As filed with the Securities and Exchange Commission on August 18, 1999.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /_X__/
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Pre-Effective Amendment No. ___ /____/
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Post-Effective Amendment No. ___ /____/
(Check appropriate box or boxes)
JOHN HANCOCK SERIES TRUST
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(Exact name of registrant as specified in charter)
101 Huntington Avenue, Boston, Massachusetts 02199-7603
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(Address of principal executive office) Zip Code
(617) 375-1702
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(Registrant's Telephone Number, including Area Code)
Susan S. Newton, Esq.
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, MA 02199
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(Name and address of agent for service)
Title of Securities Being Registered: shares of beneficial interest of John
Hancock Strategic Series.
Approximate Date of Proposed Public Offering: As soon as practicable after the
effectiveness of the registration statement.
No filing fee is required because an indefinite number of shares has previously
been registered pursuant to Rule 24f-2 under the Investment Company Act of 1940,
as amended. This Registration Statement relates to shares previously registered
on Form N-1A (File Nos. 33-5186 and 811-4651).
It is proposed that this filing will become effective on September 17, 1999
pursuant to Rule 488 under the Securities Act of 1933.
<PAGE>
JOHN HANCOCK SERIES TRUST
CROSS-REFERENCE SHEET
Items Required by Form N-14
<TABLE>
<CAPTION>
PART A
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Item No. Item Caption Prospectus Caption
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<S> <C> <C>
1. Beginning of Registration COVER PAGE OF REGISTRATION
Statement and Outside Front STATEMENT; FRONT COVER PAGE OF
Cover Page of Prospectus PROSPECTUS
2. Beginning and Outside Back TABLE OF CONTENTS
Cover Page of Prospectus
3. Synopsis and Risk Factors OVERVIEW; INVESTMENT RISKS
4. Information About the INTRODUCTION; OVERVIEW; MAIN
Transaction RISKS; INFORMATION CONCERNING THE
MEETING; PROPOSAL TO APPROVE THE
AGREEMENT AND PLAN OF REORGANIZATION;
CAPITALIZATION
5. Information About the PROSPECTUS COVER PAGE; INTRODUCTION;
Registrant OVERVIEW; ADDITIONAL INFORMATION
ABOUT THE FUNDS' BUSINESSES
6. Information About the PROSPECTUS COVER PAGE; INTRODUCTION;
Company Being Acquired OVERVIEW; ADDITIONAL INFORMATION
ABOUT THE FUNDS' BUSINESSES
7. Voting Information PROSPECTUS COVER PAGE; NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS;
SUMMARY; INFORMATION CONCERNING
THE MEETING; VOTING RIGHTS AND
REQUIRED VOTE
8. Interest of Certain Persons EXPERTS
and Experts
9. Additional Information NOT APPLICABLE
Required for Reoffering by
Persons Deemed to be
Underwriters
<PAGE>
PART B
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Caption in Statement of
Item No. Item Caption Additional Information
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10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. Additional Information ADDITIONAL INFORMATION ABOUT
About the Registrant STRATEGIC INCOME FUND
13. Additional Information About ADDITIONAL INFORMATION ABOUT
the Company Being Acquired SPECIAL EQUITITES FUND
14. Financial Statements ADDITIONAL INFORMATION ABOUT SMALL CAP GROWTH
FUND; ADDITIONAL INFORMATION ABOUT SPECIAL
EQUITIES FUND; PRO FORMA COMBINED FINANCIAL
STATEMENTS
PART C
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Item No. Item Caption
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15. Indemnification INDEMNIFICATION
16. Exhibits EXHIBITS
17. Undertakings UNDERTAKINGS
</TABLE>
<PAGE>
[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 page. I suggest you read both
thoroughly before voting.
Your Vote Makes a Difference!
No matter what the 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
1
<PAGE>
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 necessarily 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
Analytical Services' 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 annual report, both of 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 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.
2
<PAGE>
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?
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 Analytical Services, 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.
3
<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
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Susan S. Newton
Secretary
September 27, 1999
020PX 8/99
4
<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 Small In the same envelope as this proxy
Cap Growth Fund dated July 1, 1999. statement and prospectus.
Class I Prospectus of Small Cap Growth Incorporated by reference into this
Fund dated December 1, 1999. proxy statement and prospectus.
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Small Cap Growth Fund's annual report
to shareholders.
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Your fund's annual and semi-annual On file with the Securities and
reports to shareholders. Your fund's Exchange Commission ("SEC") and
Class A, B and C prospectus dated July available at no charge by calling
1, 1999 and Class Y prospectus dated 1-800-225-5291. Incorporated by
March 1, 1999. reference into this proxy statement
and prospectus.
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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 14
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 28
AVAILABLE INFORMATION 28
EXHIBITS
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.
4
<PAGE>
<TABLE>
<CAPTION>
Comparison of Special Equities Fund to Small Cap Growth Fund
<S> <C> <C>
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Special Equities Fund Small Cap Growth Fund
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Business A diversified open-end A diversified series of John
investment management company Hancock Series Trust, an
organized as a Massachusetts open-end investment management
business trust. company organized as a
Massachusetts business trust.
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Net assets as of April $711.0 million $639.7 million.
30, 1999
- -------------------------- ------------------------------------------------------------------
Investment adviser and Investment adviser for both funds: John Hancock 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 objectives The fund seeks growth of The fund seeks long term
capital by investing in a capital appreciation. This
diversified portfolio of objective is non-fundamental
equity securities consisting and can be changed by the
primarily of emerging growth fund's board of trustees
companies and of companies in without shareholder approval.
"special situations,"
collectively referred to as
"Special Equities." This
objective cannot be changed
without shareholder approval.
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5
<PAGE>
- -------------------------- -------------------------------- --------------------------------
Primary investments The fund normally invests at The fund normally invests at
least 65% of its assets in least 80% of its assets in
emerging growth companies and stocks of U.S. emerging growth
companies in situations companies with market
offering unusual or one-time capitalizations of no more
opportunities. Emerging than $1 billion.*
growth companies generally
have market capitalizations of * As a result of a pending
less than $1 billion. policy change, 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).
- -------------------------- -------------------------------- --------------------------------
Other Investments The fund may invest up to 35% The fund may invest up to 20%
of its assets in any of the of its assets in any of the
following: following:
o Equity securities of o Other common stocks;
established companies o Preferred stocks
that the adviser believes o Convertible securities
offer growth potential (including up to 10% in
o Investment grade securities rated "B" or
corporate debt securities equivalent)
o Warrants
o U.S. government securities
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Foreign securities and Each fund may invest in all types of foreign securities,
currencies 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 markets 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/ratings Investment grade only Up to 10% of assets in below
criteria investment grade securities
rated as low as "B" or
equivalent
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Repurchase Each fund may enter into repurchase agreements consistent with
agreements its policy on restricted/illiquid securities.
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Reverse repurchase Each fund may enter into reverse repurchase agreements.
agreements
- -------------------------- -------------------------------- --------------------------------
Restricted and illiquid The fund may not invest more The fund may invest in
securities than 15% of total assets in restricted securities. The
restricted or illiquid fund may not invest more than
securities (excluding liquid 10% of net assets in illiquid
144A securities). securities (excluding liquid
144A securities).
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6
<PAGE>
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Derivatives Each fund may engage to the same extent
transactions in various 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 lending Each fund may lend portfolio securities consistent with
applicable regulatory requirements up to 33 1/3% of its total
assets.
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Rights and warrants Each fund may purchase rights and warrants.
- -------------------------- ------------------------------------------------------------------
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 or forward
securities commitment basis
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Short-term trading Each fund may engage in short term trading.
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CLASSES OF SHARES
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Special Equities Fund Small Cap Growth Fund
- ------------------- ------------------------------ ------------------------------------------
Class A sales Class A shares are offered Class A shares are offered with
charges and 12b-1 with front-end sales charges front-end sales charges ranging from 2%
fees: ranging from 2% to 5% of the to 5% of the fund's offering price,
fund's offering price, depending on the amount invested. Class
depending on the amount A shares are subject to a 12b-1
invested. Class A shares distribution fee equal to 0.25% annually
are subject to a 12b-1 of average net assets.
distribution fee equal to
0.30% annually of average
net assets
- ------------------- -------------------------------------------------------------------------
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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7
<PAGE>
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CLASSES OF SHARES
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Special Equities Fund Small Cap Growth Fund
- ------------------- ---------------------------------- --------------------------------------
Class B sales Class B shares are offered Class B shares are offered without a
charges and 12b-1 without a front-end sales front-end sales charge, but are
fees: charge, but are subject to a subject to a contingent deferred
contingent deferred sales charge sales charge (CDSC) if sold within
(CDSC) if sold within six years six years after purchase. The CDSC
after purchase. The CDSC ranges ranges from 1.00% to 5.00% depending
from 1.00% to 5.00% depending on on how long the shares are held. No
how long the shares are held. CDSC is imposed on shares held more
No CDSC is imposed on shares than six years.
held more than six years.
Class B shares are subject to 12b-1
Class B shares are subject to distribution and service fees equal
12b-1 distribution and service to 1.00% annually of average net
fees equal to 1.00% annually of assets.
average net assets.
CDSCs are waived for the categories
CDSCs are waived for the of investors listed in the funds'
categories of investors listed prospectus.
in the funds' prospectus.
Class B shares automatically convert
Class B shares automatically to Class A shares after eight years.
convert to Class A shares after
eight years.
- ------------------- -------------------------------------------------------------------------
Class C sales The Class C shares of both funds have the same characteristics and fee
charges and 12b-1 structure.
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.
- ------------------- -------------------------------------------------------------------------
Class Y/I sales o Class Y shares of Special Equities Fund and Class I shares of
charges and 12b-1 Small Cap Growth Fund (which currently do not exist, but will be
fees established for the reorganization) have no sales charge and no
12b-1 fee.
- ------------------- -------------------------------------------------------------------------
12b-1 fees: o These fees are paid out of a fund's assets on
an on-going basis. Over time these fees will increase
the cost of investments and may cost more than other
types of sales charges.
- ------------------- -------------------------------------------------------------------------
8
<PAGE>
- -------------------------------------------------------------------------------------------
BUYING, SELLING AND EXCHANGING SHARES
- -------------------------------------------------------------------------------------------
Both Special Equities Fund and Small Cap Growth Funds
- ------------------- -----------------------------------------------------------------------
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.
- ------------------- -----------------------------------------------------------------------
Minimum initial $1,000 for non-retirement accounts and $250 for retirement accounts
investment: and group investments.
- ------------------- -----------------------------------------------------------------------
Exchanging shares: Shareholders may exchange their shares at net asset value with no
sales charge for shares of the same class of any other John Hancock
fund.
- ------------------- -----------------------------------------------------------------------
Selling shares: Shareholders may sell their shares by submitting a
proper written or telephone request to John Hancock
Signature Services, Inc.
- ------------------- -----------------------------------------------------------------------
Net asset value: All purchases, exchanges and sales are made at
a price based on the next determined net asset value 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.
- ------------------- -----------------------------------------------------------------------
</TABLE>
9
<PAGE>
The Funds' Expenses
Shareholders of both funds pay various expenses, either directly or indirectly.
The first two expense tables appearing below show the expenses for the 12 month
period ended April 30, 1999, adjusted to reflect any changes. Future expenses
may be greater or less. The examples contained in each expense table show what
you would pay if you invested $10,000 over the various time periods indicated.
Each example assumes that you reinvested all dividends and that the average
annual return was 5%. The examples are for comparison purposes only and are not
a representation of either fund's actual expenses or returns, either past or
future.
Special Equities Fund
Shareholder transaction expenses Class A Class B Class C Class Y
Maximum sales charge (load)
on purchases as a % of
purchase price) 5.00% none none none
Maximum sales charge imposed
on reinvested dividends none none none none
Maximum deferred sales charge (load)
as a % of purchase or sale price,
whichever is less none(1) 5.00% 1.00% none
Redemption fee(2) none none none none
Exchange fee none none none none
Annual fund operating expenses
(as a % of average net assets) Class A Class B Class C Class Y
Management fee 0.81% 0.81% 0.81% 0.81%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00% 0.00%
Other expenses 0.41% 0.41% 0.41% 0.17%
Total fund operating expenses 1.52% 2.22% 2.22% 0.98%
Example
Share class Year 1 Year 3 Year 5 Year 10
Class A shares $647 $956 $1,288 $2,222
Class B shares
Assuming redemption
at end of period $725 $994 $1,390 $2,378
Assuming no redemption $225 $694 $1,190 $2,378
Class C shares
Assuming redemption
at end of period $325 $694 $1,190 $2,554
Assuming no redemption $225 $694 $1,190 $2,554
Class Y shares $100 $312 $542 $1,199
(1) Except for investments of $1 million or more.
(2) Does not include wire redemption fee (currently $4.00).
10
<PAGE>
Small Cap Growth Fund
Shareholder Class A Class B Class C Class I
transaction expenses
Maximum sales charge (load) on
purchases as a % of
purchase price 5.00% none none none
Maximum sales charge imposed on
reinvested dividends none none none none
Maximum deferred sale charge (load)
as a % of purchase or sales price,
whichever is less none(1) 5.00% 1.00% none
Redemption fee (2) none none none none
Exchange fee none none none none
Annual fund operating expenses
(as a % of average net assets) Class A Class B Class C Class I (3)
Management fee 0.75% 0.75% 0.75% n/a
Distribution and service (12b-1) fees 0.25% 1.00% 1.00% n/a
Other expenses 0.35% 0.35% 0.35% n/a
----- ----- ----- ---
Total fund operating expenses 1.35% 2.10% 2.10% n/a
Example
Share class Year 1 Year 3 Year 5 Year 10
Class A shares $631 $906 $1,202 $2,043
Class B shares
Assuming redemption
at end of period $713 $958 $1,329 $2,240
Assuming no redemption $213 $658 $1,129 $2,240
Class C Shares
Assuming redemption at
end of period $313 $658 $1,129 $2,431
Assuming no redemption $213 $658 $1,129 $2,431
Class I shares (3) n/a n/a n/a n/a
(1) Except for investments of $1 million or more.
(2) Does not include wire redemption fee (currently $4.00).
(3) Class I shares did not exist at April 30, 1999. They will be issued at
the time of reorganization.
11
<PAGE>
Pro Forma Expense Table
The following expense table shows the pro forma expenses of Small Cap Growth
Fund for the year end April 30, 1999 assuming that a reorganization with your
fund had 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. The example
contained in the pro forma expense table shows what you would have paid on a
$10,000 investment if the reorganization had occurred on April 30, 1998. The
example assumes that you had reinvested all dividends and that the average
annual return was 5%. The pro forma example is for comparison purposes only and
is not a representation of Small Cap Growth Fund's actual expenses or returns,
either past or future.
Small Cap Growth Fund (PRO FORMA) for year ended April 30, 1999
(Assuming reorganization with Special Equities Fund)
Shareholder transaction expenses Class A Class B Class C Class I
Maximum sales charge (load) on
purchases as a % of
purchase price 5.00% none none none
Maximum sales charge imposed on
reinvested dividends none none none none
Maximum deferred sale charge (load)
as a % of purchase or sales price,
whichever is less none(1) 5.00% 1.00% none
Redemption fee (2) none none none none
Exchange fee none none none none
Annual fund operating expenses
(as a % of average net assets) Class A Class B Class C Class I
Management fee 0.75% 0.75% 0.75% 0.75%
Distribution and service (12b-1) fees 0.25% 1.00% 1.00% 0.00%
Other expenses 0.38% 0.38% 0.38% 0.17%
----- ----- ----- -----
Total fund operating expenses 1.38.% 2.13% 2.13% 0.92%
Pro Forma Example
Share class Year 1 Year 3 Year 5 Year 10
Class A shares $633 $915 $1,217 $2,075
Class B shares
Assuming redemption
at end of period $716 $967 $1,344 $2,271
Assuming no redemption $216 $667 $1,144 $2,271
Class C shares
Assuming redemption
at end of period $316 $667 $1,144 $2,462
Assuming no redemption $216 $667 $1,144 $2,462
Class I shares $94 $293 $509 $1,131
(1) Except for investments of $1 million or more.
(2) Does not include wire redemption fee (currently $4.00).
12
<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.
13
<PAGE>
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:
- ----------------------------------------- -------------------
Fund Asset Breakpoints Special Equities
- ----------------------------------------- -------------------
First $250,000,000 0.85%
- ----------------------------------------- -------------------
Amount over $250,000,000 0.80%
- ----------------------------------------- -------------------
- ----------------------------------------- -------------------
Small Cap
Fund Asset Breakpoints 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.
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%. 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 Fund's 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 (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). 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). 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%.
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.
14
<PAGE>
- ------------------- ------------------------------ -----------------------------
Special Equities Small Cap Growth
- ------------------- ------------------------------------------------------------
Stock As with any fund that invests primarily in stocks, the
market risk value of each fund's portfolio will change in response to
stock market movements.
- ------------------- ------------------------------ -----------------------------
Credit risk The debt securities held by The debt securities held by
your fund are subject to the Small Cap Growth Fund are
risk that the issuer of a subject to the risk that the
security will default or issuer of a security will
otherwise fail to meet its default or otherwise fail to
obligations. meet its obligations. This
risk is greater to the
extent that Small Cap Growth
Fund invests in junk bonds.
- ------------------- ------------------------------ -----------------------------
Interest A rise in interest rates A rise in interest rates
rate risk typically causes the value typically causes the value
of debt securities to fall. of debt securities to fall.
A fall in interest rates A fall in interest rates
typically causes the value typically causes the value
of debt securities to rise. of debt 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 subject
securities and to the risks of adverse foreign government actions,
currency risks political instability or a lack of adequate and accurate
information. Also, currency exchange rate movements could
reduce gains or create losses. 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 at a
illiquid desirable time or a fair price. Restricted and illiquid
securities securities also present a greater risk of inaccurate
valuation.
- ------------------- ------------------------------------------------------------
15
<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.
16
<PAGE>
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.
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 are 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.
17
<PAGE>
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.
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.
18
<PAGE>
Rule 12b-1 Payments and Unreimbursed Expenses
Aggregate Dollar Pro Forma
Amount of 12b-1 Unreimbursed Rule Unreimbursed
Fees Paid (for 12b-1 Expenses as % of
Name of Fund year ended April Expenditures (as Each Class's
30, 1999) of April 30, 1999) Average Net Assets
Special Equities $1,436,500(A) $1,732,565(A) 0.36% (A)
$5,209,669(B) $29,218,093(B) 5.48% (B)
$7(C) $135(C) 0.00% (C)
Small Cap Growth $491,537(A) $551,632(A) 0.28% (A)
$3,763,663(B) $12,621,724(B) 3.08% (B)
$4,635(C) $10,203(C) 2.01% (C)
Small Cap Growth $1,688,620(A) $2,284,197(A) 0.34% (A)
(Pro Forma) $8,973,332(B) $33,766,185(B)* 3.58% (B)*
$4,642(C) $10,338(C) 0.03% (C)
*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%, 100%,
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 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.
19
<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.
20
<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).
21
<PAGE>
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.
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
Special Small Cap
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
22
<PAGE>
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.
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 objective and Goal and Strategy, Main Risks, Fund Details:
policies Business Structure
- -------------------------- -----------------------------------------------------
Portfolio Portfolio Management
Management
- -------------------------- -----------------------------------------------------
Investment adviser and Overview: The Management Firm; Fund Details:
distributor Business 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 are
or sale of shares Calculated; Transaction Policies; Additional
Investor Services: Systematic Withdrawal Plan
- -------------------------- -----------------------------------------------------
Dividends, distributions Dividends and Account Policies
And taxes
- -------------------------- -----------------------------------------------------
23
<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.
24
<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, _______ Class A, Class B, Class C and 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.
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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.
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OWNERSHIP OF SHARES OF THE FUNDS
To the knowledge of your fund, as of September 13, 1999, no person owned of
record or beneficially 5% or more of the outstanding _______________shares of
your fund or of the outstanding ________ shares of Small Cap Growth Fund.
As of September 13, 1999, the following person owned of record or beneficially
5% or more of the funds' outstanding shares:
- ------------------------------------------ ---------------------------
Names and Addresses of Owners of More
Than 5% of Shares Special Equities Fund
- ------------------------------------------ ---------------------------
- ------------------------------------------ ---------------------------
Names and Addresses of Owners of More Small Cap Growth Fund
Than 5% of Shares
- ------------------------------------------ ---------------------------
- ------------------------------------------ ---------------------------
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 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.
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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 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.
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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
Acquired Fund may require (collectively, an "Affidavit"), to John Hancock
Signature Services, Inc. prior to the Closing Date. Any Acquired Fund
share certificate which remains outstanding on the Closing Date shall be
deemed to be canceled, shall no longer evidence ownership of shares of
beneficial interest of the Acquired Fund and shall evidence ownership of
Acquiring Fund Shares. Unless and until any such certificate shall be so
surrendered or an Affidavit relating thereto shall be delivered,
dividends and other distributions payable by the Acquiring Fund
subsequent to the Liquidation Date with respect to Acquiring Fund Shares
shall be paid to the holder of such certificate(s), but such shareholders
may not redeem or transfer Acquiring Fund Shares received in the
Reorganization. The Acquiring Fund will not issue share certificates in
the Reorganization.
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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. Boston 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
information and shall be computed in each case to not fewer than four
decimal places.
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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.
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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 liability 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;
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(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 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;
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(i) Each of the Acquired Fund and its predecessors has qualified as a
regulated investment company for each taxable year of its operation and
the Acquired Fund will qualify as such as of the Closing Date with
respect to its taxable year ending on the Closing Date;
(j) The authorized capital of the Acquired Fund consists of an unlimited
number of shares of beneficial interest, no par value. All issued and
outstanding shares of beneficial interest of the Acquired Fund are, and
at the Closing Date will be, duly and validly issued and outstanding,
fully paid and nonassessable by the 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;
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(o) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Acquired
Fund of the transactions contemplated by this Agreement;
(p) All of the issued and outstanding shares of beneficial interest of the
Acquired Fund have been offered for sale and sold in conformity with all
applicable federal and state securities laws;
(q) The Class A, Class B and Class C prospectus of the Acquired Fund, dated
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;
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(d) At the Closing Date, the Trust on behalf of the Acquiring Fund will have
good and marketable title to the assets of the Acquiring Fund;
(e) The Trust and the Acquiring Fund are not, and the execution, delivery
and performance of their obligations under this Agreement will not
result in a violation of any provisions of the Trust's Declaration, or
By-Laws or of any agreement, indenture, instrument, contract, lease or
other undertaking to which the Trust or the Acquiring Fund is a party or
by which the Trust or the Acquiring Fund is bound;
(f) Except as otherwise disclosed in writing and accepted by the Acquired
Fund, no material litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or threatened against the Trust or the Acquiring Fund or any of
the Acquiring Fund's properties or assets. The Trust knows of no facts
which might form the basis for the institution of such proceedings, and
neither the Trust nor the Acquiring Fund is a party to or subject to the
provisions of any order, decree or judgment of any court or governmental
body which materially and adversely affects the Acquiring Fund's
business or its ability to consummate the transactions herein
contemplated;
(g) The audited statement of assets and liabilities, including the schedule
of investments, of the Acquiring Fund as of 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;
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(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 out-
standing any security convertible into any of its shares of beneficial
interest;
(k) The execution, delivery and performance of this Agreement has been duly
authorized by all necessary action on the part of the Trust on behalf of
the Acquiring Fund, and this Agreement constitutes a valid and binding
obligation of the Acquiring Fund enforceable in accordance with its
terms;
(l) The Acquiring Fund Shares to be issued and delivered to the Acquired
Fund pursuant to the terms of this Agreement, when so issued and
delivered, will be duly and validly issued shares of beneficial interest
of the Acquiring Fund and will be fully paid and nonassessable by the
Trust;
(m) The information to be furnished by the Acquiring Fund for use in
applications for orders, registration statements, proxy materials and
other documents which may be necessary in connection with the
transactions contemplated hereby shall be accurate and complete and
shall comply in all material respects with federal securities and other
laws and regulations applicable thereto; 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.
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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
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.
38
<PAGE>
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.
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;
39
<PAGE>
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
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;
40
<PAGE>
8.5 The Acquired Fund shall have distributed to its shareholders, in a
distribution or distributions qualifying for the deduction for dividends
paid under Section 561 of the Code, all of its investment company taxable
income (as defined in Section 852(b)(2) of the Code determined without
regard to Section 852(b)(2)(D) of the Code) for its taxable year ending
on the Closing Date, all of the excess of (i) its interest income
excludable from gross income under Section 103(a) of the Code over (ii)
its deductions disallowed under Sections 265 and 171(a)(2) of the Code
for its taxable year ending on the Closing Date, and all of its net
capital gain (as such term is used in Sections 852(b)(3)(A) and (C) of
the Code), after reduction by any available capital loss carryforward,
for its taxable year ending on the Closing Date; and
8.6 The parties shall have received an opinion of Hale and Dorr LLP,
satisfactory to the 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 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;
41
<PAGE>
(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
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.
42
<PAGE>
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.
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.
43
<PAGE>
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.
44
<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
<PAGE>
VOTE THIS PROXY CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE YOUR FUND
THE EXPENSE OF ADDITIONAL MAILINGS
JOHN HANCOCK SPECIAL EQUITIES FUND
SPECIAL MEETING OF SHAREHOLDERS - DECEMBER 1, 1999
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., Boston time, and at any
adjournment(s) of the Meeting. All powers may be exercised by a majority of all
proxy holders or substitutes voting or acting, or, if only one votes and acts,
then by that one. Receipt of the Proxy Statement dated September 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 ___________________,
NOTE: Please sign exactly as your name or names
appear at left. When signing as attorney,
executor, administrator, trustee or guardian,
please give your full title as such. If a
corporation, please sign in full corporate name by
president or other authorized officer. If a
partnership, please sign in partnership name by
authorized person.
---------------------------------
---------------------------------
Signature(s)
<PAGE>
[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 motion 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.
(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>
Supplement to the John Hancock Growth Funds Prospectus dated July 1, 1999
for John Hancock Special Equities Fund
On July 19, 1999, the Trustees of the John Hancock Special Equities Fund (the
"Fund") voted to recommend that the shareholders approve a tax free
reorganization of the Fund, as described below.
Under the terms of the reorganization, subject to shareholder approval at a
shareholder meeting scheduled to be held on December 1, 1999, the Fund would
transfer all of its assets and liabilities to John Hancock Small Cap Growth Fund
("Small Cap Growth Fund") in a tax free exchange for shares of equal value of
Small Cap Growth Fund. Further information regarding the proposed reorganization
will be contained in proxy statement and prospectus which is scheduled to be
mailed to shareholders on or about September 27, 1999.
Effective August 2, 1999, John Hancock Special Equities Fund will be closed to
all new accounts.
July 19, 1999
GROPS 7/99
<PAGE>
Supplement to the John Hancock Growth Funds Prospectus dated June 1, 1999
Supplement to the John Hancock Income Funds Prospectus dated April 1, 1999
Supplement to the John Hancock Tax-Free Income Funds
Prospectus dated April 1, 1999
Supplement to the John Hancock Growth and Income Funds
Prospectus dated May 1, 1999
Supplement to the John Hancock Money Market Funds
Prospectus dated August 1, 1998
Supplement to the John Hancock International/Global Funds
Prospectus dated March 1, 1999
Supplement to the John Hancock Real Estate Fund
Prospectus dated May 1, 1999
The "CDSC waiver" section has been changed as follows:
CDSC waivers As long as Signature Services is notified at the time you sell, the
CDSC for each share class will generally be waived in the following cases:
o To make payments through certain systematic withdrawal plans
o To make certain distributions from a retirement plan
o Because of shareholder death or disability
To utilize: if you think you may be eligible for a CDSC waiver, contact your
financial representative or Signature Services, or consult the SAI.
6/11/99
<PAGE>
- --------------------------------------------------------------------------------
JOHN HANCOCK
Growth
Funds
[LOGO] Prospectus
July 1, 1999
- --------------------------------------------------------------------------------
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.
Core Growth Fund formerly Independence Growth Fund
Core Value Fund formerly Independence Value Fund
Financial Industries Fund
Large Cap Growth Fund formerly Growth Fund
Mid Cap Growth Fund formerly Special Opportunities Fund
Regional Bank Fund
Small Cap Growth Fund formerly Emerging Growth Fund
Small Cap Value Fund formerly Special Value Fund
Special Equities Fund
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
101 Huntington Avenue, Boston, Massachusetts 02199-7603
<PAGE>
Contents
- --------------------------------------------------------------------------------
A fund-by-fund summary of Core Growth Fund 4
goals, strategies, risks,
performance and expenses. Core Value Fund 6
Financial Industries Fund 8
Large Cap Growth Fund 10
Mid Cap Growth Fund 12
Regional Bank Fund 14
Small Cap Growth Fund 16
Small Cap Value Fund 18
Special Equities Fund 20
Policies and instructions for Your account
opening, maintaining and
closing an account in any Choosing a share class 22
growth fund. How sales charges are calculated 22
Sales charge reductions and waivers 23
Opening an account 24
Buying shares 25
Selling shares 26
Transaction policies 28
Dividends and account policies 28
Additional investor services 29
Further information on the Fund details
growth funds.
Business structure 30
Financial highlights 31
For more information back cover
<PAGE>
Overview
- --------------------------------------------------------------------------------
JOHN HANCOCK GROWTH FUNDS
These funds seek long-term growth by investing primarily in common stocks. Each
fund has its own strategy and its own risk profile.
WHO MAY WANT TO INVEST
These funds may be appropriate for investors who:
o have longer time horizons
o are willing to accept higher short-term risk along with higher potential
long-term returns
o want to diversify their portfolios
o are seeking funds for the growth portion of an asset allocation portfolio
o are investing for retirement or other goals that are many years in the future
Growth funds may NOT be appropriate if you:
o are investing with a shorter time horizon in mind
o are uncomfortable with an investment that may go up and down in value
RISKS OF MUTUAL FUNDS
Mutual funds are not bank deposits and are not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Because
you could lose money by investing in these funds, be sure to read all risk
disclosure carefully before investing.
THE MANAGEMENT FIRM
All John Hancock growth funds are managed by John Hancock Advisers, Inc. Founded
in 1968, John Hancock Advisers is a wholly owned subsidiary of John Hancock
Mutual Life Insurance Company and manages more than $30 billion in assets.
FUND INFORMATION KEY
Concise fund-by-fund descriptions begin on the next page. Each description
provides the following information:
[Clip Art] Goal and strategy The fund's particular investment goals and the
strategies it intends to use in pursuing those goals.
[Clip Art] Main risks The major risk factors associated with the fund.
[Clip Art] Past performance The fund's total return, measured year-by-year and
over time.
[Clip Art] Your expenses The overall costs borne by an investor in the fund,
including sales charges and annual expenses.
3
<PAGE>
Core Growth Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks above-average total return. To pursue this goal, the
fund invests in a diversified portfolio of primarily large-capitalization stocks
and emphasizes stocks of companies with relatively high potential long-term
earnings growth. The portfolio's risk profile is substantially similar to that
of the Russell 1000 Growth Index.
The managers select from a menu of stocks of approximately 550 companies that
evolves over time. Approximately 40% to 50% of these companies also are included
in the Russell 1000 Growth Index. The subadviser's investment research team is
organized by industry and tracks these companies to develop earnings estimates
and five-year projections for growth. A series of proprietary computer models
use this in-house research to rank the stocks according to their combination of:
o value, meaning they appear to be underpriced
o momentum, meaning they show potential for strong growth
This process, together with a risk/return analysis against the Russell 1000
Growth Index, results in a portfolio of approximately 100 to 130 of the stocks
from the top 60% of the menu. The fund must sell any stocks that fall into the
bottom 20% of the menu.
In normal market conditions, the fund is almost entirely invested in stocks.
In abnormal market conditions, the fund may temporarily invest more than 35% 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.
================================================================================
SUBADVISER
Independence Investment
Associates, Inc.
- -----------------------------------------------------------
Team responsible for day-to-day investment management
A subsidiary of John Hancock Mutual Life Insurance Company
Founded in 1982
Supervised by the adviser
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks. The year-by-year and average annual figures are for Class I
shares, which are offered in a separate prospectus. Annual returns should be
substantially similar since all classes invest in the same portfolio. However,
Class I shares' average annual figures do not reflect sales charges or 12b-1
fees which will be imposed beginning July 1, 1999 for Class A, B and C shares.
Year-by-year, average annual and index figures do not reflect these charges and
would be lower if they did. All figures assume dividend reinvestment. Past
performance does not indicate future results.
- --------------------------------------------------------------------------------
Class I year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1996 1997 1998
20.52% 36.22% 37.94%
1999 total return as of March 31: 2.70%
Best quarter: Q4 '98, 27.44% Worst quarter: Q3 '98, -12.00%
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/98
- --------------------------------------------------------------------------------
Life of
1 year Class I
Class I - began 10/2/95 37.94% 30.52%
Class A - began 7/1/99 -- --
Class B - began 7/1/99 -- --
Class C - began 7/1/99 -- --
Index 38.71% 29.73%
Index: Russell 1000 Growth Index, an unmanaged index of growth company stocks in
the Russell 1000 Index of the 1,000 largest-capitalization U.S. stocks.
4
<PAGE>
MAIN RISKS
[Clip Art] The value of your investment will go up and down in response to stock
market movements. Large-capitalization stocks as a group could fall out of favor
with the market, causing the fund to underperform funds that focus on small- or
medium-capitalization stocks. Also, large-capitalization growth stocks as a
group could fall out of favor with the market, causing the fund to underperform
funds that focus on large-capitalization value stocks.
The fund's management strategy will influence performance significantly. If the
investment research team's earnings estimates or projections turn out to be
inaccurate, or if the proprietary computer models do not perform as expected,
the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o Foreign investments carry additional risks, including potentially inadequate
or inaccurate financial information and social or political upheavals.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly. Class A expense figures below show the expenses for the past year
adjusted to reflect any changes. Because Class A, Class B and Class C shares are
new, their expenses are based on Class I shares' expenses.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B Class C
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge (load) on purchases
as a % of purchase price 5.00% none none
Maximum deferred sales charge (load)
(as a % of purchase or sales price, whichever is less) none(1) 5.00% 1.00%
<CAPTION>
- ---------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Management fee 0.80% 0.80% 0.80%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 1.18% 1.18% 1.18%
Total fund operating expenses 2.28% 2.98% 2.98%
Expense reimbursement (at least until 7/1/00) 1.03% 1.03% 1.03%
Net annual operating expenses 1.25% 1.95% 1.95%
</TABLE>
The hypothetical example below shows what your expenses would be after the
expense reimbursement (first year only) if you invested $10,000 over the time
frames indicated, assuming you reinvested all distributions and that the average
annual return was 5%. The example is for comparison only, and does not represent
the fund's actual expenses and returns, either past or future.
- --------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A $621 $1,152 $1,708 $3,218
Class B - with redemption $698 $1,196 $1,817 $3,368
- without redemption $198 $ 896 $1,617 $3,368
Class C - with redemption $298 $ 896 $1,617 $3,529
- without redemption $198 $ 896 $1,617 $3,529
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
- ---------------------------
Ticker --
CUSIP --
Newspaper --
SEC number 811-8852
JH fund number 79
Class B
- ---------------------------
Ticker --
CUSIP --
Newspaper --
SEC number 811-8852
JH fund number 179
Class C
- ---------------------------
Ticker --
CUSIP --
Newspaper --
SEC number 811-8852
JH fund number 579
5
<PAGE>
Core Value Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks above-average total return. To pursue this goal, the
fund invests in a diversified portfolio of primarily large-capitalization stocks
and emphasizes relatively undervalued stocks and high dividend yields. The
portfolio's risk profile is substantially similar to that of the Russell 1000
Value Index.
The managers select from a menu of stocks of approximately 550 companies that
evolves over time. Approximately 50% to 60% of these companies also are included
in the Russell 1000 Value Index. The subadviser's investment research team is
organized by industry and tracks these companies to develop earnings estimates
and five-year projections for growth. A series of proprietary computer models
use this in-house research to rank the stocks according to their combination of:
o value, meaning they appear to be underpriced
o momentum, meaning they show potential for strong growth
This process, together with a risk/return analysis against the Russell 1000
Value Index, results in a portfolio of approximately 100 to 130 of the stocks
from the top 60% of the menu. The fund must sell any stocks that fall into the
bottom 20% of the menu.
In normal market conditions, the fund is almost entirely invested in stocks.
In abnormal market conditions, the fund may temporarily invest more than 35% 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.
================================================================================
SUBADVISER
Independence Investment
Associates, Inc.
- -----------------------------------------------------------
Team responsible for day-to-day investment management
A subsidiary of John Hancock Mutual Life Insurance Company
Founded in 1982
Supervised by the adviser
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks. Class A average annual figures do not reflect sales charges,
which will be imposed beginning July 1, 1999. In addition, 12b-1 fees will be
imposed beginning July 1, 2000 for Class A. Year-by-year, average annual and
index figures do not reflect these charges and would be lower if they did. All
figures assume dividend reinvestment. Past performance does not indicate future
results.
- --------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1996 1997 1998
20.66% 30.63% 18.79%
1999 total return as of March 31: 0.48%
Best quarter: Q4 '98, 18.79% Worst quarter: Q3 '98, -13.99%
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/98
- --------------------------------------------------------------------------------
Life of
1 year Class A
Class A - began 10/2/95 18.79% 24.14%
Class B - began 7/1/99 -- --
Class C - began 7/1/99 -- --
Index 15.63% 24.29%
Index: Russell 1000 Value Index, an unmanaged index of value stocks in the
Russell 1000 Index of the 1,000 largest-capitalization U.S. stocks.
