- --------------------------------------------------------------------------------
Important Information
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[LOGO] John Hancock Funds
A Global Investment Management Firm
September 27, 1999
Dear Fellow Shareholder:
I am writing to ask for your vote on an important matter that will affect your
investment in John Hancock Special Equities Fund.
You may be aware that in addition to your fund, John Hancock Funds offers a
similar emerging growth equity fund called John Hancock Small Cap Growth Fund.
Small Cap Growth Fund seeks long-term growth of capital primarily through
investment in U.S. emerging growth companies.
After careful consideration, your fund's trustees have unanimously agreed that
merging your fund into John Hancock Small Cap Growth Fund will offer you a
similar investment objective and strategy with lower operating expenses. This
proposed merger is detailed in the enclosed proxy statement and summarized in
the questions and answers on the following pages. I suggest you read both
thoroughly before voting.
Your Vote Makes a Difference!
No matter what size your investment may be, your vote is critical. 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 contact your
investment professional or call 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,
/s/ Edward J. Boudreau, Jr.
---------------------------
Edward J. Boudreau, Jr.
Chairman and CEO
<PAGE>
Q&A
Q: What are the benefits of merging Special Equities Fund into Small Cap Growth
Fund?
A: Your trustees firmly believe this merger will allow you to continue investing
for long-term capital appreciation at a lower expense. Following the merger,
annual expense ratios are projected to be 1.38% for Class A shareholders,
down from 1.52%; and 2.13% for Class B and Class C shareholders, down from
2.22%. Expected lower expenses should help keep more of your money invested,
which may help improve your investment's total return over time.
In addition, the trustees believe the superior performance record of Small
Cap Growth Fund should better enable the Fund to attract future assets. A
larger asset base could help to further reduce operating expenses.
Q: How has Small Cap Growth Fund performed?
A: Although past performance does not guarantee future results, Small Cap Growth
Fund has been a steady performer over the years. The fund's Class B shares
have posted average annual total returns of 12.15% over the past year, 12.91%
over the past three years, 20.39% over the past five years and 17.66% over
the past ten years, with maximum sales charges, as of June 30, 1999. The
fund's Class A shares have posted average annual total returns of 11.91% over
the past year, 12.58% over the past three years, 20.22% over the past five
years and 16.24% since inception on August 22, 1991. The fund's Class C
shares have posted an average annual total return of 16.04% over the past
year and 22.25% since inception on June 1, 1998.*
This strong relative performance has earned Small Cap Growth Fund a
consistent top third ranking over the one-, three-, five- and ten-year
periods in Lipper, Inc.'s small cap fund category as of June 30, 1999.** To
learn more about Small Cap Growth Fund, please refer to the John Hancock
Growth Funds prospectus and Small Cap Growth Fund's most recent semiannual
and annual reports, which are enclosed.
Q: How does Small Cap Growth Fund's strategy compare with that of Special
Equities Fund?
A: Both funds invest in small-cap stocks in an early "emerging growth" stage of
development. Special Equities Fund also invests in companies in special
situations. While Special Equities Fund invests in 80-100 stocks, Small Cap
Growth Fund invests in a broader portfolio of 150-220 stocks. Small Cap
Growth Fund employs a more diversified, less aggressive investment
<PAGE>
approach than Special Equities Fund. Small Cap Growth Fund still offers
investors access to small-cap growth stocks, without relying too heavily on
the success of a smaller number of small-cap stocks.
Q: Who manages the Small Cap Growth Fund?
A: Both funds are managed by John Hancock's Small Cap Growth investment team.
This team averages more than 15 years' investment experience. The team is led
by Bernice Behar, CFA, and also includes Laura Allen, CFA, and Anurag Pandit,
CFA.
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 December 1,
1999 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 Special Equities Fund shares will be
converted to Small Cap Growth Fund shares, using fund's net asset value per
share, excluding sales charges, as of the close of trading on December 10,
1999. 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 1999 tax return.
* Performance figures assume that distributions are reinvested and reflect a
maximum sales charge on Class A shares of 5% and the applicable contingent
deferred sales charge (CDSC) on Class B shares and Class C shares. The CDSC
on Class B shares declines annually between years 1-6 according to the
following schedule: 5, 4, 3, 3, 2, 1%. No sales charge will be assessed after
the sixth year. Class C shares held for less than one year are subject to a
1% CDSC. The return and principal value of any mutual fund investment will
fluctuate, so that shares, when redeemed, may be worth more or less than
their original cost.
** Lipper, Inc.'s small cap fund category contains 698 funds as of 6/30/99. The
John Hancock Small Cap Growth Fund's Class A shares rank 97 out of 698 funds
for the 1-year period, 84 out of 400 funds for the 3-year period and 35 out
of 238 funds for the 5-year period. Class B shares rank 101 out of 698 funds
for the 1-year period, 112 out of 400 funds for the 3-year period, 46 out of
238 funds for the 5-year period and 7 out of 71 funds for the 10-year period.
Class C shares rank 102 out of 698 funds for the 1-year period. Rankings are
based on total return and do not account for sales charges.
<PAGE>
JOHN HANCOCK SPECIAL EQUITIES FUND
101 Huntington Avenue
Boston, MA 02199
NOTICE OF MEETING OF SHAREHOLDERS
SCHEDULED FOR DECEMBER 1, 1999
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 Special Equities Fund:
A shareholder meeting for your fund will be held at 101 Huntington Avenue,
Boston, Massachusetts on Wednesday, December 1, 1999 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 Small Cap Growth Fund. Under this Agreement, your fund
would transfer all of its assets to Small Cap Growth Fund in exchange for shares
of Small Cap Growth Fund. These shares would be distributed proportionately to
you and the other shareholders of your fund. Small Cap Growth 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 13, 1999 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 the other shareholders.
By order of the board of trustees,
/s/Susan S. Newton
------------------
Secretary
September 27, 1999
180PX 9/99
<PAGE>
PROXY STATEMENT OF
JOHN HANCOCK SPECIAL EQUITIES FUND
PROSPECTUS FOR
CLASS A, CLASS B, CLASS C AND CLASS I SHARES OF
JOHN HANCOCK SMALL CAP GROWTH FUND
(a series of John Hancock Series Trust)
101 Huntington Avenue
Boston, MA 02199
This proxy statement and prospectus contains the information you should know
before voting on the proposed reorganization of your fund into John Hancock
Small Cap Growth 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 Small Cap Growth Fund. Small Cap
Growth Fund will assume your fund's liabilities.
o Small Cap Growth Fund will issue Class A shares to your fund in an amount
equal to the value of your fund's net assets attributable to its 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 Small Cap Growth Fund will issue Class B shares to your fund in an amount
equal to the value of your fund's net assets attributable to its 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 Small Cap Growth Fund will issue Class C shares to your fund in an amount
equal to the value of your fund's net assets attributable to its Class C
shares. These shares will be distributed to your fund's Class C shareholders
in proportion to their holdings on the reorganization date.
o Small Cap Growth Fund will issue Class I shares to your fund in an amount
equal to the value of your fund's net assets attributable to its Class Y
shares. These shares will be distributed to your fund's Class Y 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 Small Cap
Growth Fund.
Shares of Small Cap Growth 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.
<PAGE>
Shares of Small Cap Growth 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 fund with
similar investment policies would enable the shareholders of your fund to
benefit from increased diversification 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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Where to Get More Information
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Class A, B and C Prospectus of In the same envelope as this proxy
Small Cap Growth Fund dated July 1, statement and prospectus.
1999. Class I Prospectus of Small Incorporated by reference into this
Cap Growth Fund dated September 27, proxy statement and prospectus.
1999.
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Small Cap Growth Fund's annual and
semiannual reports to shareholders.
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Your fund's annual and semiannual On file with the Securities and
reports to shareholders. Your Exchange Commission ("SEC") and
fund's Class A, B and C prospectus available at no charge by calling
dated July 1, 1999 and Class Y 1-800-225-5291. Incorporated by
prospectus dated March 1, 1999. reference into this proxy statement
- -------------------------------------- and prospectus.
A statement of additional
information dated September 27,
1999. It contains additional
information about your fund and
Small Cap Growth 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 27, 1999.
2
<PAGE>
TABLE OF CONTENTS
Page
----
INTRODUCTION............................................................. 4
SUMMARY.................................................................. 4
INVESTMENT RISKS......................................................... 16
PROPOSAL TO APPROVE THE AGREEMENT
AND PLAN OF REORGANIZATION............................................. 17
CAPITALIZATION........................................................... 23
ADDITIONAL INFORMATION ABOUT
THE FUNDS' BUSINESSES.................................................. 24
BOARDS' EVALUATION AND RECOMMENDATION.................................... 25
VOTING RIGHTS AND REQUIRED VOTE.......................................... 25
INFORMATION CONCERNING THE MEETING....................................... 26
OWNERSHIP OF SHARES OF THE FUNDS......................................... 28
EXPERTS.................................................................. 29
AVAILABLE INFORMATION.................................................... 29
EXHIBIT
A - Agreement and Plan of Reorganization between John Hancock Special Equities
Fund and John Hancock Small Cap Growth Fund (attached to this proxy
statement)
3
<PAGE>
INTRODUCTION
This proxy statement and prospectus is being used by your fund's board of
trustees to solicit proxies to be voted at a special meeting of your fund's
shareholders. This meeting will be held at 101 Huntington Avenue, Boston,
Massachusetts on Wednesday, December 1, 1999 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 Small Cap Growth Fund. This proxy statement and prospectus is being
mailed to your fund's shareholders on or about September 27, 1999.
Who is Eligible to Vote?
Shareholders of record on September 13, 1999 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.
Comparison of Special Equities Fund to Small Cap Growth Fund
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Special Equities Fund Small Cap Growth Fund
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Business: A diversified open-end A diversified series of
investment management John Hancock Series
company organized as a Trust, an open-end
Massachusetts business investment management
trust. company organized as a
Massachusetts business
trust.
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Net assets as of $711.0 million. $639.7 million.
April 30, 1999:
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4
<PAGE>
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Special Equities Fund Small Cap Growth Fund
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Investment Investment adviser for both funds: John Hancock
adviser and Advisers, Inc.
portfolio
managers: Portfolio managers for both funds:*
Laura J. Allen, CFA
o Senior vice president of adviser
o Joined team in 1998
o Joined adviser in 1998
o Began career in 1981
Bernice S. Behar, CFA
o Senior vice president of adviser
o Joined team in 1998
o Joined adviser in 1991
o Began career in 1986
Anurag Pandit, CFA
o Vice president of adviser
o Joined team in 1998
o Joined adviser in 1996
o Began career in 1984
*Although each portfolio manager is primarily
responsible for the day-to-day management of both
funds' portfolios, Ms. Allen is the team leader
for Special Equities Fund and Ms. Behar is the
team leader for Small Cap Growth Fund.
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Investment The fund seeks growth of The fund seeks long term
objectives: capital by investing in a capital appreciation.
diversified portfolio of This objective is non-
equity securities fundamental and can be
consisting primarily of changed by the fund's
emerging growth companies board of trustees without
and of companies in shareholder approval.
"special situations,"
collectively referred to
as "Special Equities."
This objective cannot be
changed without
shareholder approval.
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5
<PAGE>
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Special Equities Fund Small Cap Growth Fund
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Primary The fund normally invests The fund normally invests
investments: at least 65% of its at least 80% of its
assets in emerging growth assets in stocks of U.S.
companies and companies emerging growth companies
in situations offering with market
unusual or one-time capitalizations of no
opportunities. Emerging more than $1 billion.*
growth companies
generally have market * As a result of a
capitalizations of less pending policy change,
than $1 billion. effective March 1, 2000
the fund will change its
market capitalization
limitation to a variable
range based on the
Russell 2000 index
(currently $10 million to
$2.8 billion).
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Other Investments: The fund may invest up to The fund may invest up to
35% of its assets in any 20% of its assets in any
of the following: of the following:
o Equity securities of o Other common stocks;
established companies
that the adviser o Preferred stocks
believes offer growth
potential o Convertible securities
(including up to 10%
o Investment-grade in securities rated
corporate debt "B" or equivalent)
securities
o Warrants
o U.S. government
securities
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Foreign securities Each fund may invest in all types of foreign
and currencies: securities, including foreign-denominated
securities and sponsored and unsponsored
depositary receipts. Each fund may engage in
foreign currency transactions. Each fund also may
invest in securities of emerging market issuers.
Although there is no direct percentage limitation
on either fund's investment in foreign securities,
Small Cap Growth Fund is indirectly limited by its
policy of investing at least 80% in U.S.
securities.
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Debt securities/ Investment grade only. Up to 10% of assets in
ratings criteria: below-investment-grade
securities rated as low
as "B" or equivalent.
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6
<PAGE>
================================================================================
Special Equities Fund Small Cap Growth Fund
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Repurchase Each fund may enter into repurchase agreements
agreements: consistent with its policy on restricted/illiquid
securities.
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Reverse Each fund may enter into reverse repurchase
repurchase agreements.
agreements:
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Restricted and The fund may not invest The fund may invest in
illiquid more than 15% of total restricted securities.
securities: assets in restricted or The fund may not invest
illiquid securities more than 10% of net
(excluding liquid 144A assets in illiquid
securities). securities (excluding
liquid 144A securities).
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Derivatives Each fund may engage to the same extent in various
transactions: derivative transactions including writing covered
options, purchasing options, entering into futures
contracts and options on futures contracts, and
other hedging strategies.
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Securities Each fund may lend portfolio securities consistent
lending: with applicable regulatory requirements up to
33 1/3% of its total assets.
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Rights and Each fund may purchase rights and warrants.
warrants:
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Short sales: Each fund may engage in short sales "against the
box" only. However, as a result of a pending
policy change, effective March 1, 2000, Small Cap
Growth Fund will no longer be able to engage in
short sales of any type.
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When-issued Each fund may purchase securities on a when-issued
securities: or forward commitment basis.
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Short-term Each fund may engage in short-term trading.
trading:
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7
<PAGE>
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CLASSES OF SHARES
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Special Equities Fund Small Cap Growth Fund
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Class A sales Class A shares are Class A shares are
charges and offered with front-end offered with front-end
12b-1 fees: sales charges ranging sales charges ranging
from 2% to 5% of the from 2% to 5% of the
fund's offering price, fund's offering price,
depending on the amount depending on the amount
invested. Class A shares invested. Class A shares
are subject to a 12b-1 are subject to a 12b-1
distribution fee equal to distribution fee equal to
0.30% annually of average 0.25% annually of average
net assets. net assets.
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The Class A shares of both funds have the
following characteristics in common:
o There is no front-end sales charge for
investments of $1 million or more, but there is
a contingent deferred sales charge ranging from
0.25% to 1.00% on shares sold within one year
of purchase.
o Investors can combine multiple purchases of
Class A shares to take advantage of breakpoints
in the sales charge schedule.
o Sales charges are waived for the categories of
investors listed in the funds' prospectuses.
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Class B sales Class B shares are offered without a front-end
charges and sales charge, but are subject to a contingent
12b-1 fees: deferred sales charge (CDSC) if sold within six
years after purchase. The CDSC ranges from 1.00%
to 5.00% depending on how long the shares are
held. No CDSC is imposed on shares held more than
six years.
Class B shares are subject to 12b-1 distribution
and service fees equal to 1.00% annually of
average net assets.
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8
<PAGE>
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CLASSES OF SHARES
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Special Equities Fund Small Cap Growth Fund
================================================================================
Class B sales CDSCs are waived for the CDSCs are waived for the
charges and categories of investors categories of investors
12b-1 fees listed in the fund's listed in the funds'
(continued): prospectus. prospectus.
Class B shares Class B shares
automatically convert to automatically convert to
Class A shares after Class A shares after
eight years. eight years.
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Class C sales The Class C shares of both funds have the same
charges and characteristics and fee structure.
12b-1 fees: o Class C shares are offered without a front-end
sales charge, but are subject to a contingent
deferred sales charge of 1.00% on shares sold
within one year of purchase.
o Class C shares are subject to 12b-1
distribution and service fees equal to 1.00%
annually of average net assets.
o No automatic conversion to Class A shares, so
annual expenses continue at the Class C level
throughout the life of the investment.
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Class Y/I sales Class Y shares of Special Equities Fund and Class
charges and I shares of Small Cap Growth Fund (which currently
12b-1 fees: do not exist, but will be established for the
reorganization) have no sales charge and no 12b-1
fee.
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12b-1 fees: These fees are paid out of a fund's assets on an
ongoing basis. Over time these fees will increase
the cost of investments and may cost more than
other types of sales charges.
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9
<PAGE>
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BUYING, SELLING AND EXCHANGING SHARES
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Both Special Equities Fund and Small Cap Growth Fund
================================================================================
Buying shares: Investors may buy shares at their public offering
price through a financial representative or the
funds' transfer agent, John Hancock Signature
Services, Inc. After August 2, 1999, investors
will not be allowed to open new accounts in
Special Equities Fund but can add to existing
accounts.
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Minimum initial $1,000 for non-retirement accounts and $250 for
investment: retirement accounts and group investments.
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Exchanging Shareholders may exchange their shares at net
shares: 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 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 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.
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The Funds' Expenses
Shareholders of both funds pay various expenses, either directly or indirectly.
The first and second columns in the table appearing below show the expenses for
the 12 month period ended April 30, 1999, adjusted to reflect any changes.
Future expenses may be greater or less. The third column in the table shows the
pro forma expenses of Small Cap Growth Fund for the year ended April 30, 1999
assuming that a reorganization with your fund occurred April 30, 1998. The
expenses shown in the table are based on fees and expenses incurred during the
twelve months ended April 30, 1999, adjusted to reflect any changes. Small Cap
Growth Fund's actual expenses after the reorganization may be greater or less
than those shown.
10
<PAGE>
<TABLE>
<CAPTION>
Small Cap Growth
(pro forma
for the year
ended 4/30/99)
(Assuming
reorganization
Special Small Cap with
Equities Growth Special Equities)
Shareholder
transaction expenses Class A Class A Class A
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge (load)
imposed on purchases
(as a % of offering price) 5.00% 5.00% 5.00%
Maximum sales charge imposed
on Reinvested dividends none none none
Maximum deferred sales charge
(load) as a % of purchase or
sale price, whichever is less none(1) none(1) none(1)
Redemption fee none(2) none(2) none(2)
Exchange fee none none none
<CAPTION>
Annual fund operating expenses
(as a % of average net assets) Class A Class A Class A
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Management fee 0.81% 0.75% 0.75%
Distribution and service (12b-1) fee 0.30% 0.25% 0.25%
Other expenses 0.41% 0.35% 0.38%
----- ----- ----
Total fund operating expenses 1.52% 1.35% 1.38%
<CAPTION>
Shareholder
transaction expenses Class B Class B Class B
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge (load)
imposed on purchases
(as a % of offering price) none none none
Maximum sales charge imposed
on reinvested dividends none none none
Maximum deferred sales charge
(load) as a % of purchase or sale
price, whichever is less 5.00% 5.00% 5.00%
Redemption fee none(2) none(2) none(2)
Exchange fee none none none
<CAPTION>
Annual fund operating expenses
(as a % of average net assets) Class B Class B Class B
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Management fee 0.81% 0.75% 0.75%
Distribution and service (12b-1) fee 1.00% 1.00% 1.00%
Other expenses 0.41% 0.35% 0.38%
----- ----- ----
Total fund operating expenses 2.22% 2.10% 2.13%
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Small Cap Growth
(pro forma
for the year
ended 4/30/99)
(Assuming
reorganization
Special Small Cap with
Equities Growth Special Equities)
Shareholder
transaction expenses Class C Class C Class C
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge (load)
imposed on purchases (as a %
of offering price) none none none
Maximum sales charge imposed
on reinvested dividends none none none
Maximum deferred sales charge
(load) as a % of purchase or sale
price, whichever is less 1.00% 1.00% 1.00%
Redemption fee none(2) none(2) none(2)
Exchange fee none none none
<CAPTION>
Annual fund operating expenses
(as a % of average net assets) Class C Class C Class C
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Management fee 0.81% 0.75% 0.75%
Distribution and service (12b-1) fee 1.00% 1.00% 1.00%
Other expenses 0.41% 0.35% 0.38%
----- ----- -----
Total fund operating expenses 2.22% 2.10% 2.13%
<CAPTION>
Shareholder
transaction expenses Class Y Class I Class I(3)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge (load)
imposed on purchases (as a %
of offering price) none none none
Maximum sales charge imposed
on reinvested dividends none none none
Maximum deferred sales charge
(load) as a % of purchase or sale
price, whichever is less none none none
Redemption fee none none none
Exchange fee none none none
<CAPTION>
Annual fund operating expenses
(as a % of average net assets) Class Y Class I Class I(3)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Management fee 0.81% N/A 0.75%
Distribution and service (12b-1) fee 0.00% N/A 0.00%
Other expenses 0.17% N/A 0.17%
----- ---- -----
Total fund operating expenses 0.98% N/A 0.92%
</TABLE>
(1) Except for investments of $1 million or more.
(2) Does not include wire redemption fee (currently $4.00).
(3) Small Cap Growth Fund will issue Class I shares to Special Equities Fund
Class Y shareholders in an amount equal to the value of Special Equities
Fund's net assets attributable to Class Y.
12
<PAGE>
The examples contained in the first and second columns of the table appearing
below show what you would pay if you invested $10,000 over the various time
periods indicated. The third column of the table shows the pro forma expenses
that you would have paid on a $10,000 investment if the reorganization had
occurred on April 30, 1998.
