1997, _______ and _______ Class A and Class B shares of
beneficial interest of your fund were outstanding. Only shareholders of record
on September 17, 1997 (the "record date") are entitled to notice of and to vote
at the meeting. A majority of the outstanding shares of your fund that are
entitled to vote will be considered a quorum for the transaction of business.
29
<PAGE>
Other Business
Your fund's board of trustees knows of no business to be presented for
consideration at the meeting other than the proposal. If other business is
properly brought before the meeting, proxies will be voted according to the best
judgment of the persons named as proxies.
Adjournments
If a quorum is not present in person or by proxy at the time any session of the
meeting is called to order, the persons named as proxies may vote those proxies
that have been received to adjourn the meeting to a later date. If a quorum is
present but there are not sufficient votes in favor of the proposal, the persons
named as proxies may propose one or more adjournments of the meeting to permit
further solicitation of proxies concerning the proposal. Any adjournment will
require the affirmative vote of a majority of your fund's shares at the session
of the meeting to be adjourned. If an adjournment of the meeting is proposed
because there are not sufficient votes in favor of the proposal, the persons
named as proxies will vote those proxies favoring the proposal in favor of
adjournment, and will vote those proxies against the reorganization against
adjournment.
Telephone Voting
In addition to soliciting proxies by mail, by fax or in person, your fund may
also arrange to have votes recorded by telephone by officers and employees of
your fund or by personnel of the adviser or transfer agent. The telephone voting
procedure is designed to verify a shareholder's identity, to allow a shareholder
to authorize the voting of shares in accordance with the shareholder's
instructions and to confirm that the voting instructions have been properly
recorded. If these procedures were subject to a successful legal challenge,
these telephone votes would not be counted at the meeting. Your fund has not
obtained an opinion of counsel about telephone voting, but is currently not
aware of any challenge.
o A shareholder will be called on a recorded line at the
telephone number in the fund's account records and will be
asked to provide the shareholder's social security number or
other identifying information.
o The shareholder will then be given an opportunity to authorize
proxies to vote his or her shares at the meeting in accordance
with the shareholder's instructions.
o To ensure that the shareholder's instructions have been
recorded correctly, the shareholder will also receive a
30
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confirmation of the voting instructions by mail.
o A toll-free number will be available in case the voting
information contained in the confirmation is incorrect.
o If the shareholder decides after voting by telephone to attend
the meeting, the shareholder can revoke the proxy at that time
and vote the shares at the meeting.
OWNERSHIP OF SHARES OF THE FUNDS
To the knowledge of the fund, as of August 31, 1997, the following persons owned
of record or beneficially 5% or more of the outstanding Class A and Class B
shares of your fund and Growth and Income Fund:
- -------------------------------- ---------------------- ------------------------
Names and Addresses of Owners Pro forma ownership of
of More Than 5% of Shares Growth and Income Fund
as of August 31, 1997
Utilities
---------- ----------- ------------ -----------
Class A Class B Class A Class B
- -------------------------------- ---------- ----------- ------------ -----------
- -------------------------------- ---------- ----------- ------------ -----------
- -------------------------------- ---------- ----------- ------------ -----------
Growth and Income Pro forma ownership of
Fund Growth and Income Fund
as of August 31, 1997
- -------------------------------- ---------- ----------- ------------ -----------
- -------------------------------- ---------- ----------- ------------ -----------
- -------------------------------- ---------- ----------- ------------ -----------
As of August 31, 1997, the trustees and officers of your fund and Growth and
Income Fund, each as a group, owned in the aggregate less than 1% of the
outstanding shares of their respective funds.
31
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EXPERTS
The financial statements and the financial highlights of Utilities Fund and
Growth and Income Fund, each as of December 31, 1996 and for the periods then
ended are incorporated by reference into this proxy statement and prospectus.
These financial statements and financial highlights have been independently
audited by Price Waterhouse LLP and Ernst & Young LLP, respectively, as stated
in their reports appearing in the statement of additional information. These
financial statements and financial highlights have been included in reliance on
their reports given on their authority as experts in accounting and auditing.
AVAILABLE INFORMATION
Each fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 and files reports,
proxy statements and other information with the SEC. These reports, proxy
statements and other information filed by the funds can be inspected and copied
(at prescribed rates) at the public reference facilities of the SEC at 450 Fifth
Street, N.W., Washington, D.C., and at the following regional offices: Chicago
(500 West Madison Street, Suite 1400, Chicago, Illinois); and New York (7 World
Trade Center, Suite 1300, New York, New York). Copies of such material can also
be obtained by mail from the Public Reference Section of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, copies
of these documents may be viewed on-screen or downloaded from the SEC's Internet
site at http://www.sec.gov.
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made this 22nd
day of September, 1997, by and between John Hancock Growth and Income Fund (the
"Acquiring Fund"), a series of John Hancock Investment Trust, a Massachusetts
business trust (the "Trust II"), and John Hancock Utilities Fund (the "Acquired
Fund"), a series of John Hancock Capital Series, a Massachusetts business trust
(the "Trust") each with their principal place of business at 101 Huntington
Avenue, Boston, Massachusetts 02199. The Acquiring Fund and the Acquired Fund
are sometimes referred to collectively herein as the "Funds" and individually as
a "Fund."
This Agreement is intended to be and is adopted as a plan of "reorganization,"
as such term is used in Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). The reorganization will consist of the transfer of all of
the assets of the Acquired Fund to the Acquiring Fund in exchange solely for the
issuance of Class A and Class B shares of beneficial interest of the Acquiring
Fund (the "Acquiring Fund Shares") to the Acquired Fund and the assumption by
the Acquiring Fund of all of the liabilities of the Acquired Fund, followed by
the distribution by the Acquired Fund, on or promptly after the Closing Date
hereinafter referred to, of the Acquiring Fund Shares to the shareholders of the
Acquired Fund in liquidation and termination of the Acquired Fund as provided
herein, all upon the terms and conditions set forth in this Agreement.
In consideration of the premises of the covenants and agreements hereinafter set
forth, the parties hereto covenant and agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR ASSUMPTION OF
LIABILITIES AND ISSUANCE OF ACQUIRING FUND SHARES; LIQUIDATION OF THE
ACQUIRED FUND
1.1 The Acquired Fund will transfer all of its assets (consisting, without
limitation, of portfolio securities and instruments, dividends and
interest receivables, cash and other assets), as set forth in the
statement of assets and liabilities referred to in Paragraph 7.2 hereof
(the "Statement of Assets and Liabilities"), to the Acquiring Fund free
and clear of all liens and encumbrances, except as otherwise provided
herein, in exchange for (i) the assumption by the Acquiring Fund of the
known and unknown liabilities of the Acquired Fund, including the
liabilities set forth in the Statement of Assets and Liabilities (the
"Acquired Fund Liabilities"), which shall be assigned and transferred
to the Acquiring Fund by the Acquired Fund and assumed by the Acquiring
Fund, and (ii) delivery by the Acquiring Fund to the Acquired Fund, for
distribution pro rata by the Acquired Fund to its shareholders in
proportion to their respective ownership of Class A and/or Class B
shares of beneficial interest of the Acquired Fund, as of the close of
business on December 5, 1997 (the "Closing Date"), of a number of the
Acquiring Fund Shares having an aggregate net asset value equal, in the
case of each class of Acquiring Fund Shares, to the value of the
<PAGE>
assets, less such liabilities (herein referred to as the "net value of
the assets") attributable to the applicable class, assumed, assigned
and delivered, all determined as provided in Paragraph 2.1 hereof and
as of a date and time as specified therein. Such transactions shall
take place at the closing provided for in Paragraph 3.1 hereof (the
"Closing"). All computations shall be provided by Investors Bank &
Trust Company (the "Custodian"), as custodian and pricing agent for the
Acquiring Fund and the Acquired Fund.
1.2 The Acquired Fund has provided the Acquiring Fund with a list of the
current securities holdings of the Acquired Fund as of the date of
execution of this Agreement. The Acquired Fund reserves the right to
sell any of these securities (except to the extent sales may be limited
by representations made in connection with issuance of the tax opinion
provided for in paragraph 8.6 hereof) but will not, without the prior
approval of the Acquiring Fund, acquire any additional securities other
than securities of the type in which the Acquiring Fund is permitted to
invest.
1.3 The Acquiring Fund and the Acquired Fund shall each bear its own
expenses in connection with the transactions contemplated by this
Agreement.
1.4 On or as soon after the Closing Date as is conveniently practicable
(the "Liquidation Date"), the Acquired Fund will liquidate and
distribute pro rata to shareholders of record (the "Acquired Fund
shareholders"), determined as of the close of regular trading on the
New York Stock Exchange on the Closing Date, the Acquiring Fund Shares
received by the Acquired Fund pursuant to Paragraph 1.1 hereof. Such
liquidation and distribution will be accomplished by the transfer of
the Acquiring Fund Shares then credited to the account of the Acquired
Fund on the books of the Acquiring Fund, to open accounts on the share
records of the Acquiring Fund in the names of the Acquired Fund
shareholders and representing the respective pro rata number and class
of Acquiring Fund Shares due such shareholders. Acquired Fund
shareholders who own Class A shares of the Acquired Fund will receive
Class A Acquiring Fund Shares and Acquired Fund shareholders who own
Class B shares of the Acquired Fund will receive Class B Acquiring Fund
Shares. The Acquiring Fund shall not issue certificates representing
Acquiring Fund Shares in connection with such exchange.
1.5 The Acquired Fund shareholders holding certificates representing their
ownership of shares of beneficial interest of the Acquired Fund shall
surrender such certificates or deliver an affidavit with respect to
lost certificates in such form and accompanied by such surety bonds as
the Acquired Fund may require (collectively, an "Affidavit"), to John
Hancock Signature Services, Inc. prior to the Closing Date. Any
Acquired Fund share certificate which remains outstanding on the
Closing Date shall be deemed to be canceled, shall no longer evidence
ownership of shares of beneficial interest of the Acquired Fund and
shall evidence ownership of Acquiring Fund Shares. Unless and until any
such certificate shall be so surrendered or an Affidavit relating
thereto shall be delivered, dividends and other distributions payable
by the Acquiring Fund subsequent to the Liquidation Date with respect
to Acquiring Fund Shares shall be paid to the holder of such
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<PAGE>
certificate(s), but such shareholders may not redeem or transfer
Acquiring Fund Shares received in the Reorganization. The Acquiring
Fund will not issue share certificates in the Reorganization.
1.6 Any transfer taxes payable upon issuance of Acquiring Fund Shares in a
name other than the registered holder of the Acquired Fund Shares on
the books of the Acquired Fund as of that time shall, as a condition of
such issuance and transfer, be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.
1.7 The existence of the Acquired Fund shall be terminated as promptly as
practicable following the Liquidation Date.
1.8 Any reporting responsibility of the Trust, including, but not limited
to, the responsibility for filing of regulatory reports, tax returns,
or other documents with the Securities and Exchange Commission (the
"Commission"), any state securities commissions, and any federal, state
or local tax authorities or any other relevant regulatory authority, is
and shall remain the responsibility of the Trust.
2. VALUATION
2.1 The net asset values of the Class A and Class B Acquiring Fund Shares
and the net values of the assets and liabilities of the Acquired Fund
attributable to its Class A and Class B shares to be transferred shall,
in each case, be determined as of the close of business (4:00 p.m.
Boston time) on the Closing Date. The net asset values of the Class A
and Class B Acquiring Fund Shares shall be computed by the Custodian in
the manner set forth in the Acquiring Fund's Declaration of Trust as
amended and restated (the "Declaration"), or By-Laws and the Acquiring
Fund's then-current prospectus and statement of additional information
and shall be computed in each case to not fewer than four decimal
places. The net values of the assets of the Acquired Fund attributable
to its Class A and Class B shares to be transferred shall be computed
by the Custodian by calculating the value of the assets of each class
transferred by the Acquired Fund and by subtracting therefrom the
amount of the liabilities of each class assigned and transferred to and
assumed by the Acquiring Fund on the Closing Date, said assets and
liabilities to be valued in the manner set forth in the Acquired Fund's
then current prospectus and statement of additional information and
shall be computed in each case to not fewer than four decimal places.
2.2 The number of shares of each class of Acquiring Fund Shares to be
issued (including fractional shares, if any) in exchange for the
Acquired Fund's assets shall be determined by dividing the value of the
Acquired Fund's assets attributable to a class, less the liabilities
attributable to that class assumed by the Acquiring Fund, by the
Acquiring Fund's net asset value per share of the same class, all as
determined in accordance with Paragraph 2.1 hereof.
2.3 All computations of value shall be made by the Custodian in accordance
with its regular practice as pricing agent for the Funds.
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<PAGE>
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be December 5, 1997 or such other date on or
before June 30, 1998 as the parties may agree. The Closing shall be
held as of 5:00 p.m. at the offices of the Trust II and the Trust, 101
Huntington Avenue, Boston, Massachusetts 02199, or at such other time
and/or place as the parties may agree.
3.2 Portfolio securities that are not held in book-entry form in the name
of the Custodian as record holder for the Acquired Fund shall be
presented by the Acquired Fund to the Custodian for examination no
later than three business days preceding the Closing Date. Portfolio
securities which are not held in book-entry form shall be delivered by
the Acquired Fund to the Custodian for the account of the Acquiring
Fund on the Closing Date, duly endorsed in proper form for transfer, in
such condition as to constitute good delivery thereof in accordance
with the custom of brokers, and shall be accompanied by all necessary
federal and state stock transfer stamps or a check for the appropriate
purchase price thereof. Portfolio securities held of record by the
Custodian in book-entry form on behalf of the Acquired Fund shall be
delivered to the Acquiring Fund by the Custodian by recording the
transfer of beneficial ownership thereof on its records. The cash
delivered shall be in the form of currency or by the Custodian
crediting the Acquiring Fund's account maintained with the Custodian
with immediately available funds.
3.3 In the event that on the Closing Date (a) the New York Stock Exchange
shall be closed to trading or trading thereon shall be restricted or
(b) trading or the reporting of trading on said Exchange or elsewhere
shall be disrupted so that accurate appraisal of the value of the net
assets of the Acquiring Fund or the Acquired Fund is impracticable, the
Closing Date shall be postponed until the first business day after the
day when trading shall have been fully resumed and reporting shall have
been restored; provided that if trading shall not be fully resumed and
reporting restored on or before June 30, 1998, this Agreement may be
terminated by the Acquiring Fund or by the Acquired Fund upon the
giving of written notice to the other party.
3.4 The Acquired Fund shall deliver at the Closing a list of the names,
addresses, federal taxpayer identification numbers and backup
withholding and nonresident alien withholding status of the Acquired
Fund shareholders and the number of outstanding shares of each class of
beneficial interest of the Acquired Fund owned by each such
shareholder, all as of the close of business on the Closing Date,
certified by its Treasurer, Secretary or other authorized officer (the
"Shareholder List"). The Acquiring Fund shall issue and deliver to the
Acquired Fund a confirmation evidencing the Acquiring Fund Shares to be
credited on the Closing Date, or provide evidence satisfactory to the
Acquired Fund that such Acquiring Fund Shares have been credited to the
Acquired Fund's account on the books of the Acquiring Fund. At the
Closing, each party shall deliver to the other such bills of sale,
checks, assignments, stock certificates, receipts or other documents as
such other party or its counsel may reasonably request.
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<PAGE>
4. REPRESENTATIONS AND WARRANTIES
4.1 The Trust on behalf of the Acquired Fund represents, warrants and
covenants to the Acquiring Fund as follows:
(a) The Trust is a business trust, duly organized, validly
existing and in good standing under the laws of The
Commonwealth of Massachusetts and has the power to own all of
its properties and assets and, subject to approval by the
shareholders of the Acquired Fund, to carry out the
transactions contemplated by this Agreement. Neither the Trust
nor the Acquired Fund is required to qualify to do business in
any jurisdiction in which it is not so qualified or where
failure to qualify would subject it to any material liability
or disability. The Trust has all necessary federal, state and
local authorizations to own all of its properties and assets
and to carry on its business as now being conducted;
(b) The Trust is a registered investment company classified as a
management company and its registration with the Commission as
an investment company under the Investment Company Act of
1940, as amended (the "1940 Act"), is in full force and
effect. The Acquired Fund is a diversified series of the
Trust;
(c) The Trust and the Acquired Fund are not, and the execution,
delivery and performance of their obligations under this
Agreement will not result, in violation of any provision of
the Trust's Declaration of Trust, as amended and restated (the
"Trust's Declaration") or By-Laws or of any agreement,
indenture, instrument, contract, lease or other undertaking to
which the Trust or the Acquired Fund is a party or by which it
is bound;
(d) Except as otherwise disclosed in writing and accepted by the
Acquiring Fund, no material litigation or administrative
proceeding or investigation of or before any court or
governmental body is currently pending or threatened against
the Trust or the Acquired Fund or any of the Acquired Fund's
properties or assets. The Trust knows of no facts which might
form the basis for the institution of such proceedings, and
neither the Trust nor the Acquired Fund is a party to or
subject to the provisions of any order, decree or judgment of
any court or governmental body which materially and adversely
affects the Acquired Fund's business or its ability to
consummate the transactions herein contemplated;
(e) The Acquired Fund has no material contracts or other
commitments (other than this Agreement or agreements for the
purchase of securities entered into in the ordinary course of
business and consistent with its obligations under this
Agreement) which will not be terminated without liability to
the Acquired Fund at or prior to the Closing Date;
(f) The unaudited statement of assets and liabilities, including
the schedule of investments, of the Acquired Fund as of June
30, 1997 and the related statement of operations for the six
months then ended, and the statement of changes in net assets
for the year ended May 31, 1996, and the period from June 1,
1996 to December 31, 1996, and the six months ended June 30,
1997 (copies of which have been furnished to the Acquiring
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<PAGE>
Fund) present fairly in all material respects the financial
condition of the Acquired Fund as of June 30, 1997 and the
results of its operations for the period then ended in
accordance with generally accepted accounting principles
consistently applied, and there were no known actual or
contingent liabilities of the Acquired Fund as of the
respective dates thereof not disclosed therein;
(g) Since June 30, 1997, there has not been any material adverse
change in the Acquired Fund's financial condition, assets,
liabilities, or business other than changes occurring in the
ordinary course of business, or any incurrence by the Acquired
Fund of indebtedness maturing more than one year from the date
such indebtedness was incurred, except as otherwise disclosed
to and accepted by the Acquiring Fund;
(h) At the date hereof and by the Closing Date, all federal, state
and other tax returns and reports, including information
returns and payee statements, of the Acquired Fund required by
law to have been filed or furnished by such dates shall have
been filed or furnished, and all federal, state and other
taxes, interest and penalties shall have been paid so far as
due, or provision shall have been made for the payment
thereof, and to the best of the Acquired Fund's knowledge no
such return is currently under audit and no assessment has
been asserted with respect to such returns or reports;
(i) Each of the Acquired Fund and its predecessors has qualified
as a regulated investment company for each taxable year of its
operation and the Acquired Fund will qualify as such as of the
Closing Date with respect to its taxable year ending on the
Closing Date;
(j) The authorized capital of the Acquired Fund consists of an
unlimited number of shares of beneficial interest, no par
value. All issued and outstanding shares of beneficial
interest of the Acquired Fund are, and at the Closing Date
will be, duly and validly issued and outstanding, fully paid
and nonassessable by the Trust. All of the issued and
outstanding shares of beneficial interest of the Acquired Fund
will, at the time of Closing, be held by the persons and in
the amounts and classes set forth in the Shareholder List
submitted to the Acquiring Fund pursuant to Paragraph 3.4
hereof. The Acquired Fund does not have outstanding any
options, warrants or other rights to subscribe for or purchase
any of its shares of beneficial interest, nor is there
outstanding any security convertible into any of its shares of
beneficial interest;
(k) At the Closing Date, the Acquired Fund will have good and
marketable title to the assets to be transferred to the
Acquiring Fund pursuant to Paragraph 1.1 hereof, and full
right, power and authority to sell, assign, transfer and
deliver such assets hereunder, and upon delivery and payment
for such assets, the Acquiring Fund will acquire good and
marketable title thereto subject to no restrictions on the
full transfer thereof, including such restrictions as might
arise under the Securities Act of 1933, as amended (the "1933
Act");
(l) The execution, delivery and performance of this Agreement have
been duly authorized by all necessary action on the part of
the Trust on behalf of the Acquired Fund, and this Agreement
constitutes a valid and binding obligation of the Trust and
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<PAGE>
the Acquired Fund enforceable in accordance with its terms,
subject to the approval of the Acquired Fund's shareholders;
(m) The information to be furnished by the Acquired Fund to the
Acquiring Fund for use in applications for orders,
registration statements, proxy materials and other documents
which may be necessary in connection with the transactions
contemplated hereby shall be accurate and complete and shall
comply in all material respects with federal securities and
other laws and regulations thereunder applicable thereto;
(n) The proxy statement of the Acquired Fund (the "Proxy
Statement") to be included in the Registration Statement
referred to in Paragraph 5.7 hereof (other than written
information furnished by the Acquiring Fund for inclusion
therein, as covered by the Acquiring Fund's warranty in
Paragraph 4.2(m) hereof), on the effective date of the
Registration Statement, on the date of the meeting of the
Acquired Fund shareholders and on the Closing Date, shall not
contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which such statements were made, not
misleading;
(o) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Acquired Fund of the transactions contemplated by this
Agreement;
(p) All of the issued and outstanding shares of beneficial
interest of the Acquired Fund have been offered for sale and
sold in conformity with all applicable federal and state
securities laws;
(q) The prospectus of the Acquired Fund, dated May 1, 1997 (the
"Acquired Fund Prospectus"), previously furnished to the
Acquiring Fund, does not contain any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not
misleading.
4.2 The Trust II on behalf of the Acquiring Fund represents, warrants and
covenants to the Acquired Fund as follows:
(a) The Trust II is a business trust duly organized, validly
existing and in good standing under the laws of The
Commonwealth of Massachusetts and has the power to own all of
its properties and assets and to carry out the Agreement.
Neither the Trust II nor the Acquiring Fund is required to
qualify to do business in any jurisdiction in which it is not
so qualified or where failure to qualify would subject it to
any material liability or disability. The Trust II has all
necessary federal, state and local authorizations to own all
of its properties and assets and to carry on its business as
now being conducted;
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<PAGE>
(b) The Trust II is a registered investment company classified as
a management company and its registration with the Commission
as an investment company under the 1940 Act is in full force
and effect. The Acquiring Fund is a diversified series of the
Trust II;
(c) The prospectus (the "Acquiring Fund Prospectus") and statement
of additional information for Class A and Class B shares of
the Acquiring Fund, each dated May 1, 1997, and any amendments
or supplements thereto on or prior to the Closing Date, and
the Registration Statement on Form N-14 to be filed in
connection with this Agreement (the "Registration Statement")
(other than written information furnished by the Acquired Fund
for inclusion therein, as covered by the Acquired Fund's
warranty in Paragraph 4.1(m) hereof) will conform in all
material respects to the applicable requirements of the 1933
Act and the 1940 Act and the rules and regulations of the
Commission thereunder, the Acquiring Fund Prospectus does not
include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading and
the Registration Statement will not include any untrue
statement of material fact or omit to state any material fact
required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading;
(d) At the Closing Date, the Trust II on behalf of the Acquiring
Fund will have good and marketable title to the assets of the
Acquiring Fund;
(e) The Trust II and the Acquiring Fund are not, and the
execution, delivery and performance of their obligations under
this Agreement will not result, in violation of any provisions
of the Trust II's Declaration, or By-Laws or of any agreement,
indenture, instrument, contract, lease or other undertaking to
which the Trust II or the Acquiring Fund is a party or by
which the Trust II or the Acquiring Fund is bound;
(f) Except as otherwise disclosed in writing and accepted by the
Acquired Fund, no material litigation or administrative
proceeding or investigation of or before any court or
governmental body is currently pending or threatened against
the Trust II or the Acquiring Fund or any of the Acquiring
Fund's properties or assets. The Trust II knows of no facts
which might form the basis for the institution of such
proceedings, and neither the Trust II nor the Acquiring Fund
is a party to or subject to the provisions of any order,
decree or judgment of any court or governmental body which
materially and adversely affects the Acquiring Fund's business
or its ability to consummate the transactions herein
contemplated;
(g) The unaudited statement of assets and liabilities, including
the schedule of investments, of the Acquiring Fund as of June
30, 1997 and the related statement of operations for the six
months then ended, and the statement of changes in net assets
for the year ended August 31, 1996, and the period from
September 1, 1996 to December 31, 1996, and the six months
ended June 30, 1997 (copies of which have been furnished to
the Acquired Fund) present fairly in all material respects the
financial condition of the Acquiring Fund as of June 30, 1997
and the results of its operations for the period then ended in
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<PAGE>
accordance with generally accepted accounting principles
consistently applied, and there were no known actual or
contingent liabilities of the Acquiring Fund as of the
respective dates thereof not disclosed therein;
(h) Since June 30, 1997, there has not been any material adverse
change in the Acquiring Fund's financial condition, assets,
liabilities or business other than changes occurring in the
ordinary course of business, or any incurrence by the Trust II
on behalf of the Acquiring Fund of indebtedness maturing more
than one year from the date such indebtedness was incurred,
except as disclosed to and accepted by the Acquired Fund;
(i) Each of the Acquiring Fund and its predecessors has qualified
as a regulated investment company for each taxable year of its
operation and the Acquiring Fund will qualify as such as of
the Closing Date;
(j) The authorized capital of the Trust II consists of an
unlimited number of shares of beneficial interest, no par
value per share. All issued and outstanding shares of
beneficial interest of the Acquiring Fund are, and at the
Closing Date will be, duly and validly issued and outstanding,
fully paid and nonassessable by the Trust II. The Acquiring
Fund does not have outstanding any options, warrants or other
rights to subscribe for or purchase any of its shares of
beneficial interest, nor is there outstanding any security
convertible into any of its shares of beneficial interest;
(k) The execution, delivery and performance of this Agreement has
been duly authorized by all necessary action on the part of
the Trust II on behalf of the Acquiring Fund, and this
Agreement constitutes a valid and binding obligation of the
Acquiring Fund enforceable in accordance with its terms;
(l) The Acquiring Fund Shares to be issued and delivered to the
Acquired Fund pursuant to the terms of this Agreement, when so
issued and delivered, will be duly and validly issued shares
of beneficial interest of the Acquiring Fund and will be fully
paid and nonassessable by the Trust II;
(m) The information to be furnished by the Acquiring Fund for use
in applications for orders, registration statements, proxy
materials and other documents which may be necessary in
connection with the transactions contemplated hereby shall be
accurate and complete and shall comply in all material
respects with federal securities and other laws and
regulations applicable thereto; and
(n) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Acquiring Fund of the transactions contemplated by the
Agreement, except for the registration of the Acquiring Fund
Shares under the 1933 Act and the 1940 Act.
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5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1 Except as expressly contemplated herein to the contrary, the Trust on
behalf of the Acquired Fund and the Trust II on behalf of Acquiring
Fund, will operate their respective businesses in the ordinary course
between the date hereof and the Closing Date, it being understood that
such ordinary course of business will include customary dividends and
distributions and any other distributions necessary or desirable to
avoid federal income or excise taxes.
5.2 The Trust will call a meeting of the Acquired Fund shareholders to
consider and act upon this Agreement and to take all other action
necessary to obtain approval of the transactions contemplated herein.
5.3 The Acquired Fund covenants that the Acquiring Fund Shares to be issued
hereunder are not being acquired by the Acquired Fund for the purpose
of making any distribution thereof other than in accordance with the
terms of this Agreement.
5.4 The Trust on behalf of the Acquired Fund will provide such information
within its possession or reasonably obtainable as the Trust II on
behalf of the Acquiring Fund requests concerning the beneficial
ownership of the Acquired Fund's shares of beneficial interest.
5.5 Subject to the provisions of this Agreement, the Acquiring Fund and the
Acquired Fund each shall take, or cause to be taken, all action, and do
or cause to be done, all things reasonably necessary, proper or
advisable to consummate the transactions contemplated by this
Agreement.
5.6 The Trust on behalf of the Acquired Fund shall furnish to the Trust II
on behalf of the Acquiring Fund on the Closing Date the Statement of
Assets and Liabilities of the Acquired Fund as of the Closing Date,
which statement shall be prepared in accordance with generally accepted
accounting principles consistently applied and shall be certified by
the Acquired Fund's Treasurer or Assistant Treasurer. As promptly as
practicable but in any case within 60 days after the Closing Date, the
Acquired Fund shall furnish to the Acquiring Fund, in such form as is
reasonably satisfactory to the Trust II, a statement of the earnings
and profits of the Acquired Fund for federal income tax purposes and of
any capital loss carryovers and other items that will be carried over
to the Acquiring Fund as a result of Section 381 of the Code, and which
statement will be certified by the President of the Acquired Fund.
5.7 The Trust II on behalf of the Acquiring Fund will prepare and file with
the Commission the Registration Statement in compliance with the 1933
Act and the 1940 Act in connection with the issuance of the Acquiring
Fund Shares as contemplated herein.
5.8 The Trust on behalf of the Acquired Fund will prepare a Proxy
Statement, to be included in the Registration Statement in compliance
with the 1933 Act, the Securities Exchange Act of 1934, as amended (the
-10-
<PAGE>
"1934 Act"), and the 1940 Act and the rules and regulations thereunder
(collectively, the "Acts") in connection with the special meeting of
shareholders of the Acquired Fund to consider approval of this
Agreement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST ON BEHALF OF THE
ACQUIRED FUND
The obligations of the Trust on behalf of the Acquired Fund to complete the
transactions provided for herein shall be, at its election, subject to the
performance by the Trust II on behalf of the Acquiring Fund of all the
obligations to be performed by it hereunder on or before the Closing Date, and,
in addition thereto, the following further conditions:
6.1 All representations and warranties of the Trust II on behalf of the
Acquiring Fund contained in this Agreement shall be true and correct in
all material respects as of the date hereof and, except as they may be
affected by the transactions contemplated by this Agreement, as of the
Closing Date with the same force and effect as if made on and as of the
Closing Date; and
6.2 The Trust II on behalf of the Acquiring Fund shall have delivered to
the Acquired Fund a certificate executed in its name by the Trust II's
President or Vice President and its Treasurer or Assistant Treasurer,
in form and substance satisfactory to the Acquired Fund and dated as of
the Closing Date, to the effect that the representations and warranties
of the Trust II on behalf of the Acquiring Fund made in this Agreement
are true and correct at and as of the Closing Date, except as they may
be affected by the transactions contemplated by this Agreement, and as
to such other matters as the Trust on behalf of the Acquired Fund shall
reasonably request.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST II ON BEHALF OF THE
ACQUIRING FUND
The obligations of the Trust II on behalf of the Acquiring Fund to complete the
transactions provided for herein shall be, at its election, subject to the
performance by the Acquired Fund of all the obligations to be performed by it
hereunder on or before the Closing Date and, in addition thereto, the following
conditions:
7.1 All representations and warranties of the Acquired Fund contained in
this Agreement shall be true and correct in all material respects as of
the date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same
force and effect as if made on and as of the Closing Date;
7.2 The Trust on behalf of the Acquired Fund shall have delivered to the
Trust II on behalf of the Acquiring Fund the Statement of Assets and
Liabilities of the Acquired Fund, together with a list of its portfolio
securities showing the federal income tax bases and holding periods of
such securities, as of the Closing Date, certified by the Treasurer or
Assistant Treasurer of the Trust;
-11-
<PAGE>
7.3 The Trust on behalf of the Acquired Fund shall have delivered to the
Trust II on behalf of the Acquiring Fund on the Closing Date a
certificate executed in the name of the Acquired Fund by a President or
Vice President and a Treasurer or Assistant Treasurer of the Trust, in
form and substance satisfactory to the Trust II on behalf of the
Acquiring Fund and dated as of the Closing Date, to the effect that the
representations and warranties of the Acquired Fund in this Agreement
are true and correct at and as of the Closing Date, except as they may
be affected by the transactions contemplated by this Agreement, and as
to such other matters as the Trust II on behalf of the Acquiring Fund
shall reasonably request; and
7.4 At or prior to the Closing Date, the Acquired Fund's investment
adviser, or an affiliate thereof, shall have made all payments, or
applied all credits, to the Acquired Fund required by any applicable
contractual expense limitation.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST AND THE TRUST
II
The obligations hereunder of the Trust II on behalf of the Acquiring Fund and
the Trust on behalf of the Acquired Fund are each subject to the further
conditions that on or before the Closing Date:
8.1 The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares
of beneficial interest of the Acquired Fund in accordance with the
provisions of the Trust's Declaration and By-Laws, and certified copies
of the resolutions evidencing such approval by the Acquired Fund's
shareholders shall have been delivered by the Acquired Fund to the
Trust II on behalf of the Acquiring Fund;
8.2 On the Closing Date no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought
to restrain or prohibit, or obtain changes or other relief in
connection with, this Agreement or the transactions contemplated
herein;
8.3 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including
those of the Commission and their "no-action" positions) deemed
necessary by the Trust or the Trust II to permit consummation, in all
material respects, of the transactions contemplated hereby shall have
been obtained, except where failure to obtain any such consent, order
or permit would not involve a risk of a material adverse effect on the
assets or properties of the Acquiring Fund or the Acquired Fund,
provided that either party hereto may waive any such conditions for
itself;
8.4 The Registration Statement shall have become effective under the 1933
Act and the 1940 Act and no stop orders suspending the effectiveness
thereof shall have been issued and, to the best knowledge of the
parties hereto, no investigation or proceeding for that purpose shall
have been instituted or be pending, threatened or contemplated under
the 1933 Act or the 1940 Act;
-12-
<PAGE>
8.5 The Acquired Fund shall have distributed to its shareholders, in a
distribution or distributions qualifying for the deduction for
dividends paid under Section 561 of the Code, all of its investment
company taxable income (as defined in Section 852(b)(2) of the Code
determined without regard to Section 852(b)(2)(D) of the Code) for its
taxable year ending on the Closing Date, all of the excess of (i) its
interest income excludable from gross income under Section 103(a) of
the Code over (ii) its deductions disallowed under Sections 265 and
171(a)(2) of the Code for its taxable year ending on the Closing Date,
and all of its net capital gain (as such term is used in Sections
852(b)(3)(A) and (C) of the Code), after reduction by any available
capital loss carryforward, for its taxable year ending on the Closing
Date; and
8.6 The parties shall have received an opinion of Hale and Dorr LLP,
satisfactory to the Trust on behalf of the Acquired Fund and the Trust
II on behalf of the Acquiring Fund, substantially to the effect that
for federal income tax purposes:
(a) The acquisition by the Acquiring Fund of all of the assets of
the Acquired Fund solely in exchange for the issuance of
Acquiring Fund Shares to the Acquired Fund and the assumption
of all of the Acquired Fund Liabilities by the Acquiring Fund,
followed by the distribution by the Acquired Fund, in
liquidation of the Acquired Fund, of Acquiring Fund Shares to
the shareholders of the Acquired Fund in exchange for their
shares of beneficial interest of the Acquired Fund and the
termination of the Acquired Fund, will constitute a
"reorganization" within the meaning of Section 368(a) of the
Code, and the Acquired Fund and the Acquiring Fund will each
be "a party to a reorganization" within the meaning of Section
368(b) of the Code;
(b) No gain or loss will be recognized by the Acquired Fund upon
(i) the transfer of all of its assets to the Acquiring Fund
solely in exchange for the issuance of Acquiring Fund Shares
to the Acquired Fund and the assumption of all of the Acquired
Fund Liabilities by the Acquiring Fund; and (ii) the
distribution by the Acquired Fund of such Acquiring Fund
Shares to the shareholders of the Acquired Fund;
(c) No gain or loss will be recognized by the Acquiring Fund upon
the receipt of the assets of the Acquired Fund solely in
exchange for the issuance of the Acquiring Fund Shares to the
Acquired Fund and the assumption of all of the Acquired Fund
Liabilities by the Acquiring Fund;
(d) The basis of the assets of the Acquired Fund acquired by the
Acquiring Fund will be, in each instance, the same as the
basis of those assets in the hands of the Acquired Fund
immediately prior to the transfer;
(e) The tax holding period of the assets of the Acquired Fund in
the hands of the Acquiring Fund will, in each instance,
include the Acquired Fund's tax holding period for those
assets;
-13-
<PAGE>
(f) The shareholders of the Acquired Fund will not recognize gain
or loss upon the exchange of all of their shares of beneficial
interest of the Acquired Fund solely for Acquiring Fund Shares
as part of the transaction;
(g) The basis of the Acquiring Fund Shares received by the
Acquired Fund shareholders in the transaction will be the same
as the basis of the shares of beneficial interest of the
Acquired Fund surrendered in exchange therefor; and
(h) The tax holding period of the Acquiring Fund Shares received
by the Acquired Fund shareholders will include, for each
shareholder, the tax holding period for the shares of the
Acquired Fund surrendered in exchange therefor, provided that
the Acquired Fund shares were held as capital assets on the
date of the exchange.
The Trust II and the Trust agree to make and provide representations with
respect to the Acquiring Fund and the Acquired Fund, respectively, which are
reasonably necessary to enable Hale and Dorr LLP to deliver an opinion
substantially as set forth in this Paragraph 8.6. Notwithstanding anything
herein to the contrary, neither the Trust nor the Trust II may waive the
conditions set forth in this Paragraph 8.6.
9. BROKERAGE FEES AND EXPENSES
9.1 The Trust II on behalf of the Acquiring Fund, and the Trust on behalf
of the Acquired Fund each represent and warrant to the other that there
are no brokers or finders entitled to receive any payments in
connection with the transactions provided for herein.
9.2 The Acquiring Fund and the Acquired Fund shall each be liable solely
for its own expenses incurred in connection with entering into and
carrying out the provisions of this Agreement whether or not the
transactions contemplated hereby are consummated.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Trust II on behalf of the Acquiring Fund, and the Trust on behalf
of the Acquired Fund agree that neither party has made any
representation, warranty or covenant not set forth herein or referred
to in Paragraph 4 hereof and that this Agreement constitutes the entire
agreement between the parties.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transactions
contemplated hereunder.
11. TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the Trust
II, on behalf of the Acquiring Fund, and the Trust on behalf of the
Acquired Fund. In addition, either party may at its option terminate
this Agreement at or prior to the Closing Date:
-14-
<PAGE>
(a) because of a material breach by the other of any
representation, warranty, covenant or agreement contained
herein to be performed at or prior to the Closing Date;
(b) because of a condition herein expressed to be precedent to the
obligations of the terminating party which has not been met
and which reasonably appears will not or cannot be met;
(c) by resolution of the Trust II's Board of Trustees if
circumstances should develop that, in the good faith opinion
of such Board, make proceeding with the Agreement not in the
best interests of the Acquiring Fund's shareholders; or
(d) by resolution of the Trust's Board of Trustees if
circumstances should develop that, in the good faith opinion
of such Board, make proceeding with the Agreement not in the
best interests of the Acquired Fund's shareholders.
11.2 In the event of any such termination, there shall be no liability for
damages on the part of the Trust II, the Acquiring Fund, the Trust, or
the Acquired Fund, or the Trustees or officers of the Trust II or the
Trust, but each party shall bear the expenses incurred by it incidental
to the preparation and carrying out of this Agreement.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as may be
mutually agreed upon by the authorized officers of the Trust and the Trust II.
However, following the meeting of shareholders of the Acquired Fund held
pursuant to Paragraph 5.2 of this Agreement, no such amendment may have the
effect of changing the provisions regarding the method for determining the
number of Acquiring Fund Shares to be received by the Acquired Fund shareholders
under this Agreement to the detriment of such shareholders without their further
approval; provided that nothing contained in this Article 12 shall be construed
to prohibit the parties from amending this Agreement to change the Closing Date.
13. NOTICES
Any notice, report, statement or demand required or permitted by any provisions
of this Agreement shall be in writing and shall be given by prepaid telegraph,
telecopy or certified mail addressed to the Acquiring Fund or to the Acquired
Fund, each at 101 Huntington Avenue, Boston, Massachusetts 02199, Attention:
President, and, in either case, with copies to Hale and Dorr LLP, 60 State
Street, Boston, Massachusetts 02109, Attention: Pamela J.
Wilson, Esq.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT
14.1 The article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
-15-
<PAGE>
14.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with
the laws of The Commonwealth of Massachusetts.
14.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment
or transfer hereof or of any rights or obligations hereunder shall be
made by any party without the prior written consent of the other party.
Nothing herein expressed or implied is intended or shall be construed
to confer upon or give any person, firm or corporation, other than the
parties hereto and their respective successors and assigns, any rights
or remedies under or by reason of this Agreement.
14.5 All persons dealing with the Trust or the Trust II must look solely to
the property of the Trust or the Trust II, respectively, for the
enforcement of any claims against the Trust or the Trust II as the
Trustees, officers, agents and shareholders of the Trust or the Trust
II assume no personal liability for obligations entered into on behalf
of the Trust or the Trust II, respectively. None of the other series of
the Trust or the Trust II shall be responsible for any obligations
assumed by on or behalf of the Acquired Fund or the Acquiring Fund,
respectively, under this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed as of the date first set forth above by its President or Vice President
and has caused its corporate seal to be affixed hereto.
JOHN HANCOCK INVESTMENT TRUST on behalf of
JOHN HANCOCK GROWTH AND INCOME FUND
By:
-----------------------------------------
Anne C. Hodsdon
President
JOHN HANCOCK CAPITAL SERIES on behalf of
JOHN HANCOCK UTILITIES FUND
By:
-----------------------------------------
Susan S. Newton
Vice President and Secretary
-16-
<PAGE>
JOHN HANCOCK
GROWTH AND
INCOME FUNDS
[LOGO]
- --------------------------------------------------------------------------------
PROSPECTUS
MAY 1, 1997
This prospectus gives vital information about these funds. For your own benefit
and protection, please read it before you invest, and keep it on hand for future
reference.
Please note that these funds:
- - are not bank deposits
- - are not federally insured
- - are not endorsed by any bank or government agency
- - are not guaranteed to achieve their goal(s)
Like all mutual fund shares, these securities have not been approved or
disapproved by the Securities and Exchange Commission or any state securities
commission, nor has the Securities and Exchange Commission or any state
securities commission passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
GROWTH AND INCOME FUND
INDEPENDENCE EQUITY FUND
SOVEREIGN BALANCED FUND
SOVEREIGN INVESTORS FUND
SPECIAL VALUE FUND
UTILITIES FUND
[LOGO]
JOHN HANCOCK FUNDS
A GLOBAL INVESTMENT MANAGEMENT FIRM
101 Huntington Avenue, Boston, Massachusetts 02199-7603
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
A fund-by-fund look at goals, strategies, risks, expenses and financial history.
GROWTH AND INCOME FUND 4
INDEPENDENCE EQUITY FUND 6
SOVEREIGN BALANCED FUND 8
SOVEREIGN INVESTORS FUND 10
SPECIAL VALUE FUND 12
UTILITIES FUND 14
Policies and instructions for opening, maintaining and closing an account in any
growth and income fund.
YOUR ACCOUNT
CHOOSING A SHARE CLASS 16
HOW SALES CHARGES ARE CALCULATED 16
SALES CHARGE REDUCTIONS AND WAIVERS 17
OPENING AN ACCOUNT 17
BUYING SHARES 18
SELLING SHARES 19
TRANSACTION POLICIES 21
DIVIDENDS AND ACCOUNT POLICIES 21
ADDITIONAL INVESTOR SERVICES 22
Details that apply to the growth and income funds as a group.
FUND DETAILS
BUSINESS STRUCTURE 23
SALES COMPENSATION 24
MORE ABOUT RISK 26
FOR MORE INFORMATION back cover
<PAGE>
OVERVIEW
- --------------------------------------------------------------------------------
GOAL OF THE GROWTH AND INCOME FUNDS
John Hancock growth and income funds invest for varying combinations of income
and capital appreciation. Each fund has its own emphasis with regard to income,
growth and total return, and has its own strategy and risk/reward profile.
Because you could lose money by investing in these funds, be sure to read all
risk disclosure carefully before investing.
WHO MAY WANT TO INVEST
These funds may be appropriate for investors who:
- - are looking for a more conservative alternative to exclusively
growth-oriented funds
- - need an investment to form the core of a portfolio
- - seek above-average total return over the long term
- - are retired or nearing retirement
Growth and income funds may NOT be appropriate if you:
- - are investing for maximum return over a long time horizon
- - require a high degree of stability of your principal
THE MANAGEMENT FIRM
All John Hancock growth and income funds are managed by John Hancock Advisers,
Inc. Founded in 1968, John Hancock Advisers is a wholly owned subsidiary of John
Hancock Mutual Life Insurance Company and manages more than $20 billion in
assets.
FUND INFORMATION KEY
Concise fund-by-fund descriptions begin on the next page. Each description
provides the following information:
[BULLSEYE]
Goal and strategy The fund's particular investment goals and the strategies it
intends to use in pursuing those goals.
[OPEN FOLDER]
Portfolio securities The primary types of securities in which the fund invests.
Secondary investments are described in "More about risk" at the end of the
prospectus.
[GRAPH]
Risk factors The major risk factors associated with the fund.
[PERSON]
Portfolio management The individual or group (including subadvisers, if any)
designated by the investment adviser to handle the fund's day-to-day management.
[PERCENT SIGN]
Expenses The overall costs borne by an investor in the fund, including sales
charges and annual expenses.
[DOLLAR SIGN]
Financial highlights A table showing the fund's financial performance for up to
ten years, by share class. A bar chart showing total return allows you to
compare the fund's historical risk level to those of other funds.
<PAGE>
GROWTH AND INCOME FUND
REGISTRANT NAME: JOHN HANCOCK INVESTMENT TRUST
TICKER SYMBOL CLASS A: TAGRX CLASS B: TSGWX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[BULLSEYE]
The fund seeks the highest total return (capital appreciation plus current
income) that is consistent with reasonable safety of capital. To pursue this
goal, the fund invests in a diversified portfolio of stocks, bonds and money
market instruments. Although the fund may concentrate in any of these
securities, under normal circumstances it invests primarily in stocks. The fund
may not invest more than 25% of assets in any one industry.
PORTFOLIO SECURITIES
[OPEN FOLDER]
The fund may invest in most types of securities, including:
- - common and preferred stocks, warrants and convertible securities
- - U.S. Government and agency debt securities, including mortgage-backed
securities
- - corporate bonds, notes and other debt securities of any maturity
The fund may invest up to 15% of net assets in junk bonds, including convertible
securities, that may be rated as low as CC/Ca and their unrated equivalents.
The fund may invest up to 25% of assets in foreign securities (35% during
adverse U.S. market conditions); however, foreign securities typically have not
exceeded 5% of assets. To a limited extent, the fund also may invest in certain
higher-risk securities, and may engage in other investment practices.
For temporary defensive purposes, the fund may invest some or all of its assets
in investment-grade short-term securities.
RISK FACTORS
[GRAPH]
As with any growth and income fund, the value of your investment will fluctuate
in response to stock and bond market movements.
To the extent that it invests in certain securities, the fund may be affected by
additional risks:
- - foreign securities: currency, information, natural event and political risks
- - mortgage-backed securities: extension and prepayment risks
These risks are defined in "More about risk" starting on page 26. This section
also details other higher-risk securities and practices that the fund may
utilize. Before you invest, please read "More about risk" carefully.
PORTFOLIO MANAGEMENT
[PERSON]
Timothy E. Keefe, CFA, has been the leader of the fund's portfolio management
team since joining John Hancock Funds in July 1996. He is a senior vice
president of the adviser and has been in the investment business since 1987.
INVESTOR EXPENSES
[PERCENT SIGN]
Fund investors pay various expenses, either directly or indirectly. The figures
below show the expenses for the past year, adjusted to reflect any changes.
Future expenses may be greater or less.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
- -------------------------------- ------- -------
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
- -------------------------------------------------------------
<S> <C> <C>
Management fee 0.625% 0.625%
12b-1 fee(3) 0.250% 1.00%
Other expenses 0.355% 0.355%
Total fund operating expenses 1.230% 1.980%
</TABLE>
Example The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<TABLE>
<CAPTION>
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10
- ----------- ------ ------ ------ -------
<S> <C> <C> <C> <C>
Class A shares $62 $87 $114 $191
Class B shares
Assuming redemption
at end of period $70 $92 $127 $211
Assuming no redemption $20 $62 $107 $211
</TABLE>
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
4 GROWTH AND INCOME FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[DOLLAR SIGN]
The figures below have been audited
by the fund's independent auditors,
Ernst & Young LLP.
<TABLE>
<CAPTION>
FOUR
MONTHS
--------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
VOLATILITY, AS INDICATED BY CLASS A
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) 22.58 (9.86) 23.47 0.18 23.80 10.47 13.64 (2.39) 19.22 15.33 14.53(4)
(scale varies from fund to fund)
</TABLE>
<TABLE>
<CAPTION>
CLASS A - PERIOD ENDED: 8/87 8/88 8/89 8/90 8/91 8/92 8/93 8/94
- ----------------------- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 11.11 $ 12.04 $ 8.83 $ 10.19 $ 9.87 $ 11.77 $ 12.43 $ 12.08
Net investment income (loss) 0.42 0.50 0.55 0.20 0.20 0.32(2) 0.40(2) 0.32(2)
Net realized and unrealized gain (loss)
on investments 1.77 (1.73) 1.42 (0.18) 2.07 0.89 1.12 (0.61)
Total from investment operations 2.19 (1.23) 1.97 0.02 2.27 1.21 1.52 (0.29)
Less distributions
Dividends from net investment income (0.38) (0.49) (0.61) (0.27) (0.19) (0.25) (0.42) (0.37)
Distributions from net realized gain
on investments sold (0.88) (1.49) -- (0.07) (0.18) (0.30) (1.45) --
Total distributions (1.26) (1.98) (0.61) (0.34) (0.37) (0.55) (1.87) (0.37)
Net asset value, end of period $ 12.04 $ 8.83 $ 10.19 $ 9.87 $ 11.77 $ 12.43 $ 12.08 $ 11.42
TOTAL INVESTMENT RETURN AT NET ASSET
VALUE(3) (%) 22.58 (9.86) 23.47 0.18 23.80 10.47 13.64 (2.39)
Ratios and supplemental data
Net assets, end of period
(000s omitted) ($) 90,974 69,555 70,513 63,150 77,461 89,682 115,780 121,160
Ratio of expenses to average net
assets (%) 1.21 1.29 1.12 1.29 1.38 1.34 1.29 1.31
Ratio of net investment income (loss)
to average net assets (%) 3.86 5.45 6.07 1.96 1.90 2.75 3.43 2.82
Portfolio turnover rate (%) 138 120 214 69 70 119 107 195
Average brokerage commission rate(6) ($) N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
CLASS A - PERIOD ENDED: 8/95 8/96 12/96(1)
- ----------------------- ---- ---- --------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 11.42 $ 13.38 $ 15.07
Net investment income (loss) 0.21(2) 0.19(2) 0.05(2)
Net realized and unrealized gain (loss)
on investments 1.95 1.84 2.15
Total from investment operations 2.16 2.03 2.20
Less distributions
Dividends from net investment income (0.20) (0.19) (0.08)
Distributions from net realized gain
on investments sold -- (0.15) (1.57)
Total distributions (0.20) (0.34) (1.65)
Net asset value, end of period $ 13.38 $ 15.07 $ 15.62
TOTAL INVESTMENT RETURN AT NET ASSET
VALUE(3) (%) 19.22 15.33 14.53(4)
Ratios and supplemental data
Net assets, end of period
(000s omitted) ($) 130,183 139,548 163,154
Ratio of expenses to average net
assets (%) 1.30 1.17 1.22(5)
Ratio of net investment income (loss)
to average net assets (%) 1.82 1.28 0.85(5)
Portfolio turnover rate (%) 99 74 26
Average brokerage commission rate(6) ($) N/A 0.0665 0.0692
</TABLE>
<TABLE>
<CAPTION>
CLASS B - PERIOD ENDED: 8/91(7) 8/92 8/93 8/94 8/95 8/96 12/96(1)
- ----------------------- ------- ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $11.52 $ 11.77 $ 12.44 $ 12.10 $ 11.44 $ 13.41 $ 15.10
Net investment income (loss)(2) -- 0.23 0.30 0.24 0.13 0.08 0.01
Net realized and unrealized gain (loss) on investments 0.25 0.89 1.12 (0.61) 1.96 1.85 2.14
Total from investment operations 0.25 1.12 1.42 (0.37) 2.09 1.93 2.15
Less distributions:
Dividends from net investment income -- (0.15) (0.31) (0.29) (0.12) (0.09) (0.02)
Distributions from net realized gain on
investments sold -- (0.30) (1.45) -- -- (0.15) (1.57)
Total distributions -- (0.45) (1.76) (0.29) (0.12) (0.24) (1.59)
Net asset value, end of period $11.77 $ 12.44 $ 12.10 $ 11.44 $ 13.41 $ 15.10 $ 15.66
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 2.17(4) 9.67 12.64 (3.11) 18.41 14.49 14.15(4)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 7,690 29,826 65,010 114,025 114,723 125,781 146,399
Ratio of expenses to average net assets (%) 2.19(5) 2.07 2.19 2.06 2.03 1.90 1.98(5)
Ratio of net investment income (loss) to average
net assets (%) 1.46(5) 2.02 2.53 2.07 1.09 0.55 0.10(5)
Portfolio turnover rate (%) 70 119 107 195 99 74 26
Average brokerage commission rate(6) ($) N/A N/A N/A N/A N/A 0.0665 0.0692
</TABLE>
(1) Effective December 31, 1996, the fiscal year end changed from August 31 to
December 31.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) Annualized.
(6) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(7) Class B shares commenced operations on August 22, 1991.
GROWTH AND INCOME FUND 5
<PAGE>
INDEPENDENCE EQUITY FUND
REGISTRANT NAME: JOHN HANCOCK CAPITAL SERIES
TICKER SYMBOL CLASS A: JHDCX CLASS B: JHIDX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[BULLSEYE]
The fund seeks above-average total return (capital appreciation plus current
income). To pursue this goal, the fund invests primarily in a diversified stock
portfolio whose risk profile is similar to that of the S&P 500 index. The fund
does not invest exclusively in S&P 500 stocks.
In choosing stocks, the fund uses a proprietary computer model (NIXDEX) to
identify stocks that appear to be undervalued. The fund favors those undervalued
stocks that are selected by its model and that are believed to have improving
fundamentals. The fund may not invest more than 25% of assets in any one
industry.
PORTFOLIO SECURITIES
[OPEN FOLDER]
Under normal circumstances, the fund invests at least 65% of assets in common
stocks. It may also invest in warrants, preferred stocks and investment-grade
convertible debt securities.
The fund may invest in foreign securities in the form of American Depository
Receipts (ADRs) and U.S. dollar-denominated securities of foreign issuers traded
on U.S. exchanges. To a limited extent the fund also may invest in certain
higher-risk securities, and may engage in other investment practices.
For temporary defensive purposes, the fund may invest some or all of its assets
in investment-grade short-term securities.
RISK FACTORS
[GRAPH]
As with any growth and income fund, the value of your investment will fluctuate
in response to stock and bond market movements. Because the fund follows an
index-tracking strategy, it is likely to remain fully invested even if the
fund's managers anticipate a market downturn.
To the extent that it invests in foreign securities, the fund may be affected by
additional risks, such as information, natural event and political risks. These
risks are defined in "More about risk" starting on page 26. This section also
details other higher-risk securities and practices that the fund may utilize.
Please read "More about risk" carefully before you invest.
MANAGEMENT/SUBADVISER
[PERSON]
The fund's investment decisions are made by a portfolio management team, and no
individual is primarily responsible for making them. Team members are employees
of Independence Investment Associates, Inc., the fund's subadviser and a
subsidiary of John Hancock Mutual Life Insurance Company.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[PERCENT SIGN]
Fund investors pay various expenses, either directly or indirectly. The figures
below show the expenses for the past year, adjusted to reflect any changes.
Future expenses may be greater or less.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
- -------------------------------- ------- -------
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
- -------------------------------------------------------------
<S> <C> <C>
Management fee(3) 0.75% 0.75%
12b-1 fee(4) 0.30% 1.00%
Other expenses 0.68% 0.68%
Total fund operating expenses 1.73% 2.43%
</TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<TABLE>
<CAPTION>
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10
- ----------- ------ ------ ------ -------
<S> <C> <C> <C> <C>
Class A shares $67 $102 $139 $244
Class B shares
Assuming redemption
at end of period $75 $106 $150 $259
Assuming no redemption $25 $ 76 $130 $259
</TABLE>
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Management fee includes a subadviser fee equal to 55% of the management fee.
(4) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
6 INDEPENDENCE EQUITY FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[DOLLAR SIGN]
The figures below have been audited by the fund's independent auditors, Price
Waterhouse LLP.
<TABLE>
<CAPTION>
VOLATILITY, AS INDICATED BY CLASS A
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
<S> <C> <C> <C> <C> <C> <C>
(scale varies from fund to fund) 10.95(5) 13.58 6.60 16.98 29.12 10.33(5)
seven
months
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A - PERIOD ENDED: 5/92(1) 5/93 5/94 5/95 5/96 12/96(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.00 $10.98 $12.16 $12.68 $14.41 $ 17.98
Net investment income (loss) 0.15 0.22 0.28(3) 0.32(3) 0.20(3) 0.13(3)
Net realized and unrealized gain (loss) on investments 0.94 1.25 0.52 1.77 3.88 1.72
Total from investment operations 1.09 1.47 0.80 2.09 4.08 1.85
Less distributions:
Dividends from net investment income (0.11) (0.23) (0.23) (0.28) (0.22) (0.14)
Distributions from net realized gain on investments sold -- (0.06) (0.05) (0.08) (0.29) (0.27)
Total distributions (0.11) (0.29) (0.28) (0.36) (0.51) (0.41)
Net asset value, end of period $10.98 $12.16 $12.68 $14.41 $17.98 $ 19.42
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4) (%) 10.95(5) 13.58 6.60 16.98 29.12 10.33(5)
Total adjusted investment return at net asset value(4,6) (%) 9.28(5) 11.40 6.15 16.94 28.47 10.08(5)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 2,622 12,488 66,612 101,418 14,878 31,013
Ratio of expenses to average net assets (%) 1.66(7) 0.76 0.70 0.70 0.94 1.30(7)
Ratio of adjusted expenses to average net assets(8) (%) 3.38(7) 2.94 1.15 0.74 1.59 1.73(7)
Ratio of net investment income (loss) to average net assets (%) 1.77(7) 2.36 2.20 2.43 1.55 1.16(7)
Ratio of adjusted net investment income (loss) to average
net assets(8) (%) 0.05(7) 0.18 1.75 2.39 0.90 0.73(7)
Portfolio turnover rate (%) 53 53 43 71 157 35
Fee reduction per share ($) 0.15 0.20 0.06(3) 0.005(3) 0.08(3) 0.05(3)
Average brokerage commission rate(9) ($) N/A N/A N/A N/A N/A 0.0326
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS B - PERIOD ENDED: 5/96(1) 12/96(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $15.25 $17.96
Net investment income (loss)(3) 0.09 0.05
Net realized and unrealized gain (loss) on investments 2.71 1.72
Total from investment operations 2.80 1.77
Less distributions:
Dividends from net investment income (0.09) (0.05)
Distributions from net realized gain on investments sold -- (0.27)
Total distributions (0.09) (0.32)
Net asset value, end of period $17.96 $19.41
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4) (%) 18.46(5) 9.83(5)
Total adjusted investment return at net asset value(4,6) (%) 17.59(5) 9.58(5)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 15,125 42,461
Ratio of expenses to average net assets (%) 2.00(7) 2.00(7)
Ratio of adjusted expenses to average net assets(8) (%) 3.21(7) 2.43(7)
Ratio of net investment income (loss) to average net assets (%) 0.78(7) 0.45(7)
Ratio of adjusted net investment income (loss) to average
net assets(8) (%) (0.43)(7) 0.02(7)
Portfolio turnover rate (%) 157 35
Fee reduction per share(3) ($) 0.13 0.05
Average brokerage commission rate(9) ($) N/A 0.0326
</TABLE>
(1) Class A and Class B shares commenced operations on June 10, 1991 and
September 7, 1995, respectively.
(2) Effective December 31, 1996, the fiscal year end changed from May 31 to
December 31.
(3) Based on the average of the shares outstanding at the end of each
month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) An estimated total return calculation that does not take into
consideration fee reductions by the adviser during the periods shown.
(7) Annualized.
(8) Unreimbursed, without fee reduction.
(9) Per portfolio share traded. Required for fiscal years that began
September 1, 1995 or later.
INDEPENDENCE EQUITY FUND 7
<PAGE>
SOVEREIGN BALANCED FUND
REGISTRANT NAME: JOHN HANCOCK INVESTMENT TRUST
TICKER SYMBOL CLASS A: SVBAX CLASS B: SVBBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[BULLSEYE]
The fund seeks current income, long-term growth of capital and income, and
preservation of capital. To pursue these goals, the fund allocates its assets
among a diversified mix of debt and equity securities. While the relative
weightings of debt and equity securities will shift over time, at least 25% of
assets will be invested in senior debt securities. The fund may not invest more
than 25% of assets in any one industry.
PORTFOLIO SECURITIES
[OPEN FOLDER]
The fund may invest in any type or class of security, including (but not limited
to) stocks, warrants, U.S. Government and agency securities, corporate debt
securities, investment-grade short-term securities, foreign currencies and
options and futures contracts.
The fund's stock investments are exclusively in companies that have increased
their dividend payout in each of the last ten years. Up to 25% of the fund's
bond investments may be rated from BB/Ba to C (junk bonds).
The fund may invest up to 35% of assets in foreign securities; however, these
typically have not exceeded 5% of assets. To a limited extent, the fund also may
invest in certain higher-risk securities, and may engage in other investment
practices.
For temporary defensive purposes, the fund may invest some or all of its assets
in investment-grade short-term securities.
RISK FACTORS
[GRAPH]
As with any growth and income fund, the value of your investment will fluctuate
in response to stock and bond market movements. To the extent that it invests in
certain securities, the fund may be affected by additional risks:
o junk bonds: above-average credit, market and other risks
o foreign securities: currency, information, natural event and political risks
o mortgage-backed securities: extension and prepayment risks
These risks are listed and defined in "More about risk" starting on page 26.
This section also details other higher-risk securities and practices that the
fund may utilize. Please read "More about risk" carefully before you invest.
MANAGEMENT/SUBADVISER
[PERSON]
John F. Snyder III and Barry H. Evans, CFA, lead the fund's portfolio management
team. Mr. Snyder, an investment manager since 1971, is an executive vice
president of Sovereign Asset Management Corporation, the fund's subadviser and a
subsidiary of John Hancock Funds. Mr. Evans, a senior vice president of the
adviser, has been in the investment business since joining John Hancock Funds in
1986.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[PERCENT SIGN]
Fund investors pay various expenses, either directly or indirectly. The figures
below show the expenses for the past year, adjusted to reflect any changes.
Future expenses may be greater or less.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
-------------------------------- ------- -------
<S> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
ANNUAL FUND OPERATING EXPENSES
(AS A % OF AVERAGE NET ASSETS)
- ------------------------------
Management fee(3) 0.60% 0.60%
12b-1 fee(4) 0.30% 1.00%
Other expenses 0.39% 0.39%
Total fund operating expenses 1.29% 1.99%
</TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<TABLE>
<CAPTION>
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $62 $89 $117 $198
Class B shares
Assuming redemption
at end of period $70 $92 $127 $214
Assuming no redemption $20 $62 $107 $214
</TABLE>
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Management fee includes a subadviser fee equal to 40% of the stock portion
of the management fee.
(4) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
8 SOVEREIGN BALANCED FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[DOLLAR SIGN]
The figures below have been audited by the fund's independent auditors, Ernst &
Young LLP.
<TABLE>
<CAPTION>
Volatility, as indicated by Class A year-by-year total investment return (%)
(scale varies from fund to fund)
<S> <C> <C> <C> <C> <C>
2.37(4) 11.38 (3.51) 24.23 12.13
</TABLE>
<TABLE>
<CAPTION>
CLASS A - PERIOD ENDED: 12/92(1) 12/93 12/94 12/95 12/96
----------------------- -------- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.00 $10.19 $10.74 $9.84 $11.75
Net investment income (loss) 0.04(2) 0.46 0.50 0.44(2) 0.41(2)
Net realized and unrealized gain (loss) on investments 0.20 0.68 (0.88) 1.91 0.99
Total from investment operations 0.24 1.14 (0.38) 2.35 1.40
Less distributions:
Dividends from net investment income (0.05) (0.45) (0.50) (0.44) (0.41)
Distributions from net realized gain on investments sold -- (0.14) (0.02) -- (0.47)
Total distributions (0.05) (0.59) (0.52) (0.44) (0.88)
Net asset value, end of period $10.19 $10.74 $9.84 $11.75 $12.27
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 2.37(4) 11.38 (3.51) 24.23 12.13
Total adjusted investment return at net asset value(3,5) (%) 2.34(4) -- -- -- --
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 5,796 62,218 61,952 69,811 71,242
Ratio of expenses to average net assets (%) 2.79(6) 1.45 1.23 1.27 1.29
Ratio of adjusted expenses to average net assets(7) (%) 2.94(6) -- -- -- --
Ratio of net investment income (loss) to average net assets (%) 3.93(6) 4.44 4.89 3.99 3.33
Ratio of adjusted net investment income (loss) to average
net assets(7) (%) 3.78(6) -- -- -- --
Portfolio turnover rate (%) 0 85 78 45 80
Fee reduction per share ($) 0.0016(2) -- -- -- --
Average brokerage commission rate(8) ($) N/A N/A N/A N/A 0.0700
</TABLE>
<TABLE>
<CAPTION>
CLASS B - PERIOD ENDED: 12/92(1) 12/93 12/94 12/95 12/96
----------------------- -------- ------ ----- ----- -----
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.00 $10.20 $10.75 $9.84 $11.74
Net investment income (loss) 0.03(2) 0.37 0.43 0.36(2) 0.32(2)
Net realized and unrealized gain (loss) on investments 0.20 0.70 (0.89) 1.90 1.01
Total from investment operations 0.23 1.07 (0.46) 2.26 1.33
Less distributions:
Dividends from net investment income (0.03) (0.38) (0.43) (0.36) (0.33)
Distributions from net realized gain on investments sold -- (0.14) (0.02) -- (0.47)
Total distributions (0.03) (0.52) (0.45) (0.36) (0.80)
Net asset value, end of period $10.20 $10.75 $9.84 $11.74 $12.27
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 2.29(4) 10.63 (4.22) 23.30 11.46
Total adjusted investment return at net asset value(3,5) (%) 2.26(4) -- -- -- --
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 14,311 78,775 79,176 87,827 90,855
Ratio of expenses to average net assets (%) 3.51(6) 2.10 1.87 1.96 1.99
Ratio of adjusted expenses to average net assets(7) (%) 3.66(6) -- -- -- --
Ratio of net investment income (loss) to average net assets (%) 3.21(6) 4.01 4.25 3.31 2.63
Ratio of adjusted net investment income (loss) to average
net assets(7) (%) 3.06(6) -- -- -- --
Portfolio turnover rate (%) 0 85 78 45 80
Fee reduction per share ($) 0.0012(2) -- -- -- --
Average brokerage commission rate(8) ($) N/A N/A N/A N/A 0.0700
</TABLE>
(1) Class A and Class B shares commenced operations on October 5, 1992. This
period is covered by the report of other independent auditors (not included
herein).
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
SOVEREIGN BALANCED FUND 9
<PAGE>
SOVEREIGN INVESTORS FUND
REGISTRANT NAME: JOHN HANCOCK INVESTMENT TRUST
TICKER SYMBOL CLASS A: SOVIX CLASS B: SOVBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[BULLS EYE]
The fund seeks long-term growth of capital and of income without assuming undue
market risks. Under normal circumstances, the fund invests most of its assets in
a diversified selection of stocks, although it may respond to market conditions
by investing in other types of securities such as bonds or short-term
securities. The fund may not invest more than 25% of assets in any one industry.
Currently, the fund utilizes a "dividend performers" strategy in selecting
common stocks, investing exclusively in companies that have increased their
dividend payout in each of the last ten years.
PORTFOLIO SECURITIES
[OPEN FOLDER]
The fund may invest in most types of securities, including:
- - common and preferred stocks, warrants and convertible securities
- - U.S. Government and agency debt securities, including mortgage-backed
securities
- - corporate bonds, notes and other debt securities of any maturity
The fund's bond investments are primarily investment-grade, although up to 5% of
assets may be invested in junk bonds rated as low as C and their unrated
equivalents. To a limited extent, the fund may invest in certain higher-risk
securities, and may engage in other investment practices.
For temporary defensive purposes, the fund may invest some or all of its assets
in investment-grade short-term securities.
RISK FACTORS
[GRAPH]
As with any growth and income fund, the value of your investment will fluctuate
in response to stock and bond market movements. To the extent that the fund
invests in higher-risk securities, it takes on additional risks that could
adversely affect its performance. Before you invest, please read "More about
risk" starting on page 26.
MANAGEMENT/SUBADVISER
[PERSON]
John F. Snyder III and Barry H. Evans, CFA, lead the fund's portfolio management
team. Mr. Snyder, an investment manager since 1971, is an executive vice
president of Sovereign Asset Management Corporation, the fund's subadviser and a
subsidiary of John Hancock Funds. Mr. Evans, a senior vice president of the
adviser, has been in the investment business since joining John Hancock Funds in
1986.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[PERCENT]
Fund investors pay various expenses, either directly or indirectly. The figures
below show the expenses for the past year, adjusted to reflect any changes.
Future expenses may be greater or less.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
-------------------------------- ------- -------
<S> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
ANNUAL FUND OPERATING EXPENSES
(AS A % OF AVERAGE NET ASSETS)
Management Fee(3) 0.57% 0.57%
12b-1 fee(4) 0.30% 1.00%
Other expenses 0.26% 0.34%
Total fund operating expenses 1.13% 1.91%
</TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<TABLE>
<CAPTION>
Share class Year 1 Year 3 Year 5 Year 10
----------- ------ ------ ------ -------
<S> <C> <C> <C> <C>
Class A shares $61 $84 $109 $181
Class B shares
Assuming redemption
at end of period $69 $90 $123 $203
Assuming no redemption $19 $60 $103 $203
</TABLE>
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Management fee includes a subadviser fee equal to 40% of the management fee.
(4) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
10 SOVEREIGN INVESTORS FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[DOLLAR SIGN]
The figures below have been audited by the fund's independent auditors, Ernst &
Young LLP.