6
<PAGE>
MAIN RISKS
[Clip Art] The value of your investment will go up and down in response to stock
market movements. Large-capitalization stocks as a group could fall out of favor
with the market, causing the fund to underperform funds that focus on small- or
medium-capitalization stocks. Also, large-capitalization value stocks as a group
could fall out of favor with the market, causing the fund to underperform funds
that focus on large-capitalization growth stocks.
The fund's management strategy will influence performance significantly. If the
investment research team's earnings estimates or projections turn out to be
inaccurate, or if the proprietary computer models do not perform as expected,
the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o Foreign investments carry additional risks, including potentially inadequate
or inaccurate financial information and social or political upheavals.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly. Class A expense figures below show the expenses for the past year,
adjusted to reflect any changes. Because Class B and Class C shares are new,
their expenses are based on Class A shares' expenses.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B Class C
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge (load) on purchases
as a % of purchase price 5.00% none none
Maximum deferred sales charge (load)
(as a % of purchase or sales price, whichever is less) none(1) 5.00% 1.00%
- ---------------------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management fee 0.80% 0.80% 0.80%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 1.08% 1.08% 1.08%
Total fund operating expenses 2.18% 2.88% 2.88%
Distribution and service (12b-1) fee reduction (until 7/1/00) 0.30% -- --
Expense reimbursement (at least until 7/1/00) 0.93% 0.93% 0.93%
Net annual operating expenses 0.95% 1.95% 1.95%
</TABLE>
The hypothetical example below shows what your expenses would be after the fee
reduction and expense reimbursement (first year only) if you invested $10,000
over the time frames indicated, assuming you reinvested all distributions and
that the average annual return was 5%. The example is for comparison only, and
does not represent the fund's actual expenses and returns, either past or
future.
- --------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A $592 $1,105 $1,643 $3,109
Class B - with redemption $698 $1,176 $1,777 $3,281
- without redemption $198 $ 876 $1,577 $3,281
Class C - with redemption $298 $ 876 $1,577 $3,443
- without redemption $198 $ 876 $1,577 $3,443
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
- ---------------------------
Ticker --
CUSIP --
Newspaper --
SEC number 811-8852
JH fund number 88
Class B
- ---------------------------
Ticker --
CUSIP --
Newspaper --
SEC number 811-8852
JH fund number 188
Class C
- ---------------------------
Ticker --
CUSIP --
Newspaper --
SEC number 811-8852
JH fund number 588
7
<PAGE>
Financial Industries Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks capital appreciation. To pursue this goal, the fund
normally invests at least 65% of assets in U.S. and foreign financial services
companies, including banks, thrifts, finance companies, brokerage and advisory
firms, real estate-related firms and insurance companies.
In managing the portfolio, the managers concentrate primarily on stock selection
rather than industry allocation. The portfolio may include financial services
companies of all sizes and types.
In choosing individual stocks, the managers use fundamental financial analysis
to identify securities that appear comparatively undervalued. Given the
industrywide trend toward consolidation, the managers also seek out companies
that appear to be positioned for a merger. The managers generally gather
firsthand information about companies from interviews and company visits.
The fund may invest in U.S. and foreign bonds, including up to 5% of net assets
in junk bonds (those rated below BBB/Baa and their unrated equivalents). It may
also invest up to 15% of assets in investment-grade short-term 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 up to 80% 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.
================================================================================
PORTFOLIO MANAGERS
James K. Schmidt, CFA
- -----------------------------------
Executive vice president of adviser
Joined team in 1996
Joined adviser in 1985
Began career in 1979
Thomas M. Finucane
- -----------------------------------
Vice president of adviser
Joined team in 1996
Joined adviser in 1990
Began career in 1990
Thomas C. Goggins
- -----------------------------------
Senior vice president of adviser
Joined team in 1998
Joined adviser in 1995
Began career in 1981
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks. The average annual figures reflect sales charges; the
year-by-year and index figures do not, and would be lower if they did. All
figures assume dividend reinvestment. Past performance does not indicate future
results.
- --------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1997 1998
37.74% 4.86%
Best quarter: Q4 '98, 17.07% Worst quarter: Q3 '98, -20.12%
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/98
- --------------------------------------------------------------------------------
Life of Life of
1 year Class A Class B
Class A - began 3/14/96 -0.40% 26.31% --
Class B - began 1/14/97 -0.87% -- 16.95%
Class C - began 3/1/99 -- -- --
Index 28.60% 28.17% 30.95%
Index: Standard & Poor's 500 Stock Index, an unmanaged index of 500 stocks.
8
<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. Another major factor in this
fund's performance is the economic condition of the financial services sector.
The value of your investment may fluctuate more widely than it would in a fund
that is diversified across sectors.
When interest rates fall or economic conditions deteriorate, the stocks of
financial services companies often suffer greater losses than other stocks.
Rising interest rates can cut into profits by reducing the difference between
these companies' borrowing and lending rates.
The fund's management strategy will influence performance significantly. Stocks
of financial services companies 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 Foreign investments carry additional risks, including potentially unfavorable
currency exchange rates, inadequate or inaccurate financial information and
social or political upheavals.
o In a down market, higher-risk securities and derivatives could become harder
to value or to sell at a fair price.
o Any bonds held by the fund could be downgraded in credit rating or go into
default. Bond prices generally fall when interest rates rise. Junk bond
prices can fall on bad news about the economy, an industry or a company.
o Certain derivatives could produce disproportionate gains or losses.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly. Because Class C shares are new, their expenses are based on Class B
expenses.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B Class C
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge (load) on purchases
as a % of purchase price 5.00% none none
Maximum deferred sales charge (load)
as a % of purchase or sale price, whichever is less none(1) 5.00% 1.00%
<CAPTION>
- ----------------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management fee 0.76% 0.76% 0.76%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.31% 0.31% 0.31%
Total fund operating expenses 1.37% 2.07% 2.07%
</TABLE>
The hypothetical example below shows what your expenses would be if you invested
$10,000 over the time frames indicated, assuming you reinvested all
distributions and that the average annual return was 5%. The example is for
comparison only, and does not represent the fund's actual expenses and returns,
either past or future.
- --------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A $633 $912 $1,212 $2,064
Class B - with redemption $710 $949 $1,314 $2,221
- without redemption $210 $649 $1,114 $2,221
Class C - with redemption $310 $649 $1,114 $2,400
- without redemption $210 $649 $1,114 $2,400
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
- ---------------------------
Ticker FIDAX
CUSIP 409905502
Newspaper FinIndA
SEC number 811-3999
JH fund number 70
Class B
- ---------------------------
Ticker FIDBX
CUSIP 409905601
Newspaper FinIndB
SEC number 811-3999
JH fund number 170
Class C
- ---------------------------
Ticker --
CUSIP 409905874
Newspaper --
SEC number 811-3999
JH fund number 570
9
<PAGE>
Large 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 65% of assets in stocks of
large-capitalization companies (companies in the capitalization range of the
Standard & Poor's 500 Stock Index).
The fund generally invests in 30 to 60 U.S. companies that are diversified
across sectors. The fund has tended to emphasize, or overweight, certain sectors
such as health care, technology or consumer goods. These weightings may change
in the future.
In choosing individual stocks, the managers use fundamental financial analysis
to identify companies with:
o strong cash flows
o secure market franchises
o sales growth that outpaces their industries
The management team uses various means to assess the depth and stability of
companies' senior management, including interviews and company visits. The fund
favors companies for which the managers project at least 15% annual growth for
the next two years.
The fund may invest in certain other types of equity securities such as
preferred stocks. It may also invest up to 15% of assets in foreign securities.
In addition, it 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 35% 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.
================================================================================
PORTFOLIO MANAGERS
David L. Eisenberg, CFA
- -----------------------------------
Senior vice president of adviser
Joined team in 1999
Joined adviser in 1997
Began career in 1981
Geoffrey R. Plume, CFA
- -----------------------------------
Second vice president of adviser
Joined team in 1998
Joined adviser in 1996
Began career in 1987
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks. The average annual figures reflect sales charges; the
year-by-year and index figures do not, and would be lower if they did. All
figures assume dividend reinvestment. Past performance does not indicate future
results.
- --------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
30.96% -8.34% 41.68% 6.06% 13.03% -7.50% 27.17% 20.40% 16.70% 26.42%
Best quarter: Q4 '98, 22.38% Worst quarter: Q3 '90, -18.75%
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/98
- --------------------------------------------------------------------------------
1 year 5 year 10 year
Class A 20.12% 14.67% 14.96%
Class B - began 1/3/94 20.54% 15.23% --
Class C - began 6/1/98 -- -- --
Index 28.60% 24.05% 18.95%
Index: Standard & Poor's 500 Stock Index, an unmanaged index of 500 stocks.
10
<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. If the fund concentrates its
investments in certain sectors or companies, its performance could be tied more
closely to those sectors or companies than to the market as a whole.
The fund's management strategy will influence performance significantly.
Large-capitalization stocks as a group could fall out of favor with the market,
causing the fund to underperform funds that focus on small- or
medium-capitalization stocks. 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 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.
o In a down market, higher-risk securities and derivatives could become harder
to value or to sell at a fair price.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly. Because Class C shares have a short history, their expenses are
based on Class B expenses.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B Class C
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge (load) on purchases
as a % of purchase price 5.00% none none
Maximum deferred sales charge (load)
as a % of purchase or sale price, whichever is less none(1) 5.00% 1.00%
<CAPTION>
- ---------------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management fee 0.75% 0.75% 0.75%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.33% 0.33% 0.33%
Total fund operating expenses 1.38% 2.08% 2.08%
</TABLE>
The hypothetical example below shows what your expenses would be if you invested
$10,000 over the time frames indicated, assuming you reinvested all
distributions and that the average annual return was 5%. The example is for
comparison only, and does not represent the fund's actual expenses and returns,
either past or future.
- --------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A $633 $915 $1,217 $2,075
Class B - with redemption $711 $952 $1,319 $2,231
- without redemption $211 $652 $1,119 $2,231
Class C - with redemption $311 $652 $1,119 $2,410
- without redemption $211 $652 $1,119 $2,410
FUND CODES
Class A
- ---------------------------
Ticker JHNGX
CUSIP 409906302
Newspaper LpCpGrA
SEC number 811-4630
JH fund number 20
Class B
- ---------------------------
Ticker JHGBX
CUSIP 409906401
Newspaper LpCpGrB
SEC number 811-4630
JH fund number 120
Class C
- ---------------------------
Ticker --
CUSIP 409906849
Newspaper --
SEC number 811-4630
JH fund number 520
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
11
<PAGE>
Mid 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 65% of assets in stocks of
medium-capitalization companies (companies in the capitalization range of the
Russell Midcap Growth Index).
In managing the portfolio, the manager seeks to identify promising sectors for
investment. The manager considers broad economic trends, demographic factors,
technological changes, consolidation trends and legislative initiatives.
The fund normally invests at least 75% of assets in stocks of companies in up to
five economic sectors that appear to offer the highest earnings growth
potential. Although the fund concentrates on a few sectors, it diversifies
broadly within those sectors. At times, the fund may focus on a single sector.
The fund generally invests in more than 100 companies.
In choosing individual securities, the manager conducts fundamental financial
analysis to identify companies that appear able to sustain 15% annual earnings
growth for the next three to five years. The manager looks for companies with
growth stemming from a combination of gains in market share and increasing
operating efficiency. Before investing, the manager identifies a specific
catalyst for growth, such as a new product, business reorganization or merger.
The management team generally maintains personal contact with the senior
management of the companies the fund invests in.
The fund may invest in foreign stocks. It may also 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 25% of
assets in investment-grade short-term securities. In these and other cases, the
fund might not achieve its goal.
PORTFOLIO MANAGER
Barbara C. Friedman, CFA
- -----------------------------------
Senior vice president of adviser
Joined team in 1998
Joined adviser in 1998
Began career in 1973
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. 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 A year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1994 1995 1996 1997 1998
-8.76% 34.24% 29.05% 2.37% 6.53%
Best quarter: Q4 '98, 22.66% Worst quarter: Q3 '98, -21.36%
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/98
- --------------------------------------------------------------------------------
Life of Life of
1 year 5 year Class A Class B
Class A - began 11/1/93 1.24% 10.38% 9.89% --
Class B - began 11/1/93 0.85% 10.45% -- 10.08%
Class C - began 6/1/98 -- -- -- --
Index 1 28.60% 24.05% 23.25% 23.25%
Index 2 17.86% 17.34% 17.09% 17.09%
Index 1: Standard & Poor's 500 Stock Index, an unmanaged index of 500 stocks.
Index 2: Russell Midcap Growth Index, an unmanaged index containing those stocks
from the Russell Midcap Index with a greater-than-average growth orientation.
12
<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. Stocks of medium-capitalization
companies tend to be more volatile than those of larger companies. Similarly,
medium- capitalization stocks are generally traded in lower volumes than
large-capitalization stocks.
Because the fund concentrates on a few sectors of the market, its performance
may be more volatile than that of a fund that invests across many sectors.
The fund's management strategy will influence performance significantly.
Medium-capitalization 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 industries or companies the fund invests in do not perform as
expected, or if the manager's 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, higher-risk securities and derivatives 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.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable dividends.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly. Because Class C shares have a short history, their expenses are
based on Class B expenses.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B Class C
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge (load) on purchases
as a % of purchase price 5.00% none none
Maximum deferred sales charge (load)
as a % of purchase or sale price, whichever is less none(1) 5.00% 1.00%
<CAPTION>
- ---------------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management fee 0.80% 0.80% 0.80%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.49% 0.49% 0.49%
Total fund operating expenses 1.59% 2.29% 2.29%
</TABLE>
The hypothetical example below shows what your expenses would be if you invested
$10,000 over the time frames indicated, assuming you reinvested all
distributions and that the average annual return was 5%. The example is for
comparison only, and does not represent the fund's actual expenses and returns,
either past or future.
- --------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A $654 $ 977 $1,322 $2,295
Class B - with redemption $732 $1,015 $1,425 $2,450
- without redemption $232 $ 715 $1,225 $2,450
Class C - with redemption $332 $ 715 $1,225 $2,626
- without redemption $232 $ 715 $1,225 $2,626
FUND CODES
Class A
- ---------------------------
Ticker SPOAX
CUSIP 409906807
Newspaper MdCpGrA
SEC number 811-4630
JH fund number 39
Class B
- ---------------------------
Ticker SPOBX
CUSIP 409906880
Newspaper MdCpGrB
SEC number 811-4630
JH fund number 139
Class C
- ---------------------------
Ticker --
CUSIP 409906823
Newspaper --
SEC number 811-4630
JH fund number 539
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
13
<PAGE>
Regional Bank Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long-term capital appreciation with moderate income
as a secondary objective. To pursue this goal, the fund normally invests at
least 65% of assets in a portfolio of stocks of regional banks and lending
institutions, including commercial and industrial banks, savings and loan
associations and bank holding companies. These financial institutions provide
full-service banking, have primarily domestic assets and are typically based
outside of money centers, such as New York City and Chicago.
In managing the portfolio, the managers concentrate primarily on stock
selection.
In choosing individual stocks, the managers use fundamental financial analysis
to identify securities that appear comparatively undervalued. The managers look
for low price/earnings (P/E) ratios, high-quality assets and sound loan review
processes. Given the industrywide trend toward consolidation, the managers also
seek out companies that appear to be positioned for a merger. The fund's
portfolio may be concentrated in geographic regions where consolidation activity
is high. The managers generally gather firsthand information about companies
from interviews and company visits.
The fund may also invest in other U.S. and foreign financial services companies,
such as lending companies and money center banks. The fund may invest up to 5%
of net assets in stocks of companies outside the financial services sector and
up to 5% of net assets in junk bonds (those rated below BBB/Baa and their
unrated equivalents).
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 up to 80% of
assets in investment-grade short-term securities. In these and other cases, the
fund might not achieve its goal.
================================================================================
PORTFOLIO MANAGERS
James K. Schmidt, CFA
- -----------------------------------
Executive vice president of adviser
Joined team in 1985
Joined adviser in 1985
Began career in 1979
Thomas M. Finucane
- -----------------------------------
Vice president of adviser
Joined team in 1990
Joined adviser in 1990 Began
career in 1990
Thomas C. Goggins
- -----------------------------------
Senior vice president of adviser
Joined team in 1998
Joined adviser in 1995
Began career in 1981
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks. The average annual figures reflect sales charges; the
year-by-year and index figures do not, and would be lower if they did. All
figures assume dividend reinvestment. Past performance does not indicate future
results.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Class B year-by-year total returns -- calendar years
- ----------------------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
17.34% -20.57% 63.78% 47.37% 20.51% -0.20% 47.56% 28.43% 52.84% 0.73%
</TABLE>
Best quarter: Q1 '91, 19.45% Worst quarter: Q3 '90, -20.91%
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/98
- --------------------------------------------------------------------------------
Life of
1 year 5 year 10 year Class A
Class A - began 1/3/92 -3.66% 23.43% -- 26.31%
Class B -4.13% 23.66% 22.95% --
Class C - began 3/1/99 -- -- -- --
Index 28.60% 24.05% 18.95% 19.50%
Index: Standard & Poor's 500 Stock Index, an unmanaged index of 500 stocks.
14
<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. Another major factor in this
fund's performance is the economic condition of the regional banking industry.
When interest rates fall or economic conditions deteriorate, regional bank
stocks often suffer greater losses than other stocks. Rising interest rates can
cut into profits by reducing the difference between these companies' borrowing
and lending rates.
The fund's management strategy will influence performance significantly. If the
fund concentrates its investments in regions that experience economic downturns,
performance could suffer. Regional bank 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 Foreign investments carry additional risks, including potentially unfavorable
currency exchange rates, inadequate or inaccurate financial information and
social or political upheavals.
o In a down market, higher-risk securities and derivatives could become harder
to value or to sell at a fair price.
o Any bonds held by the fund could be downgraded in credit rating or go into
default. Bond prices generally fall when interest rates rise. Junk bond
prices can fall on bad news about the economy, an industry or a company.
o Certain derivatives could produce disproportionate gains or losses.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable dividends.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly. Because Class C shares have a short history, their expenses are
based on Class B expenses.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B Class C
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge (load) on purchases
as a % of purchase price 5.00% none none
Maximum deferred sales charge (load)
as a % of purchase or sale price, whichever is less none(1) 5.00% 1.00%
<CAPTION>
- ---------------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management fee 0.75% 0.75% 0.75%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.19% 0.19% 0.19%
Total fund operating expenses 1.24% 1.94% 1.94%
</TABLE>
The hypothetical example below shows what your expenses would be if you invested
$10,000 over the time frames indicated, assuming you reinvested all
distributions and that the average annual return was 5%. The example is for
comparison only, and does not represent the fund's actual expenses and returns,
either past or future.
- --------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A $620 $874 $1,147 $1,925
Class B - with redemption $697 $909 $1,247 $2,083
- without redemption $197 $609 $1,047 $2,083
Class C - with redemption $297 $609 $1,047 $2,264
- without redemption $197 $609 $1,047 $2,264
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
- ---------------------------
Ticker FRBAX
CUSIP 409905106
Newspaper RgBkA
SEC number 811-3999
JH fund number 1
Class B
- ---------------------------
Ticker FRBFX
CUSIP 409905205
Newspaper RgBkB
SEC number 811-3999
JH fund number 101
Class C
- ---------------------------
Ticker --
CUSIP 409905866
Newspaper --
SEC number 811-3999
JH fund number 501
15
<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 securities such as preferred stock. 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.
================================================================================
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
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. 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%
Best quarter: Q4 '98, 32.73% Worst quarter: Q3 '90, -23.09%
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/98
- --------------------------------------------------------------------------------
Life of
1 year 5 year 10 year Class A
Class A - began 8/22/91 6.75% 14.76% -- 15.46%
Class B 10.29% 15.02% 17.75% --
Class C - began 6/1/98 -- -- -- --
Index 1 -2.55% 11.87% 12.92% 14.09%
Index 2 1.23% 10.22% 11.54% 11.25%
Index 1: Russell 2000 Index, an unmanaged index of 2,000 U.S.
small-capitalization 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.
16
<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.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly. Because Class C shares have a short history, their expenses are
based on Class B expenses.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B Class C
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge (load) on purchases
as a % of purchase price 5.00% none none
Maximum deferred s ales charge (load)
as a % of purchase or sale price, whichever is less none(1) 5.00% 1.00%
<CAPTION>
- ----------------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management fee 0.75% 0.75% 0.75%
Distribution and service (12b-1) fees 0.25% 1.00% 1.00%
Other expenses 0.36% 0.36% 0.36%
Total fund operating expenses 1.36% 2.11% 2.11%
</TABLE>
The hypothetical example below shows what your expenses would be if you invested
$10,000 over the time frames indicated, assuming you reinvested all
distributions and that the average annual return was 5%. The example is for
comparison only, and does not represent the fund's actual expenses and returns,
either past or future.
- --------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A $632 $909 $1,207 $2,053
Class B - with redemption $714 $961 $1,334 $2,250
- without redemption $214 $661 $1,134 $2,250
Class C - with redemption $314 $661 $1,134 $2,441
- without redemption $214 $661 $1,134 $2,441
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
- ---------------------------
Ticker TAEMX
CUSIP 478032105
Newspaper SmCpGrA
SEC number 811-3392
JH fund number 60
Class B
- ---------------------------
Ticker TSEGX
CUSIP 478032204
Newspaper SmCpGrB
SEC number 811-3392
JH fund number 160
Class C
- ---------------------------
Ticker --
CUSIP 478032501
Newspaper --
SEC number 811-3392
JH fund number 560
17
<PAGE>
Small Cap Value Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks capital appreciation. To pursue this goal, the fund
invests at least 65% of assets in stocks of companies with market
capitalizations under $1 billion.
In managing the portfolio, the managers emphasize a value-oriented approach to
individual stock selection. With the aid of proprietary financial models, the
management team looks for U.S. and foreign companies that are selling at what
appear to be substantial discounts to their long-term value. These companies
often have identifiable catalysts for growth, such as new products, business
reorganizations or mergers.
The managers use fundamental financial analysis of individual companies to
identify those with substantial cash flows, reliable revenue streams and strong
competitive positions. The strength of companies' management teams is also a key
selection factor. The fund diversifies across industry sectors.
The fund invests primarily in stocks of U.S. companies, but may invest up to 50%
of assets in foreign securities and up to 15% of net assets in bonds that may be
rated as low as CC/Ca and their unrated equivalents. (Bonds rated below BBB/Baa
are considered junk bonds.) The fund may also invest in certain other types of
equity and debt securities, and 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 extensively in
investment-grade short-term securities. In these and other cases, the fund might
not achieve its goal.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable dividends.
================================================================================
PORTFOLIO MANAGERS
Timothy E. Keefe, CFA
- -----------------------------------
Senior vice president of adviser
Joined team in 1996
Joined adviser in 1996
Began career in 1987
Timothy E. Quinlisk, CFA
- -----------------------------------
Second vice president of adviser
Joined team in 1998
Joined adviser in 1998
Began career in 1985
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks. The average annual figures reflect sales charges; the
year-by-year and index figures do not, and would be lower if they did. All
figures assume dividend reinvestment. Past performance does not indicate future
results.
- --------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1994 1995 1996 1997 1998
7.81% 20.26% 12.91% 25.25% -2.10%
Best quarter: Q4 '98, 21.34% Worst quarter: Q3 '98, -21.43%
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/98
- --------------------------------------------------------------------------------
1 year 5 year
Class A - began 1/3/94 -7.02% 11.28%
Class B - began 1/3/94 -7.57% 11.36%
Class C - began 5/1/98 -- --
Index -2.55% 11.87%
Index: Russell 2000 Index, an unmanaged index of 2,000 U.S. small-capitalization
stocks.
18
<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
small-capitalization companies, its performance may be more volatile than that
of a fund that invests primarily in larger companies.
Stocks of smaller 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.
Small-capitalization 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 industries or companies the fund invests in do not perform as
expected, or 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.
o Any bonds held by the fund could be downgraded in credit rating or go into
default. Bond prices generally fall when interest rates rise. Junk bond
prices can fall on bad news about the economy, an industry or a company.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly. Because Class C shares have a short history, their expenses are
based on Class B expenses.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B Class C
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge (load) on purchases
as a % of purchase price 5.00% none none
Maximum deferred sales charge (load)
as a % of purchase or sale price, whichever is less none(1) 5.00% 1.00%
<CAPTION>
- --------------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management fee 0.70% 0.70% 0.70%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.62% 0.62% 0.62%
Total fund operating expenses 1.62% 2.32% 2.32%
</TABLE>
The hypothetical example below shows what your expenses would be if you invested
$10,000 over the time frames indicated, assuming you reinvested all
distributions and that the average annual return was 5%. The example is for
comparison only, and does not represent the fund's actual expenses and returns,
either past or future.
- --------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A $657 $ 986 $1,337 $2,326
Class B - with redemption $735 $1,024 $1,440 $2,481
- without redemption $235 $ 724 $1,240 $2,481
Class C - with redemption $335 $ 724 $1,240 $2,656
- without redemption $235 $ 724 $1,240 $2,656
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
- ---------------------------
Ticker SPVAX
CUSIP 409905700
Newspaper SmCpVlA
SEC number 811-3999
JH fund number 37
Class B
- ---------------------------
Ticker SPVBX
CUSIP 409905809
Newspaper SmCpVlB
SEC number 811-3999
JH fund number 137
Class C
- ---------------------------
Ticker --
CUSIP 409905882
Newspaper --
SEC number 811-3999
JH fund number 537
19
<PAGE>
Special Equities Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long-term capital appreciation. To pursue this goal,
the fund normally invests at least 65% of assets in stocks of emerging growth
companies and companies in situations offering unusual or one-time
opportunities. Emerging growth companies tend to have small market
capitalizations, typically less than $1 billion.
In managing the portfolio, the managers focus on stock selection and then
consider sector and geographic diversification. The portfolio typically includes
80 to 100 companies. The types of high-growth companies targeted by the fund
tend to cluster in certain sectors, such as technology.
In choosing individual securities, the management team uses fundamental
financial analysis to identify companies with strong and accelerating earnings
growth. The managers favor companies that dominate their market niches or are
poised to become market leaders. The managers 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 in certain other types of equity securities such as
preferred stock. It may also invest in foreign securities. In addition, the fund
may make limited use of derivatives (investments whose value is based on
indices, securities or currencies).
In abnormal market conditions, the fund may temporarily invest more than 35% 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.
================================================================================
PORTFOLIO MANAGERS
Laura J. Allen, CFA
- -----------------------------------
Senior vice president of adviser
Joined team in 1998
Joined adviser in 1998
Began career in 1981
Bernice S. Behar, CFA
- -----------------------------------
Senior vice president of adviser
Joined team in 1998
Joined adviser in 1991
Began career in 1986
Anurag Pandit, CFA
- -----------------------------------
Vice president of adviser
Joined team in 1998
Joined adviser in 1996
Began career in 1984
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. 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 A year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
27.87% -8.70% 84.49% 30.41% 19.74% 2.02% 50.44% 3.74% 4.90% -5.32%
Best quarter: Q1 '91, 32.31% Worst quarter: Q3 '98, -26.82%
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/98
- --------------------------------------------------------------------------------
Life of
1 year 5 year 10 year Class B
Class A -10.04% 8.48% 17.58% --
Class B - began 3/1/93 -10.63% 8.54% -- 12.09%
Class C - began 3/1/99 -- -- -- --
Index 1 -2.55% 11.87% 12.92% 12.20%
Index 2 1.23% 10.22% 11.54% 10.76%
Index 1: Russell 2000 Index, an unmanaged index of 2,000 U.S.
small-capitalization 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.
20
<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
small-capitalization companies, its performance may be more volatile than that
of a fund that invests primarily in larger companies.
Stocks of small-capitalization 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.
Special-situation companies often have histories of uneven performance, and
circumstances that appear to offer opportunities for growth do not necessarily
lead to growth.
The fund's management strategy will influence performance significantly.
Small-capitalization 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.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly. Because Class C shares are new, their expenses are based on Class B
expenses.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B Class C
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge (load) on purchases
as a % of purchase price 5.00% none none
Maximum deferred sales charge (load)
as a % of purchase or sale price, whichever is less none(1) 5.00% 1.00%
<CAPTION>
- ----------------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management fee 0.81% 0.81% 0.81%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.35% 0.35% 0.35%
Total fund operating expenses 1.46% 2.16% 2.16%
</TABLE>
The hypothetical example below shows what your expenses would be if you invested
$10,000 over the time frames indicated, assuming you reinvested all
distributions and that the average annual return was 5%. The example is for
comparison only, and does not represent the fund's actual expenses and returns,
either past or future.
- --------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A $641 $939 $1,258 $2,159
Class B - with redemption $719 $976 $1,359 $2,315
- without redemption $219 $676 $1,159 $2,315
Class C - with redemption $319 $676 $1,159 $2,493
- without redemption $219 $676 $1,159 $2,493
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
- ---------------------------
Ticker JHNSX
CUSIP 410225106
Newspaper SpclEA
SEC number 811-4079
JH fund number 18
Class B
- ---------------------------
Ticker SPQBX
CUSIP 410225205
Newspaper SpclEB
SEC number 811-4079
JH fund number 118
Class C
- ---------------------------
Ticker --
CUSIP 410225403
Newspaper --
SEC number 811-4079
JH fund number 518
21
<PAGE>
Your account
- --------------------------------------------------------------------------------
CHOOSING A SHARE CLASS
Each share class has its own cost structure, including a Rule 12b-1 plan that
allows it to pay fees for the sale and distribution of its shares. Your
financial representative can help you decide which share class is best for you.
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
o Front-end sales charges, as described at right.
o Distribution and service (12b-1) fees of 0.30% (0.25% for Small Cap Growth).
- --------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------
o No front-end sales charge; all your money goes to work for you right away.
o Distribution and service (12b-1) fees of 1.00%.
o A deferred sales charge, as described on following page.
o Automatic conversion to Class A shares after eight years, thus reducing
future annual expenses.
- --------------------------------------------------------------------------------
Class C
- --------------------------------------------------------------------------------
o No front-end sales charge; all your money goes to work for you right away.
o Distribution and service (12b-1) fees of 1.00%.
o A 1.00% contingent deferred sales charge on shares sold within one year of
purchase.
o No automatic conversion to Class A shares, so annual expenses continue at the
Class C level throughout the life of your investment.
For actual past expenses of each share class, see the fund-by-fund information
earlier in this prospectus.
Because 12b-1 fees are paid on an ongoing basis, Class B and Class C
shareholders could end up paying more expenses over the long term than if they
had paid a sales charge.
Special Equities Fund offers Class Y shares and Core Growth Fund and Core Value
Fund offer Class I shares, which have their own expense structure and are
available to financial institutions only. Call Signature Services for more
information (see back cover of this prospectus).
Investors purchasing $1 million or more of Class B or Class C shares may want to
consider the lower operating expenses of Class A shares.
- --------------------------------------------------------------------------------
HOW SALES CHARGES ARE CALCULATED
Class A Sales charges are as follows:
- --------------------------------------------------------------------------------
Class A sales charges
- --------------------------------------------------------------------------------
As a % of As a % of your
Your investment offering price investment
Up to $49,999 5.00% 5.26%
$50,000 - $99,999 4.50% 4.71%
$100,000 - $249,999 3.50% 3.63%
$250,000 - $499,999 2.50% 2.56%
$500,000 - $999,999 2.00% 2.04%
$1,000,000 and over See below
Investments of $1 million or more Class A shares are available with no front-end
sales charge. However, there is a contingent deferred sales charge (CDSC) on any
shares sold within one year of purchase, as follows:
- --------------------------------------------------------------------------------
CDSC on $1 million+ investments
- --------------------------------------------------------------------------------
CDSC on shares
Your investment being sold
First $1M - $4,999,999 1.00%
Next $1 - $5M above that 0.50%
Next $1 or more above that 0.25%
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the last day of that month.
The CDSC is based on the lesser of the original purchase cost or the current
market value of the shares being sold, and is not charged on shares you acquired
by reinvesting your dividends. To keep your CDSC as low as possible, each time
you place a request to sell shares we will first sell any shares in your account
that are not subject to a CDSC.
22 YOUR ACCOUNT
<PAGE>
Class B and Class C Shares are offered at their net asset value per share,
without any initial sales charge. However, you may be charged a contingent
deferred sales charge (CDSC) on shares you sell within a certain time after you
bought them, as described in the tables below. There is no CDSC on shares
acquired through reinvestment of dividends. The CDSC is based on the original
purchase cost or the current market value of the shares being sold, whichever is
less. The CDSCs are as follows:
- --------------------------------------------------------------------------------
Class B deferred charges
- --------------------------------------------------------------------------------
CDSC on shares
Years after purchase being sold
1st year 5.00%
2nd year 4.00%
3rd or 4th year 3.00%
5th year 2.00%
6th year 1.00%
After 6th year none
- --------------------------------------------------------------------------------
Class C deferred charges
- --------------------------------------------------------------------------------
Years after purchase CDSC
1st year 1.00%
After 1st year none
For purposes of these CDSCs, all purchases made during a calendar month are
counted as having been made on the first day of that month.
CDSC calculations are based on the number of shares involved, not on the value
of your account. To keep your CDSC as low as possible, each time you place a
request to sell shares we will first sell any shares in your account that carry
no CDSC. If there are not enough of these to meet your request, we will sell
those shares that have the lowest CDSC.
- --------------------------------------------------------------------------------
SALES CHARGE REDUCTIONS AND WAIVERS
Reducing your Class A sales charges There are several ways you can combine
multiple purchases of Class A shares of John Hancock funds to take advantage of
the breakpoints in the sales charge schedule. The first three ways can be
combined in any manner.
o Accumulation Privilege -- lets you add the value of any Class A shares you
already own to the amount of your next Class A investment for purposes of
calculating the sales charge. Retirement plans investing $1 million in Class
B shares may add that value to Class A purchases to calculate charges.
o Letter of Intention -- lets you purchase Class A shares of a fund over a
13-month period and receive the same sales charge as if all shares had been
purchased at once.
o Combination Privilege -- lets you combine Class A shares of multiple funds
for purposes of calculating the sales charge.
To utilize: complete the appropriate section of your application, or contact
your financial representative or Signature Services, or consult the SAI (see the
back cover of this prospectus).
Group Investment Program A group may be treated as a single purchaser under the
accumulation and combination privileges. Each investor has an individual
account, but the group's investments are lumped together for sales charge
purposes, making the investors potentially eligible for reduced sales charges.
There is no charge, no obligation to invest (although initial investments must
total at least $250), and individual investors may close their accounts at any
time.
To utilize: contact your financial representative or Signature Services to find
out how to qualify, or consult the SAI (see the back cover of this prospectus).
CDSC waivers As long as Signature Services is notified at the time you sell, the
CDSC for each share class will generally be waived in the following cases:
o to make payments through certain systematic withdrawal plans
o to make certain distributions from a retirement plan
o because of shareholder death or disability
To utilize: if you think you may be eligible for a CDSC waiver, contact your
financial representative or Signature Services, or consult the SAI (see the back
cover of this prospectus).
YOUR ACCOUNT 23
<PAGE>
Reinstatement privilege If you sell shares of a John Hancock fund, you may
reinvest some or all of the proceeds in the same share class of any John Hancock
fund within 120 days without a sales charge, as long as Signature Services is
notified before you reinvest. If you paid a CDSC when you sold your shares, you
will be credited with the amount of the CDSC. All accounts involved must have
the same registration.
To utilize: contact your financial representative or Signature Services.
Waivers for certain investors Class A shares may be offered without front-end
sales charges or CDSCs to various individuals and institutions, including:
o selling brokers and their employees and sales representatives
o financial representatives utilizing fund shares in fee-based investment
products under signed agreement with John Hancock Funds
o fund trustees and other individuals who are affiliated with these or other
John Hancock funds
o individuals transferring assets from an employee benefit plan into a John
Hancock fund
o certain insurance company contract holders (one-year CDSC usually applies)
o participants in certain retirement plans with at least 100 eligible employees
(one-year CDSC applies)
To utilize: if you think you may be eligible for a sales charge waiver, contact
Signature Services or consult the SAI (see the back cover of this prospectus).
- --------------------------------------------------------------------------------
OPENING AN ACCOUNT
1 Read this prospectus carefully.
2 Determine how much you want to invest. The minimum initial investments for
the John Hancock funds are as follows:
o non-retirement account: $1,000
o retirement account: $250
o group investments: $250
o Monthly Automatic Accumulation Plan (MAAP): $25 to open; you must invest
at least $25 a month
o fee-based clients of selling brokers who placed at least $2 billion in
John Hancock funds: $250
3 Complete the appropriate parts of the account application, carefully
following the instructions. You must submit additional documentation when
opening trust, corporate or power of attorney accounts. For more information,
please contact your financial representative or call Signature Services at
1-800-225-5291.
4 Complete the appropriate parts of the account privileges application. By
applying for privileges now, you can avoid the delay and inconvenience of
having to file an additional application if you want to add privileges later.
5 Make your initial investment using the table on the next page. You and your
financial representative can initiate any purchase, exchange or sale of
shares.
24 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
Opening an account Adding to an account
By check
[Clip Art] o Make out a check for o Make out a check for
the investment amount, the investment amount
payable to "John payable to "John
Hancock Signature Hancock Signature
Services, Inc." Services, Inc."
o Deliver the check and o Fill out the detachable
your completed investment slip from an
application to your account statement. If
financial no slip is available,
representative, or mail include a note
them to Signature specifying the fund
Services (address name, your share class,
below). your account number and
the name(s) in which
the account is
registered.
o Deliver the check and
your investment slip or
note to your financial
representative, or mail
them to Signature
Services (address
below).