EXAMPLES
Small Cap Growth
(pro forma)
(Assuming
reorganization
Special Small Cap with
Class A Equities Growth Special Equities)
- --------------------------------------------------------------------------------
Year 1 $ 647 $ 631 $ 633
Year 3 $ 956 $ 906 $ 915
Year 5 $1,288 $1,202 $1,217
Year 10 $2,222 $2,043 $2,015
Class B - assuming
redemption at end of period
- --------------------------------------------------------------------------------
Year 1 $ 725 $ 713 $ 716
Year 3 $ 994 $ 958 $ 967
Year 5 $1,390 $1,329 $1,344
Year 10 $2,378 $2,240 $2,271
Class B -
assuming no redemption
- --------------------------------------------------------------------------------
Year 1 $ 225 $ 213 $ 216
Year 3 $ 694 $ 658 $ 967
Year 5 $1,190 $1,129 $1,344
Year 10 $2,378 $2,240 $2,271
Class C - assuming
redemption at end of period
- --------------------------------------------------------------------------------
Year 1 $ 325 $ 313 $ 216
Year 3 $ 694 $ 658 $ 667
Year 5 $1,190 $1,129 $1,144
Year 10 $2,554 $2,431 $2,271
Class C -
assuming no redemption
- --------------------------------------------------------------------------------
Year 1 $ 225 $ 213 $ 216
Year 3 $ 694 $ 658 $ 667
Year 5 $1,190 $1,129 $1,144
Year 10 $2,554 $2,431 $2,462
Class Y/I
- --------------------------------------------------------------------------------
Year 1 $ 100 N/A $ 94
Year 3 $ 312 N/A $ 293
Year 5 $ 542 N/A $ 509
Year 10 $1,199 N/A $1,131
13
<PAGE>
The Reorganization
o The reorganization is scheduled to occur at 5:00 P.M., Eastern Time, on
December 10, 1999, but may occur on any later date before June 30, 2000. Your
fund will transfer all of its assets to Small Cap Growth Fund. Small Cap
Growth 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.
o Small Cap Growth Fund will issue to your fund Class A shares in an amount
equal to the net assets attributable to 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 Small Cap
Growth Fund.
o Small Cap Growth Fund will issue to your fund Class B shares in an amount
equal to the net assets attributable to 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 Small Cap
Growth Fund.
o Small Cap Growth Fund will issue to your fund Class C shares in an amount
equal to the net assets attributable to your fund's Class C shares. These
shares will immediately be distributed to your fund's Class C shareholders in
proportion to their holdings on the reorganization date. As a result, Class C
shareholders of your fund will end up as Class C shareholders of Small Cap
Growth Fund.
o Small Cap Growth Fund will issue to your fund Class I shares in an amount
equal to the net assets attributable to your fund's Class Y shares. These
shares will immediately be distributed to your fund's Class Y shareholders in
proportion to their holdings on the reorganization date. As a result, Class Y
shareholders of your fund will end up as Class I shareholders of Small Cap
Growth 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 its average daily net assets:
14
<PAGE>
=================================================
Fund Asset Breakpoints Special Equities
=================================================
First $250,000,000 0.85%
-------------------------------------------------
Amount over $250,000,000 0.80%
=================================================
=================================================
Fund Asset Breakpoints Small Cap Growth
=================================================
First $1,500,000,000 0.75%
-------------------------------------------------
Amount over $1,500,000,000 0.70%*
=================================================
*Not currently a breakpoint. Contingent upon approval of the reorganization.
o Small Cap Growth Fund's management fee rate of 0.75% and its pro forma
management fee rate of 0.75% are substantially lower than your fund's
management fee rate of 0.81%.
o Small Cap Growth Fund's other expenses of 0.35% and its pro forma other
expenses of 0.38% are also substantially lower than your fund's other
expenses of 0.41%.
o Small Cap Growth Fund's 12b-1 fees for Class A shares of 0.25% are lower than
your fund's 12b-1 fees of 0.30%.
o Both funds have the same 12b-1 fees for Class B and Class C shares (1.00%)
although your fund's Class B distribution payment last year was 0.98%.
o Small Cap Growth Fund's current annual Class A expense ratio (equal to 1.35%
of average net assets) and its pro forma Class A expense ratio (equal to
1.38% of average net assets) are substantially lower than your fund's current
Class A expense ratio (equal to 1.52% of average net assets).
o Small Cap Growth Fund's current annual Class B and Class C expense ratio
(equal to 2.10% of average net assets) and its pro forma Class B and Class C
expense ratio (equal to 2.13% of average net assets) are also substantially
lower than your fund's current Class B and Class C expense ratio (equal to
2.22% of average net assets).
o Small Cap Growth Fund's pro forma expense ratio for Class I of 0.92% is also
lower than Special Equities Fund's current annual Class Y expense ratio of
0.98%.
15
<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 compares the risks
affecting each fund.
================================================================================
Special Equities Small Cap Growth
================================================================================
Stock market risk: As with any fund that invests primarily in stocks,
the value of each fund's portfolio will change in
response to stock market movements.
- --------------------------------------------------------------------------------
Credit risk: The debt securities held The debt securities held
by your fund are subject by Small Cap Growth Fund
to the risk that the are subject to the risk
issuer of a security will that the issuer of a
default or otherwise fail security will default or
to meet its obligations. otherwise fail to meet
its obligations. This
risk is greater to the
extent that Small Cap
Growth Fund invests in
junk bonds.
- --------------------------------------------------------------------------------
Interest rate risk: A rise in interest rates A rise in interest rates
typically causes the typically causes the
value of debt securities value of debt securities
to fall. A fall in to fall. A fall in
interest rates typically interest rates typically
causes the value of debt causes the value of debt
securities to rise. securities to rise.
Interest rate risk may be
greater to the extent
that Small Cap Growth
Fund invests in junk
bonds.
- --------------------------------------------------------------------------------
Foreign Each fund's investments in foreign securities are
securities and subject to the risks of adverse foreign government
currency risks: actions, political instability or a lack of
adequate and accurate information. Also, currency
exchange rate movements could reduce gains or
create losses. These risks may be greater for
direct investments in foreign securities and
currency contracts than for depository receipts.
- --------------------------------------------------------------------------------
Risks of The funds' investments in restricted and illiquid
restricted and securities may be difficult or impossible to sell
illiquid at a desirable time or a fair price. Restricted
securities: and illiquid securities also present a greater
risk of inaccurate valuation.
================================================================================
16
<PAGE>
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 10, 1999, but may occur on any later date before June 30, 2000. Your
fund will transfer all of its assets to Small Cap Growth Fund and Small Cap
Growth Fund will assume all of your fund's liabilities. This will result in
the addition of your fund's assets to Small Cap Growth 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.
o Small Cap Growth Fund will issue to your fund Class A shares in an amount
equal to the net assets attributable to 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 Small Cap Growth Fund.
o Small Cap Growth Fund will issue to your fund Class B shares in an amount
equal to the net assets attributable to 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 Small Cap Growth Fund.
o Small Cap Growth Fund will issue to your fund Class C shares in an amount
equal to the net assets attributable to your fund's Class C shares. As part
of the liquidation of your fund, these shares will immediately be distributed
to Class C shareholders of record of your fund in proportion to their
holdings on the reorganization date. As a result, Class C shareholders of
your fund will end up as Class C shareholders of Small Cap Growth Fund.
o Small Cap Growth Fund will issue to your fund Class I shares in an amount
equal to the net assets attributable to your fund's Class Y shares. These
shares will immediately be distributed to your fund's Class Y shareholders in
proportion to their holdings on the reorganization date. As a result, Class Y
shareholders of your fund will end up as Class I shareholders of Small Cap
Growth Fund.
o After the reorganization is over, the existence of your fund will be
terminated.
17
<PAGE>
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 Small Cap Growth Fund's total expenses are lower than your fund's
total expenses. As a result of the reorganization, shareholders of your fund
will experience a reduction in the total amount of fees, as a percentage of
average net assets, that they indirectly pay each month.
Second, that Small Cap Growth Fund has performed better than your fund over the
past 1, 3 and 5 year periods. While past performance cannot predict future
results, the trustees believe that Small Cap Growth Fund is better positioned
than your fund to continue to generate strong returns because of its superior
diversification and less aggressive investment approach.
Third, that a combined fund offers economies of scale that are expected to lead
to lower per share expenses. Both funds incur substantial costs for accounting,
legal, transfer agency services, insurance, and custodial and administrative
services. Many of these expenses are duplicative and can be effectively reduced
if the funds are combined.
The board of trustees of Small Cap Growth Fund considered that the
reorganization presents an excellent opportunity for Small Cap Growth Fund to
acquire substantial investment assets without the obligation to pay commissions
or other transaction costs that a fund normally must incur when purchasing
securities. This opportunity provides an economic benefit to Small Cap Growth
Fund and its shareholders.
The boards of trustees of both funds also considered that the adviser and the
funds' distributor will 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 to
the adviser.
Comparative Fees and Expense Ratios. As discussed above in the Summary, at all
asset levels, the advisory fee rates paid by your fund are higher than the rates
paid by Small Cap Growth Fund.
18
<PAGE>
Small Cap Growth Fund's management fee rate of 0.75% and pro forma management
fee rate of 0.75%, are substantially lower than your fund's management fee rate
of 0.81%. Small Cap Growth Fund's other expenses of 0.35% and its pro forma
other expenses of 0.38%, are also substantially lower than your fund's other
expenses of 0.41%. Small Cap Growth Funds 12b-1 fees for Class A shares of 0.25%
are lower than your fund's 12b-1 fees of 0.30%. Both funds have the same 12b-1
fees for Class B and Class C shares (1.00%), although your fund's Class B
distribution payment last year was 0.98%. Small Cap Growth Fund's current annual
Class A expense ratio (1.35% of average net assets) and pro forma Class A
expense ratio (1.38% of average net assets) are both substantially lower than
your fund's current Class A expense ratio (1.52% of average net assets). Small
Cap Growth Fund's current annual Class B and Class C expense ratio (2.10% of
average net assets) and pro forma Class B and Class C expense ratio (2.13% of
average net assets) are both also substantially lower than your fund's current
Class B and Class C expense ratio (2.22% of average net assets). Small Cap
Growth Fund's pro forma Class I expense ratio for (0.92% of average net assets)
is also lower than Special Equities Fund's current annual Class Y expense ratio
(0.98% of average net assets).
Comparative Performance. The trustees also took into consideration the relative
performance of your fund and Small Cap Growth Fund.
Unreimbursed Distribution and Shareholder Service Expenses
The boards of trustees of your fund and Small Cap Growth 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 Small Cap Growth Fund's Rule 12b-1 Plans. However,
the maximum amounts payable annually under Small Cap Growth Fund's Rule 12b-1
Plans (0.25%, 1.00%, 1.00% and 0.00% of average daily net assets attributable to
Class A shares, Class B shares, Class C shares and Class I shares, respectively)
will not increase.
The following table shows the actual and pro forma unreimbursed distribution and
shareholder service expenses of shares of your fund and Small Cap Growth Fund.
The table shows both the dollar amount of these expenses and the percentage of
each class' average net assets that they represent. Class Y shares of your fund
and Class I shares of Small Cap Growth Fund are not included in the table
because these classes do not have Rule 12b-1 Plans.
19
<PAGE>
Rule 12b-1 Payments and Unreimbursed Expenses
Aggregate Dollar Unreimbursed Pro Forma
Amount of 12b-1 Rule 12b-1 Unreimbursed
Fees Paid (for year Expenditures Expenses as %
ended (as of of each Class's
Name of Fund April 30, 1999) April 30, 1999) Average Net Assets
- --------------------------------------------------------------------------------
Special Equities
Class A $1,436,500 $1,732,565 0.36%
Class B $5,209,669 $29,218,093 5.48%
Class C $7 $135 0.00%
Small Cap Growth
Class A $491,537 $551,632 0.28%
Class B $3,763,663 $12,621,724 3.08%
Class C $4,635 $10,203 2.01%
Small Cap Growth
(Pro Forma)
Class A $1,688,620 $2,284,197 0.34%
Class B $8,973,332 $33,766,185* 3.58%*
Class C $4,642 $10,338 0.03%
*For purposes of the reorganization, the fund's distributor has agreed to waive
$8,073,632 of Special Equities Fund's Class B unreimbursed Rule 12b-1 expenses.
If the reorganization had taken place on April 30, 1998, the pro forma combined
unreimbursed expenses of Small Cap Growth Fund's Class A and Class B shares
would have been higher than if no reorganization had occurred. Nevertheless,
Small Cap Growth Fund's assumption of your fund's unreimbursed Rule 12b-1
expenses will have no immediate effect upon the payments made under Small Cap
Growth Fund's Rule 12b-1 Plans. These payments will continue to be 0.25%, 1.00%,
1.00% and 0.00% of average daily net assets attributable to Class A, Class B,
Class C and Class I shares, respectively.
John Hancock Funds, Inc. may to recover unreimbursed distribution and
shareholder service expenses for Class B and Class C shares in future years.
However, if Small Cap Growth Fund's board terminates either class's Rule 12b-1
Plan, that class will not be obligated to reimburse these distribution and
shareholder service expenses. Accordingly, until they are paid or accrued,
unreimbursed distribution and shareholder service expenses do not and will not
appear as an expense or liability in the financial statements of either fund. In
addition, unreimbursed expenses are not reflected in a fund's net asset value or
the formula for 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.
20
<PAGE>
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) 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 Small Cap Growth Fund as described above or (2) the
distribution by your fund of Small Cap Growth Fund shares to your fund's
shareholders;
o No gain or loss will be recognized by Small Cap Growth Fund upon the receipt
of your fund's assets solely in exchange for the issuance of Small Cap Growth
Fund shares to your fund and the assumption of all of your fund's liabilities
by Small Cap Growth Fund;
o The basis of the assets of your fund acquired by Small Cap Growth 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 Small Cap
Growth 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 Small Cap Growth Fund
shares as part of the reorganization;
o The basis of Small Cap Growth 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
o The tax holding period of the Small Cap Growth Fund shares you receive will
include the tax holding period of the shares of your fund surrendered in the
exchange, provided that the shares of your fund were held as capital assets
on the date of the exchange.
21
<PAGE>
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, you must 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 Small Cap Growth
Fund shares. Shareholders may not redeem or transfer Small Cap Growth Fund
shares received in the reorganization until they have surrendered their fund
share certificates or delivered an Affidavit. Small Cap Growth 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 Small Cap Growth 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 Small Cap Growth 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 Small Cap
Growth 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. Small Cap Growth 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. The expenses for both funds are estimated to be approximately $497,200
in total.
22
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of each fund as of April 30,
1999, and the pro forma combined capitalization of both funds as if the
reorganization had occurred on that date. The table reflects pro forma exchange
ratios of approximately 2.034275 Class A Small Cap Growth Fund shares being
issued for each Class A share of your fund, approximately 2.109454 Class B Small
Cap Growth Fund shares being issued for each Class B share of your fund,
approximately 2.114803 Class C Small Cap Growth Fund shares being issued for
each Class C share of your fund and approximately 2.088240 Class I shares being
issued for each Class Y share of your fund. If the reorganization is
consummated, the actual exchange ratios on the reorganization date may vary from
the exchange ratios indicated. This is due to changes in the market value of the
portfolio securities of both Small Cap Growth Fund and your fund between April
30, 1999 and the reorganization date, changes in the amount of undistributed net
investment income and net realized capital gains of Small Cap Growth Fund and
your fund during that period resulting from income and distributions, and
changes in the accrued liabilities of Small Cap Growth Fund and your fund during
the same period.
April 30, 1999
Small Cap
Special Equities Growth Pro Forma
Net Assets $710,986,800 $639,728,172 $1,350,714,972
Net Asset Value Per Share
Class A $22.25 $10.94 $10.94
Class B $21.33 $10.11 $10.11
Class C $21.33 $10.10 $10.10
Class Y/I $22.85 $10.94 $10.94
Shares Outstanding
Class A 14,880,966 19,439,594 49,711,580
Class B 17,212,798 42,139,173 78,448,785
Class C 331 89,564 90,264
Class Y/I 556,526 N/A 1,162,160
It is impossible to predict how many Class A shares, Class B shares, Class C
shares or Class I shares of Small Cap Growth 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 Small Cap Growth Fund shares that will
actually be received and distributed.
23
<PAGE>
ADDITIONAL INFORMATION ABOUT THE FUNDS' BUSINESSES
The following table shows where in each fund's prospectus you can find
additional information about the business of each fund.
================================================================================
Type of
Information Headings in Each Prospectus
================================================================================
Organization Fund Details: Business Structure
And operation:
- --------------------------------------------------------------------------------
Investment Goal and Strategy, Main Risks, Fund Details: Business
objective and Structure
policies:
- --------------------------------------------------------------------------------
Portfolio Portfolio Managers
Management:
- --------------------------------------------------------------------------------
Investment adviser Overview: The Management Firm; Fund Details: Business
and distributor: Structure
- --------------------------------------------------------------------------------
Expenses: Your Expenses
- --------------------------------------------------------------------------------
Custodian and Fund Details: Business Structure
Transfer agent:
- --------------------------------------------------------------------------------
Shares of beneficial Your Account: Choosing a Share Class
interest:
- --------------------------------------------------------------------------------
Purchase of shares: Your Account: Choosing a Share Class, How Sales
Charges are Calculated, Sales Charge Reductions
and Waivers, Opening an Account, Buying Shares,
Transaction Policies, Additional Investor Services
- --------------------------------------------------------------------------------
Redemption Your Account: Selling Shares, How Sales Charges
or sale of shares: are Calculated, Transaction Policies, Additional
Investor Services: Systematic Withdrawal Plan
- --------------------------------------------------------------------------------
Dividends, Dividends and Account Policies
distributions
and taxes:
- --------------------------------------------------------------------------------
24
<PAGE>
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 is in the best interests of your
fund and that the interests of your fund's shareholders would not be diluted as
a result of the reorganization. Similarly, the board of trustees of Small Cap
Growth Fund, including the independent trustees, approved the reorganization.
They also determined that the reorganization is in the best interests of Small
Cap Growth Fund and that the interests of Small Cap Growth 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 that
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.
25
<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 $32,200.
Revoking Proxies
A Special Equities 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 13, 1999, 12,744,489 Class A, 14,134,906 Class B, 2,479 Class C
and 486,879 Class Y shares of beneficial interest of your fund were outstanding.
Only shareholders of record on September 13, 1999 (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.
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.
26
<PAGE>
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 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.
27
<PAGE>
OWNERSHIP OF SHARES OF THE FUNDS
To the knowledge of the funds, as of September 13, 1999, the following persons
owned of record or beneficially 5% or more of the outstanding shares of a class
of either fund:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Names and Addresses of Owners Special Equities Fund
of More Than 5% of Shares Class A Class B Class C Class Y
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Edward M. McBride -- -- 7.00% --
Yong Hui McBride JT WROS
321 Louisa Lane
Chesterton, IN 46304-3382
- --------------------------------------------------------------------------------------
Gilbane Profit Sharing Plan -- -- -- 49.93%
7 Jackson Walkway
Attn: Raymond Deslauriers
Providence, RI 02903-3623-000
- --------------------------------------------------------------------------------------
Hunter Douglas, Inc. -- -- -- 6.28%
Chase Manhattan Bank Trustee
Attn: Jerry Kapri
4 New York Plaza - 2nd Floor
New York, NY 10004-2413
- --------------------------------------------------------------------------------------
MLPF & S for the Sole Benefit of its 7.49% 17.19% 37.57% --
Customers
Attn: Fund Administration
4800 Deer Lake Drive East
Jacksonville, FL 32246
- --------------------------------------------------------------------------------------
Painewebber for the Benefit of -- -- 18.63% --
Painewebber CDN FBO
Keitha J. Unger
P.O. Box 3321
Weehawken, NJ 07087-8154
- --------------------------------------------------------------------------------------
Painewebber for the Benefit of -- -- 26.80% --
Painewebber CDN FBO
Sheree A. Truitt
P.O. Box 3321
Weehawken, NJ 07087-8154
- --------------------------------------------------------------------------------------
Sargent & Lundy Savings Inv Plan -- -- -- 27.97%
Citibank FSB c/o Wendy Oldeen
500 West Madison St., 4 Floor, Zone 6
Chicago, IL 60661-2511
- --------------------------------------------------------------------------------------
Wilmington Trust TTEE -- -- -- 15.82%
Advanta Corp Employees Savings Plan
c/o Mutual Funds A/C 42082-6
P.O. Box 8971
Wilmington, DE 19899-8971
- --------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
- --------------------------------------------------------------------------------
Names and Addresses of Owners of Small Cap Growth Fund
More Than 5% of Shares Class A Class B Class C
- --------------------------------------------------------------------------------
MLPF & S for the Sole Benefit of 10.68% 23.81% 26.67%
its Customers
Attn: Fund Administration
4800 Deer Lake Drive East
Jacksonville, FL 32246
- --------------------------------------------------------------------------------
As of September 13, 1999, the trustees and officers of your fund and Small Cap
Growth Fund, each as a group, owned in the aggregate less than 1% of the
outstanding shares of their respective funds.
EXPERTS
The financial statements and the financial highlights of each fund for the
period ended April 30, 1999 and for the period ended October 31, 1998 are
incorporated by reference into this proxy statement and prospectus. The
financial statements and financial highlights as of October 31, 1998 for each
Fund have been independently audited by Ernst & Young LLP 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
(for a duplication fee) 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 these
materials can also be obtained by mail from the Public Reference Section of the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In
addition, copies of these documents may be viewed on-screen or downloaded from
the SEC's Internet site at http://www.sec.gov.