<TABLE>
<CAPTION>
VOLATILITY, AS INDICATED BY CLASS A
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
(scale varies from fund to fund)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0.28 11.23 23.76 4.38 30.48 7.23 5.71 (1.85) 29.15 17.57
</TABLE>
<TABLE>
<CAPTION>
CLASS A - PERIOD ENDED: 12/87(1,2) 12/88(1) 12/89(1) 12/90(1) 12/91(1,3)
----------------------- ---------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 12.36 $ 10.96 $ 11.19 $ 12.60 $ 11.94
Net investment income (loss) 0.53 0.57 0.59 0.58 0.54
Net realized and unrealized gain (loss) on investments (0.45) 0.65 2.01 (0.05) 3.03
Total from investment operations 0.08 1.22 2.60 0.53) 3.57
Less distributions:
Dividends from net investment income (0.58) (0.61) (0.61) (0.59) (0.53)
Distributions from net realized gain on investments sold 0.90 (0.38) (0.58) (0.60) (0.67)
Total distributions (1.48) (0.99) (1.19) (1.19) (1.20)
Net asset value, end of period $ 10.96 $ 11.19 $ 12.60 $ 11.94 $ 14.31
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(5) (%) 0.28 11.23 23.76 4.38 30.48
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 40,564 45,861 66,466 83,470 194,055
Ratio of expenses to average net assets (%) 0.85 0.86 1.07 1.14 1.18
Ratio of net investment income (loss) to average
net assets (%) 3.96 4.97 4.80 4.77 4.01
Portfolio turnover rate (%) 59 35 40 55 67
Average brokerage commission rate(6) ($) N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
CLASS A - PERIOD ENDED: 12/92(1) 12/93 12/94 12/95 12/96
----------------------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 14.31 $ 14.78 $ 15.10 $ 14.24 $ 17.87
Net investment income (loss) 0.47 0.44 0.46 0.40 0.36(4)
Net realized and unrealized gain (loss) on investments 0.54 0.39 (0.75) 3.71 2.77
Total from investment operations 1.01 0.83 (0.29) 4.11 3.13
Less distributions:
Dividends from net investment income (0.45) (0.42) (0.46 (0.40) (0.36)
Distributions from net realized gain on investments sold (0.09 (0.09) (0.11 (0.08) (1.16)
Total distributions (0.54) (0.51) (0.57 (0.48) (1.52)
Net asset value, end of period $ 14.78 $ 15.10 $ 14.24 $ 17.87 $ 19.48
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(5) (%) 7.23 5.71 (1.85) 29.15 17.57
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 872,932 1,258,575 1,090,231 1,280,321 1,429,523
Ratio of expenses to average net assets (%) 1.13 1.10 1.16 1.14 1.13
Ratio of net investment income (loss) to average
net assets (%) 3.32 2.94 3.13 2.45 1.86
Portfolio turnover rate (%) 30 46 45 46 59
Average brokerage commission rate(6) ($) N/A N/A N/A N/A 0.0696
</TABLE>
<TABLE>
<CAPTION>
CLASS B - PERIOD ENDED: 12/94(7) 12/95 12/96
----------------------- -------- ------ ------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $15.02 $14.24 $17.86
Net investment income (loss)(4) 0.38 0.27 0.21
Net realized and unrealized gain (loss) on investment (0.69) 3.71 2.77
Total from investment operations (0.31) 3.98 2.98
Less distributions:
Dividends from net investment income (0.36) (0.28) (0.22)
Distributions from net realized gain on investments sold (0.11) (0.08) (1.16)
Total distributions (0.47) (0.36) (1.38)
Net asset value, end of period $14.24 $17.86 $19.46
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(5) (%) (2.04)(8) 28.16 16.67
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 128,069 257,781 406,523
Ratio of expenses to average net assets (%) 1.86(9) 1.90 1.91
Ratio of net investment income (loss) to average net assets (%) 2.57(9) 1.65 1.10
Portfolio turnover rate (%) 45 46 59
Average brokerage commission rate(6) ($) N/A N/A 0.0696
</TABLE>
(1) These periods are covered by the report of other independent auditors (not
included herein).
(2) Restated for 2-for-1 stock split effective April 29, 1987.
(3) On October 23, 1991, John Hancock Advisers, Inc. became the investment
adviser of the fund.
(4) Based on the average of the shares outstanding at the end of each month.
(5) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(6) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(7) Class B shares commenced operations on January 3, 1994.
(8) Not annualized.
(9) Annualized.
SOVEREIGN INVESTORS FUND 11
<PAGE>
SPECIAL VALUE FUND
REGISTRANT NAME: JOHN HANCOCK CAPITAL SERIES
TICKER SYMBOL CLASS A: SPVAX CLASS B: SPVBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[BULLSEYE]
The fund seeks capital appreciation, with income as a secondary consideration.
To pursue this goal, the fund invests primarily in stocks that appear
comparatively undervalued and are out of favor. The fund looks for companies of
any size whose earnings power or asset value does not appear to be reflected in
the current stock price, and whose stocks thus have potential for appreciation.
The fund also takes a "margin of safety" approach, seeking those stocks that are
believed to have limited downside risk. The fund may not invest more than 25% of
assets in any one industry.
PORTFOLIO SECURITIES
[OPEN FOLDER]
The fund invests primarily in the common stocks of U.S. companies. It may also
invest in warrants, preferred stocks and convertible securities.
The fund may invest up to 50% of assets in foreign securities, including
American Depository Receipts. The fund may invest up to 15% of net assets in
junk bonds, including convertible securities, that may be rated as low as CC/Ca
and their unrated equivalents. To a limited extent, the fund also may invest in
certain higher-risk securities and may engage in other investment practices.
For temporary defensive purposes, the fund may invest some or all of its assets
in investment-grade short-term securities.
RISK FACTORS
[GRAPH]
As with any growth and income fund, the value of your investment will fluctuate.
Even comparatively undervalued stocks typically fall in price during broad
market declines. Small- and medium-sized company stocks, which may comprise a
portion of the fund's portfolio, tend to be more volatile than the market as a
whole.
To the extent that it invests in foreign securities, the fund may be affected by
additional risks, such as currency, information, natural event and political
risks. These risks are defined in "More about risk" starting on page 26. This
section also details other higher-risk securities and practices that the fund
may utilize. Please read "More about risk" carefully before you invest.
PORTFOLIO MANAGEMENT
[PERSON]
Timothy E. Keefe, CFA, has been the leader of the fund's portfolio management
team since August 1996. He is a senior vice president of the adviser. He joined
John Hancock Funds in July 1996 and has been in the investment business since
1987.
INVESTOR EXPENSES
[PERCENT]
Fund investors pay various expenses, either directly or indirectly. The figures
below show the expenses for the past year, adjusted to reflect any changes.
Future expenses may be greater or less.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
-------------------------------- ------- -------
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A % OF AVERAGE NET ASSETS)
- ------------------------------
<S> <C> <C>
Management fee (after expense limitation)(3) 0.00% 0.00%
12b-1 fee(4) 0.30% 1.00%
Other expenses (after limitation)(3) 0.69% 0.69%
Total fund operating expenses (after limitation)(3) 0.99% 1.69%
</TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<TABLE>
<CAPTION>
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10
----------- ------ ------ ------ -------
<S> <C> <C> <C> <C>
Class A shares $60 $80 $102 $165
Class B shares
Assuming redemption
at end of period $67 $83 $112 $181
Assuming no redemption $17 $53 $ 92 $181
</TABLE>
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Reflects the adviser's agreement to limit expenses (except for 12b-1 and
transfer agent expenses). Without this limitation, management fees would be
0.70% for each class, other expenses would be 0.70% for each class, and
total fund operating expenses would be 1.70% for Class A and 2.40% for Class
B. The adviser may terminate this limitation in the future.
(4) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
12 SPECIAL VALUE FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[DOLLAR SIGN]
The figures below have been audited by the fund's independent auditors, Ernst &
Young LLP.
<TABLE>
<CAPTION>
VOLATILITY, AS INDICATED BY CLASS A
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
<S> <C> <C> <C>
(scale varies from fund to fund) 7.81(4) 20.26 12.91
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
CLASS A - PERIOD ENDED: 12/94(1) 12/95 12/96
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $8.50 $8.99 $10.39
Net investment income (loss)(2) 0.18 0.21 0.14
Net realized and unrealized gain (loss) on investments 0.48 1.60 1.17
Total from investment operations 0.66 1.81 1.31
Less distributions:
Dividends from net investment income (0.17) (0.20) (0.14)
Distributions from net realized gain on investments sold -- (0.21) (1.24)
Total distributions (0.17) (0.41) (1.38)
Net asset value, end of period $8.99 $10.39 $10.32
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 7.81(4) 20.26 12.91
Total adjusted investment return at net asset value(3,5) (%) 7.30(4) 19.39 12.20
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 4,420 12,845 15,853
Ratio of expenses to average net assets (%) 0.99(6) 0.98 0.99
Ratio of adjusted expenses to average net assets(7) (%) 4.98(6) 1.85 1.70
Ratio of net investment income (loss) to average net assets (%) 2.10(6) 2.04 1.31
Ratio of adjusted net investment income (loss) to average net assets(7) (%) (1.89)(6) 1.17 0.60
Portfolio turnover rate (%) 0.3 9 72
Fee reduction per share (2) ($) 0.34 0.09 0.08
Average brokerage commission rate(8) ($) N/A N/A 0.0658
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
CLASS B - PERIOD ENDED: 12/94(1) 12/95 12/96
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $8.50 $9.00 $10.38
Net investment income (loss)(2) 0.13 0.12 0.07
Net realized and unrealized gain (loss) on investments 0.48 1.59 1.17
Total from investment operations 0.61 1.71 1.24
Less distributions:
Dividends from net investment income (0.11) (0.12) (0.07)
Distributions from net realized gain on investments sold -- (0.21) (1.24)
Total distributions (0.11) (0.33) (1.31)
Net asset value, end of period $9.00 $10.38 $10.31
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 7.15(4) 19.11 12.14
Total adjusted investment return at net asset value(3,5) (%) 6.64(4) 18.24 11.43
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 3,296 16,994 22,097
Ratio of expenses to average net assets (%) 1.72(6) 1.73 1.69
Ratio of adjusted expenses to average net assets(7) (%) 5.71(6) 2.60 2.40
Ratio of net investment income (loss) to average net assets (%) 1.53(6) 1.21 0.62
Ratio of adjusted net investment income (loss) to average net assets(7) (%) (2.46)(6) 0.34 (0.09)
Portfolio turnover rate (%) 0.3 9 72
Fee reduction per share (2)($) 0.34 0.09 0.08
Average brokerage commission rate(8) ($) N/A N/A 0.0658
</TABLE>
(1) Class A and Class B shares commenced operations on January 3, 1994.
(2) Based on the average of the shares outstanding at the end of each
month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) An estimated total return calculation that does not take into
consideration fee reductions by the adviser during the periods shown.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Per portfolio share traded. Required for fiscal years that began
September 1, 1995 or later.
SPECIAL VALUE FUND 13
<PAGE>
UTILITIES FUND
REGISTRANT NAME: JOHN HANCOCK CAPITAL SERIES
TICKER SYMBOL CLASS A: JHUAX CLASS B: JHUBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[BULLSEYE]
The fund seeks current income and, to the extent consistent with this goal,
growth of income and long-term growth of capital. To pursue this goal, the fund
invests primarily in public utilities companies, such as those whose principal
business involves the generation, handling or sale of electricity, natural gas,
water, waste management services or non-broadcast telecommunications services.
Under normal circumstances, the fund will invest at least 65% of assets in these
companies. The fund may invest in other industries if fund management believes
it would help the fund meet its goal.
PORTFOLIO SECURITIES
[OPEN FOLDER]
The fund invests primarily in the common stocks of U.S. and foreign companies.
It may also invest in warrants, preferred stocks and convertible securities.
Foreign securities (including American Depository Receipts) and investment-grade
debt securities may each comprise up to 25% of portfolio investments. To a
limited extent, the fund also may invest in certain higher-risk securities, and
may engage in other investment practices.
For temporary defensive purposes, the fund may invest some or all of its assets
in investment-grade short-term securities.
RISK FACTORS
[GRAPH]
As with any growth and income fund, the value of your investment will fluctuate
in response to stock and bond market movements. Because the fund concentrates on
a narrow segment of the economy, its performance is largely dependent on that
segment's performance. Utilities stocks may be adversely affected by numerous
factors, including government regulation and deregulation, environmental issues,
competition and rising interest rates.
To the extent that it invests in foreign securities, the fund may be affected by
additional risks such as currency, information, natural event and political
risks. These risks are defined in "More about risk" starting on page 26. This
section also details other higher-risk securities and practices that the fund
may utilize. Please read "More about risk" carefully before you invest.
PORTFOLIO MANAGEMENT
[PERSON]
Gregory K. Phelps, leader of the fund's portfolio management team since April
1996, is a vice president of the adviser. He joined John Hancock Funds in
January 1995 and has been in the investment business since 1981.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[PERCENT]
Fund investors pay various expenses, either directly or indirectly. The figures
below show the expenses for the past year, adjusted to reflect any changes.
Future expenses may be greater or less.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
- ---------------------------------------------------------------
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
- -------------------------------------------------------------------------------
<S> <C> <C>
Management fee (after expense limitation)(3) 0.25% 0.25%
12b-1 fee(4) 0.30% 1.00%
Other expenses 0.51% 0.51%
Total fund operating expenses (after limitation)(3) 1.06% 1.76%
</TABLE>
EXAMPLE The table below shows what you would pay
if you invested $1,000 over the various time frames indicated. The example
assumes you reinvested all dividends and that the average annual return was 5%.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $60 $82 $106 $173
Class B shares
Assuming redemption
at end of period $68 $85 $115 $189
Assuming no redemption $18 $55 $ 95 $189
</TABLE>
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges
are calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Reflects the adviser's agreement to limit expenses (except for 12b-1
and transfer agent expenses). Without this limitation, management fees
would be 0.70% for each class and total fund operating expenses would
be 1.51% for Class A and 2.21% for Class B. The adviser may terminate
this limitation in the future.
(4) Because of the 12b-1 fee, long-term shareholders may indirectly pay
more than the equivalent of the maximum permitted front-end sales
charge.
14 UTILITIES FUND
<PAGE>
FINANCIAL HIGHLIGHTS
The figures below have been audited
[DOLLAR SIGN] by the fund's independent auditors,
Price Waterhouse LLP.
<TABLE>
<S> <C> <C> <C> <C>
VOLATILITY, AS INDICATED BY CLASS A
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) (2.82)(4) 7.10 14.44 11.05(4)
(scale varies from fund to fund) seven
months
</TABLE>
<TABLE>
<CAPTION>
CLASS A - PERIOD ENDED: 5/94(1) 5/95 5/96 12/96(2)
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 8.50 $ 8.26 $ 8.48 $ 9.17
Net investment income (loss)(3) 0.12 0.44 0.41 0.30
Net realized and unrealized gain (loss) on investments and
foreign currency transactions (0.36) 0.12 0.79 0.68
Total from investment operations (0.24) 0.56 1.20 0.98
Less distributions:
Dividends from net investment income -- (0.34) (0.41) (0.35)
Distributions from net realized gains on investments sold -- -- (0.10) (0.73)
Total distributions -- (0.34) (0.51) (1.08)
Net asset value, end of period $ 8.26 $ 8.48 $ 9.17 $ 9.07
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4) (%) (2.82)(5) 7.10 14.44 11.05(5)
Total adjusted investment return at net asset value(4,6) (%) (6.46)(5) 6.44 14.01 (10.78)(5)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 781 19,229 22,574 23,781
Ratio of expenses to average net assets (%) 1.00(7) 1.04 1.04 1.06(7)
Ratio of adjusted expenses to average net assets(8) (%) 12.07(7) 1.70 1.47 1.51(7)
Ratio of net investment income (loss) to average net assets (%) 4.53(7) 5.39 4.49 5.44(7)
Ratio of adjusted net investment income (loss) to average net assets(8) (%) (6.54)(7) 4.73 4.06 4.99(7)
Portfolio turnover rate (%) 6 98 124 48
Fee reduction per share (3)($) 0.27 0.05 0.04 0.02
Average brokerage commission rate(9) ($) N/A N/A N/A 0.0700
</TABLE>
<TABLE>
<CAPTION>
CLASS B - PERIOD ENDED: 5/94(1) 5/95 5/96 12/96(2)
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 8.50 $ 8.25 $ 8.45 $ 9.14
Net investment income (loss)(3) 0.08 0.38 0.34 0.26
Net realized and unrealized gain (loss) on investments and
foreign currency transactions (0.33) 0.12 0.79 0.68
Total from investment operations (0.25) 0.50 1.13 0.94
Less distributions:
Dividends from net investment income -- (0.30) (0.34) (0.31)
Distributions from net realized gains on investments sold -- -- (0.10) (0.73)
Total distributions -- (0.30) (0.44) (1.04)
Net asset value, end of period $ 8.25 $ 8.45 $ 9.14 $ 9.04
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4) (%) (2.94)(5) 6.31 13.68 10.50(5)
Total adjusted investment return at net asset value(4,6) (%) (6.58)(5) 5.65 13.25 10.23(5)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 445 38,344 47,759 51,043
Ratio of expenses to average net assets (%) 1.72(7) 1.71 1.77 1.75(7)
Ratio of adjusted expenses to average net assets(8) (%) 12.79(7) 2.37 2.20 2.20(7)
Ratio of net investment income (loss) to average net assets (%) 4.20(7) 4.64 3.77 4.74(7)
Ratio of adjusted net investment income (loss) to average net assets(8) (%) (6.87)(7) 3.98 3.34 4.29(7)
Portfolio turnover rate (%) 6 98 124 48
Fee reduction per share (3)($) 0.27 0.05 0.04 0.02
Average brokerage commission rate(9) ($) N/A N/A N/A 0.0700
</TABLE>
- ----------
(1) Class A and Class B shares commenced operations on February 1, 1994.
(2) Effective December 31, 1996, the fiscal year end changed from May 31 to
December 31.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(7) Annualized.
(8) Unreimbursed, without fee reduction.
(9) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
UTILITIES FUND 15
<PAGE>
YOUR ACCOUNT
- --------------------------------------------------------------------------------
CHOOSING A SHARE CLASS
All John Hancock growth and income funds offer two classes of shares, Class A
and Class B. Each class has its own cost structure, allowing you to choose the
one that best meets your requirements. Your financial representative can help
you decide.
<TABLE>
<CAPTION>
CLASS A CLASS B
<S> <C>
- - Front-end sales charges, as - No front-end sales charge; all
described below. There are your money goes to work for
several ways to reduce these you right away.
charges, also described below.
- Higher annual expenses than
- - Lower annual expenses than Class A shares.
Class B shares.
- A deferred sales charge on
shares you sell within six
years of purchase, as
described below.
- Automatic conversion to Class
A shares after eight years,
thus reducing future annual
expenses.
</TABLE>
For actual past expenses of Class A and B shares, see the fund-by-fund
information earlier in this prospectus.
Sovereign Investors Fund offers Class C shares, which have their own expense
structure and are available to financial institutions only. Call Signature
Services for more information (see the back cover of this prospectus).
- --------------------------------------------------------------------------------
HOW SALES CHARGES ARE CALCULATED
Class A Sales charges are as follows:
CLASS A SALES CHARGES
<TABLE>
<CAPTION>
As a % of As a % of your
Your investment offering price investment
<S> <C> <C>
Up to $49,999 5.00% 5.26%
$50,000 - $99,999 4.50% 4.71%
$100,000 - $249,999 3.50% 3.63%
$250,000 - $499,999 2.50% 2.56%
$500,000 - $999,999 2.00% 2.04%
$1,000,000 and over See below
</TABLE>
Investments of $1 million or more Class A shares are available with no front-end
sales charge. However, there is a contingent deferred sales charge (CDSC) on any
shares sold within one year of purchase, as follows:
CDSC ON $1 MILLION+ INVESTMENTS
<TABLE>
<CAPTION>
Your investment CDSC on shares being sold
<S> <C>
First $1M - $4,999,999 1.00%
Next $1 - $5M above that 0.50%
Next $1 or more above that 0.25%
</TABLE>
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the LAST day of that month.
The CDSC is based on the lesser of the original purchase cost or the current
market value of the shares being sold, and is not charged on shares you acquired
by reinvesting your dividends. To keep your CDSC as low as possible, each time
you place a request to sell shares we will first sell any shares in your account
that are not subject to a CDSC.
Class B Shares are offered at their net asset value per share, without any
initial sales charge. However, there is a contingent deferred sales charge
(CDSC) on shares you sell within six years of buying them. There is no CDSC on
shares acquired through reinvestment of dividends. The CDSC is based on the
original purchase cost or the current market value of the shares being sold,
whichever is less. The longer the time between the purchase and the sale of
shares, the lower the rate of the CDSC:
CLASS B DEFERRED CHARGES
<TABLE>
<CAPTION>
Years after purchase CDSC on shares being sold
<S> <C>
1st year 5.00%
2nd year 4.00%
3rd or 4th year 3.00%
5th year 2.00%
6th year 1.00%
After 6 years None
</TABLE>
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the FIRST day of that month.
CDSC calculations are based on the number of shares involved, not on the value
of your account. To keep your CDSC as low as possible, each time you place a
request to sell shares we will first sell any shares in your account that carry
no CDSC. If there are not enough of these to meet your request, we will sell
those shares that have the lowest CDSC.
16 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
SALES CHARGE REDUCTIONS AND WAIVERS
REDUCING YOUR CLASS A SALES CHARGES There are several ways you can combine
multiple purchases of Class A shares of John Hancock funds to take advantage of
the breakpoints in the sales charge schedule. The first three ways can be
combined in any manner.
- - Accumulation Privilege -- lets you add the value of any Class A shares you
already own to the amount of your next Class A investment for purposes of
calculating the sales charge.
- - Letter of Intention -- lets you purchase Class A shares of a fund over a
13-month period and receive the same sales charge as if all shares had been
purchased at once.
- - Combination Privilege -- lets you combine Class A shares of multiple funds
for purposes of calculating the sales charge.
To utilize: complete the appropriate section of your application, or contact
your financial representative or Signature Services to add these options.
GROUP INVESTMENT PROGRAM A group may be treated as a single purchaser under the
accumulation and combination privileges. Each investor has an individual
account, but for sales charge purposes the group's investments are lumped
together, making the investors potentially eligible for reduced sales charges.
There is no charge, no obligation to invest (although initial aggregate
investments must be at least $250) and individual investors may terminate their
accounts at any time.
To utilize: contact your financial representative or Signature Services to find
out how to qualify, or consult the SAI (see the back cover of the prospectus).
CDSC waivers As long as Signature Services is notified at the time you sell, the
CDSC for either share class will generally be waived in the following cases:
- - to make payments through certain systematic withdrawal plans
- - to make certain distributions from a retirement plan
- - because of shareholder death or disability
To utilize: If you think you may be eligible for a CDSC waiver, contact your
financial representative or Signature Services, or consult the SAI.
REINSTATEMENT PRIVILEGE If you sell shares of a John Hancock fund, you may
reinvest some or all of the proceeds in the same share class of any John Hancock
fund within 120 days without a sales charge, as long as Signature Services is
notified before you reinvest. If you paid a CDSC when you sold your shares, you
will be credited with the amount of the CDSC. All accounts involved must have
the same registration.
To utilize: contact your financial representative or Signature Services.
WAIVERS FOR CERTAIN INVESTORS Class A shares may be offered without front-end
sales charges or CDSCs to various individuals and institutions, including:
- - government entities that are prohibited from paying mutual fund sales charges
- - financial institutions or common trust funds investing $1 million or more for
non-discretionary accounts
- - selling brokers and their employees and sales representatives
- - financial representatives utilizing fund shares in fee-based investment
products under agreement with John Hancock Funds
- - fund trustees and other individuals who are affiliated with these or other
John Hancock funds
- - individuals transferring assets to a John Hancock fund from an employee
benefit plan that has John Hancock funds
- - members of an approved affinity group financial services program
- - certain insurance company contract holders (one-year CDSC usually applies)
- - participants in certain retirement plans with at least 100 members (one-year
CDSC applies)
To utilize: if you think you may be eligible for a sales charge waiver, contact
your financial representative or Signature Services, or consult the SAI.
- --------------------------------------------------------------------------------
OPENING AN ACCOUNT
1 Read this prospectus carefully.
2 Determine how much you want to invest. The minimum initial investments for
the John Hancock funds are as follows:
- non-retirement account: $1,000
- retirement account: $250
- group investments: $250
- Monthly Automatic Accumulation Plan (MAAP): $25 to open; you must invest at
least $25 a month
3 Complete the appropriate parts of the account application, carefully
following the instructions. If you have questions, please contact your
financial representative or call Signature Services at 1-800-225-5291.
4 Complete the appropriate parts of the account privileges section of the
application. By applying for privileges now, you can avoid the delay and
inconvenience of having to file an additional application if you want to add
privileges later.
5 Make your initial investment using the table on the next page. You and your
financial representative can initiate any purchase, exchange or sale of
shares.
YOUR ACCOUNT 17
<PAGE>
BUYING SHARES
<TABLE>
<CAPTION>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
<S> <C> <C>
BY CHECK
[CHECK] - Make out a check for the - Make out a check for the
investment amount, payable to investment amount payable to
"John Hancock Signature "John Hancock Signature
Services, Inc." Services, Inc."
- Deliver the check and your - Fill out the detachable
completed application to your investment slip from an account
financial representative, or statement. If no slip is
mail them to Signature Services available, include a note
(address on next page). specifying the fund name, your
share class, your account number
and the name(s) in which the
account is registered.
- Deliver the check and your
investment slip or note to your
financial representative, or
mail them to Signature Services
(address on next page).
BY EXCHANGE
[RIGHT/LEFT ARROWS] - Call your financial - Call your financial
representative or Signature representative or Signature
Services to request an exchange. Services to request an exchange.
BY WIRE
[JAGGED ARROW] - Deliver your completed - Instruct your bank to wire the
application to your financial amount of your investment to:
representative, or mail it to First Signature Bank & Trust
Signature Services. Account # 900000260
Routing # 211475000
- Obtain your account number by Specify the fund name, your
calling your financial share class, your account number
representative or Signature and the name(s) in which the
Services. account is registered. Your bank
may charge a fee to wire funds.
- Instruct your bank to wire the
amount of your investment to:
First Signature Bank & Trust
Account # 900000260
Routing # 211475000
Specify the fund name, your
choice of share class, the new
account number and the name(s)
in which the account is
registered. Your bank may charge
a fee to wire funds.
BY PHONE
[PHONE] See "By wire" and "By exchange." - Verify that your bank or credit
union is a member of the
Automated Clearing House (ACH)
system.
- Complete the "Invest-By-Phone"
and "Bank Information" sections
on your account application.
- Call Signature Services to
verify that these features are
in place on your account.
- Tell the Signature Services
representative the fund name,
your share class, your account
number, the name(s) in which the
account is registered and the
amount of your investment.
</TABLE>
To open or add to an account using the Monthly Automatic Accumulation Program,
see "Additional investor services."
18 YOUR ACCOUNT
<PAGE>
SELLING SHARES
<TABLE>
<CAPTION>
DESIGNED FOR TO SELL SOME OR ALL OF YOUR SHARES
<S> <C> <C>
BY LETTER
[LETTER] - Accounts of any type. - Write a letter of instruction or
complete a stock power
- Sales of any amount. indicating the fund name, your
share class, your account
number, the name(s) in which the
account is registered and the
dollar value or number of shares
you wish to sell.
- Include all signatures and any
additional documents that may be
required (see next page).
- Mail the materials to Signature
Services.
- A check will be mailed to the
name(s) and address in which the
account is registered, or
otherwise according to your
letter of instruction.
BY PHONE
[PHONE] - Most accounts. - For automated service 24 hours a
day using your touch-tone phone,
- Sales of up to $100,000. call the EASI-Line at
1-800-338-8080.
- To place your order with a
representative at John Hancock
Funds, call Signature Services
between 8 A.M. and 4 P.M.
Eastern Time on most business
days.
BY WIRE OR ELECTRONIC
FUNDS TRANSFER (EFT)
[JAGGED ARROW] - Requests by letter to sell any - Fill out the "Telephone
amount (accounts of any type). Redemption" section of your new
account application.
- Requests by phone to sell up to
$100,000 (accounts with - To verify that the telephone
telephone redemption redemption privilege is in place
privileges). on an account, or to request the
forms to add it to an existing
account, call Signature
Services.
- Amounts of $1,000 or more will
be wired on the next business
day. A $4 fee will be deducted
from your account.
- Amounts of less than $1,000 may
be sent by EFT or by check.
Funds from EFT transactions are
generally available by the
second business day. Your bank
may charge a fee for this
service.
BY EXCHANGE
[RIGHT/LEFT ARROWS] - Accounts of any type. - Obtain a current prospectus for
the fund into which you are
- Sales of any amount. exchanging by calling your
financial representative or
Signature Services.
- Call your financial
representative or Signature
Services to request an exchange.
</TABLE>
ADDRESS
JOHN HANCOCK SIGNATURE SERVICES, INC.
1 JOHN HANCOCK WAY, SUITE 1000
BOSTON, MA 02217-1000
PHONE
1-800-225-5291
OR CONTACT YOUR FINANCIAL REPRESENTATIVE
FOR INSTRUCTIONS AND ASSISTANCE.
To sell shares through a systematic withdrawal plan, see "Additional investor
services."
YOUR ACCOUNT 19
<PAGE>
SELLING SHARES IN WRITING In certain circumstances, you will need to make your
request to sell shares in writing. You may need to include additional items with
your request, as shown in the table below. You may also need to include a
signature guarantee, which protects you against fraudulent orders. You will need
a signature guarantee if:
- - your address of record has changed within the past 30 days
- - you are selling more than $100,000 worth of shares
- - you are requesting payment other than by a check mailed to the address of
record and payable to the registered owner(s)
You can generally obtain a signature guarantee from the following sources:
- - a broker or securities dealer
- - a federal savings, cooperative or other type of bank
- - a savings and loan or other thrift institution
- - a credit union
- - a securities exchange or clearing agency
A notary public CANNOT provide a signature guarantee.
<TABLE>
<CAPTION>
SELLER REQUIREMENTS FOR WRITTEN REQUESTS [LETTER]
<S> <C>
Owners of individual, joint, sole - Letter of instruction.
proprietorship, UGMA/UTMA
(custodial accounts for minors) or - On the letter, the signatures
general partner accounts. and titles of all persons
authorized to sign for the
account, exactly as the account
is registered.
- Signature guarantee if
applicable (see above).
Owners of corporate or association - Letter of instruction.
accounts.
- Corporate resolution, certified
within the past two years.
- On the letter and the
resolution, the signature of the
person(s) authorized to sign for
the account.
- Signature guarantee if
applicable (see above).
Owners or trustees of trust - Letter of instruction.
accounts.
- On the letter, the signature(s)
of the trustee(s).
- If the names of all trustees are
not registered on the account,
please also provide a copy of
the trust document certified
within the past six months.
- Signature guarantee if
applicable (see above).
Joint tenancy shareholders whose - Letter of instruction signed by
co-tenants are deceased. surviving tenant.
- Copy of death certificate.
- Signature guarantee if
applicable (see above).
Executors of shareholder estates. - Letter of instruction signed by
executor.
- Copy of order appointing
executor.
- Signature guarantee if
applicable (see above).
Administrators, conservators, - Call 1-800-225-5291 for
guardians and other sellers or instructions.
account types not listed above.
</TABLE>
20 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
TRANSACTION POLICIES
VALUATION OF SHARES The net asset value per share (NAV) for each fund and class
is determined each business day at the close of regular trading on the New York
Stock Exchange (typically 4 P.M. Eastern Time) by dividing a class's net assets
by the number of its shares outstanding.
BUY AND SELL PRICES When you buy shares, you pay the NAV plus any applicable
sales charges, as described earlier. When you sell shares, you receive the NAV
minus any applicable deferred sales charges.
EXECUTION OF REQUESTS Each fund is open on those days when the New York Stock
Exchange is open, typically Monday through Friday. Buy and sell requests are
executed at the next NAV to be calculated after your request is accepted by
Signature Services.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider using EASI-Line or sending your request in writing.
In unusual circumstances, any fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to three business days
or longer, as allowed by federal securities laws.
TELEPHONE TRANSACTIONS For your protection, telephone requests may be recorded
in order to verify their accuracy. In addition, Signature Services 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, Signature Services is not
responsible for any losses that may occur to any account due to an unauthorized
telephone call. Also for your protection, telephone transactions are not
permitted on accounts whose names or addresses have changed within the past 30
days. Proceeds from telephone transactions can only be mailed to the address of
record.
EXCHANGES You may exchange shares of one John Hancock fund for shares of the
same class of any other, generally without paying any additional sales charges.
The registration for both accounts involved must be identical. Class B shares
will continue to age from the original date and will retain the same CDSC rate
as they had before the exchange, except that the rate will change to the new
fund's rate if that rate is higher. A CDSC rate that has increased will drop
again with a future exchange into a fund with a lower rate.
To protect the interests of other investors in the fund, a fund may cancel the
exchange privileges of any parties that, in the opinion of the fund, are using
market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. A fund may also refuse any exchange order.
A fund may change or cancel its exchange policies at any time, upon 60 days'
notice to its shareholders.
CERTIFICATED SHARES Most shares are electronically recorded. If you wish to have
certificates for your shares, please write to Signature Services. Certificated
shares can only be sold by returning the certificates to Signature Services,
along with a letter of instruction or a stock power and a signature guarantee.
SALES IN ADVANCE OF PURCHASE PAYMENTS When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but the fund will not release the proceeds to you
until your purchase payment clears. This may take up to ten business days after
the purchase.
ELIGIBILITY BY STATE You may only invest in, or exchange into, fund shares
legally available in your state.
- --------------------------------------------------------------------------------
DIVIDENDS AND ACCOUNT POLICIES
Account statements In general, you will receive account statements as follows:
- - after every transaction (except a dividend reinvestment) that affects your
account balance
- - after any changes of name or address of the registered owner(s)
- - in all other circumstances, every quarter
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
DIVIDENDS The funds generally distribute most or all of their net earnings in
the form of dividends. Income dividends are typically paid quarterly, and
capital gains dividends, if any, are typically paid annually.
YOUR ACCOUNT 21
<PAGE>
DIVIDEND REINVESTMENTS Most investors have their dividends reinvested in
additional shares of the same fund and class. If you choose this option, or if
you do not indicate any choice, your dividends will be reinvested on the
dividend record date. Alternatively, you can choose to have a check for your
dividends mailed to you. However, if the check is not deliverable, your
dividends will be reinvested.
TAXABILITY OF DIVIDENDS As long as a fund meets the requirements for being a
tax-qualified regulated investment company, which each fund has in the past and
intends to in the future, it pays no federal income tax on the earnings it
distributes to shareholders.
Consequently, dividends you receive from a fund, whether reinvested or taken as
cash, are generally considered taxable. Dividends from a fund's long-term
capital gains are taxable as capital gains; dividends from other sources are
generally taxable as ordinary income.
Some dividends paid in January may be taxable as if they had been paid the
previous December. Corporations may be entitled to take a dividends-received
deduction for a portion of certain dividends they receive.
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
TAXABILITY OF TRANSACTIONS Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
SMALL ACCOUNTS (NON-RETIREMENT ONLY) If you draw down a non-retirement account
so that its total value is less than $1,000, you may be asked to purchase more
shares within 30 days. If you do not take action, your fund may close out your
account and mail you the proceeds. Alternatively, Signature Services may charge
you $10 a year to maintain your account. You will not be charged a CDSC if your
account is closed for this reason, and your account will not be closed if its
drop in value is due to fund performance or the effects of sales charges.
- --------------------------------------------------------------------------------
ADDITIONAL INVESTOR SERVICES
MONTHLY AUTOMATIC ACCUMULATION PROGRAM (MAAP) MAAP lets you set up regular
investments from your paycheck or bank account to the John Hancock fund(s) of
your choice. You determine the frequency and amount of your investments, and you
can terminate your program at any time. To establish:
- - Complete the appropriate parts of your account application.
- - If you are using MAAP to open an account, make out a check ($25 minimum) for
your first investment amount payable to "John Hancock Signature Services,
Inc." Deliver your check and application to your financial representative or
Signature Services.
SYSTEMATIC WITHDRAWAL PLAN This plan may be used for routine bill payments or
periodic withdrawals from your account. To establish:
- - Make sure you have at least $5,000 worth of shares in your account.
- - Make sure you are not planning to invest more money in this account (buying
shares during a period when you are also selling shares of the same fund is
not advantageous to you, because of sales charges).
- - Specify the payee(s). The payee may be yourself or any other party, and there
is no limit to the number of payees you may have, as long as they are all on
the same payment schedule.
- - Determine the schedule: monthly, quarterly, semi-annually, annually or in
certain selected months.
- - Fill out the relevant part of the account application. To add a systematic
withdrawal plan to an existing account, contact your financial representative
or Signature Services.
RETIREMENT PLANS John Hancock Funds offers a range of qualified retirement
plans, including IRAs, SEPs, 401(k) plans, 403(b) plans (including TSAs) and
other pension and profit-sharing plans. Using these plans, you can invest in any
John Hancock fund (except tax-free income funds) with a low minimum investment
of $250 or, for some group plans, no minimum investment at all. To find out
more, call Signature Services at 1-800-225-5291.
22 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
HOW THE FUNDS ARE ORGANIZED Each John Hancock growth and income fund is an
open-end management investment company or a series of such a company.
Each fund is supervised by a board of trustees, an independent body that has
ultimate responsibility for the fund's activities. The board retains various
companies to carry out the fund's operations, including the investment adviser,
custodian, transfer agent and others (see diagram). The board has the right, and
the obligation, to terminate the fund's relationship with any of these companies
and to retain a different company if the board believes it is in the
shareholders' best interests.
At a mutual fund's inception, the initial shareholder (typically the adviser)
appoints the fund's board. Thereafter, the board and the shareholders determine
the board's membership. The boards of the John Hancock growth and income funds
may include individuals who are affiliated with the investment adviser. However,
the majority of board members must be independent.
The funds do not hold annual shareholder meetings, but may hold special meetings
for such purposes as electing or removing board members, changing fundamental
policies, approving a management contract or approving a 12b-1 plan (12b-1 fees
are explained in "Sales compensation").
<TABLE>
<S><C><C>
------------------
Shareholders
-------------------
----------------------------------
Financial services firms and
their representatives
Distribution Advise current and prospective
and shareholder shareholders on their fund
services invesments, often in the context
of an overall financial plan.
------------------------------------
--------------------------------- -------------------------------------
Principal distributor Transfer agent
John Hancock Funds, Inc. John Hancock Signature Services, Inc.
101 Huntington Avenue 1 John Hancock Way, Suite 1000
Boston, MA 02199-7603 Boston, MA 02217-1000
Markets the funds and distributes Handles shareholder services, includ-
shares through selling brokers, ing record-keeping and statements,
financial planners and other distribution of dividends and pro-
financial representatives. cessing of buy and sell requests.
--------------------------------- -------------------------------------
- ---------------------------- --------------------------- -----------------------------------
Subadvisers Investment adviser Custodian
Independence Investment John Hancock Advisers, Inc. Investors Bank & Trust Co.
Associates, Inc. 101 Huntington Avenue 89 South Street
53 State Street Boston, MA 02199-7603 Boston, MA 02111 Asset
Boston, MA 02109 Management
Manages the funds' Holds the funds' assets, settles
Sovereign Asset business and invest- all portfolio trades and collects
Management Corporation ment activites. most of the valuation data required
One Westlakes --------------------------- for calculating each fund's NAV.
1235 Westlakes Drive -----------------------------------
Berwyn, PA 19312
--------------------------------
Provide portfolio management Trustees
services to certain funds.
- ---------------------------- Supervise the funds' activities.
--------------------------------
</TABLE>
FUND DETAILS 23
<PAGE>
ACCOUNTING COMPENSATION The funds compensate the adviser for performing tax and
financial management services. Annual compensation is not expected to exceed
0.02% of each fund's average net assets.
PORTFOLIO TRADES In placing portfolio trades, the adviser may use brokerage
firms that market the fund's shares or are affiliated with John Hancock Mutual
Life Insurance Company, but only when the adviser believes no other firm offers
a better combination of quality execution (i.e., timeliness and completeness)
and favorable price.
INVESTMENT GOALS Except for Growth and Income Fund, Sovereign Balanced Fund and
Utilities Fund, each fund's investment goal is fundamental and may only be
changed with shareholder approval.
DIVERSIFICATION All of the growth and income funds are diversified.
- --------------------------------------------------------------------------------
SALES COMPENSATION
As part of their business strategies, the funds, along with John Hancock Funds,
pay compensation to financial services firms that sell the funds' shares. These
firms typically pass along a portion of this compensation to your financial
representative.
Compensation payments originate from two sources: from sales charges and from
12b-1 fees that are paid out of the funds' assets ("12b-1" refers to the federal
securities regulation authorizing annual fees of this type). The 12b-1 fee rates
vary by fund and by share class, according to Rule 12b-1 plans adopted by the
funds. The sales charges and 12b-1 fees paid by investors are detailed in the
fund-by-fund information. The portions of these expenses that are reallowed to
financial services firms are shown on the next page.
Distribution fees may be used to pay for sales compensation to financial
services firms, marketing and overhead expenses and, for Class B shares,
interest expenses.
CLASS B UNREIMBURSED DISTRIBUTION EXPENSES(1)
<TABLE>
<CAPTION>
Unreimbursed As a % of
Fund expenses net assets
<S> <C> <C>
Growth and Income $ 3,586,396 2.57%
Independence Equity $ 345,426 1.30%
Sovereign Balanced $ 3,393,763 3.88%
Sovereign Investors $ 10,068,331 3.00%
Special Value $ 964,684 4.81%
Utilities $ 2,350,903 4.73%
</TABLE>
(1) As of the most recent fiscal year end covered by each fund's financial
highlights. These expenses may be carried forward indefinitely.
INITIAL COMPENSATION Whenever you make an investment in a fund or funds, the
financial services firm receives either a reallowance from the initial sales
charge or a commission, as described below. The firm also receives the first
year's service fee at this time.
ANNUAL COMPENSATION Beginning with the second year after an investment is made,
the financial services firm receives an annual service fee of 0.25% of its total
eligible net assets. This fee is paid quarterly in arrears.
Financial services firms selling large amounts of fund shares may receive extra
compensation. This compensation, which John Hancock Funds pays out of its own
resources, may include asset retention fees as well as reimbursement for
marketing expenses.
24 FUND DETAILS
<PAGE>
- --------------------------------------------------------------------------------
CLASS A INVESTMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAXIMUM
SALES CHARGE REALLOWANCE FIRST YEAR MAXIMUM
PAID BY INVESTORS OR COMMISSION SERVICE FEE TOTAL COMPENSATION(1)
(% of offering price) (% of offering price) (% of net investment) (% of offering price)
<S> <C> <C> <C> <C>
Up to $49,999 5.00% 4.01% 0.25% 4.25%
$50,000 - $99,999 4.50% 3.51% 0.25% 3.75%
$100,000 - $249,999 3.50% 2.61% 0.25% 2.85%
$250,000 - $499,999 2.50% 1.86% 0.25% 2.10%
$500,000 - $999,999 2.00% 1.36% 0.25% 1.60%
REGULAR INVESTMENTS OF
$1 MILLION OR MORE
First $1M - $4,999,999 -- 0.75% 0.25% 1.00%
Next $1 - $5M above that -- 0.25% 0.25% 0.50%
Next $1 or more above that -- 0.00% 0.25% 0.25%
Waiver investments(2) -- 0.00% 0.25% 0.25%
</TABLE>
- --------------------------------------------------------------------------------
CLASS B INVESTMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAXIMUM
REALLOWANCE FIRST YEAR MAXIMUM
OR COMMISSION SERVICE FEE TOTAL COMPENSATION
(% of offering price) (% of net investment) (% of offering price)
<S> <C> <C> <C>
All amounts 3.75% 0.25% 4.00%
</TABLE>
(1) Reallowance/commission percentages and service fee percentages are
calculated from different amounts, and therefore may not equal total
compensation percentages if combined using simple addition.
(2) Refers to any investments made by municipalities, financial institutions,
trusts and affinity group members that take advantage of the sales charge
waivers described earlier in this prospectus.
CDSC revenues collected by John Hancock Funds may be used to pay commissions
when there is no initial sales charge.
FUND DETAILS 25
<PAGE>
- --------------------------------------------------------------------------------
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's primary securities and
investment practices. You may find the most concise description of each fund's
risk profile in the fund-by-fund information.
The funds are permitted to utilize -- within limits established by the trustees
- -- certain other securities and investment practices that have higher risks and
opportunities associated with them. On the following page are brief descriptions
of these securities and practices, along with the risks associated with them.
The funds follow certain policies that may reduce these risks.
As with any mutual fund, there is no guarantee that the performance of a John
Hancock growth and income fund will be positive over any period of time.
- --------------------------------------------------------------------------------
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).
CREDIT RISK The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation.
CURRENCY RISK The risk that fluctuations in the exchange rates between the U.S.
dollar and foreign currencies may negatively affect an investment.
EXTENSION RISK The risk that an unexpected rise in interest rates will extend
the life of a mortgage-backed security beyond the expected prepayment time,
typically reducing the security's value.
INFORMATION RISK The risk that key information about a security or market is
inaccurate or unavailable.
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.
LEVERAGE RISK Associated with securities or practices (such as borrowing) that
multiply small index or market movements into large changes in value.
- - HEDGED When a derivative (a security whose value is based on another
security or index) is used as a hedge against an opposite position that
the fund also holds, any loss generated by the derivative should be
substantially offset by gains on the hedged investment, and vice versa.
While hedging can reduce or eliminate losses, it can also reduce or
eliminate gains.
- - SPECULATIVE To the extent that a derivative is not used as a hedge, the
fund is directly exposed to the risks of that derivative. Gains or
losses from speculative positions in a derivative may be substantially
greater than the derivative's original cost.
LIQUIDITY RISK The risk that certain securities may be difficult or impossible
to sell at the time and the price that the seller would like.
MANAGEMENT RISK The risk that a strategy used by a fund's management may fail to
produce the intended result. Common to all mutual funds.
MARKET RISK The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. Common to all stocks and bonds and the
mutual funds that invest in them.
NATURAL EVENT RISK The risk of losses attributable to natural disasters, crop
failures and similar events.
OPPORTUNITY RISK The risk of missing out on an investment opportunity because
the assets necessary to take advantage of it are tied up in less advantageous
investments.
POLITICAL RISK The risk of losses directly attributable to government or
political actions of any sort.
PREPAYMENT RISK The risk that unanticipated prepayments may occur, reducing the
value of mortgage-backed securities.
VALUATION RISK The risk that a fund has valued certain of its securities at a
higher price than it can sell them for.
- --------------------------------------------------------------------------------
ANALYSIS OF FUNDS WITH 5% OR MORE IN JUNK BONDS(1)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
QUALITY RATING
(S&P/MOODY'S)(2) SOVEREIGN BALANCED FUND
<S> <C> <C>
AAA/Aaa 17.7%
INVESTMENT- AA/Aa 2.0%
GRADE BONDS A/A 5.1%
BBB/Baa 4.2%
- -----------------------------------------------------------------------
BB/Ba 2.6%
B/B 2.1%
JUNK BONDS CCC/Caa 0.0%
CC/Ca 0.0%
C/C 0.0%
% of portfolio in bonds 33.7%
</TABLE>
- - Rated by Standard & Poor's or Moody's
(1) Average weighted quality distribution for the most recent fiscal year.
(2) In cases where the S&P and Moody's ratings for a given bond issue do not
agree, the issue has been counted in the higher category.
26 FUND DETAILS
<PAGE>
- --------------------------------------------------------------------------------
HIGHER-RISK SECURITIES AND PRACTICES
- --------------------------------------------------------------------------------
This table shows each fund's investment limitations as a percentage of portfolio
assets. In each case the principal types of risk are listed (see previous page
for definitions). Numbers in this table show allowable usage only; for actual
usage, consult the fund's annual/semi-annual reports.
10 Percent of total assets (italic type)
10 Percent of net assets (roman type)
/x/ No policy limitation on usage; fund may be using currently
/ / Permitted, but has not typically been used
- -- Not permitted
<TABLE>
<CAPTION>
Growth
and Independence Sovereign Sovereign Special
Income Equity Balanced Investors Value Utilities
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT PRACTICES
BORROWING; REVERSE REPURCHASE AGREEMENTS The borrowing of
money from banks or through reverse repurchase agreements.
Leverage, credit risks. 33.3 33.3 33 -- 33.3 33.3
REPURCHASE AGREEMENTS The purchase of a security that must
later be sold back to the issuer at the same price plus
interest. Credit risk. /X/ /X/ /X/ /X/ /X/ /X/
SECURITIES LENDING The lending of securities to financial
institutions, which provide cash or government securities as
collateral. Credit risk. 33 33.3 33.3 33.3 33.3 33.3
SHORT SALES The selling of securities that have been borrowed
on the expectation that the market price will drop.
- - Hedged. Hedged leverage, market, correlation, liquidity,
opportunity risks. -- / / / / / / / / / /
- - Speculative. Speculative leverage, market, liquidity risks. -- / / -- -- / / --
SHORT-TERM TRADING Selling a security soon after purchase. A
portfolio engaging in short-term trading will have higher
turnover and transaction expenses. Market risk. /X/ /X/ /X/ /X/ /X/ /X/
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS The purchase or
sale of securities for delivery at a future date; market value
may change before delivery. Market, opportunity, leverage
risks. /X/ /X/ /X/ /X/ /X/ /X/
- ------------------------------------------------------------------------------------------------------------------------------------
CONVENTIONAL SECURITIES
NON-INVESTMENT-GRADE DEBT SECURITIES Debt securities rated
below BBB/Baa are considered junk bonds. Credit, market,
interest rate, liquidity, valuation and information risks. 15 -- 25 5 15 --
FOREIGN SECURITIES Securities issued by foreign companies, as
well as American or European depository receipts, which are
dollar-denominated securities typically issued by American or
European banks and are based on ownership of securities issued
by foreign companies. Market, currency, information, natural
event, political risks. 35 /X/ 35 / / 50 25
RESTRICTED AND ILLIQUID SECURITIES Securities not traded on
the open market. May include illiquid Rule 144A securities.
Liquidity, valuation, market risks. 10 15 15 15 15 15
- ------------------------------------------------------------------------------------------------------------------------------------
LEVERAGED DERIVATIVE SECURITIES
FINANCIAL FUTURES AND OPTIONS; SECURITIES AND INDEX OPTIONS
Contracts involving the right or obligation to deliver or
receive assets or money depending on the performance of one or
more assets or an economic index.
- - Futures and related options. Interest rate, currency,
market, hedged or speculative leverage, correlation,
liquidity, opportunity risks. /X/ / / / / -- /X/ / /
- - Options on securities and indices. Interest rate, currency,
market, hedged or speculative leverage, correlation,
liquidity, credit, opportunity risks. 10(1) / / 5(1) 5(1) 5(1) / /
CURRENCY CONTRACTS Contracts involving the right or obligation
to buy or sell a given amount of foreign currency at a
specified price and future date.
- - Hedged. Currency, hedged leverage, correlation, liquidity,
opportunity risks. /X/ -- /X/ -- /X/ /X/
- - Speculative. Currency, speculative leverage, liquidity
risks. -- -- -- -- -- --
</TABLE>
(1) Applies to purchased options only.
FUND DETAILS 27
<PAGE>
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
Two documents are available that offer further information on John Hancock
growth and income funds:
ANNUAL/SEMI-ANNUAL REPORT TO SHAREHOLDERS
Includes financial statements, detailed performance information, portfolio
holdings, a statement from portfolio management and the auditor's report.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains more detailed information on all aspects of the funds. The
current annual/ semi-annual report is included in the SAI.
A current SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference (is legally a part of this prospectus).
To request a free copy of the current annual/semi-annual report or SAI, please
write or call:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
Telephone: 1-800-225-5291
EASI-Line: 1-800-338-8080
TDD: 1-800-544-6713
Internet: www.jhancock.com/funds
[LOGO]
JOHN HANCOCK FUNDS
A Global Investment Management Firm
101 Huntington Avenue
Boston, Massachusetts 02199-7603
JOHN HANCOCK(R)
Financial Services
<PAGE>
John Hancock Funds
Growth
and Income
Fund
ANNUAL REPORT
December 31, 1996
TRUSTEES
Edward J. Boudreau, Jr.
James F. Carlin*
William H. Cunningham*
Charles F. Fretz*
Harold R. Hiser, Jr.*
Anne C. Hodsdon
Charles L. Ladner*
Leo E. Linbeck, Jr.*
Patricia P. McCarter*
Steven R. Pruchansky*
Richard S. Scipione
Lt. Gen. Norman H. Smith, USMC (Ret.)*
John P. Toolan*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and Compliance Officer
CUSTODIAN
Investors Bank and Trust Company
89 South Street
Boston, Massachusetts 02111
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way Ste 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief
Executive Officer, flush right, next to second paragraph.
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
Most analysts agree that the Social Security system will run out of
money by the year 2030 unless Congress makes some changes. Although it
seems a long way off, the issue is serious enough that at least one
group has already studied the problem, and experts and politicians alike
have weighed in with a slew of prescriptions. Legislative action could
be in the offing in 1997.
The problem stems from demographic and societal changes. The number
of retirees collecting Social Security is growing rapidly, while the
number of workers supporting the system is shrinking. Consider this: in
1950, there were 16 workers paying into the Social Security system for
each retiree collecting benefits. Today, there are three workers for
each retiree and by 2019 there will be two. Starting then, the Social
Security Administration estimates that the amount paid out in Social
Security benefits will start to be greater than the amount collected in
Social Security taxes. Compounding the issue is the fact that people are
retiring earlier and living longer.
The state of the system has already left many people, especially younger
and middle-aged workers, feeling insecure about Social Security. A
recent survey by the Employee Benefits Research Institute (EBRI) found
that 79% of current workers polled had little confidence in the ability
of Social Security to maintain the same level of benefits as those
received by today's retirees. Instead, they said they expect
to use their own savings or employer-sponsored pensions for their
retirement. Yet, remarkably, another EBRI survey revealed that only
slightly more than half of America's current workers are saving money
for retirement. Fewer than half own IRAs or participate in employer-
sponsored pension or savings plans.
No matter how Social Security's problems get solved, one thing is clear.
Americans need to rely on themselves for accumulating the bulk of their
retirement savings. There's no law that says you should have to reduce
your standard of living once you stop working. So we encourage you to
save all that you can now, so you can live the way you'd like to later.
Sincerely,
/S/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
BY TIMOTHY KEEFE, CFA, PORTFOLIO MANAGER
John Hancock
Growth & Income Fund
Stock market advances smartly for second straight year;
large-cap stocks are leaders
Recently, the Fund's fiscal year end changed from August to December.
What follows is a discussion of the Fund's performance for the 12 months
ended December 31, 1996.
For the second straight year, the stock market advanced to new highs in
1996 and again gave shareholders returns well in excess of historical
norms. The same favorable stock picking conditions that dominated 1995
continued in 1996 -- strong earnings growth and low interest rates,
despite periodic rate increases when investors worried that a faster
growing economy would spark inflation. But actual inflation stayed
benign, emotions notwithstanding, and stock prices advanced almost all
year. The biggest winners were the mid-to large-company growth stocks.
Investors flocked to these more liquid and stable companies as mixed
economic signals throughout the year led to uncertainty about where the
economy was headed. For the year ending December 31, 1996, the Dow Jones
Industrial Average returned 28.91%, including reinvested dividends, and
the Standard & Poor's 500-Stock Index, a broader measure of the market,
advanced 22.95%.
Because of its focus on mid- and large-company growth stocks, John
Hancock Growth and Income Fund had a good year both absolutely and with
respect to its peer group. The Fund's Class A and Class B shares posted
total returns of 22.21% and 21.25% respectively, at net asset value.
That compared favorably to the 20.78% return of the average growth and
income fund, according to Lipper Analytical Services, Inc.1 Please see
pages six and seven for longer-term performance information.
A 2 1/4" by 3 3/4" photo of Fund management team at bottom right.
Caption reads: Tim Keefe (standing) and Growth and Income Fund
management team members Anurag Pandit (l) and Ben Hock (r)."
"The same
favorable
stock picking
conditions
that
dominated
1995
continued in
1996..."
Chart with heading "Top Five Common Stock Holdings" at top of left hand
column. The chart lists five holdings: 1) Eastman Kodak 4.2%; 2) United
Technologies 3.6%; 3) Eli Lilly 3.3%; 4) Phillip Morris 3.0%; 5)
Hibernia Corp. 3.0%. A footnote below states " As a percentage of net
assets on December 31, 1996."
"...we
exchanged
some of our
aerospace/
defense
money
into select
technology
stocks..."
Winners and disappointments
Our largest holding, Eastman Kodak, was one of our strongest performers
during the year. Its new products and strong overseas growth have
contributed to its overall bottom line health. What's more, its share
buyback program has enhanced its strong cash flow position, which for us
is one of the most important indicators of a company's potential. We
still believe Kodak's stock price does not reflect its true earnings
potential.
Our overweighted positions in finance, healthcare and aerospace/defense
also contributed strongly to the Fund's performance. Bank stocks, such
as regional bank Hibernia, and savings and loans were boosted by strong
earnings growth and continuing consolidation. Some of the S&L's that we
own began the year with very low prices relative to their earnings
potential -- a key characteristic we look for as value-oriented
investors. Their prices then rose along with earnings and a favorable
outlook for 1997. The larger money-center banks benefited from the
relatively benign interest-rate environment, cost cutting and increasing
worldwide market share. Our investments in three government-sponsored
entities -- Federal Home Loan Mortgage Corporation, Federal National
Mortgage Association and the Student Loan Marketing Association -- also
served us well. These issuers of asset- and mortgage-backed securities
are all dominant players in their industry and have very predictable
earnings streams. At the start of the year, fears of rising interest
rates caused their stocks to sell at single-digit price-to-earnings
(p/e) multiples, compared to the market's average multiple of 17 or 18.
A p/e multiple is a measure of how much you're paying for earnings
power. But as the year went on and rate fears dissipated, the stocks
rallied as investors came to appreciate these companies' stable income
stream. In the third quarter, interest rate scares and fears of rising
consumer debt and delinquencies created the opportunity to add credit
card companies First USA and Dean Witter Discover at very attractive
prices.
Table entitled "Scorecard" at bottom left hand column. The header for
the left column is "Investment"' the header for the right column is
"Recent performance...and what's behind the numbers." The first listing
is "Eastman Kodak" followed by an up arrow and the phrase "New products,
international growth, strong cash flow". The second listing is "H&R
Block" followed by an up arrow and the phrase "Undervalued, high return
business with good management". The third listing is "Gillette" followed
by a flat arrow and the phrase "Solid fundamentals, but stock price
fully valued". Footnote below reads: "See '"Schedule of Investments."
Investment holdings are subject to change."
The bulk of our health-care holdings were in drug companies such as Eli
Lilly, one of our largest positions and stronger performers. The
combination of predictable earnings and strong new product flows has
helped the large drug companies continue to perform regardless of the
economic environment. Aerospace and defense giants United Technologies -
- - the Fund's second largest holding at year end -- and McDonnell Douglas
are both benefiting from the revitalized airlines industry and a spate
of new orders to replace a quarter of the domestic aircraft over the
next three years. Suppliers of airplane parts, including Fund holdings
General Electric, Allied Signal and Honeywell, are also reaping the
rewards of this replacement cycle.
On the other hand, the Fund's light ownership in the energy sector
prevented us from realizing the significant gains made by many energy
stocks as oil and gas prices rose along with increased demand worldwide,
cold weather and a shortage of supplies.
Bar chart with heading "Fund Performance" at top of left hand column.
Under the heading is the footnote "For the year ended December 31, 1996.
" The chart is scaled in increments of 5% from top to bottom with 25% at
the top and 0% at the bottom. Within the chart, there are three solid
bars. The first represents the 22.21% total return for John Hancock
Growth and Income Fund: Class A. The second represents the 21.25% total
return for John Hancock Growth and Income Fund: Class B. The third
represents the 20.78% total return for the average growth and income
fund. Footnote below reads: "The total returns for John Hancock
Independence Equity Fund are at net asset value with all distributions
reinvested. The average growth and income fund is tracked by Lipper
Analytical Services. (1) See following two pages for historical
performance information.
Search for value leads to several shifts
We constantly look for companies that show strong prospects for growth
and have attractive stock prices. As the year progressed, we shifted
some of the Fund's money out of stocks or sectors of the market that we
believed had become fully valued into more attractively priced ones
whose fundamentals remain sound. Often, these opportunities arise after
a particular stock or sector has had a meaningful correction, as we saw
in the summer. At that time, we exchanged some of our aerospace/defense
money for select technology stocks, including IBM, Lucent Technologies,
an AT&T spin-off, and Solectron, a company that specializes in the
outsourcing of manufacturing services to the rapidly growing electronics
industries. These stocks took a drubbing along with most other
technology stocks during a massive summer sell-off. Another shift
occurred after we took profits in gaming and lodging stocks Bally and
Marriott at a point when they appeared fully valued. In their place, we
bought tax preparation company H&R Block. This high return business, run
by committed, shareholder-focused management, saw its stock dragged down
by its ownership of CompuServe, in which the market seems to be placing
no value. But we don't agree, and after extensive analysis believe we've
been able to buy H&R Block's strong tax preparer business for a very
attractive price.
"We're taking
a cautious
approach to
1997..."
A look ahead
We're taking a cautious approach to 1997 and believe investors would be
wise to temper their expectations as well. After back-to-back years of
spectacular growth, it's hard to imagine a third year of such returns.
If the economy continues its moderate growth course, the market can
still move up. But we'd expect to see returns at or even below the
historical 8-10% annual average, with more volatility as worries about
the economy, interest rates and inflation persist. It's also getting
harder to find stocks that aren't fully valued. But that's not to say
they don't exist. In fact, we're optimistic about the future,
particularly as value-oriented investors. We'll use any market swings to
uncover discrepancies between a stock's price and its true value. As
appropriate, we'll shift assets away from stocks or sectors that are
selling at high p/e multiples into more inexpensive ones. We believe
it's a good way to both lower the Fund's risk level and provide the best
opportunity for growth.
This commentary reflects the views of the portfolio manager through the
end of the Fund's period discussed in this report. Of course, the
manager's views are subject to change as market and other conditions
warrant.
1Figures from Lipper Analytical Services include reinvested dividends
and do not take into account sales charges. Actual load-adjusted
performance is lower.
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the
average annual total returns for the John Hancock Growth and Income
Fund. Total return is a performance measure that equals the sum of all
income and capital gains dividends, assuming reinvestment of these
distributions, and the change in the price of the Fund's shares,
expressed as a percentage of the Fund's net asset value per share.
Performance figures include the maximum applicable sales charge of 5%
for Class A shares. The effect of the maximum contingent deferred sales
charge for Class B shares (maximum 5% and declining to 0% over six
years) is included in Class B performance. Performance is affected by a
12b-1 plan, which commenced on January 1, 1990 and August 22, 1991 for
Class A and Class B shares, respectively. Remember that all figures
represent past performance and are no guarantee of how the Fund will
perform in the future. Also, keep in mind that the total return and
share price of the Fund's investments will fluctuate. As a result, your
Fund's shares may be worth more or less than their original cost,
depending on when you sell them.
CUMULATIVE TOTAL RETURNS
For the period ended December 31, 1996
ONE FIVE LIFE OF
YEAR YEARS FUND
----------- ----------- -----------
John Hancock Growth and Income
Fund: Class A 16.08% 69.02% 213.50%
John Hancock Growth and Income
Fund: Class B 16.25% 69.14% 88.24%(1)
AVERAGE ANNUAL TOTAL RETURNS
For the period ended December 31, 1996
ONE FIVE LIFE OF
YEAR YEARS FUND
----------- ----------- -----------
John Hancock Growth and Income
Fund: Class A 16.08% 11.07% 12.10%
John Hancock Growth and Income
Fund: Class B 16.25% 11.08% 12.53%(1)
Notes to Performance
(1) Class B shares started on August 22, 1991.
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in John
Hancock Growth and Income Fund would be worth on December 31, 1996. They
assume that you either had invested on the day each class of shares
started, or that you have been invested for the most recent 10 years. In
either case, they also assume that you have reinvested all
distributions. For comparison, we've shown the same $10,000 investment
in the Standard & Poor's 500 Stock Index -- an unmanaged index that
includes 500 widely traded common stocks and is often used as a measure
of stock market performance.
Growth and Income Fund
Class A shares
Line chart with the heading Growth and Income Fund: Class A,
representing the growth of a hypothetical $10,000 investment over the
life of the fund. Within the chart are three lines. The first line
represents the value of the Standard & Poor's 500 Stock Index and is
equal to $41,396 as of December 31, 1996. The second line represents
the value of the hypothetical $10,000 investment made in the Growth and
Income Fund on December 31, 1986, before sales charge, and is equal to
$32,986 as of December 31, 1996. The third line represents the Growth
and Income Fund, after sales charge, and is equal to $31,350 as of
December 31, 1996.
Growth and Income Fund
Class B shares
Line chart with the heading Growth and Income Fund: Class B,
representing the growth of a hypothetical $10,000 investment over the
life of the fund. Within the chart are three lines. The first line
represents the value of the Standard & Poor's 500 Stock Index, and is
equal to $21,620 as of December 31, 1996. The second line represents
the value of the hypothetical $10,000 investment made in the Growth and
Income Fund, before sales charge, on August 22, 1991, and is equal to
$18,924 as of December 31, 1996. The third line represents the value of
the Growth and Income Fund, after sales charge, and is equal to $18,824
as of December 31, 1996.
FINANCIAL STATEMENTS
John Hancock Funds - Growth and Income Fund
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
December 31, 1996
- --------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value -- Note C:
Common stocks (cost -- $211,067,771) $ 291,641,388
Convertible preferred stocks (cost -- $2,919,705) 3,087,500
Joint repurchase agreement (cost -- $14,480,000) 14,480,000
Corporate savings account 823
-------------
309,209,711
Dividends and interest receivable 658,474
Receivable for shares sold 110,286
Other assets 40,328
-------------
Total Assets 310,018,799
- --------------------------------------------------------------------------------------
Liabilities:
Payable for shares repurchased 133,359
Payable to John Hancock Advisers, Inc. and affiliates -- Note B 264,187
Accounts payable and accrued expenses 68,234
-------------
Total Liabilities 465,780
- --------------------------------------------------------------------------------------
Net Assets:
Capital paid-in 222,178,724
Accumulated net realized gain on investments 6,634,304
Net unrealized appreciation of investments 80,742,463
Distributions in excess of net investment income (2,472)
-------------
Net Assets $ 309,553,019
======================================================================================
Net Asset Value Per Share:
(Based on net asset values and shares of beneficial
interest outstanding -- unlimited number of shares
authorized with $0.01 per share par value, respectively)
Class A -- $163,153,747/ 10,447,719 $ 15.62
======================================================================================
Class B -- $146,399,272/ 9,346,021 $ 15.66
======================================================================================
Maximum Offering Price Per Share*
Class A -- ($15.62 x 105.26%) $ 16.44
======================================================================================
* On single retail sales of less than $50,000. On sales of $50,000 or more and on
group sales the offering price is reduced.
The Statement of Assets and Liabilities is the Fund's balance sheet and shows the
value of what the Fund owns, is due and owes on December 31, 1996. You'll also find
the net asset value and the maximum offering price per share as of that date.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
- --------------------------------------------------------------------------------------
PERIOD FROM
SEPTEMBER 1, 1996
YEAR ENDED TO DECEMBER 31,
AUGUST 31, 1996 1996(1)
--------------- -----------------
<S> <C> <C>
Investment Income:
Dividends $ 6,085,432 $ 1,916,974
Interest 251,751 127,925
----------- -----------
6,337,183 2,044,899
----------- -----------
Expenses:
Investment management fee -- Note B 1,616,654 616,603
Distribution/service fee -- Note B
Class A 338,498 129,043
Class B 1,213,464 470,391
Transfer agent fee -- Note B 494,693 206,352
Registration and filing fees 58,759 31,054
Printing 54,299 20,187
Custodian fee 52,263 20,669
Auditing fee 36,248 26,000
Trustees' fees 29,072 3,473
Advisory board fee 21,633 --
Legal fees 9,175 4,661
Miscellaneous 4,805 5,904
Financial services fee -- Note B -- 27,211
----------- -----------
Total Expenses 3,929,563 1,561,548
- -----------------------------------------------------------------------------------
Net Investment Income 2,407,620 483,351
- -----------------------------------------------------------------------------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments sold 25,207,559 11,589,657
Change in net unrealized appreciation/depreciation
of investments 7,739,354 26,075,239
----------- -----------
Net Realized and Unrealized Gain on Investments 32,946,913 37,664,896
- -----------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Operations $35,354,533 $38,148,247
===================================================================================
(1) Effective December 31, 1996, the fiscal period changed from
August 31 to December 31.