By exchange
[Clip Art] o Call your financial o Call your financial
representative or representative or
Signature Services to Signature Services to
request an exchange. request an exchange.
By wire
[Clip Art] o Deliver your completed o Instruct your bank to
application to your wire the amount of your
financial investment to:
representative, or mail First Signature Bank & Trust
it to Signature Account # 900000260
Services. Routing # 211475000
o Obtain your account Specify the fund name,
number by calling your your share class, your
financial account number and the
representative or name(s) in which the
Signature Services. account is registered.
Your bank may charge a fee
o Instruct your bank to to wire funds.
wire the amount of your
investment to:
First Signature Bank & Trust
Account # 900000260
Routing # 211475000
Specify the fund name,
your choice of share
class, the new account
number and the name(s) in
which the account is
registered. Your bank may
charge a fee to wire
funds.
By phone
[Clip Art] See "By wire" and "By o Verify that your bank
exchange." 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, your
share class, your
account number, the
name(s) in which the
account is registered
and the amount of your
investment.
- -------------------------------------------
Address:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
Phone Number: 1-800-225-5291
Or contact your financial representative
for instructions and assistance.
- -------------------------------------------
To open or add to an account using the Monthly Automatic
Accumulation Program, see "Additional investor services."
YOUR ACCOUNT 25
<PAGE>
- --------------------------------------------------------------------------------
Selling shares
- --------------------------------------------------------------------------------
Designed for To sell some or all of your shares
By letter
[Clip Art] o Accounts of any type. o Write a letter of
instruction or complete
o Sales of any amount. a stock power
indicating the fund
name, your share class,
your account number,
the name(s) in which
the account is
registered and the
dollar value or number
of shares you wish to
sell.
o Include all signatures
and any additional
documents that may be
required (see next
page).
o Mail the materials to
Signature Services.
o A check will be mailed
to the name(s) and
address in which the
account is registered,
or otherwise according
to your letter of
instruction.
By phone
[Clip Art] o Most accounts. o For automated service
24 hours a day using
o Sales of up to your touch-tone phone,
$100,000. call the EASI-Line at
1-800-338-8080.
o To place your order,
call your financial
representative or
Signature Services
between 8 A.M. and 4
P.M. Eastern Time on
most business days.
By wire or electronic funds transfer (EFT)
[Clip Art] o Requests by letter to o To verify that the
sell any amount telephone redemption
(accounts of any type). privilege is in place
on an account, or to
o Requests by phone to request the form to add
sell up to $100,000 it to an existing
(accounts with account, call Signature
telephone redemption Services.
privileges).
o Amounts of $1,000 or
more will be wired on
the next business day.
A $4 fee will be
deducted from your
account.
o Amounts of less than
$1,000 may be sent by
EFT or by check. Funds
from EFT transactions
are generally available
by the second business
day. Your bank may
charge a fee for this
service.
By exchange
[Clip Art] o Accounts of any type. o Obtain a current
prospectus for the fund
o Sales of any amount. into which you are
exchanging by calling
your financial
representative or
Signature Services.
o Call your financial
representative or
Signature Services to
request an exchange.
26 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, as shown in the table below, unless they were previously provided
to Signature Services. You may also need to include a signature guarantee, which
protects you against fraudulent orders. You will need a signature guarantee if:
o your address of record has changed within the past 30 days
o you are selling more than $100,000 worth of shares
o you are requesting payment other than by a check mailed to the address of
record and payable to the registered owner(s)
You will need to obtain your signature guarantee from a member of the Signature
Guarantee Medallion Program. Most brokers and securities dealers are members of
this program. A notary public CANNOT provide a signature guarantee.
- --------------------------------------------------------------------------------
Seller Requirements for written requests
- --------------------------------------------------------------------------------
[Clip Art]
Owners of individual, joint, sole o Letter of instruction.
proprietorship, UGMA/UTMA
(custodial accounts for minors) or o On the letter, the
general partner accounts. signatures and titles of
all persons authorized to
sign for the account,
exactly as the account is
registered.
o Signature guarantee if
applicable (see above).
Owners of corporate or association o Letter of instruction.
accounts.
o Corporate 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).
Owners or trustees of trust o Letter of instruction.
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).
Joint tenancy shareholders with o Letter of instruction
rights of survivorship whose signed by surviving
co-tenants are deceased. tenant.
o Copy of death certificate.
o Signature guarantee if
applicable (see above).
Executors of shareholder estates. o Letter of instruction
signed by executor.
o Copy of order appointing
executor, certified within
the past 12 months.
o Signature guarantee if
applicable (see above).
Administrators, conservators, o Call 1-800-225-5291 for
guardians and other sellers or instructions.
account types not listed above.
- -------------------------------------------
Address:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
Phone Number: 1-800-225-5291
Or contact your financial representative
for instructions and assistance.
- -------------------------------------------
To sell shares through a systematic withdrawal plan, see
"Additional investor services."
YOUR ACCOUNT 27
<PAGE>
- --------------------------------------------------------------------------------
TRANSACTION POLICIES
Valuation of shares The net asset value per share (NAV) for each fund and class
is determined each business day at the close of regular trading on the New York
Stock Exchange (typically 4 P.M. Eastern Time). The funds use market prices in
valuing portfolio securities, but may use fair-value estimates if reliable
market prices are unavailable. The funds may trade foreign stock or other
portfolio securities on U.S. holidays and weekends, even though the funds'
shares will not be priced on those days. This may change a fund's NAV on days
when you cannot buy or sell shares.
Buy and sell prices When you buy shares, you pay the NAV plus any applicable
sales charges, as described earlier. When you sell shares, you receive the NAV
minus any applicable deferred sales charges.
Execution of requests Each fund is open on those days when the New York Stock
Exchange is open, typically Monday through Friday. Buy and sell requests are
executed at the next NAV to be calculated after 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 John Hancock fund for shares of the
same class of any other, generally without paying any additional sales charges.
The registration for both accounts involved must be identical. Class B and Class
C shares will continue to age from the original date and will retain the same
CDSC rate as they had before the exchange, except that the rate will change to
the new fund's rate if that rate is higher. A CDSC rate that has increased will
drop again with a future exchange into a fund with a lower rate.
To protect the interests of other investors in the fund, a fund may cancel the
exchange privileges of any parties that, in the opinion of the fund, are using
market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. A fund may also refuse any exchange order.
A fund may change or cancel its exchange policies at any time, upon 60 days'
notice to its shareholders.
Certificated shares Most shares are electronically recorded. If you wish to have
certificates for your shares, please write to Signature Services. Certificated
shares can only be sold by returning the certificates to Signature Services,
along with a letter of instruction or a stock power and a signature guarantee.
Sales in advance of purchase payments When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but the fund will not release the proceeds to you
until your purchase payment clears. This may take up to ten business days after
the purchase.
- --------------------------------------------------------------------------------
DIVIDENDS AND ACCOUNT POLICIES
Account statements In general, you will receive account statements as follows:
o after every transaction (except a dividend reinvestment) that affects your
account balance
o after any changes of name or address of the registered owner(s)
o in all other circumstances, every quarter
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
Dividends The funds generally distribute most or all of their net earnings in
the form of dividends. Any capital gains are distributed annually. Regional Bank
Fund typically pays income dividends quarterly. Core Growth, Core Value and
Financial Industries funds typically pay income dividends annually. The other
funds do not usually pay income dividends. Most of these dividends are from
capital gains.
Dividend reinvestments Most investors have their dividends reinvested in
additional shares of the same fund and class. If you choose this option, or if
you do not indicate any choice, your dividends will be reinvested on the
dividend record date. Alternatively, you can choose to have a check for your
dividends
28 YOUR ACCOUNT
<PAGE>
mailed to you. However, if the check is not deliverable, your dividends will be
reinvested.
Taxability of dividends 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. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
Small accounts (non-retirement only) If you draw down a non-retirement account
so that its total value is less than $1,000, you may be asked to purchase more
shares within 30 days. If you do not take action, your fund may close out your
account and mail you the proceeds. Alternatively, Signature Services may charge
you $10 a year to maintain your account. You will not be charged a CDSC if your
account is closed for this reason, and your account will not be closed if its
drop in value is due to fund performance or the effects of sales charges.
Year 2000 compliance The adviser and the funds' 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 funds invest,
the funds' operations or financial markets generally.
- --------------------------------------------------------------------------------
ADDITIONAL INVESTOR SERVICES
Monthly Automatic Accumulation Program (MAAP) MAAP lets you set up regular
investments from your paycheck or bank account to the John Hancock fund(s) of
your choice. You determine the frequency and amount of your investments, and you
can terminate your program at any time. To establish:
o Complete the appropriate parts of your account application.
o If you are using MAAP to open an account, make out a check ($25 minimum) for
your first investment amount payable to "John Hancock Signature Services,
Inc." Deliver your check and application to your financial representative or
Signature Services.
Systematic withdrawal plan This plan may be used for routine bill payments or
periodic withdrawals from your account. To establish:
o Make sure you have at least $5,000 worth of shares in your account.
o Make sure you are not planning to invest more money in this account (buying
shares during a period when you are also selling shares of the same fund is
not advantageous to you, because of sales charges).
o Specify the payee(s). The payee may be yourself or any other party, and there
is no limit to the number of payees you may have, as long as they are all on
the same payment schedule.
o Determine the schedule: monthly, quarterly, semi-annually, annually or in
certain selected months.
o Fill out the relevant part of the account application. To add a systematic
withdrawal plan to an existing account, contact your financial representative
or Signature Services.
Retirement plans John Hancock Funds offers a range of retirement plans,
including traditional, Roth and Education IRAs, SIMPLE plans, SEPs, 401(k) plans
and other pension and profit-sharing plans. Using these plans, you can invest in
any John Hancock fund (except tax-free income funds) with a low minimum
investment of $250 or, for some group plans, no minimum investment at all. To
find out more, call Signature Services at 1-800-225-5291.
YOUR ACCOUNT 29
<PAGE>
Fund details
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
The diagram below shows the basic business structure used by the John Hancock
growth funds. Each 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 of the Core Growth, Core Value, Financial Industries, Small Cap
Growth and Mid Cap Growth funds have the power to change these funds' respective
investment goals without shareholder approval.
Management fees The management fees paid to the investment adviser by the John
Hancock growth funds last fiscal year are as follows:
- --------------------------------------------------------------------------------
Fund % of net assets
- --------------------------------------------------------------------------------
Core Growth 0.00%
Core Value 0.00%
Financial Industries 0.76%
Large Cap Growth 0.75%
Mid Cap Growth 0.80%
Regional Bank 0.75%
Small Cap Growth 0.75%
Small Cap Value 0.09%
Special Equities 0.81%
[The following information was represented as a flow chart in the printed
material.]
-----------------
Shareholders
-----------------
Distribution and
shareholder services
-------------------------------------------------
Financial services firms and
their representatives
Advise current and prospective share-
holders on their fund investments, often
in the context of an overall financial plan.
-------------------------------------------------
-------------------------------------------------
Principal distributor
John Hancock Funds, Inc.
Markets the funds and distributes shares
through selling brokers, financial planners
and other financial representatives.
-------------------------------------------------
------------------------------------------------------
Transfer agent
John Hancock Signature Services, Inc.
Handles shareholder services, including record-
keeping and statements, distribution of dividends,
and processing of buy and sell requests.
------------------------------------------------------
Asset
management
------------------------
Subadviser
Independent Investment
Associates, Inc.
53 State Street
Boston, MA 02109
------------------------
------------------------------------
Investment adviser
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, MA 02199-7603
Manages the funds' business and
investment activities.
------------------------------------
------------------------------------
Custodian
Investors Bank & Trust Co.
Holds the funds' assets, settles all
portfolio trades and collects most of
the valuation data required for
calculating each fund's NAV.
------------------------------------
------------------------------------
Trustees
Oversee the funds' activities.
------------------------------------
30 FUND DETAILS
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
These tables detail the performance of each fund's share classes, including
total return information showing how much an investment in the fund has
increased or decreased each year.
Core Growth Fund
The financial information presented is for periods prior to the creation of
Class A, B and C shares on July 1, 1999. The financial highlights for Class A, B
and C shares will differ due to the distribution fees.
Figures audited by Deloitte & Touche LLP.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class I - period ended: 2/96(1) 2/97 2/98 2/99
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.50 $9.29 $11.01 $14.88
Net investment income (loss)(2) 0.03 0.05 0.04 0.01
Net realized and unrealized gain (loss) on investments 0.81 2.16 4.34 3.40
Total from investment operations 0.84 2.21 4.38 3.41
Less distributions:
Dividends from net investment income (0.03) (0.04) (0.03) (0.02)
Distributions in excess of net investment income -- -- -- (0.00)(3)
Distributions from net realized gain on investments sold (0.02) (0.45) (0.48) (0.62)
Total distributions (0.05) (0.49) (0.51) (0.64)
Net asset value, end of period $9.29 $11.01 $14.88 $17.65
Total investment return at net asset value(4) (%) 9.94(5) 24.19 40.52 22.92
Total adjusted investment return at net asset value(4,6) (%) (5.63)(5) 17.40 37.95 21.89
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 549 883 4,605 7,855
Ratio of expenses to average net assets (%) 0.95(7) 0.95 0.95 0.95
Ratio of adjusted expenses to average net assets(8,9) (%) 38.57(7) 7.74 3.52 1.98
Ratio of net investment income (loss) to average net assets (%) 0.91(7) 0.49 0.34 0.06
Ratio of adjusted net investment income (loss) to average net assets(8,9) (%) (36.71)(7) (6.30) (2.23) (0.97)
Portfolio turnover rate (%) 21 142 91 54
Fee reduction per share(2) ($) 1.36 0.68 0.33 0.17
</TABLE>
(1) Began operations on October 2, 1995.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Less than $0.01 per share.
(4) Total investment return assumes dividend reinvestment.
(5) Not annualized.
(6) An estimated total return calculation, which does not take into
consideration fee reductions by the adviser during the periods shown.
(7) Annualized.
(8) Unreimbursed, without fee reduction.
(9) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net income as a percentage of average net assets is
expected to increase as the net assets of the fund grow.
FUND DETAILS 31
<PAGE>
Core Value Fund
The financial information presented is for periods prior to reclassification as
Class A shares on July 1, 1999.
Figures audited by Deloitte & Touche LLP.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 2/96(1) 2/97 2/98 2/99
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.50 $9.47 $10.88 $13.93
Net investment income (loss)(2) 0.10 0.23 0.21 0.15
Net realized and unrealized gain (loss) on investments 0.96 1.77 3.33 1.23
Total from investment operations 1.06 2.00 3.54 1.38
Less distributions:
Dividends from net investment income (0.09) (0.19) (0.13) (0.18)
Distributions from net realized gain on investments sold -- (0.40) (0.36) (2.77)
Total distributions (0.09) (0.59) (0.49) (2.95)
Net asset value, end of period $9.47 $10.88 $13.93 $12.36
Total investment return at net asset value(3) (%) 12.52(4) 21.36 32.97 9.87
Total adjusted investment return at net asset value(3,5) (%) (1.18)(4) 15.92 32.02 8.94
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 682 1,323 7,747 6,685
Ratio of expenses to average net assets (%) 0.95(6) 0.95 0.95 0.95
Ratio of adjusted expenses to average net assets(7,8) (%) 34.06(6) 6.39 1.90 1.88
Ratio of net investment income (loss) to average net assets (%) 2.81(6) 2.26 1.60 1.03
Ratio of adjusted net investment income (loss) to average net assets(7,8) (%) (30.30)(6) (3.18) 0.65 0.10
Portfolio turnover rate (%) 12 66 119 61
Fee reduction per share(2) ($) 1.22 0.55 0.12 0.13
</TABLE>
(1) Began operations on October 2, 1995.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Total investment return assumes dividend reinvestment.
(4) Not annualized.
(5) An estimated total return calculation, which does not take into
consideration fee reductions by the adviser during the periods shown.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net income as a percentage of average net assets is
expected to increase as the net assets of the fund grow.
32 FUND DETAILS
<PAGE>
Financial Industries Fund
Figures audited by PricewaterhouseCoopers LLP.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 10/96(1) 10/97 10/98
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.50 $11.03 $14.26
Net investment income (loss)(2) 0.02 0.14 0.15
Net realized and unrealized gain (loss) on investments 2.51 3.77 0.52(3)
Total from investment operations 2.53 3.91 0.67
Less distributions:
Dividends from net investment income -- (0.03) (0.11)
Distributions from net realized gain on investments sold -- (0.65) (0.02)
Total distributions -- (0.68) (0.13)
Net asset value, end of period $11.03 $14.26 $14.80
Total investment return at net asset value(4) (%) 29.76(5) 37.19 4.66
Total adjusted investment return at net asset value(4,6) (%) 26.04(5) 36.92 --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 895 416,698 861,582
Ratio of expenses to average net assets (%) 1.20(7) 1.20 1.37
Ratio of adjusted expenses to average net assets(8) (%) 7.07(7) 1.47 --
Ratio of net investment income (loss) to average net assets (%) 0.37(7) 1.10 0.92
Ratio of adjusted net investment income (loss) to average net assets(8) (%) (5.50)(7) 0.83 --
Portfolio turnover rate (%) 31 6 30
Fee reduction per share(2) ($) 0.38 0.03 --
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/97(1) 10/98
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $11.43 $14.18
Net investment income (loss)(2) 0.04 0.03
Net realized and unrealized gain (loss) on investments 2.71 0.54(3)
Total from investment operations 2.75 0.57
Less distributions:
Dividends from net investment income -- (0.03)
Distributions from net realized gain on investments sold -- (0.02)
Total distributions -- (0.05)
Net asset value, end of period $14.18 $14.70
Total investment return at net asset value(4) (%) 24.06(5) 3.95
Total adjusted investment return at net asset value(4,6) (%) 23.85(5) --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 1,308,946 2,603,021
Ratio of expenses to average net assets (%) 1.90(7) 2.07
Ratio of adjusted expenses to average net assets(8) (%) 2.17(7) --
Ratio of net investment income (loss) to average net assets (%) 0.40(7) 0.22
Ratio of adjusted net investment income (loss) to average net assets(8) (%) 0.13(7) --
Portfolio turnover rate (%) 6 30
Fee reduction per share(2) ($) 0.03 --
</TABLE>
(1) Class A and Class B shares began operations on March 14, 1996 and January
14, 1997, respectively.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Amount shown for a share outstanding does not correspond with aggregate net
gain (loss) on investments for the period ended October 31, 1998, due to the
timing of sales and repurchases of fund shares in relation to fluctuating
market values of the investments of the fund.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(7) Annualized.
(8) Unreimbursed, without fee reduction.
FUND DETAILS 33
<PAGE>
Large Cap Growth Fund
Figures audited by Ernst & Young LLP.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Class A - period ended: 12/93 12/94 12/95 10/96(1)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $17.32 $17.40 $15.89 $19.51
Net investment income (loss) (0.11) (0.10) (0.09)(2) (0.13)(2)
Net realized and unrealized gain (loss) on investments 2.33 (1.21) 4.40 3.90
Total from investment operations 2.22 (1.31) 4.31 3.77
Less distributions:
Distributions from net realized gain on investments sold (2.14) (0.20) (0.69) --
Net asset value, end of period $17.40 $15.89 $19.51 $23.28
Total investment return at net asset value(3) (%) 13.03 (7.50) 27.17 19.32(4)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 162,937 146,466 241,700 279,425
Ratio of expenses to average net assets (%) 1.56 1.65 1.48 1.48(5)
Ratio of net investment income (loss) to average net assets (%) (0.67) (0.64) (0.46) (0.73)(5)
Portfolio turnover rate (%) 68 52 68(6) 59
<CAPTION>
- ------------------------------------------------------------------------------------------
Class A - period ended: 10/97 10/98
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $23.28 $24.37
Net investment income (loss) (0.12)(2) (0.11)(2)
Net realized and unrealized gain (loss) on investments 3.49 2.17
Total from investment operations 3.37 2.06
Less distributions:
Distributions from net realized gain on investments sold (2.28) (4.16)
Net asset value, end of period $24.37 $22.27
Total investment return at net asset value(3) (%) 16.05 9.80
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 303,067 381,591
Ratio of expenses to average net assets (%) 1.44 1.40
Ratio of net investment income (loss) to average net assets (%) (0.51) (0.50)
Portfolio turnover rate (%) 133 153(6)
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 12/94(7) 12/95 10/96(1) 10/97 10/98
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $17.16 $15.83 $19.25 $22.83 $23.70
Net investment income (loss)(2) (0.20) (0.26) (0.26) (0.27) (0.25)
Net realized and unrealized gain (loss) on investments (0.93) 4.37 3.84 3.42 2.09
Total from investment operations (1.13) 4.11 3.58 3.15 1.84
Less distributions:
Distributions from net realized gain on investments sold (0.20) (0.69) -- (2.28) (4.16)
Net asset value, end of period $15.83 $19.25 $22.83 $23.70 $21.38
Total investment return at net asset value(3) (%) (6.56)(4) 26.01 18.60(4) 15.33 9.04
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 3,807 15,913 25,474 36,430 217,448
Ratio of expenses to average net assets (%) 2.38(5) 2.31 2.18(5) 2.13 2.08
Ratio of net investment income (loss) to average net assets (%) (1.25)(5) (1.39) (1.42)(5) (1.20) (1.16)
Portfolio turnover rate (%) 52 68(6) 59 133 153(6)
- ------------------------------------------------------------------------------------------------------------------------------------
Class C - period ended: 10/98(7)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Per share operating performance
Net asset value, beginning of period $21.43
Net investment income (loss)(2) (0.10)
Net realized and unrealized gain (loss) on investments 0.04
Total from investment operations (0.06)
Net asset value, end of period $21.37
Total investment return at net asset value(3) (%) (0.28)(4)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 152
Ratio of expenses to average net assets (%) 2.10(5)
Ratio of net investment income (loss) to average net assets (%) (1.14)(5)
Portfolio turnover rate (%) 153(6)
</TABLE>
(1) Effective October 31, 1996, the fiscal year end changed from December 31 to
October 31.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) Annualized.
(6) Excludes merger activity.
(7) Class B and Class C shares began operations on January 3, 1994 and June 1,
1998, respectively.
34 FUND DETAILS
<PAGE>
Mid Cap Growth Fund
Figures audited by PricewaterhouseCoopers LLP.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 10/94(1) 10/95 10/96 10/97 10/98
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.50 $7.93 $9.32 $10.92 $11.40
Net investment income (loss)(2) (0.03) (0.07) (0.11) (0.06) (0.09)
Net realized and unrealized gain (loss) on investments (0.54) 1.46 3.34 1.00 (0.89)
Total from investment operations (0.57) 1.39 3.23 0.94 (0.98)
Less distributions:
Distributions from net realized gain on investments sold -- -- (1.63) (0.46) (1.31)
Net asset value, end of period $7.93 $9.32 $10.92 $11.40 $9.11
Total investment return at net asset value(3) (%) (6.71) 17.53 36.15 8.79 (9.40)
Total adjusted investment return at net asset value(3,4) (%) (6.83) -- -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 92,325 101,562 156,578 141,997 101,138
Ratio of expenses to average net assets (%) 1.50 1.59 1.59 1.59 1.59
Ratio of adjusted expenses to average net assets(5) (%) 1.62 -- -- -- --
Ratio of net investment income (loss) to average net assets (%) (0.41) (0.87) (1.00) (0.57) (0.86)
Ratio of adjusted net investment (loss) to average net assets(5) (%) (0.53) -- -- -- --
Portfolio turnover rate (%) 57 155 240 317 168
Fee reduction per share ($) 0.01(2) -- -- -- --
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/94(1) 10/95 10/96 10/97 10/98
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.50 $7.87 $9.19 $10.67 $11.03
Net investment income (loss)(2) (0.09) (0.13) (0.18) (0.13) (0.15)
Net realized and unrealized gain (loss) on investments (0.54) 1.45 3.29 0.95 (0.85)
Total from investment operations (0.63) 1.32 3.11 0.82 (1.00)
Less distributions:
Distributions from net realized gain on investments sold -- -- (1.63) (0.46) (1.31)
Net asset value, end of period $7.87 $9.19 $10.67 $11.03 $8.72
Total investment return at net asset value(3) (%) (7.41) 16.77 35.34 7.84 (9.97)
Total adjusted investment return at net asset value(3,4) (%) (7.53) -- -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 131,983 137,363 238,901 204,812 134,188
Ratio of expenses to average net assets (%) 2.22 2.30 2.29 2.28 2.27
Ratio of adjusted expenses to average net assets(5) (%) 2.34 -- -- -- --
Ratio of net investment income (loss) to average net assets (%) (1.13) (1.55) (1.70) (1.25) (1.54)
Ratio of adjusted net investment (loss) to average net assets(5) (%) (1.25) -- -- -- --
Portfolio turnover rate (%) 57 155 240 317 168
Fee reduction per share ($) 0.01(2) -- -- -- --
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class C - period ended: 10/98(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Per share operating performance
Net asset value, beginning of period $9.99
Net investment income (loss)(2) (0.06)
Net realized and unrealized gain (loss) on investments (1.21)
Total from investment operations (1.27)
Net asset value, end of period $8.72
Total investment return at net asset value(3) (%) (12.71)(6)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 100
Ratio of expenses to average net assets (%) 2.29(7)
Ratio of net investment income (loss) to average net assets (%) (1.66)(7)
Portfolio turnover rate (%) 168
</TABLE>
(1) Class A and Class B shares began operations on November 1, 1993. Class C
shares began operations on June 1, 1998.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(5) Unreimbursed, without fee reduction.
(6) Not annualized.
(7) Annualized.
FUND DETAILS 35
<PAGE>
Regional Bank Fund
Figures audited by PricewaterhouseCoopers LLP.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 10/94 10/95 10/96 10/97 10/98
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $21.62 $21.52 $27.14 $33.99 $48.73
Net investment income (loss)(1) 0.39 0.52 0.63 0.64 0.66
Net realized and unrealized gain (loss) on investments 0.91 5.92 7.04 15.02 1.99
Total from investment operations 1.30 6.44 7.67 15.66 2.65
Less distributions:
Dividends from net investment income (0.34) (0.48) (0.60) (0.61) (0.65)
Distributions from net realized gain on investments sold (1.06) (0.34) (0.22) (0.31) (0.39)
Total distributions (1.40) (0.82) (0.82) (0.92) (1.04)
Net asset value, end of period $21.52 $27.14 $33.99 $48.73 $50.34
Total investment return at net asset value(2) (%) 6.44 31.00 28.78 46.79 5.33
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 216,978 486,631 860,843 1,596,836 1,500,200
Ratio of expenses to average net assets (%) 1.34 1.39 1.36 1.30 1.24
Ratio of net investment income to average net assets (%) 1.78 2.23 2.13 1.55 1.23
Portfolio turnover rate (%) 13 14 8 5 5
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/94 10/95 10/96 10/97 10/98
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $21.56 $21.43 $27.02 $33.83 $48.48
Net investment income (loss)(1) 0.23 0.36 0.42 0.35 0.30
Net realized and unrealized gain (loss) on investments 0.91 5.89 7.01 14.95 1.97
Total from investment operations 1.14 6.25 7.43 15.30 2.27
Less distributions:
Dividends from net investment income (0.21) (0.32) (0.40) (0.34) (0.28)
Distributions from net realized gain on investments sold (1.06) (0.34) (0.22) (0.31) (0.39)
Total distributions (1.27) (0.66) (0.62) (0.65) (0.67)
Net asset value, end of period $21.43 $27.02 $33.83 $48.48 $50.08
Total investment return at net asset value(2) (%) 5.69 30.11 27.89 45.78 4.62
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 522,207 1,236,447 2,408,514 4,847,755 4,506,983
Ratio of expenses to average net assets (%) 2.06 2.09 2.07 2.00 1.92
Ratio of net investment income (loss) to average net assets (%) 1.07 1.53 1.42 0.84 0.56
Portfolio turnover rate (%) 13 14 8 5 5
</TABLE>
(1) Based on the average of the shares outstanding at the end of each month.
(2) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
36 FUND DETAILS
<PAGE>
Small Cap Growth Fund
Figures audited by Ernst & Young LLP.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A(1) - period ended: 10/94 10/95(2) 10/96 10/97 10/98
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $6.47 $6.71 $9.02 $10.22 $12.35
Net investment income (loss)(3) (0.04) (0.07) (0.09) (0.07) (0.08)
Net realized and unrealized gain (loss) on investments 0.28 2.38 1.29 2.41 (1.34)
Total from investment operations 0.24 2.31 1.20 2.34 (1.42)
Less distributions:
Distributions from net realized gain on investments sold -- -- -- (0.21) (2.52)
Net asset value, end of period $6.71 $9.02 $10.22 $12.35 $8.41
Total investment return at net asset value(4) (%) 3.59 34.56 13.27 23.35 (14.14)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 131,053 179,481 218,497 209,384 179,700
Ratio of expenses to average net assets (%) 1.44 1.38 1.32 1.29(5) 1.36(5)
Ratio of net investment income (loss) to average net assets (%) (0.71) (0.83) (0.86) (0.57) (1.02)
Portfolio turnover rate (%) 25 23 44 96 103
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B(1) - period ended: 10/94 10/95(2) 10/96 10/97 10/98
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $6.33 $6.51 $8.70 $9.78 $11.72
Net investment income (loss)(3) (0.09) (0.11) (0.15) (0.14) (0.15)
Net realized and unrealized gain (loss) on investments 0.27 2.30 1.23 2.29 (1.24)
Total from investment operations 0.18 2.19 1.08 2.15 (1.39)
Less distributions:
Distributions from net realized gain on investments sold -- -- -- (0.21) (2.52)
Net asset value, end of period $6.51 $8.70 $9.78 $11.72 $7.81
Total investment return at net asset value(4) (%) 2.80 33.60 12.48 22.44 (14.80)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 283,435 393,478 451,268 472,594 361,992
Ratio of expenses to average net assets (%) 2.19 2.11 2.05 2.02(5) 2.07(5)
Ratio of net investment income (loss) to average net assets (%) (1.46) (1.55) (1.59) (1.30) (1.73)
Portfolio turnover rate (%) 25 23 44 96 103
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class C - period ended: 10/98(6)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Per share operating performance
Net asset value, beginning of period $8.96
Net investment income (loss)(3) (0.03)
Net realized and unrealized gain (loss) on investments (1.12)
Total from investment operations (1.15)
Net asset value, end of period $7.81
Total investment return at net asset value(4) (%) (12.83)(7)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 468
Ratio of expenses to average net assets (%) 2.11(5,8)
Ratio of net investment income (loss) to average net assets (%) (1.86)(8)
Portfolio turnover rate (%) 103
</TABLE>
(1) All per share amounts and net asset values have been restated to reflect the
four-for-one stock split effective May 1, 1998.
(2) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the fund.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Expense ratios do not include interest expense due to bank loans, which
amounted to less than $0.01 per share.
(6) Class C shares began operations on June 1, 1998.
(7) Not annualized.
(8) Annualized.
FUND DETAILS 37
<PAGE>
Small Cap Value Fund
Figures audited by Ernst & Young LLP.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 12/94(1) 12/95 12/96 12/97 10/98(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.50 $8.99 $10.39 $10.32 $12.27
Net investment income (loss)(3) 0.18 0.21 0.14 0.06 0.02
Net realized and unrealized gain (loss) on investments 0.48 1.60 1.17 2.52 (1.47)
Total from investment operations 0.66 1.81 1.31 2.58 (1.45)
Less distributions:
Dividends from net investment income (0.17) (0.20) (0.14) (0.03) --
Distributions from net realized gain on investments sold -- (0.21) (1.24) (0.60) --
Total distributions (0.17) (0.41) (1.38) (0.63) --
Net asset value, end of period $8.99 $10.39 $10.32 $12.27 $10.82
Total investment return at net asset value(4) (%) 7.81(5) 20.26 12.91 25.25 (11.82)(5)
Total adjusted investment return at net asset value(4,6) (%) 7.30(5) 19.39 12.20 24.65 (12.33)(5)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 4,420 12,845 15,853 20,961 22,528
Ratio of expenses to average net assets (%) 0.99(7) 0.98 0.99 0.99 1.01(7)
Ratio of adjusted expenses to average net assets(8) (%) 4.98(7) 1.85 1.70 1.59 1.62(7)
Ratio of net investment income (loss) to average net assets (%) 2.10(7) 2.04 1.31 0.47 0.25(7)
Ratio of adjusted net investment income (loss) to average net assets(8) (%) (1.89)(7) 1.17 0.60 (0.13) (0.36)(7)
Portfolio turnover rate (%) 0.3 9 72 140 69
Fee reduction per share(3) ($) 0.34 0.09 0.08 0.07 0.06
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 12/94(1) 12/95 12/96 12/97 10/98(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.50 $9.00 $10.38 $10.31 $12.21
Net investment income (loss)(3) 0.13 0.12 0.07 (0.03) (0.04)
Net realized and unrealized gain (loss) on investments 0.48 1.59 1.17 2.53 (1.46)
Total from investment operations 0.61 1.71 1.24 2.50 (1.50)
Less distributions:
Dividends from net investment income (0.11) (0.12) (0.07) -- --
Distributions from net realized gain on investments sold -- (0.21) (1.24) (0.60) --
Total distributions (0.11) (0.33) (1.31) (0.60) --
Net asset value, end of period $9.00 $10.38 $10.31 $12.21 $10.71
Total investment return at net asset value(4) (%) 7.15(5) 19.11 12.14 24.41 (12.29)(5)
Total adjusted investment return at net asset value(4,6) (%) 6.64(5) 18.24 11.43 23.81 (12.80)(5)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 3,296 16,994 22,097 35,033 30,637
Ratio of expenses to average net assets (%) 1.72(7) 1.73 1.69 1.69 1.71(7)
Ratio of adjusted expenses to average net assets(8) (%) 5.71(7) 2.60 2.40 2.29 2.32(7)
Ratio of net investment income (loss) to average net assets (%) 1.53(7) 1.21 0.62 (0.24) (0.45)(7)
Ratio of adjusted net investment income (loss) to average net assets(8) (%) (2.46)(7) 0.34 (0.09) (0.84) (1.06)(7)
Portfolio turnover rate (%) 0.3 9 72 140 69
Fee reduction per share(3) ($) 0.34 0.09 0.08 0.07 0.06
</TABLE>
38 FUND DETAILS
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class C - period ended: 10/98(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Per share operating performance
Net asset value, beginning of period $13.39
Net investment income (loss)(3) (0.03)
Net realized and unrealized gain (loss) on investments (2.65)
Total from investment operations (2.68)
Net asset value, end of period $10.71
Total investment return at net asset value(4) (%) (20.01)(5)
Total adjusted investment return at net asset value(4,6) (%) (20.32)(5)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) $422
Ratio of expenses to average net assets (%) 1.71(7)
Ratio of adjusted expenses to average net assets(8) (%) 2.32(7)
Ratio of net investment income (loss) to average net assets (%) (0.54)(7)
Ratio of adjusted net investment income (loss) to average net assets(8) (%) (1.15)(7)
Portfolio turnover rate (%) 69
Fee reduction per share(3) ($) 0.04
</TABLE>
(1) Class A and Class B shares began operations on January 3, 1994. Class C
shares began operations on May 1, 1998.
(2) Effective October 31, 1998, the fiscal year end changed from December 31 to
October 31.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(7) Annualized.
(8) Unreimbursed, without fee reduction.
FUND DETAILS 39
<PAGE>
Special Equities Fund
Figures audited by Ernst & Young LLP.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 10/94 10/95 10/96 10/97 10/98
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $16.13 $16.11 $22.15 $24.53 $26.32
Net investment income (loss)(1) (0.21) (0.18) (0.22) (0.29) (0.27)
Net realized and unrealized gain (loss) on investments 0.19 6.22 3.06 2.08 (5.84)
Total from investment operations (0.02) 6.04 2.84 1.79 (6.11)
Less distributions:
Distributions from net realized gain on investments sold -- -- (0.46) -- --
Net asset value, end of period $16.11 $22.15 $24.53 $26.32 $20.21
Total investment return at net asset value(2) (%) (0.12) 37.49 12.96 7.30 (23.21)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 310,625 555,655 972,312 807,371 453,919
Ratio of expenses to average net assets (%) 1.62 1.48 1.42 1.43 1.41
Ratio of net investment income (loss) to average net assets (%) (1.40) (0.97) (0.89) (1.18) (1.09)
Portfolio turnover rate (%) 66 82 59 41 107
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/94 10/95 10/96 10/97 10/98
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $16.08 $15.97 $21.81 $23.96 $25.52
Net investment income (loss)(1) (0.30) (0.31) (0.40) (0.46) (0.45)
Net realized and unrealized gain (loss) on investments 0.19 6.15 3.01 2.02 (5.62)
Total from investment operations (0.11) 5.84 2.61 1.56 (6.07)
Less distributions:
Distributions from net realized gain on investments sold -- -- (0.46) -- --
Net asset value, end of period $15.97 $21.81 $23.96 $25.52 $19.45
Total investment return at net asset value(2) (%) (0.68) 36.57 12.09 6.51 (23.79)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 191,979 454,934 956,374 951,449 460,971
Ratio of expenses to average net assets (%) 2.25 2.20 2.16 2.19 2.16
Ratio of net investment income (loss) to average net assets (%) (2.02) (1.69) (1.65) (1.95) (1.84)
Portfolio turnover rate (%) 66 82 59 41 107
</TABLE>
(1) Based on the average of the shares outstanding at the end of each month.