29
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made this 20th
day of July, 1999, by and between John Hancock Small Cap Growth Fund (the
"Acquiring Fund"), a series of John Hancock Series Trust, a Massachusetts
business trust (the "Trust"), and John Hancock Special Equities Fund (the
"Acquired Fund"), a Massachusetts business 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 shares, Class B shares, Class C shares, and Class I 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, Class B, Class C
and/or Class Y shares of beneficial interest of the Acquired Fund, as of
the close of business on December
30
<PAGE>
10, 1999 (the "Closing Date"), of a number of the Acquiring Fund Shares
having an aggregate net asset value equal, in the case of each class of
Acquiring Fund Shares, to the value of the assets, less such liabilities
(herein referred to as the "net value of the assets") attributable to the
applicable class, assumed, assigned and delivered, all determined as
provided in Paragraph 2.1 hereof and as of a date and time as specified
therein. Such transactions shall take place at the closing 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, Acquired Fund
shareholders who own Class B shares of the Acquired Fund will receive
Class B Acquiring Fund Shares, Acquired Fund shareholders who own Class C
shares of the Acquired Fund will receive Class C Acquiring Fund Shares,
and Acquired Fund shareholders who own Class Y shares of the Acquired Fund
will receive Class I 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
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<PAGE>
Acquired Fund may require (col lectively, an "Affidavit"), to John Hancock
Signature Services, Inc. prior to the Closing Date. Any Acquired Fund
share certificate which remains outstanding on the Closing Date shall be
deemed to be canceled, shall no longer evidence ownership of shares of
beneficial interest of the Acquired Fund and shall evidence ownership of
Acquiring Fund Shares. Unless and until any such certificate shall be so
surrendered or an Affidavit relating thereto shall be delivered, dividends
and other distributions payable by the Acquiring Fund subsequent to the
Liquidation Date with respect to Acquiring Fund Shares shall be paid to
the holder of such certificate(s), but such shareholders may not redeem or
transfer Acquiring Fund Shares received in the Reorganization. The
Acquiring Fund will not issue share certificates in the Reorganization.
1.6 Any transfer taxes payable upon issuance of Acquiring Fund Shares in a
name other than the registered holder of the Acquired Fund Shares on the
books of the Acquired Fund as of that time shall, as a condition of such
issuance and transfer, be paid by the person to whom such Acquiring Fund
Shares are to be issued and transferred.
1.7 The existence of the Acquired Fund shall be terminated as promptly as
practicable following the Liquidation Date.
1.8 Any reporting responsibility of the Acquired Fund, including, but not
limited to, the responsibility for filing of regulatory reports, tax
returns, or other documents with the Securities and Exchange Commission
(the "Commission"), any state securities commissions, and any federal,
state or local tax authorities or any other relevant regulatory authority,
is and shall remain the responsibility of the Acquired Fund.
2. VALUATION
2.1 The net asset values of the Class A, Class B, Class C, and Class I
Acquiring Fund Shares and the net values of the assets and liabilities of
the Acquired Fund attributable to its Class A, Class B, Class C, and Class
Y shares to be transferred shall, in each case, be determined as of the
close of business (4:00 P.M. Eastern Time) on the Closing Date. The net
asset values of the Class A, Class B, Class C, and Class I 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, Class B, Class C,
and Class Y 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
32
<PAGE>
information and shall be computed in each case to not fewer than four
decimal places.
2.2 The number of shares of each class of Acquiring Fund Shares to be issued
(including fractional shares, if any) in exchange for the Acquired Fund's
assets shall be determined by dividing the value of the Acquired Fund's
assets attributable to a class, less the liabilities attributable to that
class assumed by the Acquiring Fund, by the Acquiring Fund's net asset
value per share of the same class, all as determined in accordance with
Paragraph 2.1 hereof.
2.3 All computations of value shall be made by the Custodian in accordance
with its regular practice as pricing agent for the Funds.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be December 10, 1999 or such other date on or
before June 30, 2000 as the parties may agree. The Closing shall be held
as of 5:00 P.M. at the offices of the Trust and the Acquired Fund, 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, 2000, this Agreement may be terminated by the
Acquiring Fund or by the Acquired Fund upon the giving of written notice
to the other party.
33
<PAGE>
3.4 The Acquired Fund shall deliver at the Closing a list of the names,
addresses, federal taxpayer identification numbers and backup withholding
and nonresident alien withholding status of the Acquired Fund shareholders
and the number of outstanding shares of each class of beneficial interest
of the Acquired Fund owned by each such shareholder, all as of the close
of business on the Closing Date, certified by its Treasurer, Secretary or
other authorized officer (the "Shareholder List"). The Acquiring Fund
shall issue and deliver to the Acquired Fund a confirmation evidencing the
Acquiring Fund Shares to be credited on the Closing Date, or provide
evidence satisfactory to the Acquired Fund that such Acquiring Fund Shares
have been credited to the Acquired Fund's account on the books of the
Acquiring Fund. At the Closing, each party shall deliver to the other such
bills of sale, checks, assignments, stock certificates, receipts or other
documents as such other party or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES
4.1 The Acquired Fund represents, warrants and covenants to the Acquiring Fund
as follows:
(a) The Acquired Fund 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. The Acquired Fund is not
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
or disability. The Acquired Fund 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 Acquired Fund 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 investment company under the 1940 Act;
(c) The Acquired Fund is not, and the execution, delivery and performance of
its obligations under this Agreement will not result, in violation of any
provision of the Acquired Fund's Declaration of Trust, as amended and
restated (the "Acquired Fund's Declaration") or By-Laws or of any
agreement, indenture, instrument, contract, lease or other undertaking to
which 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 Acquired Fund or any of the Acquired Fund's
34
<PAGE>
properties or assets. The Acquired Fund knows of no facts which might form
the basis for the institution of such proceedings, and the Acquired Fund
is not a party to or subject to the provisions of any order, decree or
judgment of any court or governmental body which materially and adversely
affects the Acquired Fund's business or its ability to consummate the
transactions herein contemplated;
(e) The Acquired Fund has no material contracts or other commitments (other
than this Agreement or agreements for the purchase of securities entered
into in the ordinary course of business and consistent with its
obligations under this Agreement) which will not be terminated without
liability to the Acquired Fund at or prior to the Closing Date;
(f) The audited statement of assets and liabilities, including the schedule of
investments, of the Acquired Fund as of October 31, 1998 and the related
statement of operations (copies of which have been furnished to the
Acquiring Fund) and the unaudited statements as of April 30, 1999, present
fairly in all material respects the financial condition of the Acquired
Fund as of October 31, 1998 and April 30, 1999 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 April 30, 1999, 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
35
<PAGE>
and nonassessable by the Acquired Fund. 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 Acquired Fund, and
this Agreement constitutes a valid and binding obligation of the Acquired
Fund enforceable in accordance with its terms, subject to the approval of
the Acquired Fund's shareholders;
(m) The information to be furnished by the Acquired Fund to the Acquiring Fund
for use in applications for orders, registration statements, proxy
materials and other documents which may be necessary in connection with
the transactions contemplated hereby shall be accurate and complete and
shall comply in all material respects with federal securities and other
laws and regulations thereunder applicable thereto;
(n) The proxy statement of the Acquired Fund (the "Proxy Statement") to be
included in the Registration Statement referred to in Paragraph 5.7 hereof
(other than written information furnished by the Acquiring Fund for
inclusion therein, as covered by the Acquiring Fund's warranty in
Paragraph 4.2(m) hereof), on the effective date of the Registration
Statement, on the date of the meeting of the Acquired Fund shareholders
and on the Closing Date, shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading;
(o) No consent, approval, authorization or order of any court or governmental
authority is required for the consummation by the Acquired Fund of the
transactions contemplated by this Agreement;
(p) All of the issued and outstanding shares of beneficial interest of the
Acquired Fund have been offered for sale and sold in conformity with all
applicable federal and state securities laws;
36
<PAGE>
(q) The Class A, Class B and Class C prospectus of the Acquired Fund, dated
July 1, 1999 and the Class Y prospectus of the Acquired Fund, dated March
1, 1999 (the "Acquired Fund Prospectuses"), 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 on behalf of the Acquiring Fund represents, warrants and
covenants to the Acquired Fund as follows:
(a) The Trust is a business trust duly organized, validly existing and in good
standing under the laws of The Commonwealth of Massachusetts and has the
power to own all of its properties and assets and to carry out the
Agreement. Neither the Trust nor the Acquiring Fund is required to qualify
to do business in any jurisdiction in which it is not so qualified or
where failure to qualify would subject it to any material liability or
disability. The Trust has all necessary federal, state and local
authorizations to own all of its properties and assets and to carry on its
business as now being conducted;
(b) The Trust is a registered investment company classified as a management
company and its registration with the Commission as an investment company
under the 1940 Act is in full force and effect. The Acquiring Fund is a
diversified series of the Trust;
(c) The prospectus (the "Acquiring Fund Prospectus") and statement of
additional information for Class A, Class B, Class C and Class I shares of
the Acquiring Fund, dated July 1, 1999 and June 1, 1999 respectively, and
any amendments or supplements thereto on or prior to the Closing Date, and
the Registration Statement on Form N-14 filed in connection with this
Agreement (the "Registration Statement") (other than written information
furnished by the Acquired Fund for inclusion therein, as covered by the
Acquired Fund's warranty in Paragraph 4.1(m) hereof) will conform in all
material respects to the applicable requirements of the 1933 Act and the
1940 Act and the rules and regulations of the Commission thereunder, the
Acquiring Fund Prospectus does not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading and the
Registration Statement will not include any untrue statement of material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading;
(d) At the Closing Date, the Trust on behalf of the Acquiring Fund will have
good and marketable title to the assets of the Acquiring Fund;
(e) The Trust and the Acquiring Fund are not, and the execution, delivery and
performance of their obligations under this Agreement will not result
37
<PAGE>
in a violation of any provisions of the Trust's Declaration, or By-Laws or
of any agreement, indenture, instrument, contract, lease or other
undertaking to which the Trust or the Acquiring Fund is a party or by
which the Trust or the Acquiring Fund is bound;
(f) Except as otherwise disclosed in writing and accepted by the Acquired
Fund, no material litigation or administrative proceeding or investigation
of or before any court or governmental body is currently pending or
threatened against the Trust or the Acquiring Fund or any of the Acquiring
Fund's properties or assets. The Trust knows of no facts which might form
the basis for the institution of such proceedings, and neither the Trust
nor the Acquiring Fund is a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body which
materially and adversely affects the Acquiring Fund's business or its
ability to consummate the transactions herein contemplated;
(g) The audited statement of assets and liabilities, including the schedule of
investments, of the Acquiring Fund as of October 31, 1998 and the related
statement of operations (copies of which have been furnished to the
Acquired Fund) and the unaudited statements as of April 30, 1999, present
fairly in all material respects the financial condition of the Acquiring
Fund as of October 31, 1998 and April 30, 1999 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 Acquiring Fund as of the respective dates
thereof not disclosed therein;
(h) Since April 30, 1999, there has not been any material adverse change in
the Acquiring Fund's financial condition, assets, liabilities or business
other than changes occurring in the ordinary course of business, or any
incurrence by the Trust on behalf of the Acquiring Fund of indebtedness
maturing more than one year from the date such indebtedness was incurred,
except as disclosed to and accepted by the Acquired Fund;
(i) Each of the Acquiring Fund and its predecessors has qualified as a
regulated investment company for each taxable year of its operation and
the Acquiring Fund will qualify as such as of the Closing Date;
(j) The authorized capital of the Trust consists of an unlimited number of
shares of beneficial interest, no par value per share. All issued and
outstanding shares of beneficial interest of the Acquiring Fund are, and
at the Closing Date will be, duly and validly issued and outstanding,
fully paid and nonassessable by the Trust. The Acquiring Fund does not
have outstanding any options, warrants or other rights to subscribe for or
purchase any of its shares of beneficial interest, nor is there
outstanding any security convertible into any of its shares of beneficial
interest;
(k) The execution, delivery and performance of this Agreement has been duly
authorized by all necessary action on the part of the Trust on behalf of
the Acquiring Fund, and this Agreement constitutes a valid and binding
38
<PAGE>
obligation of the Acquiring Fund enforceable in accordance with its terms;
(l) The Acquiring Fund Shares to be issued and delivered to the Acquired Fund
pursuant to the terms of this Agreement, when so issued and delivered,
will be duly and validly issued shares of beneficial interest of the
Acquiring Fund and will be fully paid and nonassessable by the Trust;
(m) The information to be furnished by the Acquiring Fund for use in
applications for orders, registration statements, proxy materials and
other documents which may be necessary in connection with the transactions
contemplated hereby shall be accurate and complete and shall comply in all
material respects with federal securities and other laws and regulations
applicable thereto; 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.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1 Except as expressly contemplated herein to the contrary, the Acquired Fund
and the Trust on behalf of the Acquiring Fund, will operate their
respective businesses in the ordinary course between the date hereof and
the Closing Date, it being understood that such ordinary course of
business will include customary dividends and distributions and any other
distributions necessary or desirable to avoid federal income or excise
taxes.
5.2 The Acquired Fund 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 Acquired Fund will provide such information within its possession or
reasonably obtainable as the Trust on behalf of the Acquiring Fund
requests concerning the beneficial ownership of the Acquired Fund's shares
of beneficial interest.
5.5 Subject to the provisions of this Agreement, the Acquiring Fund and the
Acquired Fund each shall take, or cause to be taken, all action, and do or
cause to be done, all things reasonably necessary, proper or advisable to
consummate the transactions contemplated by this Agreement.
5.6 The Acquired Fund shall furnish to the Trust on behalf of the Acquiring
Fund on the Closing Date the Statement of Assets and Liabilities of the
39
<PAGE>
Acquired Fund as of the Closing Date, which statement shall be prepared in
accordance with generally accepted accounting principles consistently
applied and shall be certified by the Acquired Fund's Treasurer or
Assistant Treasurer. As promptly as practicable but in any case within 60
days after the Closing Date, the Acquired Fund shall furnish to the
Acquiring Fund, in such form as is reasonably satisfactory to the Trust, a
statement of the earnings and profits of the Acquired Fund for federal
income tax purposes and of any capital loss carryovers and other items
that will be carried over to the Acquiring Fund as a result of Section 381
of the Code, and which statement will be certified by the President of the
Acquired Fund.
5.7 The Trust on behalf of the Acquiring Fund will prepare and file with the
Commission the Registration Statement in compliance with the 1933 Act and
the 1940 Act in connection with the issuance of the Acquiring Fund Shares
as contemplated herein.
5.8 The Acquired Fund will prepare a Proxy Statement, to be included in the
Registration Statement in compliance with the 1933 Act, the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and the 1940 Act and
the rules and regulations thereunder (collectively, the "Acts") in
connection with the special meeting of shareholders of the Acquired Fund
to consider approval of this Agreement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to complete the transactions provided for
herein shall be, at its election, subject to the performance by the Trust on
behalf of the Acquiring Fund of all the obligations to be performed by it
hereunder on or before the Closing Date, and, in addition thereto, the following
further conditions:
6.1 All representations and warranties of the Trust on behalf of the Acquiring
Fund contained in this Agreement shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by the
transactions contemplated by this Agreement, as of the Closing Date with
the same force and effect as if made on and as of the Closing Date; and
6.2 The Trust on behalf of the Acquiring Fund shall have delivered to the
Acquired Fund a certificate executed in its name by the Trust's President
or Vice President and its Treasurer or Assistant Treasurer, in form and
substance satisfactory to the Acquired Fund and dated as of the Closing
Date, to the effect that the representations and warranties of the Trust
on behalf of the Acquiring Fund made in this Agreement are true and
correct at and as of the Closing Date, except as they may be affected by
the transactions contemplated by this Agreement, and as to such other
matters as the Acquired Fund shall reasonably request.
40
<PAGE>
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST ON BEHALF OF THE
ACQUIRING FUND
The obligations of the Trust on behalf of the Acquiring Fund to complete the
transactions provided for herein shall be, at its election, subject to the
performance by the 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 Acquired Fund shall have delivered to the Trust on behalf of the
Acquiring Fund the Statement of Assets and Liabilities of the Acquired
Fund, together with a list of its portfolio securities showing the federal
income tax bases and holding periods of such securities, as of the Closing
Date, certified by the Treasurer or Assistant Treasurer of the Acquired
Fund;
7.3 The Acquired Fund shall have delivered to the Trust on behalf of the
Acquiring Fund on the Closing Date a certificate executed in the name of
the Acquired Fund by a President or Vice President and a Treasurer or
Assistant Treasurer of the Acquired Fund, in form and substance
satisfactory to the Acquiring Fund and dated as of the Closing Date, to
the effect that the representations and warranties of the Acquired Fund in
this Agreement are true and correct at and as of the Closing Date, except
as they may be affected by the transactions contemplated by this
Agreement, and as to such other matters as the Trust on behalf of the
Acquiring Fund shall reasonably request; 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 ACQUIRED FUND AND THE
TRUST ON BEHALF OF THE ACQUIRING FUND
The obligations hereunder of the Trust on behalf of the Acquiring Fund and 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 Acquired Fund's Declaration and By-Laws, and certified
41
<PAGE>
copies of the resolutions evidencing such approval by the Acquired Fund's
shareholders shall have been delivered by the Acquired Fund to the Trust
on behalf of the Acquiring Fund;
8.2 On the Closing Date no action, suit or other proceeding shall be pending
before any court or governmental agency in which it is sought to restrain
or prohibit, or obtain changes or other relief in connection with, this
Agreement or the transactions contemplated herein;
8.3 All consents of other parties and all other consents, orders and permits
of federal, state and local regulatory authorities (including those of the
Commission and their "no-action" positions) deemed necessary by the
Acquired Fund or the Trust to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been
obtained, except where failure to obtain any such consent, order or permit
would not involve a risk of a material adverse effect on the assets or
properties of the Acquiring Fund or the Acquired Fund, provided that
either party hereto may waive any such conditions for itself;
8.4 The Registration Statement shall have become effective under the 1933 Act
and the 1940 Act and no stop orders suspending the effectiveness thereof
shall have been issued and, to the best knowledge of the parties hereto,
no investigation or proceeding for that purpose shall have been instituted
or be pending, threatened or contemplated under the 1933 Act or the 1940
Act;
8.5 The Acquired Fund shall have distributed to its shareholders, in a
distribution or distributions qualifying for the deduction for dividends
paid under Section 561 of the Code, all of its investment company taxable
income (as defined in Section 852(b)(2) of the Code determined without
regard to Section 852(b)(2)(D) of the Code) for its taxable year ending on
the Closing Date, all of the excess of (i) its interest income excludable
from gross income under Section 103(a) of the Code over (ii) its
deductions disallowed under Sections 265 and 171(a)(2) of the Code for its
taxable year ending on the Closing Date, and all of its net capital gain
(as such term is used in Sections 852(b)(3)(A) and (C) of the Code), after
reduction by any available capital loss carryforward, for its taxable year
ending on the Closing Date; and
8.6 The parties shall have received an opinion of Hale and Dorr LLP,
satisfactory to the Acquired Fund and the Trust 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
42
<PAGE>
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;
(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 on behalf of the Acquiring Fund and the Acquired Fund agree to make
and provide representations 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 Acquired Fund nor
the Trust may waive the conditions set forth in this Paragraph 8.6.
9. BROKERAGE FEES AND EXPENSES
9.1 The Trust on behalf of the Acquiring Fund and the Acquired Fund each
represent and warrant to the other that there are no brokers or finders
43
<PAGE>
entitled to receive any payments in connection with the transactions
provided for herein.
9.2 The Acquiring Fund and the Acquired Fund shall each be liable solely for
its own expenses incurred in connection with entering into and carrying
out the provisions of this Agreement whether or not the transactions
contemplated hereby are consummated.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Trust on behalf of the Acquiring Fund and the Acquired Fund agree that
neither party has made any representation, warranty or covenant not set
forth herein or referred to in Paragraph 4 hereof and that this Agreement
constitutes the entire agreement between the parties.
10.2 The representations, warranties and covenants contained in this Agreement
or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder.
11. TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the Trust on
behalf of the Acquiring Fund and the Acquired Fund. In addition, either
party may at its option terminate this Agreement at or prior to the
Closing Date:
(a) because of a material breach by the other of any representation, warranty,
covenant or agreement contained herein to be performed at or prior to the
Closing Date;
(b) because of a condition herein expressed to be precedent to the obligations
of the terminating party which has not been met and which reasonably
appears will not or cannot be met;
(c) by resolution of the Trust's Board of Trustees if circumstances should
develop that, in the good faith opinion of such Board, make proceeding
with the Agreement not in the best interests of the Acquiring Fund's
shareholders; or
(d) by resolution of the Acquired Fund's Board of Trustees if circumstances
should develop that, in the good faith opinion of such Board, make
proceeding with the Agreement not in the best interests of the Acquired
Fund's shareholders.
11.2 In the event of any such termination, there shall be no liability for
damages on the part of the Trust, the Acquiring Fund, or the Acquired
Fund, or the Trustees or officers of the Trust or the Acquired Fund, but
each party shall bear the expenses incurred by it incidental to the
preparation and carrying out of this Agreement.
44
<PAGE>
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 Acquired
Fund. 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.
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 Acquired Fund must look solely
to the property of the Trust or the Acquired Fund, respectively, for the
enforcement of any claims against the Trust or the Acquired Fund as the
Trustees, officers, agents and shareholders of the Trust or the Acquired
Fund assume no personal liability for obligations entered into on behalf
of the Trust or the Acquired Fund, respectively. None of the other series
of the Trust shall be responsible for any obligations assumed by on or
behalf of the Acquiring Fund under this Agreement.
45
<PAGE>
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 SERIES TRUST on behalf of
JOHN HANCOCK SMALL CAP GROWTH FUND
By: /s/ Anne C. Hodsdon
------------------------------------
Anne C. Hodsdon
President
JOHN HANCOCK SPECIAL EQUITIES FUND
By: /s/ Susan S. Newton
------------------------------------
Susan S. Newton
Vice President and Secretary
46
<PAGE>
NOTES
47
<PAGE>
NOTES
48
<PAGE>
NOTES
49
<PAGE>
-------------------------------------------
Thank You
for mailing
your proxy card
promptly!
-------------------------------------------
[LOGO] John Hancock Funds
A Global Investment Management Firm
John Hancock Funds, Inc., Member NASD
101 Huntington Ave., Boston, MA 02199-7603
1-800-225-5291 1-800-554-6713 (TDD)
John Hancock(R) www.jhfunds.com
180PX 9/99
<PAGE>
VOTE THIS PROXY CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE YOUR FUND
THE EXPENSE OF ADDITIONAL MAILINGS
JOHN HANCOCK SPECIAL EQUITIES FUND
PROXY SOLICITATION BY THE BOARD OF TRUSTEES
The undersigned, revoking previous proxies, hereby appoint(s) Edward J.