The Statement of Operations summarizes the Fund's investment income earned
and expenses incurred in operating the Fund. It also shows net gains (losses)
for the period stated.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------------------------------------------------------
PERIOD FROM
YEAR ENDED AUGUST 31, SEPTEMBER 1,1996
----------------------------- TO DECEMBER 31,
1995 1996 1996(1)
------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $ 3,388,316 $ 2,407,620 $ 483,351
Net realized gain on investments sold 6,147,562 25,207,559 11,589,657
Change in net unrealized appreciation/depreciation of investments 30,850,499 7,739,354 26,075,239
------------- ------------- -------------
Net Increase in Net Assets Resulting from Operations 40,386,377 35,354,533 38,148,247
------------- ------------- -------------
Distributions to Shareholders:
Dividends from net investment income:
Class A -- ($0.2026, $0.1939 and $0.0752 per share, respectively) (2,080,993) (1,792,414) (697,553)
Class B -- ($0.1178, $0.0916 and $0.0151 per share, respectively) (1,113,907) (780,162) (126,946)
Distributions from net realized gain on investments sold:
Class A -- (none, $0.1450 and $1.5747 per share, respectively) -- (1,309,129) (14,744,885)
Class B -- (none, $0.1450 and $1.5747 per share, respectively) -- (1,230,621) (13,438,564)
------------- ------------- -------------
Total Distributions to Shareholders (3,194,900) (5,112,326) (29,007,948)
------------- ------------- -------------
From Fund Share Transactions -- Net* (27,471,362) (9,818,420) 35,083,465
------------- ------------- -------------
Net Assets:
Beginning of period 235,185,353 244,905,468 265,329,255
------------- ------------- -------------
End of period (including
undistributed net investment
income of $503,632, $338,676
and distributions in excess
of net investment income
$2,472, respectively) $ 244,905,468 $ 265,329,255 $ 309,553,019
============= ============= =============
* Analysis of Fund Share Transactions:
PERIOD FROM
YEAR ENDED AUGUST 31, SEPTEMBER 1,1996
---------------------------------------------------------- TO DECEMBER 31,
1995 1996 1996(1)
--------------------------- -------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- ----------- --------- -----------
CLASS A
Shares sold 1,688,091 $19,652,565 1,760,701 $25,784,827 2,100,056 $34,769,586
Shares issued to shareholders
in reinvestment of distributions 149,026 1,724,908 184,594 2,627,197 864,570 13,618,418
--------- ----------- --------- ----------- --------- -----------
1,837,117 21,377,473 1,945,295 28,412,024 2,964,626 48,388,004
Less shares repurchased (2,719,043) (31,913,858) (2,414,054) (34,877,792) (1,774,320) (29,444,447)
--------- ----------- --------- ----------- --------- -----------
Net increase (decrease) (881,926) ($10,536,385) (468,759) ($ 6,465,768) 1,190,306 $18,943,557
========= =========== ========= =========== ========= ===========
CLASS B
Shares sold 1,972,798 $23,053,675 2,595,953 $37,809,526 901,707 14,803,231
Shares issued to shareholders
in reinvestment of distributions 80,431 936,397 123,908 1,753,023 767,775 12,131,262
--------- ----------- --------- ----------- --------- -----------
2,053,229 23,990,072 2,719,861 39,562,549 1,669,482 26,934,493
Less shares repurchased (3,464,943) (40,925,049) (2,944,133) (42,915,201) (653,345) (10,794,585)
--------- ----------- --------- ----------- --------- -----------
Net increase (decrease) (1,411,714) ($16,934,977) (224,272) ($ 3,352,652) 1,016,137 $16,139,908
========= =========== ========= =========== ========= ===========
(1) Effective December 31, 1996, the fiscal period changed from August 31 to December 31.
The Statement of Changes in Net Assets shows how the value of the Fund's net assets has changed since the end of the previous
period. The difference reflects earnings less expenses, any investment gains and losses, distributions paid to shareholders, and
any increase or decrease in money shareholders invested in the Fund. The footnote illustrates the number of Fund shares sold,
reinvested and redeemed during the last two periods, along with the corresponding dollar value.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each period indicated, investment returns, key ratios
and supplemental data are listed as follows:
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, PERIOD FROM
-------------------------------------------------------------- SEPTEMBER 1, 1996
1992 1993 1994 1995(4) 1996 TO DECEMBER 31, 1996(6)
------- -------- -------- -------- -------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 11.77 $ 12.43 $ 12.08 $ 11.42 $ 13.38 $ 15.07
------- -------- -------- -------- -------- --------
Net Investment Income (1) 0.32 0.40 0.32 0.21 0.19 0.05
Net Realized and Unrealized Gain
(Loss) on Investments 0.89 1.12 (0.61) 1.95 1.84 2.15
------- -------- -------- -------- -------- --------
Total from Investment Operations 1.21 1.52 (0.29) 2.16 2.03 2.20
------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income (0.25) (0.42) (0.37) (0.20) (0.19) (0.08)
Distributions from Net Realized
Gain on Investments Sold (0.30) (1.45) -- -- (0.15) (1.57)
------- -------- -------- -------- -------- --------
Total Distributions (0.55) (1.87) (0.37) (0.20) (0.34) (1.65)
------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $ 12.43 $ 12.08 $ 11.42 $ 13.38 $ 15.07 $ 15.62
======= ======== ======== ======== ======== ========
Total Investment Return
at Net Asset Value (2) 10.47% 13.64% (2.39%) 19.22% 15.33% 14.53%(7)
Ratios and Supplemental Data
Net Assets, End of Period
(000's omitted) $ 89,682 $115,780 $121,160 $130,183 $139,548 $163,154
Ratio of Expenses
to Average Net Assets 1.34% 1.29% 1.31% 1.30% 1.17% 1.22%(5)
Ratio of Net Investment Income
to Average Net Assets 2.75% 3.43% 2.82% 1.82% 1.28% 0.85%(5)
Portfolio Turnover Rate 119% 107% 195% 99% 74% 26%
Average Broker Commission Rate (3) N/A N/A N/A N/A $ 0.0665 $ 0.0692
The Financial Highlights summarizes the impact of the following factors on a single share for each period indicated: net
investment income, gains (losses), dividends and total investment return of the Fund. It shows how the Fund's net asset value
for a share has changed since the end of the previous period. Additionally, important relationships between some items presented
in the financial statements are expressed in ratio form.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights (continued)
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, PERIOD FROM
-------------------------------------------------------------- SEPTEMBER 1, 1996
1992 1993 1994 1995(4) 1996 TO DECEMBER 31, 1996(6)
------- -------- -------- -------- -------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 11.77 $ 12.44 $ 12.10 $ 11.44 $ 13.41 $ 15.10
------- -------- -------- -------- -------- --------
Net Investment Income (1) 0.23 0.30 0.24 0.13 0.08 0.01
Net Realized and Unrealized Gain
(Loss) on Investments 0.89 1.12 (0.61) 1.96 1.85 2.14
------- -------- -------- -------- -------- --------
Total from Investment Operations 1.12 1.42 (0.37) 2.09 1.93 2.15
------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income (0.15) (0.31) (0.29) (0.12) (0.09) (0.02)
Distributions from Net Realized
Gain on Investments Sold (0.30) (1.45) -- -- (0.15) (1.57)
------- -------- -------- -------- -------- --------
Total Distributions (0.45) (1.76) (0.29) (0.12) (0.24) (1.59)
------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $ 12.44 $ 12.10 $ 11.44 $ 13.41 $ 15.10 $ 15.66
======= ======== ======== ======== ======== ========
Total Investment Return
at Net Asset Value (2) 9.67% 12.64% (3.11%) 18.41% 14.49% 14.15%(7)
Ratios and Supplemental Data
Net Assets, End of Period
(000's omitted) $ 29,826 $ 65,010 $114,025 $114,723 $125,781 146,399
Ratio of Expenses
to Average Net Assets 2.07% 2.19% 2.06% 2.03% 1.90% 1.98%(5)
Ratio of Net Investment Income
to Average Net Assets 2.02% 2.53% 2.07% 1.09% 0.55% 0.10%(5)
Portfolio Turnover Rate 119% 107% 195% 99% 74% 26%
Average Broker Commission Rate (3) N/A N/A N/A N/A $ 0.0665 $ 0.0692
(1) Based on the average of the shares outstanding at the end of each month.
(2) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(3) Per portfolio share traded. Required for fiscal years that began September 1, 1995 or later.
(4) On December 2, 1994, John Hancock Advisers, Inc. became the investment adviser of the Fund.
(5) Annualized.
(6) Effective December 31, 1996, the fiscal period changed from August 31 to December 31.
(7) Not annualized.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
December 31, 1996
- ----------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the Fund
on December 31, 1996. It's divided into three main categories: common stocks,
convertible preferred stocks and short-term investments. The common stocks and
convertible preferred stocks are further broken down by industry groups. Short-term
investments, which represent the Fund's cash position, are listed last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
<S> <C> <C> <C>
COMMON STOCKS
Aerospace (10.79%)
General Dynamics Corp. 100,000 $ 7,050,000
McDonnell Douglas Corp. 133,000 8,512,000
Northrop Grumman Corp. 80,000 6,620,000
United Technologies Corp. 170,000 11,220,000
------------
33,402,000
------------
Banks -- United States (8.38%)
AmSouth Bancorp. 100,000 4,837,500
Bankers Trust New York Corp. 50,000 4,312,500
Hibernia Corp. (Class A) 700,000 9,275,000
J.P. Morgan & Co., Inc. 70,000 6,833,750
National City Corp. 15,000 673,125
------------
25,931,875
------------
Beverages (1.70%)
PepsiCo, Inc. 180,000 5,265,000
------------
Business Services -- Misc (1.87%)
Block, H & R, Inc. 200,000 5,800,000
------------
Chemicals (2.70%)
Monsanto Co. 215,000 8,358,125
------------
Computers (4.38%)
Computer Associates
International, Inc. 27,000 1,343,250
Electronic Data Systems Corp. 63,000 2,724,750
Informix Corp.* 115,000 2,343,125
International Business
Machines Corp. 30,000 4,530,000
Oracle Corp.* 63,000 2,630,250
------------
13,571,375
------------
Cosmetics & Personal Care (2.52%)
Gillette Co. 60,000 4,665,000
International Flavors
& Fragrances, Inc. 70,000 3,150,000
------------
7,815,000
------------
Diversified Operations (3.06%)
Allied Signal, Inc. 95,700 6,411,900
Cognizant Corp. 70,000 2,310,000
Viad Corp. 45,000 742,500
------------
9,464,400
------------
Electronics (6.69%)
Amphenol Corp. (Class A)* 80,000 1,780,000
General Electric Co. 78,000 7,712,250
Honeywell, Inc. 55,000 3,616,250
Intel Corp. 4,000 523,750
Novellus Systems, Inc.* 40,000 2,167,500
Solectron Corp. 92,000 4,910,500
------------
20,710,250
------------
Finance (8.58%)
Dean Witter Discover & Co. 95,000 6,293,750
Financial Security Assurance
Holdings Ltd. 59,600 1,959,350
First USA, Inc. 200,000 6,925,000
Great Western Financial Corp. 200,000 5,800,000
Student Loan Marketing Assn. 60,000 5,587,500
------------
26,565,600
------------
Food (1.92%)
CPC International, Inc. 76,500 5,928,750
------------
Instruments -- Scientific (1.00%)
Millipore Corp. 75,000 3,103,125
------------
Insurance (3.35%)
Progressive Corp. 100,000 6,737,500
Travelers Group, Inc. 80,000 3,630,000
------------
10,367,500
------------
Leisure (4.15%)
Eastman Kodak Co. 160,000 12,840,000
------------
Medical (13.89%)
Baxter International, Inc. 120,000 4,920,000
Columbia/HCA Healthcare Corp. 45,600 1,858,200
Eli Lilly & Co. 140,000 10,220,000
Pfizer, Inc. 100,000 8,287,500
Pharmacia & Upjohn, Inc. 75,000 2,971,875
Schering-Plough Corp. 120,000 7,770,000
Warner-Lambert Co. 70,000 5,250,000
Wellpoint Health Networks, Inc. 50,000 1,718,750
------------
42,996,325
------------
Mortgage Banking (2.98%)
Federal Home Loan Mortgage Corp. 28,000 3,083,500
Federal National Mortgage Assn. 165,000 6,146,250
------------
9,229,750
------------
Oil & Gas (4.63%)
Exxon Corp. 30,000 2,940,000
Mobil Corp. 44,000 5,379,000
Phillips Petroleum Co. 100,000 4,425,000
Tosco Corp. 20,000 1,582,500
------------
14,326,500
------------
Paper & Paper Products (1.54%)
Kimberly-Clark Corp. 50,000 4,762,500
------------
Pollution Control (0.56%)
US Filter Corp.* 55,000 1,746,250
------------
Retail (2.14%)
Sears, Roebuck and Co. 55,000 2,536,875
Sysco Corp. 125,000 4,078,125
------------
6,615,000
------------
Telecommunications (4.23%)
A T & T Corp. 100,000 4,350,000
Comsat Corp. 110,000 2,708,750
Lucent Technologies, Inc. 130,200 6,021,750
------------
13,080,500
------------
Tobacco (3.00%)
Philip Morris Cos., Inc. 82,500 9,291,563
------------
Transport (0.15%)
Swift Transportation Co. 20,000 470,000
------------
TOTAL COMMON STOCKS
(Cost $211,067,771) (94.21%) 291,641,388
----- ------------
CONVERTIBLE PREFERRED STOCK
Broker Services (1.00%)
Salomon Inc., 7.625% 100,000 3,087,500
------------
TOTAL CONVERTIBLE PREFERRED STOCK
(Cost $2,919,705) (1.00%) 3,087,500
----- ------------
<CAPTION>
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000'S OMITTED) VALUE
- ------------------- -------- --------------- ------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement
(4.68%) Investment in a
joint repurchase agreement
transaction with Lehman
Brothers, Inc. Dated
12-31-96, Due 01-02-97
(secured by U.S. Treasury
Bonds, 7.25% thru 12.50%
due 08-15-14 thru
08-15-22) -- Note A 6.70% 14,480 $ 14,480,000
-------------
Corporate Savings Account
(0.00%) Investors Bank &
Trust Company Daily Interest
Savings Account Current
Rate 4.75% 823
-------------
TOTAL SHORT-TERM INVESTMENTS (4.68%) 14,480,823
----- -------------
TOTAL INVESTMENTS (99.89%) $ 309,209,711
===== =============
* Non-income producing security.
The percentage shown for each investment category is the total of that
category as a percentage of net assets of the fund.
See notes to financial statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Growth and Income Fund
NOTE A --
ACCOUNTING POLICIES
John Hancock Investment Trust, (the "Trust") is a diversified, open-end
management investment company, registered under the Investment Company
Act of 1940. The Trust consists of three series portfolios: John Hancock
Growth and Income Fund (the "Fund"), John Hancock Sovereign Balanced
Fund and John Hancock Sovereign Investors. On June 25, 1996, the
Trustees voted to change the fiscal period end from August 31 to
December 31. This change was effective December 31, 1996. The other two
series of the Trust are reported in separate financial statements. The
investment objective of the Fund is to obtain the highest total return,
a combination of capital appreciation and current income, consistent
with reasonable safety of capital.
The Trustees have authorized the issuance of two classes of shares of
the Fund, designated as Class A and Class B. The shares of each class
represent an interest in the same portfolio of investments of the Fund
and have equal rights to voting, redemptions, dividends, and
liquidation, except that certain expenses, subject to the approval of
the Trustees, may be applied differently to each class of shares in
accordance with current regulations of the Securities and Exchange
Commission and the Internal Revenue Service. Shareholders of a class,
which bears distribution and service expenses under the terms of a
distribution plan, have exclusive voting rights regarding such
distribution plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued
on the basis of market quotations, valuations provided by independent
pricing services or, at fair value as determined in good faith in
accordance with procedures approved by the Trustees. Short-term debt
investments maturing within 60 days are valued at amortized cost which
approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other
registered investment companies having a management contract with John
Hancock Advisers, Inc. (the "Adviser"), a wholly-owned subsidiary of The
Berkeley Financial Group, may participate in a joint repurchase
agreement transaction. Aggregate cash balances are invested in one or
more repurchase agreements, whose underlying securities are obligations
of the U.S. government and/or its agencies. The Fund's custodian bank
receives delivery of the underlying securities for the joint account on
the Fund's behalf. The Adviser is responsible for ensuring that the
agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the
date of purchase, sale or maturity. Net realized gains and losses on
sales of investments are determined on the identified cost basis.
FEDERAL INCOME TAX The Fund's policy is to comply with the requirements
of the Internal Revenue Code that are applicable to regulated investment
companies and to distribute all of its taxable income, including any net
realized gain on investments, to its shareholders. Therefore, no federal
income tax provision is required.
DIVIDENDS, INTEREST AND DISTRIBUTIONS Dividend income on investment
securities is recorded on the ex-dividend date. Interest income on
investment securities is recorded on the accrual basis.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions
are determined in conformity with income tax regulations which may
differ from generally accepted accounting principles. Dividends paid by
the Fund with respect to each class of shares will be calculated in the
same manner, at the same time and will be in the same amount, except for
the effect of expenses that may be applied differently to each class.
EXPENSES The majority of the expenses of the Trust are directly
identifiable to an individual fund. Expenses which are not readily
identifiable to a specific fund are allocated in such a manner as deemed
equitable, taking into consideration, among other things, the nature and
type of expense and the relative sizes of the funds.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized
gains (losses) are determined at the Fund level and allocated daily to
each class of shares based on the appropriate net assets of the
respective classes. Distribution/service fees if any, are calculated
daily at the class level based on the appropriate net assets of each
class and the specific expense rate(s) applicable to each class.
USE OF ESTIMATES The preparation of these financial statements in
accordance with generally accepted accounting principles incorporates
estimates made by management in determining the reported amounts of
assets, liabilities, revenues, and expenses of the Fund. Actual results
could differ from these estimates.
NOTE B --
MANAGEMENT FEE AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a
monthly management fee to the Adviser for a continuous investment
program equivalent, to 0.625% of the Fund's average daily net asset
value.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended
December 31, 1996, net sales charges received with regard to sales of
Class A shares amounted to $82,503. Out of this amount, $13,029 was
retained and used for printing prospectuses, advertising, sales
literature and other purposes, $46,506 was paid as sales commissions to
unrelated broker-dealers and $22,968 was paid as sales commissions to
sales personnel of John Hancock Distributors, Inc. ("Distributors"),
Tucker Anthony, Incorporated ("Tucker Anthony") and Sutro & Co., Inc.
("Sutro"), all of which are broker dealers. The Adviser's indirect
parent, John Hancock Mutual Life Insurance Company ("JHMLICo"), is the
indirect sole shareholder of Distributors and was the indirect sole
shareholder until November 29, 1996 of John Hancock Freedom Securities
Corporation and its subsidiaries, which include Tucker Anthony and
Sutro.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining
rates beginning at 5.0% of the lesser of the current market value at the
time of redemption or the original purchase cost of the shares being
redeemed. Proceeds from the CDSC are paid to JH Funds and are used in
whole or in part to defray its expenses related to providing
distribution related services to the Fund in connection with the sale of
Class B shares. For the period ended December 31, 1996, contingent
deferred sales charges amounted to $52,948.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a Distribution
Plan with respect to Class A and Class B pursuant to Rule 12b-1 under
the Investment Company Act of 1940. Accordingly, the Fund will make
payments to JH Funds for distribution and service expenses, at an annual
rate not to exceed 0.25% of Class A average daily net assets and 1.00%
of Class B average daily net assets to reimburse JH Funds for its
distribution and service costs. Up to a maximum of 0.25% of such
payments may be service fees as defined by the amended Rules of Fair
Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's
12b-1 payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of
JHMLICo. The Fund pays transfer agent fees based on transaction the
number of shareholder accounts and certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Funds. The compensation for 1996
is to be paid at an annual rate of 0.01875% of the average net assets of
the Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S.
Scipione are trustees and/or officers of the Adviser and/or its
affiliates, as well as a Trustees of the Fund. The compensation of
unaffiliated Trustees is borne by the Fund. Effective with the fees paid
for 1995, the unaffiliated Trustees may elect to defer for tax purposes
their receipt of this compensation under the John Hancock Group of Funds
Deferred Compensation Plan. The Fund makes investments into other John
Hancock funds, as applicable, to cover its liability for the deferred
compensation. Investments to cover the Fund's deferred compensation
liability are recorded on the Fund's books as an other asset. The
deferred compensation liability and the related other asset are always
equal and are marked to market on a periodic basis to reflect any income
earned by the investment as well as any unrealized gains or losses. At
December 31, 1996, the Fund's investments to cover the deferred
compensation liability had unrealized appreciation of $1,051.
The Fund had an independent advisory board established under an
agreement which expired in December, 1996, composed of certain retired
Directors who provided advice to the current Board of Directors. The
Fund paid the advisory board and its counsel a fee under this agreement.
NOTE C--
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations
of the U.S. government and its agencies and short-term securities,
during the period ended December 31, 1996, aggregated $75,299,964 and
$76,924,784, respectively. There were no purchases or sales of
obligations of the U.S. government and its agencies during the period
ended December 31, 1996.
The cost of investments owned at December 31, 1996 (excluding the
corporate savings account) for federal income tax purposes was
$228,510,592. Gross unrealized appreciation and depreciation of
investments aggregated $83,733,735 and $3,035,439, respectively,
resulting in net unrealized appreciation of $80,698,296.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of
John Hancock Investment Trust --
John Hancock Growth and Income Fund
We have audited the accompanying statement of assets and liabilities of
the John Hancock Growth and Income Fund (the "Fund"), one of the
portfolios constituting John Hancock Investment Trust, including the
schedule of investments, as of December 31, 1996, and the related
statement of operations for the period from September 1, 1996 to
December 31, 1996 and for the year ended August 31, 1996, and the
statement of changes in net assets and the financial highlights for each
of the periods indicated therein. These financial statements and
financial highlights are the responsibility of the Fund's management.
Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights. Our
procedures included confirmation of securities owned as of December 31,
1996, by correspondence with the custodian and brokers, and other
appropriate auditing procedures when replies from brokers were not
received. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of the John Hancock Growth and Income Fund portfolio
of John Hancock Investment Trust at December 31, 1996, the results of
its operations for the period from September 1, 1996 to December 31,
1996 and for the year ended August 31, 1996, and the changes in its net
assets and the financial highlights for each of the indicated periods,
in conformity with generally accepted accounting principles.
/S/ Ernst & Young LLP
Boston, Massachusetts
February 7, 1997
TAX INFORMATION NOTICE (UNAUDITED)
For Federal Income Tax purposes, the following information is furnished
with respect to the distributions of the Fund during its fiscal year
ended August 31, 1996.
The Fund distributed to shareholders of record December 22, 1996 and
paid on December 28, 1996 a long-term capital gain dividend of
$23,296,993. Shareholders will receive a 1996 U.S. Treasury Department
Form 1099-DIV in January 1997 representing their proportionate share.
For the fiscal year ending December 31, 1996, 84% of the ordinary income
distributions qualify for the dividends received deduction.
A 1/2" x 1/2" John Hancock Funds logo in upper left hand corner of the
page. A box sectioned in quadrants with a triangle in upper left, a
circle in upper right, a cube in lower left and a diamond in lower
right. A tag line below reads "A Global Investment Management Firm."
101 Huntington Avenue, Boston, MA 02199-7603
Bulk Rate
U.S. Postage
PAID
Randolph, MA
Permit No. 75
This report is for the information of shareholders of the John Hancock
Growth and Income Fund. It may be used as sales literature when preceded
or accompanied by the current prospectus, which details charges,
investment objectives and operating policies.
A recycled logo in lower left hand corner with the caption "Printed on
Recycled Paper." 5000A 12/96
2/97
<PAGE>
- --------------------------------------------------------------------------------
John Hancock Funds
- --------------------------------------------------------------------------------
Growth
and Income
Fund
SEMIANNUAL REPORT
June 30, 1997
<PAGE>
================================================================================
TRUSTEES
Edward J. Boudreau, Jr.
James F. Carlin*
William H. Cunningham*
Charles F. Fretz*
Harold R. Hiser, Jr.*
Anne C. Hodsdon
Charles L. Ladner*
Leo E. Linbeck, Jr.*
Patricia P. McCarter*
Steven R. Pruchansky*
Richard S. Scipione
Lt. Gen. Norman H. Smith, USMC (Ret.)*
John P. Toolan*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and Compliance Officer
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
The stock market has certainly put on a show since the start of the year. Stocks
began 1997 on the high wires, bolstered by a near-perfect "Goldilocks"
economy--not too hot, not too cold. In almost a straight shot, the Dow Jones
Industrial Average soared through the 7000 level for the first time in early
March. Just days later, stocks lost their footing and staged a month-long
free-fall in a nervous reaction to rising interest rates and economic data that
showed the economy was picking up steam. Stocks gave back all of their year's
gain and suffered their worst decline since 1990 during this period. No sooner
had real fears begun to beset investors then they were gone, erased in a
euphoric rally caused by strong earnings and no signs of inflation. By the end
of June, the Dow and the broader Standard & Poor's 500 Stock Index had risen by
20%--a level not many thought the market would reach all year, let alone in six
months. Bondholders have not enjoyed the same bounty, as the bond market has
mostly stayed worried about the strength of the economy, the direction of
interest rates, and the Federal Reserve's next moves to pre-empt inflation.
- --------------------------------------------------------------------------------
A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.
- --------------------------------------------------------------------------------
But the stock market's latest advance has amazed many analysts and left
them pondering their valuation models, since the market is now more expensive
than it has been in decades. It's impossible to know what will happen next in
the markets. But whether it's another strong move forward or a retreat, we
recommend keeping a long-term perspective, rather than over-focusing on the
market's daily twists and turns. While the economic backdrop seems to remain
near perfect, the one thing we believe investors should be prepared for is more
market volatility. It also makes sense to do something we've always advocated:
set realistic expectations, since, as we've also seen this year, markets can
move down as fast as they go up.
Use this time of heightened volatility as an opportunity to review your
portfolio's asset allocations with your investment professional. After such a
strong advance in equities over the last two and a half years, it could be time
to rebalance your portfolio, if you haven't already, to maintain your desired
targets of diversification. As part of that process, make sure that your
investment strategies still reflect your individual time horizons, objectives
and risk tolerance. Despite turbulence, one thing remains constant. A
well-constructed plan and a cool head can be the best tools for reaching your
financial goals.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
BY TIMOTHY KEEFE, CFA, PORTFOLIO MANAGER
John Hancock
Growth and Income Fund
Stock market keeps advancing in near-perfect environment
The stock market soared to record highs during the last six months, propelled by
the same near-ideal economic conditions that sustained the market's last two
record years. Overall, the background remained one of moderate growth with low
inflation. In that environment, corporate earnings continued to grow and stock
prices advanced. For the first four months, the market's progress was mainly
limited to the largest blue-chip companies, but after inflation fears and the
pace of the economy subsided in May, the market's advance became broader. For
the six months ended June 30, 1997, the Standard & Poor's 500 Stock Index gained
20.60%, including reinvested dividends, a highly unusual result for such a short
period.
Over the last six months, particularly in the second half when market
volatility increased, John Hancock Growth and Income Fund prospered as we
successfully applied our disciplined value-oriented strategy. We used short-term
market fears to find good companies whose stock prices were, in our opinion,
undervalued relative to what we believe was the company's true worth. During the
period, the Fund's Class A and Class B shares posted total returns of 22.79% and
22.41%, respectively, at net asset value. Those returns were well above the
15.52% return posted by the average growth and income fund, according to Lipper
Analytical Services, Inc.1 Longer-term performance information can be found on
pages six and seven.
"The stock
market soared
to record
highs during
the last six
months..."
We continued to enjoy strong performance from our large pharmaceutical
companies Warner
- --------------------------------------------------------------------------------
A 2 1/4" by 3 3/4" photo of Fund management team at bottom right. Caption reads:
Tim Keefe (standing) and Growth and Income Fund management team members Anurag
Pandit (l) and Ben Hock (r)."
- --------------------------------------------------------------------------------
3
<PAGE>
================================================================================
John Hancock Funds - Growth and Income Fund
- --------------------------------------------------------------------------------
Chart with heading "Top Five Common Stock Holdings" at top of left hand column.
The chart lists five holdings: 1) Progressive 3.8%; 2) Computer Associates 3.1%;
3) TCF Financial 3.0%; 4) Phillip Morris 2.8%; 5) Eli Lilly 2.6%. A footnote
below states "As a percentage of net assets on June 30, 1997."
- --------------------------------------------------------------------------------
"...our
opportunistic
moves within
the finance
and technology
sectors
boosted
performance."
Lambert, Schering Plough and Eli Lilly, whose fundamentals keep improving on
ever-increasing new product flow. What's more, our opportunistic moves within
the finance and technology sectors also boosted performance.
Sell first, buy later
Early in the period, as the market kept moving from high to historic high and
stock valuations approached what we believed to be very lofty peaks, we took
profits on some stocks and sectors that had performed well. Included were United
Technologies, General Electric and Eastman Kodak, as well as several defense
electronics companies. In each case, we believed that stock prices had reached
the higher end of their valuation ranges, while earnings power was peaking.
As value-oriented investors, we found it tough to find good buys in the
first quarter, since there wasn't much fear in the market pushing prices down to
attractive levels. One of the few exceptions were railroad companies, several of
which we bought when their stocks were selling at 60% of the stock market's
average price/earnings multiple--the lower end of their historic range. We added
Burlington Northern, CSX and Union Pacific and they all did well in the period.
We like the railroads long term for their combination of cost cutting,
consolidating and share repurchases, all important characteristics that we look
for in prospective holdings.
- --------------------------------------------------------------------------------
Table entitled "Scorecard" at bottom left hand column. The header for the left
column is "Investment" the header for the right column is "Recent
performance...and what's behind the numbers." The first listing is "Progressive
Corp." followed by an up arrow and the phrase "Expanding auto insurance
business". The second listing is "First Plus Financial" followed by an up arrow
and the phrase "Fast-growing home equity lender" The third listing is
"Millipore" followed by a down arrow and the phrase "Slowdown in semiconductor
capital equipment spending". Footnote below reads: "See "Schedule of
Investments." Investment holdings are subject to change."
- --------------------------------------------------------------------------------
Finance and technology
With the sell-off in stocks that accompanied rising interest rates early in the
second quarter, we identified lots more buying opportunities, particularly among
financial and technology stocks--two of our strongest contributors to
performance.
Within finance, the sector continued to benefit from industry consolidation
and strong earnings growth, yet the stocks were hit indiscriminately when rates
rose, because investors feared that higher rates would hurt finance company
profits. We re-allocated funds within our financial holdings, moving away from
the more interest-rate sensitive areas, such as the money center banks, into
ones that were not as sensitive to changes in rates as the market believed them
to be. We bought American Express and regional bank TCF Financial, whose strong
fundamentals we felt would overwhelm an uptick in rates. We also added to our
position in Progressive Corp. Progressive is an auto insurance company that was
selling at a low price-to-earnings multiple (a measure of how much you're paying
for earnings power) despite its tremendous growth, simply because it fell in the
finance category.
We found some of our best buying opportunities within the consumer finance
subsector this period, when negative sentiment abounded. The sector was hurt by
the perception of rising payment delinquencies and increasing personal
bankruptcies. On
4
<PAGE>
================================================================================
John Hancock Funds - Growth and Income Fund
- --------------------------------------------------------------------------------
Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote "For the six months ended June 30, 1997." The chart is
scaled in increments of 5% from top to bottom with 25% at the top and 0% at the
bottom. Within the chart, there are three solid bars. The first represents the
22.79% total return for John Hancock Growth and Income Fund: Class A. The second
represents the 22.41% total return for John Hancock Growth and Income Fund:
Class B. The third represents the 15.52% total return for the average growth and
income fund. Footnote below reads: "The total returns for John Hancock
Independence Equity Fund are at net asset value with all distributions
reinvested. The average growth and income fund is tracked by Lipper Analytical
Services. (1) See following two pages for historical performance information".
- --------------------------------------------------------------------------------
top of that, several consumer finance companies were tainted either by
accusations of accounting irregularities, Chapter 11 filings or earnings
shortfalls. We took advantage of investors' fears to invest in several
well-managed companies that we believe stand to benefit from the sector's
turmoil. We added FIRSTPLUS Financial Group, one of the leading home equity
lenders growing at 20% to 30% per year, for a low five times earnings. We also
added CapMAC Holdings, leading insurer of asset-backed securities. We purchased
our position for a 20% discount to the company's adjusted book value, when
companies within this industry normally trade at 1.3 times adjusted book value.
Both stocks have risen by about 50% since we bought them, and we still think
they represent a good value.
Technology stocks were also hard hit during the
period, particularly software companies, which we like because they generate
very high levels of free cash flow, an important measure of a company's
strength. So we seized the moment to buy some of the market leaders at very
compelling prices. Within computer services companies, we bought a dominant
market leader, Computer Sciences, when its stock came under pressure because of
what we believed were temporary problems at its main competitor EDS. We also
bought Oracle, the leading provider of database systems, with a 30% annual
growth rate in a rapidly expanding market, for a price just slightly higher than
the overall market average. Finally, we picked up networking giants Cisco
Systems and Cascade Communications (soon to merge with Ascend) for below-market
multiples. We only wish we had bought more at those inexpensive levels.
"...market
fluctuations
present the
best opportu-
nities to find
great compa-
nies at
attractive
prices..."
As always, there were some disappointments during the period. Millipore, a
provider of filters to the semiconductor industry, suffered with a slowdown in
semiconductor capital equipment spending, while Boeing languished as it tried to
work out its merger with McDonnell Douglas.
Outlook
In our view, we're in for more market volatility as long as investors remain
edgy about current stock valuation levels. We'll use that to our advantage,
since we believe this same volatility presents the best opportunities to find
great companies at attractive prices that do not reflect their true worth. Our
goal continues to be to provide investors with above-average returns at
below-market risk from a large-company stock portfolio that is generally
representative of the broad stock market.
- --------------------------------------------------------------------------------
This commentary reflects the views of the portfolio manager through the end of
the Fund's period discussed in this report. Of course, the manager's views are
subject to change as market and other conditions warrant.
1Figures from Lipper Analytical Services, Inc. include reinvested dividends and
do not take into account sales charges. Actual load-adjusted performance is
lower.
5
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Growth and Income Fund. Total return is a
performance measure that equals the sum of all income and capital gains
dividends, assuming reinvestment of these distributions, and the change in the
price of the Fund's shares, expressed as a percentage of the Fund's net asset
value per share. Performance figures include the maximum applicable sales charge
of 5% for Class A shares. The effect of the maximum contingent deferred sales
charge for Class B shares (maximum 5% and declining to 0% over six years) is
included in Class B performance. Remember that all figures represent past
performance and are no guarantee of how the Fund will perform in the future.
Also, keep in mind that the total return and share price of the Fund's
investments will fluctuate. As a result, your Fund's shares may be worth more or
less than their original cost, depending on when you sell them.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended June 30, 1997
ONE FIVE MOST RECENT
YEAR YEARS TEN YEARS
---- ----- ---------
John Hancock Growth and Income
Fund: Class A 29.48% 110.55% 228.72%
John Hancock Growth and Income
Fund: Class B 30.26% 111.25% 130.66%(1)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended June 30, 1997
ONE FIVE MOST RECENT
YEAR YEARS TEN YEARS
---- ----- ---------
John Hancock Growth and Income
Fund: Class A 29.48% 16.06% 12.64%
John Hancock Growth and Income
Fund: Class B 30.26% 16.13% 15.34%(1)
Notes to Performance
(1) Class B shares commenced on August 22, 1991.
6
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
The charts on the right show how much a $10,000 investment in John Hancock
Growth and Income Fund would be worth on June 30, 1997 assuming either you had
invested on the day each class of shares started, or have been invested for the
most recent ten years and have reinvested all distributions. For comparison,
we've shown the same $10,000 investment in the Standard & Poor's 500 Stock Index
- --an unmanaged index that includes 500 widely traded common stocks and is often
used as a measure of stock market performance.
- --------------------------------------------------------------------------------
Line chart with the heading Growth and Income Fund: Class A, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are three lines. The first line represents the value of the Standard &
Poor's 500 Stock Index and is equal to $49,922 as of June 30, 1997. The second
line represents the value of the hypothetical $10,000 investment made in the
Growth and Income Fund on June 30, 1987 before sales charge, and is equal to
$40,503 as of June 30, 1997. The third line represents the Growth and Income
Fund, after sales charge, and is equal to $38,478 as of June 30, 1997.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Line chart with the heading Growth and Income Fund: Class B, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are three lines. The first line represents the value of the Standard &
Poor's 500 Stock Index, and is equal to $26,688 as of June 30, 1997. The second
line represents the value of the hypothetical $10,000 investment made in the
Growth and Income Fund, before sales charge, on August 22, 1991, after sales
charge, and is equal to $23,166 as of June 30, 1997. The third line, represents
the value of the Growth and Income Fund, and is equal to $23,066 as of June 30,
1997.
- --------------------------------------------------------------------------------
7
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Growth and Income Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on June 30, 1997. You'll also
find the net asset value and the maximum offering price per share as of that
date.
Statement of Assets and Liabilities
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common stocks (cost - $295,996,180) ........................ $ 415,571,131
Preferred stock (cost - $2,919,705) ........................ 3,512,500
Joint repurchase agreement (cost - $9,404,000) ............. 9,404,000
Corporate savings account .................................. 71
-------------
............................................................... 428,487,702
Receivable for investments sold .............................. 2,188,344
Receivable for shares sold ................................... 825,513
Dividends receivable ......................................... 523,184
Interest receivable .......................................... 2,116
Other assets ................................................. 40,328
-------------
Total Assets ..................... 432,067,187
-------------------------------------------------
Liabilities:
Payable for investments purchased ............................ 4,411,519
Payable for shares repurchased ............................... 135,335
Payable to John Hancock Advisers, Inc.
and affiliates - Note B .................................... 310,006
Accounts payable and accrued expenses ........................ 10,056
-------------
Total Liabilities ................ 4,866,916
-------------------------------------------------
Net Assets:
Capital paid-in .............................................. 267,135,039
Accumulated net realized gain on investments and
foreign currency transactions .............................. 39,898,334
Net unrealized appreciation of investments and
foreign currency transactions .............................. 120,170,596
Distributions in excess of net investment income ............. ( 3,698)
-------------
Net Assets ....................... $ 427,200,271
=================================================
Net Asset Value Per Share:
(Based on net asset values and shares of beneficial
interest outstanding - unlimited number of shares
authorized with no par value, respectively)
Class A - $215,721,047/11,293,531 ............................ $ 19.10
=============================================================================
Class B - $211,479,224/11,037,162 ............................ $ 19.16
=============================================================================
Maximum Offering Price Per Share*
Class A - ($19.10 x 105.26%) ................................. $ 20.11
=============================================================================
*On a signle retail sales of less than $50,000. On sales of $50,000 or more and
on group sales, the offering price is reduced.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated. Statement of Operations
Six months ended June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividends .................................................... $ 2,589,563
Interest ..................................................... 910,078
-------------
............................................................... 3,499,641
-------------
Expenses:
Investment management fee - Note B .......................... 1,103,701
Distribution and service fee - Note B
Class A .................................................... 228,609
Class B .................................................... 838,816
Transfer agent fee - Note B .................................. 281,899
Registration and filing fees ................................. 34,483
Custodian fee ................................................ 33,405
Financial services fee - Note B .............................. 33,111
Auditing fee ................................................. 18,265
Trustees' fees ............................................... 13,192
Miscellaneous ................................................ 3,435
Legal fees ................................................... 2,919
Printing ..................................................... 2,552
-------------
Total Expenses ................... 2,594,387
-------------------------------------------------
Net Investment Income ............ 905,254
-------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments sold ........................ 33,266,161
Net realized loss on foreign currency transactions ........... ( 2,131)
Change in net unrealized appreciation/depreciation
of investments ............................................. 39,427,639
Change in net unrealized appreciation/depreciation
of foreign currency transactions ........................... 494
-------------
Net Realized and Unrealized
Gain on Investments and
Foreign Currency Transactions .... $ 72,692,163
-------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ........ $ 73,597,417
=================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Growth and Income Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED SEPTEMBER 1, 1996 SIX MONTHS ENDED
AUGUST 31, TO DECEMBER 31, JUNE 30, 1997
1996 1996(1) (UNAUDITED)
--------------- --------------- -------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income .................................................... $ 2,407,620 $ 483,351 $ 905,254
Net realized gain on investments sold and foreign currency transactions .. 25,207,559 11,589,657 33,264,030
Change in net unrealized appreciation/depreciation of investments and
foreign currency transactions .......................................... 7,739,354 26,075,239 39,428,133
------------- ------------ ------------
Net Increase in Net Assets Resulting from Operations ................. 35,354,533 38,148,247 73,597,417
------------- ------------ ------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.1939, $0.0752 and $0.0738 per share, respectively) ....... ( 1,792,414) ( 697,553) ( 804,989)
Class B - ($0.0916, $0.0151 and $0.0096 per share, respectively) ....... ( 780,162) ( 126,946) ( 101,491)
Distributions from net realized gain on investments sold
Class A - ($0.1450, $1.5747 and none per share, respectively) .......... ( 1,309,129) ( 14,744,885) --
Class B - ($0.1450, $1.5747 and none per share, respectively) .......... ( 1,230,621) ( 13,438,564) --
------------- ------------ ------------
Total Distributions to Shareholders .................................. ( 5,112,326) ( 29,007,948) ( 906,480)
------------- ------------ ------------
From Fund Share Transactions - Net*: ....................................... ( 9,818,420) 35,083,465 44,956,315
------------- ------------ ------------
Net Assets:
Beginning of period ...................................................... 244,905,468 265,329,255 309,553,019
------------- ------------ ------------
End of period (including undistributed net investment income
of $338,676, distributions in excess of net investment income
of $2,472 and $3,698, respectively) .................................... $ 265,329,255 $309,553,019 $427,200,271
============= ============ ============
<CAPTION>
*Analysis of Fund Share Transactions: YEAR ENDED PERIOD FROM SIX MONTHS ENDED
AUGUST 31, SEPTEMBER 1, 1996 JUNE 30, 1997
1996 TO DECEMBER 31, 1996(1) (UNAUDITED)
------------------------ ------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Shares sold .................................. 1,760,701 $25,784,827 2,100,056 $34,769,586 5,984,377 $102,573,846
Shares issued to shareholders
in reinvestment of distributions ........... 184,594 2,627,197 864,570 13,618,418 38,672 689,924
--------- ----------- --------- ----------- --------- ------------
1,945,295 28,412,024 2,964,626 48,388,004 6,023,049 103,263,770
Less shares repurchased ...................... (2,414,054) ( 34,877,792) (1,774,320) ( 29,444,447) (5,177,237) ( 88,211,952)
--------- ----------- --------- ----------- --------- ------------
Net increase (decrease) ...................... ( 468,759) ($ 6,465,768) 1,190,306 $18,943,557 845,812 $ 15,051,818
========= =========== ========= =========== ========= ============
CLASS B
Shares sold .................................. 2,595,953 $37,809,526 901,707 $14,803,231 3,377,550 $ 58,661,859
Shares issued to shareholders
in reinvestment of distributions ........... 123,908 1,753,023 767,775 12,131,262 4,785 87,534
--------- ----------- --------- ----------- --------- ------------
2,719,861 39,562,549 1,669,482 26,934,493 3,382,335 58,749,393
Less shares repurchased ...................... (2,944,133) ( 42,915,201) ( 653,345) ( 10,794,585) (1,691,194) ( 28,844,896)
--------- ----------- --------- ----------- --------- ------------
Net increase (decrease) ...................... ( 224,272) ( $3,352,652) 1,016,137 $16,139,908 1,691,141 $ 29,904,497
========= =========== ========= =========== ========= ============
(1) Effective December 31, 1996, the fiscal period end changed from August 31 to December 31.
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment and foreign currency gains and losses,
distributions paid to shareholders, and any increase or decrease in money
shareholders invested in the Fund. The footnote illustrates the number of Fund
shares sold, reinvested and repurchased during the last three periods, along
with the corresponding dollar value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Growth and Income Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, PERIOD FROM SIX MONTHS ENDED
------------------------------------------------ SEPTEMBER 1, 1996 TO JUNE 30, 1997
1992 1993 1994 1995(4) 1996 DECEMBER 31, 1996(6) (UNAUDITED)
-------- -------- -------- -------- -------- -------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ..... $ 11.77 $ 12.43 $ 12.08 $ 11.42 $ 13.38 $ 15.07 $ 15.62
------- -------- -------- -------- -------- -------- --------
Net Investment Income (1) ................ 0.32 0.40 0.32 0.21 0.19 0.05 0.07
Net Realized and Unrealized Gain (Loss)
on Investments ......................... 0.89 1.12 ( 0.61) 1.95 1.84 2.15 3.48
------- -------- -------- -------- -------- -------- --------
Total from Investment Operations ....... 1.21 1.52 ( 0.29) 2.16 2.03 2.20 3.55
------- -------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ..... ( 0.25)( 0.42)( 0.37)( 0.20)( 0.19) ( 0.08) ( 0.07)
Distributions from Net Realized Gain
on Investments Sold .................... ( 0.30)( 1.45) -- -- ( 0.15) ( 1.57) --
------- -------- -------- -------- -------- -------- --------
Total Distributions .................... ( 0.55)( 1.87)( 0.37)( 0.20)( 0.34) ( 1.65) ( 0.07)
------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ........... $ 12.43 $ 12.08 $ 11.42 $ 13.38 $ 15.07 $ 15.62 $ 19.10
======= ======== ======== ======== ======== ======== ========
Total Investment Return at
Net Asset Value (2) .................... 10.47% 13.64% ( 2.39%) 19.22% 15.33% 14.53%(7) 22.79%(7)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) . $ 89,682 $115,780 $121,160 $130,183 $139,548 $163,154 $215,721
Ratio of Expenses to Average Net Assets .. 1.34% 1.29% 1.31% 1.30% 1.17% 1.22%(5) 1.11%(5)
Ratio of Net Investment Income
to Average Net Assets .................. 2.75% 3.43% 2.82% 1.82% 1.28% 0.85%(5) 0.87%(5)
Portfolio Turnover Rate .................. 119% 107% 195% 99% 74% 26% 55%
Average Broker Commission Rate (3) ....... N/A N/A N/A N/A $ 0.0665 $ 0.0692 $ 0.0683
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
dividends and total investment return of the Fund. It shows how the Fund's net
asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Growth and Income Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, PERIOD FROM SIX MONTHS ENDED
------------------------------------------------ SEPTEMBER 1, 1996 TO JUNE 30, 1997
1992 1993 1994 1995(4) 1996 DECEMBER 31, 1996(6) (UNAUDITED)
-------- -------- -------- -------- -------- -------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ..... $ 11.77 $ 12.44 $ 12.10 $ 11.44 $ 13.41 $ 15.10 $ 15.66
------- -------- -------- -------- -------- -------- --------
Net Investment Income (1) ................ 0.23 0.30 0.24 0.13 0.08 0.01 0.01
Net Realized and Unrealized Gain (Loss)
on Investments ......................... 0.89 1.12 ( 0.61) 1.96 1.85 2.14 3.50
------- -------- -------- -------- -------- -------- --------
Total from Investment Operations ....... 1.12 1.42 ( 0.37) 2.09 1.93 2.15 3.51
------- -------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ..... ( 0.15) ( 0.31) ( 0.29) ( 0.12) ( 0.09) ( 0.02) ( 0.01)
Distributions from Net Realized Gain
on Investments Sold .................... ( 0.30) ( 1.45) -- -- ( 0.15) ( 1.57) --
------- -------- -------- -------- -------- -------- --------
Total Distributions .................... ( 0.45) ( 1.76) ( 0.29) ( 0.12) ( 0.24) ( 1.59) ( 0.01)
------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ........... $ 12.44 $ 12.10 $ 11.44 $ 13.41 $ 15.10 $ 15.66 $ 19.16
======= ======== ======== ======== ======== ======== ========
Total Investment Return at Net
Asset Value (2) ........................ 9.67% 12.64% ( 3.11%) 18.41% 14.49% 14.15%(7) 22.41%(7)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) . $29,826 $ 65,010 $114,025 $114,723 $125,781 $146,399 $211,479
Ratio of Expenses to Average Net Assets .. 2.07% 2.19% 2.06% 2.03% 1.90% 1.98%(5) 1.85%(5)
Ratio of Net Investment Income
to Average Net Assets .................. 2.02% 2.53% 2.07% 1.09% 0.55% 0.10%(5) 0.13%(5)
Portfolio Turnover Rate .................. 119% 107% 195% 99% 74% 26% 55%
Average Broker Commission Rate (3) ....... N/A N/A N/A N/A $ 0.0665 $ 0.0692 $ 0.0683
(1) Based on the average of the shares outstanding at the end of each month.
(2) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(3) Per portfolio share traded. Required for fiscal years that began September 1, 1995 or later.
(4) On December 2, 1994, John Hancock Advisers, Inc. became the investment adviser of the Fund.
(5) Annualized.
(6) Effective December 31, 1996, the fiscal period end changed from August 31 to December 31.
(7) Not annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Growth and Income Fund
Schedule of Investments
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Fund on June 30, 1997. It's divided into three main categories: common stocks,
preferred stocks and short-term investments. The common and preferred stocks are
further broken down by industry groups. Short-term investments, which represent
the Fund's "cash" position, are listed last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
COMMON STOCKS
Aerospace (6.44%)
General Dynamics Corp. .............. 75,000 $ 5,625,000
McDonnell Douglas Corp. ............. 133,000 9,110,500
Northrop Grumman Corp. .............. 70,000 6,146,875
United Technologies Corp. ........... 80,000 6,640,000
------------
27,522,375
------------
Automobile / Trucks (0.31%)
Lear Corp.* ......................... 29,700 1,317,938
------------
Banks - United States (2.30%)
Banc One Corp. ...................... 163,226 7,906,259
Providian Financial Corp.* .......... 60,000 1,927,500
------------
9,833,759
------------
Beverages (1.19%)
PepsiCo, Inc. ....................... 135,000 5,070,938
------------
Broker Services (1.67%)
Morgan Stanley, Dean Witter,
Discover & Co. .................... 165,400 7,122,538
------------
Building (0.08%)
Morrison Knudsen Corp.* ............. 25,000 340,625
------------
Business Services - Misc (1.89%)
Block, H & R, Inc. .................. 250,000 8,062,500
------------
Chemicals (3.69%)
BetzDearborn, Inc. .................. 100,000 6,600,000
Monsanto Co. ........................ 172,000 7,406,750
Sigma-Aldrich Corp. ................. 50,000 1,753,125
------------
15,759,875
------------
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Computers (9.28%)
Automatic Data Processing, Inc. ..... 85,000 $ 3,995,000
Cabletron Systems, Inc.* ............ 20,000 566,250
Cadence Design Systems, Inc.* ....... 100,000 3,350,000
Cisco Systems, Inc.* ................ 41,300 2,772,262
Computer Associates
International, Inc. ............... 239,100 13,314,881
Computer Sciences Corp.* ............ 81,900 5,907,037
Electronic Data Systems Corp. ....... 25,000 1,025,000
Inso Corp.* ......................... 19,000 390,687
Oracle Corp.* ....................... 165,000 8,311,875
------------
39,632,992
------------
Consumer Products Misc. (0.67%)
Samsonite Corp.* .................... 65,000 2,868,125
------------
Cosmetics & Personal Care (1.33%)
Gillette Co. ........................ 60,000 5,685,000
------------
Diversified Operations (1.97%)
AlliedSignal, Inc. .................. 95,700 8,038,800
Fortune Brands, Inc. ................ 10,000 373,125
------------
8,411,925
------------
Electronics (4.52%)
Advanced Micro Devices, Inc.* ....... 85,000 3,060,000
Fisher Scientific International ..... 50,000 2,375,000
General Electric Co. ................ 120,000 7,845,000
Honeywell, Inc. ..................... 50,000 3,793,750
Novellus Systems, Inc.* ............. 19,000 1,643,500
Oak Industries, Inc.* ............... 20,000 575,000
------------
19,292,250
------------
Finance (10.35%)
Ahmanson, H.F. & Co. ................ 89,000 3,827,000
American Express Co. ................ 60,000 4,470,000
Astoria Financial Corp. ............. 77,300 3,671,750
FIRSTPLUS Financial Group, Inc.* .... 100,000 3,400,000
Great Western Financial Corp. ....... 78,200 4,203,250
Student Loan Marketing Assn. ........ 60,000 7,620,000
TCF Financial Corp. ................. 263,751 13,022,691
United Asset Management Corp. ....... 142,000 4,020,375
------------
44,235,066
------------
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Growth and Income Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Food (2.31%)
Archer-Daniels-Midland Co. .......... 120,000 $ 2,820,000
CPC International, Inc. ............. 76,500 7,061,906
------------
9,881,906
------------
Instruments - Scientific (0.51%)
Millipore Corp. ..................... 50,000 2,200,000
------------
Insurance (10.28%)
Ace, Ltd. (Bermuda) ................. 100,000 7,387,500
CapMAC Holdings, Inc. ............... 140,000 4,707,500
CMAC Investment Corp. ............... 60,000 2,865,000
Executive Risk, Inc. ................ 26,100 1,357,200
Financial Security Assurance
Holdings Ltd. ..................... 54,600 2,125,988
Leucadia National Corp. ............. 50,000 1,546,875
Lincoln National Corp. .............. 28,800 1,854,000
Mercury General Corp. ............... 10,000 727,500
Progressive Corp. ................... 187,500 16,312,500
Travelers Group, Inc. ............... 80,000 5,045,000
------------
43,929,063
------------
Leisure (1.80%)
Eastman Kodak Co. ................... 100,000 7,675,000
------------
Media (0.93%)
Central Newspapers, Inc. (Class A) .. 55,400 3,968,025
------------
Medical (9.99%)
Baxter International, Inc. .......... 120,000 6,270,000
Columbia/HCA Healthcare Corp. ....... 45,600 1,792,650
Lilly (Eli) & Co. ................... 100,000 10,931,250
Manor Care, Inc. .................... 25,000 815,625
Schering-Plough Corp. ............... 200,000 9,575,000
Warner-Lambert Co. .................. 70,000 8,697,500
Wellpoint Health Networks, Inc.* .... 100,000 4,587,500
------------
42,669,525
------------
Mortgage Banking (2.92%)
Fannie Mae .......................... 165,000 7,198,125
Federal Home Loan Mortgage Corp. .... 112,000 3,850,000
Money Store, Inc. (The) ............. 50,000 1,434,375
------------
12,482,500
------------
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Oil & Gas (5.19%)
Amerada Hess Corp. .................. 20,000 $ 1,111,250
ENI S.p.A., American Depositary
Receipt (ADR), (Italy)+ ........... 50,000 2,843,750
Exxon Corp. ......................... 60,000 3,690,000
Mobil Corp. ......................... 88,000 6,149,000
Phillips Petroleum Co. .............. 150,000 6,562,500
Tosco Corp. ......................... 60,000 1,796,250
------------
22,152,750
------------
Paper & Paper Products (1.17%)
Kimberly-Clark Corp. ................ 100,000 4,975,000
------------
Pollution Control (0.35%)
US Filter Corp.* .................... 55,000 1,498,750
------------
Retail (3.02%)
Great Atlantic & Pacific
Tea Co., Inc. ..................... 32,800 891,750
Sysco Corp. ......................... 125,000 4,562,500
Wal-Mart Stores, Inc. ............... 220,000 7,438,750
------------
12,893,000
------------
Telecommunications (6.00%)
360 Communications Co.* ............. 107,200 1,835,800
Cable Design Technologies* .......... 21,300 627,019
Cascade Communications Corp.* ....... 92,000 2,541,500
Lucent Technologies, Inc. ........... 130,200 9,382,537
Qwest Communications
International Inc.* ............... 7,100 193,475
SBC Communications, Inc. ............ 55,000 3,403,125
Sprint Corp. ........................ 30,000 1,578,750
U.S. West, Inc.* .................... 300,000 6,075,000
------------
25,637,206
------------
Tobacco (2.75%)
Philip Morris Cos., Inc. ............ 264,800 11,750,500
------------
Transport (4.06%)
Burlington Northern Santa Fe ........ 87,000 7,819,125
CSX Corp. ........................... 92,000 5,106,000
Northwest Airlines Corp. (Class A)* . 25,000 909,375
Union Pacific Corp. ................. 50,000 3,525,000
------------
17,359,500
------------
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Growth and Income Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Utilities (0.31%)
Edison International ................. 10,000 $ 248,750
Williams Cos., Inc. (The) ............ 25,000 1,093,750
------------
1,342,500
------------
TOTAL COMMON STOCKS
(Cost $295,996,180) ( 97.28%) 415,571,131
------- ------------
PREFERRED STOCK
Broker Services (0.82%)
Salomon Inc. 7.625%, Ser FSA, Conv. .. 100,000 3,512,500
------------
TOTAL PREFERRED STOCK
(Cost $2,919,705) ( 0.82%) 3,512,500
------- ------------
INTEREST PAR VALUE
ISSUER DESCRIPTION RATE (000s OMITTED)
- ------------------ ---- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.20%)
Investment in a joint repuchase agreement
transaction with Toronto-Dominion Bank -
Dated 06-30-96, Due 07-01-97
(secured by U.S. Treasury Notes,
5.625% thru 8.125% Due 07-31-97
thru 11-15-04) - Note A 5.97% 9,404 9,404,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% ................. 71
------------
TOTAL SHORT-TERM INVESTMENTS ( 2.20%) 9,404,071
------- ------------
TOTAL INVESTMENTS (100.30%) $428,487,702
======= ============
* Non-income producing security.
+ This security having an aggregate market value of $2,843,750 and 0.67% of the
Fund's net asset value, has been purchased as a forward commitment. That is, the
Fund has agreed on trade date to take delivery of and make payment for such
security on a delayed basis subsequent to this schedule. The Fund has instructed
its custodian bank to segregate assets with a current value at least equal to
the amount of the forward commitment. Accordingly, the market value of
$4,343,625 of Computer Associates International, Inc. 78,000 shares has been
segregated to cover the forward commitments.
Parenthetical disclosure of a foreign country in the security description
represents country of a foreign issuer; however, the security is U.S.
dollar denominated.
The percentage shown for each investment category is the total of that category
as a percentage of net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Growth and Income Fund
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Investment Trust (the "Trust") is an open-end management investment
company registered under the Investment Company Act of 1940. The Trust consists
of three series portfolios: John Hancock Growth and Income Fund (the "Fund"),
John Hancock Sovereign Balanced Fund and John Hancock Sovereign Investors Fund.
The other two series of the Trust are reported in separate financial statements.
The investment objective of the Fund is to obtain the highest total return, a
combination of capital appreciation and current income, consistent with
reasonable safety of capital.
The Trustees have authorized the issuance of two classes of the Fund,
designated as Class A and Class B. The shares of each class represent an
interest in the same portfolio of investments of the Fund and have equal rights
to voting, redemptions, dividends and liquidation, except that certain expenses,
subject to the approval of the Trustees, may be applied differently to each
class of shares in accordance with current regulations of the Securities and
Exchange Commission and the Internal Revenue Service. Shareholders of a class
which bears distribution and service expenses under the terms of a distribution
plan have exclusive voting rights regarding such distribution plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement. Aggregate cash balances are
invested in one or more repurchase agreements, whose underlying securities are
obligations of the U.S. government and/or its agencies. The Fund's custodian
bank receives delivery of the underlying securities for the joint account on the
Fund's behalf. The Adviser is responsible for ensuring that the agreement is
fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
FEDERAL INCOME TAX The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required.
DIVIDENDS, INTEREST AND DISTRIBUTIONS Dividend income on investment securities
is recorded on the ex-dividend date. Interest income on investment securities is
recorded on the accrual basis.
The Fund records all distributions to shareholders from net investment income
and realized gains on the ex-dividend date. Such distributions are determined in
conformity with income tax regulations which may differ from generally accepted
accounting principles. Dividends paid by the Fund with respect to each class of
shares will be calculated in the same manner, at the same time and will be in
the same amount, except for the effect of expenses that may be applied
differently to each class.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are determined at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution and service fees, if any, are calculated daily at the class level
based on the appropriate net assets of each class and the specific expense
rate(s) applicable to each class.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the funds.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates
15
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Growth and Income Fund
estimates made by management in determining the reported amounts of assets,
liabilities, revenues and expenses of the Fund. Actual results could differ from
these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. The Fund had no borrowing
activity for the period ended June 30, 1997.
NOTE B --
MANAGEMENT FEE AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, to
0.625% of the Fund's average daily net asset value.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended June 30,
1997, net sales charges received with regard to sales of Class A shares amounted
to $337,409. Out of this amount, $58,236 was retained and used for printing
prospectuses, advertising, sales literature and other purposes, $162,472 was
paid as sales commissions to unrelated broker-dealers and $116,701 was paid as
sales commissions to sales personnel of John Hancock Distributors, Inc.
("Distributors"), a related broker-dealer. The Adviser's indirect parent, John
Hancock Mutual Life Insurance Company ("JHMLICo"), is the indirect sole
shareholder of Distributors.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses related to providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended June 30, 1997,
contingent deferred sales charges amounted to $159,291.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a Distribution Plan with
respect to Class A and Class B pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments to JH Funds for
distribution and service expenses at an annual rate not to exceed 0.25% of Class
A average daily net assets and 1.00% of Class B average daily net assets to
reimburse JH Funds for its distribution and service costs. Up to a maximum of
0.25% of such payments may be service fees as defined by the amended Rules of
Fair Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of JHMLICo. The
Fund pays transfer agent fees based on the number of shareholder accounts and
certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for the period was
at an annual rate of 0.01875% of the average net assets of the Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S.
Scipione are trustees and/or officers of the Adviser and/or its affiliates, as
well as Trustees of the Fund. The compensation of unaffiliated Trustees is borne
by the Fund. The unaffiliated Trustees may elect to defer for tax purposes their
receipt of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Fund makes investments into other John Hancock funds, as
applicable, to cover its liability for the deferred compensation. Investments to
cover the Fund's deferred compensation liability are recorded on the Fund's
books as an other asset. The deferred compensation liability and the related
other asset are always equal and are marked to market on a periodic basis to
reflect any income earned by the investment as well as any unrealized gains or
losses. At June 30, 1997, the Fund's investments to cover the deferred
compensation liability had unrealized appreciation of $2,356.
16
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Growth and Income Fund
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the period
ended June 30, 1997, aggregated $230,602,116 and $178,939,868, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended June 30, 1997.
The cost of investments owned at June 30, 1997 (excluding the corporate
savings account) for federal income tax purposes was $308,319,885. Gross
unrealized appreciation and depreciation of investments aggregated $121,655,156
and $1,487,410, respectively, resulting in net unrealized appreciation of
$120,167,746.
17
<PAGE>
================================================================================
NOTES
John Hancock Funds - Growth and Income Fund
18
<PAGE>
================================================================================
NOTES
John Hancock Funds - Growth and Income Fund
19
<PAGE>
================================================================================
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A Global Investment Management Firm U.S. Postage
PAID
101 Huntington Avenue, Boston, MA 02199-7603 Randolph, MA
1-800-225-5291 1-800-554-6713 (TDD) Permit No. 75
Internet: www.jhancock.com/funds
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock Growth
and Income Fund. It may be used as sales literature when preceded or accompanied
by the current prospectus, which details charges, investment objectives and
operating policies.
[RECYCLE LOGO] Printed on Recycled Paper 2100A 6/97
8/97
<PAGE>
JOHN HANCOCK FUNDS
A GLOBAL INVESTMENT MANAGEMENT FIRM
VOTE THIS PROXY CARD TODAY! YOUR PROMPT RESPONSE WILL
SAVE YOUR FUND THE EXPENSE OF ADDITIONAL MAILINGS
JOHN HANCOCK UTILITIES FUND
101 HUNTINGTON AVENUE, BOSTON, MASSACHUSETTS 02199
SPECIAL MEETING OF SHAREHOLDERS - NOVEMBER 12, 1997
PROXY SOLICITATION BY THE BOARD OF TRUSTEES
The undersigned, revoking previous proxies, hereby appoint(s) Edward J.
Boudreau, Jr., Susan S. Newton and James B. Little, with full power of
substitution in each, to vote all the shares of beneficial interest of John
Hancock Utilities Fund ("Utilities Fund") which the undersigned is (are)
entitled to vote at the Special Meeting of Shareholders (the "Meeting") of
Utilities Fund to be held at 101 Huntington Avenue, Boston, Massachusetts, on
November 12, 1997 at 9:00 a.m., Boston time, and at any adjournment(s) of the
Meeting. All powers may be exercised by a majority of all proxy holders or
substitutes voting or acting, or, if only one votes and acts, then by that one.
Receipt of the Proxy Statement dated September 22, 1997 is hereby acknowledged.
If not revoked, this proxy shall be voted for the proposal:
PLEASE SIGN, DATE AND RETURN
PROMPTLY IN ENCLOSED ENVELOPE
Date __________________, 1997
NOTE: Signature(s) should agree
with name(s) printed herein. When
signing as attorney, executor,
administrator, trustee or guardian,
please give your full title as
such. If a corporation, please sign
in full corporate name by president
or other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
-----------------------------------
Signature(s)
<PAGE>
JOHN HANCOCK FUNDS
A GLOBAL INVESTMENT MANAGEMENT FIRM
VOTE THIS PROXY CARD TODAY! YOUR PROMPT RESPONSE WILL SAVE YOUR FUND THE EXPENSE
OF ADDITIONAL MAILINGS.
THIS PROXY SHALL BE VOTED IN FAVOR OF (FOR) PROPOSAL 1 IF NO SPECIFICATION IS
MADE BELOW. AS TO ANY OTHER MATTER, THE PROXY OR PROXIES SHALL VOTE IN
ACCORDANCE WITH THEIR BEST JUDGEMENT. PLEASE VOTE BY FILLING IN THE APPROPRIATE
BOX BELOW, AS SHOWN, USING BLUE OR BLACK INK OR DARK PENCIL. DO NOT USE RED INK.
(1) To approve an Agreement and Plan of Reorganization between Utilities
Fund and John Hancock Growth and Income Fund. Under this Agreement,
Utilities Fund would transfer all of its assets to Growth and Income Fund.
These shares will be distributed proportionately to you and the other
shareholders of Utilities Fund. Growth and Income Fund will also assume
Utilities Fund's liabilities.
---- ---- ----
FOR |____| AGAINST |____| ABSTAIN |____|
PLEASE DO NOT FORGET TO SIGN THE REVERSE SIDE OF THIS CARD.
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
JOHN HANCOCK GROWTH AND INCOME FUND
September 22, 1997
This statement of additional information is not a prospectus. It should be read
in conjunction with the related proxy statement and prospectus which is also
dated September 22, 1997. This statement of additional information provides
additional information about John Hancock Growth and Income Fund and the fund
that it is acquiring, John Hancock Utilities Fund. Please retain this statement
of additional information for future reference. A copy of the proxy statement
and prospectus can be obtained free of charge by calling John Hancock Signature
Services, Inc., at 1-800-225-5291.
<TABLE>
TABLE OF CONTENTS
<S> <C>
Page
Introduction3
Additional Information About Growth and Income Fund3
General Information and History
Investment Objective and Policies
Management of Growth and Income Fund
Control Persons and Principal Holders of Shares
Investment Advisory and Other Services
Brokerage Allocation
Capital Stock and Other Securities
Purchase, Redemption and Pricing of Growth and Income Fund Shares
Tax Status
Underwriters
Calculation of Performance Data
Financial Statements
Additional Information about Utilities Fund4
General Information and History
Investment Objective and Policies
Management of Utilities Fund
Investment Advisory and Other Services
Brokerage Allocation
Capital Stock and Other Securities
Purchase, Redemption and Pricing of Utilities Fund Shares
Tax Status
Underwriters
Calculation of Performance Data
Financial Statements
</TABLE>
<PAGE>
Exhibits
A - Statement of additional information, dated May 1, 1997, of John
Hancock Growth and Income Fund including audited financial statements
as of December 31, 1996 and unaudited semi- annual financial
statements as of June 30, 1997.
B - Statement of additional information, dated May 1, 1997, of John
Hancock Utilities Fund including audited financial statements as of
December 31, 1996 and unaudited semi-annual financial statements as of
June 30, 1997.
C - Pro forma combined financial statements as of June 30, 1997 assuming
the reorganization of John Hancock Utilities Fund into John Hancock
Growth and Income Fund occurred on that date.
<PAGE>
INTRODUCTION
This statement of additional information is intended to supplement the
information provided in a proxy statement and prospectus dated September 22,
1997. The proxy statement and prospectus has been sent to the shareholders of
Utilities Fund in connection with the solicitation by the trustees of Utilities
Fund of proxies to be voted at the special meeting of shareholders of Utilities
Fund to be held on November 12, 1997. This statement of additional information
incorporates by reference the statement of additional information of Growth and
Income Fund, dated May 1, 1997, and the statement of additional information of
Utilities Fund, also dated May 1, 1997. The Growth and Income Fund SAI and the
Utilities Fund SAI are included with this statement of additional information.
Additional Information About Growth and Income Fund
---------------------------------------------------
General Information and History
- -------------------------------
For additional information about Growth and Income Fund generally and
its history, see "Organization of the Trust" in the Growth and Income Fund SAI.
Investment Objective and Policies
- ---------------------------------
For additional information about Growth and Income Fund's investment
objective, policies and restrictions see "Investment Objective and Policies" and
"Investment Restrictions" in the Growth and Income Fund SAI.
Management of Growth and Income Fund
- ------------------------------------
For additional information about the Growth and Income Fund's Board of
Trustees, officers and management personnel, see "Those Responsible for
Management" in the Growth and Income Fund SAI.
Control Persons and Principal Holders of Shares
- -----------------------------------------------
For additional information about control persons of Growth and Income
Fund and principal holders of shares of Growth and Income Fund, see "Those
Responsible for Management" in the Growth and Income Fund SAI.
Investment Advisory and Other Services
- --------------------------------------
For additional information about Growth and Income Fund's investment
adviser, custodian, transfer agent and independent accountants, see "Investment
Advisory and Other Services," "Distribution Contracts," "Transfer Agent
Services," "Custody of Portfolio" and "Independent Auditors" in the Growth and
Income Fund SAI.
Brokerage Allocation and Other Practices
- ----------------------------------------
For additional information about Growth and Income Fund's brokerage
allocation practices, see "Brokerage Allocation" in the Growth and Income Fund
SAI.
Capital Stock and Other Securities
- ----------------------------------
For additional information about the voting rights and other
characteristics of Growth and Income Fund's shares of beneficial interest, see
"Description of the Fund's Shares" in the Growth and Income Fund SAI.
<PAGE>
Purchase, Redemption and Pricing of Growth and Income Fund Shares
- -----------------------------------------------------------------
For additional information about the determination of net asset value,
see "Net Asset Value" in the Growth and Income Fund SAI.
Tax Status
- ----------
For additional information about the tax status of Growth and Income
Fund, see "Tax Status" in the Growth and Income Fund SAI.
Underwriters
- ------------
For additional information about Growth and Income Fund's principal
underwriter and the distribution contract between the principal underwriter and
Growth and Income Fund, see "Distribution Contracts" in the Growth and Income
Fund SAI.
Calculation of Performance Data
- -------------------------------
For additional information about the investment performance of Growth
and Income Fund, see "Calculation of Performance" in the Growth and Income Fund
SAI.
Financial Statements
- --------------------
Audited financial statements of Growth and Income Fund at December 31,
1996 and unaudited semi-annual financial statements as of June 30, 1997 are
attached to the Growth and Income Fund SAI.
Pro Forma combined financial statements as of June 30, 1997 are also
attached hereto.
Additional Information About Utilities Fund
-------------------------------------------
General Information and History
- -------------------------------
For additional information about Utilities Fund generally and its
history, see "Organization of the Fund" in the Utilities Fund SAI.