(2) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
40 FUND DETAILS
<PAGE>
- --------------------------------------------------------------------------------
For more information
- --------------------------------------------------------------------------------
Two documents are available that offer further information on John Hancock
growth funds:
ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS
Includes financial statements, a discussion of the market conditions and
investment strategies that significantly affected performance, as well as the
auditors' report (in annual report only).
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains more detailed information on all aspects of the funds. The
current annual report is included in the SAI.
A current SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference into (is legally a part of) this prospectus.
To request a free copy of the current annual/semiannual report or the SAI,
please contact John Hancock:
By mail:
John Hancock Signature
Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
By phone: 1-800-225-5291
By EASI-Line: 1-800-338-8080
By TDD: 1-800-544-6713
On the Internet: www.jhancock.com/funds
Or you may view or obtain these documents from the SEC:
In person: at the SEC's Public Reference Room in Washington, DC
By phone: 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
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
101 Huntington Avenue
Boston, Massachusetts
02199-7603
(C) 1999 John Hancock Funds, Inc.
GROPN 7/99
John Hancock(R)
<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
<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. The year-by-year and average annual figures are for Class B shares
which are offered in a separate prospectus. The average annual figures reflect
sales charges; the year-by-year and index figures do not, and would be lower if
they did. Class I shares, which began on December 1, 1999, have no sales charges
and lower expenses than the Class B shares. All figures assume dividend
reinvestment. Past performance does not indicate future results.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Class B year-by-year total returns - calendar years
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
Best quarter: Q4 `98, 32.73% Worst quarter: Q3 O90, -23.09%
- --------------------------------------------------------------------------------
Average annual total returns - for periods ending 12/31/98
- --------------------------------------------------------------------------------
Life of
1 year 5 year 10 year Class B
Class B 10.29% 15.02% 17.75% -
Class I- began 12/1/99 - - - -
Index 1 -2.55% 11.87% 12.92% 14.09%
Index 2 1.23% 10.22% 11.54% 11.25%
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 doesn't 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 -
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. 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 Deliver the check and your o Fill out the detachable
completed application to investment slip from an
your financial representative, account statement. If no
or mail them to Signature slip is available, include
Services (address below). a note specifying the fund
name, your share class,
your account number and the
name(s) in which the account
is registered.
o Deliver the check and your
investment slip or note to
your financial representative
or mail them to Signature
Services (address below).
By exchange
[Clip Art] o Call your financial o Call your financial
representative or Signature representative or
Services to request an Signature Services to
exchange. request an exchange.
By wire
[Clip Art] o Mail your completed o Instruct your bank to wire
application to the amount of your investment
Signature Services. to:
o Obtain your account number First Signature Bank & Trust
by calling your financial Account # 900000260
representative or Signature Routing # 211475000
Services.
Specify the fund name, your
o Instruct your bank to wire share class, your account
the amount of your investment number and the name(s) in
to: which the account is registered.
Your bank may charge a fee to
First Signature Bank & Trust wire funds.
Account # 900000260
Routing # 211475000
Specify the fund name, your
choice of share class, the new
account number and the name(s)
in which the account is
registered. Your bank may charge
a fee to wire funds.
By phone
[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,
your share class, your account
number, the name(s) in which
the account is registered and
the amount of your investment.
Address:
John Hancock Signature Services, Inc.
101 Huntington Avenue
Attn: Participant Service Center
5th Floor
Boston, MA 02199
Phone Number: 1-800-755-4371
YOUR ACCOUNT 7
<PAGE>
- --------------------------------------------------------------------------------
Selling shares
- --------------------------------------------------------------------------------
Designed for To sell some or all of your shares
By letter
[Clip art] o Sales of any amount; o Write a letter of instruction
however, sales of $5 indicating the fund name, your
million or more must be account number, the name(s) in
made by letter. 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)
[Clip art] o Requests by letter to o To verify that the telephone
sell any amount. redemption privilege is in
place on an account, or to
o Requests by phone to sell request the forms to add
up to $5 million (accounts it to an existing account,
with telephone redemption call Signature Services.
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.
-------------------------------------
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 or o Letter of instruction.
association accounts.
o Corporate 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 each fund is
determined each business day at the close of regular trading on the New York
Stock Exchange (typically 4 p.m. Eastern Time). The funds use market prices in
valuing portfolio securities, but may use fair-value estimates if reliable
market prices are unavailable. The 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 Each fund is open on those days when the New York Stock
Exchange is open, typically Monday through Friday. Buy and sell requests are
executed at the next NAV to be calculated after Signature Services receives your
request in good order.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider 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. 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 funds' 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 funds invest,
the funds' 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 funds' board of trustees oversees each fund's business activities and
retains the services of the various firms that carry out the fund's operations.
The trustees have the power to change the funds' respective investment goals
without shareholder approval.
The 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 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.jhancock.com/funds
Or you may view or obtain these documents from the SEC:
In person: at the SEC's Public Reference Room in Washington, DC
By phone: 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
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
101 Huntington Avenue
Boston, Massachusetts
02199-7603
(C) 1999 John Hancock Funds, Inc.
600PN 12/99
John Hancock (R)
<PAGE>
ANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Emerging
Growth Fund
OCTOBER 31, 1998
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
------------------------------------------
TRUSTEES
EDWARD J. BOUDREAU, JR.
JAMES F. CARLIN
WILLIAM H. CUNNINGHAM*
RONALD R. DION*
HAROLD R. HISER, JR.
ANNE C. HODSDON
CHARLES L. LADNER
LEO E. LINBECK, JR.
STEVEN R. PRUCHANSKY*
RICHARD S. SCIPIONE
LT. GEN. NORMAN H. SMITH, USMC (RET.)
JOHN P. TOOLAN
*Members of the Audit Committee
OFFICERS
EDWARD J. BOUDREAU, JR.
Chairman and Chief Executive Officer
ROBERT G. FREEDMAN
Vice Chairman and
Chief Investment Officer
ANNE C. HODSDON
President and Chief Operating Officer
JAMES B. LITTLE
Senior Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
Vice President and Compliance Officer
CUSTODIAN
INVESTORS BANK AND TRUST COMPANY
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116-5072
TRANSFER AGENT
JOHN HANCOCK SIGNATURE SERVICES, INC.
1 JOHN HANCOCK WAY, SUITE 1000
BOSTON, MASSACHUSETTS 02217-1000
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
LEGAL COUNSEL
HALE AND DORR LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109-1803
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116-5072
------------------------------------------
===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
An often-used analogy for stock market performance over the short term is a
roller coaster. That is because, while long-term history suggests the market's
general direction is up, its swings over the short term can be dramatic and, at
times, violent. This year, the market has given us several stark examples of
this phenomenon. From the new highs set in mid-July, the major indices plunged
by 19% through the end of August. It was the worst such fall since 1990. For the
first time in a number of years, some bonds and bond mutual funds outperformed
stocks and stock mutual funds. Seeking safety in a world of global economic
uncertainties, investors everywhere converged on U.S. Treasury bonds and pushed
their yields to historic lows.
Then in early October, the market staged a remarkable rebound that was
sparked by the Federal Reserve's two cuts in interest rates. The major indices
regained all their previously lost ground and the S&P 500 Stock Index ended
October actually up by 15% year-to-date.
- --------------------------------------------------------------------------------
[A 1 1/4" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
- --------------------------------------------------------------------------------
Investors have been understandably shaken by these dramatic twists and
turns, but we are pleased to report that most individual investors did not
panic, and we hope that means they've taken our words to heart. Over the long
term, markets do not move up or down in a straight line. That's why after
watching the market charge ahead almost uninterrupted for so many years, we have
been striking a more cautionary stance in this space over the last several
months.
Analysts are still pondering the implications of global turmoil and the
potential for slower U.S. economic and corporate earnings growth. While we don't
make a practice of opining on what the market will do next, we continue to
believe it would be wise for investors to set more realistic expectations. Over
the long term, the market's historical results have been more in the 10% per
year range, which is still a solid result, considering it has been produced
despite wars, depressions and other social upheavals along the way.
There is no doubt, however, that the market's heightened volatility and
recent dramatic moves have been cause for concern. In these uncertain times, it
becomes even harder to remember to "stay the course" and stick to your long-term
investment plan. But this remains the essential tenet of successful investing.
Now could also be a good time to review your asset allocation with your
investment professional, keeping in mind that the last six months' divergence in
performance of stocks and high-quality bonds is a perfect example of why all
your eggs shouldn't be in one basket.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
BY BERNICE S. BEHAR, CFA, PORTFOLIO MANAGEMENT TEAM LEADER, AND
LAURA ALLEN, CFA, AND ANURAG PANDIT, CFA, PORTFOLIO MANAGERS
John Hancock Emerging
Growth Fund
Early-year uncertainty marks small-cap stocks;
late-period comeback breeds optimism
Small-company growth stocks posted significant losses during much of the past
year, although they staged a dramatic comeback in the final weeks of the period.
Initially, they were beset by worries that the U.S. economy and corporate
earnings would be damaged by economic and currency turmoil in Asia. As the
period wore on, problems in Russia and Latin America exerted renewed pressure on
small-company stocks. The small-cap market's most widely watched barometer --
the Russell 2000 Index -- fell roughly 28% from its peak in April through the
end of September.
The winds shifted in favor of small-company stocks, however, in early
October. The Federal Reserve provided early relief by cutting interest rates on
September 29. That rate cut, in combination with resurgent optimism about
corporate earnings and a second rate cut in mid-October, helped set the stage
for an impressive small-cap rally. The Russell 2000 Growth Index, which measures
the performance of faster-growing small companies such as those the Fund
targets, rose 22% from October 8 through October 31 as these companies handily
outpaced their larger-company counterparts.
Performance and strategy review
Although we were disappointed that the small-cap market's nearly year-long
struggle prevented us from posting positive returns over the past
"The winds shifted in favor of small-company stocks, however, in early October."
- --------------------------------------------------------------------------------
[A 3" x 2" photo at bottom right side of page of John Hancock Emerging Growth
Fund. Caption below reads "Fund management team members (l-r): "Anurag Pandit,
Bernice Behar and Laura Allen."]
- --------------------------------------------------------------------------------
3
<PAGE>
================================================================================
John Hancock Funds - Emerging Growth Fund
- --------------------------------------------------------------------------------
[Table at top left hand column entitled "Top Five Common Stock Holdings." The
first listing is Cognizant Technology Solutions 1.2%, the second is Metromedia
Fiber Network 1.2%, the third Network Appliance 1.1%, the fourth Adelphia
Communications 1.0% and the fifth Metzler Group 1.0%. A note below the table
reads "As a percentage of net assets on October 31, 1998."]
- --------------------------------------------------------------------------------
year, we take comfort from the fact that the Fund outpaced its benchmark and was
able to perform in line with its peers during such a rocky period. For the year
ended October 31, 1998, John Hancock Emerging Growth Fund's Class A and Class B
shares posted total returns of -14.14% and -14.80%, respectively, at net asset
value. Class C shares, which were launched on June 1, 1998, returned -12.83%
from inception through October 31, 1998. The Fund's annual performance was only
slightly behind the average small-cap fund's -13.76% for the year ended October
31, 1998, according to Lipper Analytical Services, Inc.,(1) while the Russell
2000 Growth Index returned -15.86%. Keep in mind that your net asset value
return will be different from the Fund's performance if you were not invested in
the Fund for the entire period and did not reinvest all distributions. Please
see pages six and seven for historical performance information.
Throughout the small-cap market's turmoil, we stuck to our investment
discipline by focusing on companies with strong and sustainable revenue and
earnings growth, dominant market share and proven and effective management. This
strategy has rewarded us in the past and we continue to believe it will do so
over the longer term. Our adherence to this strategy means we'll occasionally
hold on to the stock of a company with good long-term prospects even after it
has suffered a short-term setback. That was the case with Premier Parks, the
country's largest theme park operator. Attendance at the company's recently
acquired Six Flags theme parks decreased early in the season, which company
officials attributed to poor marketing by the previous owners. However,
performance rebounded after attendance picked up at the Six Flags parks through
the remainder of the season. Furthermore, the company is benefiting from the
conversion of all its parks to the Six Flags brand. We were rewarded for our
patience, as the stock has recently rebounded with the turn in business
fundamentals.
Technology shifts
Our continued emphasis on fast-growing, well-managed market leaders has often
led us to the technology sector. Initially our focus in the period was on
computer hardware companies. But given the uncertain outlook for computer demand
in light of a potentially slowing global economy, we shifted our technology
focus to software and service companies. Our belief was that they would benefit
from growing demand driven by corporations increasingly looking to them to help
enhance productivity. Two of our favorites are Aspect Development, which
provides software that allows manufacturers to manage relationships with
suppliers, and Advent Software, which makes programs for financial analysis and
other
"...we were able to buy very high-quality, once-big companies at bargain
prices..."
- --------------------------------------------------------------------------------
[Table at bottom of left hand column entitled "Scorecard". The header for the
left column is "Investment" and the header for the right column is "Recent
Performance...and What's Behind the Numbers". The first listing is Linens 'N
Things followed by an up arrow with the phrase "Expansion, strong consumer
spending." The second listing is CBT Group followed by a down arrow with the
phrase "Worse-than-expected earnings." The third listing is Novellus Systems
followed by an up arrow with the phrase "Semiconductor demand firms." A note
below the table reads "See 'Schedule of Investments.' Investment holdings are
subject to change."]
- --------------------------------------------------------------------------------
4
<PAGE>
================================================================================
John Hancock Funds - Emerging Growth Fund
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended October 31, 1998." The chart is
scaled in increments of 3% with -15% at the bottom and 0% at the top. The first
bar represents the -14.14% Total return for John Hancock Emerging Growth Fund
Class A. The second bar represents the -14.80% total return for John Hancock
Emerging Growth Fund Class B. The third bar represents the -12.83%* total return
for John Hancock Emerging Growth Fund Class C and the fourth bar represents the
- -13.76% total return for the Average small-cap fund. A note below the chart
reads "Total returns for John Hancock Emerging Growth Fund are at net asset
value with all distributions reinvested. The average small-cap fund is tracked
by Lipper Analytical Services, Inc. See the following two pages for historical
performance information. *From inception June 1, 1998 through October 31,
1998."]
- --------------------------------------------------------------------------------
applications. While those and other software holdings proved to be our best
performers, another, CBT Group, was punished when it failed to beat Wall Street
analysts' third-quarter earnings expectations, and we sold the stock. More
recently, we again have added some hardware semiconductor companies, because we
believe that the worst case scenario has already been factored into their
prices. Our strategic moves among various technology sub-sectors throughout the
year generally proved advantageous for the Fund's performance.
We also remained committed to our retail holdings, which were quite strong
during much of the year, helped along by consumer confidence that continued to
hover near historic highs. Small-town retailer Hibbett Sporting Goods and
houseware chain Linens `N Things were two of the Fund's best performers.
Recent additions
After the summer's market downturn, we were presented with an unusual
opportunity: Many stocks that earlier in the year were considered large stocks
had gotten beaten up so much by the end of the summer that they slid back into
the small-cap category. As a result, we were able to buy very high-quality,
once-big companies at bargain prices, such as natural food supermarket chain
Whole Foods Market and semiconductor-equipment company Novellus Systems. We also
added to our stake in business services companies, which we believe will prosper
as companies continue to outsource many services that require a large amount of
internal company resources. This group includes our largest holding, Cognizant
Technology Solutions, which provides outsourcing of software development.
Outlook
We're upbeat about the prospects for small-company stocks. Lower interest rates
should be a positive because small companies tend to depend on borrowed money to
fund their future growth. Second, small-cap companies are offering growth rates
well in excess of large companies. Not only do small caps provide better
earnings growth rates, but they also remain relatively cheap in comparison to
their large-company peers even after their recent run-up. We think these factors
have contributed to the recent period of small-cap leadership. Although
small-company stocks could still experience market volatility, we think they may
be poised to outpace large companies for several years to come.
"...small-cap companies are offering growth rates well in excess of large
companies."
- --------------------------------------------------------------------------------
This commentary reflects the views of the portfolio managers through the end of
the Fund's period discussed in this report. Of course, the managers' views are
subject to change as market and other conditions warrant.
(1) Figures from Lipper Analytical Services, Inc. include reinvested dividends
and do not take into account sales charges. Actual load-adjusted performance is
lower.
5
<PAGE>
================================================================================
John Hancock Funds - Emerging Growth Fund
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Emerging Growth Fund. Total return measures
the change in value of an investment from the beginning to the end of a period,
assuming all distributions were reinvested.
For Class A shares, total return figures include a maximum applicable sales
charge of 5%. (Prior to May 15, 1995, the maximum applicable sales charge for
Class A shares was 5.75%.) Class B performance reflects a maximum contingent
deferred sales charge (maximum 5% and declining to 0% over six years). Class C
performance includes a contingent deferred sales charge (1% declining to 0%
after one year).
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them. Please read your
prospectus before you invest or send money.
- --------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------
For the period ended September 30, 1998
SINCE
ONE FIVE INCEPTION
YEAR YEARS (8/22/91)
---- ----- ---------
Cumulative Total Returns (27.94%) 52.76% 116.71%
Average Annual Total Returns (27.94%) 8.84% 11.50%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended September 30, 1998
ONE FIVE TEN
YEAR YEARS YEARS
---- ----- -----
Cumulative Total Returns (25.42%) 54.51% 292.57%
Average Annual Total Returns (25.42%) 9.09% 14.65%
- --------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------
For the period ended September 30, 1998
SINCE
INCEPTION
(6/1/98)
--------
Cumulative Total Return (17.79%)
Average Annual Total Return (17.79%)(1)
Notes on Performance
(1) Not annualized.
6
<PAGE>
================================================================================
John Hancock Funds - Emerging Growth Fund
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
The charts on the right show how much a $10,000 investment in the John Hancock
Emerging Growth Fund would be worth, assuming all distributions were reinvested
for the period indicated. For comparison, we've shown the same $10,000
investment in both the Russell 2000 Index and the Russell 2000 Growth Index. The
Russell 2000 Index is an unmanaged, small-cap index that is comprised of 2,000
stocks of U.S.-domiciled companies whose common stocks trade in the United
States on the New York Stock Exchange, American Stock Exchange and NASDAQ. The
Russell 2000 Growth Index is an unmanaged index that contains those securities
from the Russell 2000 Index with a greater-than-average growth orientation. Past
performance is not indicative of future results.
- --------------------------------------------------------------------------------
Line chart with the heading John Hancock Emerging Growth Fund Class A,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are four lines. The first line represents the Russell
2000 Index and is equal to $24,386 as of October 31, 1998. The second line
represents the value of the hypothetical $10,000 investment made in the John
Hancock Emerging Growth Fund on September 22, 1991, before sales charge, and is
equal to $23,976 as of October 31, 1998. The third line represents the value of
the same hypothetical investment made in the John Hancock Emerging Growth Fund,
after sales charge, and is equal to $22,781 as of October 31, 1998. The fourth
line represents the Russell 2000 Growth Index and is equal to $19,407 as of
October 31, 1998.
Line chart with the heading John Hancock Emerging Growth Fund Class B*,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are three lines. The first line represents the value
of the hypothetical $10,000 investment made in the John Hancock Emerging Growth
Fund on October 31, 1988, before sales charge, and is equal to $41,601 as of
October 31, 1998. The second line represents the value of the Russell 2000 Index
and is equal to $30,316 as of October 31, 1998. The third line represents the
Russell 2000 Growth Index and is equal to $25,576 as of October 31, 1998.
Line chart with the heading John Hancock Emerging Growth Fund Class C,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are four lines. The first line represents the value
of the hypothetical $10,000 investment made in the John Hancock Emerging Growth
Fund on June 1, 1998, before sales charge, and is equal to $8,717 as of October
31, 1998. The second line represents the value of the same hypothetical
investment made in the John Hancock Emerging Growth Fund, after sales charge,
and is equal to $8,629 as of October 31, 1998. The third line represents the
Russell 2000 Index and is equal to $8,329 as of October 31, 1998. The fourth
line represents the Russell 2000 Growth Index and is equal to $8,252 as of
October 31, 1998.
*No contingent deferred sales charge applicable.
- --------------------------------------------------------------------------------
7
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Emerging Growth Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on October 31, 1998. You'll
also find the net asset value and the maximum offering price per share as of
that date.
Statement of Assets and Liabilities
October 31, 1998
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common and preferred stocks
(cost - $413,249,572) .................................... $521,561,043
Joint repurchase agreement (cost - $17,511,000) ........... 17,511,000
Corporate savings account ................................. 825
--------------
539,072,868
Receivable for investments sold ............................ 4,927,747
Receivable for shares sold ................................. 253,422
Dividends receivable ....................................... 14,775
Interest receivable ........................................ 5,267
Other assets ............................................... 109,790
--------------
Total Assets ................................... 544,383,869
------------------------------------------------------------------
Liabilities:
Payable for investments purchased .......................... 1,261,428
Payable for shares repurchased ............................. 299,152
Payable to John Hancock Advisers, Inc.
and affiliates - Note B .................................. 533,314
Accounts payable and accrued expenses ...................... 130,134
--------------
Total Liabilities .............................. 2,224,028
------------------------------------------------------------------
Net Assets:
Capital paid-in ............................................ 418,795,300
Accumulated realized gain on investments and
foreign currency transactions ............................. 15,098,024
Net unrealized appreciation of investments ................. 108,316,447
Accumulated net investment loss ............................ (49,930)
--------------
Net Assets ..................................... $542,159,841
==================================================================
Net Asset Value Per Share:
(Based on net asset values and shares of beneficial
interest outstanding - unlimited number of shares
authorized with no par value)
Class A - $179,699,949/21,378,203 .......................... $8.41
==============================================================================
Class B - $361,992,293/46,363,294 .......................... $7.81
==============================================================================
Class C* - $467,599/59,895 ................................. $7.81
==============================================================================
Maximum Offering Price Per Share**
Class A - ($8.41 x105.26%) ................................. $8.85
==============================================================================
* Class C shares commenced operations on June 1, 1998.
** On single retail sales of less than $50,000. On sales of $50,000 or more
and on group sales the offering price is reduced.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Year ended October 31, 1998
- --------------------------------------------------------------------------------
Investment Income:
Dividends (net of foreign withholding tax of $3,117) ....... $1,724,979
Interest ................................................... 380,350
--------------
2,105,329
--------------
Expenses:
Investment management fee - Note B ........................ 4,728,134
Distribution and service fee - Note B
Class A .................................................. 495,114
Class B .................................................. 4,156,923
Class C .................................................. 1,158
Transfer agent fee - Note B ............................... 1,486,014
Custodian fee ............................................. 268,172
Registration and filing fees .............................. 136,863
Financial services fee - Note B ........................... 105,162
Printing .................................................. 71,143
Interest expense .......................................... 55,650
Trustees' fees ............................................ 51,884
Auditing fee .............................................. 42,919
Miscellaneous ............................................. 15,983
Legal fees ................................................ 13,847
--------------
Total Expenses ................................. 11,628,966
------------------------------------------------------------------
Net Investment Loss ............................ (9,523,637)
------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions:
Net realized gain on investments sold
and foreign currency transactions ......................... 39,776,156
Change in net unrealized appreciation/depreciation
of investments ............................................ (124,158,701)
--------------
Net Realized and Unrealized
Loss on Investments and
Foreign Currency Transactions .................. (84,382,545)
-------------------------------------------------------------------
Net Decrease in Net Assets
Resulting from Operations ...................... ($93,906,182)
===================================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Emerging Growth Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------
1997 1998
------------- -------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss ..................................... ($7,209,751) ($9,523,637)
Net realized gain on investments sold and
foreign currency transactions ......................... 228,690,007 39,776,156
Change in net unrealized appreciation/depreciation
of investments ........................................ (79,546,089) (124,158,701)
------------- -------------
Net Increase (Decrease) in Net Assets Resulting
from Operations ..................................... 141,934,167 (93,906,182)
------------- -------------
Distributions to Shareholders:
Distributions from net realized gain on investments sold
Class A - ($0.2114 and $2.5153 per share, respectively) (4,419,042) (43,296,619)
Class B - ($0.2114 and $2.5153 per share, respectively) (9,530,032) (101,891,134)
------------- -------------
Total Distributions to Shareholders ................... (13,949,074) (145,187,753)
------------- -------------
From Fund Share Transactions - Net: * ...................... (115,772,143) 99,275,929
------------- -------------
Net Assets:
Beginning of period ..................................... 669,764,897 681,977,847
------------- -------------
End of period (including accumulated net investment
loss of $56,172 and $49,930, respectively) ............ $681,977,847 $542,159,841
============= =============
</TABLE>
*Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------
1997 1998
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ..................................... 50,428,036 $533,787,513 43,183,651 $418,398,045
Shares issued to shareholders in reinvestment
of distributions .............................. 366,196 3,727,865 947,975 36,568,238
------------- ------------- ------------- -------------
50,794,232 537,515,378 44,131,626 454,966,283
Less shares repurchased ......................... (55,220,616) (590,533,419) (26,992,214) (414,680,052)
------------- ------------- ------------- -------------
Net increase (decrease) ......................... (4,426,384) ($53,018,041) 17,139,412 $40,286,231
============= ============= ============= =============
CLASS B
Shares sold ..................................... 27,622,260 $276,160,925 57,762,132 $618,597,893
Shares issued to shareholders in reinvestment
of distributions .............................. 685,312 6,664,519 2,001,611 72,238,099
------------- ------------- ------------- -------------
28,307,572 282,825,444 59,763,743 690,835,992
Less shares repurchased ......................... (34,130,340) (345,579,546) (23,478,705) (632,351,276)
------------- ------------- ------------- -------------
Net increase (decrease) ......................... (5,822,768) ($62,754,102) 36,285,038 $58,484,716
============= ============= ============= =============
CLASS C**
Shares sold ..................................... -- -- 60,595 $510,679
Less shares repurchased ......................... -- -- (700) (5,697)
------------- ------------- ------------- -------------
Net increase .................................... -- -- 59,895 $504,982
============= ============= ============= =============
</TABLE>
** Class C shares commenced operations on June 1, 1998.
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous year. The difference reflects
earnings less expenses, any investment and foreign currency gains and losses,
distributions paid to shareholders, and any increase or decrease in money
shareholders invested in the Fund. The footnote illustrates the number of Fund
shares sold and repurchased during the last two periods, along with the
corresponding dollar value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Emerging Growth Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------
1994 1995(1) 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CLASS A(7)
Per Share Operating Performance
Net Asset Value, Beginning of Period .................... $6.47 $6.71 $9.02 $10.22 $12.35
-------- -------- -------- -------- --------
Net Investment Loss(2) .................................. (0.04) (0.07) (0.09) (0.07) (0.08)
Net Realized and Unrealized Gain (Loss) on Investments .. 0.28 2.38 1.29 2.41 (1.34)
-------- -------- -------- -------- --------
Total from Investment Operations ....................... 0.24 2.31 1.20 2.34 (1.42)
-------- -------- -------- -------- --------
Less Distributions:
Distributions from Net Realized Gain on Investments
Sold .................................................. -- -- -- (0.21) (2.52)
-------- -------- -------- -------- --------
Net Asset Value, End of Period .......................... $6.71 $9.02 $10.22 $12.35 $8.41
======== ======== ======== ======== ========
Total Investment Return at Net Asset Value(3) ........... 3.59% 34.56% 13.27% 23.35% (14.14%)
Ratios and Supplemental Data
Net Assets, End of Period (000s Omitted) ................ $131,053 $179,481 $218,497 $209,384 $179,700
Ratio of Expenses to Average Net Assets ................. 1.44% 1.38% 1.32% 1.29%(4) 1.36%(4)
Ratio of Net Investment Loss to Average Net Assets ...... (0.71%) (0.83%) (0.86%) (0.57%) (1.02%)
Portfolio Turnover Rate ................................. 25% 23% 44% 96% 103%
CLASS B(7)
Per Share Operating Performance
Net Asset Value, Beginning of Period .................... $6.33 $6.51 $8.70 $9.78 $11.72
-------- -------- -------- -------- --------
Net Investment Loss(2) .................................. (0.09) (0.11) (0.15) (0.14) (0.15)
Net Realized and Unrealized Gain (Loss) on
Investments ........................................... 0.27 2.30 1.23 2.29 (1.24)
-------- -------- -------- -------- --------
Total from Investment Operations ....................... 0.18 2.19 1.08 2.15 (1.39)
-------- -------- -------- -------- --------
Less Distributions:
Distributions from Net Realized Gain on Investments
Sold .................................................. -- -- -- (0.21) (2.52)
-------- -------- -------- -------- --------
Net Asset Value, End of Period .......................... $6.51 $8.70 $9.78 $11.72 $7.81
======== ======== ======== ======== ========
Total Investment Return at Net Asset Value(3) ........... 2.80% 33.60% 12.48% 22.44% (14.80%)
Ratios and Supplemental Data
Net Assets, End of Period (000s Omitted) ................ $283,435 $393,478 $451,268 $472,594 $361,992
Ratio of Expenses to Average Net Assets ................. 2.19% 2.11% 2.05% 2.02%(4) 2.07%(4)
Ratio of Net Investment Loss to Average Net Assets ...... (1.46%) (1.55%) (1.59%) (1.30%) (1.73%)
Portfolio Turnover Rate ................................. 25% 23% 44% 96% 103%
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indi cated: income, expenses, distributions and
gains (losses) of the Fund. It shows how the Fund's net asset value for a share
has changed since the end of the previous period. Additionally, important rela
tionships between some items presented in the financial statements are expressed
in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Emerging Growth Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
PERIOD FROM
JUNE 1, 1998
(COMMENCEMENT OF
OPERATIONS) to
OCTOBER 31, 1998
----------------
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of Period ....................... $8.96
-------
Net Investment Loss(2) ..................................... (0.03)
Net Realized and Unrealized Loss on Investments ............ (1.12)
-------
Total from Investment Operations ........................... (1.15)
-------
Net Asset Value, End of Period ............................. $7.81
=======
Total Investment Return at Net Asset Value(3) .............. (12.83%)(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s Omitted) ................... $468
Ratio of Expenses to Average Net Assets .................... 2.11%(4,6)
Ratio of Net Investment Loss to Average Net Assets ......... (1.86%)(6)
Portfolio Turnover Rate .................................... 103%
(1) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(4) Expense ratios do not include interest expense due to bank loans, which
amounted to less than $0.01 per share.
(5) Not annualized.
(6) Annualized.
(7) All per share amounts and net asset values have been restated to reflect
the four-for-one stock split effective May 1, 1998.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Emerging Growth Fund
Schedule of Investments
October 31, 1998
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Emerging Growth Fund on October 31, 1998. It's divided into three main
categories: common stocks, preferred stock and short-term investments. Common
and preferred stocks are further broken down by industry group. Short-term
investments, which represent the Fund's "cash" position, are listed last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
COMMON STOCKS
Advertising (0.48%)
Getty Images, Inc* ............................. 212,300 $2,613,944
------------
Aerospace (0.51%)
AAR Corp. ...................................... 119,700 2,768,062
------------
Automobile/Trucks (1.14%)
Gentex Corp.* .................................. 183,400 2,693,687
United Rentals, Inc.* .......................... 129,000 3,466,875
------------
6,160,562
------------
Beverages (0.25%)
Beringer Wine Estates Holdings, Inc.
(Class B)* ................................... 29,500 1,338,563
------------
Broker Services (0.66%)
Raymond James Financial, Inc. .................. 156,087 3,580,246
------------
Building (0.86%)
Crossmann Communities, Inc.* ................... 107,300 2,441,075
D. R. Horton, Inc. ............................. 140,800 2,235,200
------------
4,676,275
------------
Business Services - Misc (14.91%)
Abacus Direct Corp.* ........................... 77,500 3,778,125
AnswerThink Consulting Group, Inc.* ............ 200,000 3,862,500
Boron, LePore & Associates, Inc.* .............. 50,500 1,363,500
Charles River Associates, Inc.* ................ 181,800 4,545,000
Cognizant Technology Solutions Corp.* .......... 298,800 6,666,975
First Consulting Group, Inc* ................... 181,200 2,978,475
Forrester Research, Inc.* ...................... 127,300 4,105,425
Hagler Bailly, Inc.* ........................... 151,800 3,567,300
Information Management Resources,
Inc.* ........................................ 76,600 1,800,100
INSpire Insurance Solutions, Inc.* ............. 150,000 3,750,000
Interim Services, Inc. * ....................... 174,300 3,703,875
Lason, Inc.* ................................... 69,900 3,827,025
Mac-Gray Corp.* ................................ 34,800 348,000
MAXIMUS, Inc.* ................................. 51,700 1,499,300
MedQuist, Inc.* ................................ 108,300 2,917,331
META Group, Inc. * ............................. 210,800 5,059,200
Metamor Worldwide, Inc.* ....................... 80,000 2,055,000
Metzler Group, Inc. (The)* ..................... 131,550 5,525,100
On Assignment, Inc.* ........................... 145,900 4,960,600
ProBusiness Services, Inc.* .................... 115,000 4,204,688
Professional Detailing, Inc.* .................. 102,300 2,391,263
Profit Recovery Group International, Inc.
(The)* ....................................... 104,200 3,197,638
Whittman-Hart, Inc.* ........................... 239,000 4,750,125
------------
80,856,545
------------
Computers (21.09%)
Advent Software, Inc.* ......................... 130,600 4,538,350
ARIS Corp.* .................................... 216,100 3,403,575
Aspect Development, Inc.* ...................... 165,000 5,212,977
BARRA, Inc.* ................................... 108,900 2,872,238
Beyond.com* .................................... 388,300 3,591,775
BindView Development Corp.* .................... 152,500 2,745,000
BMC Software, Inc.* ........................... 39,000 1,874,437
Concentric Network Corp. * ..................... 145,900 3,538,075
Dell Computer Corp.* ........................... 30,000 1,968,750
Dendrite International, Inc.* .................. 164,100 3,384,562
Digital River, Inc.* ........................... 83,400 917,400
E*TRADE Group, Inc.* ........................... 200,000 3,600,000
EarthLink Network, Inc.* ....................... 68,900 2,652,650
Entrust Technologies, Inc.* .................... 148,800 2,473,800
Exodus Communications, Inc.* ................... 124,200 3,943,350
Fundtech, Ltd.* ................................ 277,800 3,785,025
HNC Software, Inc.* ........................... 80,000 2,690,000
Hyperion Solutions Corp.* ...................... 90,820 2,724,600
IDX Systems Corp.* ............................. 81,400 3,449,325
Infoseek Corp.* ................................ 59,600 1,761,925
International Integration, Inc.* ............... 20,600 309,000
International Network Services, Inc.* .......... 109,000 4,632,500
Manhattan Associates, Inc. * ................... 129,500 2,072,000
MicroStrategy Inc. (Class A)* .................. 34,000 828,750
National Computer Systems, Inc. ................ 158,000 4,424,000
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Emerging Growth Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Computers (continued)
National Instruments Corp.* ................... 126,050 $3,450,619
Network Appliance, Inc.* ...................... 111,800 6,121,050
PeopleSoft, Inc.* ............................. 40,000 847,500
PSINet, Inc.* ................................. 100,000 1,443,750
RealNetworks, Inc.* .......................... 108,200 3,644,988
SCM Microsystems, Inc.* ....................... 79,100 3,757,250
SEI Investments Co. ........................... 17,000 1,408,875
SOFTWORKS, Inc.* .............................. 272,300 1,191,313
Sterling Commerce, Inc.* ...................... 46,323 1,632,886
Symantec Corp.* ............................... 150,700 2,411,200
Verio, Inc.* ................................. 180,800 2,508,600
VeriSign, Inc.* ............................... 168,200 5,161,638
Visio Corp.* .................................. 102,500 2,729,063
Wind River Systems, Inc.* ..................... 106,100 4,648,506
------------
114,351,302
------------
Containers (0.16%)
Ivex Packaging Corp.* ......................... 50,000 884,375
------------
Electronics (6.36%)
ATMI, Inc.* ................................... 220,900 3,037,375
DuPont Photomasks, Inc.* ...................... 60,000 2,175,000
Flextronics International, Ltd.* .............. 97,500 5,063,906
KLA-Tencor Corp.* ............................. 50,000 1,843,750
L-3 Communications Holdings, Inc.* ............ 21,400 920,200
Level One Communications, Inc.* ............... 180,225 4,742,168
Micrel, Inc.* ................................. 70,900 2,330,838
Novellus Systems, Inc.* ....................... 103,900 4,032,619
PMC-Sierra, Inc. (Canada)* .................... 78,800 3,536,150
Rambus, Inc.* ................................. 66,000 4,316,816
Semtech Corp.* ................................ 103,600 2,466,975
------------
34,465,797
------------
Finance (2.17%)
AmeriCredit Corp.* ............................ 150,200 2,008,925
Financial Federal Corp.* ...................... 131,000 3,053,938
Medallion Financial Corp. ..................... 270,800 4,806,700
Price (T. Rowe) Associates, Inc. .............. 39,500 1,404,719
TeleBanc Financial Corp.* ..................... 27,800 507,350
------------
11,781,632
------------
Food (0.69%)
American Italian Pasta Co. (Class A)* ......... 163,200 3,753,600
------------
Funeral Services & Related (0.65%)
Carriage Services, Inc. (Class A)* ............ 152,100 3,555,337
------------
Insurance (2.00%)
Ace, Ltd. (Bermuda) .......................... 37,800 1,280,475
Capital Re Corp. .............................. 133,600 2,446,550
Executive Risk, Inc. .......................... 61,500 2,921,250
Hartford Life, Inc. (Class A) ................. 30,600 1,415,250
Horace Mann Educators Corp. ................... 96,800 2,770,900
------------
10,834,425
------------
Leasing Companies (0.55%)
Rollins Truck Leasing Corp. ................... 254,450 2,957,981
------------
Leisure (3.71%)
Cinar Films, Inc. (Class B) (Canada)* ......... 256,400 5,416,450
Family Golf Centers, Inc.* .................... 112,600 2,371,638
Premier Parks, Inc.* .......................... 189,800 4,211,188
Silverleaf Resorts, Inc.* ..................... 135,300 1,598,231
Steiner Leisure, Ltd.* ........................ 169,100 4,121,813
Travel Services International, Inc.* .......... 117,000 2,369,250
------------
20,088,570
------------
Linen Supply & Related (0.42%)
G & K Services, Inc. (Class A) ................ 50,000 2,287,500
------------
Machinery (0.64%)
Applied Power, Inc. (Class A) ................. 126,800 3,494,925
------------
Media (3.74%)
Adelphia Communications Corp.