Boudreau, Jr., Anne C. Hodsdon, Susan S. Newton and James J. Stokowski, with
full power of substitution in each, to vote all the shares of beneficial
interest of John Hancock Special Equities Fund ("Special Equities") which the
undersigned is (are) entitled to vote at the Special Meeting of Shareholders
(the "Meeting") of Special Equities Fund to be held at 101 Huntington Avenue,
Boston, Massachusetts, on December 1, 1999 at 9:00 a.m., eastern 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 27, 1999
is hereby acknowledged. If not revoked, this proxy shall be voted for the
proposal.
PLEASE COMPLETE, SIGN, DATE AND RETURN THIS PROXY
IN THE ENCLOSED ENVELOPE AS SOON AS POSSIBLE.
Date ___________________,
o Please complete, sign, date and return this
proxy in the enclosed envelope as soon as
possible.
o Please sign exactly as your name or names
appear left. When signing as attorney,
executor, administrator, trustee or guardian,
please give your full title as such.
o If a Corporation, please sign in full
corporate name by president or other
authorized officer.
o If a partnership, please sign in partnership
name by authorized person.
----------------------------------
Signature
<PAGE>
[LOGO] 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
Specify your desired action by a check mark in the appropriate space. This
proxy will be voted as specified. If no specification is made, the proxy will
be voted in favor of Item 1. The persons named as proxies have discretionary
authority which they intend to exercise in favor of the proposal referred to and
according to their best judgment as to any other matters which properly come
before the meeting.
Please vote by filling in the appropriate box below
(1) To approve an Agreement and Plan of Reorganization between Special
Equities Fund and John Hancock Small Cap Growth Fund ("Small Cap Growth
Fund"). Under this Agreement, Special Equities Fund will transfer all
of its assets to Small Cap Growth Fund in exchange for shares of Small
Cap Growth Fund. These shares will be distributed proportionately to
you and the other shareholders of Special Equities Fund. Small Cap
Growth Fund will also assume Special Equities Fund's liabilities.
FOR |_| AGAINST |_| ABSTAIN |_|
PLEASE DO NOT FORGET TO SIGN THE REVERSE SIDE OF THIS CARD.
<PAGE>
- --------------------------------------------------------------------------------
John Hancock
INSTITUTIONAL FUNDS
CLASS I
[LOGO] Prospectus
September 27, 1999
- --------------------------------------------------------------------------------
Small Cap Growth Fund
formerly Emerging Growth Fund
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these funds or determined whether the information in
this prospectus is adequate and accurate. Anyone who indicates otherwise is
committing a federal crime.
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
101 Huntington Avenue, Boston, Massachusetts 02199-7603
Draft 9/14/99
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE>
Contents
- --------------------------------------------------------------------------------
A summary of the fund's Small Cap Growth Fund 4
goals, strategies, risks,
performance and expenses.
Policies and instructions for Your account
opening, maintaining and
closing an account. Who can buy shares 6
Opening an account 6
Buying shares 7
Selling shares 8
Transaction policies 10
Dividends and account policies 10
Business structure 11
For more information back cover
<PAGE>
Small Cap Growth Fund
GOAL AND STRATEGY
[Clip art] The fund seeks long-term capital appreciation. To pursue this goal,
the fund normally invests at least 80% of assets in stocks of U.S. emerging
growth companies with market capitalizations of no more than $1 billion. The
managers look for companies that show rapid growth but are not yet widely
recognized. The fund also may invest in established companies that, because of
new management, products or opportunities, offer the possibility of accelerating
earnings.
In managing the portfolio, the managers emphasize diversification by sector and
company. The fund's investments by sector, or sector weightings, generally
reflect those of the Russell 2000 Growth Index. The fund normally invests in 150
to 220 companies.
In choosing individual securities, the managers use fundamental financial
analysis to identify rapidly growing companies. The managers favor companies
that dominate their market niches or are poised to become market leaders. They
look for strong senior management teams and coherent business strategies. They
generally maintain personal contact with the senior management of the companies
the fund invests in.
The fund may invest up to 20% of assets in other types of companies and certain
other types of equity and debt securities. The fund may make limited use of
certain derivatives (investments whose value is based on indices, securities or
currencies).
In abnormal market conditions, the fund may temporarily invest more than 20% of
assets in investment-grade short-term securities. In these and other cases, the
fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable dividends.
- --------------------------------------------------------------------------------
PAST PERFORMANCE
[Clip art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with broad-based market
indices for reference). This information may help provide an indication of the
fund's risks. Since the Class I shares have no operational history, the
year-by-year and average annual figures are for Class B shares which are offered
in a separate prospectus. Class I shares have no sales charges and lower
expenses than the Class B shares.The average annual figures reflect sales
charges; the year-by-year and index figures do not, and would be lower if they
did. All figures assume dividend reinvestment. Past performance does not
indicate future results.
- --------------------------------------------------------------------------------
Class B year-by-year total returns - calendar years
- --------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
28.85% -1.15% 58.82% 12.13% 11.82% -1.49% 42.13% 12.95% 14.45% 11.65%
- --------------------------------------------------------------------------------
1999 total return as of June 30: 12.81% Best quarter: Q4 `98, 32.73%
Worst quarter: Q3 `90, -23.09%
- --------------------------------------------------------------------------------
Average annual total returns - for periods ending 12/31/98
- --------------------------------------------------------------------------------
1 year 5 year 10 year
Class B 10.29% 15.02% 17.75%
Class I - no operational history - - -
Index 1 -2.55% 11.87% 12.92%
Index 2 1.23% 10.22% 11.54%
Index 1: Russell 2000 Index, an unmanaged index of 2,000 U.S.
small-capitalization common stocks.
Index 2: Russell 2000 Growth Index, an unmanaged index containing those stocks
from the Russell 2000 Index with a greater-than-average growth orientation.
PORTFOLIO MANAGERS
Bernice S. Behar, CFA
- ---------------------------------
Senior vice president of adviser
Joined team in 1996
Joined adviser in 1991
Began career in 1986
Laura J. Allen, CFA
- ---------------------------------
Senior vice president of adviser
Joined team in 1998
Joined adviser in 1998
Began career in 1981
Anurag Pandit, CFA
- ---------------------------------
Vice president of adviser
Joined team in 1996
Joined adviser in 1996
Began career in 1984
4
<PAGE>
MAIN RISKS
[Clip art] As with most growth funds, the value of your investment will go up
and down in response to stock market movements. Because the fund concentrates on
emerging growth companies, its performance may be more volatile than that of a
fund that invests primarily in larger companies.
Stocks of smaller emerging growth companies are more risky than stocks of larger
companies. Many of these companies are young and have a limited track record.
Because their businesses frequently rely on narrow product lines and niche
markets, they can suffer severely from isolated business setbacks.
The fund's management strategy will influence performance significantly.
Emerging growth stocks as a group could fall out of favor with the market,
causing the fund to underperform funds that focus on other types of stocks.
Similarly, if the managers' stock selection strategy does not perform as
expected, the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o In a down market, small- capitalization stocks, derivatives and other
higher-risk securities could become harder to value or to sell at a fair
price.
o Certain derivatives could produce disproportionate gains or losses.
o Foreign investments carry additional risks, including potentially unfavorable
currency exchange rates, inadequate or inaccurate financial information and
social or political upheavals.
Investments in the fund are not bank deposits and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency. You
could lose money by investing in this fund.
- --------------------------------------------------------------------------------
YOUR EXPENSES
[Clip art] Operating expenses are paid from the fund's assets, and therefore are
paid by shareholders indirectly. Because Class I is new, its expenses are based
on Class B expenses, adjusted to reflect any changes.
- --------------------------------------------------------------------------------
Annual operating expenses
- --------------------------------------------------------------------------------
Management fee 0.75%
Other expenses 0.22%
Total fund operating expenses 0.97%
The hypothetical example below shows what your expenses would be if you invested
$10,000 over the time frames indicated, assuming you reinvested all
distributions and that the average annual return was 5%. The example is for
comparison only, and does not represent the fund's actual expenses and returns,
either past or future.
- --------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class I $99 $309 $536 $1,190
FUND CODES
- --------------------------
Ticker -
CUSIP -
Newspaper -
SEC number 811-3392
JH fund number 460
5
<PAGE>
Your account
- --------------------------------------------------------------------------------
WHO CAN BUY SHARES
John Hancock institutional funds are offered without any sales charge to certain
types of investors, as noted below:
o Retirement and other benefit plans not affiliated with the adviser.
o Certain trusts, endowment funds and foundations.
o Banks and insurance companies buying shares for their own account.
o Investment companies not affiliated with the adviser.
o Any entity that is considered a corporation for tax purposes.
o Any state, county or city, or its instrumentality, department, authority or
agency.
o Retirement plans of the adviser and its affiliates, including the adviser's
affiliated brokers.
- --------------------------------------------------------------------------------
OPENING AN ACCOUNT
1 Read this prospectus carefully.
2 Determine if you are eligible, referring to "Who can buy shares" on the left.
3 Determine how much you want to invest. The minimum initial investment is
$250,000, unless you invest an aggregate of at least $1 million in any of the
institutional funds or any Class I shares. There is no minimum investment for
plans with at least 350 eligible employees.
4 Complete the appropriate parts of the account application, carefully following
the instructions. You must submit additional documentation when opening trust,
corporate or power of attorney accounts. You must notify your financial
representative or Signature Services if this information changes. If you have
questions or need more details, please contact Signature Services at
1-800-755-4371.
5 Complete the appropriate parts of the account privileges application. By
applying for privileges now, you can avoid the delay and inconvenience of
having to file an additional application if you want to add privileges later.
6 Make your initial investment using the table on the next page.
6 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
Opening an account Adding to an account
By check
[Clip art] o Make out a check for the o Make out a check for the
investment amount, payable investment amount payable
to "John Hancock Signature to "John Hancock Signature
Services, Inc." Services, Inc."
o Mail your check and completed o Fill out the detachable
application to Signature investment slip from an
Services (address below). account statement. If no
slip is available, include
a note specifying the fund
name(s), your account number
and the name(s) in which the
account is registered.
o Mail your check and
investment slip or note to
Signature Services (address
below).
By exchange
[Clip art] o Call Signature Services o Call Signature Services
to request an exchange. to request an exchange.
You may only exchange for You may only exchange for
shares of other institutional shares of other institutional
funds or other Class I shares. funds or other Class I shares.
By wire
[Clip art] o Mail your completed application o Instruct your bank to wire
to Signature Services. the amount of your investment
to:
o Obtain your account number by
calling Signature Services. First Signature Bank & Trust
Account # 900022260
o Instruct your bank to wire the Routing # 211475000
amount of your investment to:
Specify the fund name(s), your
First Signature Bank & Trust account number and the name(s)
Account # 900022260 in which the account is
Routing # 211475000 registered. Your bank may
charge a fee to wire funds.
Specify the fund name(s),
the new account number and
the name(s) in which the
account is registered.
Your bank may charge a fee
to wire funds.
By phone
[Clip art] See "By wire" and "By exchange." o Verify that your bank or
credit union is a member
of the Automated Clearing
House (ACH) system.
o Complete the "Invest By
Phone" and "Bank Information"
sections on your account
application.
o Call Signature Services to
verify that these features
are in place on your account.
o Tell the Signature Services
representative the fund
name(s), your account
number, the name(s) in which
the account is registered and
the amount of your investment.
- --------------------------------------------------------------------------------
Address:
John Hancock Signature Services, Inc.
101 Huntington Avenue
Attn: Participant Service Center
5th Floor
Boston, MA 02199
Phone Number: 1-800-755-4371
- --------------------------------------------------------------------------------
YOUR ACCOUNT 7
<PAGE>
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Selling shares
- --------------------------------------------------------------------------------
Designed for To sell some or all of your shares
By letter
[Clip art] o Sales of any amount; however, o Write a letter of instruction
sales of $5 million or more indicating the fund name,
must be made by letter. your account number, the name(s)
in which the account is
registered and the dollar value
or number of shares you wish to
sell.
o Include all signatures and any
additional documents that may
be required (see next page).
o Mail the materials to Signature
Services.
o A check will be mailed to the
name(s) and address in which the
account is registered, or
otherwise according to your
letter of instruction.
By phone
[Clip art] o Sales of up to $5 million. o For automated service 24 hours
a day using your touch-tone
phone, call the EASI-Line at
1-800-597-1897.
o To place your request with a
representative at John Hancock
Funds, call Signature Services
between 8 a.m. and 4 p.m.
Eastern Time on most business
days.
o Redemption proceeds of up to
$100,000 may be sent by wire
or by check. A check will be
mailed to the exact name(s)
and address on the account.
Redemption proceeds exceeding
$100,000 must be wired to your
designated bank account.
By wire or electronic funds transfer (EFT) o To verify that the telephone
[Clip art] o Requests by letter to redemption privilege is in
sell any amount. place on an account, or to
request the forms to add it
o Requests by phone to sell to an existing account, call
up to $5 million (accounts Signature Services.
with telephone redemption
privileges). o Amounts of $5 million or more
will be wired on the next
business day.
o Amounts up to $100,000 may be
sent by EFT or by check. Funds
from EFT transactions are
generally available by the
second business day. Your bank
may charge a fee for this
service.
By exchange
[Clip art] o Sales of any amount. o Obtain a current prospectus
for the fund into which you
are exchanging by calling
Signature Services.
o Call Signature Services to
request an exchange. You
may only exchange for shares
of other institutional funds
or other Class I shares.
- --------------------------------------------------------------------------------
Address:
John Hancock Signature Services, Inc.
101 Huntington Avenue
Attn: Participant Service Center
5th Floor
Boston, MA 02199
Phone Number: 1-800-755-4371
- --------------------------------------------------------------------------------
8 YOUR ACCOUNT
<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, unless they were previously provided to Signature Services and are
still accurate. These items are shown in the table below. You may also need to
include a signature guarantee, which protects you against fraudulent orders. You
will need a signature guarantee if:
o your address of record has changed within the past 30 days
o you are selling more than $100,000 worth of shares and are requesting payment
by check
o you are selling more than $5 million worth of shares
You will need to obtain your signature guarantee from a member of the Signature
Guarantee Medallion Program. Most brokers and securities dealers are members of
this program. A notary public CANNOT provide a signature guarantee.
- --------------------------------------------------------------------------------
Seller Requirements for written requests
- --------------------------------------------------------------------------------
Owners of corporate, sole o Letter of instruction.
proprietorship, general partner
or association accounts. o Corporate business/organization
resolution, certified within the
past 12 months, or a
business/organization
certification form.
o On the letter and the resolution,
the signature of the person(s)
authorized to sign for the account.
o Signature guarantee if applicable
(see above).
Retirement plan or pension o Letter of instruction.
trust accounts.
o On the letter, the signature(s)
of the trustee(s).
o Copy of the trust document
certified within the past
12 months or a trust
certification form.
o Signature guarantee if
applicable (see above).
Account types not listed above. o Call 1-800-755-4371 for
instructions.
YOUR ACCOUNT 9
<PAGE>
TRANSACTION POLICIES
- --------------------------------------------------------------------------------
Valuation of shares The net asset value per share (NAV) for the fund is
determined each business day at the close of regular trading on the New York
Stock Exchange (typically 4 p.m. Eastern Time). The fund uses market prices in
valuing portfolio securities, but may use fair-value estimates if reliable
market prices are unavailable. The fund may also value securities at fair value
if the value of these securities has been materially affected by events occuring
after the close of a foreign market. The fund may trade foreign stock or other
portfolio securities on U.S. holidays and weekends, even though the fund's
shares will not be priced on those days. This may change the fund's NAV on days
when you cannot buy or sell shares.
Buy and sell prices When you buy shares, you pay the NAV. When you sell shares,
you receive the NAV.
Execution of requests The fund is open on those days when the New York Stock
Exchange is open, typically Monday through Friday. Buy and sell requests are
executed at the next NAV to be calculated after Signature Services receives your
request in good order.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider 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. 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 institutional fund for shares of any
other institutional fund or other Class I shares. The registration for both
accounts involved must be identical.
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.
- --------------------------------------------------------------------------------
DIVIDENDS AND ACCOUNT POLICIES
Account statements In general, you will receive account statements as follows:
o after every transaction (except a dividend reinvestment) that affects your
account balance
o after any changes of name or address of the registered owner(s)
o in all other circumstances, every month
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
Dividends The funds declare and pay any income dividends annually. Capital
gains, if any, are distributed annually.
Dividend reinvestments Dividends will be reinvested automatically in additional
shares of the same fund on the dividend record date. Alternatively, you can
choose to have a check for your dividends mailed to you. However, if the check
is not deliverable, your dividends will be reinvested.
10 YOUR ACCOUNT
<PAGE>
Taxability of dividends For investors who are not exempt from federal income
taxes, dividends you receive from a fund, whether reinvested or taken as cash,
are generally considered taxable. Dividends from a fund's short-term capital
gains are taxable as ordinary income. Dividends from a fund's long-term capital
gains are taxable at a lower rate. Whether gains are short-term or long-term
depends on the fund's holding period. Some dividends paid in January may be
taxable as if they had been paid the previous December.
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
Taxability of transactions Any time you sell or exchange shares, it is
considered a taxable event for you if you are not exempt from federal income
taxes. Depending on the purchase price and the sale price of the shares you sell
or exchange, you may have a gain or a loss on the transaction. You are
responsible for any tax liabilities generated by your transactions.
Year 2000 compliance The adviser and the fund's service providers are taking
steps to address any year 2000-related computer problems. However, there is some
risk that these problems could disrupt the issuers in which the fund invests,
the fund's operations or financial markets generally.
Special investment privilege If you sell your shares as a result of withdrawing
from your retirement plan, you will not be able to withdraw the proceeds and
reinvest them in fund shares. However, you can reinvest in Class A shares of any
John Hancock fund without paying a front-end sales charge. This privilege is
available whether you reinvest into a taxable account or roll the proceeds into
an IRA. If you reinvest in a taxable account, you may be subject to 20% tax
withholding on the amount of your distribution.
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
The fund's board of trustees oversees the fund's business activities and retains
the services of the various firms that carry out the fund's operations. The
trustees have the power to change the fund's investment goals without
shareholder approval.
The investment adviser John Hancock Advisers, Inc., 101 Huntington Avenue,
Boston, MA 02199-7603.
Management fees For the period ended October 31, 1999, the fund paid the
investment adviser management fees at an annual rate of 0.75% of average net
assets.
YOUR ACCOUNT 11
<PAGE>
- --------------------------------------------------------------------------------
For more information
- --------------------------------------------------------------------------------
Two documents are available that offer further information on the John Hancock
Small Cap Growth Fund:
ANNUAL/SEMIANNUAL
REPORT TO SHAREHOLDERS
Includes financial statements, a discussion of the market conditions and
investment strategies that significantly affected performance, as well as the
auditors' report (in annual report only).
STATEMENT OF ADDITIONAL
INFORMATION (SAI)
The SAI contains more detailed information on all aspects of the funds. The
current annual report is included in the SAI.
A current SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference into (is legally a part of) this prospectus.
To request a free copy of the current annual/semiannual report or the SAI,
please contact John Hancock:
By mail:
John Hancock Signature
Services, Inc.
101 Huntington Avenue
Attn: Participant Service Center
5th Floor
Boston, MA 02199
By phone: 1-800-755-4371
By EASI-Line: 1-800-597-1897
By TDD: 1-800-462-0825
On the Internet:
www.jhfunds.com
Or you may view or obtain these documents from the SEC:
In person: at the SEC's Public
Reference Room in Washington, DC.
For access to the Reference Room call 1-800-SEC-0330
By mail: Public Reference Section
Securities and Exchange Commission
Washington, DC 20549-6009
(duplicating fee required)
On the Internet: www.sec.gov
(C) 1999 John Hancock Funds, Inc.
600PN 9/99
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
101 Huntington Avenue,
Boston, Massachusetts
02199-7603
JOHN HANCOCK (R)
<PAGE>
JOHN HANCOCK SMALL CAP GROWTH FUND
Class A, Class B, Class C and Class I Shares
Statement of Additional Information
September 27, 1999
This Statement of Additional Information provides information about John Hancock
Small Cap Growth Fund (the "Fund"), in addition to the information that is
contained in the combined Growth Fund's Prospectus and in the Fund's Prospectus
for Class I shares (the "Prospectuses"). The Fund is a diversified series of
John Hancock Series Trust (the "Trust").
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectuses, 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, Massachusetts 02217-1000
1-800-225-5291
Table of Contents
Page
Organization of the Fund.................................................. 2
Investment Objective and Policies......................................... 2
Investment Restrictions................................................... 14
Those Responsible for Management.......................................... 17
Investment Advisory and Other Services.................................... 27
Distribution Contracts.................................................... 28
Sales Compensation........................................................ 30
Net Asset Value........................................................... 33
Initial Sales Charge on Class A Shares.................................... 34
Deferred Sales Charge on Class B and Class C Shares....................... 36
Special Redemptions....................................................... 40
Additional Services and Programs.......................................... 40
Description of the Fund's Shares.......................................... 42
Tax Status................................................................ 43
Calculation of Performance................................................ 48
Brokerage Allocation...................................................... 49
Transfer Agent Services................................................... 51
Custody of Portfolio...................................................... 51
Independent Auditors...................................................... 51
Appendix A- Description of Investment Risk................................ A-1
Appendix B-Description of Bond and Commercial Paper Ratings............... B-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 2, 1996. Prior to December 2, 1996, the Fund was a series of John
Hancock Technology Series, Inc., a Maryland corporation. On December 2, 1996,
the Trust assumed the Registration Statement of John Hancock Technology Series,
Inc. Prior to April 1, 1999, the Fund was called John Hancock Emerging Growth
Fund.