Investment Objectives and Policies
- ----------------------------------
For additional information about Utilities Fund's investment
objectives, policies and restrictions, see "Investment Objective and Policies"
and "Investment Restrictions" in the Utilities Fund SAI.
Management of Utilities Fund
- ----------------------------
For additional information about Utilities Fund's Board of Trustees,
officers and management personnel, see "Those Responsible for Management" in the
Utilities Fund SAI.
Investment Advisory and Other Services
- --------------------------------------
For additional information about Utilities Fund's investment adviser,
custodian, transfer agent and independent accountants, see "Investment Advisory
and Other Services," "Distribution Contracts," "Transfer Agent Services,"
"Custody of Portfolio" and "Independent Auditors" in the Utilities Fund SAI.
Brokerage Allocation and Other Practices
- ----------------------------------------
For additional information about Utilities Fund's brokerage allocation
practices, see "Brokerage Allocation" in the Utilities Fund SAI.
<PAGE>
Capital Stock and Other Securities
- ----------------------------------
For additional information about the voting rights and other
characteristics of Utilities Fund's shares of beneficial interest, see
"Description of the Fund's Shares" in the Utilities Fund SAI.
Purchase, Redemption and Pricing of Utilities Fund Shares
- ---------------------------------------------------------
For additional information about the net asset value of Utilities
Fund's shares, see "Net Asset Value" in the Utilities Fund SAI.
Tax Status
- ----------
For additional information about the tax status of Utilities Fund, see
"Tax Status" in the Utilities Fund's SAI.
Underwriters
- ------------
For additional information about Utilities Fund's principal underwriter
and the distribution contract between the principal underwriter and Utilities
Fund, see "Distribution Contracts" in the Utilities Fund SAI.
Calculation of Performance Data
- -------------------------------
For additional information about the investment performance of
Utilities Fund, see "Calculation of Performance" in the Utilities Fund SAI.
Financial Statements
- --------------------
Audited financial statements of Utilities Fund at December 31, 1996 and
unaudited semi-annual financial statements as of June 30, 1997 are attached to
the Utilities Fund SAI.
<PAGE>
John Hancock Funds
Supplement to Statement of Additional Information
The "INITIAL SALES CHARGE ON CLASS A SHARES" section is supplemented under the
heading "Without Sales Charge" by adding:
o Retirement plans participating in Merrill Lynch servicing programs, if
the Plan has more than $3 million in assets or 500 eligible employees
at the date the Plan Sponsor signs the Merrill Lynch Recordkeeping
Service Agreement. See your Merrill Lynch financial consultant for
further information.
The "INITIAL SALES CHARGE ON CLASS A AND CLASS B SHARES" section is supplemented
under the heading "Without Sales Charge" by adding:
o For retirement plans participating in Merrill Lynch's servicing
programs, Class A shares are not available at net asset value for
Plans with less than $3 million or 500 eligible employees at the date
the Plan Sponsor signs the Merrill Lynch Recordkeeping Service
Agreement. Class B shares are available. See your Merrill Lynch
financial consultant for further information.
The "DEFERRED SALES CHARGE ON CLASS B SHARES" section is supplemented under the
heading "Waiver of Contingent Deferred Sales Charge" by adding:
o Retirement plans participating in Merrill Lynch servicing programs, if
the Plan has more than $3 million in assets or 500 eligible employees
at the date the Plan Sponsor signs the Merrill Lynch Recordkeeping
Service Agreement. See your Merrill Lynch financial consultant for
further information.
The "DEFERRED SALES CHARGE ON CLASS B SHARES" section is supplemented under the
heading "For Retirement Accounts" by adding:
o For retirement plans participating in Merrill Lynch's servicing
programs that are investing in Class B shares, shares will convert to
Class A shares after eight years, (5 years for Short-Term Strategic
Income Fund, Intermediate Maturity Fund and Limited-Term Government
Fund) or sooner if the plan attains assets of $5 million (by means of
a CDSC-free redemption/purchase at net asset value).
<PAGE>
The "ADDITIONAL SERVICES AND PROGRAMS" section is supplemented as follows:
Retirement plans participating in Merrill Lynch's servicing programs:
---------------------------------------------------------------------
Class A shares are available at net asset value for plans with $3
million in plan assets or 500 eligible employees at the date the Plan
Sponsor signs the Merrill Lynch Recordkeeping Service Agreement. If
the plan does not meet either of these limits, Class A shares are not
available.
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).
6/1/97
MF2SS 6/97
<PAGE>
JOHN HANCOCK GROWTH AND INCOME FUND
CLASS A AND CLASS B SHARES
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1997
This Statement of Additional Information provides information about John Hancock
Growth and Income Fund (the "Fund"), in addition to the information that is
contained in the combined Growth and Income Fund's Prospectus, dated May 1, 1997
(the "Prospectus"). The Fund is a diversified series of John Hancock Investment
Trust (the "Trust").
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus, a copy of which can be obtained free of
charge by writing or telephoning:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
1-800-225-5291
TABLE OF CONTENTS
Page
Organization of the Trust .......................................... 2
Investment Objectives and Policies ................................. 2
Investment Restrictions ............................................ 14
Those Responsible for Management ................................... 16
Investment Advisory and Other Services ............................. 25
Distribution Contracts ............................................. 27
Net Asset Value .................................................... 29
Initial Sales Charge on Class A Shares ............................. 30
Deferred Sales Charge on Class B Shares ............................ 32
Special Redemptions ................................................ 36
Additional Services and Programs ................................... 36
Description of the Fund's Shares ................................... 37
Tax Status ......................................................... 38
Calculation of Performance ......................................... 43
Brokerage Allocation ............................................... 44
Transfer Agent Services ............................................ 46
Custody of Portfolio ............................................... 46
Independent Auditors ............................................... 46
Appendix A-Description of Bond Ratings ............................. A-1
Financial Statements ............................................... F-1
1
<PAGE>
ORGANIZATION OF THE FUND
The Fund is a series of the Trust, an open-end investment management company
organized as a Massachusetts business trust under a Declaration of Trust dated
December 12, 1984. Prior to December 22, 1994, the Fund was called Transamerica
Growth and Income Fund.
John Hancock Advisers, Inc. (the "Adviser") is the Fund's investment adviser.
The Adviser is an indirect wholly-owned indirect subsidiary of John Hancock
Mutual Life Insurance Company (the "Life Company"), chartered in 1862 with
national headquarters at John Hancock Place, Boston, Massachusetts.
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the discussion of the Fund's investment
objective and policies discussed in the Prospectus.
The investment objective of the Fund is to obtain the highest total return, a
combination of capital appreciation and current income, consistent with
reasonable safety of capital. The Fund seeks to achieve its objective by
allocating its assets between equity and fixed-income securities, including
money market instruments. The Fund is designed primarily, but not exclusively,
for the long-term investor as a base or central investment which may be termed a
"core portfolio." While there is no limitation as to the proportion of the
Fund's portfolio which may be invested in any type of security (unless otherwise
stated below), the Fund does not intend to concentrate its investments in any
particular industry. Depending upon the judgment of John Hancock Advisers, Inc.
(the "Adviser") as to general market and economic conditions and other factors,
the Fund may emphasize growth-oriented or income-oriented investments at
different times and in varying degrees in pursuit of its objective.
Under normal circumstances, the Fund's equity investments will consist of common
and preferred stocks which have yielded their holders a dividend return within
the preceding 12 months and have the potential to increase dividends in the
future; however, non-income producing securities may be held for anticipated
increase in value.
The Fund may invest in U.S. Government securities and corporate bonds, notes and
other debt securities of any maturity.
In selecting equity securities for the Fund, the Adviser emphasizes issuers
whose equity securities trade at valuation ratios lower than comparable issuers
or the Standard & Poor's Composite Index. Some of the valuation tools used
include price to earnings, price to cash flow and price to sales ratios and
earnings discount models. The Fund's portfolio will also include securities that
the Adviser considers to have the potential for capital appreciation, due to
potential recognition of earnings power or asset value which is not fully
reflected in the securities' current market value. The Adviser attempts to
identify investments which possess characteristics, such as high relative value,
intrinsic value, going concern value, net asset value and replacement book
value, which are believed to limit sustained downside price risk, generally
referred to as the "margin of safety" concept. The Adviser also considers an
issuer's financial strength, competitive position, projected future earnings and
dividends and other investment criteria.
The Fund's investment policy reflects the Adviser's belief that while the
securities markets tend to be efficient, sufficiently persistent price anomalies
exist which the strategically disciplined active equity manager can exploit in
seeking to achieve an above-average rate of return. There can be no assurance
that the Fund will achieve its investment objective.
2
<PAGE>
Investment in Foreign Securities. As a matter of non-fundamental policy the Fund
may invest up to 25% (and up to 35% during time of adverse U.S. market
conditions) of its total assets in securities of foreign issuers including
securities in the form of sponsored or unsponsored American Depository Receipts
("ADRs"), European Depository Receipts ("EDRs") or other securities convertible
into securities of foreign issuers. These securities may include debt and equity
securities of corporate and governmental issuers in countries with emerging
economies or securities markets. ADRs are receipts typically issued by an
American bank or trust company which evidence ownership of underlying securities
issued by a foreign corporation. EDRs are receipts issued in Europe which
evidence a similar ownership arrangement. Issuers of unsponsored ADRs are not
contractually obligated to disclose material information, including financial
information, in the United States. Generally, ADRs are designed for use in the
United States securities markets and EDRs are designed for use in European
securities markets.
Foreign Currency Transactions. As a matter of nonfundamental policy, the foreign
currency exchange transactions of the Fund may be conducted on a spot (i.e.,
cash) basis at the spot rate for purchasing or selling currency prevailing in
the foreign exchange market. The Fund may enter into forward foreign currency
exchange contracts involving currencies of the different countries in which it
may invest as a hedge against possible variations in the foreign exchange rate
between these currencies. This is accomplished through contractual agreements to
purchase or sell a specified currency at a specified future date and price set
at the time of the contract. The Fund's dealings in forward foreign currency
contracts will be limited to hedging either specific transactions or portfolio
positions. The Fund will not attempt to hedge all of its foreign portfolio
positions and will not engage in speculative forward currency transactions.
If the Fund enters into a forward contract to purchase foreign currency, its
custodian will segregate cash or liquid securities, of any type or maturity, in
a separate account of the Fund in an amount necessary to complete the forward
contract. These assets will be marked to market daily, and, if the value of the
assets in the separate account declines, additional cash or liquid assets will
be added so that the value of the account will equal to the amount of the Fund's
commitments in purchased forward contracts.
Hedging against a decline in the value of currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. These transactions also preclude the
opportunity for gain if the value of the hedged currency rises. Moreover, it may
not be possible for the Fund to hedge against a devaluation that is so generally
anticipated that the Fund is not able to contract to sell the currency at a
price above the devaluation level it anticipates.
The cost to the Fund of engaging in foreign currency exchange transactions
varies with such factors as the currency involved, the length of the contract
period and the market conditions then prevailing. Since transactions in foreign
currency are usually conducted on a principal basis, no fees or commissions are
involved.
Risks of Foreign Securities. Investments in foreign securities may involve a
greater degree of risk than those in domestic securities. There is generally
less publicly available information about foreign companies in the form of
reports and ratings similar to those that are published about issuers in the
United States. Also, foreign issuers are generally not subject to uniform
accounting, auditing and financial reporting requirements comparable to those
applicable to United States issuers.
Because foreign securities may be denominated in currencies other than the U.S.
dollar, changes in foreign currency exchange rates will affect the fund's net
asset value, the value of dividends and interest earned, gains and losses
realized on the sale of securities, and any net investment income and gains that
3
<PAGE>
the Fund distributes to shareholders. Securities transactions undertaken in some
foreign markets may not be settled promptly, so that the Fund's investments on
foreign exchanges may be less liquid and subject to the risk of fluctuating
currency exchange rates pending settlement.
Foreign securities will be purchased in the best available market whether
through over-the-counter markets or exchanges located in the countries where
principal offices of the issuers are located. Foreign securities markets are
generally not as developed or efficient as those in the United States. While
growing in volume, they usually have substantially less volume than the New York
Stock Exchange, and securities of some foreign issuers are less liquid and more
volatile than securities of comparable United States issuers. Fixed commissions
on foreign exchanges are generally higher than negotiated commissions on United
States exchanges, although the Fund will endeavor to achieve the most favorable
net results on its portfolio transactions. There is generally less government
supervision and regulation of securities exchanges, brokers and listed issuers
than in the United States.
With respect to certain foreign countries, there is the possibility of adverse
changes in investment or exchange control regulations, expropriation,
nationalization or confiscatory taxation, limitations on the removal of funds or
other assets of the Fund, political or social instability, or diplomatic
developments which could affect United States investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the United State's economy in terms of growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiently and balance of
payments position.
The dividends in some cases, capital gains and interest payable on certain of
the Fund's foreign portfolio securities may be subject to foreign withholding or
other foreign taxes, thus reducing the net amount of income or gains available
for distribution to the Fund's shareholders.
These risks may be intensified in the case of investments in emerging markets or
countries with limited or developing capital markets. These countries are
located in the Asia-Pacific region, Eastern Europe, Latin and South America and
Africa. Security prices in these markets can be significantly more volatile than
in more developed countries, reflecting the greater uncertainties of investing
less established markets and economies. Political, legal and economic structure
in many of these emerging market countries may be undergoing significant
evolution and rapid development, and they may lack the social, political, legal
and economic stability characteristic of more developed countries. Their
economies may be predominantly based on only a few industries, may be highly
vulnerable to changes in local or global trade conditions, and may suffer from
extreme and volatile debt burdens or inflation rates. Local securities markets
may trade a small number of securities and may be unable to respond effectively
to increases in trading volume, potentially making prompt liquidation of
substantial holdings difficult or impossible at times. The Fund may be required
to establish special custodial or other arrangements before making certain
investments in those countries. Securities of issuers located in these countries
may have limited marketability and may be subject to more abrupt or erratic
price movements.
Ratings as Investment Criteria. In general, the ratings of Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's Ratings Group ("S&P") represent
opinions of these agencies as to the quality of the securities which they rate.
It should be emphasized, however, that such ratings are relative and subjective
and are not absolute standards of quality. These ratings will be used by the
Fund as initial criteria for the selection of portfolio securities. Among the
factors which will be considered are the long-term ability of the issuer to pay
principal and interest and general economic trends. Appendix A contains further
information concerning the rating of Moody's and S&P and their significance.
4
<PAGE>
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither of these events will require the sale of the securities by the
Fund, but the Adviser will consider the event in its determination of whether
the Fund should continue to hold the securities. Appendix A contains further
information concerning the ratings of Moody's and S&P and their significance.
Lower Rated High Yield "High Risk" Debt Obligations. As a matter of
nonfundamental policy, the Fund may invest up to 15% of its net assets in high
yielding, fixed income instruments below investment grade; that is, securities
rated as low as Ca by Moody's Investors Service, Inc. ("Moody's") or CC by
Standard & Poor's Ratings Group S&P.
Securities rated lower than Baa by Moody's or BBB by Standard & Poor's are
sometimes referred to as junk bonds. The Fund is not obligated to dispose of
securities whose issuers subsequently are in default or which are downgraded
below the above-stated ratings. The credit ratings of Moody's and Standard &
Poor's, such as those ratings described here, may not be changed by Moody's and
Standard & Poor's in a timely fashion to reflect subsequent economic events. The
credit ratings or securities do not reflect an evaluation of market risk. Debt
obligations rated in the lower ratings categories, or which are unrated, involve
greater volatility of price and risk of loss of principal and income. In
addition, lower ratings reflect a greater possibility of an adverse change in
financial condition affecting the issuer's ability to make payments of interest
and principal. The market price and liquidity of lower rated fixed income
securities generally respond more to short-term corporate and market
developments than do those of higher rated securities, because these
developments are perceived to have a more direct relationship to the ability of
an issuer of lower rated securities to meet its on going debt obligations. The
Adviser seeks to minimize these risks through diversification, investment
analysis and attention to current developments in interest rates and economic
conditions.
Reduced volume and liquidity in the high yield high risk bond market, or the
reduced availability of market quotations, will make it more difficult to
dispose of the bonds and to value accurately the Fund's assets. The reduced
availability of reliable, objective data may increase the Fund's reliance on
management's judgment in valuing high yield high risk bonds. In addition, the
Fund's investment in high yield high risk securities may be susceptible to
adverse publicity and investor perceptions, whether or not justified by
fundamental factors. The Fund's investments, and consequently its net asset
value, will be subject to the market fluctuations and risk inherent in all
securities. Increasing rate note securities are typically refinanced by the
issuers within a short period of time. The Fund may invest in pay-in-kind (PIK)
securities, which pay interest in either cash or additional securities, at the
issuer's option, for a specified period. The Fund also may invest in zero coupon
bonds, which have a determined interest rate, but payment of the interest is
deferred until maturity of the bonds. Both types of bonds may be more
speculative and subject to greater fluctuations in value than securities which
pay interest periodically and in cash, due to changes in interest rates.
The market value of debt securities which carry no equity participation usually
reflects yields generally available on securities of similar quality and type.
When such yields decline, the market value of a portfolio already invested at
higher yields can be expected to rise if such securities are protected against
early call. In general, in selecting securities for its portfolio, the Fund
intends to seek protection against early call. Similarly, when such yields
increase, the market value of a portfolio already invested at lower yields can
be expected to decline. The Fund's portfolio may include debt securities which
sell at substantial discounts from par. These securities are low coupon bonds
which, during periods of high interest rates, because of their lower acquisition
cost tend to sell on a yield basis approximating current interest rates.
5
<PAGE>
Government Securities. As a matter of nonfundamental policy, the Fund's
investments in fixed income securities may include U.S. Government securities,
which are obligations issued or guaranteed by the U.S. Government and its
agencies, authorities or instrumentalities. Certain U.S. Government securities,
including U.S. Treasury bills, notes and bonds, and Government National Mortgage
Association certificates ("Ginnie Maes"), are supported by the full faith and
credit of the United States. Certain other U.S. Government securities issued or
guaranteed by Federal agencies or government sponsored enterprises, are not
supported by the full faith and credit of the United States, but may be
supported by the right of the issuer to borrow from the U.S. Treasury. These
securities include obligations of the Federal Home Loan Mortgage Corporation
("Freddie Macs"), and obligations supported by the credit of the
instrumentality, such as Federal National Mortgage Association bonds ("Fannie
Maes"). No assurance can be given that the U.S. Government will provide
financial support to such Federal agencies, authorities, instrumentalities and
government sponsored enterprises in the future.
Short-Term Bank and Corporate Obligations. As a matter of nonfundamental policy,
the Fund's investments in short-term investment grade securities may include
depository-type obligations of banks and savings and loan associations and other
high quality money market instruments consisting of short-term obligations of
the U.S. Government or its agencies and commercial paper rated at least P-1 by
Moody's or A-1 by Standard & Poor's. Commercial paper represents short-term
unsecured promissory notes issued in bearer form by banks or bank holding
companies, corporations and finance companies. Depository-type obligations in
which the Fund may invest include certificates of deposit, bankers' acceptances
and fixed time deposits. Certificates of deposit are negotiable certificates
issued against funds deposited in a commercial bank for a definite period of
time and earning a specified return.
Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn
by an importer or exporter to pay for specific merchandise, which are "accepted"
by a bank, meaning, in effect, that the bank unconditionally agrees to pay the
face value of the instrument at maturity. Fixed time deposits are bank
obligations payable at a stated maturity date and bearing interest at a fixed
rate. Fixed time deposits may be withdrawn on demand by the investor, but may be
subject to early withdrawal penalties which vary depending upon market
conditions and the remaining maturity of the obligation. There are no
contractual restrictions on the right to transfer a beneficial interest in a
fixed time deposit to a third party, although there is no market for such
deposits. Bank notes and bankers' acceptances rank junior to domestic deposit
liabilities of the bank and pari passu with other senior, unsecured obligations
of the bank. Bank notes are not insured by the Federal Deposit Insurance
Corporation or any other insurer. Deposit notes are insured by the Federal
Deposit Insurance Corporation only to the extent of $100,000 per depositor per
bank.
Repurchase Agreements. In a repurchase agreement the Fund buy a security for a
relatively short period (usually not more than seven days) subject to the
obligation to sell it back to the issuer at a fixed time and price plus accrued
interest. The Fund will enter into repurchase agreements only with member banks
of the Federal Reserve System and with "primary dealers" in U.S. Government
securities. The Adviser will continuously monitor the creditworthiness of the
parties with whom the Fund enters into repurchase agreements.
The Fund has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, the Fund could experience delays in
liquidating the underlying securities and could experience losses, including the
possible decline in the value of the underlying securities during the period in
which the Fund seeks to enforce its rights thereto, possible subnormal levels of
income decline in value of the underlying securities or lack of access to income
6
<PAGE>
during this period, as well as the expense of enforcing its rights. The Fund
will not invest in a repurchase agreement maturing in more than seven days, if
such investment, together with other illiquid securities held by the Fund
(including restricted securities) would exceed 10% of the Fund's net assets.
Reverse Repurchase Agreements. The Fund may also enter into reverse repurchase
agreements which involve the sale of U.S. Government securities held in its
portfolio to a bank with an agreement that the Fund will buy back the securities
at a fixed future date at a fixed price plus an agreed amount of "interest"
which may be reflected in the repurchase price. Reverse repurchase agreements
are considered to be borrowings by the Fund. Reverse repurchase agreements
involve the risk that the market value of securities purchased by the Fund with
proceeds of the transaction may decline below the repurchase price of the
securities sold by the Fund which it is obligated to repurchase. The Fund will
also continue to be subject to the risk of a decline in the market value of the
securities sold under the agreements because it will reacquire those securities
upon effecting their repurchase. To minimize various risks associated with
reverse repurchase agreements, the Fund will establish and maintain of the
Fund's custodian separate account consisting of liquid securities, of any type
or maturity, an amount at least equal to the repurchase process of the
securities (plus any accrued interest thereon) under such agreements. The Fund
will not enter into reverse repurchase agreements exceeding in the aggregate 33
1/3% of the market value of its total assets. In addition, the Fund will not
purchase additional securities while any borrowings are outstanding. The Fund
will enter into reverse repurchase agreements only with federally insured banks
or savings and loan associations which are approved in advance as being
creditworthy by the Trustees. Under procedures established by the Trustees, the
Adviser will monitor the creditworthiness of the banks involved.
Restricted Securities. As a matter of nonfundamental policy, the Fund will not
invest more than 10% of its total assets in securities that are not registered
("restricted securities") under the Securities Act of 1933 (the "1933 Act"),
including commercial paper issued in reliance on section 4(2) of the 1933 Act
and securities offered and sold to "qualified institutional buyers" under Rule
144A under the 1933 Act. In addition, as a matter of nonfundamental policy, the
Fund will not invest more than 10% of its net assets in illiquid investments. If
the Trustees determines, based upon a continuing review of the trading markets
for specific section 4(2) paper or Rule 144A securities, that are liquid, they
will not be subject to the 10% limit on illiquid investments. The Trustees may
adopt guidelines and delegate to the Adviser the daily function of determining
and monitoring the liquidity of restricted securities. The Trustees, however,
will retain sufficient oversight and be ultimately responsible for the
determinations. The Trustees will carefully monitor the Fund's investments in
these securities, focusing on such important factors, among others, as
valuation, liquidity and availability of information. This investment practice
could have the effect of increasing the level of illiquidity in the Fund if
qualified institutional buyers become for a time uninterested in purchasing
these restricted securities.
Options on Securities, Securities Indices and Currency. The Fund may purchase
and write (sell) call and put options on any securities in which it may invest,
or on any securities index based on securities in which it may invest or any
currency in which Fund investments may be denominated. These options may be
listed on national domestic securities exchanges or foreign securities exchanges
or traded in the over-the-counter market. The Fund may write covered put and
call options and purchase put and call options or securities and securities
indices to enhance total return, as a substitute for the purchase or sale of
securities or currency, or to protect against declines in the value of portfolio
securities and against increases in the cost of securities to be acquired.
The Fund may purchase and write currency options only for hedging purposes.
The Fund will not purchase a call or put option if as a result the premium paid
for the option, together with premiums paid for all other stock options and
7
<PAGE>
options on stock indexes then held by the Fund, exceed 10% of the Fund's total
net assets. In addition, the Fund may not write put options on securities or
securities indices with aggregate exercise prices in excess of 50% of the Fund's
total net assets measured at the Fund's net asset value at the time the option
is written.
Writing Covered Options. A call option on securities or currency written by the
Fund obligates the Fund to sell specified securities or currency to the holder
of the option at a specified price if the option is exercised at any time before
the expiration date. A put option on securities or currency written by the Fund
obligates the Fund to purchase specified securities or currency from the option
holder at a specified price if the option is exercised at any time before the
expiration date. Options on securities indices are similar to options on
securities, except that the exercise of securities index options requires cash
settlement payments and does not involve the actual purchase or sale of
securities. In addition, securities index options are designed to reflect price
fluctuations in a group of securities or segment of the securities market rather
than price fluctuations in a single security. Writing covered call options may
deprive the Fund of the opportunity to profit from an increase in the market
price of the securities or foreign currency assets in its portfolio. Writing
covered put options may deprive the Fund of the opportunity to profit from a
decrease in the market price of the securities or foreign currency assets to be
acquired for its portfolio.
The Fund may not write uncovered options. The Fund will write listed and
over-the-counter call options only if they are covered, which means that the
Fund owns or has the immediate right to acquire the securities underlying the
options without additional cash consideration upon conversion or exchange of
other securities held in its portfolio. A call option written by the Fund may
also be "covered" if the Fund holds in a share-for-share basis a covering call
on the same securities where (i) the exercise price of the covering call held is
(a) equal to the exercise price of the call written or (b) greater than the
exercise price of the call written, if the difference is maintained by the Fund
in cash, U.S. Treasury bills or high grade liquid debt obligations in a
segregated account with the Fund's custodian, and (ii) the covering call expires
at the same time as the call written.
The Fund will write put options on indices only if they are covered by
segregating with the Fund's custodian an amount of cash or short-term
investments equal to the aggregate exercise prices of such put options or an
offsetting option. In additional, the Fund will write call options on indices
only if, on the date on which any such options is written, it holds securities
qualified to serve as "cover" under the applicable rules of national securities
exchanges or maintains in a segregated account an amount of cash or short-term
investments equal to the aggregate exercise price of such call options with a
value at least equal to the value of the index times the multiplier or an
offsetting option.
The Fund may terminate its obligations under an exchange traded call or put
option by purchasing an option identical to the one it has written. Obligations
under over-the-counter options may be terminated only by entering into an
offsetting transaction with the counterparty to such option. Such purchases are
referred to as "closing purchase transactions."
Purchasing Options. The Fund would normally purchase call options in
anticipation of an increase, or put options in anticipation of a decrease
("protective puts") in the market value of securities or currencies of the type
in which it may invest. The Fund may also sell call and put options to close out
its purchased options.
The purchase of a call option would entitle the Fund, in return for the premium
paid, to purchase specified securities or currency at a specified price during
the option period. The Fund would ordinarily realize a gain on the purchase of a
call option if, during the option period, the value of such securities or
8
<PAGE>
currency exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise the Fund would realize either no gain or a loss on
the purchase of the call option.
The purchase of a put option would entitle the Fund, in exchange for the premium
paid, to sell specified securities or currency at a specified price during the
option period. The purchase of protective puts is designed to offset or hedge
against a decline in the market value of the Fund's portfolio securities or the
currencies in which they are denominated. Put options may also be purchased by
the Fund for the purpose of affirmatively benefiting from a decline in the price
of securities or currencies which it does not own. The Fund would ordinarily
realize a gain if, during the option period, the value of the underlying
securities or currency decreased below the exercise price sufficiently to cover
the premium and transaction costs; otherwise the Fund would realize either no
gain or a loss on the purchase of the put option. Gains and losses on the
purchase of put options may be offset by countervailing changes in the value of
the Fund's portfolio securities.
The Fund's options transactions will be subject to limitations established by
each of the exchanges, boards of trade or other trading facilities on which such
options are traded. These limitations govern the maximum number of options in
each class which may be written or purchased by a single investor or group of
investors acting in concert, regardless of whether the options are written or
purchased on the same or different exchanges, boards of trade or other trading
facilities or are held or written in one or more accounts or through one or more
brokers. Thus, the number of options which the Fund may write or purchase may be
affected by options written or purchased by other investment advisory clients of
the Adviser. An exchange, board of trade or other trading facility may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.
Risks Associated with Options Transactions. There is no assurance that a liquid
secondary market on a domestic or foreign options exchange will exist for any
particular exchange-traded option or at any particular time. If the Fund is
unable to effect a closing purchase transaction with respect to covered options
it has written, the Fund will not be able to sell the underlying securities or
currencies or dispose of assets held in a segregated account until the options
expire or are exercised. Similarly, if the Fund is unable to effect a closing
sale transaction with respect to options it has purchased, it would have to
exercise the options in order to realize any profit and will incur transaction
costs upon the purchase or sale of underlying securities or currencies.
Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist although outstanding options on that exchange that had been issued by the
Options Clearing Corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
The Fund's ability to terminate over-the-counter options is more limited than
with exchange-traded options and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. The
Adviser will determine the liquidity of each over-the-counter option in
accordance with guidelines adopted by the Trustees. In addition, the Fund will
acquire only those OTC options for which management believes the Fund can
9
<PAGE>
receive on each business day two separate bids or offers (one of which will be
from an entity other than a party to the option) or those options valued by an
independent pricing service. Each Fund will write and purchase OTC options only
with member banks of the Federal Reserve System and primary dealers in U.S.
Government securities or their affiliates which have capital of at least $50
million or whose obligations are guaranteed by an entity having capital of at
least $50 million.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of options
depends in part on the Adviser's ability to predict future price fluctuations
and, for hedging transactions, the degree of correlation between the options and
securities or currency markets.
Futures Contracts and Options on Futures Contracts. To seek to increase total
return or hedge against changes in interest rates, securities prices or currency
exchange rates, the Fund may purchase and sell various kinds of futures
contracts, and purchase and write call and put options on these futures
contracts. The Fund may also enter into closing purchase and sale transactions
with respect to any of these contracts and options. The futures contracts may be
based on various securities (such as U.S. Government securities), securities
indices, foreign currencies and any other financial instruments and indices. All
futures contracts entered into by the Fund are traded on U.S. or foreign
exchanges or boards of trade that are licensed, regulated or approved by the
Commodity Futures Trading Commission ("CFTC").
Futures Contracts. A futures contract may generally be described as an agreement
between two parties to buy and sell particular financial instruments or
currencies for an agreed price during a designated month (or to deliver the
final cash settlement price, in the case of a contract relating to an index or
otherwise not calling for physical delivery at the end of trading in the
contract).
Positions taken in the futures markets are not normally held to maturity but are
instead liquidated through offsetting transactions which may result in a profit
or a loss. While futures contracts on securities or currency will usually be
liquidated in this manner, the Fund may instead make, or take, delivery of the
underlying securities or currency whenever it appears economically advantageous
to do so. A clearing corporation associated with the exchange on which futures
contracts are traded guarantees that, if still open, the sale or purchase will
be performed on the settlement date.
Hedging and Other Strategies. Hedging is an attempt to establish with more
certainty than would otherwise be possible the effective price or rate of return
on portfolio securities or securities that the Fund proposes to acquire or the
exchange rate of currencies in which portfolio securities are quoted or
denominated. When interest rates are rising or securities prices are falling,
the Fund can seek to offset a decline in the value of its current portfolio
securities through the sale of futures contracts. When interest rates are
falling or securities prices are rising, the Fund, through the purchase of
futures contracts, can attempt to secure better rates or prices than might later
be available in the market when it effects anticipated purchases. The Fund may
seek to offset anticipated changes in the value of a currency in which its
portfolio securities, or securities that it intends to purchase, are quoted or
denominated by purchasing and selling futures contracts on such currencies.
The Fund may, for example, take a "short" position in the futures market by
selling futures contracts in an attempt to hedge against an anticipated rise in
interest rates or a decline in market prices or foreign currency rates that
would adversely affect the dollar value of the Fund's portfolio securities. Such
futures contracts may include contracts for the future delivery of securities
held by the Fund or securities with characteristics similar to those of the
Fund's portfolio securities. Similarly, the Fund may sell futures contracts on
10
<PAGE>
any currencies in which its portfolio securities are quoted or denominated or in
one currency to hedge against fluctuations in the value of securities
denominated in a different currency if there is an established historical
pattern of correlation between the two currencies.
If, in the opinion of the Adviser, there is a sufficient degree of correlation
between price trends for the Fund's portfolio securities and futures contracts
based on other financial instruments, securities indices or other indices, the
Fund may also enter into such futures contracts as part of its hedging strategy.
Although under some circumstances prices of securities in the Fund's portfolio
may be more or less volatile than prices of such futures contracts, the Adviser
will attempt to estimate the extent of this volatility difference based on
historical patterns and compensate for any differential by having the Fund enter
into a greater or lesser number of futures contracts or by attempting to achieve
only a partial hedge against price changes affecting the Fund's portfolio
securities.
When a short hedging position is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the value
of the futures position. On the other hand, any unanticipated appreciation in
the value of the Fund's portfolio securities would be substantially offset by a
decline in the value of the futures position.
On other occasions, the Fund may take a "long" position by purchasing futures
contracts. This would be done, for example, when the Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates then available in the applicable
market to be less favorable than prices that are currently available. The Fund
may also purchase futures contracts as a substitute for transactions in
securities or foreign currency, to alter the investment characteristics of or
currency exposure associated with]portfolio securities or to gain or increase
its exposure to a particular securities market or currency.
Options on Futures Contracts. The Fund may purchase and write options on futures
for the same purposes as its transactions in futures contracts. The purchase of
put and call options on futures contracts will give the Fund the right (but not
the obligation) for a specified price to sell or to purchase, respectively, the
underlying futures contract at any time during the option period. As the
purchaser of an option on a futures contract, the Fund obtains the benefit of
the futures position if prices move in a favorable direction but limits its risk
of loss in the event of an unfavorable price movement to the loss of the premium
and transaction costs.
The writing of a call option on a futures contract generates a premium which may
partially offset a decline in the value of the Fund's assets. By writing a call
option, the Fund becomes obligated, in exchange for the premium (upon exercise
of the option) to sell a futures contract if the option is exercised, which may
have a value higher than the exercise price. Conversely, the writing of a put
option on a futures contract generates a premium which may partially offset an
increase in the price of securities that the Fund intends to purchase. However,
the Fund becomes obligated (upon exercise of the option) to purchase a futures
contract if the option is exercised, which may have a value lower than the
exercise price. The loss incurred by the Fund in writing options on futures is
potentially unlimited and may exceed the amount of the premium received.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option of the same series. There
is no guarantee that such closing transactions can be effected. The Fund's
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.
Other Considerations. The Fund will engage in futures and related options
transactions either for bona fide hedging purposes or to seek to increase total
return as permitted by the CFTC. To the extent that the Fund is using futures
and related options for hedging purposes, futures contracts will be sold to
11
<PAGE>
protect against a decline in the price of securities (or the currency in which
they are quoted or denominated) that the Fund owns or futures contracts will be
purchased to protect the Fund against an increase in the price of securities (or
the currency in which they are quoted or denominated) it intends to purchase.
The Fund will determine that the price fluctuations in the futures contracts and
options on futures used for hedging purposes are substantially related to price
fluctuations in securities held by the Fund or securities or instruments which
it expects to purchase. As evidence of its hedging intent, the Fund expects that
on 75% or more of the occasions on which it takes a long futures or option
position (involving the purchase of futures contracts), the Fund will have
purchased, or will be in the process of purchasing, equivalent amounts of
related securities (or assets denominated in the related currency) in the cash
market at the time when the futures or option position is closed out. However,
in particular cases, when it is economically advantageous for the Fund to do so,
a long futures position may be terminated or an option may expire without the
corresponding purchase of securities or other assets.
To the extent that the Fund engages in nonhedging transactions in futures
contracts and options on futures, the aggregate initial margin and premiums
required to establish these nonhedging positions will not exceed 5% of the net
asset value of the Fund's portfolio, after taking into account unrealized
profits and losses on any such positions and excluding the amount by which such
options were in-the-money at the time of purchase. The Fund will engage in
transactions in futures contracts and related options only to the extent such
transactions are consistent with the requirements of the Internal Revenue Code
of 1986, as amended (the "Code"), for maintaining its qualifications as a
regulated investment company for federal income tax purposes.
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating the Fund to purchase securities or currencies, require the Fund to
establish with the custodian a segregated account consisting of cash or liquid
securities in an amount equal to the underlying value of such contracts and
options.
While transactions in futures contracts and options on futures may reduce
certain risks, these transactions themselves entail certain other risks. For
example, unanticipated changes in interest rates, securities prices or currency
exchange rates may result in a poorer overall performance for the Fund than if
it had not entered into any futures contracts or options transactions.
Perfect correlation between the Fund's futures positions and portfolio positions
will be impossible to achieve. There are no futures contracts based upon
individual securities, except certain U.S. Government securities. The only
futures contracts available to hedge the Fund's portfolio are various futures on
U.S. Government securities, securities indices and foreign currencies. In the
event of an imperfect correlation between a futures position and a portfolio
position which is intended to be protected, the desired protection may not be
obtained and the Fund may be exposed to risk of loss. In addition, it is not
possible to hedge fully or protect against currency fluctuations affecting the
value of securities denominated in foreign currencies because the value of such
securities is likely to fluctuate as a result of independent factors not related
to currency fluctuations.
Some futures contracts or options on futures may become illiquid under adverse
market conditions. In addition, during periods of market volatility, a commodity
exchange may suspend or limit trading in a futures contract or related option,
which may make the instrument temporarily illiquid and difficult to price.
Commodity exchanges may also establish daily limits on the amount that the price
of a futures contract or related option can vary from the previous day's
settlement price. Once the daily limit is reached, no trades may be made that
day at a price beyond the limit. This may prevent the Fund from closing out
positions and limiting its losses.
12
<PAGE>
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements. The
Fund may reinvest any cash collateral in short-term securities and money market
funds. When the Fund lends portfolio securities, there is a risk that the
borrower may fail to return the securities involved in the transaction. As a
result, the Fund may incur a loss or, in the event of the borrower's bankruptcy,
the Fund may be delayed in or prevented from liquidating the collateral. The
Fund may not lend portfolio securities having a total value exceeding 33% of its
total assets.
Rights and Warrants. The Fund may purchase warrants and rights which are
securities permitting, but not obligating, their holder to purchase the
underlying securities at a predetermined price, subject to the Fund's Investment
Restrictions. Generally, warrants and stock purchase rights do not carry with
them the right to receive dividends or exercise voting rights with respect to
the underlying securities, and they do not represent any rights in the assets of
the issuer. As a result, an investment in warrants and rights may be considered
to entail greater investment risk than certain other types of investments. In
addition, the value of warrants and rights does not necessarily change with the
value of the underlying securities, and they cease to have value if they are not
exercised on or prior to their expiration date. Investment in warrants and
rights increase the potential profit or loss to be realized from the investment
of a given amount of the Fund's assets as compared with investing the same
amount in the underlying stock. No such purchase will be made by the Fund,
however, if the Fund's holdings of warrants (valued at lower of cost or market)
would exceed 5% of the value of the Fund's net assets as a result of the
purchase. In addition, the Fund will not purchase rights or warrants which is
not listed on the New York or American Stock Exchange of the purchase would
result in the Fund's only unlisted warrants on an amount exceed of 2% of its net
assets.
Forward Commitment and When-Issued Securities. The Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. The Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, the Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time.
When the Fund engages in forward commitment and when-issued transactions it
relies on the seller to consummate the transaction. The failure of the issuer or
seller to consummate the transaction may result in the Fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid securities, of any type or maturity, equal in value to
the Fund's commitment. These assets will be valued daily at market, and
additional cash or securities will be segregated in a separate account to the
extent that the total value of the assets in the account declines below the
amount of the when-issued commitments. Alternatively, the Fund may enter into
offsetting contracts for the forward sale of other securities that it owns.
Short-Term Trading and Portfolio Turnover. Short-term trading means the purchase
and subsequent sale of a security after it has been held for a relatively brief
period of time. As a matter of nonfundamental policy, the Fund may engage in
short-term trading in response to stock market conditions, changes in interest
13
<PAGE>
rates or other economic trends and developments, or to take advantage of yield
disparities between various fixed income securities in order to realize capital
gains or improve income. Short-term trading may have the effect of increasing
the Fund's portfolio turnover rate. A high rate of portfolio turnover (100% or
greater) involves correspondingly greater brokerage expenses and may make it
more difficult for the Fund to qualify as a regulated investment company for
Federal income tax purposes. The Fund's portfolio turnover rate is set forth in
the table under the caption "Financial Highlights" in the Prospectus.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following fundamental 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 of the lesser of (1) the
holders of 67% or more of the shares represented at a meeting if the holders of
more than 50% of the Fund's outstanding shares are present in person or by proxy
at that meeting or (2) the holders of more than 50% of the Fund's outstanding
shares.
The Fund may not:
1. Invest in real estate (including interests in real estate
investment trusts).
2. Invest in a company having a record of less than three years'
continuous operation, which may include the operations of any
predecessor company or enterprise to which the company has
succeeded by merger, consolidation, reorganization or purchase
of assets.
3. Invest in commodities or in commodity contracts or in puts,
calls, or combinations of both except options on securities,
securities indices, currency and other financial instruments,
futures contracts on securities, securities indices, currency
and other financial instruments, options on such futures
contracts, forward commitments, forward foreign currency
exchange contracts, interest rate or currency swaps,
securities index put or call warrants and repurchase
agreements entered into in accordance with the Fund's
investment policies.
4. Act as an underwriter, except to the extent that, in
connection with the disposition of portfolio securities, the
Fund may be deemed to be an underwriter for purposes of the
Securities Act of 1933.
5. Buy securities on margin or sell short.
6. Purchase securities of a company in which any officer or
trustee of the Trust or the Adviser owns beneficially more
than of 1% of the securities of such company and all such
officers and trustees own beneficially in the aggregate more
than 5% of the securities of such company.
7. Borrow money except for temporary or emergency purposes, and
then not in excess of 10% of its gross assets taken at cost.
Assets taken at market may not be pledged to an extent greater
than 15% of gross assets taken at cost (although this would
permit the Fund to pledge, mortgage or hypothecate its
portfolio securities to the extent that the percentage of
pledged securities would exceed 10% of the offering price of
the Fund's shares, it will not do so as a matter of operating
14
<PAGE>
policy in order to comply with certain state statutes or
investment restrictions); any such loan must be from a bank
and the value of the Fund's assets, including the proceeds of
the loan, less other liabilities of the Fund, must be at least
three times the amount of the loan. (Although the Fund has
never borrowed any money or pledged any portion of its assets,
and has no intention of doing so, in the event that such
borrowing became necessary, the Fund expects that additional
portfolio securities would not be purchased while the
borrowing is outstanding). The borrowing restriction set forth
above does not prohibit the use of reverse repurchase
agreements, in an amount (including any borrowings) not to
exceed 33 1/3% of net assets.
8. Make loans to any of its officers or trustees, or to any
firms, corporations or syndicates in which officers or
trustees of the Trust have an aggregate interest of 10% or
more. It is the intention of the Trust not to make loans of
any nature, except the Fund may enter into repurchase
agreements and lend its portfolio securities (as permitted by
the Investment Company Act of 1940) as referred to under
"Investment Objectives and Policies" above. In addition, the
purchase of a portion of an issue of a publicly issued
corporate debt security is not considered to be the making of
a loan.
9. Purchase any securities, other than obligations of domestic
banks or of the U.S. Government, or its agencies or
instrumentalities, if as a result of such purchase more than
25% of the value of the Fund's total assets would be invested
in the securities of issuers in any one industry.
10. Issue senior securities as defined in the Investment Company
Act of 1940, as amended (the "1940 Act"), and the rules
thereunder; except insofar as the Fund may be deemed to have
issued a senior security by reason of entering into a
repurchase agreement or engaging in permitted borrowings.
11. Purchase securities which will result in the Fund's holdings
of the issuer thereof to be more than 5% of the value of the
Fund's total assets (exclusive of U.S. Government securities).
12. Purchase more than 10% of the voting securities of any class
of securities of any one issuer.
Nonfundamental Investment Restriction. The following restrictions are designated
as nonfundamental and may be changed by the Trustees with the shareholder
approval.
The Fund may not purchase a security if, as a result, (i) more than 10% of the
Fund's total assets would be invested in the securities of other investment
companies, (ii) the Fund would hold more than 3% of the total outstanding voting
securities of any one investment company, or (iii) more than 5% of the Fund's
total assets would be invested in the securities of any one investment company.
These limitations do not apply to (a) the investment of cash collateral,
received by the Fund in connection with lending the Fund's portfolio securities,
in the securities of open-end investment companies or (b) the purchase of shares
of any investment company in connection with a merger, consolidation,
reorganization or purchase of substantially all of the assets of another
investment company. Subject to the above percentage limitations, the Fund may,
in connection with the John Hancock Group of Funds Deferred Compensation Plan
for Independent Trustees/Directors, purchase securities of other investment
companies within the John Hancock Group of Funds.
15
<PAGE>
The Fund has also undertaken to one or more states to abide by additional
restrictions so long as its securities are registered for sale in such states.
The most restrictive undertakings presently in effect are that the Fund shall
not invest in oil, gas or other mineral or development programs and that the
Fund's use of margin shall be only for such short-term loans as are necessary
for the clearance of purchases and sales of securities.
Additionally, the Fund will not invest more than 15% of its total assets in the
aggregate in securities of issuers which, together with any predecessors, have a
record of less than three years continuous operation, and in securities of
issuers which are restricted as to disposition, including securities eligible
for resale pursuant to Rule 144A under the Securities Act of 1933 and the Fund
will not, with respect to 75% of its total assets, acquire more than 10% of the
outstanding voting securities of any issuer.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by the Trust's 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
Trust are also officers and directors of the Adviser or officers and directors
of the Fund's principal distributor, John Hancock Funds, Inc. ("John Hancock
Funds").
16
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Edward J. Boudreau, Jr. * Trustee, Chairman and Chief Chairman and Chief Executive
101 Huntington Avenue Executive Officer (1, 2) Officer, the Adviser and The
Boston, MA 02199 Berkeley Financial Group ("Berkeley
October 1944 Group"); Chairman, NM Capital
Management, Inc. ("NM Capital") and
John Hancock Advisers International
Limited ("Advisers International");
Chairman, Chief Executive Officer
and President, John Hancock Funds,
Inc. ("John Hancock Funds"), First
Signature Bank and Trust Company
and Sovereign Asset Management
Corporation ("SAMCorp."); Director,
John Hancock Insurance Agency, Inc.
("Insurance Agency, Inc."), John
Hancock Capital Corporation and New
England/Canada Business Council;
Member, Investment Company
Institute Board of Governors;
Director, Asia Strategic Growth
Fund, Inc.; Trustee, Museum of
Science; Vice Chairman and
President, the Adviser (until July
1992); Chairman, John Hancock
Distributors, Inc. (until April
1994); Director, John Hancock
Freedom Securities Corporation
(until September 1996); Director,
John Hancock Signature Services,
Inc. ("Signature Services") (until
January 1997).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
17
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
James F. Carlin Trustee (3) Chairman and CEO, Carlin
233 West Central Street Consolidated, Inc.
Natick, MA 01760 (management/investments); Director,
April 1940 Arbella Mutual Insurance Company
(insurance), Consolidated Group
Trust (insurance administration),
Carlin Insurance Agency, Inc., West
Insurance Agency, Inc. (until May
1995) Uno Restaurant Corp.;
Chairman, Massachusetts Board of
Higher Education (since 1995);
Receiver, the City of Chelsea (until
August 1992).
William H. Cunningham Trustee (3) Chancellor, University of Texas
601 Colorado Street System and former President of the
O'Henry Hall University of Texas, Austin, Texas;
Austin, TX 78701 Lee Hage and Joseph D. Jamail
January 1944 Regents Chair of Free Enterprise;
Director, LaQuinta Motor Inns, Inc.
(hotel management company);
Director, Jefferson-Pilot
Corporation (diversified life
insurance company) and LBJ
Foundation Board (education
foundation); Advisory Director,
Texas Commerce Bank - Austin.
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
18
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Charles F. Fretz Trustee (3) Retired; self employed; Former Vice
RD #5, Box 300B President and Director, Towers,
Clothier Springs Road Perrin, Foster & Crosby, Inc.
Malvern, PA 19355 (international management
June 1928 consultants) (1952-1985).
Harold R. Hiser, Jr. Trustee (3) Executive Vice President,
123 Highland Avenue Schering-Plough Corporation
Short Hill, NJ 07078 (pharmaceuticals) (retired 1996);
October 1931 Director, ReCapital Corporation
(reinsurance) (until 1995).
Anne C. Hodsdon * Trustee and President (1,2) President, Chief Operating Officer
101 Huntington Avenue and Director, the Adviser; Director,
Boston, MA 02199 The Berkeley Group, John Hancock
April 1953 Funds; Director, Advisers
International; Executive Vice
President, the Adviser (until
December 1994); Senior Vice
President, the Adviser (until
December 1993); Director, Signature
Services (until January 1997).
Charles L. Ladner Trustee (3) Director, Energy North, Inc. (public
UGI Corporation utility holding company) (until
P.O. Box 858 1992); Senior Vice President of UGI
Valley Forge, PA 19482 Corp. Holding Company Public
February 1938 Utilities, LPGAS.
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
19
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Leo E. Linbeck, Jr. Trustee (3) Chairman, President, Chief Executive
3810 W. Alabama Officer and Director, Linbeck
Houston, TX 77027 Corporation (a holding company
August 1934 engaged in various phases of the
construction industry and
warehousing interests); Former
Chairman, Federal Reserve Bank of
Dallas (1992, 1993); Chairman of
the Board and Chief Executive
Officer, Linbeck Construction
Corporation; Director, PanEnergy
Corporation (a diversified energy
company), Daniel Industries, Inc.
(manufacturer of gas measuring
products and energy related
equipment), GeoQuest International
Holdings, Inc. (a geophysical
consulting firm) (1980-1993);
Former Director, Greater Houston
Partnership (1980 -1995).
Patricia P. McCarter Trustee (3) Director and Secretary, The McCarter
1230 Brentford Road Corp. (machine manufacturer).
Malvern, PA 19355
May 1928
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
20
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Steven R. Pruchansky Trustee (1, 3) Director and President, Mast
4327 Enterprise Avenue Holdings, Inc. (since 1991);
Naples, FL 33942 Director, First Signature Bank &
August 1944 Trust Company (until August 1991);
Director, Mast Realty Trust (until
1994); President, Maxwell Building
Corp. (until 1991).
Richard S. Scipione * Trustee (1) General Counsel, John Hancock Life
John Hancock Place Company; Director, the Adviser,
P.O. Box 111 Advisers International, John Hancock
Boston, MA 02117 Funds, John Hancock Distributors,
August 1937 Inc., Insurance Agency, Inc., John
Hancock Subsidiaries, Inc.,
SAMCorp. and NM Capital; Trustee,
The Berkeley Group; Director, JH
Networking Insurance Agency, Inc.;
Director, John Hancock Property and
Casualty Insurance and its
affiliates (until November 1993);
Director, Signature Services (until
January 1997).
Norman H. Smith Trustee (3) Lieutenant General, United States
243 Mt. Oriole Lane Marine Corps; Deputy Chief of Staff
Linden, VA 22642 for Manpower and Reserve Affairs,
March 1933 Headquarters Marine Corps;
Commanding General III Marine
Expeditionary Force/3rd Marine
Division (retired 1991).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
21
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
John P. Toolan Trustee (3) Director, The Smith Barney Muni Bond
13 Chadwell Place Funds, The Smith Barney Tax-Free
Morristown, NJ 07960 Money Funds, Inc., Vantage Money
September 1930 Market Funds (mutual funds), The
Inefficient-Market Fund, Inc.
(closed-end investment company) and
Smith Barney Trust Company of
Florida; Chairman, Smith Barney
Trust Company (retired December,
1991); Director, Smith Barney,
Inc., Mutual Management Company and
Smith Barney Advisers, Inc.
(investment advisers) (retired
1991); Senior Executive Vice
President, Director and member of
the Executive Committee, Smith
Barney, Harris Upham & Co.,
Incorporated (investment bankers)
(until 1991).
Robert G. Freedman Vice Chairman and Chief Investment Vice Chairman and Chief Investment
101 Huntington Avenue Officer (2) Officer, the Adviser; Director, the
Boston, MA 02199 Adviser, Advisers International,
July 1938 John Hancock Funds, SAMCorp.,
Insurance Agency, Inc.,
Southeastern Thrift & Bank Fund and
NM Capital; Senior Vice President,
The Berkeley Group; President, the
Adviser (until December 1994);
Director, Signature Services (until
January 1997).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
22
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
James B. Little Senior Vice President and Chief Senior Vice President, the Adviser,
101 Huntington Avenue Financial Officer The Berkeley Group, John Hancock
Boston, MA 02199 Funds.
February 1935
John A. Morin Vice President Vice President and Secretary, the
101 Huntington Avenue Adviser, The Berkeley Group,
Boston, MA 02199 Signature Services and John Hancock
July 1950 Funds; Secretary, SAMCorp.,
Insurance Agency, Inc. and NM
Capital; Counsel, John Hancock
Mutual Life Insurance Company (until
January 1996).
Susan S. Newton Vice President and Secretary Vice President, the Adviser; John
101 Huntington Avenue Hancock Funds, Signature Services
Boston, MA 02199 and The Berkeley Group; Vice
March 1950 President, John Hancock
Distributors, Inc. (until 1994).
James J. Stokowski Vice President and Treasurer Vice President, the Adviser.
101 Huntington Avenue
Boston, MA 02199
November 1946
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
</TABLE>
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 Trustees and/or Trustees of one or more of the other funds for which the
Adviser serves as investment adviser.
As of March 27, 1997, the officers and trustees of the Trust as a group
beneficially owned less than 1% of the outstanding shares of the Trust and the
Fund and to the knowledge of the registrant, no person owned of 5% or more of
the shares of either class of the Fund's shares:
From December 22, 1994 until December 22, 1996, the Trustees established an
Advisory Board to facilitate a smooth transition of management between
Transamerica Fund Management Company ("TFMC"), the prior investment adviser, and
the Adviser. The members of the Advisory Board were distinct from the Trustees,
did not serve the Fund in any other capacity and were persons who had no power
23
<PAGE>
to determine what securities were purchased or sold on behalf of the Fund.
Compensation of the Trustees and Advisory Board. The following table provides
information regarding the compensation paid by the Fund and the other investment
companies in the John Hancock Fund Complex to the Independent Trustees and the
Advisory Board members for their services. Ms. Hodsdon and Messrs. Boudreau and
Scipione, each a non-Independent Trustee, and each of the officers of the Trust
are interested persons of the Adviser, are compensated by the Adviser and
received no compensation from the Funds for their services.
Total Compensation
from all Funds in
Aggregate John Hancock Fund
Compensation Complex to
Independent Trustees from the Fund+ Trustees**
- -------------------- -------------- ----------
James F. Carlin $ 287 $ 74,250
William H. Cunningham* 287 74,250
Charles F. Fretz 287 74,500
Harold R. Hiser, Jr.* 147 70,250
Charles L. Ladner 287 74,500
Leo E. Linbeck, Jr. 287 74,250
Patricia P. McCarter* 287 74,250
Steven R. Pruchansky* 341 77,500
Norman H. Smith* 341 77,500
John P. Toolan* 287 74,250
------ ------
Totals $2,838 $745,500
+The compensation to the Trustees from the Fund shown below is for the
Fund's period from September 1, 1996 to December 31, 1996.
*As of December 31, 1996, the value of the aggregate accrued deferred
compensation from all Funds in the John Hancock Fund complex for Mr.
Cunningham was $131,741, for Mr. Hiser was $90,972, for Ms. McCarter
was $67,548, for Mr. Pruchansky was $28,731, for Mr. Smith was $32,314
and for Mr. Toolan was $ 163,385 under the John Hancock Deferred
Compensation Plan for Trustees.
**The total compensation paid by the John Hancock Fund Complex to the
Independent Trustees as of the calendar year ended December 31, 1996.
As of such date there were 67 funds in the John Hancock Funds Complex,
of which each of these Independent Trustees serve 32.
24
<PAGE>
Total Compensation from
Aggregate all Funds in John
Compensation Hancock Fund Complex
Advisory Board from the Fund* to Advisory Board**
- -------------- -------------- -------------------
R. Trent Campbell $--- $ 47,000
Mrs. Lloyd Bentsen --- 47,000
Thomas R. Powers --- 47,000
Thomas B. McDade --- 47,000
-------- --------
TOTALS $--- $188,000
* For the period from September 1, 1996 to December 31, 1996.
** For the calendar year ended December 31, 1996.
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-
7603, was organized in 1968 and currently has more than $20 billion in assets
under management in its capacity as investment adviser to the Fund and the other
mutual funds and publicly traded investment companies in the John Hancock group
of funds having a combined total of over 1,080,000 shareholders. The Adviser is
an affiliate of the Life Company, one of the most recognized and respected
financial institutions in the nation. With total assets under management of more
than $80 billion, the Life Company is one of the ten largest life insurance
companies in the United States and carries high ratings from Standard & Poor's
and A.M. Best's. Founded in 1862, the Life Company has been serving clients for
over 130 years.
The Fund has entered into an investment management contract with the Adviser
(the "Advisory Agreement"), which was approved by the Fund's shareholders as
manager and investment 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 which are delegated to a custodian, transfer
agent or other agent.
The Fund bears all costs of its organization and operation, including expenses
of preparing, printing and mailing all shareholders' reports, notices,
prospectuses, proxy statements and reports to regulatory agencies; expenses
relating to the issuance, registration and qualification of shares; government
fees; interest charges; expenses of furnishing to shareholders their account
statements; taxes; expenses of redeeming shares; brokerage and other expenses
connected with the execution of portfolio securities transactions; expenses
pursuant to the Fund's plan of distribution; fees and expenses of custodian
including those for keeping books and accounts and calculating the net asset
value of shares; fees and expenses of transfer agents and dividend disbursing
agents; legal, accounting, financial, management, tax and auditing fees and
expenses of the Fund (including an allocable portion of the cost of the
Adviser's employees rendering such services to the Fund; the compensation and
expenses of trustees who are not otherwise affiliated with the Trust, the
Adviser or any of their affiliates; expenses of Trustees' and shareholders'
meetings; trade association memberships; insurance premiums; and any
extraordinary expenses.
As compensation for its services under the Advisory Agreement, the Fund pays the
Adviser a fee, which is accrued daily and paid monthly in arrears, equal on an
annual basis to 0.625% of the Fund's average daily net asset value.
25
<PAGE>
From time to time, the Adviser may reduce its fee or make other arrangements to
limit the Fund's expenses to a specified percentage of average daily net assets.
The Adviser retains the right to re-impose a fee and recover any other payments
to the extent that, at the end of any fiscal year, the Fund's annual expenses
fall below this limit.
For the fiscal year ended August 31, 1994 advisory fees paid by the Fund to
TFMC, the Fund's former investment adviser, amounted to $1,322,162. For the
fiscal year ended August 31, 1995, advisory fees paid by the Fund to TFMC, the
Fund's former investment adviser and the Adviser amounted to $468,939 and
$972,142 respectively. For the fiscal year ended August 31, 1996, the advisory
fee paid by the Fund to the Adviser amounted to $ 1,616,654. For the period from
September 1, 1996 to December 31, 1996, the advisory fee paid by the Fund to the
Adviser amounted to $616,603.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser or its affiliates provide investment
advice. Because of different investment objectives or other factors, a
particular security may be bought for one or more funds or clients when one or
more are selling the same security. If opportunities for purchase or sale of
securities by the Adviser or for other funds or clients for which the Adviser
renders investment advice arise for consideration at or about the same time,
transactions in such securities will be made, insofar as feasible, for the
respective funds or clients in a manner deemed equitable to all of them. To the
extent that transactions on behalf of more than one client of the Adviser or its
affiliates may increase the demand for securities being purchased or the supply
of securities being sold, there may be an adverse effect on price.
Pursuant to the investment management contract, the Adviser is not liable to the
Fund or its shareholders for any error of judgment or mistake of law or for any
loss suffered by the Fund in connection with the matters to which its contract
relates, except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Adviser in the performance of its duties or from
its reckless disregard of the obligations and duties under the investment
management contract.
Under the investment management contract, the Fund may use the name "John
Hancock" or any name derived from or similar to it only for so long as the
investment management contract or any extension, renewal or amendment thereof
remains in effect. If the Fund's investment management contract is no longer in
effect, the Fund (to the extent that it lawfully can) will cease to use such
name or any other name indicating that it is advised by or otherwise connected
with the Adviser. In addition, the Adviser or the Life Company may grant the
non-exclusive right to use the name "John Hancock" or any similar name to any
other corporation or entity, including but not limited to any investment company
of which the Life Company or any subsidiary or affiliate thereof or any
successor to the business of any subsidiary or affiliate thereof shall be the
investment adviser.
The continuation of the Advisory Agreement was last approved by all of the
Trustees. The Advisory Agreement, and the Distribution Agreement discussed
below, will continue in effect from year to year, provided that its continuance
is approved annually both (I) by the holders of a majority of the outstanding
voting securities of the Trust or by the Trustees, and (ii) by a majority of the
Trustees who are no parties to the Agreement or "interested persons" of any such
parties. Both agreements may be terminated on 60 days written notice by any
party or by a vote of a majority of the outstanding voting securities of the
Fund and will terminate automatically if it is assigned.
Administrative Services Agreement. The Fund was a party to an administrative
services agreement with TFMC (the "Services Agreement"), pursuant to which TFMC
performed bookkeeping and accounting services and functions, including preparing
26
<PAGE>
and maintaining various accounting books, records and other documents and
keeping such general ledgers and portfolio accounts as are reasonably necessary
for the operation of the Fund. Other administrative services included
communications in response to shareholder inquiries and certain printing
expenses of various financial reports. In addition, staff and office space,
facilities and equipment was provided as necessary to provide administrative
services to the Fund. The Services Agreement was amended in connection with the
appointment of the Adviser as adviser to the Fund to permit services under the
Agreement to be provided to the Fund by the Adviser and its affiliates. The
Services Agreement was terminated during the fiscal year 1995.
For the fiscal years ended August 31, 1994 and 1995, the Fund paid to TFMC
(pursuant to the Services Agreement) $153,060 and $31,385, respectively, of
which $132,005 and $20,130, respectively, was retained by TFMC and $21,055 and
$11,255, respectively, was paid for certain data processing and pricing
information services.
Accounting and Legal Services Agreement. The Trust, on behalf of the Fund, is a
party to an Accounting and Legal Services Agreement with the Adviser. Pursuant
to this agreement, the Adviser provides the Fund with certain tax, accounting
and legal services. For the period from September 1, 1996 to December 31, 1996,
the Fund paid the Adviser $27,211 for services under this agreement
In order to avoid conflicts with portfolio trades for the Fund, the Adviser and
the Fund have adopted extensive restrictions on personal securities trading by
personnel of the Adviser and its affiliates. Some of these restrictions are:
pre-clearance for all personal trades and a ban on the purchase of initial
public offerings, as well as contributions to specified charities of profits on
securities held for less than 91 days. These restrictions are a continuation of
the basic principle that the interests of the Fund and its shareholders come
first.
DISTRIBUTION CONTRACTS
The Fund has a Distribution Agreement with John Hancock Funds. Under the
agreement, John Hancock Funds is obligated to use its best efforts to sell
shares of each class of the Fund. Shares of the Fund are also sold by selected
broker-dealers (the "Selling Brokers") which have entered into selling agency
agreements with John Hancock Funds. John Hancock Funds accepts orders for the
purchase of the shares of the Fund which are continually offered at net asset
value next determined, plus an applicable sales charge, if any. In connection
with the sale of Class A or Class B shares, John Hancock Funds and Selling
Brokers receive compensation in the form of a sales charge imposed, in the case
of Class A shares, at the time of sale or, in the case of Class B shares, on a
deferred basis. John Hancock Funds may pay extra compensation to financial
services firms selling large amounts of fund shares. This compensation would be
calculated as a percentage of fund shares sold by the firm. The sales charges
are discussed further in the Prospectus.
The Fund's Trustees adopted Distribution Plans with respect to Class A and Class
B shares (the "Plans") pursuant to Rule 12b-1 under the Investment Company Act
of 1940. Under the Plans, the Fund will pay distribution and service fees at an
aggregate annual rate of up to 25% and 1.00%, respectively, of the Fund's daily
net assets attributable to shares of that class. However, the service fee will
not exceed 0.25% of the Fund's average daily net assets attributable to each
class of shares. The distribution fees will be used to reimburse John Hancock
Funds for their distribution expenses, including but not limited to: (i) initial
and ongoing sales compensation to Selling Brokers and others (including
affiliates of John Hancock Funds) engaged in the sale of Fund shares; (ii)
marketing, promotional and overhead expenses incurred in connection with the
distribution of Fund shares; and (iii) with respect to Class B shares only,
interest expenses on unreimbursed distribution expenses. The service fees will
be used to compensate Selling Brokers for providing personal and account
maintenance services to shareholders. In the event the John Hancock Funds is not
fully reimbursed for payments or expenses they incur under the Class A Plan,
these expenses will not be carried beyond twelve months from the date they were
27
<PAGE>
incurred. Unreimbursed expenses under the Class B Plan will be carried forward
together with interest on the balance of these unreimbursed expenses. The Fund
does not treat unreimbursed expenses at any time. For the period from September
1, 1996 to December 31, 1996, an aggregate of $3,586,396 of distribution
expenses or 2.57% of the average net assets of the Class B shares of the Fund,
was not reimbursed or recovered by John Hancock Funds through the receipt of
deferred sales charges or Rule 12b-1 fees in prior periods.
The Plans were approved by a majority of the voting securities of the Fund. The
Plans and all amendments were approved by the Trustees, including a majority of
the Trustees who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plans (the "Independent
Trustees"), by votes cast in person at meetings called for the purpose of voting
on such Plans.
Pursuant to the Plans, at least quarterly, John Hancock Funds provide the Fund
with a written report of the amounts expended under the Plans and the purpose
for which these expenditures were made. The Trustees review these reports on a
quarterly basis to determine their continued appropriateness.
The Plans provide that they will continue in effect only so long as their
continuance is approved at least annually by a majority of both the Trustees and
Independent Trustees. The Plans provide that they may be terminated without
penalty, (a) by vote of a majority of the Independent Trustees, (b) by a vote of
a majority of the Fund's outstanding shares of the applicable class upon 60
days' written notice to John Hancock Funds, and (c) automatically in the event
of assignment. The Plans further provide that they may not be amended to
increase the maximum amount of the fees for the services described therein
without the approval of a majority of the outstanding shares of the class of the
Fund which has voting rights with respect to that Plan. Each plan provides, that
no material amendment to the Plans will, in any event, be effective unless it is
approved by a vote of a majority of the Trustees and the Independent Trustees of
the Fund. The holders of Class A and Class B shares have exclusive voting rights
with respect to the Plan applicable to their respective class of shares. In
adopting the Plans, the Trustees concluded that, in their judgment, these is a
reasonable likelihood that the Plans will benefit the holders of the applicable
class of shares of the Fund.
Amounts paid to John Hancock Funds by any class of shares of the Fund will not
be used to pay the expenses incurred with respect to any other class of shares
of the Fund; provided, however, that expenses attributable to the Fund as a
whole will be allocated, to the extent permitted by law, according to a formula
based upon gross sales dollars and/or average daily net assets of each such
class, as may be approved from time to time by vote of a majority of Trustees.
From time to time, the Fund may participate in joint distribution activities
with other Funds and the costs of those activities will be borne by each Fund in
proportion to the relative net asset value of the participating Funds.
During the period from September 1, 1996 to December 31, 1996, the Funds paid
John Hancock Funds the following amounts of expenses with respect to the Class A
and Class B shares of the Fund:
28
<PAGE>
<TABLE>
<CAPTION>
Expense Items
Printing and
Mailing of Expenses of Interest
Prospectus to Compensation John Carrying or
New to Selling Hancock Other Finance
Advertising Shareholders Brokers Funds Charges
----------- ------------ ------- ----- -------
<S> <C> <C> <C> <C> <C>
Class A shares $12,830 $1,908 $76,718 $37,588 $ None
Class B shares $39,892 $6,276 $183,684 $108,928 $131,611
</TABLE>
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of the Fund's shares,
the following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished by a
principal market maker or a pricing service, both of which generally utilize
electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices.
Equity securities traded on a principal exchange or NASDAQ National Market
Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned category for which no sales are reported and
other securities traded over-the-counter are generally valued at the mean
between the current closing bid and asked prices.
Short-term debt investments which have a remaining maturity of 60 days or less
are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
Foreign securities are valued on the basis of quotations from the primary market
in which they are traded. Any assets or liabilities expressed in terms of
foreign currencies are translated into U.S. dollars by the custodian bank based
on London currency exchange quotations as of 5:00 p.m., London time (12:00 noon,
New York time) on the date of any determination of the Fund's NAV. If quotations
are not readily available , or the value has been materially affected by the
events occurring after closing of a foreign market, assets are valued by a
method that the Trustees believe accurately reflects fair value.
The NAV for each fund and class is determined each business day at the close of
regular trading on the New York Stock Exchange (typically 4:00 p.m. Eastern
Time) by dividing a class's net assets by the number of its shares outstanding.
On any day an international market is closed and the New York Stock Exchange is
open, any foreign securities will be valued at the prior day's close with the
current day's exchange rate. Trading of foreign securities may take place on
Saturdays and U.S. business holidays on which 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.
29
<PAGE>
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 alternative") or on a contingent
deferred basis (the "deferred sales charge alternative"). Share certificates
will not be issued unless requested by the shareholder in writing, and then they
will only be issued for full shares. The Trustees reserve the right to change or
waive a Fund's minimum investment requirements and to reject any order to
purchase shares (including purchase by exchange) when in the judgment of the
Adviser such rejection is in the Fund's best interest.
The sales charges applicable to purchases of Class A shares of the 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, the investor is
entitled to cumulate current purchases with the greater of the current value (at
offering price) of the Class A shares of the Fund, owned by the Investor, or if
John Hancock Signature Services, Inc. ("Signature Services") is notified by the
investor's dealer or the investor at the time of the purchase, the cost of the
Class A shares owned.