(Class A)* .................................. 149,400 5,621,175
Clear Channel Communications, Inc.* ........... 56,414 2,570,363
Harte-Hanks, Inc. ............................. 141,800 3,447,512
Heftel Broadcasting Corp. (Class A)* .......... 73,000 3,002,125
Network Event Theater, Inc.* .................. 685,200 2,954,925
Petersen Cos., Inc. (The) (Class A)* .......... 100,000 2,656,250
------------
20,252,350
------------
Medical (7.40%)
Alkermes, Inc.* ............................... 106,100 2,068,950
American Healthcorp, Inc.* .................... 88,100 869,987
Elan Corp., PLC American Depositary
Receipts (Ireland)* ......................... 30,000 2,101,875
Gilead Sciences, Inc.* ........................ 70,600 2,003,275
Hanger Orthopedic Group, Inc.* ................ 180,700 3,568,825
HCR Manor Care, Inc.* ......................... 50,950 1,655,875
Health Management Associates, Inc.
(Class A)* .................................. 82,428 1,468,249
Human Genome Sciences, Inc.* .................. 51,000 1,765,875
IDEC Pharmaceuticals Corp.* ................... 96,700 2,888,912
IMPATH, Inc.* ................................. 101,100 3,096,187
MiniMed, Inc.* ................................ 59,000 3,274,500
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Emerging Growth Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Medical (continued)
Ocular Sciences, Inc.* ........................ 115,300 $2,896,913
PAREXEL International Corp.* .................. 103,400 2,281,263
Perclose, Inc.* ............................... 75,000 1,790,625
Renal Care Group, Inc.* ....................... 112,200 3,267,825
Res-Care, Inc.* ............................... 166,550 3,684,919
Ventana Medical Systems, Inc.* ................ 77,200 1,428,200
------------
40,112,255
------------
Metal (0.54%)
CompX International, Inc.* .................... 119,600 2,302,300
NCI Building Systems, Inc.* ................... 28,400 614,150
------------
2,916,450
------------
Oil & Gas (3.59%)
Core Laboratories N.V. (Netherlands)* ......... 156,800 3,537,800
Cross Timbers Oil Co. ......................... 57,600 828,000
Dril-Quip, Inc.* .............................. 89,900 1,887,900
J. Ray McDermott, S.A. * ...................... 46,700 1,465,213
National-Oilwell, Inc.* ....................... 146,500 2,325,687
Newfield Exploration Co.* ..................... 75,200 1,828,300
Stone Energy Corp.* .......................... 108,700 3,491,988
Tuboscope, Inc.* .............................. 136,200 1,685,475
Veritas DGC, Inc.* ............................ 129,000 2,402,625
------------
19,452,988
------------
Pollution Control (1.07%)
Eastern Environmental Services, Inc.* ......... 154,000 4,273,500
Newpark Resources, Inc.* ...................... 161,200 1,521,325
------------
5,794,825
------------
Printing - Commercial (0.91%)
Consolidated Graphics, Inc.* .................. 55,000 2,609,062
Mail-Well, Inc.* .............................. 178,800 2,335,575
------------
4,944,637
------------
Real Estate Operations (0.55%)
Central Parking Corp. ......................... 70,500 2,956,594
------------
Retail (11.53%)
99 Cents Only Stores* ......................... 96,250 4,451,562
Abercrombie & Fitch Co. (Class A)* ............ 68,200 2,706,687
Buckle, Inc. (The)* .......................... 114,900 2,082,562
CSK Auto Corp.* ............................... 143,000 3,726,937
CVS Corp. ..................................... 60,000 2,741,250
Dominick's Supermarkets, Inc.* ................ 91,600 4,471,225
Duane Reade, Inc.* ............................ 103,000 3,978,375
Eagle Hardware & Garden, Inc.* ................ 168,500 3,917,625
Ethan Allen Interiors, Inc. ................... 77,500 2,664,062
Furniture Brands International, Inc.* ......... 116,800 2,511,200
Garden Fresh Restaurant Corp.* ................ 85,300 1,370,131
Genovese Drug Stores, Inc. (Class A) .......... 140,280 3,103,695
Hibbett Sporting Goods, Inc.* ................. 161,300 4,365,181
Linens `N Things, Inc.* ....................... 145,000 4,485,938
O'Reilly Automotive, Inc.* .................... 80,000 3,130,000
Saks, Inc.* ................................... 125,600 2,857,400
Stage Stores, Inc.* .......................... 155,700 2,063,025
Starbucks Corp.* .............................. 53,300 2,311,888
Whole Foods Market, Inc.* ..................... 55,000 2,203,438
Wild Oats Markets, Inc.* ...................... 137,600 3,388,400
------------
62,530,581
------------
Schools/Education (0.61%)
Strayer Education, Inc. ....................... 96,750 3,289,500
------------
Telecommunications (4.73%)
Carrier Access Corp.* ......................... 130,000 2,502,500
Crown Castle International Corp.* ............. 163,700 2,107,637
Global TeleSystems Group, Inc.* ............... 79,100 3,168,944
ICG Communications, Inc.* ..................... 87,200 1,803,950
Metromedia Fiber Network, Inc.
(Class A)* .................................. 164,400 6,226,650
NEXTLINK Communications, Inc.
(Class A)* .................................. 73,600 1,886,000
Qwest Communications International,
Inc.* ....................................... 45,089 1,764,107
Tellabs, Inc.* ................................ 45,000 2,475,000
Transaction Network Services, Inc.* ........... 40,000 1,095,000
WinStar Communications, Inc.* ................. 97,800 2,640,600
------------
25,670,388
------------
Textile (0.82%)
Cutter & Buck, Inc.* .......................... 170,200 4,425,200
------------
Transport (2.08%)
ASA Holdings, Inc. ............................ 61,500 2,206,312
Carey International, Inc.* .................... 121,600 2,173,600
MotivePower Industries, Inc.* ................. 166,200 4,227,712
Westinghouse Air Brake Co. .................... 125,400 2,696,100
------------
11,303,724
------------
Waste Disposal Service & Equip (1.16%)
Allied Waste Industries, Inc.* ................ 168,560 3,645,110
Waste Connections, Inc.* ...................... 139,100 2,642,900
------------
6,288,010
------------
TOTAL COMMON STOCKS
(Cost $412,643,832) (95.98%) 520,387,143
--------- ------------
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Emerging Growth Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
PREFERRED STOCK
Oil & Gas (0.22%)
Cross Timbers Oil Co. ......................... 34,400 $1,173,900
------------
TOTAL PREFERRED STOCK
(Cost $605,740) (0.22%) 1,173,900
------------ ------------
TOTAL COMMON STOCKS
AND PREFERRED STOCK
(Cost $413,249,572) (96.20%) 521,561,043
------------ ------------
INTEREST PAR VALUE
RATE (000s OMITTED)
---- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (3.23%)
Investment in a joint repurchase
agreement transaction with
HSBC Securities, Inc. -
Dated 10-30-98, due 11-02-98
(Secured by U.S. Treasury Bond,
7.125%, due 02-15-23 and
U.S. Treasury Notes, 6.25%,
due 01-31-02 thru 02-28-02)
-- Note A......................... 5.38% $17,511 17,511,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.35% 825
------------
TOTAL SHORT-TERM INVESTMENTS (3.23%) 17,511,825
------- ------------
TOTAL INVESTMENTS (99.43%) 539,072,868
------- ------------
OTHER ASSETS AND LIABILITIES, NET (0.57%) 3,086,973
------- ------------
TOTAL NET ASSETS (100.00%) $542,159,841
======= ============
* Non-income producing security.
Parenthetical disclosure of a foreign country in the security description
represents country of a foreign issuer; however, security is U.S. dollar
denominated.
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Emerging Growth Fund
NOTE A -
ACCOUNTING POLICIES
John Hancock Series Trust (the "Trust") is a diversified open-end management
investment company registered under the Investment Company Act of 1940. The
Trust consists of two series portfolios: John Hancock Emerging Growth Fund (the
"Fund") and John Hancock Global Technology Fund. The other series of the Trust
is reported in separate financial statements. The investment objective of the
Fund is to seek long-term growth of capital through investing in emerging
companies (market capitalization of less than $1 billion).
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A and Class B shares. The Trustees have authorized
the issuance of Class C shares effective June 1, 1998. The shares of each class
represent an interest in the same portfolio of investments of the Fund and have
equal rights to voting, redemptions, dividends and liquidation, except that
certain expenses, subject to the approval of the Trustees, may be applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission and the Internal Revenue Service.
Shareholders of a class which bears distribution and service expenses under
terms of a distribution plan have exclusive voting rights to that distribution
plan.
On March 10, 1998 the Board of Trustees of the Fund voted to split the
shares four for one, effective May 1, 1998. All per share amounts and net asset
values have been restated to reflect the stock split.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value. All portfolio
transactions initially expressed in terms of foreign currencies have been
translated into U.S. dollars as described in "Foreign Currency Translation"
below.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
Inc., may participate in a joint repurchase agreement. Aggregate cash balances
are invested in one or more repurchase agreements, whose underlying securities
are obligations of the U.S. government and/or its agencies. The Fund's custodian
bank receives delivery of the underlying securities for the joint account on the
Fund's behalf. The Adviser is responsible for ensuring that the agreement is
fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund qualifies as a "regulated investment company" by
complying with the applicable provisions of the Internal Revenue Code and will
not be subject to federal income tax on taxable income which is distributed to
shareholders. Therefore, no federal income tax provision is required.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date or in the case of some foreign securities,
on the date thereafter when the Fund is made aware of the dividend. Interest
income on investment securities is recorded on the accrual basis. Foreign income
may be subject to foreign withholding taxes which are accrued as applicable.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles. Dividends paid by the Fund with
respect to each class of shares will be calculated in the same manner, at the
same time and will be in the same amount, except for the effect of expenses that
may be applied differently to each class.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are calculated at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution and service fees, if any, are calculated daily at the class level
based on the appropriate net assets of each class and the specific expense
rate(s) applicable to each class.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual fund. Expenses which are not readily
16
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Emerging Growth Fund
identifiable to a specific fund are allocated in such a manner as deemed
equitable, taking into consideration, among other things, the nature and type of
expense and the relative sizes of the funds.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues
and expenses of the Fund. Actual results could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. These agreements enable
the Fund to participate with other Funds managed by the Adviser in unsecured
lines of credit with banks which permit borrowings up to $800 million,
collectively. Interest is charged to each Fund, based on its borrowing, at a
rate equal to 0.50% over the Fed Funds Rate. In addition, a commitment fee, at
rates ranging from 0.070% to 0.075% per annum based on the average daily unused
portion of the line of credit, is allocated among the participating Funds. The
maximum loan balance outstanding during the year amounted to $23,451,606. The
interest rate was in the range of 5.94% thru 6.25%. At October 31, 1998, there
were no outstanding borrowings.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 p.m., London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain/(loss) on investments are
translated at the rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than investments in securities at fiscal
year end, resulting from changes in the exchange rate.
NOTE B -
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to the sum of 0.75% of Fund's average daily net asset value.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the year ended October
31, 1998, net sales charges received with regard to sales of Class A shares
amounted to $405,078. Out of this amount, $61,937 was retained and used for
printing prospectuses, advertising, sales literature and other purposes,
$232,353 was paid as sales commissions to unrelated broker-dealers and $110,788
was paid as sales commissions to sales personnel of John Hancock Distributors,
Inc. ("Distributors"), a related broker-dealer. The Adviser's indirect parent,
John Hancock Mutual Life Insurance Company ("JHMLICo"), is the indirect sole
shareholder of Distributors.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses related to providing distribution related services to the Fund in
connection with the sale of Class B shares. For the year ended October 31, 1998,
contingent deferred sales charges paid to JH Funds amounted to $920,000.
Class C shares which are redeemed within one year of purchase will be
subject to a contingent deferred sales charge ("CDSC") at a rate of 1.0% of the
lesser of the current market value at the time of
17
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Emerging Growth Fund
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses related to providing distribution related services to the Fund in
connection with the sale of Class C shares. For the year ended October 31, 1998,
there was no contingent deferred sales charges paid to JH Funds.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted Distribution Plans with
respect to Class A, Class B and Class C pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Accordingly, the Fund will make payments to JH
Funds for distribution and service expenses, at an annual rate not to exceed
0.25% of Class A average daily net assets and 1.00% of Class B and Class C
average daily net assets to reimburse JH Funds for its distribution and service
costs. Up to a maximum of 0.25% of such payments may be service fees as defined
by the amended Rules of Fair Practice of the National Association of Securities
Dealers. Under the amended Rules of Fair Practice, curtailment of a portion of
the Fund's 12b-1 payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of JHMLICo. The
Fund pays transfer agent fees based on the number of shareholder accounts and
certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Funds. The compensation for the year was
at an annual rate of less than 0.02% of the average net assets of each Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S.
Scipione are trustees and/or officers of the Adviser and/or its affiliates, as
well as Trustees of the Fund. The compensation of unaffiliated Trustees is borne
by the Fund. The unaffiliated Trustees may elect to defer for tax purposes their
receipt of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Fund makes investments into other John Hancock funds, as
applicable, to cover its liability for the deferred compensation. Investments to
cover the Fund's deferred compensation liability are recorded on the Fund's
books as an other asset. The deferred compensation liability and the related
other asset are always equal and are marked to market on a periodic basis to
reflect any income earned by the investment as well as any unrealized gains or
losses. At October 31, 1998, the Fund's investments to cover the deferred
compensation liability had an unrealized appreciation of $4,976.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the year
ended October 31, 1998, aggregated $637,184,044 and $704,507,982, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the year ended October 31, 1998.
The cost of investments owned at October 31, 1998 (excluding the corporate
savings account) for federal income tax purposes was $431,089,387. Gross
unrealized appreciation and depreciation of investments aggregated $142,879,430
and $34,896,774, respectively, resulting in net unrealized appreciation of
$107,982,656.
NOTE D -
RECLASSIFICATION OF ACCOUNTS
During the year ended October 31, 1998, the Fund has reclassified amounts to
reflect a decrease in accumulated net realized gain on investments and foreign
currency transactions of $23,844,404, a decrease in accumulated net investment
loss of $9,529,879 and an increase in capital paid-in of $14,314,525. This
represents the amount necessary to report these balances on a tax basis,
excluding certain temporary differences, as of October 31, 1998. Additional
adjustments may be needed in subsequent reporting periods. These
reclassifications, which have no impact on the net asset value of the Fund, are
primarily attributable to the treatment of net operating losses in the
computation of distributable income and capital gains under federal tax rules
versus generally accepted accounting principles, and the fund's use of the the
tax accounting practice known as equalization. The calculation of net investment
income per share in the financial highlights excludes these adjustments.
18
<PAGE>
================================================================================
John Hancock Funds - Emerging Growth Fund
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of
John Hancock Series Trust --
John Hancock Emerging Growth Fund
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of the John Hancock Emerging Growth Fund (the
"Fund"), one of the portfolios constituting John Hancock Series Trust, as of
October 31, 1998, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1998, by correspondence with the custodian and brokers, and other
appropriate auditing procedures where replies from brokers were not received. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
John Hancock Emerging Growth Fund portfolio of John Hancock Series Trust at
October 31, 1998, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and the financial highlights for each of the periods indicated therein, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
December 12, 1998
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund during its fiscal year ended October
31, 1998.
The Fund has designated distributions to shareholders of $168,931,911 as a
capital gain dividend.
None of the distributions qualify for the dividends received deduction
available to corporations.
Shareholders will be mailed a 1998 U.S. Treasury Department Form 1099-DIV
in January of 1999. This will reflect the total of all distributions which are
taxable for calendar year 1998.
19
<PAGE>
================================================================================
----------------
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A Global Investment Management Firm U.S. Postage
PAID
101 HUNTINGTON AVENUE, BOSTON, MA 02199-7603 Randolph, MA
1-800-225-5291 1-800-554-6713 (TDD) Permit No. 75
INTERNET: www.jhancock.com/funds ----------------
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock
Emerging Growth Fund. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
[Recycle Logo] Printed on Recycled Paper 6000A 10/98
12/98
[A 1/2" x 1/2" John Hancock Funds logo in upper left hand corner of the page. A
box sectioned in quadrants with a triangle in upper left, a circle in upper
right, a cube in lower left and a diamond in lower right. A tag line below reads
"A Global Investment Management Firm." A recycled logo in lower left hand corner
with caption "Printed on Recycled Paper."]
<PAGE>
The latest report from your
Fund's management team
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Small Cap
Growth Fund
(formerly Emerging Growth Fund)
APRIL 30, 1999
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
-----------------------------------
TRUSTEES
Edward J. Boudreau, Jr.
Stephen L. Brown
James F. Carlin
William H. Cunningham*
Ronald R. Dion*
Harold R. Hiser, Jr.
Anne C. Hodsdon
Charles L. Ladner
Leo E. Linbeck, Jr.
Steven R. Pruchansky*
Richard S. Scipione
Lt. Gen. Norman H. Smith, USMC (Ret.)
John P. Toolan
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Anne C. Hodsdon
President, Chief Operating Officer
and Chief Investment Officer
Osbert M. Hood
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Vice President and Compliance Officer
CUSTODIAN
Investors Bank and Trust Company
200 Clarendon Street
Boston, Massachusetts 02116-5072
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
------------------------------------------
================================================================================
DEAR FELLOW SHAREHOLDERS:
The Year 2000 is fast approaching and people around the world are getting ready
to celebrate this historic transition to a new millennium. At John Hancock
Funds, we share the excitement, but we aren't popping the champagne corks just
yet. Rather, we are staying on the course that we set more than two years ago to
ensure that the transition to a new millennium is a smooth one for our
shareholders.
As many already know, the Year 2000 has created more than the prospect of New
Year's festivities of epic proportions. It has also presented the world with a
challenge: making sure that older computers, and any equipment powered by
computer chips, can properly read and process the date "00" as 2000, not 1900.
Much has been written about how the world will weather the change. Some view it
as a non-event, while others see the potential for disruptions. How much
disruption, and for how long, depends on whom you talk to.
- --------------------------------------------------------------------------------
[A 1" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
- --------------------------------------------------------------------------------
As a company, we recognize that the Year 2000 ("Y2K") phenomenon is an important
issue to be dealt with and we have made it a top priority. Two years ago, John
Hancock Funds put a full-time team of experts on the case and established a
company-wide program to evaluate all computer applications and to modify or
replace those that needed changing.
These modifications and replacements are nearly done, and the tests of all our
systems are on schedule for completion by the end of July. The rest of 1999 will
be spent testing with our business partners and continuing to participate in
industry testing. We have also established additional contingency plans beyond
our regular ones to prepare for any challenges that the Year 2000 might present.
In the end, John Hancock will spend approximately $90-$95 million to ensure we
make a successful transition to the Year 2000.
Throughout 1999, each of our quarterly "Fundamentals" newsletters is featuring
articles with more detailed information on Y2K matters of importance to our
shareholders. I encourage you to read them, or contact one of our Customer
Service Representatives at 1-800-225-5291 for another copy. For your own peace
of mind, we also recommend that you save your 1999 statements, especially those
you receive between October and December, so that you are able to check them
against the first one you receive in 2000. It's a measure of prudence, not
panic. Good record keeping is part of good planning.
No one knows how the dawning of the new millennium will unfold. Although we
cannot make any ironclad assurances, we are confident that the steps we have
taken will provide shareholders with as smooth a transition as possible. Once
that occurs, we will happily raise our glasses to toast the New Year, future
prosperity and our hopes to serve you well into the 2000's.
Sincerely,
/s/Edward J. Boudreau, Jr.
- -------------------------------------------------------------
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
By Bernice S. Behar, CFA, Portfolio Management Team Leader, and
Laura Allen, CFA, and Anurag Pandit, CFA, Portfolio Managers
John Hancock
Small Cap Growth Fund
Fund handily outpaces peers amid changing
-----------------------------------------
environment for small-cap stocks
--------------------------------
Effective June 1, 1999, John Hancock Emerging Growth Fund's name was changed to
John Hancock Small Cap Growth Fund to better describe how the Fund invests.
John Hancock Small Cap Growth Fund posted very strong returns over the last six
months during an up-and-down period for small-company stocks. After lagging
their larger-company counterparts throughout most of 1998, small-cap stocks
caught fire just weeks before the period began, thanks largely to interest-rate
cuts by the Federal Reserve Board. Because they tend to fund their growth by
borrowing money, small-cap companies benefit more than larger companies from
lower rates. The Fed's actions also helped restore investor confidence and
pumped liquidity into the global financial system. A third rate cut in November
helped extend the small-cap rally through the remainder of 1998 by attracting
investors looking for inexpensive alternatives to high-flying large-cap names.
The small-cap market's advance was limited almost exclusively to growth stocks -
those that exhibit fast rates of earnings and other growth, leaving behind
small-cap value stocks - those that seem bargain-priced based on price/earnings
ratios and other measures.
By early 1999, however, sentiment turned against small-cap stocks of
both the growth and value variety. Inflationary fears re-emerged on news that
the economy had expanded at a much
- --------------------------------------------------------------------------------
[A 3 1/2" x 2" photo at bottom right side of page of John Hancock Small Cap
Growth Fund. Caption below reads "Fund management team members (l-r): "Scott
Mayo, Laura Allen, Anurag Pandit and Bernice Behar."]
- --------------------------------------------------------------------------------
"...an up-anddown period for small-company stocks."
3
<PAGE>
================================================================================
John Hancock Funds - Small Cap Growth Fund
"By far the strongest sector in both the market and the Fund... was technology."
- --------------------------------------------------------------------------------
[Table at top left hand column entitled "Top Five Stock Holdings." The first
listing is NEXTLINK Communications 1.4%, the second is Verio 1.2%, the third
Adelphia Communications 1.2%, the fourth Metromedia Fiber Network 1.2% and the
fifth Allegiance Telecom 1.2%. A note below the table reads "As a percentage of
net assets on April 30, 1999."]
- --------------------------------------------------------------------------------
quicker-than-expected pace in the final three months of 1998 and put pressure on
small-company stock prices. Practically the only exceptions to this rule were
red-hot technology stocks - particularly those related to the Internet.
Investors seemingly couldn't get enough of these stocks, many of which posted
triple-digit gains in the first four months of this year.
Given the gyrating environment for small-company growth stocks, we're
gratified that the Fund handily outpaced its benchmark and its peers. For the
six-month period ended April 30, 1999, John Hancock Small Cap Growth Fund's
Class A, Class B and Class C shares posted total returns of 33.54%, 33.16% and
33.03%, respectively, at net asset value. By contrast, the average small-cap
fund returned 14.68%, according to Lipper, Inc.1, and the Russell 2000 Growth
Index returned 25.74%. Keep in mind that your net asset value return will be
different from the Fund's performance if you were not invested in the Fund for
the entire period and did
- --------------------------------------------------------------------------------
[Table at bottom of left hand column entitled "Scorecard". The header for the
left column is "Investment" and the header for the right column is "Recent
Performance...and What's Behind the Numbers". The first listing is AboveNet
Communications followed by an up arrow with the phrase "Sparked by growth in
Internet infrastructure." The second listing is Pacific Sunwear of California
followed by an up arrow with the phrase "Increased spending on teen clothing."
The third listing is Whittman-Hart followed by a down arrow with the phrase
"Tainted by technology sevice sector's downturn." A note below the table reads
"See `Schedule of Investments.' Investment holdings are subject to change."]
- --------------------------------------------------------------------------------
not reinvest all distributions. Please see pages six and seven for historical
performance information.
Internet hot...
By far the strongest sector in both the market and the Fund during this period
was technology. A number of strategic moves that we made among various
technology sub-sectors going into the period held the keys to our recent
outperformance. Last November, we were focused on semiconductor manufacturers
and semiconductor capital equipment makers such as Novellus Systems, PMC-Sierra,
Semtech and Level One Communications. We had purchased these stocks last summer
after they experienced a rather severe correction when investors feared that
protracted problems in the Far East would translate into a slowdown in
semiconductor chip and equipment orders. At the time, we believed the market
overreacted and that the group was therefore attractively priced. As we
expected, orders from Asia firmed up and boosted our holdings. More recently,
we've tilted our semiconductor holdings more toward companies that make chips or
equipment for the fast-growing telecommunications industry, such as RF Micro
Devices.
Perhaps our strongest performers during the period were our Internet
holdings, especially given investors' near-mania for the group in 1999. We had
also added to our Internet stocks last summer, after they, too, fell victim to
negative investor sentiment. That strategy proved beneficial when companies like
RealNetworks, which provides audio and video technology for the Internet, and
networking company AboveNet Communications posted double-digit gains by the end
of the period.
4
<PAGE>
================================================================================
John Hancock Funds - Small Cap Growth Fund
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the six months ended April 30, 1999." The
chart is scaled in increments of 5% with 0% at the bottom and 35% at the top.
The first bar represents the 33.54% total return for John Hancock Small Cap
Growth Fund Class A. The second bar represents the 33.16% total return for John
Hancock Small Cap Growth Fund Class B. The third bar represents the 33.03 %
total return for John Hancock Small Cap Growth Fund Class C. The fourth bar
represents the 14.68% total return for Average small-cap fund. A note below the
chart reads "Total returns for John Hancock Small Cap Growth Fund are at net
asset value with all distributions reinvested. The average small-cap fund is
tracked by Lipper, Inc. See the following two pages for historical performance
information."]
- --------------------------------------------------------------------------------
Another strong performer was Multex.com, which transmits brokerage research via
the Internet.
...software, health services not
By contrast, our technology holdings in the software and service sectors
performed poorly and detracted from performance. Investors became increasingly
fearful that the approach of the Year 2000 would stymie demand for software and
services, since few companies would want to implement new software while Y2K
issues remained. Even companies that continued to post good earnings and meet
expectations suffered from the negative sentiment, such as Whittman-Hart, which
provides technology services such as web design and software installation for
medium-sized businesses.
Health-care service companies also performed poorly during the period.
Changes in Medicare reimbursement levels continued to weigh heavily on this
group of nursing homes and assisted-living centers, many of which we sold before
the period ended.
New additions
Our search for companies with strong and sustainable revenue and earnings
growth, dominant market share and proven and effective management led us to a
number of new ideas, including retailers who serve the teenage market such as
bebe stores, Pacific Sunwear of California and Wet Seal. The U.S. teen
population is growing twice as fast as almost any other American age group.
What's more, they have money and they spend it.
We also added to the Fund's stake in so-called "clecs," which are
telephone companies that serve small and mid-sized business. Many of these
companies, such as NEXTLINK Communications, have enjoyed consistent and strong
earnings growth as they grab market share away from more traditional telephone
companies.
Outlook
Our outlook for stocks in general is upbeat. Continued healthy economic growth
coupled with low inflation, low interest rates and low unemployment should
continue to favor stocks. Based on that view, we believe that the outlook for
earnings is quite good. As for small-company stocks, even with their recent
uptick, their valuations remain compelling and their earnings growth rates
attractive, meaning small caps remain overdue for a more sustained rally. The
Fund's diversified approach has helped sustain it during ups and downs of the
small-cap market over the last few years, and should continue to serve the Fund
well.
- --------------------------------------------------------------------------------
This commentary reflects the views of the portfolio managers through the end of
the Fund's period discussed in this report. Of course, the managers' views are
subject to change as market and other conditions warrant
1Figures from Lipper, Inc. include reinvested dividends and do not take into
account sales charges. Actual load-adjusted performance is lower.
"Our outlook for stocks in general is upbeat."
5
<PAGE>
================================================================================
John Hancock Funds - Small Cap Growth Fund
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Small Cap Growth Fund. Total return measures
the change in value of an investment from the beginning to the end of a period,
assuming all distributions were reinvested.
For Class A shares, total return figures include a maximum applicable sales
charge of 5%. (Prior to May 15, 1995, the maximum applicable sales charge for
Class A shares was 5.75%.) Class B performance reflects a maximum contingent
deferred sales charge (maximum 5% and declining to 0% over six years). Class C
performance includes a contingent deferred sales charge (1% declining to 0%
after one year).
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them. Please read your
prospectus before you invest or send money.
- --------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------
For the period ended March 31, 1999
SINCE
ONE FIVE INCEPTION
YEAR YEARS (8/22/91)
------- ------- --------
Cumulative Total Returns (2.40%) 109.36% 192.26%
Average Annual Total Returns (2.40%) 15.93% 15.14%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended March 31, 1999
ONE FIVE TEN
YEAR YEARS YEARS
------- ------- --------
Cumulative Total Returns 0.81% 111.72% 391.20%
Average Annual Total Returns 0.81% 16.19% 17.25%
- --------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------
For the period ended March 31, 1999
SINCE
INCEPTION
(6/1/98)
--------
Cumulative Total Return 10.48%
Average Annual Total Return 10.48%(1)
Notes to Performance
(1) Not annualized.
6
<PAGE>
================================================================================
John Hancock Funds - Small Cap Growth Fund
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
The charts on the right show how much a $10,000 investment in the John Hancock
Small Cap Growth Fund would be worth, assuming all distributions were reinvested
for the period indicated. For comparison, we've shown the same $10,000
investment in both the Russell 2000 Index and the Russell 2000 Growth Index. The
Russell 2000 Index is an unmanaged, small-cap index that is comprised of 2,000
stocks of U.S.- domiciled companies whose common stocks trade in the United
States on the New York Stock Exchange, American Stock Exchange and NASDAQ. The
Russell 2000 Growth Index is an unmanaged index that contains those securities
from the Russell 2000 Index with a greater-than-average growth orientation. Past
performance is not indicative of future results.
*No contingent deferred sales charge applicable.
- --------------------------------------------------------------------------------
Line chart with the heading John Hancock Small Cap Growth Fund Class A,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are four lines. The first line represents the value
of the hypothetical $10,000 investment made in the John Hancock Small Cap Growth
Fund on August 22, 1991, before sales charge, and is equal to $32,017 as of
April 30, 1999. The second line represents the value of the same hypothetical
investment made in the John Hancock Small Cap Growth fund, after sales charge,
and is equal to $30,422 as of April 30, 1999. The third line represents the
Russell 2000 Index and is equal to $28,083. The fourth line represents the
Russell 2000 Growth Index and is equal to $24,401.
Line chart with the heading John Hancock Small Cap Growth Fund Class B,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are three lines. The first line represents the value
of the hypothetical $10,000 investment made in the John Hancock Small Cap Growth
Fund on October 31, 1988, before sales charge, and is equal to $55,396 as of
April 30, 1999. The second line represents the Russell 2000 Index and is equal
to $34,912. The third line represents the Russell 2000 Growth Index and is equal
to $32,159.
Line chart with the heading John Hancock Small Cap Growth Fund Class C,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are four lines. The first line represents the value
of the hypothetical $10,000 investment made in the John Hancock Small Cap Growth
Fund on June 1, 1998, before sales charge, and is equal to $11,596 as of April
30, 1999. The second line represents the value of the same hypothetical
investment made in the John Hancock Small Cap Growth fund, after sales charge,
and is equal to $11,496 as of April 30, 1999. The third line represents the
Russell 2000 Growth Index and is equal to $10,376. The fourth line represents
the Russell 2000 Index and is equal to $9,591.
- --------------------------------------------------------------------------------
7
<PAGE>
===============================FINANCIAL STATEMENTS=============================
John Hancock Funds - Small Cap Growth Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on April 30, 1999. You'll also
find the net asset value and the maximum offering price per share as of that
date.
Statement of Assets and Liabilities
April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common stocks (cost - $411,181,952)....................... $632,989,690
Joint repurchase agreement (cost - $13,571,000) .......... 13,571,000
Corporate savings account ................................ 217
---------------
646,560,907
Receivable for investments sold ........................... 6,163,975
Receivable for shares sold ................................ 257,711
Dividends receivable ...................................... 4,157
Interest receivable ....................................... 1,847
Other assets .............................................. 109,789
---------------
Total Assets ..................... 653,098,386
---------------------------------------------------
Liabilities:
Payable for investments purchased ......................... 12,278,809
Payable for shares repurchased ............................ 357,676
Payable to John Hancock Advisers, Inc.
and affiliates - Note B .................................. 620,393
Accounts payable and accrued expenses ..................... 113,336
---------------
Total Liabilities ................ 13,370,214
---------------------------------------------------
Net Assets:
Capital paid-in ........................................... 359,095,874
Accumulated realized gain on investments and foreign
currency transactions .................................... 63,740,164
Net unrealized appreciation of investments ................ 221,812,714
Accumulated net investment loss ........................... (4,920,580)
---------------
Net Assets ....................... $639,728,172
===================================================
Net Asset Value Per Share:
(Based on net asset values and shares of beneficial
interest outstanding - unlimited number of shares
authorized with no par value)
Class A - $212,739,382/19,439,594 ......................... $10.94
============================================================================
Class B - $426,084,058/42,139,173 ......................... $10.11
============================================================================
Class C - $904,732/89,564 ................................. $10.10
============================================================================
Maximum Offering Price Per Share*
Class A - ($10.94 x 105.26%) .............................. $11.52
============================================================================
* On single retail sales of less than $50,000. On sales of $50,000 or more and
on group sales the offering price is reduced.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains for the period
stated.
Statement of Operations
Six months ended April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividends ................................................. $339,732
Interest .................................................. 186,381
---------------
526,113
---------------
Expenses:
Investment management fee - Note B ....................... 2,284,306
Distribution and service fee - Note B
Class A ................................................. 251,329
Class B ................................................. 1,833,253
Class C ................................................. 3,477
Transfer agent fee - Note B .............................. 791,961
Custodian fee ............................................ 92,073
Financial services fee - Note B .......................... 43,889
Registration and filing fees ............................. 21,603
Auditing fee ............................................. 19,750
Trustees' fees ........................................... 17,893
Printing ................................................. 14,719
Miscellaneous ............................................ 10,659
Interest expense - Note A ................................ 8,909
Legal fees ............................................... 2,942
---------------
Total Expenses ................... 5,396,763
---------------------------------------------------
Net Investment Loss .............. (4,870,650)
---------------------------------------------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments sold ..................... 64,068,978
Change in net unrealized appreciation/depreciation
of investments ........................................... 113,496,267
-------------
Net Realized and Unrealized
Gain on Investments .............. 177,565,245
---------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ........ $172,694,595
===================================================
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
===============================FINANCIAL STATEMENTS=============================
John Hancock Funds - Small Cap Growth Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1999
OCTOBER 31, 1998 (UNAUDITED)
---------------- ----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss .......................................................... ($9,523,637) ($4,870,650)
Net realized gain on investments sold and foreign currency transactions ...... 39,776,156 64,068,978
Change in net unrealized appreciation/depreciation of investments ............ (124,158,701) 113,496,267
------------- --------------
Net Increase (Decrease) in Net Assets Resulting from Operations ............. (93,906,182) 172,694,595
------------- --------------
Distributions to Shareholders:
Distributions from net realized gain on investments sold
Class A - ($2.5153 and $0.2300 per share, respectively) ..................... (43,296,619) (4,781,633)
Class B - ($2.5153 and $0.2300 per share, respectively) ..................... (101,891,134) (10,631,104)
Class C** - (none and $0.2300 per share, respectively) ...................... -- (14,101)
------------- --------------
Total Distributions to Shareholders ........................................ (145,187,753) (15,426,838)
------------- --------------
From Fund Share Transactions - Net: * ......................................... 99,275,929 (59,699,426)
------------- --------------
Net Assets:
Beginning of period .......................................................... 681,977,847 542,159,841
------------- --------------
End of period (including accumulated net investment loss
of $49,930 and $4,920,580, respectively) .................................... $542,159,841 $639,728,172
============= ==============
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the period. The difference reflects
earnings less expenses, any investment and foreign currency gains and losses,
distributions paid to shareholders and any increase or decrease in money
shareholders invested in the Fund. The footnote illustrates the number of Fund
shares sold, reinvested and repurchased during the last two periods, along with
the corresponding dollar value.