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 Prospectuses. Appendix A contains
further information describing investment risk. The investment objective is
non-fundamental. There is no assurance that the Fund will achieve its investment
objective.
The Fund seeks long-term capital appreciation. The Fund invests primarily in
emerging companies (market capitalization of less than $1 billion). In normal
circumstances, the Fund will invest at least 80% of its assets in these
companies. Current income is not a factor of consequence in the selection of
stocks for the Fund.
In order to achieve its objective, the Fund invests in a diversified group of
companies whose growth rates are expected to significantly exceed that of the
average industrial company. It invests in these companies early in their
corporate life cycle before they become widely recognized and well known, and
while their reputations and track records are still emerging ("emerging
companies"). Consequently, the Fund invests in the stocks of emerging companies
whose capitalization, sales and earnings are smaller than those of the Fortune
500 companies. Further, the Fund's investments in emerging company stocks may
include those of more established companies which offer the possibility of
rapidly accelerating earnings because of revitalized management, new products,
or structural changes in the economy.
The Fund currently favors companies that have demonstrated 20% annual growth
over three years and are projected to continue growing at a similar pace. This
strategy can be changed at any time.
The nature of investing in emerging companies involves greater risk than is
customarily associated with investments in more established companies. In
particular, the value of securities of emerging companies tends to fluctuate
more widely than other types of investments. Because emerging companies may be
in the early stages of their development, they may be dependent on a relatively
few products or services. They may also lack adequate capital reserves or may be
dependent on one or two management individuals. Their stocks are often traded
"over-the-counter" or on a regional exchange, and may not be traded in volumes
typical of trading on a national exchange. Consequently, the investment risk is
higher than that normally associated with larger, older, better-known companies.
In order to help reduce this risk, the Fund allocates its investments among
different industries.
2
<PAGE>
Most of the Fund's investments will be in equity securities of U.S. companies.
However, since many emerging companies are located outside the United States, a
significant portion of the Fund's investments may occasionally be invested in
equity securities of non-U.S. companies.
While the Fund will invest primarily in emerging companies, the balance of the
Fund's assets may be invested in: (1) other common stocks; (2) preferred stocks;
(3) convertible securities (up to 10% of the Fund's total assets may be invested
in convertible securities rated as low as "B" by Standard & Poor's Ratings Group
("S&P") or Moody's Investors Service, Inc. ("Moody's") or, if unrated,
determined by John Hancock Advisers, Inc. (the "Adviser") to be comparable in
quality to those rated "B"; (4) warrants; and (5) debt obligations of the U.S.
Government, its agencies and instrumentalities.
In order to provide liquidity for the purchase of new investments and to effect
redemptions of its shares, the Fund will invest a portion of its assets in high
quality, short-term debt securities with remaining maturities of one year or
less, including U.S. Government securities, certificates of deposit, bankers'
acceptances, commercial paper, corporate debt securities and related repurchase
agreements.
During periods of unusual market conditions when the Adviser believes that
investing for temporary defensive purposes is appropriate, part or all of the
Fund's assets may be invested in cash or cash equivalents consisting of: (1)
obligations of banks (including certificates of deposit, bankers' acceptances
and repurchase agreements) with assets of $100,000,000 or more; (2) commercial
paper rated within the two highest rating categories of a nationally recognized
rating organization; (3) investment grade short-term notes; (4) obligations
issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities; and (5) related repurchase agreements.
Investment In Foreign Securities. The Fund may invest in securities of foreign
issuers including securities in the form of sponsored and unsponsored American
Depository Receipts ("ADRs") European Depository Receipts (EDRs) or other
securities convertible into securities of foreign issuers. These securities may
not necessarily be denominated in the same currency as the securities into which
they may be converted but rather in the currency of the market in which they are
traded. ADRs are receipts typically issued by an American bank or trust company
which evidence ownership of underlying securities issued by a foreign
corporation. Generally, ADRs, in registered form, are designed for use in United
States securities markets and EDRs are designed for use in foreign securities
markets. Issuers of unsponsored ADRs are not contractually obligated to disclose
material information including financial information, in the United States.
Foreign Securities and Investments in Emerging Markets. The Fund may invest in
securities of foreign issuers, including debt and equity securities of corporate
and governmental issuers in countries with emerging economies or securities
markets.
The securities markets of many countries have in the past moved relatively
independent of one another, due to differing economic, financial, political and
social factors. When markets in fact move in different directions and offset
each other, there may be a corresponding reduction in risk for the Fund's
portfolio as a whole. This lack of correlation among the movements of the
world's securities markets may also affect unrealized gains the Fund has derived
from movements in any one market.
3
<PAGE>
If securities traded in markets moving in different directions are combined into
a single portfolio, such as that of the Fund, total portfolio volatility may be
reduced. Since the Fund may invest in securities denominated in currencies other
than U.S. dollars, changes in foreign currency exchange rates may affect the
value of its portfolio securities. Exchange rates may not move in the same
direction as the securities markets in a particular country. As a result, market
gains may be offset by unfavorable exchange rate fluctuations.
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, an any net investment income and gains that
the Fund distributes to shareholders. Securities transactions undertaken in some
foreign markets may not be settled promptly, so that the Fund's investments on
foreign exchanges may be less liquid and subject to the risk of fluctuating
currency exchange rates pending settlement.
Foreign securities will be purchased in the best available market, whether
through over-the-counter markets or exchanges located in the countries where
principal offices of the issuers are located. Foreign securities markets are
generally not as developed or efficient as those in the United States. While
growing in volume, they usually have substantially less volume than the New York
Stock Exchange, and securities of some foreign issuers are less liquid and more
volatile than securities of comparable United States issuers. Fixed commissions
on foreign exchanges are generally higher than negotiated commissions on United
States exchanges, although the Fund will endeavor to achieve the most favorable
net results on its portfolio transactions. There is generally less government
supervision and regulation of securities exchanges, brokers and listed issuers
than in the United States.
With respect to certain foreign countries, there is the possibility of adverse
changes in investment or exchange control regulations, expropriation,
nationalization or confiscatory taxation, limitations on the removal of funds or
other assets of the Fund, political or social instability, or diplomatic
developments which could affect United States investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the United States economy in terms of growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
The dividends in some cases, capital gains, and interest payable on certain of
the Fund's foreign portfolio securities may be subject to foreign withholding or
other foreign taxes, thus reducing the net amount of income or gains available
for distribution to the Fund's shareholders.
These risks may be intensified in the case of investments in emerging markets or
countries with limited or developing capital markets. These countries are
located in the Asia-Pacific region, Eastern Europe, Latin and South America and
Africa. Security prices in these markets can be significantly more volatile than
in more developed countries, reflecting the greater uncertainties of investing
in less established markets and economies. Political, legal and economic
structures in many of these emerging market countries may be undergoing
significant evolution and rapid development, and they may lack the social,
political, legal and economic stability characteristic of more developed
countries. Emerging market countries may have failed in the past to recognize
private property rights. They may have relatively unstable governments, present
the risk of nationalization of businesses, restrictions on foreign ownership, or
prohibitions
4
<PAGE>
on repatriation of assets, and may have less protection of property rights than
more developed countries. Their economies may be predominantly based on only a
few industries, may be highly vulnerable to changes in local or global trade
conditions, and may suffer from extreme and volatile debt burdens or inflation
rates. Local securities markets may trade a small number of securities and may
be unable to respond effectively to increase 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 erratic price movements.
Foreign Currency Transactions. 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 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. The Fund's dealings in
forward foreign currency contracts will be limited to hedging either specific
transactions or portfolio positions. The Fund may elect to hedge less than all
of its foreign portfolio positions.
The Fund will not engage in speculative forward currency transactions.
If the Fund enters into a forward contract to purchase foreign currency, the
fund will segregate cash or liquid securities, of any type or maturity, in a
separate account in an amount necessary to complete 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 the amount of the Fund's commitments in
purchased forward contracts.
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 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, an 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.
5
<PAGE>
With respect to certain foreign countries, there is the possibility of adverse
changes in investment or exchange control regulations, expropriation,
nationalization or confiscatory taxation, limitations on the removal of funds or
other assets of the Fund, political or social instability, or diplomatic
developments which could affect United States investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the United States economy in terms of growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
The dividends, and, 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.
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.
Lower Rated High Yield Debt Obligations. The Fund may invest in high yielding,
fixed income securities rated below investment grade rated Baa or lower by
Moody's and BBB or lower by S&P. See Appendix B for a description of ratings
assigned by Moody's and S&P.
Ratings are based largely on the historical financial condition of the issuer.
Consequently, the rating assigned to any particular security is not necessarily
a reflection of the issuer's current financial condition, which may be better or
worse than the rating would indicate.
The values of lower-rated securities generally fluctuate more than those of
high-rated securities. In addition, the lower rating reflects a greater
possibility of an adverse change in financial condition affecting the ability of
the issuer to make payments of interest and principal. Although the adviser
seeks to minimize these risks through diversification, investment analysis and
attention to current developments in interest rates and economic conditions,
there can be no assurance that the Adviser will be successful in limiting the
Fund's exposure to the risks associated with lower rated securities. Because the
Fund invests in securities in the lower rated categories, the achievement of the
Fund's goals is more dependent on the Adviser's ability than would be the case
if the Fund were investing in securities in the higher rated categories.
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.
6
<PAGE>
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, because of their lower acquisition cost tend to sell on a yield basis
approximating current interest rates during periods of high interest rates.
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, a decline in value of the underlying securities or lack of access to
income during this period, as well as the expense of enforcing its rights. The
Fund will not invest in a repurchase agreement maturing in more than seven days,
if such investment, together with other illiquid securities held by the Fund
(including restricted securities) would exceed 10% of the Fund's net assets.
Reverse Repurchase Agreements. The Fund may also enter into reverse repurchase
agreements which involve the sale of U.S. Government securities held in its
portfolio to a bank with an agreement that the Fund will buy back the securities
at a fixed future date at a fixed price plus an agreed amount of interest which
may be reflected in the repurchase price. Reverse repurchase agreements are
considered to be borrowings by the Fund. Reverse repurchase agreements involve
the risk that the market value of securities purchased by the Fund with proceeds
of the transaction may decline below the repurchase price of the securities sold
by the Fund which it is obligated to repurchase. To minimize various risks
associated with reverse repurchase agreements, the Fund will establish and
maintain a separate account consisting of liquid securities, of any type or
maturity, in an amount at least equal to the repurchase prices of the securities
(plus any accrued interest thereon) under such agreements. The Fund will also
continue to be subject to the risk of a decline in the market value of the
securities sold under the agreements because it will reacquire those securities
upon effecting their repurchase. The Fund will not enter into reverse repurchase
agreements exceeding in the aggregate 33 1/3% of the market value of its total
assets. The Fund will enter into reverse repurchase agreements only with
federally insured banks 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 will not invest more than 10% of its total
assets in securities that are not registered ("restricted securities") under the
Securities Act of 1933 (the "1933 Act"), including commercial paper issued in
reliance on Section 4(2) of the 1933 act and securities offered and sold to
"qualified institutional buyers" under Rule 144A under the 1933 Act. The Fund
will not invest more than 10% of its total assets in illiquid investments. If
the Trustees determines, based upon a continuing review of the trading markets
for specific 4(2) paper or Rule 144A securities, that they 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,
on any securities index based on securities in which it may invest or on any
currency in which Fund investments may be denominated. These options may be
listed on national domestic securities exchanges or foreign securities exchanges
or traded in the over-the-counter market. The Fund may write covered put and
call options and purchase put and call options to enhance total return, as a
substitute for the purchase or sale of securities or currency, or to protect
against declines in the value of portfolio securities and against increases in
the cost of securities to be acquired.
Writing Covered Options. A call option on securities or currency written by the
Fund obligates the Fund to sell specified securities or currency to the holder
of the option at a specified price if the option is exercised at any time before
the expiration date. A put option on securities or currency written by the Fund
obligates the Fund to purchase specified securities or currency from the option
holder at a specified price if the option is exercised at any time before the
expiration date. Options on securities indices are similar to options on
securities, except that the exercise of securities index options requires cash
settlement payments and does not involve the actual purchase or sale of
securities. In addition, securities index options are designed to reflect price
fluctuations in a group of securities or segment of the securities market rather
than price fluctuations in a single security. Writing covered call options may
deprive the Fund of the opportunity to profit from an increase in the market
price of the securities or foreign currency assets in its portfolio. Writing
covered put options may deprive the Fund of the opportunity to profit from a
decrease in the market price of the securities or foreign currency assets to be
acquired for its portfolio.
All call and put options written by the Fund are covered. A written call option
or put option may be covered by (i) maintaining cash or liquid securities,
either of which may be quoted or denominated in any currency, in a segregated
account with a value at least equal to the Fund's obligation under the option,
(ii) entering into an offsetting forward commitment and/or (iii) purchasing an
offsetting option or any other option which, by virtue of its exercise price or
otherwise, reduces the Fund's net exposure on its written option position. A
written call option on securities is typically covered by maintaining the
securities that are subject to the option in a segregated account. The Fund may
cover call options on a securities index by owning securities whose price
changes are expected to be similar to those of the underlying index.
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The Fund may terminate its obligations under an exchange traded call or put
option by purchasing an option identical to the one it has written. Obligations
under over-the-counter options may be terminated only by entering into an
offsetting transaction with the counterparty to such option. Such purchases are
referred to as "closing purchase transactions."
Purchasing Options. The Fund would normally purchase call options in
anticipation of an increase, or put options in anticipation of a decrease
("protective puts"), in the market value of securities or currencies of the type
in which it may invest. The Fund may also sell call and put options to close out
its purchased options.
The purchase of a call option would entitle the Fund, in return for the premium
paid, to purchase specified securities or currency at a specified price during
the option period. The Fund would ordinarily realize a gain on the purchase of a
call option if, during the option period, the value of such securities or
currency exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise the Fund would realize either no gain or a loss on
the purchase of the call option.
The purchase of a put option would entitle the Fund, in exchange for the premium
paid, to sell specified securities or currency at a specified price during the
option period. The purchase of protective puts is designed to offset or hedge
against a decline in the market value of the Fund's portfolio securities or the
currencies in which they are denominated. Put options may also be purchased by
the Fund for the purpose of affirmatively benefiting from a decline in the price
of securities or currencies which it does not own. The Fund would ordinarily
realize a gain if, during the option period, the value of the underlying
securities or currency decreased below the exercise price sufficiently to cover
the premium and transaction costs; otherwise the Fund would realize either no
gain or a loss on the purchase of the put option. Gains and losses on the
purchase of put options may be offset by countervailing changes in the value of
the Fund's portfolio securities.
The Fund's options transactions will be subject to limitations established by
each of the exchanges, boards of trade or other trading facilities on which such
options are traded. These limitations govern the maximum number of options in
each class which may be written or purchased by a single investor or group of
investors acting in concert, regardless of whether the options are written or
purchased on the same or different exchanges, boards of trade or other trading
facilities or are held or written in one or more accounts or through one or more
brokers. Thus, the number of options which the Fund may write or purchase may be
affected by options written or purchased by other investment advisory clients of
the Adviser. An exchange, board of trade or other trading facility may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.
Risks Associated with Options Transactions. There is no assurance that a liquid
secondary market on a domestic or foreign options exchange will exist for any
particular exchange-traded option or at any particular time. If the Fund is
unable to effect a closing purchase transaction with respect to covered options
it has written, the Fund will not be able to sell the underlying securities or
currencies or dispose of assets held in a segregated account until the options
expire or are exercised. Similarly, if the Fund is unable to effect a closing
sale transaction with respect to options it has purchased, it would have to
exercise the options in order to realize any profit and will incur transaction
costs upon the purchase or sale of underlying securities or currencies.
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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
contracts. The Fund may also enter into closing purchase and sale transactions
with respect to any of these contracts and options. The futures contracts may be
based on various securities (such as U.S. Government securities), securities
indices, foreign currencies and any other financial instruments and indices. All
futures contracts entered into by the Fund are traded on U.S. or foreign
exchanges or boards of trade that are licensed, regulated or approved by the
Commodity Futures Trading Commission ("CFTC").
Futures Contracts. A futures contract may generally be described as an agreement
between two parties to buy and sell particular financial instruments or
currencies for an agreed price during a designated month (or to deliver the
final cash settlement price, in the case of a contract relating to an index or
otherwise not calling for physical delivery at the end of trading in the
contract).
Positions taken in the futures markets are not normally held to maturity but are
instead liquidated through offsetting transactions which may result in a profit
or a loss. While futures contracts on securities or currency will usually be
liquidated in this manner, the Fund may instead make, or take, delivery of the
underlying securities or currency whenever it appears economically advantageous
to do so. A clearing corporation associated with the exchange on which futures
contracts are traded guarantees that, if still open, the sale or purchase will
be performed on the settlement date.
Hedging and Other Strategies. Hedging is an attempt to establish with more
certainty than would otherwise be possible the effective price or rate of return
on portfolio securities or securities that the Fund proposes to acquire or the
exchange rate of currencies in which portfolio securities are quoted or
denominated. When securities prices are falling, the Fund can seek to offset a
decline in the value of its current portfolio securities through the sale of
futures contracts. When securities prices are rising, the Fund, through the
purchase of futures contracts, can attempt to secure better rates or prices than
might later be available in the market when it effects anticipated purchases.
The Fund may seek to offset anticipated changes in the value of a currency in
which its portfolio securities, or securities that it intends to purchase, are
quoted or denominated by purchasing and selling futures contracts on such
currencies.
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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 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 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 fixed income securities, stocks indices or currencies, 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.
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The writing of a call option on a futures contract generates a premium which may
partially offset a decline in the value of the Fund's assets. By writing a call
option, the Fund becomes obligated, in exchange for the premium (upon exercise
of the option) to sell a futures contract if the option is exercised, which may
have a value higher than the exercise price. Conversely, the writing of a put
option on a futures contract generates a premium which may partially offset an
increase in the price of securities that the Fund intends to purchase. However,
the Fund becomes obligated (upon exercise of the option) to purchase a futures
contract if the option is exercised, which may have a value lower than the
exercise price. The loss incurred by the Fund in writing options on futures is
potentially unlimited and may exceed the amount of the premium received.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option of the same series. There
is no guarantee that such closing transactions can be effected. The Fund's
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.
Other Considerations. The Fund will engage in futures and related options
transactions either for bona fide hedging purposes or to seek to increase total
return as permitted by the CFTC. To the extent that the Fund is using futures
and related options for hedging purposes, futures contracts will be sold to
protect against a decline in the price of securities (or the currency in which
they are quoted or denominated) that the Fund owns or futures contracts will be
purchased to protect the Fund against an increase in the price of securities (or
the currency in which they are quoted or denominated) it intends to purchase.
The Fund will determine that the price fluctuations in the futures contracts and
options on futures used for hedging purposes are substantially related to price
fluctuations in securities held by the Fund or securities or instruments which
it expects to purchase. As evidence of its hedging intent, the Fund expects that
on 75% or more of the occasions on which it takes a long futures or option
position (involving the purchase of futures contracts), the Fund will have
purchased, or will be in the process of purchasing, equivalent amounts of
related securities (or assets denominated in the related currency) in the cash
market at the time when the futures or option position is closed out. However,
in particular cases, when it is economically advantageous for the Fund to do so,
a long futures position may be terminated or an option may expire without the
corresponding purchase of securities or other assets.
To the extent that the Fund engages in nonhedging transactions in futures
contracts and options on futures, the aggregate initial margin and premiums
required to establish these nonhedging positions will not exceed 5% of the net
asset value of the Fund's portfolio, after taking into account unrealized
profits and losses on any such positions and excluding the amount by which such
options were in-the-money at the time of purchase. 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 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.
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Perfect correlation between the Fund's futures positions and portfolio positions
will be impossible to achieve. In the event of an imperfect correlation between
a futures position and a portfolio position which is intended to be protected,
the desired protection may not be obtained and the Fund may be exposed to risk
of loss. In addition, it is not possible to hedge fully or protect against
currency fluctuations affecting the value of securities denominated in foreign
currencies because the value of such securities is likely to fluctuate as a
result of independent factors not related to currency fluctuations.
Some futures contracts or options on futures may become illiquid under adverse
market conditions. In addition, during periods of market volatility, a commodity
exchange may suspend or limit trading in a futures contract or related option,
which may make the instrument temporarily illiquid and difficult to price.
Commodity exchanges may also establish daily limits on the amount that the price
of a futures contract or related option can vary from the previous day's
settlement price. Once the daily limit is reached, no trades may be made that
day at a price beyond the limit.
This may prevent the Fund from closing out positions and limiting its losses.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. government securities according to applicable regulatory requirements. The
Fund may reinvest any cash collateral in short-term securities and money market
funds. When the Fund lends portfolio securities, there is a risk that the
borrower may fail to return the securities involved in the transaction. As a
result, the Fund may incur a loss or, in the event of the borrower's bankruptcy,
the Fund may be delayed in or prevented from liquidating the collateral. The
Fund may not lend portfolio securities having a total value exceeding 30% of its
total assets.
Rights and Warrants. The Fund may purchase warrants and rights which are
securities permitting, but not obligating, their holder to purchase the
underlying securities at a predetermined price, subject to the Fund's Investment
Restriction. Generally, warrants and stock purchase rights do not carry with
them the right to receive dividends or exercise voting rights with respect to
the underlying securities, and they do not represent any rights in the assets of
the issuer. As a result, an investment in warrants and rights may be considered
to entail greater investment risk than certain other types of investments. In
addition, the value of warrants and rights does not necessarily change with the
value of the underlying securities, and they cease to have value if they are not
exercised on or prior to their expiration date. Investment in warrants and
rights increases the potential profit or loss to be realized from the investment
of a given amount of the Fund's assets as compared with investing the same
amount in the underlying stock.