Without Sales Charge. Class A shares may be offered without a front-end sales
charge or CDSC to various individuals and institutions as follows:
o Any state, county or any instrumentality, department, authority, or
agency of these entities that is prohibited by applicable investment
laws from paying a sales charge or commission when it purchases shares
of any registered investment management company. *
o A bank, trust company, credit union, savings institution or other
depository institution, its trust departments or common trust funds if
it is purchasing $1 million or more for non-discretionary customers or
accounts.*
o A Trustee or officer of the Trust; a Director or officer of the Adviser
and its affiliates or Selling Brokers; employees or sales
representatives of any of the foregoing; retired officers, employees or
Directors of any of the foregoing; a member of the immediate family
(spouse, children, grandchildren, mother, father, sister, brother,
mother-in-law, father-in-law) of any of the foregoing; or any fund,
pension, profit sharing or other benefit plan of the individuals
described above.
o A broker, dealer, financial planner, consultant or registered
investment advisor that has entered into an agreement with John Hancock
Funds providing specifically for the use of Fund shares in fee-based
investment products or services made available to their clients.
o A former participant in an employee benefit plan with John Hancock
funds, when he or she withdraws from his or her plan and transfers any
or all of his or her plan distributions directly to the Fund.
o A member of an approved affinity group financial services plan.*
o A member of a class action lawsuit against insurance companies who is
investing settlement proceeds.
o Existing full service clients of the Life Company who were group
annuity contract holders as of September 1, 1994, and participant
directed defined contribution plans with at least 100 eligible
employees at the inception of the Fund account, may purchase Class A
30
<PAGE>
shares with no initial sales charge. However, if the shares are
redeemed within 12 months after the end of the calendar year in which
the purchase was made, a CDSC will be imposed at the following rate:
Amount Invested CDSC Rate
--------------- ---------
$1 to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
Class 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.
* For investments made under these provisions, John Hancock Funds may make a
payment out of its own resources to the Selling Broker in an amount not to
exceed 0.25% of the amount invested.
Combination Privilege. In calculating the sales charge applicable to purchases
of Class A shares made at one time, the purchases will be combined to reduce
sales charges if made by (a) an individual, his or her spouse and their children
under the age of 21, purchasing securities for his or their own account, (b) a
trustee or other fiduciary purchasing for a single trust, estate or fiduciary
account and (c) groups which qualify for the Group Investment Program (see
below). Further information about combined purchases, including certain
restrictions on combined group purchases, is available from Signature Services
or a Selling Broker's representative.
Accumulation Privilege. Investors (including investors combining purchases) who
are already Class A shareholders may also obtain the benefit of the reduced
sales charge by taking into account not only the amount then being invested but
also the purchase price or current value of the Class A shares of all John
Hancock funds which carry a sales charge already held by such person. Class A
shares of John Hancock money market funds will only be illegible for the
accumulation privilege if the investor has previously paid a sales charge on the
amount of those shares.
Group Investment Program. Under the Combination and Accumulation Privileges,
all members of a group may combine their individual purchases of Class A shares
to potentially qualify for breakpoints in the sales charge schedule. This
feature is provided to any group which (1) has been in existence for more than
six months, (2) has a legitimate purpose other than the purchase of mutual fund
shares at a discount for its members, (3) utilizes salary deduction or similar
group methods of payment, and (4) agrees to allow sales materials of the fund in
its mailings to members at a reduced or no cost to John Hancock Funds.
Letter of Intention. Reduced sales charges are also applicable to investments
pursuant to a Letter of Intention (LOI), which should be read carefully prior to
its execution by an investor. The Fund offers two options regarding the
specified period for making investments under the LOI. All investors have the
option of making their investments over a period of thirteen (13) months.
Investors who are using the Fund as a funding medium for a qualified retirement
plan, however, may opt to make the necessary investments called for by the LOI
over a forty-eight (48) month period. These qualified retirement plans include
IRA, SEP, SARSEP, 401(k), 403(b) (including TSAs) and 457 plans. Such an
investment (including accumulations and combinations) must aggregate $50,000 or
more invested during the specified period from the date of the LOI or from a
date within ninety (90) days prior thereto, upon written request to Signature
Services. The sales charge applicable to all amounts invested under the LOI is
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<PAGE>
computed as if the aggregate amount intended to be invested had been invested
immediately. If such aggregate amount is not actually invested, the difference
in the sales charge actually paid and the sales charge payable had the LOI not
been in effect is due from the investor. However, for the purchases actually
made within the specified period (either 13 or 48 months) the sales charge
applicable will not be higher than that which would have been applied (including
accumulations and combinations) had the LOI been for the amount actually
invested.
The LOI authorizes Signature Services to hold in escrow sufficient Class A
shares (approximately 5% of the aggregate) to make up any difference in sales
charges on the amount intended to be invested and the amount actually invested,
until such investment is completed within the specified period, at which time
the escrowed Class A shares will be released. If the total investment specified
in the LOI is not completed, the Class A shares held in escrow may be redeemed
and the proceeds used as required to pay such sales charges as may be due. By
signing the LOI, the investor authorizes Signature Services to act as his
attorney-in-fact to redeem any escrow 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 shares and may be terminated at
any time.
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per share without
the imposition of a sales charge so the Fund will receive the full amount of the
purchase payment.
Contingent Deferred Sales Charge. Class B shares which are redeemed within six
years of purchase 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
shares being redeemed. No CDSC will be imposed on increases in account value
above the initial purchase prices, including Class B shares derived from
reinvestment of dividends or capital gains distributions. No CDSC will be
imposed on shares derived from reinvestment of dividends or capital gains
distributions.
Class B shares are not available to full-service defined contribution plans
administered by Signature Services or the Life Company that had more than 100
eligible employees at the inception of the Fund account.
The amount of the CDSC, if any, will vary depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years, 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 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 this purpose, the amount of any
increase in a share's value above its initial purchase price is not regarded as
a share exempt from CDSC. Thus, when a share that has appreciated in value is
redeemed during the CDSC period, a CDSC is assessed only on its initial purchase
price. However, you cannot redeem appreciation value only in order to avoid a
CDSC.
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<PAGE>
When requesting a redemption for a specific dollar amount please indicate if you
require the proceeds to equal the dollar amount requested. If not indicated,
only the specified dollar amount will be redeemed from your account and the
proceeds will be less any applicable CDSC.
Example:
You have purchased 100 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 share $ 600
o Minus proceeds of 10 shares not subject to CDSC
(dividend reinvestment) -120
o Minus appreciation on remaining shares
(40 shares X 2) -80
--------
o Amount subject to CDSC $ 400
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or
in part by John Hancock Funds to defray its expenses related to providing
distribution-related services to the Fund in connection with the sale of the
Class B shares, such as the payment of compensation to select Selling Brokers
for selling Class B shares. The combination of the CDSC and the distribution and
service fees facilitates the ability of the Fund to sell the Class B shares
without a sales charge being deducted at the time of the purchase. See the
Prospectus for additional information regarding the CDSC.
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to CDSC,
unless indicated otherwise, in the circumstances defined below:
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your account
if you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
* Redemptions due to death or disability.
* Redemptions made under the Reinstatement Privilege, as described in
"Sales Charge Reductions and Waivers" of the Prospectus.
* Redemptions of Class B shares made under a periodic withdrawal plan, as
long as your annual redemptions do not exceed 12% of your account
value, including reinvested dividends, at the time you established your
periodic withdrawal plan and 12% of the value of subsequent investments
(less redemptions) in that account at the time you notify Signature
Services. (Please note that this waiver does not apply to periodic
withdrawal plan redemptions of Class A shares that are subject to a
CDSC).
For Retirement Accounts (such as IRA, Rollover IRA, TSA, 457, 403(b), 401(k),
Money Purchase Pension Plan, Profit-Sharing Plan and other qualified plans as
described in the Internal Revenue Code) unless otherwise noted.
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<PAGE>
* Redemptions made to effect mandatory or life expectancy distributions
under the Internal Revenue Code.
* Returns of excess contributions made to these plans.
* Redemptions made to effect distributions to participants or
beneficiaries from employer sponsored retirement plans under Section
401(a) of the Code (such as 401(k), Money Purchase Pension Plan, Profit
Sharing Plan).
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain IRA accounts that purchased shares
prior to May 15, 1995.
Please see matrix for reference.
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<PAGE>
<TABLE>
<CAPTION>
CDSC Waiver Matrix for Class B Funds
- ------------------------- ----------------- ----------------- ---------------- ------------------ ---------------------
Type of 401(a) Plan 403(b) 457 IRA, IRA Non-retirement
Distribution (401(k), Rollover
MPP, PSP)
- ------------------------- ----------------- ----------------- ---------------- ------------------ ---------------------
<S> <C> <C> <C> <C> <C>
Death or Waived Waived Waived Waived Waived
Disability
- ------------------------- ----------------- ----------------- ---------------- ------------------ ---------------------
Over 70 1/2 Waived Waived Waived Waived for 12% of account
mandatory value annually in
distributions or periodic payments
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 Expec- tancy or value annually in
12% of account periodic payments
value annually
in periodic
payments
- ------------------------- ----------------- ----------------- ---------------- ------------------ ---------------------
Under 59 1/2 Waived Waived for Waived for Waived for 12% of account
annuity annuity annuity payments value annually in
payments (72t) payments (72t) (72t) or 12% of periodic payments
or 12% of or 12% of account value
account value account value annually in
annually in annually in periodic payments
periodic periodic
payments payments
- ------------------------- ----------------- ----------------- ---------------- ------------------ ---------------------
Loans Waived Waived N/A N/A N/A
- ------------------------- ----------------- ----------------- ---------------- ------------------ ---------------------
Termination of Not Waived Not Waived Not Waived Not Waived N/A
Plan
- ------------------------- ----------------- ----------------- ---------------- ------------------ ---------------------
Hardships Waived Waived Waived N/A N/A
- ------------------------- ----------------- ----------------- ---------------- ------------------ ---------------------
Return of Excess Waived Waived Waived Waived N/A
- ------------------------- ----------------- ----------------- ---------------- ------------------ ---------------------
</TABLE>
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.
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<PAGE>
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion, the shareholder will incur a brokerage
charge. Any such securities would be valued for the purposes of making such
payment at the same value as used in determining net asset value. The Fund has
however, elected to be governed by Rule 18f-1 under the Investment Company Act.
Under that rule the Fund must redeem shares for cash except to the extent that
the redemption payment to any shareholder during any 90-day period would exceed
the lesser of $250,000 or 1% of the net asset value at the beginning of such
period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. The Fund permits exchanges of shares of any class of the
Fund for shares of the same class in any other John Hancock fund offering that
class.
Exchanges between funds with shares that are not subject to a CDSC are based on
their respective net asset values. No sales charge or transactions charge is
imposed. Shares of the Fund which are subject to a CDSC may be exchanged into
shares of any of the other John Hancock funds that are subject to a CDSC without
incurring the CDSC; however, the shares acquired in an exchange will be subject
to the CDSC schedule of the shares acquired if and when such shares are redeemed
(except that shares exchanged into John Hancock Short-Term Strategic Income
Fund, John Hancock Intermediate Maturity Government Fund and John Hancock
Limited-Term Government Fund will retain the exchanged fund's CDSC schedule).
For purposes of computing the CDSC payable upon redemption of shares acquired in
an exchange, the holding period of the original shares is added to the holding
period of the shares acquired in an exchange.
If a shareholder exchanges Class B shares purchased prior to January 1, 1994
(except John Hancock Short-Term Strategic Income Fund) for Class B shares of any
other John Hancock fund, the acquired shares will continue to be subject to the
CDSC schedule that was in effect when the exchanged shares were purchased.
The Fund reserves the right to require that previously exchanged shares (and
reinvested dividends) be in the Fund for 90 days before a shareholder is
permitted a new exchange.
The fund may refuse any exchange order. The Fund may changed or cancel its
exchange policies at any time, upon 60 days' notice to its shareholders.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares of another for Federal Income Tax purposes. An exchange may
result in a taxable gain or loss. See "TAX STATUS".
Systematic Withdrawal Plan. The Fund permits the establishment of a Systematic
Withdrawal Plan. Payments under this plan represent proceeds arising from the
redemption of Fund shares. The maintenance of a Systematic Withdrawal Plan
concurrently with purchases of additional Class B shares of the Fund could be
disadvantageous to a shareholder because of the CDSC imposed on redemptions of
Class B shares. Therefore, a shareholder should not purchase Class B shares of
the Fund 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
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<PAGE>
discontinue the availability of such plan in the future. The shareholder may
terminate the plan at any time by giving proper notice to Signature Services.
Monthly Automatic Accumulation Program ("MAAP"). This program is explained in
the Prospectus and the Account Privileges Application. The program, as it
relates to automatic investment checks, is subject to the following conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the Monthly Automatic Accumulation
Program may be revoked by Signature Services without prior notice if any
investment is not honored by the shareholder's bank. The bank shall be under no
obligation to notify the shareholder as to the non-payment of any checks.
The program may be discontinued by the shareholder either by calling Signature
Services or upon written notice to Signature Services which is received at least
five (5) business days prior to the due date of any investment.
Reinstatement or Reinvestment Privilege. If Signature Services is notified prior
to reinvestment, a shareholder who has redeemed Fund shares may, within 120 days
after the date of redemption, reinvest without payment of a sales charge any
part of the redemption proceeds in shares of the same class of the Fund or
another John Hancock fund, subject to the minimum investment limit of that fund.
The proceeds from the redemption of Class A shares may be reinvested at net
asset value without paying a sales charge in Class A shares of the Fund or in
Class A shares of any John Hancock fund. If a CDSC was paid upon a redemption, a
shareholder may reinvest the proceeds from this redemption at net asset value in
additional shares of the class from which the redemption was made. The
shareholder's account will be credited with the amount of any CDSC charged upon
the prior redemption and the new shares will continue to be subject to the CDSC.
The holding period of the shares acquired through reinvestment will, for
purposes of computing the CDSC payable upon a subsequent redemption, include the
holding period of the redeemed shares.
To protect the interests of other investors in the Fund, the Fund may cancel the
reinvestment privilege of any parties that, in the opinion of the Fund, are
using market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. Also, the Fund may refuse any reinvestment
request.
The Fund may change or cancel its reinvestment policies at any time.
A redemption or exchange of Fund shares is a taxable transaction for Federal
income tax purposes even if the reinvestment privilege is exercised, and any
gain or loss realized by a shareholder on the redemption or other disposition of
Fund shares will be treated for tax purposes as described under the caption "TAX
STATUS".
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, without
further action by shareholders. As of the date of this Statement of Additional
Information, the Trustees have authorized shares of the Fund and one other
series. The Declaration of Trust also authorizes the Trustees to classify and
reclassify the shares of the Fund, or any new series of the Trust, into one or
37
<PAGE>
more classes. As of the date of this Statement of Additional Information, the
Trustees have authorized the issuance of two classes of shares of the Fund,
designated as Class A and Class B.
The shares of each class of the Fund represent an equal proportionate interest
in the aggregate net assets attributable to that class of the Fund. Holders of
Class A shares and Class B shares have certain exclusive voting rights on
matters relating to their respective distribution plans. The different classes
of the Fund may bear different expenses relating to the cost of holding
shareholder meetings necessitated by the exclusive voting rights of any class of
shares.
Dividends paid by the Fund, if any, with respect to each class of shares will be
calculated in the same manner, at the same time and on the same day and will be
in the same amount, except for differences resulting from the facts that (i) the
distribution and service fees relating to Class A and Class B shares will be
borne exclusively by that class; (ii) Class B shares will pay higher
distribution and service fees than Class A shares; and (iii) each of Class A
shares and Class B shares will bear any class expenses properly allocable to
that class of shares, subject to the conditions the Internal Revenue Service
imposes with respect to the multiple- class structure. Similarly, the net asset
value per share may vary depending whether Class A shares or Class B shares are
purchased.
In the event of liquidation, shareholders of each class are entitled to share
pro rata in the net assets of the Fund available for distribution to these
shareholders. Shares entitle their holders to one vote per share, are freely
transferable and have no preemptive, subscription or conversion rights. When
issued shares are fully paid and non-assessable, except as set forth below.
Unless otherwise required by the Investment Company Act or the Declaration of
Trust, the Fund has no intention of holding annual meetings of shareholders.
Fund shareholders may remove a Trustee by the affirmative vote of at least
two-thirds of the Trust's outstanding shares and the Trustees shall promptly
call a meeting for such purpose when requested to do so in writing by the record
holders of not less than 10% of the outstanding shares of the Trust.
Shareholders may, under certain circumstances, communicate with other
shareholders in connection with a request for a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
were elected by the shareholders, the Trustees will call a special meeting of
shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business Trust could
under certain circumstances, be held personally liable for acts or obligations
of the Trust. However, Declaration of Trust contains an express disclaimer of
shareholder liability for acts, obligations and affairs of the Fund. The
Declaration of Trust also provides for indemnification out of the Fund's assets
for all losses and expenses of any shareholder held personally liable by reason
of being or having been a shareholder. The Declaration of Trust also provides
that no series of the Trust shall be liable for the liabilities of any other
series. Furthermore, no Fund included in this Fund's prospectus shall be liable
for the liabilities of any other John Hancock fund. Liability is therefore
limited to circumstances in which the Fund itself would be unable to meet its
obligations, and the possibility of this occurrence is remote.
The Fund reserves the right to reject any application which conflicts with the
Fund's internal policies or the policies of any regulatory authority. Use of
information provided on the account application may be used by the Fund to
verify the accuracy of the information or background or financial history
purposes. A shareholder's account is governed by the laws of The Commonwealth of
Massachusetts.
TAX STATUS
The Fund has qualified and elected to be treated as a "regulated investment
company" under Subchapter M of the Code, and intends to continue to so qualify
in the future. 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
38
<PAGE>
income tax on its taxable income (including net short-term and long-term capital
gains) which is distributed to shareholders in accordance with the timing
requirements of the Code.
The Fund will be subject to a 4% non-deductible Federal excise tax on certain
amounts not distributed (and not treated as having been distributed) on a timely
basis in accordance with annual minimum distribution requirements. The Fund
intends under normal circumstances to seek to avoid or minimize liability for
such tax by satisfying such distribution requirements.
Distributions from the Fund's current or accumulated earnings and profits
("E&P") will be taxable under the Code for investors who are subject to tax. If
these distributions are paid from the Fund's "investment company taxable
income," they will be taxable as ordinary income; and if they are paid from the
Fund's "net capital gain," they will be taxable as long-term capital gain. (Net
capital gain is the excess (if any) of net long-term capital gain over net
short-term capital loss, and investment company taxable income is all taxable
income and capital gains, other than net capital gain, after reduction by
deductible expenses.) Some distributions from investment company taxable income
and/or net capital gain may be paid in January but may be taxable to
shareholders as if they had been received on December 31 of the previous year.
The tax treatment described above will apply without regard to whether
distributions are received in cash or reinvested in additional shares of the
Fund.
Distributions, if any, in excess of E&P will constitute a return of capital
under the Code, which will first reduce an investor's federal tax basis in Fund
shares and then, to the extent such basis is exceeded, will generally give rise
to capital gains. Shareholders who have chosen automatic reinvestment of their
distributions will have a federal tax basis in each share received pursuant to
such a reinvestment equal to the amount of cash they would have received had
they elected to receive the distribution in cash, divided by the number of
shares received in the reinvestment.
If the Fund acquires stock in certain foreign corporations that receive at least
75% of their annual gross income from passive sources (such as interest,
dividends, rents, royalties or capital gain) or hold at least 50% of their
assets in investments producing such passive income ("passive foreign investment
companies"), the Fund could be subject to Federal income tax and additional
interest charges on "excess distributions" received from such companies or gain
from the sale of stock in such companies, even if all income or gain actually
received by the Fund is timely distributed to its shareholders. The Fund would
not be able to pass through to its shareholders any credit or deduction for such
a tax. Certain elections may, if available, ameliorate these adverse tax
consequences, but any such election would require the Fund to recognize taxable
income or gain without the concurrent receipt of cash. The Fund may limit and/or
manage its holdings in passive foreign investment companies to minimize its tax
liability or maximize its return from these investments.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
certain foreign currency options, foreign currency forward contracts, foreign
currencies, or payables or receivables denominated in a foreign currency are
subject to Section 988 of the Code, which generally causes such gains and losses
to be treated as ordinary income and losses and may affect the amount, timing
and character of distributions to shareholders. Any such transactions that are
not directly related to the Fund's investment in stock or securities, possibly
including speculative currency positions or currency derivatives not used for
hedging purposes, may increase the amount of gain it is deemed to recognize from
the sale of certain investments or derivatives held for less than three months,
which gain is limited under the Code to less than 30% of its gross income for
each taxable year, and could under future Treasury regulations produce income
not among the types of "qualifying income" from which the Fund must derive at
least 90% of its gross income for each taxable year. If the net foreign exchange
loss for a year treated as ordinary loss under Section 988 were to exceed the
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<PAGE>
Fund's investment company taxable income computed without regard to such loss
after consideration of certain regulations on the treatment of "post-October
losses" the resulting overall ordinary loss for such year would not be
deductible by the Fund or its shareholders in future years.
The Fund may be subject to withholding and other taxes imposed by foreign
countries with respect to its investments in foreign securities. Tax conventions
between certain countries and the U.S. may reduce or eliminate such taxes. The
Fund does not expect to qualify to pass such taxes through to its shareholders,
who consequently will not take such taxes into account on their own tax returns.
However, the Fund will deduct such taxes in determining the amount it has
available for distribution to shareholders.
The amount of the Fund's net short-term and long-term 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 transactions that
will generate capital gains. At the time of an investor's purchase of Fund
shares, a portion of the purchase price is often attributable to realized or
unrealized appreciation in the Fund's portfolio or undistributed taxable income
of the Fund. Consequently, subsequent distributions from such appreciation or
income may be taxable to such investor even if the net asset value of the
investor's shares is, as a result of the distributions, reduced below the
investor's cost for such shares, and the distributions in reality represent a
return of a portion of the purchase price.
Upon a redemption of shares of the Fund (including by exercise of the exchange
privilege) a shareholder may realize a taxable gain or loss depending upon the
amount of the proceeds and the investor's basis in his shares. Such gain or loss
will be treated as capital gain or loss if the shares are capital assets in the
shareholder's hands and will be long-term or short-term, depending upon the
shareholder's tax holding period for the shares and subject to the special rules
described below. A sales charge paid in purchasing Class A 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. Such disregarded load will result in an increase in the shareholder's
tax basis in the shares subsequently acquired. Also, any loss realized on a
redemption or exchange may be disallowed to the extent the shares disposed of
are replaced with other shares of the Fund within a period of 61 days beginning
30 days before and ending 30 days after the shares are disposed of, such as
pursuant to an election to reinvest dividends in additional shares. In such a
case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized upon the redemption of shares with a tax
holding period of six months or less will be treated as a long-term capital loss
to the extent of any amounts treated as distributions of long-term capital gain
with respect to such shares.
Although its present intention is to distribute, at least annually, all net
capital gain, if any, the Fund reserves the right to retain and reinvest all or
any portion of the excess, as computed for Federal income tax purposes, of net
long-term capital gain over net short-term capital loss in any year. The Fund
will not in any event distribute net capital gain realized in any year to the
extent that a capital loss is carried forward from prior years against such
gain. To the extent such excess was retained and not exhausted by the
carryforward of prior years' capital losses, it would be subject to Federal
income tax in the hands of the Fund. Upon proper designation of this amount by
the Fund, each shareholder would be treated for Federal income tax purposes as
if the Fund had distributed to him on the last day of its taxable year his pro
rata share of such excess, and he had paid his pro rata share of the taxes paid
by the Fund and reinvested the remainder in the Fund. Accordingly, each
shareholder would (a) include his pro rata share of such excess as long-term
40
<PAGE>
capital gain income in his return for his taxable year in which the last day of
the Fund's taxable year falls, (b) be entitled either to a tax credit on his
return for, or to a refund of, his pro rata share of the taxes paid by the Fund,
and (c) be entitled to increase the adjusted tax basis for his shares in the
Fund by the difference between his pro rata share of such excess and his pro
rata share of such taxes.
For Federal income tax purposes, the Fund is permitted to carry forward a net
capital loss in any year to offset its net capital gains, if any, during the
eight years following the year of the loss. To the extent subsequent net capital
gains are offset by such losses, they would not result in Federal income tax
liability to the Fund and, as noted above, would not be distributed as such to
shareholders. Presently, there are no realized capital loss carry forward
available to offset future net realized capital gains.
For purposes of the dividends received deduction available to corporations,
dividends received by the Fund, if any, from U.S. domestic corporations in
respect of the stock of such corporations held by the Fund, for U.S. Federal
income tax purposes, for at least 46 days (91 days in the case of certain
preferred stock) and distributed and properly designated by the Fund may be
treated as qualifying dividends. Corporate shareholders must meet the minimum
holding period requirement stated above (46 or 91 days) with respect to their
shares of the Fund in order to qualify for the deduction and, if they have any
debt that is deemed under the Code directly attributable to such shares, may be
denied a portion of the dividends received deduction. The entire qualifying
dividend, including the otherwise deductible amount, will be included in
determining the excess (if any) of a corporate shareholder's adjusted current
earnings over its alternative minimum taxable income, which may increase its
alternative minimum tax liability, if any. Additionally, any corporate
shareholder should consult its tax adviser regarding the possibility that its
basis in its shares may be reduced, for Federal income tax purposes, by reason
of "extraordinary dividends" received with respect to the shares, for the
purpose of computing its gain or loss on redemption or other disposition of the
shares.
The Fund is required to accrue income on any debt securities that have more than
a de minimis amount of original issue discount (or debt securities acquired at a
market discount, if the Fund elects to include market discount in income
currently) prior to the receipt of the corresponding cash payment. The mark to
market rules applicable to certain options and forward contracts 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
may have to leverage itself by borrowing the cash, to satisfy these distribution
requirements.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent (if any) the Fund's distributions
are derived from interest on (or, in the case of intangibles taxes, the value of
its assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. The Fund will not seek to satisfy any
threshold or reporting requirements that may apply in particular taxing
jurisdictions, although the Fund may in its sole discretion provide relevant
information to shareholders.
The Fund will be required to report to the Internal Revenue Service (the "IRS")
all taxable distributions to shareholders, as well as gross proceeds from the
redemption or exchange of Fund shares, except in the case of certain exempt
recipients, i.e., corporations and certain other investors distributions to
which are exempt from the information reporting provisions of the Code. Under
the backup withholding provisions of Code Section 3406 and applicable Treasury
41
<PAGE>
regulations, all such reportable distributions and proceeds may be subject to
backup withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish a Fund with their correct taxpayer
identification number and certain certifications required by the IRS or if the
IRS or a broker notifies the Fund that the number furnished by the shareholder
is incorrect or that the shareholder is subject to backup withholding as a
result of failure to report interest or dividend income. A Fund may refuse to
accept an application that does not contain any required taxpayer identification
number or certification that the number provided is correct. If the backup
withholding provisions are applicable, any such distributions and proceeds,
whether taken in cash or reinvested in shares, will be reduced by the amounts
required to be withheld. Any amounts withheld may be credited against a
shareholder's U.S. federal income tax liability. Investors should consult their
tax advisers about the applicability of the backup withholding provisions.
Different tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions and certain
prohibited transactions, is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
Limitations imposed by the Code on regulated investment companies like the Fund
may restrict the Fund's ability to enter into options, foreign currency
positions, and foreign currency forward contracts.
Certain options and forward foreign currency transactions undertaken by the Fund
may cause the Fund to recognize gains or losses from marking to market even
though its positions have not been sold or terminated and affect the character
as long-term or short-term (or, in the case of certain foreign currency-related
forward contracts or options, as ordinary income or loss) and timing of some
capital gains and losses realized by the Fund. Also, certain of the Fund's
losses on its transactions involving options or forward contracts and/or
offsetting or successor portfolio positions may be deferred rather than being
taken into account currently in calculating the Fund's taxable income or gains.
Certain of such transactions may also cause the Fund to dispose of investments
sooner than would otherwise have occurred. These transactions may therefore
affect the amount, timing and character of the Fund's distributions to
shareholders. Certain of the applicable tax rules may be modified if the Fund is
eligible and chooses to make one or more of certain tax elections that may be
available. The Fund will take into account the special tax rules (including
consideration of available elections) applicable to options and forward
contracts in order to seek to minimize any potential adverse tax consequences.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies, and financial
institutions. Dividends, capital gain distributions, and ownership of or gains
realized on the redemption (including an exchange) of Fund shares may also be
subject to state and local taxes. Shareholders should consult their own tax
advisers as to the Federal, state or local tax consequences of ownership of
shares of, and receipt of distributions from, 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 or authorized
substitute for Form W-8 is on file, to 31% backup withholding on certain other
42
<PAGE>
payments from the Fund. Non-U.S. investors should consult their tax advisers
regarding such treatment and the application of foreign taxes to an investment
in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise taxes.
Provided that the Fund qualifies as a regulated investment company under the
Code, it will also not be required to pay any Massachusetts income tax.
CALCULATION OF PERFORMANCE
As of December 31, 1996, the average annual total returns of the Class A shares
of the Fund for the one, five and life-of-fund year periods were 16.08%, 11.07%,
and 12.10%, respectively. As of December 31, 1996, the average annual returns
for the Fund's Class B shares for the one and five year periods and since
inception on August 22, 1991 were 16.25%, 11.08% and 12.53%, respectively.
The Fund's total return is computed by finding the average annual compounded
rate of return over the 1-year, 5-year, and 10-year periods that would equate
the initial amount invested to the ending redeemable value according to the
following formula:
n _____
T = \ /ERV/P - 1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment made
at the beginning of the 1 year, 5 year and 10 year periods.
Because each class has its own sales charge and fee structure, the classes have
different performance results. In the case of Class A or Class B shares, this
calculation assumes the maximum sales charge is included in the initial
investment or the CDSC is applied at the end of the period, respectively. This
calculation also assumes that all dividends and distributions are reinvested at
net asset value on the reinvestment dates during the period. The "distribution
rate" is determined by annualizing the result of dividing the declared dividends
of the Fund during the period stated by the maximum offering price or net asset
value at the end of the period. Excluding the Fund's sales charge from the
distribution rate produces a higher rate.
In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Cumulative total returns may be quoted as a percentage or
as a dollar amount, and may be calculated for a single investment, a series of
investments, and/or a series of redemptions, over any time period. Total returns
43
<PAGE>
may be quoted with or without taking the Fund's maximum sales charge on Class A
shares or the CDSC on Class B shares into account. Excluding the Fund's sales
charge on Class A shares and the CDSC on Class B shares from a total return
calculation produces a higher total return figure.
The Fund may advertise yield, where appropriate. The Fund's yield is computed by
dividing net investment income per share determined for a 30-day period by the
maximum offering price per share (which includes the full sales charge, if
applicable) on the last day of the period, according to the following standard
formula:
6
Yield = 2 ( [ ( a - b ) + 1 ] - 1
-----
cd
Where:
a = dividends and interest earned during the period.
b = net expenses accrued during the period.
c = the average daily number of fund shares outstanding during the period
that would be entitled to receive dividends.
d = the maximum offering price per share on the last day of the period
(NAV where applicable).
From time to time, in reports and promotional literature, the Fund's total
return/ or yield will be compared to indices of mutual funds and bank deposit
vehicles such as Lipper Analytical Services, Inc.'s "Lipper -- Fixed Income Fund
Performance Analysis," a monthly publication which tracks net assets, total
return, and yield on fixed income mutual funds in the United States. Ibottson
and Associates, CDA Weisenberger and F.C. Towers are also used for comparison
purposes, as well as the Russell and Wilshire Indices.
Performance rankings and ratings reported periodically in national financial
publications such as MONEY Magazine, FORBES, BUSINESS WEEK, THE WALL STREET
JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRON'S, etc. will also be
utilized. The Fund's promotional and sales literature may make reference to the
Fund's "beta." Beta is a reflection of the market-related risk of the Fund by
showing how responsive the Fund is to the market.
The performance of the Fund is not fixed or guaranteed. Performance quotations
should not be considered to be representations of performance of the Fund for
any period in the future. The performance of the Fund is a function of many
factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performance.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities of the Fund
and the allocation of brokerage commissions are made by the Adviser and officers
of the Fund pursuant to recommendations made by its investment committee of the
Adviser, which consists of officers and Trustees of the Adviser who are
44
<PAGE>
interested persons of the Fund. Orders for purchases and sales of securities are
placed in a manner which, in the opinion of the Adviser, will offer the best
price and market for the execution of each transaction. Purchases from
underwriters of portfolio securities may include a commission or commissions
paid by the issuer and transactions with dealers serving as market makers
reflect a "spread." Debt securities are generally traded on a net basis through
dealers acting for their own account as principals and not as brokers; no
brokerage commissions are payable on such transactions.
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.
This policy governs the selection of brokers and dealers and the market in which
a transaction is executed. Consistent with the foregoing primary policy, the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
and other policies that the Trustees may determine, the Adviser may consider
sales of shares of the Fund as a factor in the selection of broker-dealers to
execute the Fund's portfolio transactions.
In the U.S. and in some other countries, debt securities are traded principally
in the over-the-counter market on a net basis through dealers acting for their
own account and not as brokers. 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.
To the extent consistent with the foregoing, the Fund will be governed in the
selection of brokers and dealers, and the negotiation of brokerage commission
rates and dealer spreads, by the reliability and quality of the services,
including primarily the availability and value of research information and to a
lesser extent statistical assistance furnished to the Adviser of the Fund, and
their value and expected contribution to the performance of the Fund. It is not
possible to place a dollar value on information and services to be received from
brokers and dealers, since it is only supplementary to the research efforts of
the Adviser. The receipt of research information is not expected to reduce
significantly the expenses of the Adviser. The research information and
statistical assistance furnished by brokers and dealers may benefit the Life
Company or other advisory clients of the Adviser, and conversely, brokerage
commissions and spreads paid by other advisory clients of the Adviser may result
in research information and statistical assistance beneficial to the Fund. The
Fund will make no commitments to allocate portfolio transactions upon any
prescribed basis. While the Advisers will be primarily responsible for the
allocation of the Fund's brokerage business, their policies and practices in
this regard must be consistent with the foregoing and will at all times be
subject to review by the Trustees. For the fiscal years ended August 31, 1996,
1995 and 1994, the Fund paid negotiated brokerage commissions of $246,980,
$1,135,806 and $373,133, respectively. For the period from September 1, 1996 to
December 31, 1996, the fund paid negotiated brokerage commissions of $238,830.
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 the price is
reasonable in light of the services provided and to policies that the Trustees
may adopt from time to time. During the period from September 1, 1996 to
December 31, 1996, the Fund pay $100,520 commissions as compensation to any
brokers for research services such as industry, economic and company reviews and
evaluations of securities.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of John Hancock Distributors, Inc. ("Distributors" or "Affiliated
Brokers"). Pursuant to procedures determined by the Trustees and consistent with
45
<PAGE>
the above policy of obtaining best net results, the Fund may execute portfolio
transactions with or through Affiliated Brokers. During the year ended December
31, 1996, the Fund did not execute any portfolio transactions with then
affiliated brokers.
Any of the Affiliated Brokers may act as broker for the Fund on exchange
transactions, subject, however, to the general policy of the Fund set forth
above and the procedures adopted by the Trustees pursuant to the 1940 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 a 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
1940 Act) of the Fund, the Adviser or the Affiliated Brokers. Because the
Adviser, which is affiliated with the Affiliated Brokers, has, as an investment
adviser to the Fund, the obligation to provide investment management services,
which includes elements of research and related investment skills, such research
and related skills will not be used by the Affiliated Brokers as a basis for
negotiating commissions at a rate higher than that determined in accordance with
the above criteria.
Other investment advisory clients advised by the Adviser may also invest in the
same securities and the Fund. When these clients buy or sell the same securities
at substantially the same time, the Adviser may average the transaction as to
price and allocate the amount of available investments in a manner which the
Adviser believes to be equitable to each client, including the Fund. In some
instances, this investment procedure may adversely affect the price paid or
received by the Fund or the size of the position obtainable for it. On the other
hand, to the extent permitted by law, the adviser may aggregate the securities
to be sold or purchased for the Fund with those to be sold or purchased for
other clients managed by it in order to obtain best execution.
TRANSFER AGENT SERVICES
John Hancock Signature Services, Inc., 1 John Hancock Way, Suite 1000, Boston,
MA 02217-1000, a wholly owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent for the Fund. The Fund pays an annual fee of
$19.00 for each Class A shareholder and $21.50 for each Class B shareholder plus
certain out-of-pocket expenses. These expenses are aggregated and charged to the
Fund and allocated to each class on the basis of their relative net asset
values.
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Fund and Investors Bank & Trust Company ("IBT"), 89 South Street,
Boston, Massachusetts 02111. Under the custodian agreement, IBT performs
custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts 02116, has been
selected as the independent auditors of the Fund. The financial statements of
the Fund included in the Prospectus and this Statement of Additional Information
have been audited by Ernst & Young LLP for the periods indicated in their report
thereon appearing elsewhere herein, and are included in reliance upon such
46
<PAGE>
report given upon the authority of such firm as experts in accounting and
auditing.
47
<PAGE>
APPENDIX A
Description of Bond Ratings
The ratings of Moody's Investors Service, Inc. and Standard & Poor's Ratings
Group represent their opinions as to the quality of various debt instruments
they undertake to rate. It should be emphasized that ratings are not absolute
standards of quality. Consequently, debt instruments with the same maturity,
coupon and rating may have different yields while debt instruments of the same
maturity and coupon with different ratings may have the same yield.
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuations of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment at some time in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack the characteristics of desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represented obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
A-1
<PAGE>
STANDARD & POOR'S RATINGS GROUP
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B: Debt rated BB, and B is regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
CCC: Debt rated 'CCC' has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The 'CCC' rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
'B' or 'B-' rating.
CC: The rating 'CC' is typically applied to debt subordinated to senior debt
that is assigned an actual or implied 'CCC' rating.
A-2
<PAGE>
John Hancock Funds
Supplement to Statement of Additional Information
The "INITIAL SALES CHARGE ON CLASS A SHARES" section is supplemented under the
heading "Without Sales Charge" by adding:
o Retirement plans participating in Merrill Lynch servicing programs, if
the Plan has more than $3 million in assets or 500 eligible employees
at the date the Plan Sponsor signs the Merrill Lynch Recordkeeping
Service Agreement. See your Merrill Lynch financial consultant for
further information.
The "INITIAL SALES CHARGE ON CLASS A AND CLASS B SHARES" section is supplemented
under the heading "Without Sales Charge" by adding:
o For retirement plans participating in Merrill Lynch's servicing
programs, Class A shares are not available at net asset value for
Plans with less than $3 million or 500 eligible employees at the date
the Plan Sponsor signs the Merrill Lynch Recordkeeping Service
Agreement. Class B shares are available. See your Merrill Lynch
financial consultant for further information.
The "DEFERRED SALES CHARGE ON CLASS B SHARES" section is supplemented under the
heading "Waiver of Contingent Deferred Sales Charge" by adding:
o Retirement plans participating in Merrill Lynch servicing programs, if
the Plan has more than $3 million in assets or 500 eligible employees
at the date the Plan Sponsor signs the Merrill Lynch Recordkeeping
Service Agreement. See your Merrill Lynch financial consultant for
further information.
The "DEFERRED SALES CHARGE ON CLASS B SHARES" section is supplemented under the
heading "For Retirement Accounts" by adding:
o For retirement plans participating in Merrill Lynch's servicing
programs that are investing in Class B shares, shares will convert to
Class A shares after eight years, (5 years for Short-Term Strategic
Income Fund, Intermediate Maturity Fund and Limited-Term Government
Fund) or sooner if the plan attains assets of $5 million (by means of
a CDSC-free redemption/purchase at net asset value).
<PAGE>
The "ADDITIONAL SERVICES AND PROGRAMS" section is supplemented as follows:
Retirement plans participating in Merrill Lynch's servicing programs:
---------------------------------------------------------------------
Class A shares are available at net asset value for plans with $3
million in plan assets or 500 eligible employees at the date the Plan
Sponsor signs the Merrill Lynch Recordkeeping Service Agreement. If
the plan does not meet either of these limits, Class A shares are not
available.
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).
6/1/97
MF2SS 6/97
<PAGE>
JOHN HANCOCK UTILITIES FUND
Class A and Class B Shares
Statement of Additional Information
May 1, 1997
This Statement of Additional Information provides information about John Hancock
Utilities Fund (the "Fund"), in addition to the information that is contained in
the combined Growth and Income Funds' Prospectus dated May 1, 1997 (the
"Prospectus"). The Fund is a diversified series of John Hancock Capital Series
(the "Trust").
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus, a copy of which can be obtained free of
charge by writing or telephoning:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
1-800-225-5291
TABLE OF CONTENTS
Page
Organization of the Fund............................................... 2
Investment Objective and Policies...................................... 2
Investment Restrictions................................................ 15
Those Responsible for Management....................................... 18
Investment Advisory and Other Services................................. 27
Distribution Contracts................................................. 29
Net Asset Value........................................................ 31
Initial Sales Charge on Class A Shares................................. 32
Deferred Sales Charge on Class B Shares................................ 35
Special Redemptions.................................................... 39
Additional Services and Programs....................................... 39
Description of the Fund's Shares....................................... 41
Tax Status............................................................. 42
Calculation of Performance ............................................ 47
Brokerage Allocation................................................... 49
Transfer Agent Services................................................ 51
Custody of Portfolio................................................... 52
Independent Auditors................................................... 52
Appendix A - Description of Bond Ratings............................... A-1
Financial Statements................................................... F-1
1
<PAGE>
ORGANIZATION OF THE FUND
The Fund is a series of the Trust, an open-end investment management company
organized as a Massachusetts business trust in 1984 under the laws of The
Commonwealth of Massachusetts. The Fund was established in 1994.
John Hancock Advisers, Inc. (the "Adviser") is the Fund's investment adviser.
The Adviser is an indirect wholly-owned subsidiary of John Hancock Mutual Life
Insurance Company (the "Life Company"), a Massachusetts life insurance company
chartered in 1862 with national headquarters at John Hancock Place, Boston,
Massachusetts.
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the discussion of the Fund's investment
objective and policies discussed in the Prospectus.
The investment objectives of the Fund are to seek current income, and to the
extent consistent with that objective, growth of income and long-term capital
growth. The Fund will seek to achieve its objectives by investing primarily in
equity securities of companies in the public utilities industries. There is no
assurance that the Fund will achieve its investment objective.
Under normal market conditions, the Fund will invest at least 65% of its total
assets in equity securities of companies in the public utilities industries.
These companies include those engaged in the generation, transmission, sale or
distribution of electric energy; the distribution, purification and treatment of
water; the provision of waste management and the treatment of other sanitary
services; the production, transmission or distribution of natural gas and other
types of energy; the provision of pollution control or abatement services; and
telephone, telegraph, satellite, microwave and other communication services (but
not including companies in the public broadcasting or cable television
industries). A particular company is in one or more public utilities industries
if, at the time of investment, the Adviser determines that at least 50% of the
company's assets, revenues or profits are derived from these industries. The
Fund may invest in debt and equity securities of issuers in other industries if
the Adviser believes that those investments will help the Fund.
The Fund's emphasis on securities of public utilities makes the Fund more
susceptible to adverse conditions affecting those industries than a fund that
does not have its assets concentrated similarly. Public utilities are subject to
a variety of factors that may adversely affect their business or operations,
including high interest costs in connection with capital construction programs;
governmental regulation of rates charged to customers; costs associated with
environmental, nuclear safety and other regulations; service interruption due to
environmental, operational or other mishaps; the effects of economic slowdowns;
surplus capacity; increased competition from other providers of utility
services; uncertainties concerning the availability of fuel at reasonable
prices; the effects of energy conservation policies and other factors. Public
utilities may also be subject to regulation by various governmental authorities
and may be affected by the imposition of special tariffs and changes in tax
2
<PAGE>
laws, regulatory policies and accounting standards. Prices charged by public
utilities are generally regulated in the U.S. with the intention of protecting
the public while ensuring that public utilities' rate of return allows them to
attract enough capital to grow and provide appropriate services. There can be no
assurance that these pricing policies or rates of return will continue in the
future. The nature of the regulation of public utilities is evolving. Changes in
regulation increasingly allow public utilities to provide services and products
outside their traditional geographic areas and lines of business, offering new
sources of revenue but also creating new areas of competition within their
industries. The emergence of competition may result in certain companies being
forced to defend their core businesses, which may cause them to be less
profitable. Generally, the dividend yield of public utilities' equity securities
has been above the stock market average. Consequently, their market price tends
to be more influenced by changes in prevailing interest rates than does the
price of other issuers' securities.
Government Securities. Certain U.S. Government securities, including U.S.
Treasury bills, notes and bonds, and Government National Mortgage Association
certificates ("Ginnie Maes"), are supported by the full faith and credit of the
United States. Certain other U.S. Government securities, issued or guaranteed by
Federal agencies or government sponsored enterprises, are not supported by the
full faith and credit of the United States, but may be supported by the right of
the issuer to borrow from the U.S. Treasury. These securities include
obligations of the Federal Home Loan Mortgage Corporation ("Freddie Macs"), and
obligations supported by the credit of the instrumentality, such as Federal
National Mortgage Association Bonds ("Fannie Maes"). No assurance can be given
that the U.S. Government will provide financial support to such Federal
agencies, authorities, instrumentalities and government sponsored enterprises in
the future.
Ginnie Maes, Freddie Macs and Fannie Maes are mortgage-backed securities which
provide monthly payments which are, in effect, a "pass-through" of the monthly
interest and principal payments (including any prepayments) made the by
individual borrowers on the pooled mortgage loans. Collateralized mortgage
obligations ("CMOs") in which the Fund may invest are securities issued by a
U.S. Government instrumentality that are collateralized by a portfolio of
mortgages or mortgage-backed securities. Mortgage-backed securities may be less
effective than traditional debt obligations of similar maturity at maintaining
yields during periods of declining interest rates.
Ratings as Investment Criteria. In general, the ratings of Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's Ratings Group ("S&P") represent
the opinions of these agencies as to the quality of the securities which they
rate. It should be emphasized, however, that 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 A contains
further information concerning the ratings of Moody's and S&P and their
significance.
3
<PAGE>
Investments in Fixed Income Securities. The Fund may invest up to 25% of its
total assets in fixed income securities, consisting of U.S. Government
securities and corporate debt securities, including convertible securities,
rated at least BBB by S&P or at least Baa by Moody's or, if unrated, determined
to be of comparable quality by the Adviser. The market value of fixed income
securities varies inversely with changes in the prevailing levels of interest
rates. The market value of convertible securities, while influenced by the
prevailing level of interest rates, is also affected by the changing value of
the equity securities into which they are convertible. The Fund may purchase
debt securities with stated maturities of up to thirty years. Debt securities
rated BBB or Baa are considered medium-grade obligations with speculative
characteristics, and adverse economic conditions or changing circumstances may
weaken the issuer's capacity to pay interest and repay principal. If the rating
of a fixed income security is reduced below Baa or BBB, the Adviser will sell it
when it is appropriate, consistent with the Fund's investment objectives and
policies.
Investments in Foreign Securities. The Fund may invest up to 25% of its total
assets in the securities of foreign issuers, including securities in the form of
sponsored or unsponsored American Depository Receipts (ADRs), European
Depository Receipts (EDRs) or other securities convertible into securities of
foreign issuers. ADRs are receipts typically issued by an American bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. EDRs are receipts issued in Europe which evidence a similar
ownership arrangement. Issuers of unsponsored ADRs are not contractually
obligated to disclose material information, including financial information, in
the United States. Generally, ADRs are designed for use in the United States
securities markets and EDRs are designed for use in European securities markets.
Foreign Currency Transactions. The foreign currency transactions of the Fund may
be conducted on a spot (i.e., cash) basis at the spot rate for purchasing or
selling currency prevailing in the foreign exchange market. The Fund may enter
into forward foreign currency contracts involving currencies of the different
countries in which it will invest as a hedge against possible variations in the
foreign exchange rate between these currencies. Forward contracts are agreements
to purchase or sell a specified currency at a specified future date and price
set at the time of the contract. Transaction hedging is the purchase or sale of
forward foreign currency contracts with respect to specific receivable or
payables of the Fund accruing in connection with the purchase and sale of its
portfolio securities quoted or denominated in the same or related foreign
currencies. Portfolio hedging is the use of forward foreign currency contracts
to offset portfolio security positions denominated or quoted in the same or
related foreign currencies. The Fund will not enter into a forward contract with
a term greater than one year or a commit more than 25% of the value of its total
assets to these contracts. The Fund's dealings in forward foreign currency
contracts will be limited to hedging either specific transactions or portfolio
positions. The Fund will not attempt to hedge all of its foreign portfolio
positions. The Fund will not engage in speculative foreign currency
transactions..
If the Fund enters into a forward contract to purchase foreign currency, its
custodian bank will segregate cash or liquid securities, of any type or
maturity, in a separate account of the Fund in an amount necessary to complete
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the forward contract. These assets will be marked to market daily and if the
value of the assets in a separate account declines, additional cash or liquid
assets will be added so that the value of the account will equal to the amount
of the Fund's commitment in forward contracts.
Hedging against a decline in the value of currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. These transactions also preclude the
opportunity for gain if the value of the hedged currency rises. Moreover, it may
not be possible for the Fund to hedge against a devaluation that is so generally
anticipated that the Fund is not able to contract to sell the currency at a
price above the devaluation level it anticipates.
The cost to the Fund of engaging in foreign currency transactions varies with
such factors as the currency involved, the length of the contract period and the
market conditions then prevailing. Since transactions in foreign currency are
usually conducted on a principal basis, no fees or commissions are involved.
Risks of Foreign Securities. Investments in foreign securities may involve a
greater degree of risk than those in domestic securities. There is generally
less publicly available information about foreign companies in the form of
reports and ratings similar to those that are published about issuers in the
United States. Also, foreign issuers are generally not subject to uniform
accounting, auditing and financial reporting requirements comparable to those
applicable to United States issuers.
Because foreign securities may be denominated in currencies other than the U.S.
dollar, changes in foreign currency exchange rates will affect the Fund's net
asset value, the value of dividends and interest earned, gains and losses
realized on the sale of securities, and any net investment income and gains that
the Fund distributes to shareholders. Securities transactions undertaken in some
foreign markets may not be settled promptly, so that the Fund's investments on
foreign exchanges may be less liquid and subject to the risk of fluctuating
currency exchange rates pending settlement.
Foreign securities will be purchased in the best available market, whether
through over-the-counter markets or exchanges located in the countries where
principal offices of the issuers are located. Foreign securities markets are
generally not as developed or efficient as those in the United States. While
growing in volume, they usually have substantially less volume than the New York
Stock Exchange, and securities of some foreign issuers are less liquid and more
volatile than securities of comparable United States issuers. Fixed commissions
on foreign exchanges are generally higher than negotiated commissions on United
States exchanges, although the Fund will endeavor to achieve the most favorable
net results on its portfolio transactions. There is generally less government
supervision and regulation of securities exchanges, brokers and listed issuers
than in the United States.
With respect to certain foreign countries, there is the possibility of adverse
changes in investment or exchange control regulations, expropriation,
nationalization or confiscatory taxation, limitations on the removal of funds or
other assets of the Fund, political or social instability, or diplomatic
developments which could affect United States investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
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the United States' economy in terms of growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
The dividends, in some cases, capital gains, and interest payable on certain of
the Fund's foreign portfolio securities, may be subject to foreign withholding
or other foreign taxes, thus reducing the net amount of income or gains
available for distribution to the Fund's shareholders.
Repurchase Agreements. In a repurchase agreement the Fund buys a security for a
relatively short period (usually not more than 7 days) subject to the obligation
to sell it back to the issuer at a fixed time and price plus accrued interest.
The Fund will enter into repurchase agreements only with member banks of the
Federal Reserve System and with "primary dealers" in U.S. Government securities.
The Adviser will continuously monitor the creditworthiness of the parties with
whom the Fund enters into repurchase agreements.
The Fund has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, the Fund could experience delays in
liquidating the underlying securities and could experience losses, including the
possible decline in the value of the underlying securities during the period
while the Fund seeks to enforce its rights thereto, possible subnormal levels of
income and lack of access to income during this period and the expense of
enforcing its rights.
Reverse Repurchase Agreements. The Fund may also enter into reverse repurchase
agreements which involve the sale of U.S. Government securities held in its
portfolio to a bank with an agreement that the Fund will buy back the securities
at a fixed future date at a fixed price plus an agreed amount of "interest"
which may be reflected in the repurchase price. Reverse repurchase agreements
are considered to be borrowings by the Fund. Reverse repurchase agreements
involve the risk that the market value of securities purchased by the Fund with
proceeds of the transaction may decline below the repurchase price of the
securities sold by the Fund which it is obligated to repurchase. The Fund will
also continue to be subject to the risk of a decline in the market value of the
securities sold under the agreements because it will reacquire those securities
upon effecting their repurchase. To minimize various risks associated with
reverse repurchase agreements, the Fund will establish and maintain with the
Fund's custodian a separate account consisting of liquid securities, of any type
or maturity, in an amount at least equal to the repurchase prices of the
securities (plus accrued interest thereon) under such agreements. In addition,
the Fund will not enter into reverse repurchase agreements or borrow money,
except from banks as a temporary measure for extraordinary or emergency purposes
in amounts not to exceed 33 1/3% of the Fund's total assets (including the
amount borrowed) taken at market value. The Fund will 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.
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Restricted Securities. The Fund may purchase securities that are not registered
("restricted securities") under the Securities Act of 1933 ("1933 Act"),
including commercial paper used in reliance on Section 4(2) of the 1933 Act and
securities offered and sold to "qualified institutional buyers" under Rule 144A
under the 1933 Act. The Fund will not invest more than 15% of its net assets in
illiquid investments. If the Trustees determine, based upon a continuing review
of the trading markets for specific Section 4(2) paper or Rule 144A securities,
that they are liquid, they will not be subject to the 15% limit on illiquid
investments. The Trustees may adopt guidelines and delegate to the Adviser the
daily function of determining the monitoring and liquidity of restricted
securities. The Trustees, however, will retain sufficient oversight and be
ultimately responsible for the determinations. The Trustees will carefully
monitor the Fund's investments in these securities, focusing on such important
factors, among others, as valuation, liquidity and availability of information.
This investment practice could have the effect of increasing the level of
illiquidity in the Fund if qualified institutional buyers become for a time
uninterested in purchasing these restricted securities.
Options on Securities, Securities Indices and Currency. The Fund may purchase
and write (sell) call and put options on any securities in which it may invest,
on any securities index based on securities in which it may invest or on any
currency in which Fund investments may be denominated. These options may be
listed on national domestic securities exchanges or foreign securities exchanges
or traded in the over-the-counter market. The Fund may write covered put and
call options and purchase put and call options to enhance total return, as a
substitute for the purchase or sale of securities or currency, or to protect
against declines in the value of portfolio securities and against increases in
the cost of securities to be acquired.
Writing Covered Options. A call option on securities or currency written by the
Fund obligates the Fund to sell specified securities or currency to the holder
of the option at a specified price if the option is exercised at any time before
the expiration date. A put option on securities or currency written by the Fund
obligates the Fund to purchase specified securities or currency from the option
holder at a specified price if the option is exercised at any time before the
expiration date. Options on securities indices are similar to options on
securities, except that the exercise of securities index options requires cash
settlement payments and does not involve the actual purchase or sale of
securities. In addition, securities index options are designed to reflect price
fluctuations in a group of securities or segment of the securities market rather
than price fluctuations in a single security. Writing covered call options may
deprive the Fund of the opportunity to profit from an increase in the market
price of the securities or foreign currency assets in its portfolio. Writing
covered put options may deprive the Fund of the opportunity to profit from a
decrease in the market price of the securities or foreign currency assets to be
acquired for its portfolio.
All call and put options written by the Fund are covered. A written call option
or put option may be covered by (i) maintaining cash or liquid securities,
either of which may be quoted or denominated in any currency, in a segregated
account maintained by the Fund's custodian with a value at least equal to the
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Fund's obligation under the option, (ii) entering into an offsetting forward
commitment and/or (iii) purchasing an offsetting option or any other option
which, by virtue of its exercise price or otherwise, reduces the Fund's net
exposure on its written option position. A written call option on securities is
typically covered by maintaining the securities that are subject to the option
in a segregated account. The Fund may cover call options on a securities index
by owning securities whose price changes are expected to be similar to those of
the underlying index.
The Fund may terminate its obligations under an exchange traded call or put
option by purchasing an option identical to the one it has written. Obligations
under over-the-counter options may be terminated only by entering into an
offsetting transaction with the counterparty to such option. Such purchases are
referred to as "closing purchase transactions."
Purchasing Options. The Fund would normally purchase call options in
anticipation of an increase, or put options in anticipation of a decrease
("protective puts"), in the market value of securities or currencies of the type
in which it may invest. The Fund may also sell call and put options to close out
its purchased options.
The purchase of a call option would entitle the Fund, in return for the premium
paid, to purchase specified securities or currency at a specified price during
the option period. The Fund would ordinarily realize a gain on the purchase of a
call option if, during the option period, the value of such securities or
currency exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise the Fund would realize either no gain or a loss on
the purchase of the call option.
The purchase of a put option would entitle the Fund, in exchange for the premium
paid, to sell specified securities or currency at a specified price during the
option period. The purchase of protective puts is designed to offset or hedge
against a decline in the market value of the Fund's portfolio securities or the
currencies in which they are denominated. Put options may also be purchased by
the Fund for the purpose of affirmatively benefiting from a decline in the price
of securities or currencies which it does not own. The Fund would ordinarily
realize a gain if, during the option period, the value of the underlying
securities or currency decreased below the exercise price sufficiently to cover
the premium and transaction costs; otherwise the Fund would realize either no
gain or a loss on the purchase of the put option. Gains and losses on the
purchase of put options may be offset by countervailing changes in the value of
the Fund's portfolio securities.
The Fund's options transactions will be subject to limitations established by
each of the exchanges, boards of trade or other trading facilities on which such
options are traded. These limitations govern the maximum number of options in
each class which may be written or purchased by a single investor or group of
investors acting in concert, regardless of whether the options are written or
purchased on the same or different exchanges, boards of trade or other trading
facilities or are held or written in one or more accounts or through one or more
8
<PAGE>
brokers. Thus, the number of options which the Fund may write or purchase may be
affected by options written or purchased by other investment advisory clients of
the Adviser. An exchange, board of trade or other trading facility may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.
Risks Associated with Options Transactions. There is no assurance that a liquid
secondary market on a domestic or foreign options exchange will exist for any
particular exchange-traded option or at any particular time. If the Fund is
unable to effect a closing purchase transaction with respect to covered options
it has written, the Fund will not be able to sell the underlying securities or
currencies or dispose of assets held in a segregated account until the options
expire or are exercised. Similarly, if the Fund is unable to effect a closing
sale transaction with respect to options it has purchased, it would have to
exercise the options in order to realize any profit and will incur transaction
costs upon the purchase or sale of underlying securities or currencies.
Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options). If trading were discontinued, the
secondary market on that exchange (or in that class or series of options) would
cease to exist. However, outstanding options on that exchange that had been
issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
The Fund's ability to terminate over-the-counter options is more limited than
with exchange-traded options and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. The
Adviser will determine the liquidity of each over-the-counter option in
accordance with guidelines adopted by the Trustees.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of options
depends in part on the Adviser's ability to predict future price fluctuations
and, for hedging transactions, the degree of correlation between the options and
securities or currency markets.
Futures Contracts and Options on Futures Contracts. To seek to increase total
return or hedge against changes in interest rates, securities prices, or
currency exchange rates, the Fund may purchase and sell various kinds of futures
contracts, and purchase and write call and put options on these futures
9
<PAGE>
contracts. The Fund may also enter into closing purchase and sale transactions
with respect to any of these contracts and options. The futures contracts may be
based on various securities (such as U.S. Government securities), securities
indices, foreign currencies and any other financial instruments and indices. All
futures contracts entered into by the Fund are traded on U.S. or foreign
exchanges or boards of trade that are licensed, regulated or approved by the
Commodity Futures Trading Commission ("CFTC").
Futures Contracts. A futures contract may generally be described as an agreement
between two parties to buy and sell particular financial instruments or
currencies for an agreed price during a designated month (or to deliver the
final cash settlement price, in the case of a contract relating to an index or
otherwise not calling for physical delivery at the end of trading in the
contract).
Positions taken in the futures markets are not normally held to maturity but are
instead liquidated through offsetting transactions which may result in a profit
or a loss. While futures contracts on securities or currency will usually be
liquidated in this manner, the Fund may instead make, or take, delivery of the
underlying securities or currency whenever it appears economically advantageous
to do so. A clearing corporation associated with the exchange on which futures
contracts are traded guarantees that, if still open, the sale or purchase will
be performed on the settlement date.
Hedging and Other Strategies. Hedging is an attempt to establish with more
certainty than would otherwise be possible the effective price or rate of return
on portfolio securities or securities that the Fund proposes to acquire or the
exchange rate of currencies in which portfolio securities are denominated. When
interest rates are rising or securities prices are falling, the Fund can seek to
offset a decline in the value of its current portfolio securities through the
sale of futures contracts. When interest rates are falling or securities prices
are rising, the Fund, through the purchase of futures contracts, can attempt to
secure better rates or prices than might later be available in the market when
it effects anticipated purchases. The Fund may seek to offset anticipated
changes in the value of a currency in which its portfolio securities, or
securities it intends to purchase, are quoted or denominated by purchasing and
selling futures contracts on such currencies.
The Fund may, for example, take a "short" position in the futures market by
selling futures contracts in an attempt to hedge against an anticipated rise in
interest rates or a decline in market prices or foreign currency rates that
would adversely affect the dollar value of the Fund's portfolio securities. Such
futures contracts may include contracts for the future delivery of securities
held by the Fund or securities with characteristics similar to those of the
Fund's portfolio securities. Similarly, the Fund may sell futures contracts on
any currencies in which its portfolio securities are quoted or denominated or in
one currency to hedge against fluctuations in the value of securities
denominated in a different currency if there is an established historical
pattern or correlation between the two currencies.
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If, in the opinion of the Adviser, there is a sufficient degree of correlation
between price trends for the Fund's portfolio securities and futures contracts
based on other financial instruments, securities indices or other indices, the
Fund may also enter into such futures contracts as part of its hedging strategy.
Although under some circumstances prices of securities in the Fund's portfolio
may be more or less volatile than prices of such futures contracts, the Adviser
will attempt to estimate the extent of this volatility difference based on
historical patterns and compensate for any differential by having the Fund enter
into a greater or lesser number of futures contracts or by attempting to achieve
only a partial hedge against price changes affecting the Fund's portfolio
securities.
When a short hedging position is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the value
of the futures position. On the other hand, any unanticipated appreciation in
the value of the Fund's portfolio securities would be substantially offset by a
decline in the value of the futures position.
On other occasions, the Fund may take a "long" position by purchasing futures
contracts. This would be done, for example, when the Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates then available in the applicable
market to be less favorable than prices that are currently available. The Fund
may also purchase futures contracts as a substitute for transactions in
securities or foreign currency, to alter the investment characteristics of or
currency exposure associated with portfolio securities or to gain or increase
its exposure to a particular securities market or currency.
Options on Futures Contracts. The Fund may purchase and write options on futures
for the same purposes as its transactions in futures contracts. The purchase of
put and call options on futures contracts will give the Fund the right (but not
the obligation) for a specified price to sell or to purchase, respectively, the
underlying futures contract at any time during the option period. As the
purchaser of an option on a futures contract, the Fund obtains the benefit of
the futures position if prices move in a favorable direction but limits its risk
of loss in the event of an unfavorable price movement to the loss of the premium
and transaction costs.
The writing of a call option on a futures contract generates a premium which may
partially offset a decline in the value of the Fund's assets. By writing a call
option, the Fund becomes obligated, in exchange for the premium (upon exercise
of the option) to sell a futures contract if the option is exercised, which may
have a value higher than the exercise price. Conversely, the writing of a put
option on a futures contract generates a premium which may partially offset an
increase in the price of securities that the Fund intends to purchase. However,
the Fund becomes obligated (upon exercise of the option) to purchase a futures
contract if the option is exercised, which may have a value lower than the
exercise price. The loss incurred by the Fund in writing options on futures is
potentially unlimited and may exceed the amount of the premium received.
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The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option of the same series. There
is no guarantee that such closing transactions can be effected. The Fund's
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.
Other Considerations. The Fund will engage in futures and related options
transactions either for bona fide hedging purposes or to seek to increase total
return as permitted by the CFTC. To the extent that the Fund is using futures
and related options for hedging purposes, futures contracts will be sold to
protect against a decline in the price of securities (or the currency in which
they are quoted or denominated) that the Fund owns or futures contracts will be
purchased to protect the Fund against an increase in the price of securities (or
the currency in which they are quoted or denominated) it intends to purchase.
The Fund will determine that the price fluctuations in the futures contracts and
options on futures used for hedging purposes are substantially related to price
fluctuations in securities held by the Fund or securities or instruments which
it expects to purchase. As evidence of its hedging intent, the Fund expects that
on 75% or more of the occasions on which it takes a long futures or option
position (involving the purchase of futures contracts), the Fund will have
purchased, or will be in the process of purchasing, equivalent amounts of
related securities (or assets denominated in the related currency) in the cash
market at the time when the futures or option position is closed out. However,
in particular cases, when it is economically advantageous for the Fund to do so,
a long futures position may be terminated or an option may expire without the
corresponding purchase of securities or other assets.
To the extent that the Fund engages in nonhedging transactions in futures
contracts and options on futures, the aggregate initial margin and premiums
required to establish these nonhedging positions will not exceed 5% of the net
asset value of the Fund's portfolio, after taking into account unrealized
profits and losses on any such positions and excluding the amount by which such
options were in-the-money at the time of purchase. The Fund will engage in
transactions in futures contracts and related options only to the extent such
transactions are consistent with the requirements of the Internal Revenue Code
of 1986, as amended (the "Code"), for maintaining its qualification as a
regulated investment company for federal income tax purposes.
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating the Fund to purchase securities or currencies, require the Fund to
establish with the custodian a segregated account consisting of cash or liquid
securities in an amount equal to the underlying value of such contracts and
options.
While transactions in futures contracts and options on futures may reduce
certain risks, these transactions themselves entail certain other risks. For
example, unanticipated changes in interest rates, securities prices or currency
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exchange rates may result in a poorer overall performance for the Fund than if
it had not entered into any futures contracts or options transactions.
Perfect correlation between the Fund's futures positions and portfolio positions
will be impossible to achieve. There are no futures contracts based upon
individual securities, except certain U.S. Government securities. The only
futures contracts available to hedge the Fund's portfolio are various futures on
U.S. Government securities, securities indices and foreign currencies. In the
event of an imperfect correlation between a futures position and a portfolio
position which is intended to be protected, the desired protection may not be
obtained and the Fund may be exposed to risk of loss. In addition, it is not
possible to hedge fully or protect against currency fluctuations affecting the
value of securities denominated in foreign currencies because the value of such
securities is likely to fluctuate as a result of independent factors not related
to currency fluctuations.
Some futures contracts or options on futures may become illiquid under adverse
market conditions. In addition, during periods of market volatility, a commodity
exchange may suspend or limit trading in a futures contract or related option,
which may make the instrument temporarily illiquid and difficult to price.
Commodity exchanges may also establish daily limits on the amount that the price
of a futures contract or related option can vary from the previous day's
settlement price. Once the daily limit is reached, no trades may be made that
day at a price beyond the limit. This may prevent the Fund from closing out
positions and limiting its losses.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements. The
Fund may reinvest any cash collateral in short-term securities and money market
funds. When the Fund lends portfolio securities, there is a risk that the
borrower may fail to return the securities involved in the transaction. As a
result, the Fund may incur a loss or, in the event of the borrower's bankruptcy,
the Fund may be delayed in or prevented from liquidating the collateral. It is a
fundamental policy of the Fund not to lend portfolio securities having a total
value exceeding 33 1/3% of its total assets.
Rights and Warrants. The Fund may purchase warrants and rights which are
securities permitting, but not obligating, their holder to purchase the
underlying securities at a predetermined price, subject tot he Fund's Investment
Restrictions. Generally, warrants and stock purchase rights do not carry with
them the right to receive dividends or exercise voting rights with respect to
the underlying securities, and they do not represent any rights in the assets of
the issuer. As a result, an investment in warrants and rights may be considered
to entail greater investment risk than certain other types of investments. In
addition, the value of warrants and rights does not necessarily change with the
value of the underlying securities, and they cease to have value if they are not
exercised on or prior to their expiration date. Investment in warrants and
rights increases the potential profit of loss to be realized from the investment
of a given amount of the Fund's assets as compared with investing the same
amount in the underlying stock.
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Short Sales. The Fund may engage in short sales "against the box". In a short
sale against the box, the Fund agrees to sell at a future date a security that
it either contemporaneously owns or has the right to acquire at no extra cost.
If the price of the security has declined at the time the Fund is required to
deliver the security, the Fund will benefit from the difference in the price. If
the price of the security has increased, the Fund will be required to pay the
difference.
Forward Commitments and When-Issued Securities. The Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not yet
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. In a forward
commitment transaction, the Fund contracts to purchase securities for a fixed
price at a future date beyond customary settlement time. No payment is made with
respect to a when-issued or forward commitment transaction until delivery is
due, often a month or more after the purchase. In a forward commitment
transaction, the Fund contracts to purchase securities for a fixed price at a
future date beyond customary settlement time.
When the Fund engages in a when-issued or forward commitment transaction, it
relies on the seller to consummate the transaction. The failure of the issuer or
seller to consummate the transaction may result in the Fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid securities, of any type or maturity, equal in value to
the Fund's commitments. These assets will be valued daily at market, and
additional cash or liquid 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 Fund's commitments for when-issued or forward commitment
transactions. Alternatively, the Fund may enter into offsetting contracts for
the forward sale of other securities that it owns.
Temporary Defensive Investments. If the Adviser believes that the Fund should
temporarily assume a defensive investment posture due to unfavorable investment
conditions, the Fund may hold cash or invest all or part of its assets in
short-term investment grade instruments. These short-term instruments consist
of: corporate commercial paper and other short-term commercial obligations;
obligations (including certificates of deposit, time deposits, demand deposits
and bankers' acceptances) of banks; obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; and repurchase agreements.