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
===============================FINANCIAL STATEMENTS=============================
John Hancock Funds - Small Cap Growth Fund
Statement of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
* Analysis of Fund Share Transactions*
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1999
OCTOBER 31, 1998 (UNAUDITED)
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ........................................................ 43,183,651 $418,398,045 22,264,679 $218,132,026
Shares issued to shareholders in reinvestment of distributions ..... 947,975 36,568,238 476,108 4,123,439
------------ -------------- ------------ --------------
.................................................................... 44,131,626 454,966,283 22,740,787 222,255,465
Less shares repurchased ............................................ (26,992,214) (414,680,052) (24,679,396) (242,713,589)
------------ -------------- ------------ --------------
Net increase (decrease) ............................................ 17,139,412 $40,286,231 (1,938,609) ($20,458,124)
============ ============== ============ ==============
CLASS B
Shares sold ........................................................ 57,762,132 $618,597,893 5,151,385 $48,155,738
Shares issued to shareholders in reinvestment of distributions ..... 2,001,611 72,238,099 983,244 7,885,311
------------ -------------- ------------ --------------
.................................................................... 59,763,743 690,835,992 6,134,629 56,041,049
Less shares repurchased ............................................ (23,478,705) (632,351,276) (10,358,750) (95,570,714)
------------ -------------- ------------ --------------
Net increase (decrease) ............................................ 36,285,038 $58,484,716 (4,224,121) ($39,529,665)
============ ============== ============ ==============
CLASS C**
Shares sold ........................................................ 60,595 $510,679 61,461 $574,996
Shares issued to shareholders in reinvestment of distributions ..... -- -- 1,687 13,527
------------ -------------- ------------ --------------
60,595 510,679 63,148 588,523
Less shares repurchased ............................................ (700) (5,697) (33,479) (300,160)
------------ -------------- ------------ --------------
Net increase ....................................................... 59,895 $504,982 29,669 $288,363
============ ============== ============ ==============
** Class C shares commenced operations on June 1, 1998.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
===============================FINANCIAL STATEMENTS=============================
John Hancock Funds - Small Cap Growth Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, SIX MONTHS ENDED
---------------------------------------------------- APRIL 30, 1999
1994 1995(1) 1996 1997 1998 (UNAUDITED)
-------- -------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A(7)
Per Share Operating Performance
Net Asset Value, Beginning of Period ..................... $6.47 $6.71 $9.02 $10.22 $12.35 $8.41
-------- -------- -------- -------- -------- --------
Net Investment Loss(2) ................................... (0.04) (0.07) (0.09) (0.07) (0.08) (0.06)
Net Realized and Unrealized Gain (Loss) on Investments ... 0.28 2.38 1.29 2.41 (1.34) 2.82
-------- -------- -------- -------- -------- --------
Total from Investment Operations ........................ 0.24 2.31 1.20 2.34 (1.42) 2.76
-------- -------- -------- -------- -------- --------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold . -- -- -- (0.21) (2.52) (0.23)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ........................... $6.71 $9.02 $10.22 $12.35 $8.41 $10.94
======== ======== ======== ======== ======== ========
Total Investment Return at Net Asset Value(3) ............ 3.59% 34.56% 13.27% 23.35% (14.14%) 33.54%(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................. $131,053 $179,481 $218,497 $209,384 $179,700 $212,739
Ratio of Expenses to Average Net Assets .................. 1.44% 1.38% 1.32% 1.29%(4) 1.36%(4) 1.34%(4,6)
Ratio of Net Investment Loss to Average Net Assets ....... (0.71%) (0.83%) (0.86%) (0.57%) (1.02%) (1.16%)(6)
Portfolio Turnover Rate .................................. 25% 23% 44% 96% 103% 52%
CLASS B(7)
Per Share Operating Performance
Net Asset Value, Beginning of Period ..................... $6.33 $6.51 $8.70 $9.78 $11.72 $7.81
-------- -------- -------- -------- -------- --------
Net Investment Loss(2) ................................... (0.09) (0.11) (0.15) (0.14) (0.15) (0.08)
Net Realized and Unrealized Gain (Loss) on Investments ... 0.27 2.30 1.23 2.29 (1.24) 2.61
.......................................................... -------- -------- -------- -------- -------- --------
Total from Investment Operations ........................ 0.18 2.19 1.08 2.15 (1.39) 2.53
-------- -------- -------- -------- -------- --------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold . -- -- -- (0.21) (2.52) (0.23)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ........................... $6.51 $8.70 $9.78 $11.72 $7.81 $10.11
======== ======== ======== ======== ======== ========
Total Investment Return at Net Asset Value(3) ............ 2.80% 33.60% 12.48% 22.44% (14.80%) 33.16%(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................. $283,435 $393,478 $451,268 $472,594 $361,992 $426,084
Ratio of Expenses to Average Net Assets .................. 2.19% 2.11% 2.05% 2.02%(4) 2.07%(4) 1.99%(4,6)
Ratio of Net Investment Loss to Average Net Assets ....... (1.46%) (1.55%) (1.59%) (1.30%) (1.73%) (1.81%)(6)
Portfolio Turnover Rate .................................. 25% 23% 44% 96% 103% 52%
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: income, expenses, distributions and
gains (losses) of the Fund. It shows how the Fund's net asset value for a share
has changed since the end of the previous period. Additionally, important
relationships between some items presented in the financial statements are
expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
===============================FINANCIAL STATEMENTS=============================
John Hancock Funds - Small Cap Growth Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 1, 1998
(COMMENCEMENT OF SIX MONTHS ENDED
OPERATIONS) TO APRIL 30, 1999
OCTOBER 31, 1998 (UNAUDITED)
---------------- ----------------
<S> <C> <C>
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of Period................................. $8.96 $7.81
-------- --------
Net Investment Loss(2) .............................................. (0.03) (0.09)
Net Realized and Unrealized Gain (Loss) on Investments .............. (1.12) 2.61
-------- --------
Total from Investment Operations ................................... (1.15) 2.52
-------- --------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold ............ -- (0.23)
-------- --------
Net Asset Value, End of Period ...................................... $7.81 $10.10
======== ========
Total Investment Return at Net Asset Value(3) ....................... (12.83%)(5) 33.03%(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............................ $468 $905
Ratio of Expenses to Average Net Assets ............................. 2.11%(4,6) 2.09%(4,6)
Ratio of Net Investment Loss to Average Net Assets .................. (1.86%)(6) (1.93%)(6)
Portfolio Turnover Rate ............................................. 103% 52%
</TABLE>
(1) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(4) Expense ratios do not include interest expense due to bank loans, which
amounted to less than $0.01 per share.
(5) Not annualized.
(6) Annualized.
(7) All per share amounts and net asset values have been restated to reflect the
four-for-one stock split effective May 1, 1998.
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
===============================FINANCIAL STATEMENTS=============================
John Hancock Funds - Small Cap Growth Fund
Schedule of Investments
April 30, 1999
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Small Cap Growth Fund on April 30, 1999. It's divided into two main categories:
common stocks and short-term investments. Common stocks are further broken down
by industry group. Short-term investments, which represent the Fund's "cash"
position, are listed last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
COMMON STOCKS
Advertising (1.78%)
Catalina Marketing Corp.* ..................... 65,400 $5,587,613
Getty Images, Inc.* ........................... 222,300 5,779,800
----------
11,367,413
----------
Automobile/Trucks (1.60%)
Gentex Corp.* ................................. 183,400 5,513,463
United Rentals, Inc. * ........................ 159,000 4,740,188
----------
10,253,651
----------
Beverages (0.49%)
Beringer Wine Estates Holdings, Inc.
(Class B)* ................................... 79,500 3,130,313
----------
Broker Services (0.43%)
Raymond James Financial, Inc. ................. 126,087 2,718,751
----------
Building (0.30%)
Crossmann Communities, Inc.* .................. 72,300 1,897,875
----------
Business Services - Misc. (11.32%)
Abacus Direct Corp.* .......................... 83,500 6,179,000
Charles River Associates, Inc.* ............... 138,000 3,036,000
Coinstar, Inc.* ............................... 260,800 6,128,800
Corporate Executive Board Co. (The)* .......... 68,200 1,918,125
Forrester Research, Inc.* ..................... 168,200 5,718,800
INSpire Insurance Solutions, Inc.* ............ 255,300 5,552,775
MedQuist, Inc.* ............................... 143,000 4,897,750
META Group, Inc. * ............................ 135,200 1,233,700
Metro Networks, Inc.* ......................... 101,596 4,571,820
Metzler Group, Inc. (The)* .................... 121,550 3,388,206
Modem Media Poppe Tyson, Inc.* ................ 75,500 2,661,375
Nielsen Media Research, Inc.* ................. 185,000 5,064,375
On Assignment, Inc.* .......................... 145,900 4,422,594
ProBusiness Services, Inc.* ................... 139,650 5,009,944
Professional Detailing, Inc.* ................. 109,000 3,133,750
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Business Services - Misc. (continued)
Profit Recovery Group International, Inc.
(The)* ....................................... 129,200 $4,715,800
Quanta Services, Inc.* ........................ 151,800 4,373,737
topjobs.net Plc, American Depositary
Receipts (United Kingdom)* .................... 29,700 421,369
----------
72,427,920
----------
Computers (21.30%)
AboveNet Communications, Inc.* ................ 63,100 5,402,937
Advent Software, Inc.* ........................ 72,000 4,437,000
AnswerThink Consulting Group, Inc.* ........... 155,500 3,450,156
Apex PC Solutions, Inc.* ...................... 219,750 3,653,344
AppliedTheory Corp.* .......................... 4,600 94,300
Aspect Development, Inc.* ..................... 174,700 1,910,781
autobytel.com, Inc.* .......................... 38,700 1,161,000
BARRA, Inc.* .................................. 42,650 834,341
BindView Development Corp.* ................... 153,900 3,308,850
BMC Software, Inc.* ........................... 39,000 1,679,437
Bottomline Technologies, Inc.* ................ 26,500 1,550,250
Cognizant Technology Solutions Corp.* ......... 155,800 3,495,762
Concentric Network Corp. * .................... 71,500 5,970,250
Critical Path, Inc.* .......................... 8,100 805,950
Dendrite International, Inc.* ................. 103,100 2,667,713
Exodus Communications, Inc.* .................. 61,800 5,569,725
Extreme Networks, Inc.* ....................... 7,300 404,694
Fundtech Ltd. (Israel)* ....................... 210,000 7,231,875
IMRglobal Corp.* .............................. 155,700 2,685,825
Informatica Corp.* ............................ 4,800 135,600
International Network Services, Inc.* ......... 93,550 3,554,900
Intraware, Inc.* .............................. 46,000 1,408,750
iVillage, Inc.* ............................... 4,600 363,400
Marimba, Inc.* ................................ 2,200 133,650
Micromuse, Inc. * ............................. 126,800 4,366,675
MiningCo.com, Inc.* ........................... 3,900 255,450
Mpath Interactive, Inc.* ...................... 30,600 1,204,875
Multex.com, Inc.* ............................. 116,700 5,018,100
National Computer Systems, Inc. ............... 167,700 4,695,600
National Instruments Corp.* ................... 86,050 2,925,700
NEON Systems, Inc.* ........................... 7,450 312,900
Net Perceptions, Inc.* ........................ 4,300 113,412
Network Appliance, Inc.* ...................... 125,600 6,319,250
ONYX Software Corp.* .......................... 7,000 163,625
pcOrder.com, Inc.* ............................ 47,100 2,911,369
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
===============================FINANCIAL STATEMENTS=============================
John Hancock Funds - Small Cap Growth Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Computers (continued)
Prodigy Communications Corp.* ................. 86,800 $2,332,750
Proxicom, Inc.* ............................... 12,400 278,225
PSINet, Inc.* ................................. 79,100 3,994,550
Razorfish, Inc.* .............................. 1,400 60,900
RealNetworks, Inc.* ........................... 17,900 3,964,850
Rhythms NetConnections, Inc.* ................. 17,300 1,427,250
Sagent Technology, Inc.* ...................... 81,700 776,150
SCM Microsystems, Inc.* ....................... 66,900 4,407,037
SEI Investments Co. ........................... 17,000 1,615,000
SOFTWORKS, Inc.* .............................. 70,000 870,625
SportsLine USA, Inc.* ......................... 87,100 3,484,000
Sterling Commerce, Inc.* ...................... 46,323 1,450,489
USinternetworking, Inc.* ...................... 4,300 219,838
Value America, Inc.* .......................... 6,900 272,119
Verio, Inc.* .................................. 110,800 7,866,800
VerticalNet, Inc.* ............................ 22,100 2,508,350
Vignette Corp.* ............................... 12,500 1,187,500
WebTrends Corp.* .............................. 5,400 286,875
Whittman-Hart, Inc.* .......................... 255,200 7,209,400
Wind River Systems, Inc.* ..................... 123,700 1,855,500
----------
136,265,654
-----------
Consumer Products Misc. (0.21%)
Select Comfort Corp.* ......................... 84,000 1,359,750
----------
Containers (0.15%)
Ivex Packaging Corp.* ......................... 50,000 984,375
----------
Electronics (8.52%)
ATMI, Inc.* ................................... 160,900 3,700,700
Credence Systems Corp.* ....................... 154,300 3,963,581
DuPont Photomasks, Inc.* ...................... 80,000 3,500,000
Flextronics International Ltd.* ............... 104,000 4,855,500
KLA-Tencor Corp.* ............................. 40,000 1,985,000
L-3 Communications Holdings, Inc.* ............ 21,400 1,044,588
Level One Communications, Inc.* ............... 78,925 4,054,772
Micrel, Inc.* ................................. 71,200 4,191,900
Microwave Power Devices, Inc.* ................ 240,000 3,075,000
Novellus Systems, Inc.* ....................... 50,400 2,381,400
PLX Technology, Inc.* ......................... 140,100 2,714,437
PMC-Sierra, Inc. (Canada)* .................... 27,200 2,607,800
Powerwave Technologies, Inc. * ................ 151,300 4,595,737
PRI Automation, Inc.* ......................... 111,100 2,756,669
QLogic Corp. * ................................ 81,800 5,720,888
Semtech Corp.* ................................ 103,600 3,379,950
----------
54,527,922
----------
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Finance (3.33%)
Affiliated Managers Group, Inc.* .............. 118,400 $3,441,000
AmeriCredit Corp.* ............................ 217,700 3,605,656
Medallion Financial Corp. ..................... 270,800 4,569,750
Metris Cos., Inc. ............................. 62,400 3,814,200
Price (T. Rowe) Associates, Inc. .............. 39,500 1,488,656
TeleBanc Financial Corp.* ..................... 42,200 4,372,975
----------
21,292,237
----------
Food (0.89%)
American Italian Pasta Co. (Class A)* ......... 212,300 5,705,562
----------
Insurance (0.70%)
Executive Risk, Inc. .......................... 24,200 1,736,350
Horace Mann Educators Corp. ................... 86,800 1,974,700
Medical Assurance, Inc.* ...................... 28,750 790,625
----------
4,501,675
----------
Leisure (3.24%)
Cinar Films, Inc. (Class B) (Canada)* ......... 235,000 4,905,625
Imax Corp. (Canada)* .......................... 160,000 3,030,000
Premier Parks, Inc.* .......................... 189,800 6,559,962
Steiner Leisure Ltd.* ......................... 195,500 6,207,125
----------
20,702,712
----------
Linen Supply & Related (0.59%)
G & K Services, Inc. (Class A) ................ 81,000 3,786,750
----------
Machinery (0.53%)
Applied Power, Inc. (Class A) ................. 106,800 3,370,875
----------
Media (6.40%)
Adelphia Communications Corp.
(Class A)* ................................... 114,000 7,780,500
Citadel Communications Corp.* ................. 155,800 4,362,400
Clear Channel Communications, Inc.* ........... 56,414 3,920,773
Cumulus Media, Inc. (Class A) * ............... 150,000 2,428,125
Entercom Communications Corp.* ................ 30,600 1,136,025
Harte-Hanks, Inc. ............................. 141,800 3,580,450
Heftel Broadcasting Corp. (Class A)* .......... 73,000 3,969,375
Network Event Theater, Inc.* .................. 369,800 5,431,437
Pegasus Communications Corp.* ................. 143,500 5,883,500
Wiley (John) & Sons, Inc. (Class A) ........... 59,700 2,414,119
----------
40,906,704
----------
Medical (6.59%)
Alkermes, Inc.* ............................... 156,900 4,197,075
CLOSURE Medical Corp.* ........................ 59,600 1,922,100
Gilead Sciences, Inc.* ........................ 80,600 3,712,637
HCR Manor Care, Inc.* ......................... 40,950 1,136,363
Human Genome Sciences, Inc.* .................. 51,000 1,887,000
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE>
===============================FINANCIAL STATEMENTS=============================
John Hancock Funds - Small Cap Growth Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Medical (continued)
IDEC Pharmaceuticals Corp.* ................... 106,700 $5,415,025
Inhale Therapeutic Systems, Inc.* ............. 148,900 4,280,875
Millennium Pharmaceuticals, Inc.* ............. 55,000 2,045,313
MiniMed, Inc.* ................................ 87,600 5,475,000
Perclose, Inc.* ............................... 109,600 4,164,800
Pharmacyclics, Inc.* .......................... 151,900 2,164,575
Renal Care Group, Inc.* ....................... 175,900 3,671,912
Res-Care, Inc.* ............................... 114,050 2,109,925
----------
42,182,600
----------
Metal (0.11%)
NCI Building Systems, Inc.* ................... 28,400 683,375
----------
Oil & Gas (1.02%)
Dril-Quip, Inc.* .............................. 89,900 2,191,313
J. Ray McDermott, S.A.* ....................... 46,700 1,471,050
Newfield Exploration Co.* ..................... 90,200 2,424,125
Veritas DGC, Inc.* ............................ 22,350 452,588
----------
6,539,076
----------
Pollution Control (0.80%)
Newpark Resources, Inc.* ...................... 201,200 1,848,525
Tetra Tech, Inc.* ............................. 133,900 3,238,706
----------
5,087,231
----------
Printing - Commercial (0.77%)
Consolidated Graphics, Inc.* .................. 60,400 2,574,550
Mail-Well, Inc.* .............................. 178,800 2,335,575
----------
4,910,125
----------
Retail (12.23%)
99 Cents Only Stores* ......................... 95,062 4,479,797
Abercrombie & Fitch Co. (Class A)* ............ 56,600 5,384,075
Applebee's International, Inc. ................ 147,050 3,795,728
bebe stores, Inc.* ............................ 128,200 4,871,600
Buca, Inc.* ................................... 42,500 770,313
CSK Auto Corp.* ............................... 189,500 4,737,500
CVS Corp.* .................................... 43,000 2,047,875
Duane Reade, Inc.* ............................ 93,000 2,493,562
Ethan Allen Interiors, Inc. ................... 77,500 3,928,281
Garden Fresh Restaurant Corp.* ................ 145,500 2,364,375
Insight Enterprises, Inc.* .................... 124,400 3,358,800
Linens ON Things, Inc.* ....................... 135,000 6,176,250
Lowe's Cos., Inc. ............................. 56,136 2,961,174
Noodle Kidoodle, Inc.* ........................ 277,200 1,975,050
O'Reilly Automotive, Inc.* .................... 98,000 4,483,500
P.F. Chang's China Bistro, Inc.* .............. 96,200 2,429,050
Pacific Sunwear of California, Inc.* .......... 144,800 5,371,182
Starbucks Corp.* .............................. 106,600 3,937,538
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Retail (continued)
Wet Seal, Inc. (The) (Class A)* ............... 105,600 $4,303,200
Whole Foods Market, Inc.* ..................... 98,900 3,857,100
Wild Oats Markets, Inc.* ...................... 163,700 4,532,444
----------
78,258,394
----------
Schools/Education (1.77%)
Education Management Corp.* ................... 170,400 3,397,350
ITT Educational Services, Inc.* ............... 172,150 4,228,434
Strayer Education, Inc. ....................... 106,750 3,696,219
----------
11,322,003
----------
Telecommunications (10.07%)
Allegiance Telecom, Inc.* ..................... 160,000 7,360,000
Com21, Inc.* .................................. 139,400 4,338,825
Crown Castle International Corp.* ............. 282,300 5,398,987
Global TeleSystems Group, Inc.* ............... 57,200 3,782,350
Intermedia Communications, Inc.* .............. 207,200 6,669,250
Launch Media, Inc.* ........................... 152,700 3,855,675
Metromedia Fiber Network, Inc.
(Class A)* ................................... 90,000 7,582,500
NEXTLINK Communications, Inc.
(Class A)* ................................... 119,000 8,716,750
Qwest Communications International,
Inc.* ......................................... 40,089 3,425,104
RF Micro Devices, Inc.* ....................... 128,300 7,168,762
Tellabs, Inc.* ................................ 30,000 3,282,187
WinStar Communications, Inc.* ................. 58,500 2,844,562
----------
64,424,952
----------
Textile (0.63%)
Cutter & Buck, Inc.* .......................... 155,300 4,018,388
----------
Transport (2.40%)
Eagle USA Airfreight, Inc.* ................... 124,900 4,558,850
Expeditors International of Washington,
Inc. .......................................... 90,000 5,456,250
Forward Air Corp.* ............................ 99,450 2,212,763
MotivePower Industries, Inc.* ................. 184,500 3,148,031
----------
15,375,894
----------
Waste Disposal Service & Equip. (0.78%)
Waste Connections, Inc.* ...................... 189,100 4,987,513
----------
TOTAL COMMON STOCKS
(Cost $411,181,952) (98.95%) 632,989,690
-------- -----------
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE>
===============================FINANCIAL STATEMENTS=============================
John Hancock Funds - Small Cap Growth Fund
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.12%)
Investment in a joint repurchase
agreement transaction with
SBC Warburg, Inc. - Dated
04-30-99, due 05-03-99
(Secured by U.S. Treasury Bonds,
6.625% thru 9.25%, due
02-15-16 thru 02-15-27 and
U.S. Treasury Note, 5.625%
due 04-30-00) - Note A ........... 4.89% $13,571 $13,571,000
-----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.00% ......................... 217
-----------
TOTAL SHORT-TERM INVESTMENTS (2.12%) 13,571,217
-------- -----------
TOTAL INVESTMENTS (101.07%) 646,560,907
-------- -----------
OTHER ASSETS AND LIABILITIES, NET (1.07%) (6,832,735)
-------- -----------
TOTAL NET ASSETS (100.00%) $639,728,172
======== ============
* Non-income producing security.
Parenthetical disclosure of a foreign country in the security description
represents country of a foreign issuer; however, security is U.S. dollar
denominated.
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
============================NOTES TO FINANCIAL STATEMENTS=======================
John Hancock Funds - Small Cap Growth Fund
(UNAUDITED)
NOTE A -
ACCOUNTING POLICIES
John Hancock Series Trust (the "Trust") is a diversified open-end management
investment company registered under the Investment Company Act of 1940. The
Trust consists of two series portfolios: John Hancock Small Cap Growth Fund (the
"Fund") and John Hancock Global Technology Fund. Prior to June 1, 1999, the Fund
was known as John Hancock Emerging Growth Fund. The other series of the Trust is
reported in separate financial statements. The investment objective of the Fund
is to seek long-term growth of capital through investing in emerging companies
(market capitalization of less than $1 billion).
The Trustees have authorized the issuance of multiple classes of shares of the
Fund, designated as Class A, Class B and Class C shares. The shares of each
class represent an interest in the same portfolio of investments of the Fund and
have equal rights to voting, redemptions, dividends and liquidation, except that
certain expenses, subject to the approval of the Trustees, may be applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission and the Internal Revenue Service.
Shareholders of a class which bears distribution and service expenses under
terms of a distribution plan have exclusive voting rights to that distribution
plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost, which approximates market value. All portfolio
transactions initially expressed in terms of foreign currencies have been
translated into U.S. dollars as described in "Foreign Currency Translation"
below.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
Inc., may participate in a joint repurchase agreement. Aggregate cash balances
are invested in one or more repurchase agreements, whose underlying securities
are obligations of the U.S. government and/or its agencies. The Fund's custodian
bank receives delivery of the underlying securities for the joint account on the
Fund's behalf. The Adviser is responsible for ensuring that the agreement is
fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund qualifies as a "regulated investment company" by
complying with the applicable provisions of the Internal Revenue Code and will
not be subject to federal income tax on taxable income which is distributed to
shareholders. Therefore, no federal income tax provision is required.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date or, in the case of some foreign securities,
on the date thereafter when the Fund is made aware of the dividend. Interest
income on investment securities is recorded on the accrual basis. Foreign income
may be subject to foreign withholding taxes, which are accrued as applicable.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles. Dividends paid by the Fund with
respect to each class of shares will be calculated in the same manner, at the
same time and will be in the same amount, except for the effect of expenses that
may be applied differently to each class.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are calculated at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution and service fees, if any, are calculated daily at the class level
based on the appropriate net assets of each class and the specific expense
rate(s) applicable to each class.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual fund. Expenses which are not readily
17
<PAGE>
============================NOTES TO FINANCIAL STATEMENTS=======================
John Hancock Funds - Small Cap Growth Fund
identifiable to a specific fund are allocated in such a manner as deemed
equitable, taking into consideration, among other things, the nature and type of
expense and the relative sizes of the funds.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues
and expenses of the Fund. Actual results could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. Effective March 12, 1999,
the Fund entered into a syndicated line of credit agreement with various banks,
and the agreements previously in effect were terminated. This agreement enables
the Fund to participate with other funds managed by the Adviser in an unsecured
line of credit with banks which permit borrowings up to $500 million,
collectively. Interest is charged to each fund, based on its borrowings. In
addition, a commitment fee is charged based on the average daily unused portion
of the line of credit and is allocated among the participating funds. The
maximum loan balance during the period amounted to $11,740,817. The annualized
interest rate charged during the period ranged from 5.2500% thru 5.8125%. At
April 30, 1999, there were no outstanding borrowings.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 p.m., London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain/(loss) on investments are
translated at the rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales
of foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than investments in securities at fiscal
year end, resulting from changes in the exchange rate.
NOTE B -
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to the sum of 0.75% of Fund's average daily net asset value.
The Fund has a distribution agreement with John Hancock Funds, Inc.
("JH Funds"), a wholly owned subsidiary of the Adviser. For the period ended
April 30, 1999, net sales charges received with regard to sales of Class A
shares amounted to $232,063. Out of this amount, $32,359 was retained and used
for printing prospectuses, advertising, sales literature and other purposes,
$165,016 was paid as sales commissions to unrelated broker-dealers and $34,688
was paid as sales commissions to sales personnel of Signator Investors, Inc.
("Signator Investors"), a related broker-dealer, formerly known as John Hancock
Distributors, Inc. The Adviser's indirect parent, John Hancock Mutual Life
Insurance Company ("JHMLICo"), is the indirect sole shareholder of Signator
Investors.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses related to providing distribution related services to the Fund in
connection with the sale of
18
<PAGE>
============================NOTES TO FINANCIAL STATEMENTS=======================
John Hancock Funds - Small Cap Growth Fund
Class B shares. For the period ended April 30, 1999, contingent deferred sales
charges paid to JH Funds amounted to $521,472.
Class C shares which are redeemed within one year of purchase will be
subject to a contingent deferred sales charge ("CDSC") at a rate of 1.0% of the
lesser of the current market value at the time of redemption or the original
purchase cost of the shares being redeemed. Proceeds from the CDSC are paid to
JH Funds and are used in whole or in part to defray its expenses related to
providing distribution related services to the Fund in connection with the sale
of Class C shares. For the period ended April 30, 1999, contingent deferred
sales charges paid to JH Funds amounted to $225.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted Distribution Plans with
respect to Class A, Class B and Class C pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Accordingly, the Fund will make payments to JH
Funds for distribution and service expenses, at an annual rate not to exceed
0.25% of Class A average daily net assets and 1.00% of Class B and Class C
average daily net assets, to reimburse JH Funds for its distribution and service
costs. Up to a maximum of 0.25% of such payments may be service fees as defined
by the amended Rules of Fair Practice of the National Association of Securities
Dealers. Under the amended Rules of Fair Practice, curtailment of a portion of
the Fund's 12b-1 payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of JHMLICo. The
Fund pays transfer agent fees based on the number of shareholder accounts and
certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for the period was
at an annual rate of less than 0.02% of the average net assets of the Fund.
Mr. Edward J. Boudreau, Jr., Mr. Stephen L. Brown, Ms. Anne C. Hodsdon
and Mr. Richard S. Scipione are trustees and/or officers of the Adviser and/or
its affiliates, as well as Trustees of the Fund. The compensation of
unaffiliated Trustees is borne by the Fund. The unaffiliated Trustees may elect
to defer for tax purposes their receipt of this compensation under the John
Hancock Group of Funds Deferred Compensation Plan. The Fund makes investments
into other John Hancock funds, as applicable, to cover its liability for the
deferred compensation. Investments to cover the Fund's deferred compensation
liability are recorded on the Fund's books as an other asset. The deferred
compensation liability and the related other asset are always equal and are
marked to market on a periodic basis to reflect any income earned by the
investment as well as any unrealized gains or losses. At April 30, 1999, the
Fund's investment to cover the deferred compensation liability had unrealized
appreciation of $4,976.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the period
ended April 30, 1999, aggregated $313,147,186 and $379,249,453, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended April 30, 1999.
The cost of investments owned at April 30, 1999 (excluding the
corporate savings account) for federal income tax purposes was $424,813,613.
Gross unrealized appreciation and depreciation of investments aggregated
$238,255,950 and $16,508,873, respectively, resulting in net unrealized
appreciation of $221,747,077.
19
<PAGE>
================================================================================
[LOGO] JOHN HANCOCK FUNDS --------------
A Global Investment Management Firm Bulk Rate
U.S. Postage
101 HUNTINGTON AVENUE, BOSTON, MA 02199-7603 PAID
1-800-225-5291 1-800-554-6713 (TDD) Randolph, MA
INTERNET: www.jhancock.com/funds Permit No. 75
--------------
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock
Small Cap Growth Fund. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
[LOGO] Printed on Recycled Paper 600SA 4/99
6/99
<PAGE>
Part B
Statement of Additional Information
JOHN HANCOCK SMALL CAP GROWTH FUND
(a series of John Hancock Series Trust)
September 27, 1999
This Statement of Additional Information provides information and is not a
prospectus. It should be read in conjunction with the related proxy statement
and prospectus that is also dated September 27, 1999. This Statement of
Additional Information provides additional information about John Hancock Small
Cap Growth Fund and the Fund that it is acquiring, John Hancock Special Equities
Fund. Please retain this Statement of Additional Information for future
reference. A copy of the proxy statement and prospectus can be obtained free of
charge by calling John Hancock Signature Services, Inc., at 1-800-225-5291.
Table Of Contents
Page
Introduction 3
Additional Information about Small Cap Growth Fund 3
General Information and History 3
Investment Objective and Policies 3
Management of Strategic Income Fund 3
Control Persons and Principal Holders of Shares 3
Investment Advisory and Other Services 3
Brokerage Allocation 3
Capital Stock and Other Securities 3
Purchase, Redemption and Pricing of Small Cap Growth Fund Shares 3
Tax Status 4
Underwriters 4
Calculation of Performance Data 4
Financial Statements 4
Additional Information about Special Equities Fund 4
General Information and History 4
Investment Objective and Policies 4
Management of Special Equities Fund 4
Investment Advisory and Other Services 4
Brokerage Allocation 4
Capital Stock and Other Securities 4
Purchase, Redemption and Pricing of Special Equities Fund 4
Tax Status 5
Underwriters 5
Calculation of Performance Data 5
Financial Statements 5
<PAGE>
Exhibits
A- Statement of Additional Information, dated September 27, 1999, of John
Hancock Small Cap Growth Fund including audited financial statements as
of October 31, 1998 and unaudited financial statement as of
April 30, 1999.
B- Statement of Additional Information, dated June 1, 1999, of John
Hancock Special Equities Fund including audited financial statements as
of October 31,1998.
C- Pro forma combined financial statements as of April 30, 1999,
assuming the reorganization of John Hancock Special Equities Fund into
John Hancock Small Cap Growth Fund occurred on that date.
<PAGE>
INTRODUCTION
This Statement of Additional Information is intended to supplement the
information provided in a proxy statement and prospectus dated September 27,
1999. The proxy statement and prospectus has been sent to the shareholders of
Special Equties Fund in connection with the solicitation by the Trustees of
Special Equities Fund of proxies to be voted at the special meeting of
shareholders of Special Equities Fund to be held on December 1, 1999. This
Statement of Additional Information incorporates by reference the Statement of
Additional Information of Small Cap Growth Fund, dated September 27, 1999 and
the Statement of Additional Information of Special Equities Fund, dated June 1,
1999. The Small Cap Growth Fund SAI and the Special Equities Fund SAI are
included with this Statement of Additional Information.
Additional Information About Small Cap Growth Fund
--------------------------------------------------
General Information and History
- -------------------------------
For additional information about Small Cap Growth Fund generally and its
history, see "Organization of the Funds" in the Small Cap Growth Fund SAI.
Investment Objective and Policies
- ---------------------------------
For additional information about Small Cap Growth Fund's investment objective,
policies and restrictions, see "Investment Objectives and Policies" and
"Investment Restrictions" in the Small Cap Growth Fund SAI.
Management of Small Cap Growth Fund
- -----------------------------------
For additional information about the Small Cap Growth Fund's Board of Trustees,
officers and management personnel, see "Those Responsible for Management" in the
Small Cap Growth Fund SAI.
Control Persons and Principal Holders of Shares
- -----------------------------------------------
For additional information about control persons of Small Cap Growth Fund and
principal holders of shares of Small Cap Growth Fund, see "Those Responsible for
Management" in the Small Cap Growth Fund SAI.
Investment Advisory and Other Services
- --------------------------------------
For additional information about Small Cap Growth Fund's investment adviser,
custodian, transfer agent and independent accountants, see "Investment Advisory
and Other Services", "Distribution Contracts", "Transfer Agent Services",
"Custody of Portfolio" and "Independent Auditors" in the Small Cap Growth Fund
SAI.
Brokerage Allocation and Other Practices
- ----------------------------------------
For additional information about Small Cap Growth Fund's brokerage allocation
practices, see "Brokerage Allocation" in the Small Cap Growth Fund SAI.
Capital Stock and Other Securities
- ----------------------------------
For additional information about the voting rights and other characteristics of
Small Cap Growth Fund's shares of beneficial interest, see "Description of the
Fund's Shares" in the Small Cap Growth Fund SAI.
Purchase, Redemption and Pricing of Small Cap Growth Fund Shares
- ----------------------------------------------------------------
For additional information about the determination of net asset value, see "Net
Asset Value" in the Small Cap Growth Fund SAI.
Tax Status
- ----------
For additional information about the tax status of Small Cap Growth Fund, see
"Tax Status" in the Small Cap Growth Fund SAI.
<PAGE>
Underwriters
- ------------
For additional information about Small Cap Growth Fund's principal underwriter
and the distribution contract between the principal underwriter and Small Cap
Growth Fund, see "Distribution Contracts" in the Small Cap Growth Fund SAI.
Calculation of Performance Data
- -------------------------------
For additional information about the investment performance of Small Cap Growth
Fund, see "Calculation of Performance" in the Small Cap Growth Fund SAI.
Financial Statements
- --------------------
Audited financial statement of Small Cap Growth Fund at October 31, 1998 and
unaudited semi-annual financial statements as of April 30, 1999 are attached to
the Small Cap Growth Fund SAI.
Pro forma combined financial statements as of April 30, 1999 are also attached
hereto.
Additional Information About Special Equities Fund
--------------------------------------------------
General Information and History
- -------------------------------
For additional information about Special Equities Fund generally and its
history, see "Organization of the Fund" in the Special Equities Fund SAI.
Investment Objective and Policies
- ---------------------------------
For additional information about Special Equities Fund's investment objective,
policies and restrictions, see "Investment Objective and Policies" and
"Investment Restrictions" in the Special Equities Fund SAI.
Management of Special Equities Fund
- -----------------------------------
For additional information about the Special Equities Fund's Board of Trustees,
officers and management personnel, see "Those Responsible for Management" in the
Special Equities Fund SAI.
Investment Advisory and Other Services
- --------------------------------------
For additional information about Special Equities Fund's investment adviser,
custodian, transfer agent and independent accountants, see "Investment Advisory
and Other Services", "Distribution Contracts", "Transfer Agent Services",
"Custody of Portfolio" and "Independent Auditors" in the Special Equities Fund
SAI.
Brokerage Allocation and Other Practices
- ----------------------------------------
For additional information about Special Equities Fund's brokerage allocation
practices, see "Brokerage Allocation" in the Special Equities Fund SAI.
Capital Stock and Other Securities
- ----------------------------------
For additional information about the voting rights and other characteristics of
Special Equities Fund's shares of beneficial interest, see "Description of the
Fund's Shares" in the Special Equities Fund SAI.
Purchase, Redemption and Pricing of about Special Equities Fund Shares
- ----------------------------------------------------------------------
For additional information about the net asset value of Short-Term Strategic
Income Fund, see "Net Asset Value" in the Special Equities Fund SAI.
Tax Status
- ----------
For additional information about the tax status of Special Equities Fund, see
"Tax Status" in the Special Equities Fund SAI.
<PAGE>
Underwriters
- ------------
For additional information about Special Equities Fund's principal underwriter
and the distribution contract between the principal underwriter and Special
Equities Fund, see "Distribution Contracts" in the Special Equities Fund SAI.
Calculation of Performance Data
- -------------------------------
For additional information about the investment performance of Special Equities
Fund, see "Calculation of Performance" in the Special Equities SAI.
Financial Statements
- --------------------
Audited financial statements of Special Equities Fund at October 31, 1998 and
unaudited semi-annual financial statements as of April 30, 1999 are attached to
the Special Equities Fund SAI.
<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 December 22, 1994, the Fund was called Transamerica Emerging
Growth Fund. 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
4
<PAGE>
relatively unstable governments, present the risk of nationalization of
businesses, restrictions on foreign ownership, or prohibitions on repatriation
of assets, and may have less protection of property rights than more developed
countries. Their economies may be predominantly based on only a few industries,
may be highly vulnerable to changes in local or global trade conditions, and may
suffer from extreme and volatile debt burdens or inflation rates. Local
securities markets may trade a small number of securities and may be unable to
respond effectively to 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.
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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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<PAGE>
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.