Short Sales. The Fund may engage in short sales against the box. In a short sale
against the box, the Fund agrees to sell at a future date a security that it
either contemporaneously owns or has the right to acquire at no extra cost. If
the price of the security has declined at the time the Fund is required to
deliver the security, the Fund will benefit from the difference in the price. If
the price of the security has increased, the Fund will be required to pay the
difference.
Forward Commitment and When-Issued Securities. The Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. The Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, the Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time.
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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, or any type or maturity, equal in value to
the Fund's commitment. These assets will be valued daily at market, and
additional cash or securities will be segregated in a separate account to the
extent that the total value of the assets in the account declines below the
amount of the when-issued commitments. Alternatively, the Fund may enter into
offsetting contracts for the forward sale of other securities that it owns.
Short-Term Trading and Portfolio Turnover. Short-term trading means the purchase
and subsequent sale of a security after it has been held for a relatively brief
period of time. As a matter of nonfundamental policy, the Fund may engage in
short-term trading in response to stock market conditions, changes in interest
rates or other economic trends and developments, or to take advantage of yield
disparities between various fixed income securities in order to realize capital
gains or improve income. Short-term trading may have the effect of increasing
the Fund's portfolio turnover rate. A high rate of portfolio turnover (100% or
greater) involves correspondingly greater brokerage expenses. The Fund's
portfolio turnover rate is set forth in the table under the caption "Financial
Highlights" in the Prospectus.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions will
not be changed without the approval of a majority of the Fund's outstanding
voting securities which, as used in the Prospectus and this Statement of
Additional Information means the approval by the lesser of (1) the holders of
67% or more of the Fund's shares represented at a meeting if more than 50% of
the Fund's outstanding shares are present in person or by proxy at that meeting
or (2) more than 50% of the Fund's outstanding shares.
The Fund may not:
(1) Borrow money in an amount in excess of 33-1/3% of its total assets, and
then only as a temporary measure for extraordinary or emergency
purposes (except that it may enter into a reverse repurchase agreement
within the limits described in the Prospectus or this SAI), or pledge,
mortgage or hypothecate an amount of its assets (taken at market value)
in excess of 15% of its total assets, in each case taken at the lower
of cost or market value. For the purpose of this restriction,
collateral arrangements with respect to options, futures contracts,
options on futures contracts and collateral arrangements with respect
to initial and variation margins are not considered a pledge of assets.
(2) Underwrite securities issued by other persons except insofar as the
Fund may technically be deemed an underwriter under the Securities Act
of 1933 in selling a portfolio security.
(3) Purchase or retain real estate (including limited partnership interests
but excluding securities of companies, such as real estate investment
trusts, which deal in real estate or interests therein and securities
secured by real estate), or mineral leases, commodities or commodity
contracts, precious metals (except contracts for the future delivery of
fixed income securities, stock index and currency futures and options
on such futures) in the ordinary course of its business. The Fund
reserves the freedom of action to hold and to sell real estate or
mineral leases, commodities or commodity contracts acquired as a result
of the ownership of securities.
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(4) Invest in direct participation interests in oil, gas or other
mineral exploration or development programs.
(5) Make loans to other persons except by the purchase of obligations in
which the Fund is authorized to invest and by entering into repurchase
agreements; provided that the Fund may lend its portfolio securities
not in excess of 30% of its total assets (taken at market value). Not
more than 10% of the Fund's total assets (taken at market value) will
be subject to repurchase agreements maturing in more than seven days.
For these purposes the purchase of all or a portion of an issue of debt
securities shall not be considered the making of a loan. In addition,
the Fund may purchase a portion of an issue of debt securities of types
commonly distributed privately to financial institutions.
(6) Purchase the securities of any issuer if such purchase, at the time
thereof, would cause more than 5% of its total assets (taken at market
value) to be invested in the securities of such issuer, other than
securities issued or guaranteed by the United States. In applying these
limitations, a guarantee of a security will not be considered a
security of the guarantor, provided that the value of all securities
issued or guaranteed by that guarantor, and owned by the Fund, does not
exceed 10% of the Fund's total assets. In determining the issuer of a
security, each state and each political subdivision agency, and
instrumentality of each state and each multi-state agency of which such
state is a member is a separate issuer. Where securities are backed
only by assets and revenues of a particular instrumentality, facility
or subdivision, such entity is considered the issuer.
(7) Invest in companies for the purpose of exercising control or
management.
(8) Purchase or retain in its portfolio any securities issued by an issuer
any of whose officers, directors, trustees or security holders is an
officer or Director of the Fund, or is a member, partner, officer or
Director of the Adviser, if after the purchase of the securities of
such issuer by the Fund one or more of such persons owns beneficially
more than 1/2 of 1% of the shares or securities, or both, all taken at
market value, of such issuer, and such persons owning more than 1/2 of
1% of such shares or securities together own beneficially more than 5%
of such shares or securities, or both, all taken at market value.
(9) Purchase any securities or evidences of interest therein on margin,
except that the Fund may obtain such short-term credit as may be
necessary for the clearance of purchases and sales of securities and
the Fund may make deposits on margin in connection with futures
contracts and related options.
(10) Sell any security which the Fund does not own unless by virtue of its
ownership of other securities it has at the time of sale a right to
obtain securities without payment of further consideration equivalent
in kind and amount to the securities sold and provided that if such
right is conditional the sale is made upon equivalent conditions.
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(11) Knowingly invest in securities which are subject to legal or
contractual restrictions on resale or for which there is no readily
available market (e.g., trading in the security is suspended or market
makers do not exist or will not entertain bids or offers), except for
repurchase agreements, if, as a result thereof more than 10% of the
Fund's total assets (taken at market value) would be so invested.
(12) Issue any senior security (as that term is defined in the Investment
Company Act of 1940) if such issuance is specifically prohibited by the
1940 Act or the rules and regulations promulgated thereunder. For the
purpose of this restriction, collateral arrangements with respect to
options, futures contracts and options on futures contracts and
collateral arrangements with respect to initial and variation margins
are not deemed to be the issuance of a senior security.
(13) Concentrate its investments in any particular industry, but if it is
deemed appropriate for the attainment of its investment objective, the
Fund may invest up to 25% of its assets (taken at market value at the
time of each investment) in securities of issuers in any one industry.
(14) Purchase voting securities of any issuer if such purchase, at the time
thereof, would cause more than 10% of the outstanding voting securities
of such issuer to be held by the Fund; or purchase securities of any
issuer if such purchase at the time thereof would cause more than 10%
of any class of securities of such issuer to be held by the Fund. For
this purpose all indebtedness of an issuer shall be deemed a single
class and all preferred stock of an issuer shall be deemed a single
class. In applying these limitations, a guarantee of a security will
not be considered a security of the guarantor, provided that the value
of all securities issued or guaranteed by that guarantor, and owned by
the Fund, does not exceed 10% of the Fund's total assets. In
determining the issuer of a security, each state and each political
subdivision agency, and instrumentality of each state and each
multi-state agency of which such state is a member is a separate
issuer. Where securities are backed only by assets and revenues of a
particular instrumentality, facility or subdivision, such entity is
considered the issuer.
Other Operating Policies
As a nonfundamental investment restriction, 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
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.
16
<PAGE>
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by its Trustees, who elect officers who are
responsible for the day-to-day operations of the Fund and who execute policies
formulated by the Trustees. Several of the officers and Trustees of the Fund are
also officers and directors of the Adviser or officers and directors of the
Fund's principal distributor, John Hancock Funds, Inc. ("John Hancock Funds").
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Edward J. Boudreau, Jr. * Trustee, Chairman and Chief Chairman, Director and Chief
101 Huntington Avenue Executive Officer (1, 2) Executive Officer, the Adviser;
Boston, MA 02199 Chairman, Director and Chief
October 1944 Executive Officer, The Berkeley
Financial Group, Inc. ("The
Berkeley Group"); Chairman and
Director, NM Capital Management,
Inc. ("NM Capital"), John Hancock
Advisers International Limited
("Advisers International") and
Sovereign Asset Management
Corporation ("SAMCorp"); Chairman
and Chief Executive Officer, John
Hancock Funds, Inc. ("John Hancock
Funds"); Chairman, First Signature
Bank and Trust Company; Director,
John Hancock Insurance Agency, Inc.
("Insurance Agency, Inc."), John
Hancock Advisers International
(Ireland) Limited ("International
Ireland"), 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;
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.
17
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Stephen L. Brown* Trustee Chairman and Chief Executive
John Hancock Place Officer, John Hancock Mutual Life
P.O. Box 111 Insurance Company; Director, the
Boston, MA 02117 Adviser, John Hancock Funds,
July 1937 Insurance Agency, John Hancock
Subsidiaries, Inc., The Berkeley
Group, Federal Reserve Bank of
Boston, Signature Services (until
January 1997;) Trustee, John
Hancock Asset Management (until
March 1997).
James F. Carlin Trustee Chairman and CEO, Carlin
233 West Central Street Consolidated, Inc.
Natick, MA 01760 (management/investments); Director,
April 1940 Arbella Mutual (insurance), Health
Plan Services, Inc., Massachusetts
Health and Education Tax Exempt
Trust, Flagship Healthcare, Inc.,
Carlin Insurance Agency, Inc., West
Insurance Agency, Inc. (until May
1995), Uno Restaurant Corp.;
Chairman, Massachusetts Board of
Higher Education (until 1999).
- -------------------
* 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.
18
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
William H. Cunningham Trustee 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)
(1985-1998); Jefferson-Pilot
Corporation (diversified life
insurance company) and LBJ
Foundation Board (education
foundation); Advisory Director,
Chase Bank (formerly Texas Commerce
Bank - Austin).
Ronald R. Dion Trustee President and Chief Executive
250 Boylston Street Officer, R.M. Bradley & Co., Inc.;
Boston, MA 02116 Director, The New England Council
March 1946 and Massachusetts Roundtable;
Trustee, North Shore Medical Center
and a corporator of the Eastern
Bank; Trustee, Emmanuel College.
Harold R. Hiser, Jr. Trustee Executive Vice President,
123 Highland Avenue Schering-Plough Corporation
Short Hill, NJ 07078 (pharmaceuticals) (retired 1996);
October 1931 Director, ReCapital Corporation
(reinsurance) (until 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.
19
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Anne C. Hodsdon * Trustee and President (1,2) President, Chief Operating Officer,
101 Huntington Avenue Chief Investment Officer and
Boston, MA 02199 Director, the Adviser, The Berkeley
August 1953 Group; Executive Vice President and
Director, John Hancock Funds;
Director, Advisers International,
Insurance Agency, Inc. and
International Ireland; President and
Director, SAMCorp. and NM Capital;
Executive Vice President, the
Adviser (until December 1994);
Director, Signature Services (until
January 1997).
Charles L. Ladner Trustee Senior Vice President and Chief
UGI Corporation Financial Officer, UGI Corporation
P.O. Box 858 (Public Utility Holding Company)
Valley Forge, PA 19482 (retired 1998); Vice President and
February 1938 Director for AmeriGas, Inc. (retired
1998); Vice President of AmeriGas
Partners, L.P. (until 1997);
Director, EnergyNorth, Inc. (until
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.
20
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Leo E. Linbeck, Jr. Trustee 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, Linbeck Construction
Corporation; Director, Duke Energy
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); Director, Greater
Houston Partnership.
Steven R. Pruchansky Trustee (1) Director and President, Mast
4327 Enterprise Avenue Holdings, Inc. (since 1991);
Naples, FL 34104 Director, First Signature Bank &
August 1944 Trust Company (until August 1991);
Director, Mast Realty Trust (until
1994); President, Maxwell Building
Corp. (until 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.
21
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Richard S. Scipione * Trustee (1) General Counsel, John Hancock Mutual
John Hancock Place Life Insurance Company; Director,
P.O. Box 111 the Adviser, John Hancock Funds,
Boston, MA 02117 Signator Investors, Inc., Insurance
August 1937 Agency, Inc., John Hancock
Subsidiaries, Inc., SAMCorp. and NM
Capital; The Berkeley Group; JH
Networking Insurance Agency, Inc.;
Signature Services (until January
1997).
Norman H. Smith Trustee 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.
22
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
John P. Toolan Trustee 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).
Osbert M. Hood Senior Vice President and Chief Senior Vice President , Chief
101 Huntington Avenue Financial Officer Financial Officer and Treasurer, the
Boston, MA 02199 Adviser, the Berkeley Group and John
August 1952 Hancock Funds, Inc.; Vice President
and Chief Financial Officer, John
Hancock Mutual Life Insurance
Company Retail Sector (until 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.
23
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
John A. Morin Vice President Vice President and Secretary, the
101 Huntington Avenue Adviser, The Berkeley Group,
Boston, MA 02199 Signature Services, John Hancock
July 1950 Funds, NM Capital and SAMCorp.;
Clerk, Insurance Agency, Inc.;
Counsel, John Hancock Mutual Life
Insurance Company (until February
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.
March 1950
James J. Stokowski Vice President, Treasurer and Chief Vice President, the Adviser.
101 Huntington Avenue Accounting Officer
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.
</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, Brown and Scipione
and Ms. Hodsdon, 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.
24
<PAGE>
Total
Compensation
from all Funds in
Aggregate John Hancock
Compensation Fund Complex to
Trustees from the Fund(1) Trustees (2)
- -------- ---------------- ------------
James F. Carlin $ 4,641 $ 74,000
William H. Cunningham* 4,641 74,000
Ronald R. Dion 748 18,500
Charles F. Fretz 3,837 57,121
Harold R. Hiser, Jr.* 4,393 70,000
Charles L. Ladner 4,779 77,100
Leo E. Linbeck, Jr. 4,641 74,000
Patricia P. McCarter 2,942 43,696
Steven R. Pruchansky 4,838 77,100
Norman H. Smith 4,925 79,350
John P. Toolan* 4,779 77,100
-------- --------
Total $45,164 $721,967
(1) Compensation is for fiscal year ended October 31, 1998.
(2) Total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is for the calendar year ended December 31,
1998 As of that date, there were sixty-seven funds in the John
Hancock Fund Complex, with each of these Independent Trustees
serving on thirty three funds.
(*) As of December 31, 1998 the value of the aggregate accrued deferred
compensation from all Funds in the John Hancock fund complex for
Mr. Cunningham was $320,943 for Mr. Hiser was $115,084, for Ms.
McCarter was $183,645, for Mr. Purchansky was $75,016, for Mr.
Smith was $109,807 and for Mr. Toolan was $403,714 under the John
Hancock Deferred Compensation Plan for Independent Trustees (the
"Plan").
All of the officers listed are officers or employees of the Adviser, Subadviser
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 September 8, 1999, the officers and trustees of the Trust as a group
beneficially owned less than 1% of the outstanding shares of the Fund. As of
that date, the following shareholders beneficially owned 5% or more of the
outstanding shares of the Fund listed below:
25
<PAGE>
Percentage of
Outstanding
Name and Address Class Shares of
of Shareholder of Shares Class of Fund
-------------- --------- -------------
MLPF&S For The Sole Benefit Of Its Customers A 10.68%
Attn: Fund Administration
4800 Deerlake Drive East
Jacksonville FL 32246-6484
MLPF&S For The Sole Benefit Of Its Customers B 23.78%
Attn: Fund Administration
4800 Deerlake Drive East
Jacksonville FL 32246-6484
MLPF&S For The Sole Benefit Of Its Customers C 21.85%
Attn: Fund Administration
4800 Deerlake Drive East
Jacksonville FL 32246-6484
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603,
was organized in 1968 and has more than $30 billion in assets under management
in its capacity as investment adviser to the Fund and the other funds in the
John Hancock group of funds as well as institutional accounts. The Adviser is
an affiliate of the Life Company, one of the most recognized and respected
financial institutions in the nation. With total assets under management of more
than $100 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. Founded in 1862, the Life Company has been serving clients for
over 130 years.
The Fund has entered into an investment management contract (the "Advisory
Agreement") with the Adviser which was approved by the Fund's shareholders.
Pursuant to the Advisory Agreement, the Adviser will: (a) furnish continuously
an investment program for the Fund and determine, subject to the overall
supervision and review of the Trustees, which investments should be purchased,
held, sold or exchanged, and (b) provide supervision over all aspects of the
Fund's operations except those which are delegated to a custodian, transfer
agent or other agent.
The Fund bears all costs of its organization and operation, including but not
limited to expenses of preparing, printing and mailing all shareholders'
reports, notices, prospectuses, proxy statements and reports to regulatory
agencies, expenses relating to the issuance, registration and qualification of
shares; government fees; interest charges; expenses of furnishing to
shareholders their account statements; taxes; expenses of redeeming shares;
brokerage and other expenses connected with the execution of portfolio
securities transactions; expenses pursuant to the Fund's plan of distribution;
fees and expenses of custodians including those for keeping books and accounts,
maintaining a committed line of credit and calculating the net asset value of
shares; fees and expenses of transfer agents and dividend disbursing agents;
legal, accounting, financial, management, tax and auditing fees and expenses of
the Fund (including an allocable portion of the cost of the Adviser's employees
rendering such services to the Fund); the compensation and expenses of Trustees
who are not otherwise affiliated with the Trust, the Adviser or any of their
affiliates; expenses of Trustees' and shareholders' meetings; trade association
membership; insurance premiums; and any extraordinary expenses.
26
<PAGE>
As compensation for its services under the Advisory Agreement, the Fund pays the
Adviser monthly a fee, equal on an annual basis to 0.75%, based on a stated
percentage of the average daily net assets of the Fund.
For the years ended October 31, 1996, 1997 and 1998, the Adviser received a fee
of $4,796,777, $5,110,454 and $4,728,134, respectively.
From time to time, the Adviser may reduce its fee or make other arrangements to
limit the Fund's expenses to a specified percentage of its average daily net
assets. The Adviser retains the right to reimpose a fee and recover any other
payments to the extent that, at the end of any fiscal year, the Fund's annual
expenses fall below this limit.
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 the Advisory Agreement, the Adviser is not liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the matters to which its Advisory Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Adviser in the performance of its duties or from its reckless disregard of
the obligations and duties under the Advisory Agreement.
Under the Advisory Agreement, the Fund may use the name "John Hancock" or any
name derived from or similar to it only for so long as the Advisory Agreement or
any extension, renewal or amendment thereof remains in effect. If the Fund's
Advisory Agreement is no longer in effect, the Fund (to the extent that it
lawfully can) will cease to use such name or any other name indicating that it
is advised by or otherwise connected with the Adviser. In addition, the Adviser
or the Life Company may grant the non-exclusive right to use the name "John
Hancock" or any similar name to any other corporation or entity, including but
not limited to any investment company of which the Life Company or any
subsidiary or affiliate thereof or any successor to the business of any
subsidiary or affiliate thereof shall be the investment adviser.
The continuation of the Advisory Agreement and Distribution Agreement (discussed
below) was approved by all of the Trustees. The Advisory Agreement and the
Distribution Agreement, will continue in effect from year to year, provided that
its continuance is approved annually both (i) by the holders of a majority of
the outstanding voting securities of the Trust or by the Trustees, and (ii) by a
majority of the Trustees who are not parties to the Agreement or "interested
persons" of any such parties. Both agreements may be terminated on 60 days
written notice by any party or by vote of a majority of the outstanding voting
securities of the Fund and will terminate automatically if assigned.
27
<PAGE>
Accounting and Legal Services Agreement. The Trust, on behalf of the fund, is a
party to an Accounting and Legal Services Agreement with the Adviser. Pursuant
to this agreement, the Adviser provides the Fund with certain tax, accounting
and legal services. For the fiscal years ended October 31, 1998, 1997 and 1996,
the Fund paid the Adviser $105,162, $125,076 and $101,864, respectively, 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") that 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 Fund 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. In the case of Class B or Class C shares, the broker receives
compensation immediately but John Hancock Funds is compensated on a deferred
basis.
Total underwriting commissions for sales of the Fund's Class A shares for the
fiscal period ended October 31, 1998, 1997 and 1996 were $405,078, $403,208 and
$795,886, respectively, and $61,937, $62,078 and $109,314, were retained by John
Hancock Funds in 1997, 1996 and 1995, respectively. The remainder of the
underwriting commissions were reallowed to Selling Brokers.
The Fund's Trustees adopted Distribution Plans with respect to each class of
shares (the "Plans") pursuant to Rule 12b-1 under the Investment Company Act of
1940. Under the Plans, the Fund will pay distribution and service fees at an
aggregate annual rate of up to 0.25% for Class A shares and 1.00% for Class B
and Class C shares of the Fund's average daily net assets attributable to shares
of that class. However, the service fee will not exceed 0.25% of the Fund's
average daily net assets attributable to each class of shares. 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 and Class C shares only, interest expenses on
unreimbursed distribution expenses. The service fees will be used to compensate
Selling Brokers
28
<PAGE>
and others for providing personal and account maintenance services to
shareholders. In the event the John Hancock Funds is not fully reimbursed for
payments or expenses they incur under the Class A Plan, these expenses will not
be carried beyond twelve months from the date they were incurred. Unreimbursed
expenses under the Class B and Class C Plans will be carried forward together
with interest on the balance of these unreimbursed expenses. The Fund does not
treat unreimbursed expenses under the Class B and Class C Plans as a liability
of the Fund because the Trustees may terminate the Class B and/or Class C Plans
at any time with no additional liability for these expenses to the shareholder
and the Fund. For the fiscal year ended October 31, 1998, an aggregate of
$12,165,567 of distribution expenses or 2.84% of the average net assets of the
Class B shares of the Fund, was not reimbursed or recovered by John Hancock
Funds through the receipt of deferred sales charges or Rule 12b-1 fees in prior
periods. For the period from June 1, 1998 to October 31, 1998, an aggregate of
$2,732 of distribution expenses or 0.40% of the average net assets of the Class
C shares of the Fund, was not reimbursed or recovered by John Hancock Funds
through the receipt of deferred sales charges or Rule 12b-1 fees in prior
periods.
The Plans were approved by a majority of the voting securities of the Fund. The
Plans and all amendments were approved by the Trustees, including a majority of
the Trustees who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plans (the "Independent
Trustees"), by votes cast in person at meetings called for the purpose of voting
on such Plans.