Short-Term Trading and Portfolio Turnover. Short-term trading means the purchase
and subsequent sale of a security after it has been held for a relatively brief
period of time. The Fund may engage in short-term trading in response to stock
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market conditions, changes in interest rates or other economic trends and
developments, or to take advantage of yield disparities between various fixed
income securities in order to realize capital gains or improve income. Short
term trading may have the effect of increasing portfolio turnover rate. A high
rate of portfolio turnover (100% or greater) involves correspondingly greater
brokerage expenses and may make it more difficult for a fund to qualify as a
regulated investment company for federal income tax purposes. The Fund's
portfolio turnover rate is set forth in the table under the caption "Financial
Highlights" in the Prospectus.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions will
not be changed without 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) Purchase or sell real estate or any interest therein, except that the
Fund may invest in securities of corporate entities secured by real
estate or marketable interests therein or issued by companies that
invest in real estate or interests therein and may hold and sell real
estate acquired by the Fund as the result of ownership of securities.
(2) Make loans, except that the Fund (1) may lend portfolio securities in
accordance with the Fund's investment policies up to 33 1/3% of the
Fund's total assets taken at market value, (2) enter into repurchase
agreements, and (3) purchase all or a portion of an issue of publicly
distributed debt securities, bank loan participation interests, bank
certificates of deposit, bankers' acceptances, debentures or other
securities, whether or not the purchase is made upon the original
issuance of the securities.
(3) Invest in commodities or in commodity contracts or in puts, calls, or
combinations of both except options on securities, securities indices,
currency and other financial instruments, futures contracts on
securities, securities indices, currency and other financial
instruments, options on such futures contracts, forward commitments,
forward foreign currency exchange contracts, interest rate or currency
swaps, securities index put or call warrants and repurchase agreements
entered into in accordance with the Fund's investment policies.
(4) With respect to 75% of the Fund's total assets, purchase securities of
an issuer (other than the U.S. Government, its agencies or
instrumentalities), if (i) such purchase would cause more than 5% of
the Fund's total assets taken at market value to be invested in the
securities of such issuer, or (ii) such purchase would at the time
result in more than 10% of the outstanding voting securities of such
issuer being held by the Fund.
15
<PAGE>
(5) Act as an underwriter, except to the extent that, in connection with
the disposition of portfolio securities, the Fund may be deemed to be
an underwriter for purposes of the Securities Act of 1933.
(6) Borrow money, except from banks as a temporary measure for
extraordinary or emergency purposes in amounts not to exceed 33 1/3% of
the Fund's total assets (including the amount borrowed) taken at market
value.
(7) Pledge, mortgage or hypothecate its assets, except to secure
indebtedness permitted by paragraph (6) above and then only if such
pledging, mortgaging or hypothecating does not exceed 33 1/3% of the
Fund's total assets taken at market value.
(8) Issue senior securities, except as permitted by paragraph (6) above.
For purposes of this restriction, the issuance of shares of beneficial
interest in multiple classes or series, the purchase or sale of
options, futures contracts and options on futures contracts, forward
commitments, forward foreign currency exchange contracts, interest rate
or currency swaps, securities index warrants and repurchase agreements
entered into in accordance with the Fund's investment policy, and the
pledge, mortgage or hypothecation of the Fund's assets within the
meaning of paragraph (7) above are not deemed to be senior securities.
(9) Purchase any securities which would cause more than 25% of the market
value of the Fund's total assets at the time of such purchase to be
invested in the securities of one or more issuers having their
principal business activities in the same industry, provided that there
is no limitation with respect to investments in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities;
provided that, notwithstanding the foregoing, the Fund will invest more
than 25% of its total assets in securities of companies that are
engaged in one or more of the public utilities industries, as more
fully set forth in the Prospectus.
In connection with the lending of portfolio securities under item (2) above,
such loans must at all times be fully collateralized and the Fund's custodian
must take possession of the collateral either physically or in book entry form.
Securities used as collateral must be marked to market daily.
Non-fundamental Investment Restrictions. The following restrictions are
designated as non-fundamental and may be changed by the Trustees without
shareholder approval.
The Fund may not:
(a) purchase securities on margin or make short sales, except margin
deposits in connection with options, futures and other arbitrage
transactions, or unless by virtue of its ownership of other securities,
the Fund has the right to obtain securities equivalent in kind and
amount to the securities sold and, if the right is conditional, the
sale is made upon the same conditions, except that a Fund may obtain
16
<PAGE>
such short-term credits as may be necessary for the clearance of
purchases and sales of securities and in connection with transactions
involving forward foreign currency exchange contracts.
(b) purchase securities of any issuer which, together with any predecessor,
has a record of less than three years' continuous operation prior to
the purchase if such purchase would cause the Fund's investment in all
such issuers to exceed 5% of the value of the Fund's total assets.
(c) invest for the purpose of exercising control over the management of any
company.
(d) purchase a security if, as a result, (i) more than 10% of the Fund's
total assets would be invested in the securities of other investment
companies, (ii) the Fund would hold more than 3% of the total
outstanding voting securities of any one investment company, or (iii)
more than 5% of the Fund's total assets would be invested in the
securities of any one investment company. These limitations do not
apply to (a) the investment of cash collateral, received by the Fund in
connection with lending the Fund's portfolio securities, in the
securities of open-end investment companies or (b) the purchase of
shares of any investment company in connection with a merger,
consolidation, reorganization or purchase of substantially all of the
assets of another investment company. Subject to the above percentage
limitations, the Fund may, in connection with the John Hancock Group of
Funds Deferred Compensation Plan for Independent Trustees/Directors,
purchase securities of other investment companies within the John
Hancock Group of Funds.
(e) knowingly purchase or retain securities of an issuer if one or more of
the Trustees or officers of the Trust or directors or officers of the
Adviser or any investment management subsidiary of the Adviser
individually owns beneficially more than 0.5%, and together own
beneficially more than 5%, of the securities of such issuer.
(f) invest in interests in oil, gas or other mineral exploration or
development programs; provided, however, that this restriction shall
not prohibit the acquisition of securities of companies engaged in the
production or transmission of oil, gas or other minerals.
(g) purchase warrants if as a result (i) more than 5% of the Fund's net
assets, valued at the lower of cost or market value, would be invested
in warrants or (ii) more than 2% of its net assets would be invested in
warrants, valued as aforesaid, which are not traded on the New York
Stock Exchange or American Stock Exchange; provided that for these
purposes, warrants are to be valued at the lesser of cost or market,
but warrants acquired in units or attached to securities will be deemed
to be without value.
(h) purchase any security, including any repurchase agreement maturing in
more than seven days, which is not readily marketable, if more than 15%
of the net assets of the Fund, taken at market value, would be invested
in such securities.
17
<PAGE>
(i) participate on a joint or joint-and-several basis in any securities
trading account. The "bunching" of orders for the sale or purchase of
marketable portfolio securities with other accounts under the
management of the Adviser to save commissions or to average prices
among them is not deemed to result in a joint securities trading
account.
(j) invest more than 15% of its net assets in restricted securities,
excluding restricted securities eligible for resale pursuant to Rule
144A under the Securities Act of 1933.
(k) purchase interests in real estate limited partnerships.
(l) purchase securities while outstanding borrowings exceed 5% of the
Fund's total assets.
In order to permit the sale of shares of the Fund in certain states, the
Trustees may, in their sole discretion, adopt restrictions or investment
policies more restrictive than those described above. Should the Trustees
determine that any such more restrictive policy is no longer in the best
interests of the Fund and its shareholders, the Fund may cease offering shares
in the state involved and the Trustees may revoke such restrictive policy.
Moreover, if the states involved shall no longer require any such restrictive
policy, the Trustees may, at their sole discretion, revoke such policy.
If a percentage restriction on investment or utilization of assets as set forth
above is adhered to at the time an investment is made, a later change in
percentage resulting from changes in the values of the Fund's assets will not be
considered a violation of the restriction.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by the Trustees of the Trust, 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 Trust are also Officers and Directors of the Adviser or Officers
and Directors of the Fund's principal distributor, John Hancock Funds, Inc.
("John Hancock Funds").
18
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Edward J. Boudreau, Jr. * Trustee, Chairman and Chief Chairman and Chief Executive
101 Huntington Avenue Executive Officer (1, 2) Officer, the Adviser and The
Boston, MA 02199 Berkeley Financial Group ("Berkeley
October 1944 Group"); Chairman, NM Capital
Management, Inc. ("NM Capital") and
John Hancock Advisers International
Limited ("Advisers International");
Chairman, Chief Executive Officer
and President, John Hancock Funds,
Inc. ("John Hancock Funds"), First
Signature Bank and Trust Company
and Sovereign Asset Management
Corporation ("SAMCorp."); Director,
John Hancock Insurance Agency, Inc.
("Insurance Agency, Inc."), John
Hancock Capital Corporation and New
England/Canada Business Council;
Member, Investment Company
Institute Board of Governors;
Director, Asia Strategic Growth
Fund, Inc.; Trustee, Museum of
Science; Vice Chairman and
President, the Adviser (until July
1992); Chairman, John Hancock
Distributors, Inc. (until April
1994); Director, John Hancock
Freedom Securities Corporation
(until September 1996); Director,
John Hancock Signature Services,
Inc. ("Signature Services") (until
January 1997).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
19
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Dennis S. Aronowitz Trustee (3) Professor of Law, Emeritus, Boston
Boston University University School of Law; Trustee,
Boston, Massachusetts Brookline Savings Bank.
June 1931
Richard P. Chapman, Jr. Trustee (1, 3) President, Brookline Savings Bank;
160 Washington Street Director, Federal Home Loan Bank of
Brookline, MA 02147 Boston (lending); Director, Lumber
February 1935 Insurance Companies (fire and
casualty insurance); Trustee,
Northeastern University (education);
Director, Depositors Insurance Fund,
Inc. (insurance).
William J. Cosgrove Trustee (3) Vice President, Senior Banker and
20 Buttonwood Place Senior Credit Officer, Citibank,
Saddle River, NJ 07458 N.A. (retired September 1991);
January 1933 Executive Vice President, Citadel
Group Representatives, Inc.; EVP
Resource Evaluation, Inc.
(consulting) (until October 1993);
Trustee, the Hudson City Savings
Bank (since 1995).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
20
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Douglas M. Costle Trustee (1, 3) Director, Chairman of the Board and
RR2 Box 480 Distinguished Senior Fellow,
Woodstock, VT 05091 Institute for Sustainable
July 1939 Communities, Montpelier, Vermont
(since 1991); Dean Vermont Law
School (until 1991); Director, Air
and Water Technologies Corporation
(environmental services and
equipment), Niagara Mohawk Power
Company (electric services) and
Mitretek Systems (governmental
consulting services).
Leland O. Erdahl Trustee (3) Director, Santa Fe Ingredients
8046 Mackenzie Court Company of California, Inc. and
Las Vegas, NV 89129 Santa Fe Ingredients Company, Inc.
December 1928 (private food processing companies),
Uranium Resources, Inc.; President,
Stolar, Inc. (1987-1991); President,
Albuquerque Uranium Corporation
(1985-1992); Director,
Freeport-McMoRan Copper & Gold
Company, Inc., Hecla Mining Company,
Canyon Resources Corporation and
Original Sixteen to One Mines, Inc.
(1984-1987 and 1991-1995)
(management consultant).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
21
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Richard A. Farrell Trustee(3) President of Farrell, Healer & Co.,
Venture Capital Partners (venture capital management firm)
160 Federal Street (since 1980); Prior to 1980, headed
23rd Floor the venture capital group at Bank of
Boston, MA 02110 Boston Corporation.
November 1932
Gail D. Fosler Trustee (3) Vice President and Chief Economist,
4104 Woodbine Street The Conference Board (non-profit
Chevy Chase, MD 20815 economic and business research);
December 1947 Director, Unisys Corp.; and H.B.
Fuller Company.
William F. Glavin Trustee (3) President, Babson College; Vice
Babson College Chairman, Xerox Corporation (until
Horn Library June 1989); Director, Caldor Inc.,
Babson Park, MA 02157 Reebok, Ltd. (since 1994) and Inco
March 1931 Ltd.
Anne C. Hodsdon * Trustee and President (1,2) President, Chief Operating Officer
101 Huntington Avenue and Director, the Adviser; Director,
Boston, MA 02199 The Berkeley Group, John Hancock
April 1953 Funds; Director, Advisers
International; Executive Vice
President, the Adviser (until
December 1994); Senior Vice
President, the Adviser (until
December 1993); Director, Signature
Services (until January 1997).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
22
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Dr. John A. Moore Trustee (3) President and Chief Executive
Institute for Evaluating Health Risks Officer, Institute for Evaluating
1629 K Street NW Health Risks, (nonprofit
Suite 402 institution) (since September 1989).
Washington, DC 20006-1602
February 1939
Patti McGill Peterson Trustee (3) Cornell Institute of Public Affairs,
Cornell University Cornell University (since August
Institute of Public Affairs 1996); President Emeritus of Wells
364 Upson Hall College and St. Lawrence University;
Ithica, NY 14853 Director, Niagara Mohawk Power
May 1943 Corporation (electric utility) and
Security Mutual Life (insurance).
John W. Pratt Trustee (3) Professor of Business Administration
2 Gray Gardens East at Harvard University Graduate
Cambridge, MA 02138 School of Business Administration
September 1931 (since 1961).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
23
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Richard S. Scipione * Trustee (1) General Counsel, John Hancock Life
John Hancock Place Company; Director, the Adviser,
P.O. Box 111 Advisers International, John Hancock
Boston, MA 02117 Funds, John Hancock Distributors,
August 1937 Inc., Insurance Agency, Inc., John
Hancock Subsidiaries, Inc.,
SAMCorp. and NM Capital; Trustee,
The Berkeley Group; Director, JH
Networking Insurance Agency, Inc.;
Director, John Hancock Property and
Casualty Insurance and its
affiliates (until November 1993);
Director, Signature Services (until
January 1997).
Edward J. Spellman, CPA Trustee (3) Partner, KPMG Peat Marwick LLP
259C Commercial Bld. (retired June 1990).
Lauderdale, FL 33308
November 1932
Robert G. Freedman Vice Chairman and Chief Investment Vice Chairman and Chief Investment
101 Huntington Avenue Officer (2) Officer, the Adviser; Director, the
Boston, MA 02199 Adviser, Advisers International,
July 1938 John Hancock Funds, SAMCorp.,
Insurance Agency, Inc.,
Southeastern Thrift & Bank Fund and
NM Capital; Senior Vice President,
The Berkeley Group; President, the
Adviser (until December 1994);
Director, Signature Services (until
January 1997).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
24
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
James B. Little Senior Vice President and Chief Senior Vice President, the Adviser,
101 Huntington Avenue Financial Officer The Berkeley Group, John Hancock
Boston, MA 02199 Funds.
February 1935
John A. Morin Vice President Vice President and Secretary, the
101 Huntington Avenue Adviser, The Berkeley Group,
Boston, MA 02199 Signature Services and John Hancock
July 1950 Funds; Secretary, SAMCorp.,
Insurance Agency, Inc. and NM
Capital; Counsel, John Hancock
Mutual Life Insurance Company (until
January 1996).
Susan S. Newton Vice President and Secretary Vice President, the Adviser; John
101 Huntington Avenue Hancock Funds, Signature Services
Boston, MA 02199 and The Berkeley Group; Vice
March 1950 President, John Hancock
Distributors, Inc. (until 1994).
James J. Stokowski Vice President and Treasurer Vice President, the Adviser.
101 Huntington Avenue
Boston, MA 02199
November 1946
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
</TABLE>
25
<PAGE>
All of the officers listed are officers or employees of the Adviser or
affiliated companies. Some of the Trustees and officers may also be officers
and/or directors and/or Trustees of one or more of the other funds for which the
Adviser serves as investment adviser.
As of March 28, 1997, the officers and Trustees of the Trust as a group
beneficially owned less than 1% of the outstanding shares of each class of the
Fund. As of that date, the following shareholders beneficially owned 5% of or
more of the of the outstanding shares of the Fund listed below:
<TABLE>
<CAPTION>
Number of Shares Percentage of Total
Name and Address of of Beneficial Outstanding Shares of
Shareholders Class of Shares Interest Owned the Class of the Fund
- ------------ --------------- -------------- ---------------------
<S> <C> <C> <C>
IBT&Co. A 149,928 5.78%
c/o Isabella Bank and Trust
Attn Trust Department-City
P.O. Box 100
Mt. Pleasant MI 46804-0100
</TABLE>
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. Messrs. Boudreau, Scipione and Ms.
Hodsdon, each a non-Independent Trustee, and each of the officers of the Fund
are interested persons of the Adviser, are compensated by the Adviser and
receive no compensation from the Fund for their services.
<TABLE>
<CAPTION>
Total Compensation From All
Aggregate Compensation Funds in John Hancock Fund
Independent Trustees From the Fund(*) Complex to Trustees(**)
- -------------------- ---------------- -----------------------
<S> <C> <C>
Dennis S. Aronowitz $ 35 $ 72,450
Richard P. Chapman, Jr. + $ 42 $ 75,200
William J. Cosgrove + $ 35 $ 72,450
Douglas M. Costle $ 42 $ 75,350
Leland O. Erdahl $ 35 $ 72,350
Richard A. Farrell $ 42 $ 75,350
Gail D. Fosler $ 35 $ 68,450
William F. Glavin + $ 40 $ 72,250
Bayard Henry*** $ -- $ 23,700
Dr. John A. Moore $ 35 $ 68,350
Patti McGill Peterson $ 35 $ 72,100
John W. Pratt $ 35 $ 72,350
Edward J. Spellman $ 42 $ 73,950
---- --------
TOTALS $448 $894,300
</TABLE>
* Compensation made for the seven months from June 1, 1996 to December 31, 1996.
** The total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is as of calendar year ended December 31, 1996. As of this
date, there were sixty-seven funds in the John Hancock Fund Complex of which
each of these independent trustees served on thirty-five of the funds.
26
<PAGE>
*** Mr. Henry retired from his position as a Trustee effective April 26, 1996.
+ As of December 31, 1996, the value of the aggregate accrued deferred
compensation amount from all funds in the John Hancock Fund Complex for Mr.
Chapman was $63,164, for Mr. Cosgrove was $131,317, and for Mr. Glavin was
$109,059 under the John Hancock Deferred Compensation Plan for Independent
Trustees.
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603,
was organized in 1968 and presently has more than $20 billion in assets under
management in its capacity as investment adviser to the Fund and the other
mutual funds and publicly traded investment companies in the John Hancock group
of funds having a combined total of over 1,080,000 shareholders. The Adviser is
an affiliate of the Life Company, one of the most recognized and respected
financial institutions in the nation. With total assets under management of $80
billion, the Life Company is one of the ten largest life insurance companies in
the United States, and carries high ratings from Standard & Poor's and A.M.
Best's. Founded in 1862, the Life Company has been serving clients for over 130
years.
The Fund has entered into an investment management contract with the Adviser
(the "Advisory Agreement") which was approved by the Fund's shareholders. As
manager and investment 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 which are delegated to a custodian, transfer
agent or other agent.
The Fund bears all costs of its organization and operation, including 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 and calculating the net asset
value of shares; fees and expenses of transfer agents and dividend disbursing
agents; legal, accounting, financial, management, tax and auditing fees and
expenses of the Fund (including an allocable portion of the cost of the
Adviser's employees rendering such services to the Fund; the compensation and
expenses of Trustees who are not otherwise affiliated with the Trust, the
Adviser or any of their affiliates; expenses of Trustees' and shareholders'
meetings; trade association memberships; insurance premiums; and any
extraordinary expenses.
As compensation for its services under the Advisory Agreement, the Fund pays the
Adviser monthly a fee based on a stated percentage of the average of the daily
net assets of the Fund as follows:
27
<PAGE>
Net Asset Value Annual Rate
--------------- -----------
First $250,000,000 0.70%
Amount over $250,000,000 0.65%
From time to time, the Adviser may reduce its fee or make other arrangements to
limit the Fund's expenses to a specified percentage of average daily net assets.
The Adviser retains the right to reimpose a fee and recover any other payments
to the extent that, at the end of any fiscal year, the Fund's annual expenses
fall below this limit.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser or its affiliates provide investment
advice. Because of different investment objectives or other factors, a
particular security may be bought for one or more funds or clients when one or
more other funds or clients are selling the same security. If opportunities for
purchase or sale of securities by the Adviser for the Fund or for other funds or
clients for which the Adviser renders investment advice arise for consideration
at or about the same time, transactions in such securities will be made, insofar
as feasible, for the respective funds or clients in a manner deemed equitable to
all of them. To the extent that transactions on behalf of more than one client
of the Adviser or its affiliates may increase the demand for securities being
purchased or the supply of securities being sold, there may be an adverse effect
on price.
Pursuant to its investment management contract, the Adviser is not liable for
any error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which its contract relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Adviser in the performance of its duties or from reckless disregard of the
obligations and duties under the contract.
Under the investment management contract, the Fund may use the name "John
Hancock" or any name derived from or similar to it only for so long as the
contract or any extension, renewal or amendment thereof remains in effect. If
the contract is no longer in effect, the Fund (to the extent that it lawfully
can) will cease to use such a name or any other name indicating that it is
advised by or otherwise connected with the Adviser. In addition, the Adviser or
the Life Company may grant the nonexclusive right to use the name "John Hancock"
or any similar name to any other corporation or entity, including but not
limited to any investment company of which the Life Company or any subsidiary or
affiliate thereof or any successor to the business of any subsidiary or
affiliate thereof shall be the investment adviser.
The continuation of the Advisory Agreement was approved by all Trustees. The
Advisory Agreement, and the Distribution Agreement discussed below, will
continue in effect from year to year, provided that its continuance is approved
annually both (i) by the holders of a majority of the outstanding voting
securities of the Trust or by the Trustees, and (ii) by a majority of the
Trustees who are not parties to the Agreement or "interested persons" of any
such parties. Both agreements may be terminated on 60 days written notice by any
party or by a vote of a majority of the outstanding voting securities of the
Fund and will terminate automatically if it is assigned. For the fiscal years
28
<PAGE>
ended May 31, 1996, 1995 and 1994, the Adviser's investment management fees,
before the Adviser's voluntary expense reduction, amounted to $492,174, $233,229
and $1,439, respectively. After expense reductions by the Adviser, the Adviser's
management fee for the fiscal years ended May 31, 1996 ,1995 and 1994 amounted
to $189,529, $13,482 and $0, respectively. For the period from June 1, 1996 to
December 31, 1996, the Adviser's investment management fee before the voluntary
expense reduction amounted to $298,083 and after the expense reductions by the
Adviser amounted to $104,565.
Accounting and Legal Services Agreement. The Trust, on behalf of the Fund, is a
party to an Accounting and Legal Services Agreement with the Adviser. Pursuant
to this agreement, the Adviser provides the Fund with certain tax, accounting
and legal services. For the period from June 1, 1996 to December 31, 1996, the
Fund paid the Adviser $7,984 for services under this agreement.
In order to avoid conflicts with portfolio trades for the Fund, the Adviser and
the Fund have adopted extensive restrictions on personal securities trading by
personnel of the Adviser and its affiliates. Some of these restrictions are:
pre-clearance for all personal trades and a ban on the purchase of initial
public offerings, as well as contributions to specified charities of profits on
securities held for less than 91 days. These restrictions are a continuation of
the basic principle that the interests of the Fund and its shareholders come
first.
DISTRIBUTION CONTRACTS
The Fund has a Distribution Agreement with John Hancock Funds. Under the
agreement John Hancock Funds is obligated to use its best efforts to sell shares
of each class of the Fund. Shares of the Fund are also sold by selected
broker-dealers (the "Selling Brokers") which have entered into selling agency
agreements with John Hancock Funds. John Hancock Funds accepts orders for the
purchase of the shares of the Fund which are continually offered at net asset
value next determined, plus any applicable sales charge, if any. In connection
with the sale of Class A or Class B shares, John Hancock Funds and Selling
Brokers receive compensation from a sales charge imposed, in the case of Class A
shares, at the time of sale or, in the case of Class B shares, on a deferred
basis. John Hancock Funds may pay extra compensation to financial services firms
selling large amounts of fund shares. This compensation would be calculated as a
percentage of fund shares sold by the firm. The sales charges are discussed
further in the Prospectus.
The Fund's Trustees adopted Distribution Plans with respect to Class A and Class
B shares (the "Plans") pursuant to Rule 12b-1 under the Investment Company Act
of 1940. Under the Plans, the Fund will pay distribution and service fees at an
aggregate annual rate of up to 0.30% and 1.00%, respectively, of the Fund's
average daily net assets attributable to shares of that class. However, the
service fee will not exceed 0.25% of the Fund's average daily net assets
attributable to each class of shares. The distribution fees will be used to
reimburse John Hancock Funds for their distribution expenses, including but not
limited to: (i) initial and ongoing sales compensation to Selling Brokers and
others (including affiliates of John Hancock Funds) engaged in the sale of Fund
shares; (ii) marketing, promotional and overhead expenses incurred in connection
with the distribution of Fund shares; and (iii) with respect to Class B shares
29
<PAGE>
only, interest expenses on unreimbursed distribution expenses. The service fees
will be used compensate Selling Brokers and others for providing personal and
account maintenance services to shareholders. In the event John Hancock Funds is
not fully reimbursed for payments or expenses they incur under the Class A Plan,
these expenses will not be carried beyond twelve months from the date they were
incurred. Unreimbursed expenses under the Class B Plan 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 Plan as a liability of
the Fund because the Trustees may terminate the Class B Plan at any time. For
the fiscal year ended December 31, 1996, an aggregate of $2,350,903 of
distribution expenses or 4.73% 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.
The Plans were approved by a majority of the voting securities of the Fund. The
Plans and all amendments were approved by the Trustees, including a majority of
the Trustees who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plans (the "Independent
Trustees"), by votes cast in person at meetings called for the purpose of voting
on such Plans.
Pursuant to the Plans, at least quarterly, John Hancock Funds provides the Fund
with a written report of the amounts expended under the Plans and the purpose
for which these expenditures were made. The Trustees review these reports on a
quarterly basis to determine their continued appropriateness.
The Plans provide that they will continue in effect only so long as their
continuance is approved at least annually by a majority of both the Trustees and
the Independent Trustees. The Plans provide that they may be terminated without
penalty (a) by vote of a majority of the Independent Trustees, (b) by vote of a
majority of the Fund's outstanding shares of the applicable class upon 60 days'
written notice to John Hancock Funds and (c) automatically in the event of
assignment. The Plans further provide that they may not be amended to increase
the maximum amount of the fees for the services described therein without the
approval of a majority of the outstanding shares of the class of the Fund which
has voting rights with respect to the Plan. Each Plan provides that no material
amendment to the Plans will be effective unless it is approved by a vote of a
majority vote of the Trustees and the Independent Trustees of the Fund. The
holders of Class A shares and Class B shares have exclusive voting rights with
respect to the Plan applicable to their respective class of shares. In adopting
the Plans, the Trustees concluded that, in their judgment, there is a reasonable
likelihood that each Plan 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 the
Trustees. From time to time, the Fund may participate in joint distribution
activities with other Funds and the costs of those activities will be borne by
each Fund in proportion to the relative net asset value of the participating
Funds.
30
<PAGE>
During the period from June 1, 1996 to December 31, 1996, the Fund paid John
Hancock Funds the following amounts of expenses in connection with their
services for the Fund:
<TABLE>
<CAPTION>
Expense Items
Printing and Expenses of Interest
Mailing of Compensa- John Carrying or
Prospectus to New tion to Selling Hancock Other Finance
Advertising Shareholders Brokers Funds Charges
----------- ------------ ------- ----- -------
<S> <C> <C> <C> <C> <C>
Class A Shares $ 8,089 $ 2,258 $17,368 $12,614 $ --
Class B Shares $25,441 $10,269 $89,039 $45,656 $120,998
</TABLE>
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of the Fund's shares,
the following procedures are utilized wherever applicable.
Debt securities are valued on the basis of valuations furnished by a principal
market maker or a pricing service, both of which generally utilize electronic
data processing techniques to determine valuations for normal institutional size
trading units of debt securities without exclusive reliance upon quoted prices.
Equity securities traded on a principal exchange or NASDAQ National Market
Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned category for which no sales are reported and
other securities traded over-the-counter are generally valued at the last
available bid price.
Short-term debt investments which have a remaining maturity of 60 days or less
are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
Foreign securities are valued on the basis of quotations from the primary market
in which they are traded. Any assets or liabilities expressed in terms of
foreign currencies are translated into U.S. dollars by the custodian bank based
on London currency exchange quotations as of 5:00 p.m., London time (12:00 noon,
New York time) on the date of any determination of a Fund's NAV. If quotations
are not readily available or the value has been materially affected by events
occurring after the closing of a foreign market, assets are valued by a method
that the Trustees believe accurately reflects fair value.
31
<PAGE>
The NAV for each fund and class is determined each business day at the close of
regular trading on the New York Stock Exchange (typically 4:00 p.m. Eastern
Time) by dividing a class's net assets by the number of its shares outstanding.
On any day an international market is closed and the New York Stock Exchange is
open, any foreign securities will be valued at the prior day's close with the
current day's exchange rate. Trading of foreign securities may take place on
Saturdays and U.S. business holidays on which the Fund's NAV is not calculated.
Consequently, the Fund's portfolio securities may trade and the NAV of the
Fund's redeemable securities may be significantly affected on days when a
shareholder has no access to the Fund.
INITIAL SALES CHARGE ON CLASS A SHARES
Shares of the Fund are offered at a price equal to their net asset value plus a
sales charge which, at the option of the purchaser, may be imposed either at the
time of purchase (the "initial sales charge alternative") or on a contingent
deferred basis (the "deferred sales charge alternative"). Share certificates
will not be issued unless requested by the shareholder in writing, and then they
will only be issued for full shares. The Trustees reserve the right to change or
waive a Fund's minimum investment requirements and to reject any order to
purchase shares (including purchase by exchange) when in the judgment of the
Adviser such rejection is in the Fund's best interest.
The sales charges applicable to purchases of Class A shares of the 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 cumulate current purchases with the greater of the
current value (at offering price) of the Class A shares of the Fund owned by the
investor, or if John Hancock Signature Services, Inc. ("Signature Services") is
notified by the investor's dealer or the investor at the time of the purchase,
the cost of the Class A shares owned.
Without Sales Charge. Class A shares may be offered without a front-end sales
charge or CDSC to various individuals and institutions as follows:
o Any state, county or any instrumentality, department, authority, or
agency of these entities that is prohibited by applicable investment
laws from paying a sales charge or commission when it purchases shares
of any registered investment management company.*
o A bank, trust company, credit union, savings institution or other
depository institution, its trust departments or common trust funds if
it is purchasing $1 million or more for non-discretionary customers or
accounts.*
o A Trustee or officer of the Trust; a Director or officer of the Adviser
and its affiliates or Selling Brokers, employees or sales
representatives of any of the foregoing; retired officers, employees or
Directors of any of the foregoing; a member of the immediate family
(spouse, children, grandchildren, mother, father, sister, brother,
mother-in-law, father-in-law) of any of the foregoing; or any fund,
pension, profit sharing or other benefit plan of the individuals
described above.
32
<PAGE>
o A broker, dealer, financial planner, consultant or registered
investment advisor that has entered into an agreement with John Hancock
Funds providing specifically for the use of Fund shares in fee-based
investment products or services made available to their clients.
o A former participant in an employee benefit plan with John Hancock
funds, when he or she withdraws from his or her plan and transfers any
or all of his or her plan distributions directly to the Fund.
o A member of an approved affinity group financial services plan.*
o A member of a class action lawsuit against insurance companies who is
investing settlement proceeds.
o Existing full service clients of the Life Company who were group
annuity contract holders as of September 1, 1994, and participant
directed defined contribution plans with at least 100 eligible
employees at the inception of the Fund account, may purchase Class A
shares with no initial sales charge. However, if the shares are
redeemed within 12 months after the end of the calendar year in which
the purchase was made, a CDSC will be imposed at the following rate:
Amount Invested CDSC Rate
--------------- ---------
$1 to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
Class 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.
*For investments made under these provisions, John Hancock Funds may make a
payment out of its own resources to the Selling Broker in an amount not to
exceed 0.25% of the amount invested.
Combination Privilege. In calculating the sales charge applicable to purchases
of Class A shares made at one time, the purchases will be combined to reduce
sales charges if made by (a) an individual, his or her spouse and their children
under the age of 21, purchasing securities for his or their own account, (b) a
trustee or other fiduciary purchasing for a single trust, estate or fiduciary
account and (c) groups which qualify for the Group Investment Program (see
below). Further information about combined purchases, including certain
restrictions on combined group purchases, is available from Signature Services
or a Selling Broker's representative.
Accumulation Privilege. Investors (including investors combining purchases) who
are already Class A shareholders may also obtain the benefit of the reduced
sales charge by taking into account not only the amount then being invested but
also the purchase price or current value of the Class A shares of all John
33
<PAGE>
Hancock funds which carry a sales charge already held by such person. Class A
shares of John Hancock money market funds will only be eligible for the
accumulation privilege if the investor has previously paid a sales charge on the
amount of those shares.
Group Investment Program. Under the Combination and Accumulation Privileges, all
members of a group may combine their individual purchases of Class A shares to
potentially qualify for breakpoints in the sales charge schedule. This feature
is provided to any group which (1) has been in existence for more than six
months, (2) has a legitimate purpose other than the purchase of mutual fund
shares at a discount for its members, (3) utilizes salary deduction or similar
group methods of payment, and (4) agrees to allow sales materials of the fund in
its mailings to members at a reduced or no cost to John Hancock Funds.
Letter of Intention. Reduced sales charges are also applicable to investments
made pursuant to a Letter of Intention (the "LOI"), which should be read
carefully prior to its execution by an investor. The Fund offers two options
regarding the specified period for making investments under the LOI. All
investors have the option of making their investments over a specified period of
thirteen (13) months. Investors who are using the Fund as a funding medium for a
qualified retirement plan, however, may opt to make the necessary investments
called for by the LOI over a forty-eight (48) month period. These qualified
retirement plans include IRA, SEP, SARSEP, 401(k), 403(b) (including TSAs) and
Section 457 plans. Such an investment (including accumulations and combinations)
must aggregate $50,000 or more invested during the specified period from the
date of the LOI or from a date within ninety (90) days prior thereto, upon
written request to Signature Services. The sales charge applicable to all
amounts invested under the LOI is computed as if the aggregate amount intended
to be invested had been invested immediately. If such aggregate amount is not
actually invested, the difference in the sales charge actually paid and the
sales charge payable had the LOI not been in effect is due from the investor.
However, for the purchases actually made within the specified period (either 13
or 48 months) the sales charge applicable will not be higher than that which
would have applied (including accumulations and combinations) had the LOI been
for the amount actually invested.
The LOI authorizes Signature Services to hold in escrow sufficient Class A
shares (approximately 5% of the aggregate) to make up any difference in sales
charges on the amount intended to be invested and the amount actually invested,
until such investment is completed within the specified period, at which time
the Class A escrow shares will be released. If the total investment specified in
the LOI is not completed, the 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.
34
<PAGE>
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per share without
the imposition of an initial sales charge so the Fund will receive the full
amount of the purchase payment.
Contingent Deferred Sales Charge. Class B shares which are redeemed within six
years of purchase 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
shares being redeemed. No CDSC will be imposed on increases in account value
above the initial purchase prices, including Class B shares derived from
reinvestment of dividends or capital gains distributions. No CDSC will be
imposed on shares derived from reinvestment of dividends or capital gains
distributions.
Class B shares are not available to full-service defined contribution plans
administered by Signature Services or the Life Company that had more than 100
eligible employees at the inception of the Fund account.
The amount of the CDSC, if any, will vary depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchases of 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 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 this purpose, the amount of any
increase in a share's value above its initial purchase price is not regarded as
a share exempt from CDSC. Thus, when a share that has appreciated in value is
redeemed during the CDSC period, a CDSC is assessed only on its initial purchase
price. However, you cannot redeem appreciation value only in order to avoid a
CDSC.
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.
35
<PAGE>
Example:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment. If
you redeem 50 shares at this time, your CDSC will be calculated as follows:
* Proceeds of 50 shares redeemed at $12 per share $600
* Minus proceeds of 10 shares not subject to CDSC (dividend -120
reinvestment)
* Minus appreciation on remaining shares (40 shares X $2) -80
----
* Amount subject to CDSC $400
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or
in part by John Hancock Funds to defray its expenses related to providing
distribution-related services to the Fund in connection with the sale of the
Class B shares, such as the payment of compensation to select Selling Brokers
for selling Class B shares. The combination of the CDSC and the distribution and
service fees facilitates the ability of the Fund to sell the Class B shares
without a sales charge being deducted at the time of the purchase.
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to CDSC,
unless indicated otherwise, in the circumstances defined below:
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your account
if you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
* Redemptions due to death or disability.
* Redemptions made under the Reinstatement Privilege, as described in
"Sales Charge Reductions and Waives" of the Prospectus.
* Redemptions of Class B shares made under a periodic withdrawal plan, as
long as your annual redemptions do not exceed 12% of your account
value, including reinvested dividends, at the time you established your
periodic withdrawal plan and 12% of the value of subsequent investments
(less redemptions) in that account at the time you notify Signature
Services. (Please note that this waiver does not apply to periodic
withdrawal plan redemptions of Class A shares that are subject to a
CDSC).
36
<PAGE>
For Retirement Accounts (such as IRA, Rollover IRA, TSA, 457, 403(b), 401(k),
Money Purchase Pension Plan, Profit-Sharing Plan and other qualified 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.
* Returns of excess contributions made to these plans.
* Redemptions made to effect distributions to participants or
beneficiaries from employer sponsored retirement plans under Section
401(a) of the Code (such as 401(k), Money Purchase Pension Plan, Profit
Sharing Plan).
* Redemption from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain IRA accounts that purchased shares
prior to May 15, 1995.
Please see matrix for reference.
37
<PAGE>
<TABLE>
<CAPTION>
CDSC Waiver Matrix For Class B Funds.
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
Type of 401(a) Plan 403(b) 457 IRA, IRA Non-
Distribution (401(k), MPP, Rollover retirement
PSP)
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
<S> <C> <C> <C> <C> <C>
Death or Waived Waived Waived Waived Waived
Disability
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
Over 70 1/2 Waived Waived Waived Waived for 12% of account
mandatory value annually in
distributions or periodic payments
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 in
12% of account periodic payments
value annually
in periodic
payments
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
Under 59 1/2 Waived Waived for Waived for Waived for 12% of account
annuity payments annuity payments annuity payments value annually in
(72t) or 12% of (72t) or 12% of (72t) or 12% of periodic payments
account value account value account value
annually in annually in annually in
periodic payments periodic payments periodic payments
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
Loans Waived Waived N/A N/A N/A
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
Termination of Not Waived Not Waived Not Waived Not Waived N/A
Plan
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
Hardships Waived Waived Waived N/A N/A
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
Return of Waived Waived Waived Waived N/A
Excess
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
</TABLE>
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.
38
<PAGE>
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion, the shareholder will incur a brokerage
charge. Any such securities would be valued for the purposes of making such
payment at the same value as used in determining net asset value. The Fund has,
however, elected to be governed by Rule 18f-1 under the Investment Company Act.
Under that rule, the Fund must redeem its shares for cash except to the extent
that the redemption payments to any shareholder during any 90-day period would
exceed the lesser of $250,000 or 1% of the Fund's net asset value at the
beginning of such period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. The Fund permits exchanges of shares of any class of a fund
for shares of the same class in any other John Hancock fund offering that class.
Exchanges between funds with shares that are not subject to a CDSC are based on
their respective net asset values. No sales charge or transaction charge is
imposed. Shares of the Fund which are subject to a CDSC may be exchanged into
shares of any of the other John Hancock funds that are subject to a CDSC without
incurring the CDSC; however, the shares acquired in an exchange will be subject
to the CDSC schedule of the shares acquired if and when such shares are redeemed
(except that shares exchanged into John Hancock Short-Term Strategic Income
Fund, John Hancock Intermediate Maturity Government Fund and John Hancock
Limited-Term Government Fund will retain the exchanged fund's CDSC schedule).
For purposes of computing the CDSC payable upon redemption of shares acquired in
an exchange, the holding period of the original shares is added to the holding
period of the shares acquired in an exchange.
If a shareholder exchanges Class B shares purchased prior to January 1, 1994
(except John Hancock Short-Term Strategic Income Fund) for Class B shares of any
other John Hancock fund, the acquired shares will continue to be subject to the
CDSC schedule that was in effect when the exchanged shares were purchased.
The Fund reserves the right to require that previously exchanged shares (and
reinvested dividends) be in the Fund for 90 days before a shareholder is
permitted a new exchange.
The Fund may refuse any exchange order. The Fund may change or cancel its
exchange policies at any time, upon 60 days' notice to its shareholders.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares of another for Federal Income Tax purposes. An exchange may
result in a taxable gain or loss. See "TAX STATUS".
39
<PAGE>
Systematic Withdrawal Plan. As described briefly in the Prospectus, the Fund
permits the establishment of a Systematic Withdrawal Plan. Payments under this
plan represent proceeds arising from the redemption of Fund shares. Since the
redemption price of the Fund shares may be more or less than the shareholder's
cost, depending upon the market value of the securities owned by the Fund at the
time of redemption, the distribution of cash pursuant to this plan may result in
realization of gain or loss for purposes of Federal, state and local income
taxes. The maintenance of a Systematic Withdrawal Plan concurrently with
purchases of additional Class A or Class B shares of the Fund could be
disadvantageous to a shareholder because of the initial sales charge payable on
purchases of Class A shares and the CDSC imposed on redemptions of Class B
shares and because redemptions are taxable events. Therefore, a shareholder
should not purchase Class A or Class B shares at the same time that a Systematic
Withdrawal Plan is in effect. The Fund reserves the right to modify or
discontinue the Systematic Withdrawal Plan of any shareholder on 30 days' prior
written notice to such shareholder, or to discontinue the availability of such
plan in the future. The shareholder may terminate the plan at any time by giving
proper notice to Signature Services.
Monthly Automatic Accumulation Program ("MAAP"). The program is explained in the
Prospectus. The program, as it relates to automatic investment checks, is
subject to the following conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the MAAP may be revoked by Signature
Services without prior notice if any investment is not honored by the
shareholder's bank. The bank shall be under no obligation to notify the
shareholder as to the non-payment of any checks.
The program may be discontinued by the shareholder either by calling Signature
Services or upon written notice to Signature Services which is received at least
five (5) business days prior to the due date of any investment.
Reinstatement or Reinvestment Privilege. If Signature Services is notified prior
to reinvestment, a shareholder who has redeemed shares of the Fund may, within
120 days after the date of redemption, reinvest without payment of a sales
charge any part of the redemption proceeds in shares of the same class of the
Fund or in any John Hancock funds, subject to the minimum investment limit of
that fund. The proceeds from the redemption of Class A shares may be reinvested
at net asset value without paying a sales charge in Class A shares of the Fund
or in Class A shares of another John Hancock funds. If a CDSC was paid upon a
redemption, a shareholder may reinvest the proceeds from this redemption at net
asset value in additional shares of the class from which the redemption was
made. The shareholder's account will be credited with the amount of any CDSC
charged upon the prior redemption and the new shares will continue to be subject
to the CDSC. The holding period of the shares acquired through reinvestment
will, for purposes of computing the CDSC payable upon a subsequent redemption,
include the holding period of the redeemed shares. The Fund may modify or
terminate the reinvestment privilege at any time.
40
<PAGE>
To protect the interests of other investors in the Fund, the Fund may cancel the
reinvestment privilege of any parties that, in the opinion of the Fund, are
using market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. Also, the Fund may refuse any reinvestment
request.
The Fund may change or cancel its reinvestment policies at any time.
A redemption or exchange of shares of the Fund is a taxable transaction for
Federal income tax purposes even if the reinvestment privilege is exercised, and
any gain or loss realized by a shareholder on the redemption or other
disposition of shares of the Fund will be treated for tax purposes as described
under the caption "TAX STATUS."
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, without
further action by shareholders. As of the date of this Statement of Additional
Information, the Trustees have authorized shares of the Fund and two other
series: John Hancock Independence Equity Fund and John Hancock Special Value
Fund. Additional series may be added in the future. The Declaration of Trust
also authorizes the Trustees to classify and reclassify the shares of the Fund,
or any new series of the Trust, into one or more classes. As of the date of this
Statement of Additional Information, the Trustees have authorized the issuance
of two classes of shares of the Fund, designated as Class A and Class B.
The shares of each class of the Fund represent an equal proportionate interest
in the aggregate net assets attributed to that class of the Fund. Holders of
Class A and Class B shares have certain exclusive voting rights on matters
relating to their respective distribution plans. The different classes of the
Fund may bear different expenses relating to the cost of holding shareholder
meetings necessitated by the exclusive voting rights of any class of shares.
Dividends paid by the Fund, if any, with respect to each class of shares will be
calculated in the same manner, at the same time and on the same day and will be
in the same amount, except for differences resulting from the facts that (i) the
distribution and service fees relating to Class A and Class B shares will be
borne exclusively by that class, (ii) Class B shares will pay higher
distribution and service fees than Class A shares and (iii) each of Class A and
Class B shares will bear any class expenses properly allocable to that class of
shares, subject to the conditions the Internal Revenue Service imposes with
respect to the multiple-class structures. Similarly, the net asset value per
share may vary depending on whether Class A and Class B shares are purchased.
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
41
<PAGE>
transferable and have no preemptive, subscription or conversion rights. When
issued, shares are fully paid and non-assessable, except as set forth below.
Unless otherwise required by the Investment Company Act or the Declaration of
Trust, the Fund has no intention of holding annual meetings of shareholders.
Fund shareholders may remove a Trustee by the affirmative vote of at least
two-thirds of the Trust's outstanding shares and the Trustees shall promptly
call a meeting for such purpose when requested to do so in writing by the record
holders of not less than 10% of the outstanding shares of the Trust.
Shareholders may, under certain circumstances, communicate with other
shareholders in connection with requesting a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
were elected by the shareholders, the Trustees will call a special meeting of
shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the Trust. However, the Declaration of Trust contains an express disclaimer
of shareholder liability for acts, obligations or affairs of the Fund. The
Declaration of Trust also provides for indemnification out of the Fund's assets
for all losses and expenses of any shareholder held personally liable by reason
of being or having been a shareholder. The Declaration of Trust also provides
that no series of the Trust shall be liable for the liabilities of any other
series. Furthermore, no fund included in this Fund's prospectus shall be liable
for the liabilities of any other John Hancock fund. Liability is therefore
limited to circumstances in which the Fund itself would be unable to meet its
obligations, and the possibility of this occurrence is remote.
The Fund reserves the right to reject any application which conflicts with the
Fund's internal policies or the policies of any regulatory authority. Use of
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 shareholder's account is governed by the laws of The Commonwealth of
Massachusetts.
TAX STATUS
Each series of the Trust, including the Fund, is treated as a separate entity
for tax purposes. The Fund 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 taxable income (including net short-term and long-term capital
gains) which is distributed to shareholders in accordance with the timing
requirements of the Code.
The Fund will be subject to a 4% nondeductible Federal excise tax on certain
amounts not distributed (and not treated as having been distributed) on a timely
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basis in accordance with annual minimum distribution requirements. The Fund
intends under normal circumstances to seek to avoid or minimize liability for
this tax by satisfying such distribution requirements.
Distributions from the Fund's current or accumulated earnings and profits
("E&P") will be taxable under the Code for investors who are subject to tax. If
these distributions are paid from the Fund's "investment company taxable
income," they will be taxable as ordinary income; and if they are paid from the
Fund's "net capital gain," they will be taxable as long-term capital gain. (Net
capital gain is the excess (if any) of net long-term capital gain over net
short-term capital loss, and investment company taxable income is all taxable
income and capital gains, other than net capital gain, after reduction by
deductible expenses.) Some distributions from investment company taxable income
and/or net capital gain may be paid in January but may be taxable to
shareholders as if they had been received on December 31 of the previous year.
The tax treatment described above will apply without regard to whether
distributions are received in cash or reinvested in additional shares of the
Fund.
Distributions, if any, in excess of E&P will constitute a return of capital
under the Code, which will first reduce an investor's federal tax basis in Fund
shares and then, to the extent such basis is exceeded, will generally give rise
to capital gains. Shareholders who have chosen automatic reinvestment of their
distributions will have a federal tax basis in each share received pursuant to
such a reinvestment equal to the amount of cash they would have received had
they elected to receive the distribution in cash, divided by the number of
shares received in the reinvestment.
If the Fund invests in stock of certain foreign corporations that receive at
least 75% of their annual gross income from passive sources (such as interest,
dividends, rents, royalties or capital gain) or hold at least 50% of their
assets in investments producing such passive income ("passive foreign investment
companies"), the Fund could be subject to Federal income tax and additional
interest charges on "excess distributions" received from such companies or gain
from the sale of stock in such companies, even if all income or gain actually
received by the Fund is timely distributed to its shareholders. The Fund would
not be able to pass through to its shareholders any credit or deduction for such
a tax. Certain elections may, if available, ameliorate these adverse tax
consequences, but any such election would require the Fund to recognize taxable
income or gain without the concurrent receipt of cash. The Fund may limit and/or
manage its holdings in passive foreign investment companies to minimize its tax
liability or maximize its return from these investments.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
forward foreign currency contracts, foreign currencies, or payables or
receivables denominated in a foreign currency are subject to Section 988 of the
Code, which generally causes such gains and losses to be treated as ordinary
income and losses and may affect the amount, timing and character of
distributions to shareholders. Any such transactions that are not directly
related to the Fund's investment in stock or securities may increase the amount
of gain it is deemed to recognize from the sale of certain investments or
derivatives held for less than three months, which gain is limited under the
Code to less than 30% of its gross income for each taxable year, and may under
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future Treasury regulations produce income not among the types of "qualifying
income" from which the Fund must derive at least 90% of its gross income for
each taxable year. If the net foreign exchange loss for a year treated as
ordinary loss under Section 988 were to exceed the Fund's investment company
taxable income computed without regard to such loss after consideration of
certain regulations on the treatment of "post-October losses" the resulting
overall ordinary loss for such year would not be deductible by the Fund or its
shareholders in future years.
The Fund may be subject to withholding and other taxes imposed by foreign
countries with respect to its investments in foreign securities. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. The Fund does not expect to qualify to pass such taxes through to its
shareholders, who consequently will not take such taxes into account on their
own tax returns. However, the Fund will deduct such taxes in determining the
amount it has available for distribution to shareholders.
The amount of the Fund's net short-term and long-term 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 that will generate capital gains. At the
time of an investor's purchase of shares of the Fund, a portion of the purchase
price is often attributed to realized or unrealized appreciation in the Fund's
portfolio or undistributed taxable income of the Fund. Consequently, subsequent
distributions from such appreciation or income may be taxable to such investor
even if the net asset value of the investor's shares is, as a result of the
distributions, reduced below the investor's cost for such shares, and the
distributions (or portions thereof) in reality represent a return of a portion
of the purchase price.
Upon a redemption of shares (including by exercise of the exchange privilege) a
shareholder will ordinarily realize a taxable gain or loss depending upon the
amount of the proceeds and the investor's basis in his shares. Such gain or loss
will be treated as capital gain or loss if the shares are capital assets in the
shareholder's hands and will be long-term or short-term, depending upon the
shareholder's tax holding period for the shares and subject to the special rules
described below. A sales charge paid in purchasing Class A 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 Class A 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 Class A shares subsequently acquired. Also, any
loss realized on a redemption or exchange may be disallowed to the extent the
shares disposed of are replaced with other shares of the Fund within a period of
61 days beginning 30 days before and ending 30 days after the shares are
disposed of, such as pursuant to an election to reinvest dividends in additional
shares. In such a case, the basis of the shares acquired will be adjusted to
reflect the disallowed loss. Any loss realized upon the redemption of shares
with a tax holding period of six months or less will be treated as a long-term
capital loss to the extent of any amounts treated as distributions of long-term
capital gain with respect to such shares.
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Although its present intention is to distribute, at least annually, all net
capital gain, if any, the Fund reserves the right to retain and reinvest all or
any portion of the excess, as computed for Federal income tax purposes, of net
long-term capital gain over net short-term capital loss in any year. The Fund
will not in any event distribute net long-term capital gains realized in any
year to the extent that a capital loss is carried forward from prior years
against such gain. To the extent such excess was retained and not exhausted by
the carryforward of prior years' capital losses, it would be subject to Federal
income tax in the hands of the Fund. Upon proper designation of this amount by
the Fund, each shareholder would be treated for Federal income tax purposes as
if the Fund had distributed to him on the last day of its taxable year his pro
rata share of such excess, and he had paid his pro rata share of the taxes paid
by the Fund and reinvested the remainder in the Fund. Accordingly, each
shareholder would (a) include his pro rata share of such excess as long-term
capital gain income in his tax return for his taxable year in which the last day
of the Fund's taxable year falls, (b) be entitled either to a tax credit on his
return for, or to a refund of, his pro rata share of the taxes paid by the Fund,
and (c) be entitled to increase the adjusted tax basis for his shares in the
Fund by the difference between his pro rata share of such excess and his pro
rata share of such taxes.
For Federal income tax purposes, the Fund is permitted to carry forward a net
capital loss in any year to offset net capital gains, if any, during the eight
years following the year of the loss. To the extent subsequent net capital gains
are offset by such losses, they would not result in Federal income tax liability
to the Fund and, as noted above, would not be distributed as such to
shareholders. Presently, there are no realized capital loss carryforwards
available to offset future net realized capital gains.
For purposes of the dividends-received deduction available to corporations,
dividends received by the Fund, if any, from U.S. domestic corporations in
respect of the stock of such corporations held by the Fund, for U.S. Federal
income tax purposes, for at least 46 days (91 days in the case of certain
preferred stock) and distributed and properly designated by the Fund may be
treated as qualifying dividends. Corporate shareholders must meet the minimum
holding period requirement stated above (46 or 91 days) with respect to their
shares of the Fund in order to qualify for the deduction and, if they have any
debt that is deemed under the Code directly attributable to such shares, may be
denied a portion of the dividends-received deduction. The entire qualifying
dividend, including the otherwise deductible amount, will be included in
determining the excess (if any) of a corporate shareholder's adjusted current
earnings over its alternative minimum taxable income, which may increase its
alternative minimum tax liability, if any. Additionally, any corporate
shareholder should consult its tax adviser regarding the possibility that its
tax basis in its shares may be reduced, for Federal income tax purposes, by
reason of "extraordinary dividends" received with respect to the shares, for the
purpose of computing its gain or loss on redemption or other disposition of the
shares.
The Fund is required to accrue income on any debt securities that have more than
a de minimis amount of original issue discount (or debt securities acquired at a
market discount, if the Fund elects to include market discount in income
currently) prior to the receipt of the corresponding cash payments. The mark to
market rules applicable to certain options and forward contracts may also
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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
may have to leverage itself by borrowing the cash, to satisfy these distribution
requirements.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent (if any) the Fund's distributions
are derived from interest on (or, in the case of intangibles taxes, the value of
its assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. The Fund will not seek to satisfy any
threshold or reporting requirements that may apply in particular taxing
jurisdictions, although the Fund may in its sole discretion provide relevant
information to shareholders.
The Fund will be required to report to the Internal Revenue Service (the "IRS")
all taxable distributions to shareholders, as well as gross proceeds from the
redemption or exchange of Fund shares, except in the case of certain exempt
recipients, i.e., corporations and certain other investors distributions to
which are exempt from the information reporting provisions of the Code. Under
the backup withholding provisions of Code Section 3406 and applicable Treasury
regulations, all such reportable distributions and proceeds may be subject to
backup withholding of federal income tax at the rate of 31% 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. A Fund may refuse to
accept an application that does not contain any required taxpayer identification
number or certification that the number provided is correct. If the backup
withholding provisions are applicable, any such distributions and proceeds,
whether taken in cash or reinvested in shares, will be reduced by the amounts
required to be withheld. Any amounts withheld may be credited against a
shareholder's U.S. federal income tax liability. Investors should consult their
tax advisers about the applicability of the backup withholding provisions.
Different tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions and certain
prohibited transactions, is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
Limitations imposed by the Code on regulated investment companies like the Fund
may restrict the Fund's ability to enter into foreign currency positions and
foreign currency forward contracts.
Certain forward foreign currency transactions undertaken by the Fund may cause
the Fund to recognize gains or losses from marking to market even though its
positions have not been sold or terminated and affect the character as long-term
or short-term (or, in the case of certain foreign currency-related forward
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<PAGE>
contracts, as ordinary income or loss) and timing of some capital gains and
losses realized by the Fund. Also, certain of the Fund's losses on its
transactions involving forward contracts and/or offsetting or successor
portfolio positions may be deferred rather than being taken into account
currently in calculating the Fund's taxable income or gains. Certain of such
transactions may also cause the Fund to dispose of investments sooner than would
otherwise have occurred. These transactions may therefore affect the amount,
timing and character of the Fund's distributions to shareholders. Certain of the
applicable tax rules may be modified if the Fund is eligible and chooses to make
one or more of certain tax elections that may be available. The Fund will take
into account the special tax rules (including consideration of available
elections) applicable to forward contracts in order to seek to minimize any
potential adverse tax consequences.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies and financial
institutions. Dividends, capital gain distributions and ownership of or gains
realized on the redemption (including an exchange) of shares of the Fund may
also be subject to state and local taxes. Shareholders should consult their own
tax advisers as to the Federal, state or local tax consequences of ownership of
shares of, and receipt of distributions from, the Fund in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their Fund
investment is effectively connected will be subject to U.S. Federal income tax
treatment that is different from that described above. These investors may be
subject to non- resident alien withholding tax at the rate of 30% (or a lower
rate under an applicable tax treaty) on amounts treated as ordinary dividends
from the Fund and, unless an effective IRS Form W-8 or authorized substitute for
Form W-8 is on file, to 31% backup withholding on certain other payments from
the Fund. Non-U.S. investors should consult their tax advisers regarding such
treatment and the application of foreign taxes to an investment in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise taxes.
Provided that the Fund qualifies as a regulated investment company under the
Code, it will also not be required to pay any Massachusetts income tax.
CALCULATION OF PERFORMANCE
The annualized yield for the 30-day period ended December 31, 1996 for the Class
A and Class B shares was 3.78% and 3.29%, respectively. The average annual total
return is determined separately for each class of shares at December 31, 1996,
with all distributions reinvested in shares.
The average annual total return for Class A shares for the one-year period ended
December 31, 1996 and from commencement of operations on February 1, 1994 was
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7.83% and 8.15%, respectively. The average annual total return for Class B
shares for the one-year period ended December 31, 1996 and from commencement of
operations on February 1, 1994 was 7.65% and 8.45%, respectively.
Total return is computed by finding the average annual compounded rate of return
over the 1 year, 5 year and 10 year periods that would equate the initial amount
invested to the ending redeemable value according to the following formula:
n _____
T = \ /ERV/P - 1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment made at
the beginning of the 1-year, 5-year and life of fund periods.
Because each class has its own sales charge and fee structure, the classes have
different performance results. In the case of Class A or Class B shares, this
calculation assumes the maximum sales charge is included in the initial
investment or the CDSC is applied at the end of the period, respectively. This
calculation assumes that all dividends and distributions are reinvested at net
asset value on the reinvestment dates during the period. The "distribution rate"
is determined by annualizing the result of dividing the declared dividends of
the Fund during the period stated by the maximum offering price or net asset
value at the end of the period. Excluding the Fund's sales charge from the
distribution rate produces a higher rate.
In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Cumulative total returns may be quoted as a percentage or
as a dollar amount, and may be calculated for a single investment, a series of
investments and/or a series of redemptions over any time period. Total returns
may be quoted with or without taking the Fund's sales charge on Class A shares
or the CDSC on Class B shares into account. Excluding the Fund's sales charge on
Class A shares and the CDSC on Class B shares from a total return calculation
produces a higher total return figure.
The Fund's yield is computed by dividing net investment income per share
determined for a 30-day period by the maximum offering price per share (which
includes the full sales charge, if applicable) on the last day of the period,
according to the following standard formula:
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6
Yield = 2 ( [ ( a - b ) + 1 ] - 1 )
-----
cd
Where:
a = dividends and interest earned during the period.
b = net expenses accrued during the period.
c = the average daily number of fund shares outstanding during the period
that would be entitled to receive dividends.
d = the maximum offering price per share on the last day of the period
(NAV where applicable).
From time to time, in reports and promotional literature, the Fund's total
return and/or yield will be compared to indices of mutual funds such as Lipper
Analytical Services, Inc.'s "Lipper - Mutual Performance Analysis," a monthly
publication which tracks net assets, total return and yield on mutual funds in
the United States. Ibottson and Associates, CDA Weisenberger and F.C. Towers are
also used for comparison purposes, as well as the Russell and Wilshire Indices.
Performance rankings and ratings reported periodically in national financial
publications such as MONEY MAGAZINE, FORBES, BUSINESS WEEK, THE WALL STREET
JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRON'S may also be
utilized. The Fund's promotional and sales literature may reference to the
Fund's "beta". Beta is a reflection of the market related risk of the Fund by
showing how responsive the Fund is to the market.
The performance of the Fund is not fixed or guaranteed. Performance quotations
should not be considered to be representations of performance of the Fund for
any period in the future. The performance of the Fund is a function of many
factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performance.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by the Adviser pursuant to
recommendations made by an investment committee of the Adviser which consists of
officers and directors of the Adviser and affiliates and Trustees who are
interested persons of the Fund. Orders for purchases and sales of securities are
placed in a manner which, in the opinion of the Adviser, will offer the best
price and market for the execution of each such transaction. Purchases from
underwriters of portfolio securities may include a commission or commissions
paid by the issuer and transactions with dealers serving as market makers to
reflect a "spread." Debt securities are generally traded on a net basis through
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dealers acting for their own account as principals and not as brokers; no
brokerage commissions are payable on these transactions.
In the U.S. and in some other countries, debt securities are traded principally
in the over-the-counter market on a net basis through dealers acting for their
own account and not as brokers. 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.
This policy governs the selection of brokers and dealers and the market in which
a transaction is executed. Consistent with the foregoing primary policy, the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
and other policies that the Trustees may determine, the Adviser may consider
sales of shares of the Fund as a factor in the selection of broker-dealers to
execute the Fund's portfolio transactions.
To the extent consistent with the foregoing, the Fund will be governed in the
selection of brokers and dealers, and the negotiation of brokerage commission
rates and dealer spreads, by the reliability and quality of the services,
including primarily the availability and value of research information and to a
lesser extent statistical assistance furnished to the Adviser of the Fund, and
their value and expected contribution to the performance of the Fund. It is not
possible to place a dollar value on information and services to be received from
brokers and dealers, since it is only supplementary to the research efforts of
the Adviser. The receipt of research information is not expected to reduce
significantly the expenses of the Adviser. The research information and
statistical assistance furnished by brokers and dealers may benefit the Life
Company or other advisory clients of the Adviser, and, conversely, brokerage
commissions and spreads paid by other advisory clients of the Adviser may result
in research information and statistical assistance beneficial to the Fund. The
Fund will make no commitments to allocate portfolio transactions upon any
prescribed basis. While the Adviser's officers will be primarily responsible for
the allocation of the Fund's brokerage business, the policies in this regard
must be consistent with the foregoing and will at all times be subject to review
by the Trustees. For the period ended February 1, 1994 to May 31, 1994, the year
ended May 31, 1995 and the year ended May 31 1996, and for the period from June
1, 1996 to December 31, 1996, the Fund paid negotiated brokerage commissions of
$2,492, $189,605, $210,530 and $142,524, respectively.
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 that the
Trustees may adopt from time to time. During the period from June 1, 1996 to
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December 31, 1996, the Fund did not pay commissions as compensation to any
brokers for research services such as industry, economic and company reviews and
evaluations of securities.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of John Hancock Distributors, Inc., a broker-dealer, and
("Distributors" or "Affiliated Brokers"). Pursuant to procedures determined by
the Trustees and consistent with the above policy of obtaining best net results,
the Fund may execute portfolio transactions with or through Affiliated Brokers.
During the period from June 1, 1996 to December 31, 1996, the Fund did not
execute any portfolio transactions with Affiliated Brokers.
Distributors may act as broker for the Fund on exchange transactions, subject,
however, to the general policy of the Fund set forth above and the procedures
adopted by the Trustees pursuant to the Investment Company Act. Commissions paid
to an Affiliated Broker must be at least as favorable as those which the
Trustees believe to be contemporaneously charged by other brokers in connection
with comparable transactions involving similar securities being purchased or
sold. A transaction would not be placed with an Affiliated Broker if the Fund
would have to pay a commission rate less favorable than the Affiliated Broker's
contemporaneous charges for comparable transactions for its other most favored,
but unaffiliated, customers except for accounts for which the Affiliated Broker
acts as clearing broker for another brokerage firm, and any customers of the
Affiliated Broker not comparable to the Fund as determined by a majority of the
Trustees who are not "interested persons" (as defined in the Investment Company
Act) of the Fund, the Adviser or the Affiliated Broker. Because the Adviser,
which is affiliated with the Affiliated Brokers, has, as an investment adviser
to the Fund, the obligation to provide investment management services, which
include 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.
Other investment advisory clients advised by the Adviser may also invest in the
same securities as the Fund. When these clients buy or sell the same securities
at substantially the same time, the Adviser may average the transactions as to
price and allocate the amount of available investments in a manner which the
Adviser believes to be equitable to each client, including the Fund. In some
instances, this investment procedure may adversely affect the price paid or
received by the Fund or the size of the position obtainable for it. On the other
hand, to the extent permitted by law, the Adviser may aggregate the securities
to be sold or purchased for the Fund with those to be sold or purchased for
other clients managed by it in order to obtain best execution.
TRANSFER AGENT SERVICES
John Hancock Signature Services, Inc., 1 John Hancock Way, Suite 1000, Boston,
MA 02217-1000, a wholly-owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent for the Fund. The Fund pays an annual fee of
$19.00 for each Class A shareholder and $21.50 for each Class B shareholder,
plus certain out-of-pocket expenses. These expenses are aggregated and charged
to the Fund and allocated to each class on the basis of their relative net asset
values.
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CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Trust and Investors Bank & Trust Company, 89 South Street, Boston,
Massachusetts 02111. Under the custodian agreement, Investors Bank & Trust
Company performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Fund are Price Waterhouse LLP, 160 Federal
Street, Boston, Massachusetts 02110. Price Waterhouse audits and renders an
opinion of the Fund's annual financial statements and reviews the Fund's annual
Federal income tax return.
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APPENDIX A
RATINGS
Bonds.
Standard & Poor's Bond Ratings
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal, and differs from the highest rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
To provide more detailed indications of credit quality, the ratings AA to BBB
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
A provisional rating, indicated by "p" following a rating, is sometimes used by
Standard & Poor's. It assumes the successful completion of the project being
financed by the issuance of the bonds being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion, makes no comment on the likelihood of,
or the risk of default upon failure of, such completion.
Moody's Bond Ratings
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge". Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues. Generally speaking, the safety of
obligations of this class is so absolute that with the occasional exception of
oversupply in a few specific instances, characteristically, their market value
is affected solely by money market fluctuations.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or 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. The market
A-1
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value of Aa bonds is virtually immune to all but money market influences, with
the occasional exception of oversupply in a few specific instances.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Rating symbols may include numerical modifiers 1, 2 or 3. The numerical modifier
1 indicates that the security ranks at the high end, 2 in the mid-range, and 3
nearer the low end, of the generic category. These modifiers of rating symbols
Aa, A and Baa are to give investors a more precise indication of relative debt
quality in each of the historically defined categories.
Conditional ratings, indicated by "Con", are sometimes given when the security
for the bond depends upon the completion of some act or the fulfillment of some
condition. Such bonds, are given a conditional rating that denotes their
probably credit statute upon completion of that act or fulfillment of that
condition.
Rating symbols may include numerical modifiers 1, 2 or 3. The numerical modifier
1 indicates that the security ranks at the high end, 2 in the mid-range, and 3
nearer the low end, of the generic category. These modifiers are to give
investors a more precise indication of relative debt quality in each of the
historically defined categories.
A-2
<PAGE>
FINANCIAL STATEMENTS
F-1
<PAGE>
John Hancock Funds
Utilities
Fund
ANNUAL REPORT
December 31, 1996
TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Douglas M. Costle*
Leland O. Erdahl*
Richard A. Farrell*
Gail D. Fosler*
William F. Glavin*
Anne C. Hodsdon
Dr. John A. Moore*
Patti McGill Peterson*
John W. Pratt*
Richard S. Scipione
Edward J. Spellman*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and
Compliance Officer
CUSTODIAN
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way Ste 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
INDEPENDENT AUDITORS
Price Waterhouse LLP
160 Federal Street
Boston, Massachusetts 02110
A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief
Executive Officer, flush right, next to second paragraph.
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
Most analysts agree that the Social Security system will run out of
money by the year 2030 unless Congress makes some changes. Although it
seems a long way off, the issue is serious enough that at least one
group has already studied the problem, and experts and politicians alike
have weighed in with a slew of prescriptions. Legislative action could
be in the offing in 1997.
The problem stems from demographic and societal changes. The number
of retirees collecting Social Security is growing rapidly, while the
number of workers supporting the system is shrinking. Consider this: in
1950, there were 16 workers paying into the Social Security system for
each retiree collecting benefits. Today, there are three workers for
each retiree and by 2019 there will be two. Starting then, the Social
Security Administration estimates that the amount paid out in Social
Security benefits will start to be greater than the amount collected in
Social Security taxes. Compounding the issue is the fact that people are
retiring earlier and living longer.
The state of the system has already left many people, especially younger
and middle-aged workers, feeling insecure about Social Security. A
recent survey by the Employee Benefits Research Institute (EBRI) found
that 79% of current workers polled had little confidence in the ability
of Social Security to maintain the same level of benefits as those
received by today's retirees. Instead, they said they expect to use
their own savings or employer-sponsored pensions for their retirement.
Yet, remarkably, another EBRI survey revealed that only slightly more
than half of America's current workers are saving money for retirement.
Fewer than half own IRAs or participate in employer-sponsored pension or
savings plans.
No matter how Social Security's problems get solved, one thing is clear.
Americans need to rely on themselves for accumulating the bulk of their
retirement savings. There's no law that says you should have to reduce
your standard of living once you stop working. So we encourage you to
save all that you can now, so you can live the way you'd like to later.
Sincerely,
/S/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
BY GREGORY K. PHELPS, PORTFOLIO MANAGER
John Hancock
Utilities Fund
Rising natural gas prices and takeovers boost gas utilities;
electric and telephone utilities suffer from heightened competition
Recently, the Fund's fiscal year end changed from May to December. What
follows is a discussion of the Fund's performance for the 12 months
ended December 31, 1996.