15
<PAGE>
(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 August 9, 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 10.94%
Attn: Fund Administration
4800 Deerlake Drive East
Jacksonville FL 32246-6484
MLPF&S For The Sole Benefit Of Its Customers B 23.69%
Attn: Fund Administration
4800 Deerlake Drive East
Jacksonville FL 32246-6484
MLPF&S For The Sole Benefit Of Its Customers C 21.16%
Attn: Fund Administration
4800 Deerlake Drive East
Jacksonville FL 32246-6484
26
<PAGE>
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 mutual funds and
publicly traded investment companies in the John Hancock group of funds having a
combined total of over 1,400,000 shareholders. The Adviser is an affiliate of
the Life Company, one of the most recognized and respected financial
institutions in the nation. With total assets under management of more than $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.
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.
27
<PAGE>
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.
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.
28
<PAGE>
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 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.
29
<PAGE>
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.
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:
Printing and Interest,
Mailing of Expenses Carrying or
Prospectuses of John Other
to new Compensation to Hancock Finance
Advertising Shareholders Selling Brokers Funds Charges
----------- ------------ --------------- -------- -------
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
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.
30
<PAGE>
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.
31
<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.
32
<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.
33
<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.
34
<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.
35
<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.
36
<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 lot 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.
37
<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.
38
<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.
39
<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 Short-Term Strategic Income 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
(except John Hancock Short-Term Strategic Income Fund) for Class B shares of any
other John Hancock fund, the acquired shares will continue to be subject to the
CDSC schedule that was in effect when the exchanged shares were purchased.
The Fund reserves the right to require that previously exchanged shares (and
reinvested dividends) be in the Fund for 90 days before a shareholder is
permitted a new exchange.
The Fund may refuse any exchange order. The Fund may change or cancel its
exchange policies at any time, upon 60 days' notice to its shareholders.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares of another for Federal Income Tax purposes. An exchange may
result in a taxable gain or loss. See "TAX STATUS".
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.
40
<PAGE>
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.
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.
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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.
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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 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.
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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
50
<PAGE>
less favorable than the Affiliated Broker's contemporaneous charges for
comparable transactions for its other most favored, but unaffiliated, customers,
except for accounts for which the Affiliated Broker acts as a clearing broker
for another brokerage firm, and any customers of the Affiliated Broker not
comparable to the Fund as determined by a majority of the Trustees who are not
interested persons (as defined in the 1940 Act) of the Fund, the Adviser or the
Affiliated 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 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.
51
<PAGE>
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).
A-1
<PAGE>
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).
A-2
<PAGE>
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.
B-1
<PAGE>
STANDARD & POOR'S RATINGS GROUP
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B: Debt rated BB, and B is regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
B-2
<PAGE>
FINANCIAL STATEMENTS
F-1
<PAGE>
Supplement to the John Hancock Special Equities Fund- Class Y
Prospectus dated March 1, 1999
On July 19, 1999, the Trustees of the John Hancock Special Equities Fund (the
"Fund") voted to recommend that the shareholders approve a tax free
reorganization of the Fund, as described below.
Under the terms of the reorganization, subject to shareholder approval at a
shareholder meeting scheduled to be held on December 1, 1999, the Fund would
transfer all of its assets and liabilities to John Hancock Small Cap Growth Fund
("Small Cap Growth Fund") in a tax free exchange for shares of equal value of
Small Cap Growth Fund. Further information regarding the proposed reorganization
will be contained in proxy statement and prospectus which is scheduled to be
mailed to shareholders on or about September 27, 1999.
Effective August 2, 1999, John Hancock Special Equities Fund will be closed to
all new accounts.
July 19, 1999
18YPS-7/99
<PAGE>
- --------------------------------------------------------------------------------
JOHN HANCOCK
Special
Equities Fund
Class Y
[LOGO] Prospectus
March 1, 1999
- --------------------------------------------------------------------------------
As with all mutual funds, the Securities and Exchange Commission has not judged
whether these funds are good investments or 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
<PAGE>
Contents
- --------------------------------------------------------------------------------
A summary of goals of the Special Equities Fund 4
fund's, strategies, risks,
performance and expenses.
Policies and instructions for Your account
opening, maintaining and
closing an account. Who can buy Class Y shares 6
Opening an account 6
Buying shares 7
Selling shares 8
Transaction policies 10
Dividends and account policies 11
Further information on the Fund details
fund.
Business structure 12
Financial highlights 13
For more information back cover
<PAGE>
Overview
- --------------------------------------------------------------------------------
JOHN HANCOCK SPECIAL EQUITIES FUND
This fund seeks long-term growth by investing primarily in common stocks.
WHO MAY WANT TO INVEST
The fund may be appropriate for investors who:
o have longer time horizons
o are willing to accept higher short-term risk along with higher potential
long-term returns
o want to diversify their portfolios
o are seeking a fund for the growth portion of an asset allocation portfolio
o are investing for retirement or other goals that are many years in the future
The fund may NOT be appropriate if you:
o are investing with a shorter time horizon in mind
o are uncomfortable with an investment whose value may vary substantially
RISKS OF MUTUAL FUNDS
Mutual funds are not bank deposits and are not insured or guaranteed by the FDIC
or any other government agency. Because you could lose money by investing in the
fund, be sure to read all risk disclosure carefully before investing.
THE MANAGEMENT FIRM
The fund is managed by John Hancock Advisers, Inc. Founded in 1968, John Hancock
Advisers is a wholly owned subsidiary of John Hancock Mutual Life Insurance
Company and manages more than $30 billion in assets.
FUND INFORMATION KEY
A concise fund description begins on the next page. The description provides the
following information:
[Clipart] Goal and strategy The fund's particular investment goals and the
strategies it intends to use in pursuing those goals.
[Clipart] Main risks The major risk factors associated with the fund.
[Clipart] Past performance The fund's total return, measured year-by-year and
over time.
[Clipart] Your expenses The overall costs borne by an investor in the fund,
including sales charges and annual expenses.
3
<PAGE>
Special Equities Fund
GOAL AND STRATEGY
[Clipart] The fund seeks long-term capital appreciation. To pursue this goal,
the fund normally invests at least 65% of assets in stocks of emerging growth
companies and companies in situations offering unusual or one-time
opportunities. Emerging growth companies tend to have small market
capitalizations, typically less than $1 billion.
In managing the portfolio, the managers focus on stock selection and then
consider sector and geographic diversification. The portfolio typically includes
more than 90 companies. The types of high-growth companies targeted by the fund
tend to cluster in certain sectors, such as technology.
In choosing individual securities, the management team uses fundamental
financial analysis to identify companies with strong and accelerating earnings
growth. The managers favor companies that dominate their market niches or are
poised to become market leaders. The managers 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 in certain other types of equity and debt securities. It may
also invest in foreign securities. In addition, the fund may make limited use of
derivatives (investments whose value is based on indices, securities or
currencies).
In abnormal market conditions, the fund may temporarily invest more than 35% of
assets in investment-grade short-term securities. In these and other cases, the
fund might not achieve its goal.
================================================================================
PAST PERFORMANCE
[Clipart] 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 and potential rewards. All figures assume dividend
reinvestment. Past performance does not indicate future results.
- --------------------------------------------------------------------------------
Class Y year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1994 1995 1996 1997 1998
2.59% 51.14% 4.19% 5.38% -4.91%
PORTFOLIO MANAGERS
Laura Allen, CFA
- --------------------------------------------------------------------------------
Senior vice president of adviser Joined team in 1998 Joined adviser in 1998
Began career in 1986
Bernice S. Behar, CFA
- --------------------------------------------------------------------------------
Senior vice president of adviser Joined team in 1998 Joined adviser in 1991
Began career in 1991
Anurag Pandit, CFA
- --------------------------------------------------------------------------------
Vice president of adviser Joined team in 1996 Joined adviser in 1996 Began
career in 1984
Best quarter: Q4 '98, 26.82% Worst quarter: Q3 '98, -26.74%
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/98
- --------------------------------------------------------------------------------
Class Y Index 1 Index 2
1 year -4.91% -2.55% 1.23%
5 years 10.11% 11.87% 10.22%
Life of fund - began 9/1/93 10.73% 12.20% 10.76%
Index 1: Russell 2000 Index, an unmanaged index of 2,000 stocks of U.S. common
stocks.
Index 2: Russell 2000Growth Index, an unmanaged index of the Russell 2000 stocks
with a greater-than-average growth orientation.
4
<PAGE>
MAIN RISKS
[Clipart] 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
small-capitalization and companies, its performance may be more volatile than
that of a fund that invests primarily in larger companies.
Stocks of small-capitalization 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.
Special-situation companies often have histories of uneven performance, and
circumstances that appear to offer opportunities for growth don't necessarily
lead to growth.
The fund's management strategy will influence performance significantly.
Small-capitalization 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 doesn't 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.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable dividends.
YOUR EXPENSES
[Clipart] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class Y
- --------------------------------------------------------------------------------
Maximum sales charge (load) on purchases
as a % of purchase price none
Maximum deferred sales charge (load)
as a % of purchase or sale price, whichever is less none
- --------------------------------------------------------------------------------
Annual operating expenses Class Y
- --------------------------------------------------------------------------------
Management fee 0.81%
Distribution and service (12b-1) fees none
Other expenses 0.16%
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 Y $99 $309 $536 $1,190
FUND CODES
Class Y
- ---------------------------
Ticker --
CUSIP 410225304
Newspaper --
SEC number 811-4079
5
<PAGE>
Your account
- --------------------------------------------------------------------------------
WHO CAN BUY CLASS Y SHARES
Class Y shares are offered without any front-end or contingent deferred sales
charges. They are available to certain types of institutional investors, as
noted below:
o Retirement plans that are not affiliated with the adviser and have at least
$25,000,000 in assets. These can either have a separate trustee who has full
investment discretion over the plan's assets or be participant-directed
plans, such as 401(k) and TSA plans, that allow participants to choose the
fund among one or more investment options.
o Banks and insurance companies that are purchasing fund shares for their own
account and are not affiliated with the adviser.
o Investment companies not affiliated with the adviser.
o Tax-exempt retirement plans of the adviser and its affiliates.
o Unit investment trusts sponsored by John Hancock Funds, Inc. and certain
other sponsors.
o Existing full-service clients of John Hancock Mutual Life Insurance Company
who were group annuity contract holders as of September 1, 1994.
- --------------------------------------------------------------------------------
OPENING AN ACCOUNT
1 Read this prospectus carefully.
2 Determine if you are eligible, referring to "About Class Y Shares" on the
left.
3 Determine how much you want to invest. The minimum initial investment is $1
million unless you receive a waiver from the fund's officers. You may qualify
for the minimum if you invest more than $1 million between Class Y shares of
this fund and Class Y shares of Sovereign Investors Fund, the other fund that
offers this class of shares.
4 Complete the appropriate parts of the account privileges application. By
applying for privileges now, you can avoid the delay and inconvenience of
having to file an additional application if you want to add privileges later.
If you have questions, please contact your financial representive or
Signature Services at 1-800-755-4371.
5 Submit additional documentation when opening trust, corporate or power of
attorney accounts.
6 Make your initial investment using the table on the next page. You and your
financial representative can initiate any purchase, exchange or sale of
shares.
6 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
Opening an account Adding to an account
By check
[Clipart] o Make out a check for the o Make out a check for the
investment amount, payable to investment amount payable to
"John Hancock Signature "John Hancock Signature
Services, Inc." Services, Inc."
o Deliver the check and your o Fill out the detachable
completed application to your investment slip from an
financial representative, or account statement. If no slip
mail them to Signature is available, include a note
Services (address below). specifying the fund name, your
share class, your account
number and the name(s) in
which the account is
registered.
o Deliver the check and your
investment slip or note to
your financial representative,
or mail them to Signature
Services (address below).
By exchange
[Clipart] o Call your financial o Call your financial
representative or Signature representative or Signature
Services to request an Services to request an
exchange. exchange.
By wire
[Clipart] o Deliver your completed o Instruct your bank to wire the
application to your financial amount of your investment to:
representative, or mail it to First Signature Bank & Trust
Signature Services. Account # 900000260
Routing # 211475000
o Obtain your account number by
calling your financial Specify the fund name, your share
representative or Signature class, your account number and
Services. the name(s) in which the account
is registered. Your bank may
o Instruct your bank to wire the charge a fee to wire funds.
amount of your investment to:
First Signature Bank & Trust
Account # 900000260
Routing # 211475000
Specify the fund name, your
choice of share class, the new
account number and the name(s) in
which the account is registered.
Your bank may charge a fee to
wire funds.
By phone
[Clipart] 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,
your share class, your account
number, the name(s) in which
the account is registered and
the amount of your investment.
- -----------------------------------------
Address:
John Hancock Signature Services, Inc.
P.O. Box 9296
Boston, MA 02217-1000
Phone Number: 1-800-755-4371
- -----------------------------------------
YOUR ACCOUNT 7
<PAGE>
- --------------------------------------------------------------------------------
Selling shares
- --------------------------------------------------------------------------------
Designed for To sell some or all of
your shares
By letter
[Clipart] o Required for sales of $15 o Write a letter of
million or more; however, instruction indicating the
sales of any amount can be fund name, your share class,
requested 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
[Clipart] 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
1-800-338-8080.
o To place your order with a
representative at John
Hancock Funds, call
Signature Services between
8 A.M. and 4 P.M. Eastern
Time on most business days.
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)
[Clipart] o Requests by letter to sell o To verify that the
any amount. telephone redemption
privilege is in place on an
o Requests by phone to sell account, or to request the
up to $5 million (accounts form to add it to an
with telephone redemption existing account, call
privileges). Signature Services.
o Amounts of $5 million or more
will be wired on the next
business day.
o Amounts of 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
[Clipart] o Sales of any amount. o Obtain a current prospectus
for the fund into which you
are exchanging by calling
your financial
representative or Signature
Services.
o Call your financial
representative or Signature
Services to request an
exchange.
8 YOUR ACCOUNT
<PAGE>
Selling shares in writing For sales of $5 million or more and in certain other
circumstances, you will need to make your request to sell shares in writing. You
may need to include additional items with your request, as shown in the table
below. You may also need to include a signature guarantee, which protects you
against fraudulent orders. You will need a signature guarantee if:
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
- --------------------------------------------------------------------------------
[Clipart]
Owners of corporate or association o Letter of instruction.
accounts.
o Corporate resolution, certified
within the past 12 months.
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 trust o Letter of instruction.
accounts.
o On the letter, the signature(s) of
the trustee(s).
o Provide a copy of the trust
document certified within the past
12 months.
o Signature guarantee if applicable
(see above).
Account types not listed above. o Call 1-800-225-5291 for
instructions.
- ----------------------------------------
Address:
John Hancock Signature Services, Inc.
P.O. Box 9296
Boston, MA 02217-1000
Phone Number: 1-800-755-4371
- ----------------------------------------
YOUR ACCOUNT 9
<PAGE>
- --------------------------------------------------------------------------------
TRANSACTION POLICIES
Valuation of shares The net asset value per share (NAV) for the fund and class
is determined each business day at the close of regular trading on the New York
Stock Exchange (typically 4 P.M. Eastern Time). The fund use market prices in
valuing portfolio securities, but may use fair-value estimates if reliable
market prices are unavailable.
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 your request is received by
Signature Services 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, the fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to three business days
or longer, as allowed by federal securities laws.
Telephone transactions For your protection, telephone requests may be recorded
in order to verify their accuracy. Also for your protection, telephone
transactions are not permitted on accounts whose names or addresses have changed
within the past 30 days. Proceeds from telephone transactions can only be mailed
to the address of record.
Exchanges You may exchange shares of one John Hancock fund for shares of the
same class of any other. 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.
10 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
DIVIDENDS AND ACCOUNT POLICIES
Account statements In general, you will receive account statements as follows:
o after every transaction (except a dividend reinvestment) that affects your
account balance
o after any changes of name or address of the registered owner(s)
o in all other circumstances, every quarter
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
Dividends The fund generally declares dividends annually and pays them annually.
Capital gains, if any, are distributed annually, typically after the end of a
fund's fiscal year. Most of the fund's dividends are from capital gains. Your
dividends begin accruing the day after the fund receives payment and continue
through the day your shares are actually sold.
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.
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 income and 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's invest,
the fund's operations or financial markets generally.
Special reinvestment privilege If you sell your Class Y shares as a result of
withdrawing from your retirement plan, you will not be able to withdraw the
proceeds and reinvest them in Class Y 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.
YOUR ACCOUNT 11
<PAGE>
Fund details
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
The diagram below shows the basic business structure used by the fund. The
fund's board of trustees oversees the business activities and retains the
services of the various firms that carry out the fund's operations.
Management fees For the last fiscal year the fund paid management fees of 0.81%
to the investment adviser.
[The following information was represented as a flow chart in the printed
material.]
-----------------
Shareholders
-----------------
Distribution and
shareholder services
-------------------------------------------------
Financial services firms and
their representatives
Advise current and prospective share-
holders on their fund investments, often
in the context of an overall financial plan.
-------------------------------------------------
-------------------------------------------------
Principal distributor
John Hancock Funds, Inc.
Markets the funds and distributes shares
through selling brokers, financial planners
and other financial representatives.
-------------------------------------------------
------------------------------------------------------
Transfer agent
John Hancock Signature Services, Inc.
Handles shareholder services, including record-
keeping and statements, distribution of dividends,
and processing of buy and sell requests.
------------------------------------------------------
Asset
management
------------------------------------
Investment adviser
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, MA 02199-7603
Manages the funds' business and
investment activities.
------------------------------------
------------------------------------
Custodian
Investors Bank & Trust Co.
Holds the funds' assets, settles all
portfolio trades and collects most of
the valuation data required for
calculating each fund's NAV.
------------------------------------
------------------------------------
Trustees
Oversee the funds' activities.
------------------------------------
12 FUND DETAILS
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The table details the performance of the fund's Class Y shares, including total
return information showing how much an investment in the fund has increased or
decreased each year.
Special Equities Fund
Figures audited by Ernst & Young LLP.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Class Y(1) - period ended: 10/94 10/95 10/96 10/97 10/98
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $16.14 $16.20 $22.40 $24.91 $26.86
Net investment income (loss)(2) (0.13) (0.09) (0.14) (0.18) (0.17)
Net realized and unrealized gain (loss) on investments 0.19 6.29 3.11 2.13 (5.98)
Total from investment operations 0.06 6.20 2.97 1.95 (6.15)
Less distributions:
Distributions from net realized gain on investments sold -- -- (0.46) -- --
Net asset value, end of period $16.20 $22.40 $24.91 $26.86 $20.71
Total investment return at net asset value(3) (%) 0.37 38.27 13.40 7.83 (22.90)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 7,123 13,701 67,498 104,476 40,291
Ratio of expenses to average net assets (%) 1.11 1.01 1.03 0.97 0.97
Ratio of net investment income (loss) to average net assets (%) (0.89) (0.50) (0.54) (0.73) (0.66)
Portfolio turnover rate (%) 66 82 59 41 107
</TABLE>
(1) Effective June 1, 1998, the former Class C shares were renamed Class Y
shares.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
FUND DETAILS 13
<PAGE>
For more information
Two documents are available that offer further information on the fund:
ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS
Includes financial statements, a discussion of the market conditions and
investment strategies that significantly affected performance, as well as the
auditors' report (in annual report only).
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains more detailed information on all aspects of the fund. The
current annual report is included in the SAI.
A current SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference into (is legally a part of) this prospectus.
To request a free copy of the current annual/semiannual report or the SAI,
please contact John Hancock:
By mail:
John Hancock Signature
Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA02217-1000
By phone: 1-800-225-5291
By EASI-Line: 1-800-338-8080
By TDD: 1-800-544-6713
On the Internet: www.jhancock.com/funds
Or you may view or obtain these documents from the SEC:
In person: at the SEC's Public Reference Room in Washington, DC
By phone: 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
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
101 Huntington Avenue
Boston, Massachusetts
02199-7603
(C) 1999 John Hancock Funds, Inc.
180YP 3/99
John Hancock(R)
<PAGE>
<TABLE>
<CAPTION>
Supplement to the Statement of Additional Information
John Hancock Financial Industries Fund John Hancock Small Cap Growth Fund
John Hancock Large Cap Growth Fund John Hancock Small Cap Value Fund
John Hancock Mid Cap Growth Fund John Hancock Special Equities Fund
John Hancock Millennium Growth Fund John Hancock Regional Bank Fund
John Hancock Real Estate Fund
The "SALES COMPENSATION" chart has been changed as follows:
Maximum
Sales charge reallowance First year 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.
(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.
August 2, 1999
GROSAIS 8/99
<PAGE>
Supplement to John Hancock Funds' Statements of Additional Information
The following Waiver of Contingent Deferred Sales Charge has been deleted:
* Redemptions where the proceeds are used to purchase a John Hancock Declaration
Variable Annuity.
June 11, 1999
<PAGE>
JOHN HANCOCK SPECIAL EQUITIES FUND
Class A, Class B, Class C and Class Y Shares
Statement of Additional Information
June 1, 1999
This Statement of Additional Information provides information about John Hancock
Special Equities Fund (the "Fund"), a diversified open-end investment company,
in addition to the information that is contained in the combined Growth Funds'
Prospectus for Class A, Class B and Class C Shares dated June 1, 1999 and the
Fund's Class Y Shares Prospectus dated March 1, 1999 (together, the
"Prospectuses").
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectuses, copies of which can be obtained free of
charge by writing or telephoning:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
1-800-225-5291
Table of Contents
Page
Organization of the Fund............................................... 2
Investment Objective and Policies...................................... 2
Investment Restrictions................................................ 14
Those Responsible for Management....................................... 16
Investment Advisory and Other Services................................. 24
Distribution Contracts................................................. 26
Sales Compensation..................................................... 28
Net Asset Value........................................................ 29
Initial Sales Charge on Class A Shares................................. 30
Deferred Sales Charge on Class B and Class C Shares.................... 33
Special Redemptions.................................................... 37
Additional Services and Programs....................................... 37
Description of the Fund's Shares....................................... 39
Tax Status............................................................. 40
Calculation of Performance............................................. 45
Brokerage Allocation................................................... 47
Transfer Agent Services................................................ 48
Custody of Portfolio................................................... 48
Independent Auditors................................................... 49
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 diversified open-end investment management company organized as a
Massachusetts business trust under the laws of The Commonwealth of
Massachusetts. The Fund was organized in 1984 by John Hancock Advisers, Inc.
(the "Adviser").
The Adviser is an indirect wholly-owned subsidiary of John Hancock Mutual Life
Insurance Company (the "Life Company"), a Massachusetts life insurance company
chartered in 1862, with national headquarters at John Hancock Place, Boston,
Massachusetts.
The Fund will be closed indefinitely to new investors effective at the of the
day that the Fund's total assets reach $2.5 billion. From that day forward, only
existing accounts will be permitted to make purchases. New accounts may only be
opened by participants in existing employer-sponsored retirement plans that
already offer the fund. The fund will reject additional purchase orders from
transferees if the purchase appears to have been made for the purpose of evading
the closing limitations.
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the discussion of the Fund's investment
objective and policies discussed in the Prospectus. Appendix A contains further
information describing investment risks. The Fund's investment objective is
fundamental and may only be changed with shareholder approval. There is no
assurance that the Fund will achieve its investment objective.
The Fund's investment objective is to seek growth of capital by investing in a
diversified portfolio of equity securities consisting primarily of emerging
growth companies and of companies in "special situations," collectively referred
to as "Special Equities." The Fund will invest at least 65% of its total assets
in Special Equities. The potential for growth of capital will be the basis for
selection of portfolio securities. Current income will not be a factor in this
selection.
The Fund may also invest in:
- - equity securities of established companies that the Adviser believes offer
growth potential.
- - cash or investment grade corporate debt securities (debt securities which
have, at the time of purchase, a rating within the four highest grades as
determined by Moody's Investors Services, Inc. ("Moody's") --Aaa, Aa, A or Baa
or Standard & Poor's Rating Group ("S & P")-- AAA, AA, A or BBB), money market
instruments or securities of the United States Government or its agencies or
instrumentalities ("government securities"), for temporary defensive purposes or
to provide for anticipated redemptions of the Fund's shares. Debt securities
rated Baa or BBB are considered medium grade obligations with speculative
characteristics, and adverse economic conditions or changing circumstances may
weaken capacity to pay interest and repay principal. If the rating of a debt
security is reduced below Baa or BBB, the Adviser will consider whatever action
is appropriate consistent with the Fund's investment objectives and policies. If
in the opinion of the Adviser, prevailing economic or market conditions require
a temporary defensive posture, the Fund may invest more than 35% of its total
assets in cash and these securities.
Special Equities, particularly equity securities of emerging growth companies,
may have limited marketability due to thin markets in which the volume of
trading for such securities is low or due to the fact that there are only a few
market makers for such securities. Such limited marketability may make it
difficult for the Fund to dispose of a large block of such securities. To
satisfy redemption requests or other needs for cash, the Fund may have to sell
these securities prematurely or at a discount from market prices or to make many
small and more costly sales over a lengthy period of time. Investments by the
Fund may be in existing as well as new issues of securities and may be subject
to wide fluctuations in market value. The Fund will not concentrate its
investments in any particular industry.
2
<PAGE>
The Fund anticipates that its investments generally will be in securities of
companies which it considers to reflect the following characteristics:
- - Share prices which do not appear to take into account adequately the
underlying value of the company's assets or which appear to reflect substantial
under valuation due to factors such as prospective reversal of an unfavorable
industry trend, lack of investor recognition or disappointing earnings believed
to be temporary in comparison with previous earnings trends;
- - Growth potential due to technological advances or discoveries, new methods in
marketing or production, the offering of new or unique products or services,
changes in demand for products or services or other significant new
developments; or
- - Existing, contemplated or possible changes in management or management
policies, corporate structure or control, capitalization or the existence or
possibility of some other circumstances which could be expected to have a
favorable impact on earnings or market price of such company's shares.
The emerging growth companies whose securities are selected for the Fund's
portfolio will generally have annual gross sales of greater than $100 million,
although companies with smaller sales which, in the opinion of the Adviser, have
significant growth potential may also be selected. Thus, there is no requirement
that a company have annual sales of a pre-selected minimum amount before the
Fund will invest in its securities. In many cases, a company may not yet be
profitable when the Fund invests in its securities.
The Fund seeks emerging growth companies that either occupy a dominant position
in an emerging industry or have a significant and growing market share in a
large, fragmented industry. The Fund seeks to invest in those companies with
potential for high growth, stable earnings, a position of industry leadership,
and strong, visionary management. The Adviser believes that, while these
companies present above-average risks, properly selected emerging growth
companies have the potential to increase their earnings at rates substantially
in excess of the growth of earnings of other companies. This increase in
earnings is likely to enhance the value of an emerging growth company's equity
securities.
The Fund may invest in equity securities of companies in special situations that
the Adviser believes present opportunities for capital growth. A company is in a
"special situation" when an unusual and possibly non-repetitive development is
anticipated or is taking place. Since every special situation involves, to some
extent, a break with past experience, the uncertainties in the appraisal of the
future value of the company's equity securities and risk of possible decline in
value of the Fund's investment are significant.
The Fund may effect portfolio transactions without regard to holding periods, if
the Adviser judges these transactions to be advisable in light of a change in
circumstances of a particular company or within a particular industry or in
general market, economic or financial conditions. The Fund does not generally
consider the length of time it has held a particular security in making its
investment decisions.
The Fund is not intended as a complete investment program. The Fund's shares are
suitable for investment by persons who can invest without concern for current
income, who are in a financial position to assume above-average investment risk,
and who are prepared to experience above-average fluctuations in net asset value
over the intermediate and long term. Emerging growth companies and companies in
special situations will usually not pay dividends.
3
<PAGE>
Generally, emerging growth companies will have high price/earnings ratios in
relation to the market. A high price/earnings ratio generally indicates that the
market value of a security is especially sensitive to developments that could
affect the company's potential for future earnings. These companies may have
limited product lines, market or financial resources, or they may be dependent
upon a limited management group. Emerging growth companies may have operating
histories of fewer than three years.
Full development of the potential of emerging growth companies frequently takes
time. For this reason, the Fund should be considered a long-term investment and
not a vehicle for seeking short-term profits and income.
The securities in which the Fund invests will often be traded in the
over-the-counter market or on a regional securities exchange and may not be
traded every day or in the volume typical of trading on a national securities
exchange. They may be subject to wide fluctuations in market value. The trading
market for any given security may be sufficiently thin as to make it difficult
for the Fund to dispose of a substantial block of such securities. The
disposition by the Fund of portfolio securities to meet redemptions or otherwise
may require the Fund to sell these securities at a discount from market prices
or during periods when, in the Adviser's judgment, such disposition is not
desirable or to make many small sales over a lengthy period of time.
There may be additional risks inherent in the Fund's investment objective and
policies. For example, if the Fund were to assume substantial positions in
particular securities with limited trading markets, such positions could have an
adverse effect upon the liquidity and marketability of such securities and the
Fund may not be able to dispose of its holdings in these securities at then
current market prices. Circumstances could also exist (to satisfy redemption
requests, for example) when portfolio securities could have to be sold by the
Fund at times which otherwise would be considered disadvantageous so that the
Fund would receive lower proceeds from such sales than it might otherwise have
expected to realize. Investment in securities which are "restricted" in the
hands of the Fund (see the discussion below under the caption "Investment
Restrictions") could involve added expense to the Fund should the Fund be
required to bear registration costs and could involve delays in disposing of
such securities. Such delays could have an adverse effect upon the price and
timing of sales of such securities and the liquidity of the Fund with respect to
redemptions.
Debt Securities and Money Market Instruments. The Fund may purchase or sell debt
securities (including U.S. corporate bonds and notes, and obligations issued or
guaranteed by the U.S. or foreign governments or their agencies or
instrumentalities) and money market instruments (including short-term debt
obligations payable in U.S. dollars issued by certain banks, savings and loan
associations and corporations) without regard to the length of time the security
has been held to take advantage of short-term differentials in yields. General
changes in prevailing interest rates will affect the value of the debt
securities and money market instruments held by the Fund, the value of which
will vary inversely to the changes in such rates. For example, if interest rates
rise after a security is purchased, the value of the security would decline.
Ratings as Investment Criteria. In general, the ratings of Moody's Investors
Service, Inc. and Standard & Poor's Ratings Group represent the opinions of
these agencies as to the quality of the securities which they rate. It should be
emphasized, however, that such ratings are relative and subjective and are not
absolute standards of quality. These ratings will be used by the Fund as initial
criteria for the selection of portfolio securities. Among the factors which will
be considered are the long-term ability of the issuer to pay principal and
interest and general economic trends. Appendix B contains further information
concerning the ratings of Moody's and S&P and their significance. Subsequent to
its purchase by the Fund, an issue of securities may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Fund.
Neither of these events will require the sale of the securities by the Fund.
4
<PAGE>
Investments in Foreign Securities. The Fund may invest in the securities of
foreign issuers, including securities in the form of sponsored or unsponsored
American Depository Receipts (ADRs), European Depository Receipts (i) or other
securities convertible into securities of foreign issuers. ADRs are receipts
typically issued by an American bank or trust company which evidence ownership
of underlying securities issued by a foreign corporation. EDRs are receipts
issued in Europe which evidence a similar ownership arrangement. Issuers of
unsponsored ADRs are not contractually obligated to disclose material
information, including financial information, in the United States. Generally,
ADRs are designed for use in the United States securities markets and EDRs are
designed for use in European securities markets.
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.
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 on repatriation of assets, and may have less protection of property
rights than more developed countries. Their economies may be predominantly based
on only a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt burdens or
inflation rates. Local securities markets may trade a small number of securities
and may be unable to respond effectively to increases in trading volume,
potentially making prompt liquidation of substantial holdings difficult or
impossible at times. The Fund may be required to establish special custodial or
other arrangements before making certain investments in those countries.
Securities of issuers located in these countries may have limited marketability
and may be subject to more abrupt or erratic price movements.
Foreign Currency Transactions. The Fund's foreign currency exchange transactions
may be conducted on a spot (i.e., cash) basis at the spot rate for purchasing or
selling currency prevailing in the foreign exchange market. The Fund may also
enter into forward foreign currency exchange contracts to enhance return, to
hedge against fluctuations in currency exchange rates affecting a particular
transaction or portfolio position, or as a substitute for the purchase or sale
of a currency or assets denominated in that currency. Forward contracts are
agreements to purchase or sell a specified currency at a specified future date
and price set at the time of the contract. Transaction hedging is the purchase
or sale of forward foreign currency contracts with respect to specific
receivables or payables of the Fund accruing in connection with the purchase and
sale of its portfolio securities quoted or denominated in the same or related
foreign currencies. Portfolio hedging is the use of forward foreign currency
contracts to offset portfolio security positions denominated or quoted in the
same or related foreign currencies. The Fund may elect to hedge less than all of
its foreign portfolio positions deemed appropriate by the Adviser.
5
<PAGE>
If the Fund purchases a forward contract or sells a forward contract for
non-hedging purposes, its custodian will segregate cash or liquid securities, of
any type or maturity, in a separate account of the Fund in an amount equal to
the value of the Fund's total assets committed to the consummation of such
forward contract. The assets in the segregated account will be valued at market
daily and if the value of the securities in the separate account declines,
additional cash or securities will be placed in the account so that the value of
the account will be equal to the amount of the Fund's commitment with respect to
such contracts.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency rises. Moreover, it may
not be possible for the Fund to hedge against a devaluation that is so generally
anticipated that the Fund is not able to contract to sell the currency at a
price above the devaluation level it anticipates.
The cost to the Fund of engaging in foreign currency transactions varies with
such factors as the currency involved, the length of the contract period and the
market conditions then prevailing. Since transactions in foreign currency are
usually conducted on a principal basis, no fees or commissions are involved.
Risks of Foreign Securities. Investments in foreign securities may involve a
greater degree of risk than those in domestic securities. There is generally
less publicly available information about foreign companies in the form of
reports and ratings similar to those that are published about issuers in the
United States. Also, foreign issuers are generally not subject to uniform
accounting, auditing and financial reporting requirements comparable to those
applicable to United States issuers.
Because foreign securities may be denominated in currencies other than the U.S.
dollar, changes in foreign currency exchange rates will affect the Fund's net
asset value, the value of dividends and interest earned, gains and losses
realized on the sale of securities, and any net investment income and gains that
the Fund distributes to shareholders. Securities transactions undertaken in some
foreign markets may not be settled promptly so that the Fund's investments on
foreign exchanges may be less liquid and subject to the risk of fluctuating
currency exchange rates pending settlement.
Foreign securities will be purchased in the best available market, whether
through over-the-counter markets or exchanges located in the countries where
principal offices of the issuers are located. Foreign securities markets are
generally not as developed or efficient as those in the United States. While
growing in volume, they usually have substantially less volume than the New York
Stock Exchange, and securities of some foreign issuers are less liquid and more
volatile than securities of comparable United States issuers. Fixed commissions
on foreign exchanges are generally higher than negotiated commissions on United
States exchanges, although the Fund will endeavor to achieve the most favorable
net results on its portfolio transactions. There is generally less government
supervision and regulation of securities exchanges, brokers and listed issuers
than in the United States.
With respect to certain foreign countries, there is the possibility of adverse
changes in investment or exchange control regulations, expropriation,
nationalization or confiscatory taxation limitations on the removal of funds or
other assets of the Fund, political or social instability, or diplomatic
developments which could affect United States investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
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.
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The dividends, in some cases capital gains and interest payable on certain of
the Fund's foreign portfolio securities, may be subject to foreign withholding
or other foreign taxes, thus reducing the net amount of income or gains
available for distribution to the Fund's shareholders.
Repurchase Agreements. In a repurchase agreement the Fund buys a security for a
relatively short period (usually not more than 7 days) subject to the obligation
to sell it back to the issuer at a fixed time and price plus accrued interest.
The Fund will enter into repurchase agreements only with member banks of the
Federal Reserve System and with "primary dealers" in U.S. Government securities.
The Adviser will continuously monitor the creditworthiness of the parties with
whom the Fund enters into repurchase agreements.
The Fund has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, the Fund could experience delays in
liquidating the underlying securities during the period in which the Fund seeks
to enforce its rights thereto, possible subnormal levels of income decline in
value of the underlying securities or and lack of access to income during this
period and the expense of enforcing its rights.
Reverse Repurchase Agreements. The Fund may also enter into reverse repurchase
agreements which involve the sale of U.S. Government securities held in its
portfolio to a bank with an agreement that the Fund will buy back the securities
at a fixed future date at a fixed price plus an agreed amount of "interest"
which may be reflected in the repurchase price. Reverse repurchase agreements
are considered to be borrowings by the Fund. Reverse repurchase agreements
involve the risk that the market value of securities purchased by the Fund with
proceeds of the transaction may decline below the repurchase price of the
securities sold by the Fund which it is obligated to repurchase. The Fund will
also continue to be subject to the risk of a decline in the market value of the
securities sold under the agreements because it will reacquire those securities
upon effecting their repurchase. To minimize various risks associated with
reverse repurchase agreements, the Fund will establish and maintain a separate
account consisting of liquid securities, of any type or maturity, in an amount
at least equal to the repurchase prices of the securities (plus any accrued
interest thereon) under such agreements. In addition, the Fund will not enter
into reverse repurchase agreements and other borrowings except from banks as a
temporary measure for extraordinary emergency purposes in amounts not to exceed
33 1/3% of the Fund's total assets (including the amount borrowed) taken at
market value. The Fund will not use leverage to attempt to increase income. The
Fund will not purchase securities while outstanding borrowings exceed 5% of the
Fund's total assets. The Fund will enter into reverse repurchase agreements only
with federally insured banks which are approved in advance as being creditworthy
by the Trustees. Under procedures established by the Trustees, the Adviser will
monitor the creditworthiness of the banks involved.