Pursuant to the Plans, at least quarterly, John Hancock Funds 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 be effective unless it is approved by a
majority vote of the Trustees and the Independent Trustees of the Fund. The
holders of Class A, Class B and Class C shares have exclusive voting rights with
respect to the Plan applicable to their respective class of shares. In adopting
the Plans, the Trustees concluded that, in their judgment, there is a reasonable
likelihood that the Plans will benefit the holders of the applicable class of
shares of the Fund.
Class I shares of the Fund are not subject to any distribution plan. Expenses
associated with the obligation of John Hancock Funds to use its best efforts to
sell Class I shares will be paid by the Adviser or by John Hancock Funds and
will not be paid from the fees paid under Class A, Class B or Class C Plans.
Amounts paid to John Hancock Funds by any class of shares of the Fund will not
be used to pay the expenses incurred with respect to any other class of shares
of the Fund; provided, however, that expenses attributable to the Fund as a
whole will be allocated, to the extent permitted by law, according to a formula
based upon gross sales dollars and/or average daily net assets of each such
class, as may be approved from time to time by vote of a majority of Trustees.
From time to time, the Fund may participate in joint distribution activities
with other Funds and the costs of those activities will be borne by each Fund in
proportion to the relative net asset value of the participating Fund.
29
<PAGE>
During the fiscal year ended October 31, 1998, the Fund paid John Hancock Funds
the following amounts of expenses in connection with their services for the
Fund:
<TABLE>
<CAPTION>
Printing and Interest,
Mailing of Expenses Carrying or
Prospectuses of John Other
to new Compensation to Hancock Finance
Advertising Shareholders Selling Brokers Funds Charges
----------- ------------ --------------- ----- -------
<S> <C> <C> <C> <C> <C>
Class A $ 84,440 $11,164 $202,702 $196,808 0
Class B $443,466 $60,598 $1,376,125 $1,033,562 $1,243,172
Class C $239 $14 $7 $894 $3
</TABLE>
SALES COMPENSATION
As part of their business strategies, the Fund, along with John Hancock Funds,
pay compensation to financial services firms that sell the fund's shares. These
firms typically pass along a portion of this compensation to your financial
representative.
Compensation payments originate from two sources: from sales charges and from
12b-1 fees that are paid out of the fund's assets. The sales charges and 12b-1
fees paid by investors are detailed in the prospectus and under the
"Distribution Contracts" in this Statement of Additional Information. The
portions of these expenses that are reallowed to financial services firms are
shown on the next page. For Class I shares, John Hancock Funds may make payment
out of its own resources to a Selling Broke who sells shares of the Fund. This
payment may not exceed 0.15% of the amount invested.
Whenever you make an investment in the Fund, 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. 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.
30
<PAGE>
<TABLE>
<CAPTION>
Maximum First year
Sales charge reallowance service Maximum total
paid by investors or commission fee (% of net compensation (1)
Class A investments (% of offering price) (% of offering price) investment) (3) (% 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 Class A share of
$1 million or more (4)
- ----------------------
First $1M - $4,999,999 -- 0.75% 0.25% 1.00%
Next $1 - $5M above that -- 0.25% 0.25% 0.50% (2)
Next $1 or more above that -- 0.00% 0.25% 0.25% (2)
Retirement investments
of Class A shares of
$1 million or more *
- --------------------
First $1M - $24,999,999 -- 0.75% 0.25% 1.00%
Next $25M -$49,999,999 -- 0.25% 0.25% 0.50%
Next $1 or more above that -- 0.00% 0.25% 0.25%
Maximum
reallowance First year Maximum total
or commission service fee (% of Compensation (1)
Class B investments (% of offering price) net investment)(3) (% of offering price)
- ------------------- --------------------- ------------------ ---------------------
All amounts 3.75% 0.25% 4.00%
Maximum
reallowance First year Maximum total
or commission service fee (% of Compensation (1)
Class C investments (% of offering price) net investment)(3) (% of offering price)
- ------------------- -------------------- ------------------ ---------------------
All amounts 0.75% 0.25% 1.00%
</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) For Group Investment Programs sales, the maximum total compensation for
investments of $1 million or more is 1.00% of the offering price (one year CDSC
of 1.00% applies for each sale).
(3) After first year subsequent service fees are paid quarterly in arrears.
31
<PAGE>
(4) Includes new investments aggregated with investments since the last annual
reset. John Hancock Funds may take recent redemptions into account in
determining if an investment qualifies as a new investment.
CDSC revenues collected by John Hancock Funds may be used to pay commissions
when there is no initial sales charge.
*Retirement investments only. These include traditional, Roth and Education
IRAs, SIMPLE IRAs, SIMPLE 401(k), Rollover IRA, TSA, 457, 403(b), 401(k), Money
Purchase Pension Plan, profit-sharing plan and other retirement plans as
described in the Internal Revenue Code.
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 Trustees believed 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.
32
<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 of the Fund, the
investor is entitled to accumulate current purchases with the greater of the
current value (at offering price) of the Class A shares of the Fund owned 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 contingent deferred sales charge ("CDSC") to various individuals and
institutions as follows:
o A Trustee or officer of the Trust; a Director or officer of the Adviser
and its affiliates 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, daughter-in-law, son-in-law, niece,
nephew, grandparents and same sex domestic partner) of any of the
foregoing, or any fund, pension, profit sharing or other benefit plan
of the individuals described above.
o A broker, dealer, financial planner, consultant or registered
investment advisor that has entered into a signed agreement with John
Hancock Funds providing specifically for the use of Fund shares in
fee-based investment products or services made available to their
clients.
o A former participant in an employee benefit plan with John Hancock
funds, when he or she withdraws from his or her plan and transfers any
or all of his or her plan distributions directly to the Fund.
o A member of a class action lawsuit against insurance companies who is
investing settlement proceeds.
o 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.
o Retirement plans investing through the PruArray Program sponsored by
Prudential Securities.
33
<PAGE>
o Pension plans transferring assets from a John Hancock variable annuity
contract to the Fund pursuant to an exemptive application approved by
the Securities and Exchange Commission.
o Existing full service clients of the Life Company who were group
annuity contract holders as of September 1, 1994, and participant
directed retirement plans with at least 100 eligible employees at the
inception of the Fund account. Each of these investors may purchase
Class A shares with no initial sales charge. However, if the shares are
redeemed within 12 months after the end of the calendar year in which
the purchase was made, a CDSC will be imposed at the following rate:
Amount Invested CDSC Rate
--------------- ---------
$1 to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
Class 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.
Combination Privilege. In calculating the sales charge applicable to purchases
of Class A shares made at one time, the purchases will be combined to reduce
sales charges if made by (a) an individual, his or her spouse and their children
under the age of 21, purchasing securities for his or their own account, (b) a
trustee or other fiduciary purchasing for a single trust, estate or fiduciary
account and (c) groups which qualify for the Group Investment Program (see
below). A company's (not an individual's) qualified and non-qualified retirement
plan investments can be combined to take advantage of this privilege. Further
information about combined purchases, including certain restrictions on combined
group purchases, is available from Signature Services or a Selling Broker's
representative.
Accumulation Privilege. Investors (including investors combining purchases) who
are already Class A shareholders may also obtain the benefit of the reduced
sales charge by taking into account not only the amount being invested but also
the investor's purchase price or current value of the Class A shares of all John
Hancock funds which carry a sales charge already held by such person. Class A
shares of John Hancock money market funds will only be eligible for the
accumulation privilege if the investor has previously paid a sales charge on the
amount of those shares. Retirement plan investors may include the value of Class
B shares if Class B shares held are greater than $1 million. Retirement plans
must notify Signature Services to utilize. A company's (not an individual's)
qualified and non-qualified retirement plan investments can be combined to take
advantage of this privilege.
Group Investment Program. Under the Combination and Accumulation Privileges, all
members of a group may combine their individual purchases of Class A shares to
potentially qualify for breakpoints in the sales charge schedule. This feature
is provided to any group which (1) has been in existence for more than six
months, (2) has a legitimate purpose other than the purchase of mutual fund
shares at a discount for its members, (3) utilizes salary deduction or similar
group methods of payment, and (4) agrees to allow sales materials of the fund in
its mailings to members at a reduced or no cost to John Hancock Funds.
34
<PAGE>
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 retirement plan,
however, may opt to make the necessary investments called for by the LOI over a
forty-eight (48) month period. These retirement plans include traditional, Roth
and Education IRAs, SEP, SARSEP, 401(k), 403(b) (including TSAs), SIMPLE IRA,
SIMPLE 401(k), Money Purchase Pension, Profit Sharing and Section 457 plans. A
individual;s non-qualified and qualified retirement plan investments cannot be
combined to satisfy an LOI of 48 months. Such an investment (including
accumulations and combinations but not including reinvested dividends) must
aggregate $50,000 or more invested during the specified period from the date of
the LOI or from a date within ninety (90) days prior thereto, upon written
request to Signature Services. The sales charge applicable to all amounts
invested under the LOI is computed as if the aggregate amount intended to be
invested had been invested immediately. If such aggregate amount is not actually
invested, the difference in the sales charge actually paid and the sales charge
payable had the LOI not been in effect is due from the investor. However, for
the purchases actually made within the specified period (either 13 or 48 months)
the sales charge applicable will not be higher than that which would have been
applied (including accumulations and combinations) had the LOI been for the
amount actually invested.
The LOI authorizes Signature Services to hold in escrow sufficient Class A
shares (approximately 5% of the aggregate) to make up any difference in sales
charges on the amount intended to be invested and the amount actually invested,
until such investment is completed within the specified period, at which time
the escrowed Class A shares will be released. If the total investment specified
in the LOI is not completed, the Class A shares held in escrow may be redeemed
and the proceeds used as required to pay such sales 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 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 shares and may be
terminated at any time.
Because Class I shares are sold at net asset value without the imposition of any
sales charge, none of the privileges described under these captions are
available to Class I investors, with the following exception:
Combination Privilege. As explained in the Fund's Prospectus for Class I Shares,
a Class I investor may qualify for the minimum $1,000,000 investment (or such
other amount as may be determined by the Fund's officers) if the aggregate
amount of his current and prior investments in Class I shares of the Fund and
Class I shares of any other John Hancock Fund and/or in any of the series of the
John Hancock Institutional Series Trust exceeds $1,000,000.
DEFERRED SALES CHARGE ON CLASS B AND CLASS C SHARES
Investments in Class B and Class C shares are purchased at net asset value per
share without the imposition of a sales charge so that the Fund will receive the
full amount of the purchase payment.
Contingent Deferred Sales Charge. Class B and Class C shares which are redeemed
within six years or one year of purchase, respectively, will be subject to a
CDSC at the rates set forth in the Prospectus as a percentage of the dollar
amount subject to the CDSC. The charge will be assessed on an amount equal to
the lesser of the current market value or the original purchase cost of the
Class B or Class C shares being redeemed. No CDSC will be imposed on increases
in account value above the initial purchase prices, including all shares derived
from reinvestment of dividends or capital gains distributions.
35
<PAGE>
Class B shares are not available to full-service retirement 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 purchase of both Class B and Class C
shares, all payments during a month will be aggregated and deemed to have been
made on the first day of the month.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from shares you have held
beyond the six-year CDSC redemption period for Class B or one year CDSC
redemption period for Class C or those you acquired through dividend and capital
gain reinvestment, and next from the shares you have held the longest during the
six-year period for Class B shares. For this purpose, the amount of any increase
in a share's value above its initial purchase price is not regarded as a share
exempt from CDSC. Thus, when a share that has appreciated in value is redeemed
during the CDSC period, a CDSC is assessed only on its initial purchase price.
When requesting a redemption for a specific dollar amount please indicate if you
require the proceeds to equal the dollar amount requested. If not indicated,
only the specified dollar amount will be redeemed from your account and the
proceeds will be less any applicable CDSC.
Example:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment.
If you redeem 50 shares at this time your CDSC will be calculated as follows:
oProceeds of 50 shares redeemed at $12 per shares (50 x 12) $600.00
o*Minus Appreciation ($12 - $10) x 100 shares (200.00)
o Minus proceeds of 10 shares not subject to
CDSC (dividend reinvestment) (120.00)
--------
oAmount subject to CDSC $280.00
*The appreciation is based on all 100 shares in the account not just
the shares being redeemed.
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or
in part by John Hancock Funds to defray its expenses related to providing
distribution-related services to the Fund in connection with the sale of the
Class B and Class C shares, such as the payment of compensation to select
Selling Brokers for selling Class B and Class C shares. The combination of the
CDSC and the distribution and service fees facilitates the ability of the Fund
to sell the Class B and Class C shares without a sales charge being deducted at
the time of the purchase.
36
<PAGE>
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B and Class C shares and of Class A shares that are subject
to CDSC, unless indicated otherwise, in the circumstances defined below:
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your account
if you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
* Redemptions due to death or disability. (Does not apply to trust
accounts unless trust is being dissolved.)
* Redemptions made under the Reinstatement Privilege, as described in
"Sales Charge Reductions and Waivers" of the Prospectus.
* Redemptions of Class B (but not Class C) shares made under a periodic
withdrawal plan, or redemptions for fees charged by planners or
advisors for advisory services, as long as your annual redemptions do
not exceed 12% of your account value, including reinvested dividends,
at the time you established your periodic withdrawal plan and 12% of
the value of subsequent investments (less redemptions) in that account
at the time you notify Signature Services. (Please note that this
waiver does not apply to periodic withdrawal plan redemptions of Class
A or Class C shares that are subject to a CDSC).
* Redemptions by Retirement plans participating in Merrill Lynch
servicing programs, if the Plan has less 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.
* Redemptions of Class A or Class C shares by retirement plans that
invested through the PruArray Program sponsored by Prudential
Securities.
For Retirement Accounts (such as traditional, Roth, Education IRAs, SIMPLE IRAs,
SIMPLE 401(k), 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 sections
401(a) (such as Money Purchase Pension Plans and Profit Sharing
Plan/401(k) Plans), 457 and 408 (SEPs and SIMPLE IRAs) of the Internal
Revenue Code.
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain IRA accounts that purchased shares
prior to May 15, 1995.
37
<PAGE>
<TABLE>
<CAPTION>
Please see matrix for some examples.
<S> <C> <C> <C> <C> <C>
- ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Type of 401 (a) Plan 403 (b) 457 IRA, IRA Non-retirement
Distribution (401 (k), MPP, Rollover
PSP)
- ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Death or Disability Waived Waived Waived Waived Waived
- ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Over 70 1/2 Waived Waived Waived Waived for 12% of account
mandatory value annually
distributions in periodic
or 12% of payments
account value
annually in
periodic
payments.
- ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Between 59 1/2 Waived Waived Waived Waived for Life 12% of account
and 70 1/2 Expectancy or value annually
12% of account in periodic
value annually payments
in periodic
payments.
- ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Under 59 1/2 Waived for Waived for Waived for Waived for 12% of account
(Class B only) annuity annuity annuity annuity value annually
payments (72t) payments (72t) payments (72t) payments (72t) in periodic
or 12% of or 12% of or 12% of or 12% of payments
account value account value account value account value
annually in annually in annually in annually in
periodic periodic periodic periodic
payments. payments. payments. payments.
- ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Loans Waived Waived N/A N/A N/A
- ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Termination of Plan Not Waived Not Waived Not Waived Not Waived N/A
- ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Hardships Waived Waived Waived N/A N/A
- ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Qualified Domestic Waived Waived Waived N/A N/A
Relations Orders
- ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Termination of Waived Waived Waived N/A N/A
Employment Before
Normal Retirement Age
- ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Return of Excess Waived Waived Waived Waived N/A
- ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
</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
elected to be governed by Rule 18f-1 under the Investment Company Act. Under
that rule the Fund must redeem its shares for cash except to the extent that the
redemption payments to any shareholder during any 90-day period would exceed the
lesser of $250,000 or 1% of the Fund's net asset value at the beginning of such
period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. The Fund permits exchanges of shares of any class of a fund
for shares of the same class in any other John Hancock fund offering that class.
Exchanges between funds with shares that are not subject to a CDSC are based on
their respective net asset values. No sales charge or transaction charge is
imposed. Shares of the Fund which are subject to a CDSC may be exchanged into
shares of any of the other John Hancock funds that are subject to a CDSC without
incurring the CDSC; however, the shares acquired in an exchange will be subject
to the CDSC schedule of the shares acquired if and when such shares are redeemed
(except that shares exchanged into John Hancock 500 Index Fund and John Hancock
Intermediate 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 for
Class B shares of any other John Hancock fund, the acquired shares will continue
to be subject to the CDSC schedule that was in effect when the exchanged shares
were purchased.
The Fund reserves the right to require that previously exchanged shares (and
reinvested dividends) be in the Fund for 90 days before a shareholder is
permitted a new exchange.
The Fund may refuse any exchange order. The Fund may change or cancel its
exchange policies at any time, upon 60 days' notice to its shareholders.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares of another for Federal Income Tax purposes. An exchange may
result in a taxable gain or loss. See "TAX STATUS".
Systematic Withdrawal Plan. The Fund permits the establishment of a Systematic
Withdrawal Plan. Payments under this plan represent proceeds arising from the
redemption of Fund shares which may result in realization of gain or loss for
purposes of Federal, state and local income taxes. The maintenance of a
Systematic Withdrawal Plan concurrently with purchases of additional shares of
the Fund could be disadvantageous to a shareholder because of the initial sales
charge payable on such purchases of Class A shares and the CDSC imposed on
redemptions of Class B and Class C shares and because redemptions are taxable
events. Therefore, a shareholder should not purchase shares at the same time a
Systematic Withdrawal Plan is in effect. The Fund reserves the right to modify
or discontinue the Systematic Withdrawal Plan of 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.
39
<PAGE>
Monthly Automatic Accumulation Program ("MAAP"). The program is explained in the
Prospectus. The program, as it relates to automatic investment checks, is
subject to the following conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the MAAP may be revoked by Signature
Services without prior notice if any investment is not honored by the
shareholder's bank. The bank shall be under no obligation to notify the
shareholder as to the non-payment of any checks.
The program may be discontinued by the shareholder either by calling Signature
Services or upon written notice to Signature Services which is received at least
five (5) business days prior to the order date of any investment.
Reinstatement or Reinvestment Privilege. If Signature Services is notified prior
to reinvestment, a shareholder who has redeemed Fund shares may, within 120 days
after the date of redemption, reinvest without payment of a sales charge any
part of the redemption proceeds in shares of the same class of the Fund or
another John Hancock fund, subject to the minimum investment limit in that fund.
The proceeds from the redemption of Class A shares may be reinvested at net
asset value without paying a sales charge in Class A shares of the Fund or in
Class A shares of any John Hancock fund. If a CDSC was paid upon a redemption, a
shareholder may reinvest the proceeds from this redemption at net asset value in
additional shares of the class from which the redemption was made. The
shareholder's account will be credited with the amount of the CDSC charged upon
the prior redemption and the new shares will continue to be subject to the CDSC.
The holding period of the shares acquired through reinvestment will, for
purposes of computing the CDSC payable upon a subsequent redemption, include the
holding period of the redeemed shares.
To protect the interests of other investors in the Fund, the Fund may cancel the
reinvestment privilege of any parties that, in the opinion of the Fund, are
using market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. Also, the Fund may refuse any reinvestment
request.
The Fund may change or cancel its reinvestment policies at any time.
A redemption or exchange of Fund shares is a taxable transaction for Federal
income tax purposes even if the reinvestment privilege is exercised, and any
gain or loss realized by a shareholder on the redemption or other disposition of
Fund shares will be treated for tax purposes as described under the caption "TAX
STATUS."
Retirement plans participating in Merrill Lynch's servicing programs:
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.
40
<PAGE>
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).
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. 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. The Trustees have also authorized the issuance of three classes of
shares of the Fund, designated as Class A, Class B, Class C and Class I.
The shares of each class of the Fund represent an equal proportionate interest
in the aggregate net assets attributable to that class of the Fund. Holders of
each class of shares have certain exclusive voting rights on matters relating to
their respective distribution plans. The different classes of the Fund may bear
different expenses relating to the cost of holding shareholder meetings
necessitated by the exclusive voting rights of any class of shares.
Dividends paid by the Fund, if any, with respect to each class of shares will be
calculated in the same manner, at the same time and on the same day and will be
in the same amount, except for differences resulting from the facts that (i) the
distribution and service fees relating to each class will be borne exclusively
by that class; (ii) Class B and Class C shares will pay higher distribution and
service fees than Class A shares, and (iii) each class of shares will bear any
class expenses properly allocable to that class of shares, subject to the
conditions the Internal Revenue Service imposes with respect to multiple-class
structures. Similarly, the net asset value per share may vary depending on which
class of shares are purchased. No interest will be paid on uncashed dividend or
redemption checks.
In the event of liquidation, shareholders of each class are entitled to share
pro rata in the net assets of the Fund available for distribution to these
shareholders. Shares entitle their holders to one vote per share, are freely
transferable and have no preemptive, subscription or conversion rights. When
issued, shares are fully paid and non-assessable except as set forth below.
Unless otherwise required by the Investment Company Act or the Declaration of
Trust, the Fund has no intention of holding annual meetings of shareholders of
each class. 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.
41
<PAGE>
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the trust. However, the Trust's Declaration of Trust contains an express
disclaimer of shareholder liability for acts, obligations 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 the Fund's prospectus shall
be liable for the liabilities of any other John Hancock Fund. Liability is
therefore limited to circumstances in which the Fund itself would be unable to
meet its obligations, and the possibility of this occurrence is remote.