Natural gas stocks were some of the stock market's best performers
during 1996, powered by rising natural gas prices and a wave of takeover
activity. Demand for the fuel grew as the global economy strengthened,
while supply remained tight as inventories dwindled. As a result,
natural gas prices remained at very high levels throughout the year,
neatly sidestepping the commodity's traditionally weak summer period.
More importantly, a wave of mergers and acquisitions boosted the prices
of many natural gas stocks during the year.
On the other hand, a number of factors conspired to cast a pall over
electric utility stocks. Chief among them were a volatile bond market,
worries about the potential of heightened competition among electric
providers and expectations for lower dividends and earnings. There
really wasn't very much for the electric utilities to cheer about until
late spring, when state regulators in California passed a law protecting
the state's utilities and their shareholders from footing the bill for
generating plants that are "stranded" -- rendered obsolete -- by cheaper
power sources. All told, electric utilities ended the year as one of the
stock market's worst performing sectors.
A 2 1/4" by 3 1/2" photo of the Fund's management team at bottom right.
Caption reads: "Gregory Phelps and Fund management team members Laura
Provost (l) and Beverly Cleathero (r) at Boston Edison's natural gas-
fired South Boston power plant.
"Natural gas
stocks were
some of
the stock
market's
best
performers..."
Telephone companies also struggled under the weight of increased
competition, as The Telecom Act of 1996 set the stage for long-
distance and local phone companies to enter each other's markets.
Telephone stocks suffered almost as badly as electric utility stocks
during the year.
Pie chart entitled "Portfolio Diversification" at top left hand column.
The chart is divided into six sections. Going from top right to left:
Natural Gas Utilities 43%; Diversified Operations 1%;
Telephone/Telecommunications 8%; Electric Utilities 29%; Oil & Gas 17%;
Short-Term Investments & Other 2%. Footnote below states "As a
percentage of net assets on December 31, 1996."
The Fund
emphasizes
gas companies
that are
primary
takeover
candidates.
Against that mixed backdrop, John Hancock Utilities Fund outpaced its
competitors. For the year ending December 31, 1996, the Fund's Class A
and Class B shares had total returns of 13.53% and 12.65%, respectively,
at net asset value. By comparison, the average utilities fund had a
total return of 9.87%, according to Lipper Analytical Services, Inc.1
Please see pages six and seven for longer-term performance information.
Increased focus on gas utilities
Throughout the year we increased the Fund's holdings in gas utility
stocks to 43% of net assets at year-end, from 5% at the beginning of the
year. The gas utilities have already weathered much of the regulatory
battles that are currently troubling the electric utilities, and they
are generally now on firmer footing.
Table entitled "Scorecard" at bottom of left hand column. The header for
the left hand column is "Investment"; the header for the right column is
"Recent performance .. and what's behind the numbers." The first listing
is Boston Edison followed by an up arrow and the phrase "Improving
balance sheet/strategic alliances." The second listing is "PanEnergy
Corp. followed by an up arrow and the phrase "Proposed acquisition by
Duke Power." The third listing is Frontier Corp. followed by a down
arrow and the phrase "Increased long distance competition/unexpected
write-offs." Footnote below states "See "Schedule of Investments."
Investment holdings are subject to change."
But the primary fuel for the strong performance of natural gas utility
stocks was an increase in the level of mergers and acquisitions. Many
cash-rich electric companies are acquiring gas companies for both
offensive and defensive reasons. Offensively, the electrics buy gas
companies to broaden their energy offerings, transforming themselves
from electric providers to full-service energy companies. Defensively,
many electric utilities are taking over local gas utilities to prevent
their competitors from gaining a foothold in their own markets.
During the year, the Fund placed a growing emphasis on gas companies
that are primary takeover candidates. We target gas companies with good
fundamentals, and avoid buying companies based simply on takeover
speculation. That way, the stock is likely to perform well, even if a
takeover never materializes.
Two of our largest holdings benefited from the takeover wave. Duke
Power, a North Carolina-based electric utility, recently announced its
intent to buy PanEnergy Corp. The acquisition will not only enable Duke
to provide full energy to its customers, but it will give it the
marketing savvy it needs to survive in an increasingly competitive
market. Earlier in the year, Atmos Energy announced that it would
acquire another of our holdings, United Cities Gas Co., a gas
distributor that operates in a number of different states. Once the
merger is finalized, we believe that the combined entity will also be an
attractive takeover candidate in its own right. So we continue to hang
on to the stock.
Given the distressed state of the electric utility sector, we pared them
back to 30% of the Fund's assets at the end of the year, from about 52%
at the beginning. However, there were some bright spots among our
electric holdings including Boston Edison, a company we believe is well-
positioned to be one of the winners in a more competitive environment.
Not only does Boston Edison have a solid relationship with state
regulators, but it also has an improving balance sheet and key strategic
alliances with telecommunications and natural gas companies.
Bar chart with heading "Fund Performance" at top of left hand column.
Under the heading is the footnote: "For the year ended December 31,
1996." The chart is scaled in increments of 5% from bottom to top, with
15% at the top and 0% at the bottom. Within the chart, there are three
solid bars. The first represents the 13.53% total return for John
Hancock Utilities Fund: Class A. The second represents the 12.65% total
return for John Hancock Utilities Fund: Class B. The third represents
the 9.87% total return for the average utilities fund. The footnote
below states: "Total returns for John Hancock Utilities Fund are at net
asset value with all distributions reinvested. The average utilities
fund is tracked by Lipper Analytical Services. See following two pages
for historical performance information."
Telephone utilities
Throughout the year we kept the Fund's exposure to telephone stocks
extremely light. That was a positive given the sector's weak
performance. Yet we were able to identify some companies that bucked the
trend. One of our favorites and best performers is Ameritech, which has
benefited from its growing cellular operations and its forays into
foreign markets. The company's management team -- considered to be one
of the best in the industry -- has done a good job of honing its costs.
The stock got an added boost in December when the company raised its
dividend payout rate to 6.6% based on its confidence in its future
business prospects.
Outlook
Our outlook calls for further strength in the gas utility sector. There
is currently work underway in Congress to repeal the Public Utility
Holding Company Act of 1935, a Depression-era piece of legislation
designed to break up trusts and monopolies and to prevent multi-state
utility holding companies from exercising monopoly control. Many
utilities have sat on the sidelines, wary that any acquisitions could be
in violation of this act. If the legislation is repealed, which we think
is likely, it would be a catalyst for further convergence in the utility
sector. In the electric and telephone sectors, we'll continue to focus
on owning the most competitive companies. That said, the key to utility
stocks' performance will be the direction of interest rates. While we
believe interest rates should remain stable over the next quarter or so,
the Fed's bias appears to be to raise short-term rates if the economy
begins to grow at too fast a pace.
"Our outlook
calls for
further
strength in
the gas
utility
sector."
This commentary reflects the views of the portfolio manager through the
end of the Fund's period discussed in this report. Of course, the
manager's views are subject to change as market and other conditions
warrant.
Sector investing is subject to greater risks than the market as a whole.
1Figures from Lipper Analytical Services include reinvested dividends
and do not take into account sales charges. Actual load-adjusted
performance is lower.
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the
average annual total returns for the John Hancock Utilities Fund. Total
return is a performance measure that equals the sum of all income and
capital gain distributions, assuming reinvestment of these distributions
and the change in the price of the Fund's shares, expressed as a
percentage of the Fund's net asset value per share. Performance figures
include the maximum applicable sales charge of 5% for Class A shares.
The effect of the maximum contingent deferred sales charge for Class B
shares (maximum 5% and declining to 0% over six years) is included in
Class B performance. Remember that all figures represent past
performance and are no guarantee of how the Fund will perform in the
future. Also, keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may
be worth more or less than their original cost, depending on when you
sell them. Please see the prospectus for risks associated with industry
segment investing.
CUMULATIVE TOTAL RETURNS
For the period ended December 31, 1996
ONE LIFE OF
YEAR FUND
----------- -----------
John Hancock Utilities Fund: Class A 7.83% 25.62%(1)
John Hancock Utilities Fund: Class B 7.65% 26.62%(1)
AVERAGE ANNUAL TOTAL RETURNS
For the period ended December 31, 1996
ONE LIFE OF
YEAR FUND
----------- -----------
John Hancock Utilities Fund: Class A (2) 7.83%(2) 8.15%(1)
John Hancock Utilities Fund: Class B (2) 7.65%(2) 8.45%(1)
Notes to Performance
(1) Both Class A and Class B shares started on February 1, 1994.
(2) Without the limitation of expenses, the average annualized total
returns for the one-year period and since inception would have been
7.36% and 6.45% for Class A shares and 7.18% and 6.75% for Class B
shares.
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in the John
Hancock Utilities Fund would be worth on December 31, 1996. They assume
that you either had invested on the day each class of shares started, or
that you have been invested for the most recent 10 years. In either
case, they also assume that you have reinvested all distributions. For
comparison, we've shown the same $10,000 investment in the Dow Jones
Utilities Average -- an unmanaged index that measures the performance of
the utility industry in the United States. It consists of 15 actively
traded stocks representing a cross-section of corporations involved in
various phases of the utility industry.
Utilities Fund
Class A shares
Line chart with the heading Utilities Fund: Class A, representing the
growth of a hypothetical $10,000 investment over the life of the fund.
Within the chart are three lines. The first line represents the value
of the Utilities Fund, before sales charge, and is equal to $13,227 as
of December 31, 1996. The second line represents the value of the
hypothetical $10,000 investment made in the Utilities Fund, after sales
charge, on February 1, 1994, and is equal to $12,562 as of December 31,
1996. The third line represents the Dow Jones Utilities Average Index,
and is equal to $10,288 as of December 31, 1996.
Utilities Fund
Class B shares
Line chart with the heading Utilities Fund: Class B, representing the
growth of a hypothetical $10,000 investment over the life of the fund.
Within the chart are three lines. The first line represents the value
of the Utilities Fund, before sales charge, and is equal to $12,962 as
of December 31, 1996. The second line represents the value of the
hypothetical $10,000 investment made in the Utilities Fund, after sales
charge, on February 1, 1994, and is equal to $12,662 as of December 31,
1996. The third line represents the value of the Dow Jones Utilities
Average Index, and is equal to $10,288 as of December 31, 1996.
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
John Hancock Funds - Utilities Fund
Statement of Assets and Liabilities
December 31, 1996
- -------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Note C:
Common stocks (cost - $58,801,601) $65,923,308
Preferred stocks (cost - $7,231,527) 7,316,831
Joint repurchase agreement (cost - $1,054,000) 1,054,000
Corporate savings account 457
-----------
74,294,596
Receivable for shares sold 234,316
Dividends and interest receivable 366,502
Deferred organization expenses - Note A 19,216
Other assets 1,956
-----------
Total Assets 74,916,586
- -------------------------------------------------------------------------
Liabilities:
Payable for shares repurchased 6,035
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 46,508
Accounts payable and accrued expenses 40,037
-----------
Total Liabilities 92,580
- -------------------------------------------------------------------------
Net Assets:
Capital paid-in 67,151,690
Accumulated net realized gain on investments and
foreign currency transactions 466,940
Net unrealized appreciation of investments and
foreign currency transactions 7,207,172
Distributions in excess of net investment income (1,796)
-----------
Net Assets $74,824,006
=========================================================================
Net Asset Value Per Share:
(Based on net asset values and shares of
beneficial interest outstanding - unlimited
number of shares authorized with no par value)
Class A - $23,780,675 / 2,622,735 $9.07
=========================================================================
Class B - $51,043,331 / 5,645,948 $9.04
=========================================================================
Maximum Offering Price Per Share *
Class A - ($9.07 x 105.26%) $9.55
=========================================================================
* On single retail sales of less than $50,000. On sales of $50,000 or more and
on group sales the offering price is reduced.
The Statement of Assets and Liabilities is the Fund's balance sheet and shows the
value of what the Fund owns, is due and owes on December 31, 1996. You'll also find
the net asset value and the maximum offering price per share as of that date.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
PERIOD FROM
JUNE 1, 1996
YEAR ENDED TO DECEMBER 31,
MAY 31, 1996 1996 (1)
----------- -----------
<S> <C> <C>
Investment Income:
Dividends (net of foreign withholding taxes of
$18,696 and $2,990, respectively) $3,367,327 $2,675,737
Interest 523,887 90,075
----------- -----------
3,891,214 2,765,812
----------- -----------
Expenses:
Investment management fee - Note B 492,174 298,083
Distribution/service fee - Note B
Class A 71,612 40,329
Class B 464,398 291,403
Transfer agent fee - Note B 178,131 108,816
Custodian fee 45,488 28,000
Registration and filing fees 38,641 30,081
Printing 32,211 15,903
Auditing fee 20,000 20,072
Organization expense - Note A 6,984 4,986
Trustees' fees 6,460 449
Miscellaneous 6,323 --
Financial services fee - Note B 5,780 7,984
Legal fees 3,737 877
----------- -----------
Total Expenses 1,371,939 846,983
Less Expense Reductions - Note B (302,645) (193,518)
- -------------------------------------------------------------------------------------------
Net Expenses 1,069,294 653,465
- ------------------------------------------------------------------------------------------
Net Investment Income 2,821,920 2,112,347
- ------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on
Investments
and Foreign Currency Transactions:
Net realized gain on investments sold 3,972,848 2,892,488
Net realized gain on foreign currency
transactions 3,216 --
Change in net unrealized appreciation/
depreciation of investments 2,353,641 2,410,522
Change in net unrealized appreciation/
depreciation of foreign currency transactions (5,886) 1,870
----------- -----------
Net Realized and Unrealized Gain on
Investments and Foreign Currency Transactions 6,323,819 5,304,880
- ------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Operations $9,145,739 $7,417,227
==========================================================================================
(1) Effective December 31, 1996, the fiscal year end changed from May 31 to December 31.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the periods stated.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
PERIOD FROM
YEAR ENDED YEAR ENDED JUNE 1, 1996 TO
MAY 31, 1995 MAY 31, 1996 DECEMBER 31, 1996(1)
------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $1,639,725 $2,821,920 $2,112,347
Net realized gain on investments ------------ ------------ ------------
sold and foreign currency transactions 1,432 3,976,064 2,892,488
Change in net unrealized appreciation/
depreciation of investments and
foreign currency transactions 2,466,201 2,347,755 2,412,392
------------ ------------ ------------
Net Increase in Net Assets Resulting
from Operations 4,107,358 9,145,739 7,417,227
------------ ------------ ------------
Distributions to Shareholders:
Dividends from net investment income
Class A -- ($0.3401, $0.4066
and $0.3540 per share, respectively) (493,188) (1,082,445) (858,923)
Class B -- ($0.2988, $0.3441
and $0.3052 per share, respectively) (767,459) (1,783,735) (1,614,575)
Distributions from net realized gain
on investments sold
Class A -- (none, $0.0963 and
$0.7294 per share, respectively) -- (311,873) (1,758,261)
Class B -- (none, $0.0963 and
$0.7294 per share, respectively) -- (513,330) (3,816,535)
------------ ------------ ------------
Total Distributions to
Shareholders (1,260,647) (3,691,383) (8,048,294)
------------ ------------ ------------
From Fund Share Transactions --
Net* 53,500,247 7,306,556 5,121,469
------------ ------------ ------------
Net Assets:
Beginning of period 1,225,734 57,572,692 70,333,604
------------ ------------ ------------
End of period (including undistributed
net investment income of $397,138 and
$361,151 and distributions in excess
of net investment income of $1,796,
respectively) $57,572,692 $70,333,604 $74,824,006
============ ============ ============
* Analysis of Fund Share Transactions:
PERIOD FROM
YEAR ENDED YEAR ENDED JUNE 1, 1996 TO
MAY 31, 1995 MAY 31, 1995 DECEMBER 31, 1996 (1)
-------------------------- -------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------ ------------ ------------
CLASS A
Shares sold 3,085,752 $24,890,175 4,072,162 $35,815,891 1,071,338 $9,968,327
Shares issued to shareholders in
reinvestment of distributions 49,990 400,435 107,077 941,191 265,854 2,397,803
------------ ------------ ------------ ------------ ------------ ------------
3,135,742 25,290,610 4,179,239 36,757,082 1,337,192 12,366,130
Less shares repurchased (961,612) (7,849,867) (3,987,048) (35,252,919) (1,175,294) (10,956,893)
------------ ------------ ------------ ------------ ------------ ------------
Net increase 2,174,130 $17,440,743 192,191 $1,504,163 161,898 $1,409,237
============ ============ ============ ============ ============ ============
CLASS B
Shares sold 4,745,699 $38,182,620 2,183,807 $18,762,882 835,138 $7,777,441
Shares issued to shareholders in
reinvestment of distributions 79,202 633,888 161,956 1,417,990 489,560 4,404,386
------------ ------------ ------------ ------------ ------------ ------------
4,824,901 38,816,508 2,345,763 20,180,872 1,324,698 12,181,827
Less shares repurchased (341,569) (2,757,004) (1,656,864) (14,378,479) (904,956) (8,469,595)
------------ ------------ ------------ ------------ ------------ ------------
Net increase 4,483,332 $36,059,504 688,899 $5,802,393 419,742 $3,712,232
============ ============ ============ ============ ============ ============
(1) Effective December 31, 1996, the fiscal year end changed from May 31 to December 31.
The Statement of Changes in Net Assets shows how the value of the Fund's net assets has
changed since the end of the previous period. The difference reflects earnings less
expenses, any investment and foreign currency gains and losses, distributions paid to
shareholders, and any increase or decrease in money shareholders invested in the Fund.
The footnote illustrates the number of Fund shares sold, reinvested and repurchased,
along with the corresponding dollar value.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout the period
indicated, investment returns, key ratios and supplemental data are listed as follows:
- ----------------------------------------------------------------------------------------
YEAR ENDED MAY 31, PERIOD FROM
-------------------------------- JUNE 1, 1996 TO
1994 (1) 1995 1996 DECEMBER 31 1996(9)
-------- -------- -------- ---------------
<S> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning
of Period $8.50 $8.26 $8.48 $9.17
-------- -------- -------- --------
Net Investment Income (2) 0.12 0.44 0.41 0.30
Net Realized and Unrealized
Gain (Loss) on Investments
and Foreign Currency
Transactions (0.36) 0.12 0.79 0.68
-------- -------- -------- --------
Total from Investment
Operations (0.24) 0.56 1.20 0.98
-------- -------- -------- --------
Less Distributions:
Dividends from Net Investment
Income -- (0.34) (0.41) (0.35)
Distributions from Net Realized
Gain on Investments Sold -- -- (0.10) (0.73)
-------- -------- -------- --------
Total Distributions -- (0.34) (0.51) (1.08)
-------- -------- -------- --------
Net Asset Value, End of Period $8.26 $8.48 $9.17 $9.07
======== ======== ======== ========
Total Investment Return at
Net Asset Value (3) (2.82%)(4) 7.10% 14.44% 11.05%(4)
Total Adjusted Investment Return
at Net Asset Value (3)(5) (13.89%)(4) 6.44% 14.01% 10.78%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000's
omitted) $781 $19,229 $22,574 $23,781
Ratio of Expenses to Average
Net Assets 1.00%(6) 1.04% 1.04% 1.06%(6)
Ratio of Adjusted Expenses to
Average Net Assets (7) 12.07%(6) 1.70% 1.47% 1.51%(6)
Ratio of Net Investment Income to
Average Net Assets 4.53%(6) 5.39% 4.49% 5.44%(6)
Ratio of Adjusted Net Investment
Income (Loss) to Average Net Assets (7) (6.54%)(6) 4.73% 4.06% 4.99%(6)
Portfolio Turnover Rate 6% 98% 124% 48%
Fee Reduction Per Share (2) $0.27 $0.05 $0.04 $0.02
Average Brokerage Commission
Rate (8) N/A N/A N/A $0.0700
The Financial Highlights summarizes the impact of the following factors on a single share
for the periods indicated: the net investment income, gains (losses), distributions and total
investment returns of the Fund. It shows how the Fund's net asset value for a share has changed
since the end of the previous period. Additionally, important relationships between some items
presented in the financial statements are expressed in ratio form.
YEAR ENDED MAY 31, PERIOD FROM
-------------------------------- JUNE 1, 1996 TO
1994 (1) 1995 1996 DECEMBER 31 1996(9)
-------- -------- -------- ---------------
<S> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning
of Period $8.50 $8.25 $8.45 $9.14
-------- -------- -------- --------
Net Investment Income (2) 0.08 0.38 0.34 0.26
Net Realized and Unrealized
Gain (Loss) on Investments
and Foreign Currency
Transactions (0.33) 0.12 0.79 0.68
-------- -------- -------- --------
Total from Investment Operations (0.25) 0.50 1.13 0.94
-------- -------- -------- --------
Less Distributions:
Dividends from Net Investment
Income -- (0.30) (0.34) (0.31)
Distributions from Net Realized
Gain on Investments Sold -- -- (0.10) (0.73)
-------- -------- -------- --------
Total Distributions -- (0.30) (0.44) (1.04)
-------- -------- -------- --------
Net Asset Value, End of Period $8.25 $8.45 $9.14 $9.04
======== ======== ======== ========
Total Investment Return at
Net Asset Value (3) (2.94%)(4) 6.31% 13.68% 10.50%(4)
Total Adjusted Investment
Return at Net Asset Value (3)(5) (14.01%)(4) 5.65% 13.25% 10.23%(4)
Ratios and Supplemental Data
Net Assets, End of Period
(000's omitted) $445 $38,344 $47,759 $51,043
Ratio of Expenses to Average
Net Assets 1.72%(6) 1.71% 1.77% 1.75%(6)
Ratio of Adjusted Expenses to
Average Net Assets (7) 12.79%(6) 2.37% 2.20% 2.20%(6)
Ratio of Net Investment Income
to Average Net Assets 4.20%(6) 4.64% 3.77% 4.74%(6)
Ratio of Adjusted Net Investment
Income (Loss) to Average Net Assets (7) (6.87%)(6) 3.98% 3.34% 4.29%(6)
Portfolio Turnover Rate 6% 98% 124% 48%
Fee Reduction Per Share (2) $0.27 $0.05 $0.04 $0.02
Average Brokerage Commission Rate (8) N/A N/A N/A $0.0700
(1) Class A and Class B shares commenced operations on February 1, 1994.
(2) Based on the average of shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(4) Not annualized.
(5) An estimated total return calculation that does not take into consideration fee reductions
by the adviser during the periods shown.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Per portfolio share traded. Required for fiscal years that began September 1, 1995 or later.
(9) Effective December 31, 1996, the fiscal year end changed from May 31 to December 31.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
December 31, 1996
- ----------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of securities owned by the Fund on
December 31, 1996. It's divided into three main categories: common stocks, preferred
stocks, and short-term investments. Short-term investments, which represent the Fund's
cash position are listed last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ------------------- -------
<S> <C> <C>
COMMON STOCKS
Finance (0.04%)
Echelon International Corp. * 1,833 $28,641
------------
Oil & Gas (12.94%)
Coastal Corp. 20,000 977,500
Columbia Gas System, Inc. 12,500 795,313
El Paso Natural Gas Co. 15,000 757,500
Enron Corp. 30,000 1,293,750
Equitable Resources, Inc. 26,000 773,500
Forcenergy, Inc.* 28,100 1,018,625
Global Marine, Inc.* 50,000 1,031,250
NGC Corp. 35,100 816,075
PanEnergy Corp. 12,000 540,000
Tejas Gas Corp.* 19,000 904,875
Williams Cos., Inc. (The) 20,700 776,250
------------
9,684,638
------------
Utilities (75.12%)
AGL Resources, Inc. 47,000 992,875
Ameritech Corp. 9,500 575,938
Bay State Gas Co. 36,800 1,039,600
Bell Atlantic Corp. 14,750 955,062
Boston Edison Co. 40,000 1,075,000
Brooklyn Union Gas Co. 60,000 1,807,500
Cascade Natural Gas Corp. 21,300 362,100
Century Telephone Enterprises 17,000 524,875
CMS Energy Corp. 65,860 2,214,542
Colonial Gas Co. 41,000 871,250
Connecticut Energy Corp. 50,000 1,062,500
Connecticut Natural Gas Corp. 40,000 1,020,000
Consolidated Natural Gas Co. 12,500 690,625
Delmarva Power & Light Co. 57,800 1,177,675
Eastern Enterprises 21,000 742,875
Energen Corp. 55,000 1,663,750
Florida Progress Corp. 27,500 886,875
Frontier Corp. 35,000 791,875
GTE Corp. 14,700 668,850
Houston Industries, Inc. 53,500 1,210,437
IPALCO Enterprises, Inc. 32,250 878,813
KN Energy, Inc. 20,000 785,000
LG&E Energy Corp. 39,000 955,500
Long Island Lighting Co. 68,000 1,504,500
MDU Resources Group, Inc. 41,500 954,500
MidAmerican Energy Holdings Co. 71,800 1,139,825
National Fuel Gas Co. 34,600 1,427,250
National Power PLC, American Depositary
Receipts (United Kingdom) 25,000 846,875
New England Electric System 37,000 1,290,375
New Jersey Resources Corp. 35,000 1,023,750
NICOR, Inc. 24,000 858,000
North Carolina Natural Gas Corp. 17,000 490,875
Northwest Natural Gas Co. 30,500 732,000
NUI Corp. 52,000 1,176,500
NYNEX Corp. 30,000 1,443,750
ONEOK Inc. 36,500 1,095,000
Pacific Enterprises 75,000 2,278,125
PacifiCorp 50,000 1,025,000
People's Energy Corp. 28,000 948,500
Piedmont Natural Gas Co., Inc. 35,000 818,125
Providence Energy Corp. 52,200 913,500
Public Service Enterprise Group, Inc. 49,000 1,335,250
Puget Sound Power & Light Co. 37,000 888,000
Questar Corp. 24,500 900,375
Sierra Pacific Resources 30,000 862,500
South Jersey Industries, Inc. 49,000 1,194,375
Southern Union Co.* 48,300 1,062,600
UGI Corp. 37,500 839,063
United Cities Gas Co. 57,000 1,282,500
UtiliCorp United, Inc. 47,000 1,269,000
Washington Gas Light Co. 43,500 984,187
Washington Water Power Co. 35,000 651,875
Wicor, Inc. 30,100 1,079,837
Yankee Energy System, Inc. 44,000 940,500
------------
56,210,029
------------
TOTAL COMMON STOCKS
(Cost $58,801,601) (88.10%) 65,923,308
------- ------------
PREFERRED STOCKS
Diversified Operations (0.96%)
El Paso Tennessee Pipeline Co.,
8.25%, Ser A 14,000 $715,750
------------
Oil & Gas (3.60%)
Coastal Corp., $2.125, Ser H 67,130 1,720,206
Phillips 66 Capital I, 8.24% 38,500 972,125
------------
2,692,331
------------
Utilities (5.22%)
Capita Preferred Trust, 9.06% 20,000 512,500
Kentucky Power, 8.72%, Ser A 40,000 1,015,000
MCN Michigan L.P., 9.375%, Ser A 30,000 806,250
Minnesota Power & Light Capital I,
8.05% 35,000 857,500
Sprint Corp., 8.25% 20,000 717,500
------------
3,908,750
------------
TOTAL PREFERRED STOCKS
(Cost $7,231,527) (9.78%) 7,316,831
------- ------------
<CAPTION>
PAR VALUE
INTEREST (000'S MARKET
RATE OMITTED) VALUE
-------- --------- -------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.41%)
Investment in a joint repurchase
agreement transaction with
Lehman Brothers, Inc.
Dated 12-31-96,
Due 01-02-97 (Secured by
U.S. Treasury Bonds, 7.25%
thru 12.50%, due 08-15-14
thru 08-15-22) -- Note A 6.70% $1,054 1,054,000
------------
Corporate Savings Account (0.00%)
Investors Bank and Trust Company
Daily Interest Savings Account
Current Rate 4.75% 457
------------
TOTAL SHORT-TERM INVESTMENTS (1.41%) 1,054,457
------- ------------
TOTAL INVESTMENTS (99.29%) $74,294,596
======= ============
* Non-income producing security.
The percentage shown for each investment category is the total value of that category
as a percentage of the net assets of the Fund.
See notes to financial statements.
</TABLE>
NOTES TO
FINANCIAL STATEMENTS
John Hancock Funds - Utilities Fund
NOTE A --
ACCOUNTING POLICIES
John Hancock Capital Series (the "Trust"), is an open-end management
investment company, registered under the Investment Company Act of 1940.
The Trust consists of three series portfolios: John Hancock Utilities
Fund (the "Fund"), John Hancock Independence Equity Fund and John
Hancock Special Value Fund. Until August 30, 1996, the Fund was a series
of John Hancock Strategic Series. On May 21, 1996, the Trustees voted to
change the fiscal period end from May 31 to December 31. This change is
effective December 31, 1996. The other two series of the Trust are
reported in separate financial statements. The investment objective of
the Fund is to seek current income and, to the extent consistent with
that objective, growth of income and long-term growth of capital.
The Trustees have authorized the issuance of multiple classes of shares
of the Fund, designated as Class A and Class B shares. The shares of
each class represent an interest in the same portfolio of investments of
the Fund and have equal rights to voting, redemptions, dividends, and
liquidation, except that certain expenses, subject to the approval of
the Trustees, may be applied differently to each class of shares in
accordance with current regulations of the Securities and Exchange
Commission and the Internal Revenue Service. Shareholders of a class
which bears distribution and service expenses under terms of a
distribution plan have exclusive voting rights to that distribution
plan.
Significant policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued
on the basis of market quotations, valuations provided by independent
pricing services or, at fair value as determined in good faith in
accordance with procedures approved by the Trustees. Short-term debt
instruments maturing within 60 days are valued at amortized cost which
approximates market value. All portfolio transactions initially
expressed in terms of foreign currencies have been translated into U.S.
dollars as described in "Foreign Currency Translation" below.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other
registered investment companies having a management contract with John
Hancock Advisers, Inc. (the "Adviser"), a wholly-owned subsidiary of The
Berkeley Financial Group, may participate in a joint repurchase
agreement transaction. Aggregate cash balances are invested in one or
more repurchase agreements, whose underlying securities are obligations
of the U.S. government and/or its agencies. The Fund's custodian bank
receives delivery of the underlying securities for the joint account on
the Fund's behalf. The Adviser is responsible for ensuring that the
agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the
date of purchase, sale or maturity. Net realized gains and losses on
sales of investments are determined on the identified cost basis.
Capital gains realized on some foreign securities are subject to foreign
taxes and are accrued, as applicable.
FEDERAL INCOME TAXES The Fund's policy is to comply with the
requirements of the Internal Revenue Code that are applicable to
regulated investment companies and to distribute all its taxable income,
including any net realized gain on investments, to its shareholders.
Therefore, no federal income tax provision is required. Additionally,
net capital losses of $759,613, attributable to securities transactions
incurred after October 31, 1996 are treated as arising on the first day
(January 1, 1997) of the Fund's next taxable year.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment
securities is recorded on the ex-dividend date, or, in the case of some
foreign securities, on the date thereafter when the Fund is made aware
of the dividend. Interest income on investment securities is recorded on
the accrual basis. Foreign income may be subject to foreign withholding
taxes which are accrued as applicable.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions
are determined in conformity with income tax regulations, which may
differ from generally accepted accounting principles. Dividends paid by
the Fund with respect to each class of shares will be calculated in the
same manner, at the same time and will be in the same amount, except for
the effect of expenses that may be applied differently to each class.
USE OF ESTIMATES The preparation of these financial statements in
accordance with generally accepted accounting principles incorporates
estimates made by management in determining the reported amounts of
assets, liabilities, revenues, and expenses of the Fund. Actual results
could differ from these estimates.
EXPENSES The majority of the expenses of the Trust are directly
identifiable to an individual fund. Expenses which are not readily
identifiable to a specific fund are allocated in such a manner as deemed
equitable, taking into consideration, among other things, the nature and
type of expense and the relative sizes of the funds.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized
gains (losses) are determined at the Fund level and allocated daily to
each class of shares based on the relative net assets of the respective
classes. Distribution and service fees, if any, are calculated daily at
the class level based on the appropriate net assets of each class and
the specific expense rate(s) applicable to each class.
ORGANIZATION EXPENSE Expenses incurred in connection with the
organization of the Fund have been capitalized and are being charged to
the Fund's operations ratably over a five-year period that began with
the commencement of investment operations of the Fund.
FOREIGN CURRENCY TRANSLATION All assets or liabilities initially
expressed in terms of foreign currencies are translated into U.S.
dollars based on London currency exchange quotations as of 5:00 p.m.,
London time, on the date of any determination of the net asset value of
the Fund. Transactions affecting statement of operations accounts and
net realized gain/(loss) on investments are translated at the rates
prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held.
Such fluctuations are included with the net realized and unrealized gain
or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales
of foreign currency, currency gains or losses realized between the trade
and settlement dates on securities transactions and the difference
between the amounts of dividends, interest, and foreign withholding
taxes recorded on the Fund's books and the U.S. dollar equivalent of the
amounts actually received or paid. Net unrealized foreign exchange gains
and losses arise from changes in the value of assets and liabilities
other than investments in securities at fiscal year end, resulting from
changes in the exchange rate.
NOTE B --
MANAGEMENT FEE AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a
monthly management fee to the Adviser for a continuous investment
program equivalent, on an annual basis, to the sum of (a) 0.70% of the
first $250,000,000 of the Fund's average daily net asset value and (b)
0.65% of the Fund's average daily net asset value in excess of
$250,000,000.
The Adviser has agreed to limit Fund expenses , including the management
fee (but not including the transfer agent fee and the 12b-1 fee), to
0.50% of the Fund's average daily net assets. Accordingly, the reduction
in the Adviser's fee amounted to $193,518 for the period ended December
31, 1996. The Adviser reserves the right to terminate this limitation in
the future.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly-owned subsidiary of the Adviser. For the period ended
December 31, 1996, JH Funds received net sales charges of $109,301 with
regard to sales of Class A shares. Out of this amount, $15,762 was
retained and used for printing prospectuses, advertising, sales
literature and other purposes, $46,618 was paid as sales commissions to
unrelated broker-dealers, and $46,921 was paid as sales commissions to
sales personnel of John Hancock Distributors, Inc. ("Distributors"),
Tucker Anthony, Incorporated ("Tucker Anthony") and Sutro & Co., Inc.
("Sutro"), all of which are broker-dealers. The Adviser's indirect
parent, John Hancock Mutual Life Insurance Company ("JHMLICo"), is the
indirect sole shareholder of Distributors and was the indirect sole
shareholder until November 29, 1996 of John Hancock Freedom Securities
Corporation and its subsidiaries, which include Tucker Anthony and
Sutro.
Class B shares which are redeemed within six years of purchase are
subject to a contingent deferred sales charge ("CDSC") at declining
rates beginning at 5.00% of the lesser of the current market value at
the time of redemption or the original purchase cost of the shares being
redeemed. Proceeds from the CDSC are paid to JH Funds and are used in
whole or in part to defray its expenses for providing distribution
related services to the Fund in connection with the sale of Class B
shares. For the period ended December 31, 1996, the contingent deferred
sales charges received by JH Funds amounted to $111,759.
In addition, to reimburse JH Funds for the services it provides as
distributors of shares of the Fund, the Fund has adopted Distribution
Plans with respect to Class A and Class B pursuant to Rule 12b-1 under
the Investment Company Act of 1940. Accordingly, the Fund will make
payments to JH Funds for distribution and service expenses, at an annual
rate not exceed 0.30% of Class A average daily net assets and 1.00% of
Class B average daily net assets to reimburse JH Funds for its
distribution and service costs. Up to a maximum of 0.25% of such
payments may be service fees as defined by the amended Rules of Fair
Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's
12b-1 payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect wholly-owned
subsidiary of JHMLICo. The Fund pays transfer agent fees based on the
number of shareholder accounts and certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for 1996
was at an annual rate of 0.01875% of the average net assets of the Fund.
Mr. Edward J. Boudreau, Jr. , Mr.Richard S. Scipione and Ms. Anne C.
Hodsdon are directors and officers of the Adviser, and its affiliates,
as well as Trustees of the Fund. The compensation of unaffiliated
Trustees is borne by the Fund. Effective with the fees paid for 1995,
the unaffiliated Trustees may elect to defer for tax purposes their
receipt of this compensation under the John Hancock Group of Funds
Deferred Compensation Plan. The Fund makes investments into other John
Hancock funds, as applicable, to cover its liability for the deferred
compensation. Investments to cover the Fund's deferred compensation
liability are recorded on the Fund's books as an other asset. The
deferred compensation liability and the related other asset are always
equal and are marked to market on a periodic basis to reflect any income
earned by the investment as well as any unrealized gains or losses. At
December 31, 1996, the Fund's investments to cover the defined
compensation liability had unrealized appreciation of $161.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other then obligations
of the U.S. government and its agencies and short-term securities,
during the period ended December 31, 1996, aggregated $34,620,599 and
$33,419,420 respectively. There were no purchases or sales of
obligations of the U.S. government and its agencies during the period
ended December 31, 1996.
The cost of investments owned at December 31, 1996 for Federal income
tax purposes was $67,111,328. Gross unrealized appreciation and
depreciation of investments aggregated $8,174,845 and $992,034,
respectively, resulting in net unrealized appreciation of $7,182,811.
NOTE D --
RECLASSIFICATION OF ACCOUNTS
During the period ended December 31, 1996, the Fund has reclassified
amounts to reflect an increase in accumulated net realized gain on
investments of $4,744, an increase in distributions in excess of net
investment income of $1,796 and a decrease in capital paid-in of $2,948.
This represents the amount necessary to report these balances on a tax
basis, excluding certain temporary differences, as of December 31, 1996.
Additional adjustments may be needed in subsequent reporting periods.
These reclassifications, which have no impact on the net asset value of
the Fund, are primarily attributable to certain differences in the
computation of distributable income and capital gains under federal tax
rules versus generally accepted accounting principles. The calculation
of net investment income per share in the financial highlights excludes
these adjustments.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of John Hancock Utilities Fund
and the Trustees of John Hancock Capital Series
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of John
Hancock Utilities Fund (the "Fund") (a series of John Hancock Capital
Series) at December 31, 1996, and the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and the significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1996 by correspondence with
the custodian, provide a reasonable basis for the opinion expressed
above.
Price Waterhouse, LLP
Boston, Massachusetts
February 7, 1997
TAX INFORMATION NOTICE (UNAUDITED)
For Federal Income Tax purposes, the following information is furnished
with respect to the taxable distributions of the Fund for its fiscal
year ended December 31, 1996.
The Fund designated a distribution to shareholders of $2,827,636 as
long-term capital gain dividends. Shareholders were mailed a 1996 U.S.
Treasury Department form 1099-DIV in January 1997 representing their
proportionate share.
U.S. Government Obligations: Income from these investments may be exempt
from certain state and local taxes. The Fund did not have any assets
invested in U.S. Treasury bonds, bills and notes at year end. The
percentage of income derived from U.S. Treasury bonds, bills and notes
was 0.52%. The Fund did not have any assets invested in obligations of
other U.S. government agencies (excluding securities issued by Federal
National Mortgage Association and Government National Mortgage
Association) at year end. The percentage of income derived from these
investments was 0.29%. For specific information on exemption provisions
in your state, consult your local state tax office or your tax adviser.
With respect to the Fund's ordinary taxable income for the fiscal year
ended December 31, 1996, 54.65% qualifies for the dividends received
deduction available to corporations.
SHAREHOLDER MEETING (UNAUDITED)
On June 28, 1996, a special meeting of John Hancock Utilities Fund was
held.
The shareholders approved an Agreement and Plan of Reorganization for
the Fund. The shareholder votes were 3,573,403 FOR, 90,454 AGAINST and
364,954 ABSTAINING.
The shareholders elected the following Trustees with the votes as
indicated:
NAME OF TRUSTEE FOR WITHHELD
- ---------------- -------------------------- --------------------
Dennis S. Aronowitz 4,740,358 84,034
Edward J. Boudreau, Jr. 4,739,708 84,685
Richard P. Chapman, Jr. 4,740,358 84,034
William J. Cosgrove 4,740,358 84,034
Douglas M. Costle 4,739,565 84,828
Leland O. Erdahl 4,740,048 84,344
Richard A. Farrell 4,740,358 84,034
Gail D. Fosler 4,740,358 84,034
William F. Glavin 4,739,953 84,440
Anne C. Hodsdon 4,739,708 84,685
Dr. John A. Moore 4,739,306 85,086
Patti McGill Peterson 4,738,249 86,143
John W. Pratt 4,740,358 84,034
Richard S. Scipione 4,739,786 84,607
Edward J. Spellman 4,740,358 84,034
A 1/2" by 1/2" John Hancock Funds logo in upper left hand corner of the
page. A box sectioned in quadrants with a triangle in upper left, a
circle in upper right, a cube in lower left and a diamond in lower
right. A tag line below reads: "A Global Investment Management Firm."
101 Huntington Avenue, Boston, MA 02199-7603
Bulk Rate
U.S. Postage
PAID
Randolph, MA
Permit No. 75
This report is for the information of shareholders of the John Hancock
Utilities Fund. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
A recycled logo in lower left hand corner with the caption "Printed on
Recycled Paper." 4100A 12/96
2/97
<PAGE>
- --------------------------------------------------------------------------------
John Hancock Funds
- --------------------------------------------------------------------------------
Utilities Fund
SEMIANNUAL REPORT
June 30, 1997
<PAGE>
================================================================================
TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Douglas M. Costle*
Leland O. Erdahl*
Richard A. Farrell*
Gail D. Fosler*
William F. Glavin*
Anne C. Hodsdon
Dr. John A. Moore*
Patti McGill Peterson*
John W. Pratt*
Richard S. Scipione
Edward J. Spellman*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and
Compliance Officer
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Chairman's Message
DEAR FELLOW SHAREHOLDERS:
The stock market has certainly put on a show since the start of the year. Stocks
began 1997 on the high wires, bolstered by a near-perfect "Goldilocks"
economy-not too hot, not too cold. In almost a straight shot, the Dow Jones
Industrial Average soared through the 7000 level for the first time in early
March. Just days later, stocks lost their footing and staged a month-long
free-fall in a nervous reaction to rising interest rates and economic data that
showed the economy was picking up steam. Stocks gave back all of their year's
gain and suffered their worst decline since 1990 during this period. No sooner
had real fears begun to beset investors then they were gone, erased in a
euphoric rally caused by strong earnings and no signs of inflation. By the end
of June, both the Dow and the broader Standard & Poor's 500 Stock Index had
risen by 20%-a level not many thought the market would reach all year, let alone
in six months. Bondholders have not enjoyed the same bounty, as the bond market
has mostly stayed worried about the strength of the economy, the direction of
interest rates, and the Federal Reserve's next moves to pre-empt inflation.
But the stock market's latest advance has amazed many analysts and left
them pondering their valuation models, since the market is now more expensive
than it has been in decades. It's impossible to know what will happen next in
the markets. But whether it's another strong move forward or a retreat, we
recommend keeping a long-term perspective, rather than over-focusing on the
market's daily twists and turns. While the economic backdrop seems to remain
near perfect, the one thing we believe investors should be prepared for is more
market volatility. It also makes sense to do something we've always advocated:
set realistic expectations, since, as we've also seen this year, markets can
move down as fast as they go up.
- --------------------------------------------------------------------------------
A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.
- --------------------------------------------------------------------------------
Use this time of heightened volatility as an opportunity to review your
portfolio's asset allocations with your investment professional. After such a
strong advance in equities over the last two and a half years, it could be time
to rebalance your portfolio, if you haven't already, to maintain your desired
targets of diversification. As part of that process, make sure that your
investment strategies still reflect your individual time horizons, objectives
and risk tolerance. Despite turbulence, one thing remains constant. A
well-constructed plan and a cool head can be the best tools for reaching your
financial goals.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
By Gregory K. Phelps, Portfolio Manager
John Hancock
Utilities Fund
Mergers boost telecommunications stocks;
electric utilities volatile with interest-rate moves
A wave of merger and acquisition activity propelled telecommunications stocks to
the near-top of the stock market pack during the past six months. The Federal
Communications Commission cleared the way for "baby bells" Bell Atlantic and
NYNEX to combine, long-distance provider MCI and British Telecom progressed
toward their proposed union and the rumor mill churned with speculation of a
possible marriage between telecom giant AT&T and baby bell SBC Communications.
Excited about the prospect of further merger and acquisition activity-and the
cost savings and higher profits that could potentially emerge from those
unions-investors sent tele-communications stock prices higher in the first half
of 1997.
Investors didn't share the same enthusiasm for natural gas stocks, however.
Unlike their telecommunications counterparts, natural gas companies suffered
when expected mergers between electric and natural gas utilities failed to
materialize. Moreover, lower natural gas prices resulting from a relatively warm
winter and higher interest rates kept a lid on natural gas stock prices.
"...electric
utility stocks
battled a
major bout
of volatility
during the
period..."
Meanwhile, electric utility stocks battled a major bout of volatility
during the period. Electric stocks spent the first quarter of 1997 hamstrung by
higher interest rates and falling bond prices (electric stock prices generally
correlate with price movements in the bond market). But in May and June,
electric stocks rebounded thanks to renewed investor interest due in part to
their attractive prices and relatively high dividend yields.
- --------------------------------------------------------------------------------
A 2 1/4" by 3 1/2" photo of Gregory Phelps. Caption reads "Gregory K. Phelps."
- --------------------------------------------------------------------------------
3
<PAGE>
================================================================================
John Hancock Funds - Utilities Fund
- --------------------------------------------------------------------------------
Pie chart entitled "Portfolio Diversification" at top left hand column. The
chart is divided into six sections. Going from top right to left: Natural Gas
Utilities 37%; Oil & Gas 2%; Telephone & Other Utilities 15%; Telecommunications
3%; Electric Utilities 37%; Short-Term Investments & Other 6%. Footnote below
states "As a percentage of net assets on June 30, 1997."
- --------------------------------------------------------------------------------
"...we
decreased
the Fund's
holding in
gas utility
stocks..."
Performance overview
John Hancock Utilities Fund's Class A and Class B shares had total returns of
4.87% and 4.52%, respectively, at net asset value. By comparison, the average
utilities fund had a total return of 7.55%, according to Lipper Analytical
Services, Inc.1 Please see pages six and seven for longer-term performance
information. The Fund's underperformance can be attributed to two factors.
First, we maintained a defensive stance throughout the period, keeping higher
levels of cash and a larger weighting in cushion-preferred stocks, those with
above-average dividend yields that tend to "cushion" them against price swings.
While that posture served the Fund well in the early part of 1997 when interest
rates were rising, it detracted from performance in May and June when the stock
and bond markets rallied. While we were able to capture some of the recent surge
by paring back our cash and preferred-stock positions and investing in more
telecommunications and electric companies, in hindsight our posture remained too
defensive for too long.
- --------------------------------------------------------------------------------
Table entitled "Scorecard" at bottom of left hand column. The header for the
left hand column is "Investment"; the header for the right column is "Recent
performance .. and what's behind the numbers." The first listing is "Natural gas
stocks" followed by a down arrow and the phrase "Warm winter, lack of takeovers
curtails price gains." The second listing is "Telebras" followed by an up arrow
and the phrase "Continued growth in Brazil for phone service." The third listing
is "Bell Atlantic" followed by an up arrow and the phrase "Progress toward
proposed merger with Nynex." Footnote below states "See "Schedule of
Investments." Investment holdings are subject to change."
- --------------------------------------------------------------------------------
Strategic shifts
Throughout the period, we decreased the Fund's holding in gas utility stocks to
37% of net assets at the end of June, from 43% at the end of 1996. In our view,
long-term trends continue to favor this sector, even though shorter-term
declines made us temporarily cautious. Many cash-rich electric utilities have
their eye on gas utilities as a way to broaden their energy offerings and as a
defensive tactic to prevent competitors from gaining access to their service
areas. Unfortunately, only a tiny handful of these transactions were announced
during the past six months. Given their recent weak performance, it seemed
prudent to sell some of our smaller-capitalization gas distribution utility
stocks and look for more attractive opportunities elsewhere.
We deployed the proceeds from the sale of our gas utility stocks into
selected electric utility, telecommunications companies and foreign utilities.
In the electric sector, we looked for companies with low operating risk and good
total return potential. One example is Teco Energy, a combined electric and gas
provider to a fast-growing part of Florida. The company has no nuclear exposure
and is experiencing impressive revenue growth from its unregulated
energy-related business including coal and methane production, oil and gas
exploration and production and barge transportation. Another electric favorite
was UtiliCorp United, Inc. The company is partnering with AT&T, Peco Energy and
ADT to provide one-stop-shopping for elec-
4
<PAGE>
================================================================================
John Hancock Funds - Utilities Fund
- --------------------------------------------------------------------------------
Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the year ended June 30, 1997." The chart is scaled
in increments of 2% from bottom to top, with 10% at the top and 0% at the
bottom. Within the chart, there are three solid bars. The first represents the
4.87% total return for John Hancock Utilities Fund: Class A. The second
represents the 4.52% total return for John Hancock Utilities Fund: Class B. The
third represents the 7.55% total return for the average utilities fund. The
footnote below states: "Total returns for John Hancock Utilities Fund are at net
asset value with all distributions reinvested. The average utilities fund is
tracked by Lipper Analytical Services. See the following two pages for
historical performance information."
- --------------------------------------------------------------------------------
tric, phone, gas and home security services, among others.
To our telecommunications roster we added GTE, which could be a very
attractive acquisition or partner candidate with another large
telecommunications company. But irrespective of a possible merger, we think that
the company is attractive in its own right because it is making major
investments in Internet servers and is taking steps to be a formidable
nationwide player in the long distance service. Moreover, the stock offers a
higher dividend yield than most telecom stocks. Two of our largest
telecommunications holdings were some of the best performers. NYNEX and Bell
Atlantic both did well as they proceeded toward their union.
Increase in foreign exposure
Foreign utilities have some advantages over domestic utilities. Most foreign
markets are comparatively underdeveloped, and millions of people don't have
phones or electricity. As nations modernize, many foreign utility companies
should enjoy attractive growth rates. During the period we added foreign
holdings as well as domestic utilities with foreign investments. One example is
Southern Company, which owns a large portion of Consolidated Electric Power of
Asia. In addition to its growing portfolio of foreign electric ventures, we also
like the company for its proven management team and its successful domestic
operations. We also added PowerGen, a U.K. electric generator with no nuclear
exposure and successful energy investments outside its borders.
"...electric
stocks are
priced
attractively
relative
to other
segments
of the
market..."
Outlook
By the end of June it appeared that some of the euphoria over telecommunications
merger activity was waning when the sector suffered from a bout of profit
taking. In our view, telecom stocks are unlikely to repeat their strong
performance in the second half. Therefore, we think that the most attractive
opportunities are in the electric and natural gas sectors. Because they have
underperformed the stock market as a whole, electric stocks are priced
attractively relative to other segments of the stock market, especially given
their high dividend yield. As always, the key to electric company stocks'
performance will be interest rates.
- --------------------------------------------------------------------------------
This commentary reflects the views of the portfolio manager through the end of
the Fund's period discussed in this report. Of course, the manager's views are
subject to change as market and other conditions warrant.
1Figures from Lipper Analytical Services, Inc. include reinvested dividends and
do not take into account sales charges. Actual load-adjusted performance is
lower.
5
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Utilities Fund. Total return is a performance
measure that equals the sum of all income and capital gains distributions,
assuming reinvestment of these distributions and the change in the price of the
Fund's shares, expressed as a percentage of the Fund's net asset value per
share. Performance figures include the maximum applicable sales charge of 5% for
Class A shares. The effect of the maximum contingent deferred sales charge for
Class B shares (maximum 5% and declining to 0% over six years) is included in
Class B performance. Remember that all figures represent past performance and
are no guarantee of how the Fund will perform in the future. Also, keep in mind
that the total return and share price of the Fund's investments will fluctuate.
As a result, your Fund's shares may be worth more or less than their original
cost, depending on when you sell them. Please see the prospectus for risks
associated with industry segment investing.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended June 30, 1997
ONE LIFE OF
YEAR FUND
------- --------
John Hancock Utilities Fund: Class A 7.76% 31.77%(1)
John Hancock Utilities Fund: Class B 7.56% 32.48%(1)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended June 30, 1997
ONE LIFE OF
YEAR FUND
------- --------
John Hancock Utilities Fund: Class A(2) 7.76% 8.43%(1)
John Hancock Utilities Fund: Class B(2) 7.56% 8.60%(1)
Notes to Performance
(1) Class A shares and Class B shares commenced on February 1, 1994.
(2) Without the limitation of expenses, the average annualized total returns
for the one-year period and since inception for Class A shares would have
been 7.36% and 6.93%, respectively. Without the limitation of expenses, the
average annualized total returns for the one-year period and since
inception for Class B shares would have been 7.16% and 7.10%, respectively.
Note:
Due to a printer error in the annual report dated December 31, 1996, a line was
dropped from footnote (2) of the "Notes to Performance" section on Page 6. The
complete sentence was: "Without the limitation of expenses, the average
annualized total returns for the one-year period and since inception would have
been 7.36% and 6.45% for Class A shares and 7.18% and 6.75% for Class B shares,
respectively.
6
<PAGE>
================================================================================
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
The charts on the right show how much a $10,000 investment in the John Hancock
Utilities Fund would be worth on June 30, 1997. They assume that you either had
invested on the day each class of shares started, or that you have been invested
for the most recent 10 years. In either case, they also assume that you have
reinvested all distributions. For comparison, we've shown the same $10,000
investment in the Dow Jones Utilities Average-an unmanaged index that measures
the performance of the utility industry in the United States. It consists of 15
actively traded stocks representing a cross-section of corporations involved in
various phases of the utility industry.
- --------------------------------------------------------------------------------
Line chart with the heading Utilities Fund: Class A, representing the growth of
a hypothetical $10,000 investment over the life of the fund. Within the chart
are three lines.
The first line represents the value of the hypothetical $10,000 investment made
in the Utilities Fund on February 1, 1994, before sales charge, and is equal to
$13,871 as of June 30, 1997. The second line represents the Utilities Fund after
sales charge and is equal to $13,177 as of June 30, 1997. The third line
represents the value of the Dow Jones Utilities Average Index and is equal to
$10,035 as of June 30, 1997.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Line chart with the heading Utilities Fund: Class B, representing the growth of
a hypothetical $10,000 investment over the life of the fund. Within the chart
are three lines.
The first line represents the value of the hypothetical $10,000 investment made
in the Utilities Fund on February 1, 1994, before contingent deferred sales
charge, and is equal to $13,548 as of June 30, 1997. The second line represents
the Utilities Fund after sales charge and is equal to $13,248 as of June 30,
1997. The third line represents the value of the Dow Jones Utilities Average
Index and is equal to $10,035 as of June 30, 1997.
- --------------------------------------------------------------------------------
7
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Utilities Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on June 30, 1997. You'll also
find the net asset value and the maximum offering price per share as of that
date.
Statement of Assets and Liabilities
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common Stocks (cost - $52,650,598) ......................... $ 59,563,169
Preferred Stocks (cost - $5,614,238) ....................... 5,783,050
Joint repurchase agreement (cost - $2,108,000) ............. 2,108,000
-------------
............................................................... 67,454,219
Receivable for investments sold .............................. 554,667
Receivable for shares sold ................................... 11,242
Dividends and interest receivable ............................ 402,891
Foreign tax receivable ....................................... 1,958
Deferred organization expense - Note A ....................... 14,646
Other assets ................................................. 1,956
-------------
Total Assets ..................... 68,441,579
-------------------------------------------------
Liabilities:
Payable for investments purchased ............................ 1,264,468
Payable for shares repurchased ............................... 129,562
Payable to John Hancock Advisers, Inc.
and affiliates - Note B .................................... 57,058
Accounts payable and accrued expenses ........................ 17,652
-------------
Total Liabilities ................ 1,468,740
-------------------------------------------------
Net Assets:
Capital paid-in .............................................. 57,575,958
Accumulated net realized gain on investments ................. 2,310,302
Net unrealized appreciation of investments ................... 7,081,776
Undistributed net investment income .......................... 4,803
-------------
Net Assets ....................... $ 66,972,839
=================================================
Net Asset Value Per Share:
(Based on net asset values and shares of beneficial
interest outstanding - unlimited number of shares
authorized with no par value, respectively)
Class A - $22,469,967 / 2,411,722 ............................ $ 9.32
=============================================================================
Class B - $44,502,872 / 4,790,787 ............................ $ 9.29
=============================================================================
Maximum Offering Price Per Share*
Class A - ($9.32 x 105.26%) .................................. $ 9.81
=============================================================================
* On single retail sales of less than $50,000. On sales of $50,000 or more
and on group sales the offering price is reduced.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Six months ended June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividends (net of foreign withholding taxes of $5,873) ....... $ 1,728,237
Interest ..................................................... 76,525
-----------
............................................................... 1,804,762
-----------
Expenses:
Investment management fee - Note B ......................... 244,170
Distribution and service fee - Note B
Class A .................................................. 34,166
Class B .................................................. 234,927
Transfer agent fee - Note B ................................ 99,244
Custodian fee .............................................. 20,100
Registration and filing fees ............................... 19,861
Auditing fee ............................................... 9,670
Printing ................................................... 8,489
Financial services fee - Note B ............................ 6,540
Organization expense - Note A .............................. 4,570
Trustees' fees ............................................. 2,840
Miscellaneous .............................................. 1,362
Legal fees ................................................. 678
-----------
Total Expenses ................... 686,617
-------------------------------------------------
Less Expense
Reductions - Note B .............. ( 139,899)
-------------------------------------------------
Net Expenses ..................... 546,718
-------------------------------------------------
Net Investment Income ............ 1,258,044
-------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments sold ........................ 1,843,362
Change in net unrealized appreciation/depreciation
of investments ............................................. ( 125,396)
-----------
Net Realized and Unrealized
Gain on Investments .............. 1,717,966
-------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ........ $ 2,976,010
=================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Utilities Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
YEAR ENDED JUNE 1, 1996 TO JUNE 30, 1997
MAY 31, 1996 DECEMBER 31, 1996 (1) (UNAUDITED)
------------ --------------------- -----------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ..................................................... $ 2,821,920 $ 2,112,347 $ 1,258,044
Net realized gain on investments sold and foreign currency transactions ... 3,976,064 2,892,488 1,843,362
Change in net unrealized appreciation/depreciation of investments ......... 2,347,755 2,412,392 ( 125,396)
------------ ------------ ------------
Net Increase in Net Assets Resulting from Operations ...................... 9,145,739 7,417,227 2,976,010
------------ ------------ ------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.4066, $0.3540 and $0.1865 per share, respectively) ........ ( 1,082,445) ( 858,923) ( 462,623)
Class B - ($0.3441, $0.3052 and $0.1548 per share, respectively) ........ ( 1,783,735) ( 1,614,575) ( 788,822)
Distributions from net realized gain on investments sold
Class A - ($0.0963, $0.7294 and none per share, respectively) ........... ( 311,873) ( 1,758,261) -
Class B - ($0.0963, $0.7294 and none per share, respectively) ........... ( 513,330) ( 3,816,535) -
------------ ------------ ------------
Total Distributions to Shareholders ................................... ( 3,691,383) ( 8,048,294) ( 1,251,445)
------------ ------------ ------------
From Fund Share Transactions - Net*: ........................................ 7,306,556 5,121,469 ( 9,575,732)
------------ ------------ ------------
Net Assets:
Beginning of period ....................................................... 57,572,692 70,333,604 74,824,006
------------ ------------ ------------
End of period (including undistributed net investment income
of $361,151 and distributions in excess of net investment
income of $1,796, and undistributed net investment income
of $4,803, respectively) ................................................ $ 70,333,604 $ 74,824,006 $ 66,972,839
============ ============ ============
<CAPTION>
* Analysis of Fund Share Transactions: PERIOD FROM SIX MONTHS ENDED
YEAR ENDED JUNE 1, 1996 TO JUNE 30, 1997
MAY 31, 1996 DECEMBER 31, 1996 (1) (UNAUDITED)
----------------------- ----------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Shares sold ....................................... 4,072,162 $35,815,891 1,071,338 $ 9,968,327 218,953 $ 1,989,609
Shares issued to shareholders in reinvestment
of distributions ................................ 107,077 941,191 265,854 2,397,803 44,545 406,290
--------- ----------- --------- ----------- --------- -----------
.................................................... 4,179,239 36,757,082 1,337,192 12,366,130 263,498 2,395,899
Less shares repurchased ........................... (3,987,048) ( 35,252,919) (1,175,294) ( 10,956,893) ( 474,511) ( 4,289,642)
--------- ----------- --------- ----------- --------- -----------
Net increase (decrease) ........................... 192,191 $ 1,504,163 161,898 $ 1,409,237 ( 211,013) ($ 1,893,743)
--------- ----------- --------- ----------- --------- -----------
CLASS B
Shares sold ....................................... 2,183,807 $18,762,882 835,138 $ 7,777,441 323,248 $ 2,917,298
Shares issued to shareholders in reinvestment
of distributions ................................ 161,956 1,417,990 489,560 4,404,386 67,959 617,967
--------- ----------- --------- ----------- --------- -----------
.................................................... 2,345,763 20,180,872 1,324,698 12,181,827 391,207 3,535,265
Less shares repurchased ........................... (1,656,864) ( 14,378,479) ( 904,956) ( 8,469,595) (1,246,368) ( 11,217,254)
--------- ----------- --------- ----------- --------- -----------
Net increase (decrease) ........................... 688,899 $ 5,802,393 419,742 $ 3,712,232 ( 855,161) ($ 7,681,989)
========= =========== ========= =========== ========= ===========
(1) Effective December 31, 1996, the fiscal year end changed from May 31 to December 31.
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment gains and losses, distributions paid to
shareholders, and any increase or decrease in money shareholders invested in the
Fund. The footnote illustrates the number of Fund shares sold, reinvested and
repurchased, along with the corresponding dollar value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Utilities Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED MAY 31, JUNE 1, 1996 TO SIX MONTHS ENDED
------------------------------ TO DECEMBER 31, JUNE 30, 1997
1994(1) 1995 1996 1996(9) (UNAUDITED)
-------- ------- ------- -------- -----------
<S> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period .......................... $ 8.50 $ 8.26 $ 8.48 $ 9.17 $ 9.07
------- ------- ------- ------- -------
Net Investment Income (2) ..................................... 0.12 0.44 0.41 0.30 0.18
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions ........................... ( 0.36) 0.12 0.79 0.68 0.26
------- ------- ------- ------- -------
Total from Investment Operations ............................ ( 0.24) 0.56 1.20 0.98 0.44
------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income .......................... - ( 0.34) ( 0.41) ( 0.35) ( 0.19)
Distributions from Net Realized Gain on Investments Sold ...... - - ( 0.10) ( 0.73) -
------- ------- ------- ------- -------
Total Distributions ......................................... - ( 0.34) ( 0.51) ( 1.08) ( 0.19)
------- ------- ------- ------- -------
Net Asset Value, End of Period ................................ $ 8.26 $ 8.48 $ 9.17 $ 9.07 $ 9.32
======= ======= ======= ======= =======
Total Investment Return at Net Asset Value (3) ................ ( 2.82%)(4) 7.10% 14.44% 11.05%(4) 4.87%(4)
Total Adjusted Investment Return at Net Asset Value (3, 5) .... ( 13.89%)(4) 6.44% 14.01% 10.78%(4) 4.67%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ..................... $ 781 $19,229 $22,574 $23,781 $22,470
Ratio of Expenses to Average Net Assets ....................... 1.00%(6) 1.04% 1.04% 1.06%(6) 1.10%(6)
Ratio of Adjusted Expenses to Average Net Assets (7) ...... 12.07%(6) 1.70% 1.47% 1.51%(6) 1.50%(6)
Ratio of Net Investment Income to Average Net Assets .......... 4.53%(6) 5.39% 4.49% 5.44%(6) 4.08%(6)
Ratio of Adjusted Net Investment Income (Loss)
to Average Net Assets (7) .................................. ( 6.54%)(6) 4.73% 4.06% 4.99%(6) 3.68%(6)
Portfolio Turnover Rate ...................................... 6% 98% 124% 48% 31%
Fee Reduction Per Share (2) ................................... $ 0.27 $ 0.05 $ 0.04 $ 0.02 $ 0.02
Average Brokerage Commission Rate (8) ...................... N/A N/A N/A $0.0700 $0.0700
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each periods indicated: the net investment income, gains
(losses), distributions and total investment returns of the Fund. It shows how
the Fund's net asset value for a share has changed since the end of the previous
period. Additionally, important relationships between some items presented in
the financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Utilities Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED MAY 31, JUNE 1, 1996 TO SIX MONTHS ENDED
------------------------------ TO DECEMBER 31, JUNE 30, 1997
1994(1) 1995 1996 1996(9) (UNAUDITED)
-------- ------- ------- -------- -----------
<S> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period .......................... $ 8.50 $ 8.25 $ 8.45 $ 9.14 $ 9.04
------- ------- ------- ------- -------
Net Investment Income (2) ..................................... 0.08 0.38 0.34 0.26 0.15
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions ........................... ( 0.33) 0.12 0.79 0.68 0.25
------- ------- ------- ------- -------
Total from Investment Operations ............................ ( 0.25) 0.50 1.13 0.94 0.40
------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income .......................... - ( 0.30) ( 0.34) ( 0.31) ( 0.15)
Distributions from Net Realized Gain on Investments Sold ...... - - ( 0.10) ( 0.73) -
------- ------- ------- ------- -------
Total Distributions ......................................... - ( 0.30) ( 0.44) ( 1.04) ( 0.15)
------- ------- ------- ------- -------
Net Asset Value, End of Period ................................ $ 8.25 $ 8.45 $ 9.14 $ 9.04 $ 9.29
======= ======= ======= ======= =======
Total Investment Return at Net Asset Value (3) ................ ( 2.94%)(4) 6.31% 13.68% 10.50%(4) 4.52%(4)
Total Adjusted Investment Return at Net Asset Value (3, 5) .... ( 14.01%)(4) 5.65% 13.25% 10.23%(4) 4.32%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ...................... $ 445 $38,344 $47,759 $51,043 $44,503
Ratio of Expenses to Average Net Assets ....................... 1.72%(6) 1.71% 1.77% 1.75%(6) 1.80%(6)
Ratio of Adjusted Expenses to Average Net Assets (7) .......... 12.79%(6) 2.37% 2.20% 2.20%(6) 2.20%(6)
Ratio of Net Investment Income to Average Net Assets .......... 4.20%(6) 4.64% 3.77% 4.74%(6) 3.38%(6)
Ratio of Adjusted Net Investment Income (Loss)
to Average Net Assets (7) ................................... ( 6.87%)(6) 3.98% 3.34% 4.29%(6) 2.98%(6)
Portfolio Turnover Rate ....................................... 6% 98% 124% 48% 31%
Fee Reduction Per Share (2) ................................... $ 0.27 $ 0.05 $ 0.04 $ 0.02 $ 0.02
Average Brokerage Commission Rate (8) ......................... N/A N/A N/A $0.0700 $0.0700
(1) Class A and Class B shares commenced operations on February 1, 1994.
(2) Based on the average of shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(4) Not annualized.
(5) An estimated total return calculation that does not take into consideration fee
reductions by the Adviser during the periods shown.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Per portfolio share traded. Required for fiscal years that began September 1, 1995 or later.
(9) Effective December 31, 1996, the fiscal year end changed from May 31 to December 31.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Utilities Fund
Schedule of Investments
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Utilities Fund on June 30, 1997. It's divided into three main categories: common
stocks, preferred stocks and short-term investments. Common and preferred stocks
are further broken down by industry group. Short-term investments, which
represent the Fund's "cash" position, are listed last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
COMMON STOCKS
Oil & Gas (7.87%)
Coastal Corp. (Class A) ............. 17,000 $ 904,188
Columbia Gas System, Inc. ........... 11,000 717,750
El Paso Natural Gas Co. ............. 14,500 797,500
Equitable Resources, Inc ............ 30,000 851,250
Tejas Gas Corp.* .................... 19,800 777,150
Williams Cos., Inc. (The) ........... 28,000 1,225,000
-----------
5,272,838
-----------
Telecommunications (8.69%)
Bell Atlantic Corp. ................. 14,750 1,119,156
BellSouth Corp. ..................... 20,000 927,500
GTE Corp. ........................... 20,000 877,500
NYNEX Corp. ......................... 20,000 1,152,500
SBC Communications, Inc. ............ 8,000 495,000
Telecomunicacoes Brasileiras S/A,
American Depositary Receipts
ADR (Brazil) ...................... 5,000 758,750
U.S. WEST Media * ................... 24,000 486,000
-----------
5,816,406
-----------
Utilities (72.38%)
Allegheny Power System, Inc. ........ 30,500 813,969
Bay State Gas Co. ................... 36,800 979,800
Boston Edison Co. ................... 40,000 1,055,000
Brooklyn Union Gas Co. .............. 20,000 572,500
CalEnergy Inc. * .................... 12,000 456,000
CMS Energy Corp. .................... 57,000 2,009,250
Colonial Gas Co. .................... 14,000 294,875
Connecticut Energy Corp. ............ 33,000 800,250
Consolidated Natural Gas Co. ........ 12,500 672,656
Delmarva Power & Light Co. .......... 44,000 838,750
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Utilities (continued)
DTE Energy Co. ...................... 18,500 $ 511,063
Duke Energy Corp. ................... 20,000 958,750
Eastern Enterprises ................. 27,000 936,562
Edison International ................ 22,000 547,250
EDP-Electricidade de portugal, S.A.