The Fund reserves the right to reject any application which conflicts with the
Fund's internal policies or the policies of any regulatory authority. John
Hancock Funds does not accept starter, credit card or third party checks. All
checks returned by the post office as undeliverable will be reinvested at net
asset value in the fund or funds from which a redemption was made or dividend
paid. Information provided on the account application may be used by the Fund to
verify the accuracy of the information or for background or financial history
purposes. A joint account will be administered as a joint tenancy with right of
survivorship, unless the joint owners notify Signature Services of a different
intent. A shareholder's account is governed by the laws of The Commonwealth of
Massachusetts. For telephone transactions, the transfer agent will take measures
to verify the identity of the caller, such as asking for name, account number,
Social Security or other taxpayer ID number and other relevant information. If
appropriate measures are taken, the transfer agent is not responsible for any
losses that may occur to any account due to an unauthorized telephone call. Also
for your protection telephone transactions are not permitted on accounts whose
names or addresses have changed within the past 30 days. Proceeds from telephone
transactions can only be mailed to the address of record.
Selling activities for the Fund may not take place outside the U.S. exempt with
U.S. military bases, APO addresses and U.S. diplomats. Brokers of record on
Non-U.S. investors' accounts with foreign mailing addresses are required to
certify that all sales activities have occurred, and in the future will occur,
only in the U.S. A Foreign corporation may purchase shares of the Fund only if
it has a U.S. mailing address.
TAX STATUS
The Fund, is treated as a separate entity for accounting and tax purposes, has
qualified as a "regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), and intends to continue to
qualify for each taxable year. As such and by complying with the applicable
provisions of the Code regarding the sources of its income, the timing of its
distributions, and the diversification of its assets, the Fund will not be
subject to Federal income tax on its taxable income (including net realized
capital gains) which is distributed to shareholders in accordance with the
timing requirements of the Code.
The Fund will be subject to a 4% 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 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.
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Distributions, if any, in excess of E&P will constitute a return of capital
under the Code, which will first reduce an investor's federal tax basis in Fund
shares and then, to the extent such basis is exceeded, will generally give rise
to capital gains. Shareholders who have chosen automatic reinvestment of their
distributions will have a federal tax basis in each share received pursuant to
such a reinvestment equal to the amount of cash they would have received had
they elected to receive the distribution in cash, divided by the number of
shares received in the reinvestment.
If the Fund invests in stock (including an option to acquire stock such as is
inherent in a convertible bond) of certain foreign corporations that receive at
least 75% of their annual gross income from passive sources (such as interest,
dividends, certain rents and royalties or capital gain) or hold at least 50% of
their assets in investments producing such passive income ("passive foreign
investment companies"), the Fund could be subject to Federal income tax and
additional interest charges on "excess distributions" received from such
companies or gain from the sale of stock in such companies, even if all income
or gain actually received by the Fund is timely distributed to its shareholders.
The Fund would not be able to pass through to its shareholders any credit or
deduction for such a tax. An election may be available to ameliorate these
adverse tax consequences, but could require the Fund to recognize taxable income
or gain without the concurrent receipt of cash. These investments could also
result in the treatment of associated capital gains as ordinary income. The Fund
may limit and/or manage its holdings in passive foreign investment companies or
make an available election to minimize its tax liability or maximize its return
from these investments.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
certain foreign currency options, foreign currency forward contracts, foreign
currencies, or payables or receivables denominated in a foreign currency are
subject to Section 988 of the Code, which generally causes such gains and losses
to be treated as ordinary income and losses and may affect the amount, timing
and character of distributions to shareholders. Transactions in foreign
currencies that are not directly related to the Fund's investment in stock or
securities, including speculative currency positions could under future Treasury
regulations produce income not among the types of "qualifying income" from which
the Fund must derive at least 90% of its gross income for each taxable year. If
the net foreign exchange loss for a year treated as ordinary loss under Section
988 were to exceed the Fund's investment company taxable income computed without
regard to such loss, the resulting overall ordinary loss for such year would not
be deductible by the Fund or its shareholders in future years.
The Fund may be subject to withholding and other taxes imposed by foreign
countries with respect to its investments in foreign securities. 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.
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The amount of the Fund's net realized capital gains, if any, in any given year
will vary depending upon the Adviser's current investment strategy and whether
the Adviser believes it to be in the best interest of the Fund to dispose of
portfolio securities and/or engage in options, futures or forward transactions
that will generate capital gains. At the time of an investor's purchase of Fund
shares, a portion of the purchase price is often attributable to realized or
unrealized appreciation in the Fund's portfolio or undistributed taxable income
of the Fund. Consequently, subsequent distributions from such appreciation or
income may be taxable to such investor even if the net asset value of the
investor's shares is, as a result of the distributions, reduced below the
investor's cost for such shares, and the distributions in reality represent a
return of a portion of the purchase price.
Upon a redemption or other disposition of shares of the Fund (including by
exercise of the exchange privilege) in a transaction that is treated as a sale
for tax purposes, a shareholder may realize a taxable gain or loss depending
upon the amount of the proceeds and the investor's basis in his shares. Such
gain or loss will be treated as capital gain or loss if the shares are capital
assets in the shareholder's hands. A sales charge paid in purchasing shares of
the Fund cannot be taken into account for purposes of determining gain or loss
on the redemption or exchange of such shares within 90 days after their purchase
to the extent shares of the Fund or another John Hancock Fund are subsequently
acquired without payment of a sales charge pursuant to the reinvestment or
exchange privilege. 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. Shareholders should consult their own tax advisers
regarding their particular circumstances to determine whether a disposition of
Fund shares is properly treated as a sale for tax purposes, as is assumed in the
foregoing discussion.
Although its present intention is to distribute, at least annually, all net
capital gain, if any, the Fund reserves the right to retain and reinvest all or
any portion of the excess, as computed for Federal income tax purposes, of net
long-term capital gain over net short-term capital loss in any year. The Fund
will not in any event distribute net capital gain realized in any year to the
extent that a capital loss is carried forward from prior years against such
gain. To the extent such excess was retained and not exhausted by the
carryforward of prior years' capital losses, it would be subject to Federal
income tax in the hands of the Fund. Upon proper designation of this amount by
the Fund, each shareholder would be treated for Federal income tax purposes as
if the Fund had distributed to him on the last day of its taxable year his pro
rata share of such excess, and he had paid his pro rata share of the taxes paid
by the Fund and reinvested the remainder in the Fund. Accordingly, each
shareholder would (a) include his pro rata share of such excess as long-term
capital gain in his return for his taxable year in which the last day of the
Fund's taxable year falls, (b) be entitled either to a tax credit on his return
for, or to a refund of, his pro rata share of the taxes paid by the Fund, and
(c) be entitled to increase the adjusted tax basis for his shares in the Fund by
the difference between his pro rata share of such excess and his pro rata share
of such taxes.
For Federal income tax purposes, the Fund is permitted to carry forward a net
capital loss in any year to offset its net capital gains, if any, during the
eight years following the year of the loss. To the extent subsequent net capital
gains are offset by such losses, they would not result in Federal income tax
liability to the Fund and, as noted above, would not be distributed as such to
shareholders. The Fund does not have any capital loss carryforwards.
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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 holding
period requirements stated above with respect to their shares of the Fund for
each dividend in order to qualify for the deduction and, if they have any debt
that is deemed under the Code directly attributable to such shares, may be
denied a portion of the dividends received deduction. The entire qualifying
dividend, including the otherwise deductible amount, will be included in
determining the excess (if any) of a corporate shareholder's adjusted current
earnings over its alternative minimum taxable income, which may increase its
alternative minimum tax liability, if any. Additionally, any corporate
shareholder should consult its tax adviser regarding the possibility that its
basis in its shares may be reduced, for Federal income tax purposes, by reason
of "extraordinary dividends" received with respect to the shares and, to the
extent such basis would be reduced to zero, that current recognition of income
would be required.
The Fund is required to accrue income on any debt securities that have more than
a de minimis amount of original issue discount (or debt securities acquired at a
market discount, if the Fund elects to include market discount in income
currently) prior to the receipt of the corresponding cash payment. The mark to
market rules or constructive sale applicable to certain options, futures,
forwards, short sales, or other transactions may also require the Fund to
recognize income or gain without a concurrent receipt of cash. Additionally,
some countries restrict repatriation which may make it difficult or impossible
for the Fund to obtain cash corresponding to its earnings or assets in those
countries. However, the Fund must distribute to shareholders for each taxable
year substantially all of its net income and net capital gains, including such
income or gain, to qualify as a regulated investment company and avoid liability
for any federal income or excise tax. Therefore, the Fund may have to dispose of
its portfolio securities under disadvantageous circumstances to generate cash,
or borrow cash, to satisfy these distribution requirements.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent (if any) the Fund's distributions
are derived from interest on (or, in the case of intangible property taxes, the
value of its assets is attributable to) certain U.S. Government obligations,
provided in some states that certain thresholds for holdings of such obligations
and/or reporting requirements are satisfied. The Fund will not seek to satisfy
any threshold or reporting requirements that may apply in particular taxing
jurisdictions, although the Fund may in its sole discretion provide relevant
information to shareholders.
The Fund will be required to report to the Internal Revenue Service (the "IRS")
all taxable distributions to shareholders, as well as gross proceeds from the
redemption or exchange of Fund shares, except in the case of certain exempt
recipients, i.e., corporations and certain other investors distributions to
which are exempt from the information reporting provisions of the Code. Under
the backup withholding provisions of Code Section 3406 and applicable Treasury
regulations, all such reportable distributions and proceeds may be subject to
backup withholding of federal income tax 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
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certifications required by the IRS or if the IRS or a broker notifies the Fund
that the number furnished by the shareholder is incorrect or that the
shareholder is subject to backup withholding as a result of failure to report
interest or dividend income. The Fund may refuse to accept an application that
does not contain any required taxpayer identification number or certification
that the number provided is correct. If the backup withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in shares, will be reduced by the amounts required to be withheld.
Any amounts withheld may be credited against a shareholder's U.S. federal income
tax liability. Investors should consult their tax advisers about the
applicability of the backup withholding provisions.
Different tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions and certain
prohibited transactions, is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
Limitations imposed by the Code on regulated investment companies like the Fund
may restrict the Fund's ability to enter into options, futures, foreign currency
positions, and foreign currency forward contracts.
Certain options, futures and forward foreign currency contracts undertaken by
the Fund may cause the Fund to recognize gains or losses from marking to market
even though its positions have not been sold or terminated and affect the
character as long-term or short-term (or, in the case of foreign currency
contracts, as ordinary income or loss) and timing of some capital gains and
losses realized by the Fund. Additionally, the Fund may be required to recognize
gain, but not loss, if an option, short sale or other transaction is treated as
a constructive sale of an appreciated financial position in the Fund's
portfolio. Also, certain of the Fund's losses on its transactions involving
options, futures or forward contracts and/or offsetting or successor portfolio
positions may be deferred rather than being taken into account currently in
calculating the Fund's taxable income or gains. These transactions may therefore
affect the amount, timing and character of the Fund's distributions to
shareholders. Certain of such transactions may also cause the Fund to dispose of
investments sooner than would otherwise have occurred. The Fund will take into
account the special tax rules (including consideration of available elections)
applicable to options, futures and forward contracts in order to seek to
minimize any potential adverse tax consequences.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain types of
investors, such as tax-exempt entities, insurance companies, and financial
institutions. Dividends, capital gain distributions, and ownership of or gains
realized on the redemption (including an exchange) of Fund shares may also be
subject to state and local taxes. Shareholders should consult their own tax
advisers as to the Federal, state or local tax consequences of ownership of
shares of, and receipt of distributions from, the Fund in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their
investment in the Fund is effectively connected will be subject to U.S. Federal
income tax treatment that is different from that described above. These
investors may be subject to 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
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.
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The Fund is not subject to Massachusetts corporate excise or franchise taxes.
The Fund anticipates that, provided that the Fund qualifies as a regulated
investment company under the Code, it will also not be required to pay any
Massachusetts income tax.
CALCULATION OF PERFORMANCE
As of April 30, 1999, the average annual returns for the Fund's Class A shares
for the one year and five year periods and since inception on August 22, 1991
were -1.29%,16.89% and 15.57%, respectively.
As of April 30, 1999, the average annual total returns of the Class B shares of
the Fund for the one, five and ten year periods and the life-of-the Fund since
inception on October 26, 1987 were 0.93%, 17.03% and 16.95%, respectively.
As of April 30, 1999, the cumulative annual total return of the Class C shares
of the Fund since inception on June 1, 1998 was 14.96%.
Class I shares did not commence operations until December 1, 1999, therefore,
there is no average total return on Class I shares of the Fund.
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 10 year periods.
Because each class has its own sales charge and fee structure, the classes have
different performance results. In the case of each class, this calculation
assumes the maximum sales charge is included in the initial investment or the
CDSC 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. Class I shares did not commence operations until December 1, 1999;
therefore there are no performance calculations for Class I shares but
performance calculations for class I would not include any sales charge or
distribution plan fees.
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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
and the CDSC on Class B or Class C shares into account. Excluding the Fund's
sales charge on Class A shares and the CDSC on Class B or Class C shares from a
total return calculation produces a higher total return figure.
From time to time, in reports and promotional literature, the Fund's yield and
total return will be compared to indices of mutual funds and bank deposit
vehicles such as Lipper Analytical Services, Inc.'s "Lipper -- Fixed Income Fund
Performance Analysis," a monthly publication which tracks net assets, total
return, and yield on fixed income mutual funds in the United States. Ibottson
and Associates, CDA Weisenberger and F.C. Towers are also used for comparison
purposes, as well 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 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 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
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 these transactions.
In the U.S. Government securities market, securities are generally traded on a
"net" basis with dealers acting as principal for their own account without a
stated commission, although the price of the security usually includes a profit
to the dealer. On occasion, certain money market instruments and agency
securities may be purchased directly from the issuer, in which case no
commissions or premiums are paid. 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.
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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 Dealer, 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, 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 October 31, 1998,
1997 and 1996, the Fund paid negotiated brokerage commissions of $1,201,179,
$1,118,124 and $459,477, 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 the price is
reasonable in light of the services provided and to policies that the Trustees
may adopt from time to time. During the fiscal year ended October 31, 1998, the
Fund paid commissions of $104,790 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 Signator Investors, Inc., a broker-dealer (until January 1, 1999,
John Hancock Distributors, Inc.) ("Signator" or "Affiliated Broker"). Pursuant
to procedures established by the Trustees and consistent with the above policy
of obtaining best net results, the Fund may execute portfolio transactions with
or through the Affiliated Broker. During the fiscal year ended October 31, 1996,
1997 and 1998, the Fund paid no brokerage commissions to the Affiliated Broker.
Signator 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
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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 Broker.
Because the Adviser, which is affiliated with the Affiliated Broker, has, as an
investment adviser to the Fund, the obligation to provide investment management
services, which includes elements of research and related investment skills,
such research and related skills will not be used by the Affiliated Broker as a
basis for negotiating commissions at a rate higher than that determined in
accordance with the above criteria.
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, the investment procedure may adversely affect the price paid or
received by the Fund or the size of the position obtainable for it. On the other
hand, to the extent permitted by law, the Adviser may aggregate securities to be
sold or purchased for the Fund with those to be sold or purchased for other
clients managed by it in order to obtain best execution.
TRANSFER AGENT SERVICES
John Hancock Signature Services, Inc., 1 John Hancock Way, Suite 1000, Boston,
MA 02217- 1000, a wholly owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent for the Fund. The Fund pays Signature
Services an annual fee of $19.00 for each Class A shareholder account and $21.50
for each Class B shareholder account and $20.50 for each Class C shareholder
account and 0.05% of the average daily net assets attributable to the Class I
shares. For Class A, B and C shares, the Fund also pays certain out-of-pocket
expenses and 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, 200 Clarendon Street,
Boston, Massachusetts 02116. Under the custodian agreement, Investors Bank &
Trust 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 for Class A, Class B and Class C shares and
this Statement of Additional Information have been audited by Ernst & Young LLP
for the periods indicated in their report, appearing elsewhere herein, and have
been included in reliance on their report as experts in accounting and auditing.
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APPENDIX-A-Description of Investment Risk
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's primary securities and
investment practices. You may find the most concise description of the fund's
risk profile in the prospectuses.
A fund is permitted to utilize -- within limits established by the trustees --
certain other securities and investment practices that have higher risks and
opportunities associated with them. To the extent that the Fund utilizes these
securities or practices, its overall performance may be affected, either
positively or negatively. On the following pages are brief definitions of
certain associated risks with them with examples of related securities and
investment practices included in brackets. See the "Investment Objective and
Policies" and "Investment Restrictions" sections of this Statement of Additional
Information for a description of this Fund's investment policies. The Fund
follows certain policies that may reduce these risks.
As with any mutual fund, there is no guarantee that the Fund will earn income or
show a positive return over any period of time -- days, months or years.
TYPES OF INVESTMENT RISK
Correlation risk The risk that changes in the value of a hedging instrument will
not match those of the asset being hedged (hedging is the use of one investment
to offset the effects of another investment). Incomplete correlation can result
in unanticipated risks. (e.g., short sales, financial futures and options;
securities and index options, currency contracts).
Credit risk The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation. (e.g., borrowing; reverse repurchase agreements, repurchase
agreements, securities lending, non-investment-grade securities, financial
futures and options; securities and index options).
Currency risk The risk that fluctuations in the exchange rates between the U.S.
dollar and foreign currencies may negatively affect an investment. Adverse
changes in exchange rates may erode or reverse any gains produced by foreign
currency denominated investments and may widen any losses. (e.g., foreign
equities, financial futures and options; securities and index options, currency
contracts).
Information risk The risk that key information about a security or market is
inaccurate or unavailable. (e.g., non-investment-grade securities, foreign
equities).
Interest rate risk The risk of market losses attributable to changes in interest
rates. With fixed-rate securities, a rise in interest rates typically causes a
fall in values, while a fall in rates typically causes a rise in values. (e.g.,
non-investment-grade securities, financial futures and options; securities and
index options).
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Leverage risk Associated with securities or practices (such as borrowing) that
multiply small index or market movements into large changes in value. (e.g.,
borrowing; reverse repurchase agreements, when-issued securities and forward
commitments).
o Hedged When a derivative (a security whose value is based on another
security or index) is used as a hedge against an opposite position that the
fund also holds, any loss generated by the derivative should be
substantially offset by gains on the hedged investment, and vice versa.
While hedging can reduce or eliminate losses, it can also reduce or
eliminate gains. (e.g., short sales, financial futures and options
securities and index options; currency contracts).
o Speculative To the extent that a derivative is not used as a hedge, the
fund is directly exposed to the risks of that derivative. Gains or losses
from speculative positions in a derivative may be substantially greater
than the derivative's original cost. (e.g., short sales, financial futures
and options securities and index options; currency contracts).
o Liquidity risk The risk that certain securities may be difficult or
impossible to sell at the time and the price that the seller would like.
The seller may have to lower the price, sell other securities instead or
forego an investment opportunity, any of which could have a negative effect
on fund management or performance. (e.g., non-investment-grand securities,
short sales, restricted and illiquid securities, financial futures and
options securities and index options; currency contracts).
Management risk The risk that a strategy used by a fund's management may fail to
produce the intended result. Common to all mutual funds.
Market risk The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. These fluctuations may cause a security to
be worth less than the price originally paid for it, or less than it was worth
at an earlier time. Market risk may affect a single issuer, industry, sector of
the economy or the market as a whole. Common to all stocks and bonds and the
mutual funds that invest in them. (e.g., short sales, short-term trading,
when-issued securities and forward commitments, non-investment-grade securities,
foreign equities, financial futures and options; securities and index options
restricted and illiquid securities).
Natural event risk The risk of losses attributable to natural disasters, crop
failures and similar events. (e.g., foreign equities).
Opportunity risk The risk of missing out on an investment opportunity because
the assets necessary to take advantage of it are tied up in less advantageous
investments. (e.g., short sales, when-issued securities and forward commitments;
financial futures and options; securities and index options, currency
contracts).
Political risk The risk of losses attributable to government or political
actions, from changes in tax or trade statutes to governmental collapse and
war.(e.g., foreign equities).
Valuation risk The risk that a fund has valued certain of its securities at a
higher price than it can sell them for. (e.g., non-investment-grade securities,
restricted and illiquid securities).
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APPENDIX B
Description of Bond Ratings
The ratings of Moody's Investors Service, Inc. and Standard & Poor's Ratings
Group represent their opinions as to the quality of various debt instruments
they undertake to rate. It should be emphasized that ratings are not absolute
standards of quality. Consequently, debt instruments with the same maturity,
coupon and rating may have different yields while debt instruments of the same
maturity and coupon with different ratings may have the same yield.
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuations of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment at some time in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack the characteristics of desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
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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.
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FINANCIAL STATEMENTS
The financial statements listed below are included in the Fund's 1998 Annual
Report to Shareholders for the year ended October 31, 1998; (filed
electronically on December 30, 1998, accession number 0001010521-98-0000412) and
the Fund's 1999 Seminnual Report to Shareholders for the period ended April 30;
1999 (filed electronically on July 1, 1999, accession number
0001010521-99-000262) are included in and incorporated by reference into Part B
of the Registration Statement for John Hancock Small Cap Growth Fund formerly
John Hancock Emerging Growth Fund (file nos. 811-3392 and 2-75807).
John Hancock Small Cap Growth Fund
Statement of Assets and Liabilities as of April 30, 1999. (unaudited)
Statement of Operations for six months ended April 30, 1999. (unaudited)
Statement of Changes in Net Asset for six months ended April 30, 1999 and
for each of the two years in the period ended April 30, 1999. (unaudited)
Financial Highlights for six months ended April 30, 1999 and for each of the
five years in the period ended April 30, 1999. (unaudited)
Notes to Financial Statements. (unaudited)
Schedule of Investments as of April 30, 1999. (unaudited)
Statement of Assets and Liabilities as of October 31, 1998.
Statement of Operations for the year ended October 31, 1998.
Statement of Changes in Net Asset for each of the two years in the period
ended October 31, 1998.
Financial Highlights for each of the five years in the period ende
October 31, 1998.
Notes to Financial Statements.
Schedule of Investments as of October 31, 1998.
Report of Independent Auditors.
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