ADR (Portugal) * .................. 10,500 378,000
Energen Corp. ....................... 50,000 1,684,375
Florida Progress Corp. .............. 26,500 829,781
IPALCO Enterprises, Inc. ............ 29,000 906,250
KN Energy, Inc. ..................... 30,000 1,263,750
Long Island Lighting Co. ............ 70,000 1,610,000
MCN Energy Group Inc. ............... 20,000 612,500
MDU Resources Group, Inc. ........... 55,000 1,320,000
MidAmerican Energy Holdings Co. ..... 57,000 986,812
National Fuel Gas Co. ............... 36,000 1,509,750
National Power PLC, ADR
(United Kingdom) .................. 25,000 879,688
New England Electric System ......... 37,000 1,369,000
New Jersey Resources Corp. .......... 35,000 1,098,125
NICOR, Inc. ......................... 27,000 968,625
NUI Corp. ........................... 52,000 1,166,750
ONEOK Inc. .......................... 30,400 978,500
Pacific Enterprises ................. 50,000 1,681,250
PacifiCorp .......................... 50,000 1,100,000
People's Energy Corp ................ 30,000 1,123,125
Piedmont Natural Gas Co., Inc. ...... 30,000 770,625
PowerGen PLC, ADR (United Kingdom) .. 9,000 436,500
Providence Energy Corp. ............. 42,000 735,000
Public Service Enterprise Group, Inc. 32,000 800,000
Puget Sound Power & Light Co. ....... 37,000 980,500
Questar Corp. ....................... 20,000 807,500
SCANA Corp. ......................... 10,600 263,013
Sierra Pacific Resources ............ 30,000 960,000
South Jersey Industries, Inc. ....... 49,000 1,090,250
Southern Co. ........................ 31,000 678,125
Teco Energy, Inc. ................... 29,000 741,313
Unicom Corp. ........................ 20,000 445,000
United Cities Gas Co. ............... 60,000 1,410,000
UtiliCorp United, Inc. .............. 47,000 1,368,875
Washington Gas Light Co. ............ 43,500 1,092,937
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Utilities Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Utilities (continued)
Washington Water Power Co. ............ 48,500 951,812
Wicor, Inc. ........................... 30,100 $ 1,172,019
Yankee Energy System Inc. ............. 35,000 857,500
-----------
48,723,925
-----------
TOTAL COMMON STOCKS
(Cost $52,650,598) ( 88.94%) 59,563,169
------- -----------
PREFERRED STOCKS
Banks - United States (0.89%)
Chase Manhattan Corp., 10.84%, Ser C .. 19,300 594,681
Diversified Operations (1.53%)
El Paso Tennessee Pipeline Co.,
8.25%, Ser A ........................ 19,000 1,026,000
Finance (1.38%)
SI Financing Trust I, 9.50% ........... 35,000 925,313
Utilities (4.83%)
Capita Preferred Trust, 9.06% ......... 20,000 512,200
Kentucky Power, 8.72%, Ser A .......... 48,700 1,250,981
MCN Michigan L.P., 9.375%, Ser A ...... 30,000 787,500
Sprint Corp. 8.25% .................... 19,000 686,375
-----------
3,237,056
-----------
TOTAL PREFERRED STOCKS
(Cost $5,614,238) ( 8.63%) 5,783,050
------- -----------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE 000s OMITTED) VALUE
- ------------------- ---- ------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (3.15%)
Investment in a joint repurchase
agreement transaction with
Toronto Dominion Securities
USA, Inc. - Dated 06-30-97,
Due 07-01-97 (secured by
U.S. Treasury Notes, 5.625%
thru 8.125% Due 07-31-97
thru 11-15-04) - Note A .... 5.97% $ 2,108 $ 2,108,000
-----------
TOTAL SHORT-TERM INVESTMENTS ( 3.15%) 2,108,000
------- -----------
TOTAL INVESTMENTS (100.72%) $67,454,219
======= ===========
* Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Utilities Fund
(UNAUDITED)
NOTE A -
ACCOUNTING POLICIES
John Hancock Capital Series (the "Trust") is an open-end management investment
company registered under the Investment Company Act of 1940. The Trust consists
of three series portfolios: John Hancock Utilities Fund (the "Fund"), John
Hancock Independence Equity Fund and John Hancock Special Value Fund. The other
two series of the Trust are reported in separate financial statements. The
investment objective of the Fund is to seek current income and, to the extent
consistent with objective, growth of income and long-term growth of capital.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A and Class B shares. The shares of each class
represent an interest in the same portfolio of investments of the Fund and have
equal rights to voting, redemptions, dividends and liquidation, except that
certain expenses, subject to the approval of the Trustees, may be applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission and the Internal Revenue Service.
Shareholders of a class which bears distribution and service expenses under
terms of a distribution plan have exclusive voting rights to that distribution
plan.
Significant policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt instruments maturing within 60 days
are valued at amortized cost which approximates market value. All portfolio
transactions initially expressed in terms of foreign currencies have been
translated into U.S. dollars as described in "Foreign Currency Translation"
below.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more repurchase agreements, whose underlying
securities are obli-gations of the U.S. government and/or its agencies. The
Fund's custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for ensuring that
the agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis. Capital gains realized
on some foreign securities are subject to foreign taxes and are accrued as
applicable.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all its taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date or, in the case of some foreign securities,
on the date thereafter when the Fund is made aware of the dividend. Interest
income on investment securities is recorded on the accrual basis. Foreign income
may be subject to foreign withholding taxes which are accrued as applicable.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles. Dividends paid by the Fund with
respect to each class of shares will be calculated in the same manner, at the
same time and will be in the same amount, except for the effect of expenses that
may be applied differently to each class.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are determined at the Fund level and allocated daily to each class of
shares based on the relative net assets of the respective classes. Distribution
and service fees, if any, are calculated daily at the class level based on the
appropriate net assets of each class and the specific expense rate(s) applicable
to each class.
14
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Utilities Fund
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the funds.
ORGANIZATION EXPENSE Expenses incurred in connection with the organization of
the Fund have been capitalized and are being charged to the Fund's operations
ratably over a five-year period that began with the commencement of investment
operations of the Fund.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues
and expenses of the Fund. Actual results could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. The Fund had no borrowing
activity for the period ended June 30, 1997.
FOREIGN CURRENCY TRANSLATION All assets or liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 p.m., London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain/(loss) on investments are
translated at the rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities at fiscal
year end resulting from changes in the exchange rate.
NOTE B -
MANAGEMENT FEE AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to the sum of (a) 0.70% of the first $250,000,000 of the Fund's
average daily net asset value and (b) 0.65% of the Fund's average daily net
asset value in excess of $250,000,000.
The Adviser has agreed to limit Fund expenses, including the management fee
(but not including the transfer agent fee and the 12b-1 fee), to 0.50% of the
Fund's average daily net assets. Accordingly, the reduction in the Adviser's fee
amounted to $139,899 for the period ended June 30, 1997. The Adviser reserves
the right to terminate this limitation in the future.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended June 30,
1997, JH Funds received net sales charges of $34,772 with regard to sales of
Class A shares. Out of this amount, $5,333 was retained and used for printing
prospectuses, advertising, sales literature and other purposes, $14,132 was paid
as sales commissions to unrelated broker-dealers, and $15,307 was paid as sales
commissions to sales personnel of John Hancock Distributors, Inc.
("Distributors"), a related broker-dealer. The Adviser's indirect parent, John
Hancock Mutual Life Insurance Company ("JHMLICo"), is the indirect sole
shareholder of Distributors.
Class B shares which are redeemed within six years of purchase are subject
to a contingent deferred sales charge ("CDSC") at declining rates beginning at
5.00% of the lesser of the current market value at the time of redemption or the
original purchase cost of the shares being redeemed. Proceeds from the CDSC are
paid to JH Funds and are used
15
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Utilities Fund
in whole or in part to defray its expenses for providing distribution related
services to the Fund in connection with the sale of Class B shares. For the
period ended June 30, 1997, the contingent deferred sales charges received by JH
Funds amounted to $117,297.
In addition, to reimburse JH Funds for the services it provides as
distributors of shares of the Fund, the Fund has adopted Distribution Plans with
respect to Class A and Class B pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments to JH Funds for
distribution and service expenses, at an annual rate not to exceed 0.30% of
Class A average daily net assets and 1.00% of Class B average daily net assets
to reimburse JH Funds for its distribution and service costs. Up to a maximum of
0.25% of such payments may be service fees as defined by the amended Rules of
Fair Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), a wholly owned subsidiary of JHMLICo. The
Fund pays transfer agent fees based on the number of shareholder accounts and
certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for the period is
at an annual rate of 0.01875% of the average net assets of the Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S.
Scipione are trustees and/or officers of the Adviser and its affiliates, as well
as Trustees of the Fund. The compensation of unaffiliated Trustees is borne by
the Fund. The unaffiliated Trustees may elect to defer for tax purposes their
receipt of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Fund makes investments into other John Hancock funds as
applicable, to cover its liability for the deferred compensation. Investments to
cover the Fund's deferred compensation liability are recorded on the Fund's
books as an other asset. The deferred compensation liability and the related
other asset are always equal and are marked to market on a periodic basis to
reflect any income earned by the investment as well as any unrealized gains or
losses. At June 30, 1997, the Fund's investments to cover the defined
compensation liability had unrealized appreciation of $393.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the period
ended June 30, 1997, aggregated $20,370,088 and $29,981,743, respectively. There
were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended June 30, 1997.
The cost of investments owned at June 30, 1997 for federal income tax
purposes was $60,372,836. Gross unrealized appreciation and depreciation of
investments aggregated $7,520,885 and $439,502, respectively, resulting in net
unrealized appreciation of $7,081,383.
16
<PAGE>
================================================================================
NOTES
John Hancock Funds - Utilities Fund
17
<PAGE>
================================================================================
NOTES
John Hancock Funds - Utilities Fund
18
<PAGE>
================================================================================
NOTES
John Hancock Funds - Utilities Fund
19
<PAGE>
================================================================================
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A Global Investment Management Firm U.S. Postage
PAID
101 Huntington Avenue, Boston, MA 02199-7603 Randolph, MA
1-800-225-5291 1-800-554-6713 (TDD) Permit No. 75
Internet: www.jhancock.com/funds
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock Utilities
Fund. It may be used as sales literature when preceded or accompanied by the
current prospectus, which details charges, investment objectives and operating
policies.
[RECYCLE LOGO] Printed on Recycled Paper 410SA 6/97
8/97
<PAGE>
John Hancock Growth & Income Fund
Pro-forma combined statement of assets and liabilities
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
John Hancock Pro
Growth & Income John Hancock Forma
Fund Utilities Fund Adjustments Combined
--------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Assets:
Investments at value $428,487,702 $67,454,219 $ - $495,941,921
Receivable for shares sold 825,513 11,242 - 836,755
Interest receivable 2,116 357 - 2,473
Dividend receivable 523,184 404,492 - 927,676
Deferred organization expense 0 14,646 (14,646) (f) 0
Receivable for investments sold 2,188,344 554,667 - 2,743,011
Other Assets 40,328 1,956 - 42,284
-------------- ------------- ------------- --------------
Total assets 432,067,187 68,441,579 (14,646) 500,494,120
-------------- ------------- ------------- --------------
Liabilities:
Payable for shares repurchased 135,335 129,562 - 264,897
Payable for investments purchased 4,411,519 1,264,468 - 5,675,987
Payable to John Hancock Advisers, Inc. 310,006 57,058 - 367,064
Accounts payable and accrued expenses 10,056 17,652 - 27,708
-------------- ------------- ------------- --------------
Total liabilities 4,866,916 1,468,740 - 6,335,656
-------------- ------------- ------------- --------------
Net Assets:
Capital paid-in $267,135,039 $57,575,958 (14,646) (f) $324,696,351
Accumulated net realized gain on
investments and foreign currency
transaction 39,898,334 2,310,302 - 42,208,636
Net unrealized appreciation of
investments and foreign currency
transaction 120,170,596 7,081,776 - $127,252,372
Distributions in excess of net investment
income (3,698) 0 - (3,698)
Undistributed net investment income 0 4,803 - 4,803
-------------- ------------- ------------- --------------
Net assets $427,200,271 $66,972,839 (14,646) $494,158,464
============== ============= ============= ==============
Net assets:
Growth & Income Fund
Class A $215,721,047 $ - $ 22,465,053 (a) $238,186,100
Class B 211,479,224 - 44,493,140 (a) $255,972,364
Utilities Fund
Class A - 22,469,967 (22,469,967) (a) 0
Class B - 44,502,872 (44,502,872) (a) 0
-------------- ------------- --------------
$427,200,271 $66,972,839 $0 $494,158,464
============== ============= ============= ==============
Shares outstanding:
Growth & Income Fund
Class A 11,293,531 - 1,176,181 (a) 12,469,712
Class B 11,037,162 - 2,322,189 (a) 13,359,351
Utilities Fund
Class A - 2,411,722 (2,411,722) (a) 0
Class B - 4,790,787 (4,790,787) (a) 0
-------------- ------------- ------------- --------------
Net asset value per share:
Growth & Income Fund
Class A $19.10 - $19.10
Class B $19.16 - $19.16
Utilities Fund
Class A - $9.32 -
Class B - $9.29 -
============== ============= ============= ==============
</TABLE>
See Notes to Pro-Forma Combined Financial Statements
<PAGE>
John Hancock Growth & Income Fund
Pro-forma combined statement of operations
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Pro
John Hancock John Hancock Forma
Growth & Income Utilities Adjustments Combined
----------------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
Investment Income:
Dividend income $ 5,445,697 $3,924,598 $ - $ 9,370,295
Interest $ 1,169,536 $ 146,391 $ - $ 1,315,927
------------ ---------- ---------------- ------------
Total 6,615,233 4,070,989 - 10,686,222
------------ ---------- ---------------- ------------
Expenses:
Investment managment fee 2,009,467 504,583 (54,062) (b) 2,459,988
Distribution / Service fee
Class A 418,477 69,307 (11,551) (c) 476,233
Class B 1,530,585 489,845 - (c) 2,020,430
Transfer agent fee (d) 593,140 194,552 - 787,692
Custodian fee 65,155 44,624 (22,000) (e) 87,779
Registration and filing fees 77,996 46,208 (23,000) (e) 101,204
Financial services fee 60,322 13,533 73,855
Auditing & Legal fees 61,476 28,696 (14,000) (e) 76,172
Organization expense 0 8,937 (8,937) (e) 0
Printing 34,251 22,418 (11,000) (e) 45,669
Directors' fee 27,416 3,233 - 30,649
Miscellaneous 10,358 1,362 (600) (e) 11,120
------------ ---------- ---------------- ------------
Total expenses 4,888,643 1,427,298 (145,150) 6,170,791
Less Expense Reductions 0 (310,292) 310,292 0
------------ ---------- ---------------- ------------
Net Expenses 4,888,643 1,117,006 165,142 6,170,791
------------ ---------- ---------------- ------------
Net investment income 1,726,590 2,953,983 (165,142) 4,515,431
------------ ---------- ---------------- ------------
Realized and Unrealized
Gain (Loss) on Investments:
Net realized gain on
investments sold 50,259,750 3,724,806 - 53,984,556
Net realized (loss)
on foreign currency transactions (2,131) 0 - (2,131)
Change in net unrealized appreciation/
(depreciation) of investments 51,149,106 1,891,832 - 53,040,938
Change in net unrealized
appreciation/(depreciation) of
foreign currency transactions 494 1,870 - 2,364
------------ ---------- ---------------- ------------
Net Realized and Unrealized
Gain on Investments and
Foreign Currency Transactions 101,407,219 5,618,508 - 107,025,726
------------ ---------- ---------------- ------------
Net Increase in Net Assets
Resulting from Operations $103,133,809 8,572,491 (165,142) 111,541,155
============ ========== ================ ============
</TABLE>
See Notes to Pro-Forma Combined Financial Statements
<PAGE>
JOHN HANCOCK GROWTH & INCOME FUND
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS - (UNAUDITED)
JUNE 30, 1997
Pro forma information is intended to provide shareholders of the John Hancock
Utilities Fund with information about the impact of the proposed merger by
indicating how the merger might have affected information had the merger been
consummated as of July 1, 1996.
The unaudited pro forma combined statements of assets and liabilities and
results of operations as of June 30, 1997, have been prepared to reflect the
merger of the John Hancock Growth & Income Fund and John Hancock Utilities Fund
after giving effect to pro forma adjustments described in the notes listed
below.
(a) Acquistion by John Hancock Growth & Income Fund of all the assets of John
Hancock Utilities Fund and issuance of John Hancock Growth & Income Fund
Class A and Class B shares in exchange for all of the the outstanding
Class A and Class B shares, repectively, of John Hancock Utilities Fund.
(b) The investment advisory fee was adjusted to reflect the application of the
fee structure which will be in effect for John Hancock Growth & Income
Fund: 0.625% of the Fund's average daily net asset value.
(c) The 12b-1 fee was adjusted to reflect the application of the fee stucture
which will be in effect for the John Hancock Growth & Income Fund: 0.25%
of Class A average daily net assets.
(d) The transfer agent fee for each of the Class A and Class B shares is the
total of the respective individual fund's transfer agent fees. The main
criteria in determining the transfer agent fees for a specific class is
the number of shareholder accounts.
(e) The actual expenses incurred by the John Hancock Growth & Income Fund and
John Hancock Utilities Fund for various expenses included on a pro forma
basis were reduced to reflect the the estimated savings arising from the
merger.
(f) The deferred organization expense of John Hancock Utilities Fund was
written off as the Fund would no longer be in existence.
<PAGE>
Schedule of Investments
June 30, 1997
The Schedule of investments is a complete list of all securities owned by the
Growth and Income Fund and the Utilities Fund combined on June 30, 1997.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
GROWTH & INCOME FUND
NUMBER OF
ISSUER DESCRIPTION SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS
Aerospace (5.57%)
General Dynamics Corp. 75,000 $5,625,000
McDonnell Douglas Corp. 133,000 9,110,500
Northrop Grumman Corp. 70,000 6,146,875
United Technologies Corp. 80,000 6,640,000
------------
27,522,375
------------
Automobile / Trucks (0.27%)
Lear Corp.* 29,700 1,317,938
------------
Banks - United States (1.99%)
Banc One Corp. 163,226 7,906,259
Providian Financial Corp.* 60,000 1,927,500
------------
9,833,759
------------
Beverages (1.03%)
PepsiCo, Inc. 135,000 5,070,938
------------
Broker Services (1.44%)
Morgan Stanley, Dean Witter, Discover & Co. 165,400 7,122,538
------------
Building (0.07%)
Morrison Knudsen Corp.* 25,000 340,625
------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
UTILITIES FUND COMBINED COMBINED
NUMBER OF NUMBER OF
ISSUER DESCRIPTION SHARES MARKET VALUE SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS
Aerospace (5.57%)
General Dynamics Corp. 75,000 $5,625,000
McDonnell Douglas Corp. 133,000 9,110,500
Northrop Grumman Corp. 70,000 6,146,875
United Technologies Corp. 80,000 6,640,000
------------
27,522,375
------------
Automobile / Trucks (0.27%)
Lear Corp.* 29,700 1,317,938
------------
Banks - United States (1.99%)
Banc One Corp. 163,226 7,906,259
Providian Financial Corp.* 60,000 1,927,500
------------
9,833,759
------------
Beverages (1.03%)
PepsiCo, Inc. 135,000 5,070,938
------------
Broker Services (1.44%)
Morgan Stanley, Dean Witter, Discover & Co. 165,400 7,122,538
------------
Building (0.07%)
Morrison Knudsen Corp.* 25,000 340,625
------------
</TABLE>
Page 1
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
GROWTH & INCOME FUND
NUMBER OF
ISSUER DESCRIPTION SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Business Services - Misc (1.63%)
Block, H & R, Inc. 250,000 8,062,500
------------
Chemicals (3.19%)
BetzDearborn, Inc. 100,000 6,600,000
Monsanto Co. 172,000 7,406,750
Sigma-Aldrich Corp. 50,000 1,753,125
------------
15,759,875
------------
Computers (8.02%)
Automatic Data Processing, Inc. 85,000 3,995,000
Cabletron Systems, Inc.* 20,000 566,250
Cadence Design Systems, Inc.* 100,000 3,350,000
Cisco Systems, Inc.* 41,300 2,772,262
Computer Associates International, Inc. 239,100 13,314,881
Computer Sciences Corp.* 81,900 5,907,037
Electronic Data Systems Corp. 25,000 1,025,000
Inso Corp.* 19,000 390,687
Oracle Corp.* 165,000 8,311,875
------------
39,632,992
------------
Consumer Products Misc. (0.58%)
Samsonite Corp.* 65,000 2,868,125
------------
Cosmetics & Personal Care (1.15%)
Gillette Co. 60,000 5,685,000
------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
UTILITIES FUND COMBINED COMBINED
NUMBER OF NUMBER OF
ISSUER DESCRIPTION SHARES MARKET VALUE SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Business Services - Misc (1.63%)
Block, H & R, Inc. 250,000 8,062,500
------------
Chemicals (3.19%)
BetzDearborn, Inc. 100,000 6,600,000
Monsanto Co. 172,000 7,406,750
Sigma-Aldrich Corp. 50,000 1,753,125
------------
15,759,875
------------
Computers (8.02%)
Automatic Data Processing, Inc. 85,000 3,995,000
Cabletron Systems, Inc.* 20,000 566,250
Cadence Design Systems, Inc.* 100,000 3,350,000
Cisco Systems, Inc.* 41,300 2,772,262
Computer Associates International, Inc. 239,100 13,314,881
Computer Sciences Corp.* 81,900 5,907,037
Electronic Data Systems Corp. 25,000 1,025,000
Inso Corp.* 19,000 390,687
Oracle Corp.* 165,000 8,311,875
------------
39,632,992
------------
Consumer Products Misc. (0.58%)
Samsonite Corp.* 65,000 2,868,125
------------
Cosmetics & Personal Care (1.15%)
Gillette Co. 60,000 5,685,000
------------
</TABLE>
Page 2
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
GROWTH & INCOME FUND
NUMBER OF
ISSUER DESCRIPTION SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Diversified Operations (1.70%)
AlliedSignal, Inc. 95,700 8,038,800
Fortune Brands, Inc. 10,000 373,125
------------
8,411,925
------------
Electronics (3.90%)
Advanced Micro Devices, Inc.* 85,000 3,060,000
Fisher Scientific International 50,000 2,375,000
General Electric Co. 120,000 7,845,000
Honeywell, Inc. 50,000 3,793,750
Novellus Systems, Inc.* 19,000 1,643,500
Oak Industries, Inc.* 20,000 575,000
------------
19,292,250
------------
Finance (8.95%)
Ahmanson, H.F. & Co. 89,000 3,827,000
American Express Co. 60,000 4,470,000
Astoria Financial Corp. 77,300 3,671,750
FIRSTPLUS Financial Group, Inc.* 100,000 3,400,000
Great Western Financial Corp. 78,200 4,203,250
Student Loan Marketing Assn. 60,000 7,620,000
TCF Financial Corp. 263,751 13,022,691
United Asset Management Corp. 142,000 4,020,375
------------
44,235,066
------------
Food (2.00%)
Archer-Daniels-Midland Co. 120,000 2,820,000
CPC International, Inc. 76,500 7,061,906
------------
9,881,906
------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
UTILITIES FUND COMBINED COMBINED
NUMBER OF NUMBER OF
ISSUER DESCRIPTION SHARES MARKET VALUE SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Diversified Operations (1.70%)
AlliedSignal, Inc. 95,700 8,038,800
Fortune Brands, Inc. 10,000 373,125
------------
8,411,925
------------
Electronics (3.90%)
Advanced Micro Devices, Inc.* 85,000 3,060,000
Fisher Scientific International 50,000 2,375,000
General Electric Co. 120,000 7,845,000
Honeywell, Inc. 50,000 3,793,750
Novellus Systems, Inc.* 19,000 1,643,500
Oak Industries, Inc.* 20,000 575,000
------------
19,292,250
------------
Finance (8.95%)
Ahmanson, H.F. & Co. 89,000 3,827,000
American Express Co. 60,000 4,470,000
Astoria Financial Corp. 77,300 3,671,750
FIRSTPLUS Financial Group, Inc.* 100,000 3,400,000
Great Western Financial Corp. 78,200 4,203,250
Student Loan Marketing Assn. 60,000 7,620,000
TCF Financial Corp. 263,751 13,022,691
United Asset Management Corp. 142,000 4,020,375
------------
44,235,066
------------
Food (2.00%)
Archer-Daniels-Midland Co. 120,000 2,820,000
CPC International, Inc. 76,500 7,061,906
------------
9,881,906
------------
</TABLE>
Page 3
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
GROWTH & INCOME FUND
NUMBER OF
ISSUER DESCRIPTION SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Instruments - Scientific (0.45%)
Millipore Corp. 50,000 2,200,000
------------
Insurance (8.89%)
Ace, Ltd. (Bermuda) 100,000 7,387,500
CapMAC Holdings Inc. 140,000 4,707,500
CMAC Investment Corp. 60,000 2,865,000
Executive Risk Inc. 26,100 1,357,200
Financial Security Assurance Holdings Ltd. 54,600 2,125,988
Leucadia National Corp. 50,000 1,546,875
Lincoln National Corp. 28,800 1,854,000
Mercury General Corp. 10,000 727,500
Progressive Corp. 187,500 16,312,500
Travelers Group, Inc. 80,000 5,045,000
------------
43,929,063
------------
Leisure (1.55%)
Eastman Kodak Co. 100,000 7,675,000
------------
Media (0.80%)
Central Newspapers, Inc. (Class A) 55,400 3,968,025
------------
Medical (8.63%)
Baxter International, Inc. 120,000 6,270,000
Columbia/HCA Healthcare Corp. 45,600 1,792,650
Lilly (Eli) & Co. 100,000 10,931,250
Manor Care, Inc. 25,000 815,625
Schering-Plough Corp. 200,000 9,575,000
Warner-Lambert Co. 70,000 8,697,500
Wellpoint Health Networks, Inc.* 100,000 4,587,500
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
UTILITIES FUND COMBINED COMBINED
NUMBER OF NUMBER OF
ISSUER DESCRIPTION SHARES MARKET VALUE SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Instruments - Scientific (0.45%)
Millipore Corp. 50,000 2,200,000
------------
Insurance (8.89%)
Ace, Ltd. (Bermuda) 100,000 7,387,500
CapMAC Holdings Inc. 140,000 4,707,500
CMAC Investment Corp. 60,000 2,865,000
Executive Risk Inc. 26,100 1,357,200
Financial Security Assurance Holdings Ltd. 54,600 2,125,988
Leucadia National Corp. 50,000 1,546,875
Lincoln National Corp. 28,800 1,854,000
Mercury General Corp. 10,000 727,500
Progressive Corp. 187,500 16,312,500
Travelers Group, Inc. 80,000 5,045,000
------------
43,929,063
------------
Leisure (1.55%)
Eastman Kodak Co. 100,000 7,675,000
------------
Media (0.80%)
Central Newspapers, Inc. (Class A) 55,400 3,968,025
------------
Medical (8.63%)
Baxter International, Inc. 120,000 6,270,000
Columbia/HCA Healthcare Corp. 45,600 1,792,650
Lilly (Eli) & Co. 100,000 10,931,250
Manor Care, Inc. 25,000 815,625
Schering-Plough Corp. 200,000 9,575,000
Warner-Lambert Co. 70,000 8,697,500
Wellpoint Health Networks, Inc.* 100,000 4,587,500
</TABLE>
Page 4
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
GROWTH & INCOME FUND
NUMBER OF
ISSUER DESCRIPTION SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
------------
42,669,525
------------
Mortgage Banking (2.53%)
Fannie Mae 165,000 7,198,125
Federal Home Loan Mortgage Corp. 112,000 3,850,000
Money Store, Inc. (The) 50,000 1,434,375
------------
12,482,500
------------
Oil & Gas (5.55%)
Amerada Hess Corp. 20,000 1,111,250
ENI S.p.A., American Depositary
Receipt (ADR), (Italy) 50,000 2,843,750
Exxon Corp. 60,000 3,690,000
Mobil Corp. 88,000 6,149,000
Phillips Petroleum Co. 150,000 6,562,500
Tosco Corp. 60,000 1,796,250
Coastal Corp. (Class A)
Columbia Gas System, Inc.
El Paso Natural Gas Co.
Equitable Resources, Inc
Tejas Gas Corp.*
Williams Cos., Inc. (The)
------------
22,152,750
------------
Paper & Paper Products (1.01%)
Kimberly-Clark Corp. 100,000 4,975,000
------------
Pollution Control (0.30%)
US Filter Corp.* 55,000 1,498,750
------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
UTILITIES FUND COMBINED COMBINED
NUMBER OF NUMBER OF
ISSUER DESCRIPTION SHARES MARKET VALUE SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
------------
42,669,525
------------
Mortgage Banking (2.53%)
Fannie Mae 165,000 7,198,125
Federal Home Loan Mortgage Corp. 112,000 3,850,000
Money Store, Inc. (The) 50,000 1,434,375
------------
12,482,500
------------
Oil & Gas (5.55%)
Amerada Hess Corp. 20,000 1,111,250
ENI S.p.A., American Depositary
Receipt (ADR), (Italy) 50,000 2,843,750
Exxon Corp. 60,000 3,690,000
Mobil Corp. 88,000 6,149,000
Phillips Petroleum Co. 150,000 6,562,500
Tosco Corp. 60,000 1,796,250
Coastal Corp. (Class A) 17,000 904,188 17,000 904,188
Columbia Gas System, Inc. 11,000 717,750 11,000 717,750
El Paso Natural Gas Co. 14,500 797,500 14,500 797,500
Equitable Resources, Inc 30,000 851,250 30,000 851,250
Tejas Gas Corp.* 19,800 777,150 19,800 777,150
Williams Cos., Inc. (The) 28,000 1,225,000 28,000 1,225,000
------------ ------------
5,272,838 27,425,588
------------ ------------
Paper & Paper Products (1.01%)
Kimberly-Clark Corp. 100,000 4,975,000
------------
Pollution Control (0.30%)
US Filter Corp.* 55,000 1,498,750
------------
</TABLE>
Page 5
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
GROWTH & INCOME FUND
NUMBER OF
ISSUER DESCRIPTION SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail (2.61%)
Great Atlantic & Pacific Tea Co., Inc. 32,800 891,750
Sysco Corp. 125,000 4,562,500
Wal-Mart Stores, Inc. 220,000 7,438,750
------------
12,893,000
------------
Telecommunications (5.44%)
360 Communications Co.* 107,200 1,835,800
Cable Design Technologies* 21,300 627,019
Cascade Communications Corp.* 92,000 2,541,500
Lucent Technologies, Inc. 130,200 9,382,538
Qwest Communications International Inc.* 7,100 193,475
SBC Communications, Inc. 55,000 3,403,125
Sprint Corp. 30,000 1,578,750
Telecomunicacoes Brasileiras S/A, ADR (Brazil)
U.S. West, Inc.* 300,000 6,075,000
------------
25,637,206
------------
Tobacco (2.38%)
Philip Morris Cos., Inc. 264,800 11,750,500
------------
Transport (3.51%)
Burlington Northern Santa Fe 87,000 7,819,125
CSX Corp. 92,000 5,106,000
Northwest Airlines Corp. (Class A)* 25,000 909,375
Union Pacific Corp. 50,000 3,525,000
------------
17,359,500
------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
UTILITIES FUND COMBINED COMBINED
NUMBER OF NUMBER OF
ISSUER DESCRIPTION SHARES MARKET VALUE SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail (2.61%)
Great Atlantic & Pacific Tea Co., Inc. 32,800 891,750
Sysco Corp. 125,000 4,562,500
Wal-Mart Stores, Inc. 220,000 7,438,750
------------
12,893,000
------------
Telecommunications (5.44%)
360 Communications Co.* 107,200 1,835,800
Cable Design Technologies* 21,300 627,019
Cascade Communications Corp.* 92,000 2,541,500
Lucent Technologies, Inc. 130,200 9,382,538
Qwest Communications International Inc.* 7,100 193,475
SBC Communications, Inc. 55,000 3,403,125
Sprint Corp. 30,000 1,578,750
Telecomunicacoes Brasileiras S/A, ADR (Brazil) 5,000 758,750 5,000 758,750
U.S. West, Inc.* 24,000 486,000 324,000 6,561,000
------------ ------------
1,244,750 26,881,956
------------ ------------
Tobacco (2.38%)
Philip Morris Cos., Inc. 264,800 11,750,500
------------
Transport (3.51%)
Burlington Northern Santa Fe 87,000 7,819,125
CSX Corp. 92,000 5,106,000
Northwest Airlines Corp. (Class A)* 25,000 909,375
Union Pacific Corp. 50,000 3,525,000
------------
17,359,500
------------
</TABLE>
Page 6
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
GROWTH & INCOME FUND
NUMBER OF
ISSUER DESCRIPTION SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Utilities (11.01%)
Allegheny Power System, Inc.
Bay State Gas Co.
Bell Atlantic Corp.
BellSouth Corp.
Boston Edison Co.
Brooklyn Union Gas Co.
CalEnergy Inc. *
CMS Energy Corp.
Colonial Gas Co.
Connecticut Energy Corp.
Consolidated Natural Gas Co.
Delmarva Power & Light Co.
DTE Energy Co.
Duke Energy Corp.
Eastern Enterprises
Edison International 10,000 248,750
EDP-Electricidade de Portugal,
S.A. ADR (Portugal) *
Energen Corp.
Florida Progress Corp.
GTE Corp.
IPALCO Enterprises, Inc.
KN Energy, Inc.
Long Island Lighting Co.
MCN Energy Group Inc.
MDU Resources Group, Inc.
MidAmerican Energy Holdings Co.
National Fuel Gas Co.
National Power PLC, ADR (United Kingdom)
New England Electric System
New Jersey Resources Corp.
NICOR, Inc.
NUI Corp.
NYNEX Corp.
ONEOK Inc.
Pacific Enterprises
PacifiCorp
People's Energy Corp.
Piedmont Natural Gas Co., Inc.
PowerGen PLC, ADR (Great Britain)
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
UTILITIES FUND COMBINED COMBINED
NUMBER OF NUMBER OF
ISSUER DESCRIPTION SHARES MARKET VALUE SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Utilities (11.01%)
Allegheny Power System, Inc. 30,500 813,969 30,500 813,969
Bay State Gas Co. 36,800 979,800 36,800 979,800
Bell Atlantic Corp. 14,750 1,119,156 14,750 1,119,156
BellSouth Corp. 20,000 927,500 20,000 927,500
Boston Edison Co. 40,000 1,055,000 40,000 1,055,000
Brooklyn Union Gas Co. 20,000 572,500 20,000 572,500
CalEnergy Inc. * 12,000 456,000 12,000 456,000
CMS Energy Corp. 57,000 2,009,250 57,000 2,009,250
Colonial Gas Co. 14,000 294,875 14,000 294,875
Connecticut Energy Corp. 33,000 800,250 33,000 800,250
Consolidated Natural Gas Co. 12,500 672,656 12,500 672,656
Delmarva Power & Light Co. 44,000 838,750 44,000 838,750
DTE Energy Co. 18,500 511,063 18,500 511,063
Duke Energy Corp. 20,000 958,750 20,000 958,750
Eastern Enterprises 27,000 936,562 27,000 936,562
Edison International 22,000 547,250 32,000 796,000
EDP-Electricidade de Portugal,
S.A. ADR (Portugal) * 10,500 378,000 10,500 378,000
Energen Corp. 50,000 1,684,375 50,000 1,684,375
Florida Progress Corp. 26,500 829,781 26,500 829,781
GTE Corp. 20,000 877,500 20,000 877,500
IPALCO Enterprises, Inc. 29,000 906,250 29,000 906,250
KN Energy, Inc. 30,000 1,263,750 30,000 1,263,750
Long Island Lighting Co. 70,000 1,610,000 70,000 1,610,000
MCN Energy Group Inc. 20,000 612,500 20,000 612,500
MDU Resources Group, Inc. 55,000 1,320,000 55,000 1,320,000
MidAmerican Energy Holdings Co. 57,000 986,812 57,000 986,812
National Fuel Gas Co. 36,000 1,509,750 36,000 1,509,750
National Power PLC, ADR (United Kingdom) 25,000 879,688 25,000 879,688
New England Electric System 37,000 1,369,000 37,000 1,369,000
New Jersey Resources Corp. 35,000 1,098,125 35,000 1,098,125
NICOR, Inc. 27,000 968,625 27,000 968,625
NUI Corp. 52,000 1,166,750 52,000 1,166,750
NYNEX Corp. 20,000 1,152,500 20,000 1,152,500
ONEOK Inc. 30,400 978,500 30,400 978,500
Pacific Enterprises 50,000 1,681,250 50,000 1,681,250
PacifiCorp 50,000 1,100,000 50,000 1,100,000
People's Energy Corp. 30,000 1,123,125 30,000 1,123,125
Piedmont Natural Gas Co., Inc. 30,000 770,625 30,000 770,625
PowerGen PLC, ADR (Great Britain) 9,000 436,500 9,000 436,500
</TABLE>
Page 7
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
GROWTH & INCOME FUND
NUMBER OF
ISSUER DESCRIPTION SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Providence Energy Corp.
Public Service Enterprise Group, Inc.
Puget Sound Power & Light Co.
Questar Corp.
SBC Communications, Inc.
SCANA Corp.
Sierra Pacific Resources
South Jersey Industries, Inc.
Southern Co.
Teco Energy, Inc.
Unicom Corp.
United Cities Gas Co.
UtiliCorp United, Inc.
Washington Gas Light Co.
Washington Water Power Co.
Wicor, Inc.
Williams Cos., Inc. (The) 25,000 1,093,750
------------
1,342,500
------------
TOTAL COMMON STOCK (96.15%)
(Cost $348,646,778) 415,571,131
==============
PREFERRED STOCK
Banks - United States (0.12%)
Chase Manhattan Corp., 10.84%, Ser C
Broker Services (0.71%)
Salomon Inc. 7.625%, Ser FSA, Conv. 100,000 3,512,500
------------
Diversified Operations (0.21%)
El Paso Tennessee Pipeline Co., 8.25%, Ser A
Finance (0.19%)
SI Financing Trust I, 9.50%
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
UTILITIES FUND COMBINED COMBINED
NUMBER OF NUMBER OF
ISSUER DESCRIPTION SHARES MARKET VALUE SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Providence Energy Corp. 42,000 735,000 42,000 735,000
Public Service Enterprise Group, Inc. 32,000 800,000 32,000 800,000
Puget Sound Power & Light Co. 37,000 980,500 37,000 980,500
Questar Corp. 20,000 807,500 20,000 807,500
SBC Communications, Inc. 8,000 495,000 8,000 495,000
SCANA Corp. 10,600 263,013 10,600 263,013
Sierra Pacific Resources 30,000 960,000 30,000 960,000
South Jersey Industries, Inc. 49,000 1,090,250 49,000 1,090,250
Southern Co. 31,000 678,125 31,000 678,125
Teco Energy, Inc. 29,000 741,313 29,000 741,313
Unicom Corp. 20,000 445,000 20,000 445,000
United Cities Gas Co. 60,000 1,410,000 60,000 1,410,000
UtiliCorp United, Inc. 47,000 1,368,875 47,000 1,368,875
Washington Gas Light Co. 43,500 1,092,937 43,500 1,092,937
Washington Water Power Co. 48,500 951,812 48,500 951,812
Wicor, Inc. 30,100 1,172,019 30,100 1,172,019
Williams Cos., Inc. (The) 25,000 1,093,750
Yankee Energy System Inc. 35,000 857,500 35,000 857,500
------------ ------------
53,045,581 54,388,081
------------ ------------
TOTAL COMMON STOCK (96.15%)
(Cost $348,646,778) 59,563,169 475,134,300
============= =============
PREFERRED STOCK
Banks - United States (0.12%)
Chase Manhattan Corp., 10.84%, Ser C 19,300 594,681 19,300 594,681
------------ ------------
Broker Services (0.71%)
Salomon Inc. 7.625%, Ser FSA, Conv. 100,000 3,512,500
------------
Diversified Operations (0.21%)
El Paso Tennessee Pipeline Co., 8.25%, Ser A 19,000 1,026,000 19,000 1,026,000
------------ ------------
Finance (0.19%)
SI Financing Trust I, 9.50% 35,000 925,313 35,000 925,313
------------ ------------
</TABLE>
Page 8
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
GROWTH & INCOME FUND
NUMBER OF
ISSUER DESCRIPTION SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Utilities (0.65%)
Capita Preferred Trust, 9.06%
Kentucky Power, 8.72%, Ser A
MCN Michigan L.P., 9.375%, Ser A
Sprint Corp. 8.25%
TOTAL PREFERRED STOCK (1.88%)
(Cost $8,533,943) 3,512,500
==============
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
UTILITIES FUND COMBINED COMBINED
NUMBER OF NUMBER OF
ISSUER DESCRIPTION SHARES MARKET VALUE SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Utilities (0.65%)
Capita Preferred Trust, 9.06% 20,000 512,200 20,000 512,200
Kentucky Power, 8.72%, Ser A 48,700 1,250,981 48,700 1,250,981
MCN Michigan L.P., 9.375%, Ser A 30,000 787,500 30,000 787,500
Sprint Corp. 8.25% 19,000 686,375 19,000 686,375
------------ ------------
3,237,056 3,237,056
------------ ------------
TOTAL PREFERRED STOCK (1.88%)
(Cost $8,533,943) 5,783,050 9,295,550
============= =============
</TABLE>
<TABLE>
<CAPTION>
INTEREST PAR VALUE
ISSUER DESCRIPTION RATE (000'S OMITTED) MARKET VALUE
- ------------------------ ---------- --------------- --------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.33%)
Investment in a joint repuchase agreement
transaction with Toronto-Dominion Bank.
Dated 06-30-97, Due 07-01-97 (Secured by
U.S. Treasury Notes, 5.625% thru 8.125%
due 07-31-97 thru 11-15-04) - Note A 5.97% 9,404 9,404,000
--------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% 71
--------------
TOTAL SHORT-TERM INVESTMENTS (2.33%) 9,404,071
--------------
TOTAL INVESTMENTS (100.36%) $428,487,702
====================================
<CAPTION>
PAR VALUE PAR VALUE
ISSUER DESCRIPTION (000'S OMITTED) MARKET VALUE (000'S OMITTED) MARKET VALUE
- ------------------------ ------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.33%)
Investment in a joint repuchase agreement
transaction with Toronto-Dominion Bank.
Dated 06-30-97, Due 07-01-97 (Secured by
U.S. Treasury Notes, 5.625% thru 8.125%
due 07-31-97 thru 11-15-04) - Note A 2,108 2,108,000 11,512 11,512,000
------------- -------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% 71
-------------
TOTAL SHORT-TERM INVESTMENTS (2.33%) 2,108,000 11,512,071
------------- -------------
TOTAL INVESTMENTS (100.36%) $67,454,219 $495,941,921
======================================================================
</TABLE>
* Non-income producing security.
Parenthetical disclosure of foreign country in the security description
represents country of a foreign issuer, however, the security is U.S. dollar
denominated.
The percentage shown for each investment category is the total of that category
as a percentage of the combined net assets of each fund.
Page 9
<PAGE>
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
No change from the information set forth in Item 27 of the Registration
Statement of John Hancock Investment Trust (the "Registrant") on Form N-1A under
the Securities Act of 1933 and the Investment company Act of 1940 (File Nos.
2-10156 and 811-0560), which information is incorporated herein by reference.
ITEM 16. EXHIBITS:
1. Registrant's Amended and Restated Filed as Exhibits 1 to
Declaration of Trust dated July Registrant's Registration
1, 1996 Statement on Form N-1A and
incorporated herein by reference
to post-effective amendment no.
76 (file nos. 811-0560 and
2-10156 on September 13, 1996;
accession no.
0001010521-96-00179) ("PEA 76")
2 Amended and Restated By-Laws of Filed as Exhibit 2 to
Registrant. Registrant's Registration
Statement on Form N-1A and
incorporated herein by reference
to post-effective amendment no.
77 (file nos. 811-0560 and
2-10156 on December 20, 1996;
accession
no.0001010521-96-000224) ("PEA
77")
3 Not applicable
4 Form of Agreement and Plan of Filed herewith as Exhibit A to
reorganization between the the Proxy Statement and
Registrant and John Hancock Prospectus included as Part A of
Utilities Fund this Registration Statement.
5 Not applicable
<PAGE>
6 Investment Management Contract Filed as Exhibit 5.1 to
between the Registrant and John Registrant's Registration
Hancock Advisers, Inc. Statement on Form N-1A and
incorporated herein by reference
to post-effective amendment no.
73 (file nos. 811-0560 and
2-10156 on May 10, 1995;
accession no.
0000950135-95-001122) ("PEA 73")
7 Distribution Agreement between Filed as Exhibit 6 to PEA 73 and
the Registrant and John Hancock incorporated herein by reference.
Funds, Inc. (formerly named John
Hancock Broker Distribution
Services, Inc.)
7.1 Form of Soliciting Dealer Filed as Exhibit 6.1 to PEA 73
Agreement between John Hancock and incorporated herein by
Funds, Inc. and Selected Dealers reference.
7.2 Form of Financial Institution Filed as Exhibit 6.2 to PEA 73
Sales and Service Agreement and incorporated herein by
reference.
8 Not applicable.
9 Master Custodian Agreement Filed as Exhibit 8 to PEA 73 and
between John Hancock Mutual Funds incorporated herein by reference.
(including Registrant) and
Investors Bank & Trust Company.
10 Class A and Class B Distribution Filed as Exhibit 15 to PEA 73 and
Plans between Registrant and John incorporated herein by reference.
Hancock Funds, Inc.
11 Opinion as to legality of shares Filed herewith as Exhibit 11
and consent.
<PAGE>
12 Form of opinion as to tax matters Filed herewith as Exhibit 12
and consent.
13 Not applicable
14 Consent of Ernst & Young LLP and Filed herewith as Exhibit 14
Price Waterhouse, LLP regarding
the audited financial statements
of Registrant and John Hancock
Utilities Fund.
15 Not applicable
16 Powers of Attorney Filed as addendum to signature
pages of PEA 76 and incorporated
herein by reference.
17 Declaration of the Registrant Filed herewith as Exhibit 17.
pursuant to Rule 24f-2 under the
Investment Company Act of 1940
18 Prospectus of John Hancock Included in Part A as part of the
Utilities Fund dated May 1, 1997. combined Prospectus for Growth
and Income Fund.
8.1 Statement of Additional Filed herewith as Exhibit B to
Information of John Hancock Part B of this Registration
Utilities Fund dated May 1, 1997 Statement.
18.2 Statement of Additional Filed herewith as Exhibit B to
Information of John Hancock Part B of this Registration
Growth and Income Fund dated May Statement.
1, 1997
ITEM 17
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of a propectus which is a part of
this Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) under the Securities Act of 1933,
as amended (the "1933 Act"), the reoffering prospectus will contain the
information called for by the applicable registration form for reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston and The
Commonwealth of Massachusetts, on the 14th day of August, 1997.
JOHN HANCOCK INVESTMENT TRUST
By: *
-----------------------------
Edward J. Boudreau, Jr.
Chairman
Pursuant to the requirements of the Securities Act of 1933, the
Registration has been signed below by the following persons in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman
- ----------------------- (Principal Executive Officer)
Edward J. Boudreau, Jr.
/s/James B. Little Senior Vice President and Chief August 14, 1997
- ----------------------- Financial Officer (Principal
James B. Little Financial and Accounting Officer)
* Trustee
- -----------------------
James F. Carlin
* Trustee
- -----------------------
William J. Cunningham
* Trustee
- -----------------------
Charles F. Fretz
* Trustee
- -----------------------
Harold R. Hiser, Jr.
* Trustee
- -----------------------
Anne C. Hodsdon
* Trustee
- -----------------------
Charles L. Ladner
* Trustee
- -----------------------
Leo E. Linbeck, Jr.
* Trustee
- -----------------------
Patricia P. McCarter
<PAGE>
Signature Title Date
--------- ----- ----
* Trustee
- -----------------------
Stephen R. Pruchansky
* Trustee
- -----------------------
Richard S. Scipione
* Trustee
- -----------------------
Norman H. Smith
* Trustee
- -----------------------
John P. Toolan
*By: /s/Susan S. Newton August 14, 1997
-------------------
Susan S. Newton,
Attorney-in-Fact
</TABLE>
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as part of this Registration Statement:
Exhibit No. Description
- ----------- -----------
4. Agreement and Plan of Regorganization between the Registrant
and John Hancock Utilities Fund (filed as EXHIBIT A to Part
A of this Registration Statement).
11. Opinion as to legality of shares and consent.
12. Form of opinion as to tax matters and consent.
14. Consents of Price Waterhouse, LLP and Ernst & Young, LLP
regarding the audited financial statements and highlights of
the Registrant and John Hancock Utilities Fund.
17. Declaration of the Registrant pursuant to Rule 24f-2 under
the Investment Company Act of 1940.
August 4, 1997
John Hancock Investment Trust
on behalf of John Hancock Growth and Income Fund
101 Huntington Avenue
Boston, MA 02199
Ladies and Gentlemen:
In connection with the filing of a registration statement under the Securities
Act of 1933, as amended (the "Act"), on Form N-14, with respect to the shares of
beneficial interest of John Hancock Growth and Income Fund (the "Fund"), a
series of John Hancock Investment Trust, a Massachusetts business trust (the
"Trust"), it is the opinion of the undersigned that these shares when issued,
will be legally issued, fully paid and non-assessable.
In connection with this opinion it should be noted that the Trust is an entity
of the type generally known as a "Massachusetts business trust." Under
Massachusetts law, shareholders of a Massachusetts business trust may be held
personally liable for the obligations of the trust. However, the Trust's
Declaration of Trust disclaims shareholder liability for obligations of the
Trust and indemnifies any shareholder of the Fund, with this indemnification to
be paid solely out of the assets of the Fund. Therefore, the shareholder's risk
is limited to circumstances in which the assets of the Fund are insufficient to
meet the obligations asserted against the Fund's assets.
The undersigned hereby consents to the filing of a copy of this opinion as an
exhibit to the Trust's registration statement on Form N-14 and with the
Securities and Exchange Commission.
Sincerely,
/s/ Avery P. Maher
Avery P. Maher
Second Vice President and
Assistant Secretary
John Hancock Advisers, Inc.
DRAFT: 7/22/97
HADL
Counsellors at Law
60 State Street, Boston, Massachusetts 02109
617-526-6000 o fax 617-526-5000
December 5, 1997
Board of Trustees
John Hancock Capital Series, on behalf
of John Hancock Utilities Fund
101 Huntington Avenue
Boston, Massachusetts 02199
Board of Trustees
John Hancock Investment Trust, on behalf of
John Hancock Growth and Income Fund
101 Huntington Avenue
Boston, Massachusetts 02199
Dear Members of the Boards of Trustees:
You have requested our opinion regarding the federal income tax
consequences described below of the acquisition by John Hancock Growth and
Income Fund ("Acquiring Fund"), a series of John Hancock Investment Trust
("Trust"), of all of the assets of John Hancock Utilities Fund ("Acquired
Fund"), a series of John Hancock Capital Series ("Capital Series Trust"), in
exchange solely for (i) the assumption by Acquiring Fund of all of the
liabilities of Acquired Fund and (ii) the issuance of Class A and Class B voting
shares of beneficial interest of Acquiring Fund (the "Acquiring Fund Shares") to
Acquired Fund, followed by the distribution by Acquired Fund, in liquidation of
Washington, DC Boston, MA London, UK*
HALE AND DORR LLP INCLUDES PROFESSIONAL CORPORATIONS
*BROBECK HALE AND DORR INTERNATIONAL (AN INDEPENDENT JOINT VENTURE LAW FIRM)
<PAGE>
Acquired Fund, of the Acquiring Fund Shares to the shareholders of Acquired Fund
and the termination of Acquired Fund (the foregoing together constituting the
"reorganization" or the "transaction").
In rendering this opinion, we have examined and relied upon the facts
stated and representations made in (i) the combined prospectus for Acquiring
Fund, Acquired Fund, and certain other John Hancock mutual funds, dated May 1,
1997, (ii) the statement of additional information for Acquiring Fund, dated May
1, 1997, (iii) the statement of additional information for Acquired Fund, dated
May 1, 1997, (iv) the registration statement on Form N-14 of Acquiring Fund
relating to the transaction (the "Registration Statement") filed with the
Securities and Exchange Commission (the "SEC") on ____________, 1997, (v) the
proxy statement and prospectus relating to the transaction dated September 22,
1997 (the "Proxy Statement"), (vi) the Agreement and Plan of Reorganization,
made September 22, 1997, between Acquiring Fund and Acquired Fund (the
"Agreement"), (vii) the representation letters on behalf of Acquiring Fund and
Acquired Fund referred to below and (viii) such other documents as we deemed
appropriate.
In our examination of documents, we have assumed the authenticity of
original documents, the accuracy of copies, the genuineness of signatures, and
the legal capacity of signatories. We have assumed that all parties to the
Agreement have acted and will act in accordance with the terms of the Agreement
and all other documents relating to the transaction and that the transaction
will be consummated pursuant to the terms and conditions set forth in the
Agreement without the waiver or modification of any such terms and conditions.
Furthermore, we have assumed that all representations contained in the
Agreement, as well as those representations contained in the representation
letters referred to below are, on the date hereof, true and complete in all
material respects, and that any representation made in any of the documents
referred to herein "to the best of the knowledge and belief" (or similar
qualification) of any person or party is correct without such qualification. We
have not attempted to verify independently such representations, but in the
course of our representation, nothing has come to our attention that would cause
us to question the accuracy thereof.
The conclusions expressed herein represent our judgment regarding the
proper treatment of certain aspects of the transaction affecting Acquiring Fund,
Acquired Fund and the shareholders of Acquired Fund on the basis of our analysis
of the Internal Revenue Code of 1986, as amended (the "Code"), case law,
Treasury regulations and the rulings and other pronouncements of the Internal
Revenue Service (the "Service") which exist at the time this opinion is
rendered. Such authorities are subject to prospective or retroactive change, and
we do not undertake any responsibility to advise you of any such change. Our
WASHINGTON, DC BOSTON, MA MANCHESTER, NH
HALE AND DORR IS A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
<PAGE>
Boards of Trustees
John Hancock Capital Series
John Hancock Investment Trust
December 5, 1997
Page 3
opinion represents our best judgment regarding how a court would decide if
presented with the issues addressed herein and is not binding upon the Service
or any court. Moreover, our opinion does not provide any assurance that a
position taken in reliance on such opinion will not be challenged by the Service
and does not constitute any representation or warranty that such position, if so
challenged, will not be rejected by a court.
This opinion addresses only the specific United States federal income
tax consequences of the transaction set forth below, and does not address any
other federal, state, local, or foreign income, estate, gift, transfer, sales,
or other tax consequences that may result from the transaction or any other
transaction.
FACTS
We understand the facts relating to the transaction to be as described
hereinafter.
Acquiring Fund is a series of Trust, a business trust established under
the laws of The Commonwealth of Massachusetts in 1984. Trust is registered as an
open-end investment company under the Investment Company Act of 1940, as amended
(the "1940 Act"). Acquiring Fund commenced operations in 1984.
The investment objective of Acquiring Fund is to obtain the highest
total return, a combination of capital appreciation and current income,
consistent with reasonable safety of capital. Acquiring Fund seeks to achieve
its objective by allocating its assets between equity and fixed-income
securities, including money market instruments. Acquiring Fund invests primarily
in stocks under normal circumstances but may also invest in most other types of
securities, including government and corporate bonds, junk bonds, foreign
securities, and certain other investments described in its prospectus or
statement of additional information.
Acquired Fund is a series of Capital Series Trust, a business trust
established under the laws of The Commonwealth of Massachusetts in 1984. Capital
Series Trust is registered as an open-end investment company under the 1940 Act.
Acquired Fund became a series of Capital Series Trust on August 30, 1996 in a
transaction that qualified as a reorganization described in Section 368(a)(1)(F)
<PAGE>
Boards of Trustees
John Hancock Capital Series
John Hancock Investment Trust
December 5, 1997
Page 4
of the Code. Acquired Fund and its predecessor have been operating as an
investment company since the inception of business in 1994.
The investment objectives of Acquired Fund are to seek current income
and, to the extent consistent with that objective, growth of income and
long-term capital growth. Acquired Fund seeks to achieve its investment
objectives by investing primarily in equity securities of companies in the
public utilities industries but may invest in other industries to achieve its
investment objective. Acquired Fund may also invest in warrants, preferred
stocks, convertible securities, foreign securities, debt securities and certain
other investments described in its prospectus or statement of additional
information.
The steps comprising the reorganization, as set forth in the Agreement,
are as follows:
(i) Acquired Fund will transfer to Acquiring Fund all of its
assets (consisting, without limitation, of portfolio securities and instruments,
dividend and interest receivables, cash and other assets). In exchange for the
assets transferred to it, Acquiring Fund will (A) assume all of the liabilities
of Acquired Fund (comprising all of its known and unknown liabilities and
referred to hereinafter as the "Acquired Fund Liabilities") and (B) issue
Acquiring Fund Shares to Acquired Fund that have an aggregate net asset value
equal to the value of the assets transferred to Acquiring Fund by Acquired Fund,
less the value of the Acquired Fund Liabilities assumed by Acquiring Fund.
(ii) Promptly after the transfer of its assets to Acquiring Fund,
Acquired Fund will distribute in liquidation the Acquiring Fund Shares it
receives in the exchange to Acquired Fund shareholders pro rata in exchange for
their surrender of their shares of beneficial interest of Acquired Fund
("Acquired Fund Shares"). In these exchanges, holders of Acquired Fund Shares
designated as Class A ("Class A Acquired Fund Shares") will receive Acquiring
Fund Shares designated as Class A ("Class A Acquiring Fund Shares"), and holders
of Acquired Fund Shares designated as Class B ("Class B Acquired Fund Shares")
will receive Acquiring Fund Shares designated as Class B ("Class B Acquiring
Fund Shares").
<PAGE>
Boards of Trustees
John Hancock Capital Series
John Hancock Investment Trust
December 5, 1997
Page 5
(iii) After such exchanges, liquidation and distribution, the
existence of Acquired Fund will be promptly terminated in accordance with
Massachusetts law.
The Agreement and the transactions contemplated thereby were approved
by the Board of Trustees of Trust, on behalf of Acquiring Fund, at a meeting
held on September 10, 1997. Acquiring Fund shareholders are not required and
were not asked to approve the transaction. The Agreement and the transactions
contemplated thereby were approved by the Board of Trustees of Capital Series
Trust, on behalf of Acquired Fund, at a meeting held on September 9, 1997,
subject to the approval of Acquired Fund shareholders. Acquired Fund
shareholders approved the transaction at a meeting held on November 12, 1997.
Massachusetts law does not provide dissenters' rights for Acquired Fund
shareholders in the transaction. Additionally, it is the position of the
Division of Investment Management of the SEC that appraisal rights, in contexts
such as the reorganization, are inconsistent with Rule 22c-1 under the 1940 Act
and are therefore preempted and invalidated by such rule. Consequently, Acquired
Fund shareholders will not have dissenters' or appraisal rights in the
transaction.
Our opinions set forth below are subject to the following factual
assumptions being true and correct (including statements relating to future
actions and facts represented to be to the best knowledge of management, whether
or not known). Authorized representatives of Acquiring Fund and Acquired Fund
have represented to us by letters of even date herewith that the following
assumptions are true and correct:
(a) Acquiring Fund has no plan or intention to redeem or otherwise
reacquire any of the Acquiring Fund Shares received by shareholders of Acquired
Fund in the transaction except in the ordinary course of its business in
connection with its legal obligation under Section 22(e) of the 1940 Act as a
registered open-end investment company to redeem its own shares.
(b) After the transaction, Acquiring Fund will continue the
historic business of Acquired Fund and will use all of the assets acquired from
Acquired Fund, which are Acquired Fund's historic business assets, i.e., assets
not acquired as part of or in contemplation of the transaction, in the ordinary
course of a business.
<PAGE>
Boards of Trustees
John Hancock Capital Series
John Hancock Investment Trust
December 5, 1997
Page 6
(c) Acquiring Fund has no plan or intention to sell or otherwise
dispose of any assets of Acquired Fund acquired in the transaction, except for
dispositions made in the ordinary course of its business (i.e., dispositions
resulting from investment decisions made after the reorganization on the basis
of investment considerations independent of the reorganization) or to maintain
its qualification as a regulated investment company under Subchapter M of the
Code.
(d) The shareholders of Acquiring Fund and the shareholders of
Acquired Fund will bear their respective expenses, if any, in connection with
the transaction.
(e) Acquiring Fund and Acquired Fund will each bear its own
expenses incurred in connection with the transaction. Any liabilities of
Acquired Fund attributable to such expenses that remain unpaid on the closing
date of the transaction and are assumed by Acquiring Fund in the transaction are
attributable to Acquired Fund's expenses that are solely and directly related to
the transaction in accordance with the guidelines established in Rev. Rul.
73-54, 1973-1 C.B. 187.
(f) There is no indebtedness between Acquiring Fund and Acquired
Fund.
(g) Acquired Fund or its predecessor has elected to be treated as
a regulated investment company under Subchapter M of the Code. Each of Acquired
Fund and its predecessor has qualified as a regulated investment company for
each taxable year since inception, and Acquired Fund qualifies as such for its
taxable year ending on the closing date of the transaction.
(h) Acquiring Fund has elected to be treated as a regulated
investment company under Subchapter M of the Code, has qualified as a regulated
investment company for each taxable year since its inception, and qualifies as
such as of the date of the transaction.
(i) Neither Acquiring Fund nor Acquired Fund is under the
jurisdiction of a court in a Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code.
<PAGE>
Boards of Trustees
John Hancock Capital Series
John Hancock Investment Trust
December 5, 1997
Page 7
(j) Acquiring Fund does not own, nor has it ever owned, directly
or indirectly, any shares of Acquired Fund or its predecessor.
(k) Acquiring Fund will not pay cash in lieu of fractional shares
in connection with the transaction.
(l) As of the date of the transaction, the fair market value of
the Acquiring Fund Shares issued to Acquired Fund in exchange for the assets of
Acquired Fund is approximately equal to the fair market value of the assets of
Acquired Fund received by Acquiring Fund, minus the value of the Acquired Fund
Liabilities assumed by Acquiring Fund.
(m) Acquired Fund shareholders will not be in control (within the
meaning of Sections 368(a)(2)(H) and 304(c) of the Code, which provide that
control means the ownership of shares possessing at least 50% of the total
combined voting power of all classes of shares that are entitled to vote or at
least 50% of the total value of shares of all classes) of Acquiring Fund after
the transaction.
(n) The principal business purposes of the transaction are to
combine the assets of Acquiring Fund and Acquired Fund in order to capitalize on
economies of scale in expenses, including the costs of accounting, legal,
transfer agency, insurance, custodial, and administrative services, and to
increase diversification.
(o) As of the date of the transaction, the fair market value of
the Class A Acquiring Fund Shares received by each holder of Class A Acquired
Fund Shares is approximately equal to the fair market value of the Class A
Acquired Fund Shares surrendered by such shareholder, and the fair market value
of the Class B Acquiring Fund Shares received by each holder of Class B Acquired
Fund Shares is approximately equal to the fair market value of the Class B
Acquired Fund Shares surrendered by such shareholder.
(p) There is no plan or intention on the part of any shareholder
of Acquired Fund that owns beneficially 5% or more of the Acquired Fund Shares
and, to the best knowledge of management of Acquired Fund, there is no plan or
intention on the part of the remaining shareholders of Acquired Fund to sell,
<PAGE>
Boards of Trustees
John Hancock Capital Series
John Hancock Investment Trust
December 5, 1997
Page 8
redeem, exchange or otherwise dispose of a number of the Acquiring Fund Shares
received in the transaction that would reduce the aggregate ownership of the
Acquiring Fund Shares by former Acquired Fund shareholders to a number of shares
having a value, as of the date of the transaction, of less than fifty percent
(50%) of the value of all of the formerly outstanding Acquired Fund Shares as of
the same date. Shares of Acquired Fund and Acquiring Fund held by Acquired Fund
shareholders and sold, redeemed, exchanged or otherwise disposed of prior or
subsequent to the transaction as part of the plan of reorganization are taken
into account for purposes of this representation.
(q) Acquired Fund assets transferred to Acquiring Fund comprise at
least ninety percent (90%) of the fair market value of the net assets and at
least seventy percent (70%) of the fair market value of the gross assets held by
Acquired Fund immediately prior to the transaction. For purposes of this
representation, amounts used by Acquired Fund to pay its outstanding
liabilities, including reorganization expenses, and all redemptions and
distributions (except for redemptions in the ordinary course of business upon
demand of a shareholder that Acquired Fund is required to make as an open-end
investment company pursuant to Section 22(e) of the 1940 Act and regular, normal
dividends, which dividends include any final distribution of previously
undistributed investment company taxable income and net capital gain for
Acquired Fund's final taxable year ending on the closing date of the
transaction) made by Acquired Fund immediately preceding the transaction are
taken into account as assets of Acquired Fund held immediately prior to the
transaction.
(r) The Acquired Fund Liabilities assumed by Acquiring Fund plus
the liabilities, if any, to which the transferred assets are subject were
incurred by Acquired Fund in the ordinary course of its business or are expenses
of the transaction.
(s) The fair market value of the Acquired Fund assets transferred
to Acquiring Fund equals or exceeds the sum of the Acquired Fund Liabilities
assumed by Acquiring Fund and the amount of liabilities, if any, to which the
transferred assets are subject.
(t) Acquired Fund does not pay compensation to any
shareholder-employee.
<PAGE>
Boards of Trustees
John Hancock Capital Series
John Hancock Investment Trust
December 5, 1997
Page 9
OPINION
On the basis of and subject to the foregoing and in reliance upon the
representations described above, we are of the opinion that
(a) The acquisition by Acquiring Fund of all of the assets of
Acquired Fund solely in exchange for the issuance of Acquiring Fund Shares to
Acquired Fund and the assumption of all of the Acquired Fund Liabilities by
Acquiring Fund, followed by the distribution by Acquired Fund, in liquidation of
Acquired Fund, of Acquiring Fund Shares to Acquired Fund shareholders in
exchange for their Acquired Fund Shares and the termination of Acquired Fund,
will constitute a "reorganization" within the meaning of Section 368(a)(1)(C) of
the Code. Acquiring Fund and Acquired Fund will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code.
(b) No gain or loss will be recognized by Acquired Fund upon (i)
the transfer of all of its assets to Acquiring Fund solely in exchange for the
issuance of Acquiring Fund Shares to Acquired Fund and the assumption of all of
the Acquired Fund Liabilities by Acquiring Fund and (ii) the distribution by
Acquired Fund of such Acquiring Fund Shares to the shareholders of Acquired Fund
(Sections 361(a) and 361(c) of the Code).
(c) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Acquired Fund solely in exchange for the issuance of
Acquiring Fund Shares to Acquired Fund and the assumption of all of the Acquired
Fund Liabilities by Acquiring Fund (Section 1032(a) of the Code).
(d) The basis of the assets of Acquired Fund acquired by Acquiring
Fund will be, in each instance, the same as the basis of those assets in the
hands of Acquired Fund immediately prior to the transfer (Section 362(b) of the
Code).
(e) The tax holding period of the assets of Acquired Fund in the
hands of Acquiring Fund will, in each instance, include Acquired Fund's tax
holding period for those assets (Section 1223(2) of the Code).
<PAGE>
Boards of Trustees
John Hancock Capital Series
John Hancock Investment Trust
December 5, 1997
Page 10
(f) The shareholders of Acquired Fund will not recognize gain or
loss upon the exchange of all of their Acquired Fund Shares solely for Acquiring
Fund Shares as part of the transaction (Section 354(a)(1) of the Code).
(g) The basis of the Acquiring Fund Shares received by the
Acquired Fund shareholders in the transaction will be the same as the basis of
the Acquired Fund Shares surrendered in exchange therefor (Section 358(a)(1) of
the Code).
(h) The tax holding period of the Acquiring Fund Shares received
by Acquired Fund shareholders will include, for each shareholder, the tax
holding period for the Acquired Fund Shares surrendered in exchange therefor,
provided that the Acquired Fund Shares were held as capital assets on the date
of the exchange (Section 1223(1) of the Code).
No opinion is expressed or implied regarding the federal income tax
consequences to Acquiring Fund, Acquired Fund or Acquired Fund shareholders of
any conditions existing at the time of, effects resulting from, or other aspects
of the transaction except as expressly set forth above. This opinion may not be
relied upon except with respect to the consequences specifically discussed
herein nor may it be relied upon by persons or entities to whom it is not
addressed other than with our prior written consent.
Very truly yours,
Hale and Dorr LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference into the Proxy Statement and
Prospectus (the Proxy/Prospectus) constituting part of this Registration
Statement on Form N-14 (the Registration Statement) of John Hancock Investment
Trust, of our report dated February 7, 1997 on the financial statements and
financial highlights included in the December 31, 1996 Annual Report to
Shareholders of John Hancock Utilities Fund.
We consent to the reference to our Firm under the heading "Experts" in the
Proxy/Prospectus and to the references to our Firm under the headings "Financial
Highlights" in the Prospectus for the John Hancock Utilities Fund, dated May 1,
1997, and "Independent Auditors" in the Statement of Additional Information for
the John Hancock Utilities Fund, dated May 1, 1997, which are also incorporated
by reference into the Proxy/Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
August 8, 1997
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Combined Prospectus/Proxy Statement in the Registration Statement on Form N-14,
dated August 14, 1997, of John Hancock Utilities Fund (a series of John Hancock
Capital Series).
We also consent to the reference to our firm under the caption "Financial
Highlights" in the John Hancock Growth and Income Fund Prospectus with respect
to the John Hancock Growth and Income Fund, dated May 1, 1997, and to the
reference to our firm under the captions "Independent Auditors" in the John
Hancock Growth and Income Fund Class A and Class B Statement of Additional
Information, dated May 1, 1997, and to the use of our report for the period
ended December 31, 1996, dated February 7, 1997 with respect to the financial
statements and financial highlights of the John Hancock Growth and Income Fund,
included in the Statement of Additional Information in this Registration
Statement on Form N-14, dated August 14, 1997.
/s/ Ernst & Young LLP
Ernst & Young LLP
Boston, Massachusetts
August 8, 1997
EXHIBIT 17
Registration No. 2-10156
As filed on October 31, 1984
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Pre-Effective Amendment No. __ / /
Post-Effective Amendment No. 55 / X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / X /
Amendment No. 6 / X /
COMMERCE INCOME SHARES, INC.
Securities Trust
(Exact Name of Registrant as Specified in Charter)
333 Clay Street, Suite 4300, Houston, Texas 77002
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (713) 751-2400
Thomas R. Powers
333 Clay Street, Suite 4300
P.O. Box 111
Houston, Texas 77002
(Name and Address of Agent for Service)
------------------
Copies to:
Kenneth S. Gerstein, Esq. Robert L. Stillwell, Esq.
Gordon Hurwitz Butowsky Weitzen Baker & Botts
Shalov & Wein 3000 One Shell Plaza
101 Park Avenue Suite 3121
New York, New York 10178 Houston, Texas 77002
Approximate Date of Proposed Public Offering: As soon as practicable after
this post-effective amendment becomes effective.
It is proposed that this filing will become effective:
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ X / 60 days after filing pursuant to paragraph (a)
/ / on (date) pursuant to paragraph (a) of Rule 485
------------------
Registrant has previously elected, pursuant to Rule 24f-2 under the
Investment Company Act of 1940, to register an indefinite number of shares of
its common stock for sale under the Securities Act of 1933 and filed its Notice
on October 24, 1984.