Restricted Securities. The Fund may purchase securities that are not registered
("restricted securities") under the Securities Act of 1933 ("1933 Act"),
including commercial paper issued in reliance on section 4(2) of the 1933 act
and securities offered and sold to "qualified institutional buyers" under Rule
144A under the 1933 Act. The Fund will not invest more than 15% of its net
assets in illiquid investments. If the Trustees determines, based upon a
continuing review of the trading markets for specific Section 4(2) paper or Rule
144A securities, that they are liquid, they will not be subject to the 15% limit
on illiquid investments. The Trustees may adopt guidelines and delegate to the
Adviser the daily function of determining the monitoring and liquidity of
restricted securities. The Trustees, however, will retain sufficient oversight
and be ultimately responsible for the determinations. The Trustees will
carefully monitor the Fund's investments in these securities, focusing on such
important factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing the
level of illiquidity in the Fund if qualified institutional buyers become for a
time uninterested in purchasing these restricted securities.
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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.
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.
8
<PAGE>
The purchase of a put option would entitle the Fund, in exchange for the premium
paid, to sell specified securities or currency at a specified price during the
option period. The purchase of protective puts is designed to offset or hedge
against a decline in the market value of the Fund's portfolio securities or the
currencies in which they are denominated. Put options may also be purchased by
the Fund for the purpose of affirmatively benefiting from a decline in the price
of securities or currencies which it does not own. The Fund would ordinarily
realize a gain if, during the option period, the value of the underlying
securities or currency decreased below the exercise price sufficiently to cover
the premium and transaction costs; otherwise the Fund would realize either no
gain or a loss on the purchase of the put option. Gains and losses on the
purchase of put options may be offset by countervailing changes in the value of
the Fund's portfolio securities.
The Fund's options transactions will be subject to limitations established by
each of the exchanges, boards of trade or other trading facilities on which such
options are traded. These limitations govern the maximum number of options in
each class which may be written or purchased by a single investor or group of
investors acting in concert, regardless of whether the options are written or
purchased on the same or different exchanges, boards of trade or other trading
facilities or are held or written in one or more accounts or through one or more
brokers. Thus, the number of options which the Fund may write or purchase may be
affected by options written or purchased by other investment advisory clients of
the Adviser. An exchange, board of trade or other trading facility may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.
Risks Associated with Options Transactions. There is no assurance that a liquid
secondary market on a domestic or foreign options exchange will exist for any
particular exchange-traded option or at any particular time. If the Fund is
unable to effect a closing purchase transaction with respect to covered options
it has written, the Fund will not be able to sell the underlying securities or
currencies or dispose of assets held in a segregated account until the options
expire or are exercised. Similarly, if the Fund is unable to effect a closing
sale transaction with respect to options it has purchased, it would have to
exercise the options in order to realize any profit and will incur transaction
costs upon the purchase or sale of underlying securities or currencies.
Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options). 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.
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<PAGE>
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of options
depends in part on the Adviser's ability to predict future price fluctuations
and, for hedging transactions, the degree of correlation between the options and
securities or currency markets.
Futures Contracts and Options on Futures Contracts. To seek to increase total
return or hedge against changes in interest rates, securities prices or currency
exchange rates, the Fund may purchase and sell various kinds of futures
contracts, and purchase and write call and put options on these futures
contracts. The Fund may also enter into closing purchase and sale transactions
with respect to any of these contracts and options. The futures contracts may be
based on various securities (such as U.S. Government securities), securities
indices, foreign currencies and any other financial instruments and indices. All
futures contracts entered into by the Fund are traded on U.S. or foreign
exchanges or boards of trade that are licensed, regulated or approved by the
Commodity Futures Trading Commission ("CFTC").
Futures Contracts. A futures contract may generally be described as an agreement
between two parties to buy and sell particular financial instruments or
currencies for an agreed price during a designated month (or to deliver the
final cash settlement price, in the case of a contract relating to an index or
otherwise not calling for physical delivery at the end of trading in the
contract).
Positions taken in the futures markets are not normally held to maturity but are
instead liquidated through offsetting transactions which may result in a profit
or a loss. While futures contracts on securities or currency will usually be
liquidated in this manner, the Fund may instead make, or take, delivery of the
underlying securities or currency whenever it appears economically advantageous
to do so. A clearing corporation associated with the exchange on which futures
contracts are traded guarantees that, if still open, the sale or purchase will
be performed on the settlement date.
Hedging and Other Strategies. Hedging is an attempt to establish with more
certainty than would otherwise be possible the effective price or rate of return
on portfolio securities or securities that the Fund proposes to acquire or the
exchange rate of currencies in which portfolio securities are quoted or
denominated. When interest rates are rising or securities prices are falling,
the Fund can seek to offset a decline in the value of its current portfolio
securities through the sale of futures contracts. When interest rates are
falling or securities prices are rising, the Fund, through the purchase of
futures contracts, can attempt to secure better rates or prices than might later
be available in the market when it effects anticipated purchases. The Fund may
seek to offset anticipated changes in the value of a currency in which its
portfolio securities, or securities that it intends to purchase, are quoted or
denominated by purchasing and selling futures contracts on such currencies.
The Fund may, for example, take a "short" position in the futures market by
selling futures contracts in an attempt to hedge against an anticipated rise in
interest rates or a decline in market prices or foreign currency rates that
would adversely affect the dollar value of the Fund's portfolio securities. Such
futures contracts may include contracts for the future delivery of securities
held by the Fund or securities with characteristics similar to those of the
Fund's portfolio securities. Similarly, the Fund may sell futures contracts on
any currencies in which its portfolio securities are quoted or denominated or in
one currency to hedge against fluctuations in the value of securities
denominated in a different currency if there is an established historical
pattern of correlation between the two currencies.
If, in the opinion of the Adviser, there is a sufficient degree of correlation
between price trends for the Fund's portfolio securities and futures contracts
based on other financial instruments, securities indices or other indices, the
Fund may also enter into such futures contracts as part of its hedging strategy.
Although under some circumstances prices of securities in the Fund's portfolio
may be more or less volatile than prices of such futures contracts, the Adviser
will attempt to estimate the extent of this volatility difference based on
historical patterns and compensate for any differential by having the Fund enter
into a greater or lesser number of futures contracts or by attempting to achieve
only a partial hedge against price changes affecting the Fund's portfolio
securities.
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<PAGE>
When a short hedging position is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the value
of the futures position. On the other hand, any unanticipated appreciation in
the value of the Fund's portfolio securities would be substantially offset by a
decline in the value of the futures position.
On other occasions, the Fund may take a "long" position by purchasing futures
contracts. This would be done, for example, when the Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates then available in the applicable
market to be less favorable than prices that are currently available. The Fund
may also purchase futures contracts as a substitute for transactions in
securities or foreign currency, to alter the investment characteristics of or
currency exposure associated with portfolio securities or to gain or increase
its exposure to a particular securities market or currency.
Options on Futures Contracts. The Fund may purchase and write options on futures
for the same purposes as its transactions in futures contracts. The purchase of
put and call options on futures contracts will give the Fund the right (but not
the obligation) for a specified price to sell or to purchase, respectively, the
underlying futures contract at any time during the option period. As the
purchaser of an option on a futures contract, the Fund obtains the benefit of
the futures position if prices move in a favorable direction but limits its risk
of loss in the event of an unfavorable price movement to the loss of the premium
and transaction costs.
The writing of a call option on a futures contract generates a premium which may
partially offset a decline in the value of the Fund's assets. By writing a call
option, the Fund becomes obligated, in exchange for the premium (upon exercise
of the option) to sell a futures contract if the option is exercised, which may
have a value higher than the exercise price. Conversely, the writing of a put
option on a futures contract generates a premium which may partially offset an
increase in the price of securities that the Fund intends to purchase. However,
the Fund becomes obligated (upon exercise of the option) to purchase a futures
contract if the option is exercised, which may have a value lower than the
exercise price. The loss incurred by the Fund in writing options on futures is
potentially unlimited and may exceed the amount of the premium received.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option of the same series. There
is no guarantee that such closing transactions can be effected. The Fund's
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.
Other Considerations. The Fund will engage in futures and related options
transactions either for bona fide hedging purposes or to seek to increase total
return as permitted by the CFTC. To the extent that the Fund is using futures
and related options for hedging purposes, futures contracts will be sold to
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.
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<PAGE>
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 or securities prices or
currency exchange rates may result in a poorer overall performance for the Fund
than if it had not entered into any futures contracts or options transactions.
Perfect correlation between the Fund's futures positions and portfolio positions
will be impossible to achieve. In the event of an imperfect correlation between
a futures position and a portfolio position which is intended to be protected,
the desired protection may not be obtained and the Fund may be exposed to risk
of loss. In addition, it is not possible to hedge fully or protect against
currency fluctuations affecting the value of securities denominated in foreign
currencies because the value of such securities is likely to fluctuate as a
result of independent factors not related to currency fluctuations.
Some futures contracts or options on futures may become illiquid under adverse
market conditions. In addition, during periods of market volatility, a commodity
exchange may suspend or limit trading in a futures contract or related option,
which may make the instrument temporarily illiquid and difficult to price.
Commodity exchanges may also establish daily limits on the amount that the price
of a futures contract or related option can vary from the previous day's
settlement price. Once the daily limit is reached, no trades may be made that
day at a price beyond the limit. This may prevent the Fund from closing out
positions and limiting its losses.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements. The
Fund may reinvest any cash collateral in short-term securities and money market
funds. When the Fund lends portfolio securities, there is a risk that the
borrower may fail to return the securities involved in the transaction. As a
result, the Fund may incur a loss or, in the event of the borrower's bankruptcy,
the Fund may be delayed in or prevented from liquidating the collateral. It is a
fundamental policy of the Fund not to lend portfolio securities having a total
value exceeding 33 1/3% of its total assets.
Rights and Warrants. The Fund may purchase warrants and rights which are
securities permitting, but not obligating, their holder to purchase the
underlying securities at a predetermined price subject 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.
12
<PAGE>
Short Sales. The Fund may engage in short sales in order to profit from an
anticipated decline in the value of a security. The Fund may also engage in
short sales to attempt to limit its exposure to a possible market decline in the
value of its portfolio securities through short sales of securities which the
Adviser believes possess volatility characteristics similar to those being
hedged. To effect such a transaction, the Fund must borrow the security sold
short to make delivery to the buyer. The Fund then is obligated to replace the
security borrowed by purchasing it at the market price at the time of
replacement. Until the security is replaced, the Fund is required to pay to the
lender any accrued interest or dividends and may be required to pay a premium.
The Fund may only make short sales "against the box," meaning that the Fund, by
virtue of its ownership of other securities, has the right to obtain securities
equivalent in kind and amount to the securities sold and, if the right is
conditional, the sale is made upon the same conditions.
The Fund will realize a gain if the security declines in price between the date
of the short sale and the date on which the Fund replaces the borrowed security.
On the other hand, the Fund will incur a loss as a result of the short sale if
the price of the security increases between those dates. The amount of any gain
will be decreased, and the amount of any loss increased, by the amount of any
premium or interest or dividends the Fund may be required to pay in connection
with a short sale. The successful use of short selling as a hedging device may
be adversely affected by imperfect correlation between movements in the price of
the security sold short and the securities being hedged.
Under applicable guidelines of the staff of the SEC, if the Fund engages in
short sales, it must put in a segregated account (not with the broker) an amount
of cash or U.S. Government securities equal to the difference between (a) the
market value of the securities sold short at the time they were sold short and
(b) any cash or U.S. Government Securities required to be deposited as
collateral with the broker in connection with the short sale (not including the
proceeds from the short sale). In addition, until the Fund replaces the borrowed
security, it must daily maintain the segregated account at such a level that the
amount deposited in it plus the amount deposited with the broker as collateral
will equal the current market value of the securities sold short.
Short selling may produce higher than normal portfolio turnover which may result
in increased transaction costs to the Fund and may result in gains from the sale
of securities deemed to have been held for less than three months, which gains
must be less than 30% of the Fund's gross income for a taxable year in order for
the Fund to qualify as a regulated investment company under the Code for that
year.
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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<PAGE>
When the Fund engages in forward commitment and when-issued transactions, it
relies on the seller to consummate the transaction. The failure of the issuer or
seller to consummate the transaction may result in the Fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid, securities, of any type or maturity, equal in value to
the Fund's commitment. These assets will be valued daily at market, and
additional cash or securities will be segregated in a separate account to the
extent that the total value of the assets in the account declines below the
amount of the when-issued commitments. Alternatively, the Fund may enter into
offsetting contracts for the forward sale of other securities that it owns.
Short-Term Trading and Portfolio Turnover. Short-term trading means the purchase
and subsequent sale of a security after it has been held for a relatively brief
period of time. The Fund may engage in short-term trading in response to stock
market conditions, changes in interest rates or other economic trends and
developments, or to take advantage of yield disparities between various fixed
income securities in order to realize capital gains or improve income. Short
term trading may have the effect of increasing portfolio turnover rate. A high
rate of portfolio turnover (100% or greater) involves correspondingly higher
brokerage expenses. The Fund's portfolio turnover rate is set forth in the table
under the caption "Financial Highlights" in the prospectus.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions will
not be changed without the approval of a majority of the Fund's outstanding
voting securities which, as used in the Prospectuses 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
Fund's outstanding shares are present in person or by proxy at the meeting or
(2) more than 50% of the Fund's outstanding shares.
The Fund may not:
(1) Issue senior securities, except as permitted by paragraphs (2), (6)
and (7) below. For purposes of this restriction, the issuance of shares
of beneficial interest in multiple classes or series, the purchase or
sale of options, futures contracts and options on futures contracts,
and forward foreign exchange contracts, forward commitments and
repurchase agreements entered into in accordance with the Fund's
investment policy, and the pledge, mortgage or hypothecation of the
Fund's assets within the meaning of paragraph (3) below, are not deemed
to be senior securities.
(2) Borrow money, except from banks as a temporary measure for
extraordinary emergency purposes in amounts not to exceed 33 1/3% of
the Fund's total assets (including the amount borrowed) taken at market
value. The Fund will not use leverage to attempt to increase income.
The Fund will not purchase securities while outstanding borrowings
exceed 5% of the Fund's total assets.
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<PAGE>
(3) Pledge, mortgage or hypothecate its assets, except to secure
indebtedness permitted by paragraph (2) above and then only if such
pledging, mortgaging or hypothecating does not exceed 33 1/3% of the
Fund's total assets taken at market value.
(4) Act as an underwriter, except to the extent that in connection with
the disposition of portfolio securities, the Fund may be deemed to be
an underwriter for purposes of the Securities Act of 1933.
(5) Purchase or sell real estate or any interest therein, except that
the Fund may invest in securities of corporate or governmental entities
secured by real estate or marketable interests therein or securities
issued by companies that invest in real estate or interests therein.
(6) Make loans, except that the Fund may lend portfolio securities in
accordance with the Fund's investment policies. The Fund does not, for
this purpose, consider repurchase agreements, the purchase of all or a
portion of an issue of publicly distributed bonds, bank loan
participation agreements, bank certificates of deposit, bankers'
acceptances, debentures or other securities, whether or not the
purchase is made upon the original issuance of the securities, to be
the making of a loan.
(7) Invest in commodities or in commodity contracts or in puts, calls,
or combinations of both, except options on securities and securities
indices, futures contracts on securities and securities indices and
options on such futures, forward foreign exchange contracts, forward
commitments, securities index put or call warrants and repurchase
agreements entered into in accordance with the Fund's investment
policies.
(8) Purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after such
purchase, the value of its investments in such industry would exceed
25% of its total assets taken at market value at the time of each
investment. This limitation does not apply to investments in
obligations of the U.S. Government or any of its agencies or
instrumentalities.
(9) Purchase securities of an issuer (other than the U.S. Government,
its agencies or instrumentalities), if
(i) such purchase would cause more than 5% of the Fund's total
assets taken at market value to be invested in the securities
of such issuer, or
(ii) such purchase would at the time result in more than 10%
of the outstanding voting securities of such issuer being held
by the Fund.
In connection with the lending of portfolio securities under item (6) above,
such loans must at all times be fully collateralized and the Fund's custodian
must take possession of the collateral either physically or in book entry form.
Securities used as collateral must be marked to market daily.
Non-Fundamental Investment Restrictions. The following restrictions are
designated as nonfundamental and may be changed by the Trustees without
shareholder approval.
The Fund may not:
(a) Participate on a joint or joint-and-several basis in any securities
trading account. The "bunching" of orders for the sale or purchase of
marketable portfolio securities with other accounts under the
management of the Adviser to save commissions or to average prices
among them is not deemed to result in a joint securities trading
account.
15
<PAGE>
(b) Purchase securities on margin or make short sales, except in
connection with arbitrage transactions, or unless by virtue of its
ownership of other securities, the Fund has the right to obtain
securities equivalent in kind and amount to the securities sold and, if
the right is conditional, the sale is made upon the same conditions,
except that the Fund may obtain such short-term credits as may be
necessary for the clearance of purchases and sales of securities and in
connection with transactions involving forward foreign currency
exchange contracts.
(c) Purchase a security if, as a result, (i) more than 10% of the
Fund's assets would be invested in securities of other investment
companies, (ii) such purchase would result in more than 3% of the total
outstanding voting securities of any one such investment company being
held by the Fund, or (iii) more than 5% of the Fund's assets would be
invested in any one such investment company.
(d) Invest for the purpose of exercising control over or management of
any company.
(e) Invest more than 15% of its net assets in illiquid securities.
(f) Notwithstanding any investment restriction to the contrary, 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 provided that, as a result, (i) no more than 10% of the Fund's
assets would be invested in securities of all other investment
companies, (ii) such purchase would not result in more than 3% of the
total outstanding voting securities of any one such investment company
being held by the Fund and (iii) no more than 5% of the Fund's assets
would be invested in any one such investment company.
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 or the total costs of the Fund's
assets will not be considered a violation of the restriction.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by its Trustees, 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").
16
<PAGE>
<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,
Chief Executive Officer and
President, 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>
Dennis S. Aronowitz Trustee Professor of Law, Emeritus, Boston
1216 Falls Boulevard University School of Law (as of
Fort Lauderdale, FL 33327 1996); Director, Brookline Bankcorp.
June 1931
Richard P. Chapman, Jr. Trustee (1) Director, President and Chief
160 Washington Street Executive Officer, Brookline
Brookline, MA 02147 Bankcorp. (lending); Director,
February 1935 Lumber Insurance Companies (fire and
casualty insurance); Trustee,
Northeastern University (education);
Director, Depositors Insurance Fund,
Inc. (insurance).
William J. Cosgrove Trustee Vice President, Senior Banker and
20 Buttonwood Place Senior Credit Officer, Citibank,
Saddle River, NJ 07458 N.A. (retired September 1991);
January 1933 Executive Vice President, Citadel
Group Representatives, Inc.; EVP
Resource Evaluation, Inc.
(consulting) (until October 1993);
Trustee, the Hudson City Savings
Bank (since 1995).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
18
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Douglas M. Costle Trustee (1) Director, Chairman and Distinguished
RR2 Box 480 Senior Fellow, Institute for
Woodstock, VT 05091 Sustainable Communities, Montpelier,
July 1939 Vermont (since 1991); Dean, Vermont
Law School (until 1991); Director,
Air and Water Technologies (until
1996) (environmental services and
equipment), Niagara Mohawk Power
Corp. (electric services); Concept
Five Technologies (until 1997);
Mitretek Systems (governmental
consulting services); Conversion
Technologies, Inc.; Living
Technologies, Inc.
Leland O. Erdahl Trustee Director of Uranium Resources
8046 Mackenzie Court Corporation; Hecla Mining Company,
Las Vegas, NV 89129 Canyon Resources Corporation and
December 1928 Original Sixteen to One Mine, Inc.
(1984-1987 and 1991-1998)
(management consultant).
Richard A. Farrell Trustee President of Farrell, Healer & Co.,
The Venture Capital Fund of New England (venture capital management firm)
160 Federal Street (since 1980); Prior to 1980, headed
23rd Floor the venture capital group at Bank of
Boston, MA 02110 Boston Corporation.
November 1932
- -------------------
* 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>
Gail D. Fosler Trustee Senior Vice President and Chief
3054 So. Abingdon Street Economist, The Conference Board
Arlington, VA 22206 (non-profit economic and business
December 1947 research); Director, Unisys Corp.;
and H.B. Fuller Company. Director,
National Bureau of Economic
Research (academic).
William F. Glavin Trustee President Emeritus, Babson College
120 Paget Court - John's Island (as of 1997); Vice Chairman, Xerox
Vero Beach, FL 32963 Corporation (until June 1989);
March 1932 Director, Caldor Inc., Reebok, Inc.
(since 1994) and Inco Ltd.
Anne C. Hodsdon * Trustee and President (1,2) President, Chief Operating Officer
101 Huntington Avenue and Director, the Adviser, The
Boston, MA 02199 Berkeley Group; Director, John
April 1953 Hancock Funds, 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).
Dr. John A. Moore Trustee President and Chief Executive
Institute for Evaluating Health Risks Officer, Institute for Evaluating
1629 K Street NW Health Risks, (nonprofit
Suite 402 institution) (since September 1989).
Washington, DC 20006-1602
February 1939
- -------------------
* 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>
Patti McGill Peterson Trustee Executive Director, Council for
CIES International Exchange of Scholars
3007 Tilden Street, N.W. (since January 1998), Vice
Washington, D.C. 20008 President, Institute of
May 1943 International Education (since
January 1998); Senior Fellow,
Cornell Institute of Public
Affairs, Cornell University (until
December 1997); President Emerita
of Wells College and St. Lawrence
University; Director, Niagara
Mohawk Power Corporation (electric
utility).
John W. Pratt Trustee Professor of Business Administration
2 Gray Gardens East Emeritus, Harvard University
Cambridge, MA 02138 Graduate School of Business
September 1931 Administration (as of June 1998).
Richard S. Scipione * Trustee (1) General Counsel, John Hancock Life
John Hancock Place Company; Director, the Adviser,
P.O. Box 111 Advisers International, John Hancock
Boston, MA 02117 Funds, Signator Investors, Inc.,
August 1937 Insurance Agency, Inc., John Hancock
Subsidiaries, Inc., SAMCorp. and NM
Capital; Director, The Berkeley
Group; Director, JH Networking
Insurance Agency, Inc.; Director,
Signature Services (until January
1997).
Osbert M. Hood Senior Vice President and Chief Senior Vice President and Chief
101 Huntington Avenue Financial Officer Financial Officer, the Adviser, the
Boston, MA 02199 Berkeley Group and John Hancock
August 1952 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.
21
<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 and John Hancock
July 1950 Funds; Secretary, 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, NM Capital.
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>
22
<PAGE>
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 and Scipione and Ms.
Hodsdon, each a non-independent Trustee and each of the officers of the Fund are
interested persons of the Adviser, are compensated by the Adviser and receive no
compensation from the Fund for their services.
Total Compensation From All
Aggregate Compensation Funds in John Hancock Fund
Independent Trustees From the Fund (1) Complex to Trustees(2)
- -------------------- ----------------- ----------------------
Dennis S. Aronowitz $ 7,801 $ 72,000
Richard P. Chapman, Jr.+ 8,099 75,100
William J. Cosgrove+ 7,801 72,000
Douglas M. Costle 8,099 75,100
Leland O. Erdahl 7,801 72,000
Richard A. Farrell 8,101 75,100
Gail D. Fosler 7,801 72,000
William F. Glavin+ 7,801 72,000
John A. Moore+ 7,801 72,000
Patti McGill Peterson 8,004 75,100
John W. Pratt 7,801 72,000
Edward J. Spellman 8,101 70,350
---------- ---------
Total $ 95,011 $ 874,750
(1) Compensation is for fiscal year ended October 31, 1998.
(2) The total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is as of the calendar year ended December 31, 1998. As of
that date, there were sixty seven funds in the John Hancock Complex, with each
of these Independent Trustees serving on 34 funds.
+ As of December 31, 1998, the value of the aggregate accrued deferred
compensation amount from all funds in the John Hancock fund complex for Mr.
Chapman was $81,203, for Mr. Cosgrove was $182,174, for Mr. Glavin was $248,920,
and for Mr. Moore was $166,978 under the John Hancock Deferred Compensation Plan
for Independent Trustees.
All of the officers listed are officers or employees of the Adviser or the
Affiliated Companies. Some of the Trustees and officers may also be officers
and/or directors and/or trustees of one or more other funds for which the
Adviser serves as investment adviser.
As of February 5, 1999, the officers and Trustees of the Fund as a group 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:
23
<PAGE>
Percentage of
Total Outstanding
Name and Address Shares of the
of Shareholder Class of Shares Class of the Fund
- -------------- --------------- -----------------
MLPF&S For The Sole Benefit Of A 7.74%
Its Customers
Attn: Fund Administration
4800 Deerlake Drive East
Jacksonville FL 32246-5484
MLPF&S For The Sole Benefit Of B 18.40%
Its Customers
Attn: Fund Administration
4800 Deerlake Drive East
Jacksonville FL 32246-5484
Northern Trust Company as Trustee Y 62.38%
FBO: 22-LG & E
P.O. Box 92956
Chicago, IL 60675-2956
Sargent & Bundy Savings Iv Plan Y 9.60%
Citibank FSB C/O Wendy Olden
500 West Madison St
4 Fl, Zone 6
Chicago, IL 60661-2511
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 mutual funds and
publicly traded investment companies in the John Hancock group of funds which
have a combined total of over 1,400,000 shareholders. The Adviser is an
affiliate of the Life Company, one of the most recognized and respected
financial institutions in the nation. With total assets under management of more
than $100 billion, the Life Company is one of the ten largest life insurance
companies in the United States, and carries a high rating from Standard & Poor's
and A.M. Best. Founded in 1862, the Life Company has been serving clients for
over 130 years.
The Fund has entered into an investment management contract (the "Advisory
Agreement") with the Adviser which was approved by the Fund's shareholders.
Pursuant to the Advisory Agreement, the Adviser will: (a) furnish continuously
an investment program for the Fund and determine, subject to the overall
supervision and review of the Trustees, which investments should be purchased,
held, sold or exchanged, and (b) provide supervision over all aspects of the
Fund's operations except those which are delegated to a custodian, transfer
agent or other agent.
24
<PAGE>
The Adviser had entered into a Subadvisory Agreement with DiCarlo, Forbes and
St. Pierre of DFS Advisors, LLC, 75 State Street, Suite 2530, Boston,
Massachusetts 02109. Under the Subadvisory Agreement, the Subadviser provided
the Fund with advice and recommendations regarding the Fund's investments. Under
the Sub-Advisory Agreement, the Adviser paid the Subadviser a fee at the annual
rate of 0.25% of the average daily net assets of the Fund. The Subadvisory
Agreement has been terminated effective August 30, 1998.
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 expense of
the Fund (including an allocable portion of the cost of the Adviser's employees
rendering such services to the Fund; the compensation and expenses of Trustees
who are not otherwise affiliated with the Trust, the Adviser or any of their
affiliates; expenses of Trustees' and shareholders' meetings; trade association
membership; insurance premiums; and any extraordinary expenses.
As compensation for its services under the Advisory Agreement, the Fund pays the
Adviser monthly a fee based on a stated percentage of the average of the daily
net assets of the Fund as follows:
Net Asset Value Annual Rate
- --------------- -----------
First $250,000,000 0.85%
Amount Over $250,000,000 0.80%
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 re-impose a fee and recover any other
payments to the extent that, at the end of any fiscal year, the Fund's annual
expenses fall below this limit.
For the years ended October 31, 1996, 1997 and 1998, the Adviser received a fee
of $12,884,307, $15,145,304 and $11,915,601, respectively.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser or its affiliates provide investment
advice. Because of different investment objectives or other factors, a
particular security may be bought for one or more funds or clients when one or
more other funds or clients are selling the same security. If opportunities for
purchase or sale of securities by the Adviser for the Fund or for other funds or
clients for which the Adviser renders investment advice arise for consideration
at or about the same time, transactions in such securities will be made, insofar
as feasible, for the respective funds or clients in a manner deemed equitable to
all of them. To the extent that transactions on behalf of more than one client
of the Adviser or its affiliates may increase the demand for securities being
purchased or the supply of securities being sold, there may be an adverse effect
on price.
Pursuant to its Advisory Agreement, the Adviser is not liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the matters to which the Advisory Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Adviser in the performance of its duties or from reckless disregard by the
Adviser of its obligations and duties under the Advisory Agreement.
25
<PAGE>
Under the Advisory Agreement, the Fund may use the name "John Hancock" or any
name derived from or similar to it only for so long as the Advisory Agreement or
any extension, renewal or amendment thereof remains in effect. If the Advisory
Agreement is no longer in effect, the Fund (to the extent permitted by law) will
cease to use such a name or any other name indicating that it is advised by or
otherwise connected with the Adviser. In addition, the Adviser or the Life
Company may grant the nonexclusive right to use the name "John Hancock" or any
similar name to any other corporation or entity, including but not limited to
any investment company of which the Life Company or any subsidiary or affiliate
thereof or any successor to the business of any subsidiary or affiliate thereof
shall be the investment adviser.
The continuation of the Advisory Agreement and the Distribution Agreement was
approved by all Trustees. The Advisory Agreement and 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. Each agreement 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.
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 $248,703, $345,059 and $264,274, 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. In the case of the Adviser, 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 at the time of sale from a sales charge imposed, in the case of
Class A shares, at the time of sale. In the case of Class B and 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 periods ended October 31, 1998, 1997 and 1996 were $1,050,785, $3,592,665
and $10,815,398, respectively, and $137,920, $560,137 and $1,662,406,
respectively, were retained by John Hancock Funds in 1998, 1997 and 1996,
respectively. The remainder of the underwriting commissions were reallowed to
Selling Brokers.
The Fund's Trustees adopted Distribution Plans with respect to Class A and Class
B shares (the "Plans") pursuant to Rule 12b-1 under the Investment Company Act
of 1940. Under the Plans, the Fund will pay distribution and service fees at an
aggregate annual rate of up to 0.30% for Class A 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
26
<PAGE>
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 engaged in the sale of Fund shares; (ii) marketing, promotional and
overhead expenses incurred in connection with the distribution of Fund shares;
and (iii) with respect to Class B and Class C shares only, interest expenses on
unreimbursed distribution expenses. The service fees will be used to compensate
Selling Brokers and others for providing personal and account maintenance
services to shareholders. In the event 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 Plan will be
carried forward together with interest on the balance of these unreimbursed
expenses. The Fund does not treat unreimbursed expenses under the Class B or
Class C Plans as a liability of the Fund because the Trustees may terminate the
Class B or Class C Plans at any time. For the fiscal year ended October 31,
1998, an aggregate of $24,295.911 of distribution expenses or 4.97% 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. Class C shares did not commence operations
until March 1, 1999; therefore, there are no unreimbursed expenses to report.
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 these 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 and Class B shares have exclusive voting rights with respect
to the Plan applicable to their respective class of shares. In adopting the
Plans, the Trustees concluded that, in their judgment, there is a reasonable
likelihood that the Plans will benefit the holders of the applicable class of
shares of the Fund.
Amounts paid to John Hancock Funds by any class of shares of the Fund will not
be used to pay the expenses incurred with respect to any other class of shares
of the Fund; provided, however, that expenses attributable to the Fund as a
whole will be allocated, to the extent permitted by law, according to a formula
based upon gross sales dollars and/or average daily net assets of each such
class, as may be approved from time to time by vote of a majority of Trustees.
From time to time, the Fund may participate in joint distribution activities
with other Funds and the costs of those activities will be borne by each Fund in
proportion to the relative net asset value of the participating Fund.
27
<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 of the Fund.
Class C shares did not commence operations until March 1, 1999; therefore, there
are no expenses to report.
<TABLE>
<CAPTION>
Expense Items
-------------
Printing and Interest
Mailing of Expenses of Carrying or
Prospectus to Compensation John Other
New to Selling Hancock Finance
Advertising Shareholders Brokers Funds Charges
----------- ------------ ------- ----- -------
<S> <C> <C> <C> <C> <C>
Class A shares $244,398 $27,169 $1,012,560 $ 665,915 0
Class B shares $460,880 $58,120 $3,222,522 $1,223,695 $2,475,131
</TABLE>
Class Y 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 Y shares will be paid by the Adviser or by John Hancock Funds and
will not be paid from the fees paid under Class A or Class B Plans.
SALES COMPENSATION
As part of their business strategies, each of the John Hancock funds, along with
John Hancock Funds, pay compensation to financial services firms that sell the
funds' shares. These firms typically pass along a portion of this compensation
to your financial representative.
Compensation payments originate from two sources: from sales charges and from
12b-1 fees that are paid out of the funds' assets. 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.
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.
28
<PAGE>
<TABLE>
<CAPTION>
Maximum First year
Sales charge Reallowance service fee Maximum
paid by investors or commission (% of net total compensation (1)
Class A investments (% of offering price) (% of offering price) investment) (% of offering price)
- ------------------- --------------------- --------------------- ----------- ---------------------
<S> <C> <C> <C> <C>
Up to $49,999 5.00% 4.01% 0.25% 4.25%
$50,000 - $99,999 4.50% 3.51% 0.25% 3.75%
$100,000 - $249,999 3.50% 2.61% 0.25% 2.85%
$250,000 - $499,999 2.50% 1.86% 0.25% 2.10%
$500,000 - $999,999 2.00% 1.36% 0.25% 1.60%
Regular investments of
$1 million or more
First $1M - $4,999,999 -- 0.75% 0.25% 1.00%
Next $1 - $5M above that -- 0.25% 0.25% 0.50% (2)
Next $1 or more above that -- 0.00% 0.25% 0.25% (2)
Maximum First year
Reallowance service fee Maximum
or commission (% of net total compensation
Class B investments (% of offering price) investment) (% of offering price)
- ------------------- --------------------- ------------ ---------------------
All amounts 3.75% 0.25% 4.00%
Maximum First year
Reallowance service fee Maximum
or commission (% of net total compensation
Class C investments (% of offering price) investment) (% 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 Program 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).
CDSC revenues collected by John Hancock Funds may be used to pay commissions
when there is no initial sales charge.
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of the Fund's shares,
the following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished by a
principal market maker or a pricing service, both of which generally utilize
electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices.
Equity securities traded on a principal exchange or NASDAQ National Market
Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned category for which no sales are reported and
other securities traded over-the-counter are generally valued at the last
available bid price.
29
<PAGE>
Short-term debt investments which have a remaining maturity of 60 days or less
are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
Foreign securities are valued on the basis of quotations from the primary market
in which they are traded. Any assets or liabilities expressed in terms of
foreign currencies are translated into U.S. dollars by the custodian bank based
on London currency exchange quotations as of 5:00 p.m., London time (12:00 noon,
New York time) on the date of any determination of the Fund's NAV. If quotations
are not readily available, or the value has been materially affected by events
occurring after the closing of a foreign market, assets are valued by a method
that the Trustees believe accurately reflects fair value.
The NAV for each fund and class is determined each business day at the close of
regular trading on the New York Stock Exchange (typically 4:00 p.m. Eastern
Time) by dividing a class's net asset by the number of its shares outstanding.
On any day an international market is closed and the New York Stock Exchange is
open, any foreign securities will be valued at the prior day's close with the
current day's exchange rate. Trading of foreign securities may take place on
Saturdays and U.S. business holidays on which the Fund's NAV is not calculated.
Consequently, the Fund's portfolio securities may trade and the NAV of the
Fund's redeemable securities may be significantly affected on days when a
shareholder has no access to the Fund.
INITIAL SALES CHARGE ON CLASS A SHARES
Shares of the Fund are offered at a price equal to their net asset value plus a
sales charge which, at the option of the purchaser, may be imposed either at the
time of purchase (the "initial sales charge alternative") or on a contingent
deferred basis (the "deferred sales charge alternative"). Share certificates
will not be issued unless requested by the shareholder in writing, and then they
will only be issued for full shares. The Trustees reserve the right to change or
waive the Fund's minimum investment requirements and to reject any order to
purchase shares (including purchase by exchange) when in the judgment of the
Adviser such rejection is in the Fund's best interest.
The sales charges applicable to purchases of Class A shares of the Fund are
described in the Class A and Class B Prospectus. Methods of obtaining reduced
sales charges referred to generally in the Class A and Class B 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.
30
<PAGE>
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.
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 to $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.
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<PAGE>
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.
Letter of Intention. Reduced sales charges are also applicable to investments
pursuant to a Letter of Intention (the "LOI"), which should be read carefully
prior to its execution by an investor. The Fund offers two options regarding the
specified period for making investments under the LOI. All investors have the
option of making their investments over a specified period of thirteen (13)
months. Investors who are using the Fund as a funding medium for a retirement
plan, however, may opt to make the necessary investments called for by the LOI
over a forty-eight (48) month period. These retirement plans include
traditional, Roth 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. An 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 applied (including accumulations and combinations) had the
LOI been for the amount actually invested.
The LOI authorizes Signature Services to hold in escrow a number of Class A
shares (approximately 5% of the aggregate) sufficient to make up any difference
in sales charges on the amount intended to be invested and the amount actually
invested, until such investment is completed within the specified period, at
which time the escrowed Class A shares will be released. If the total investment
specified in the LOI is not completed, the Class A shares held in escrow may be
redeemed and the proceeds used as required to pay such sales charge as may be
due. By signing the LOI, the investor authorizes Signature Services to act as
his or her attorney-in-fact to redeem any escrowed Class A shares and adjust the
sales charge, if necessary. A LOI does not constitute a binding commitment by an
investor to purchase, or by the Fund to sell, any additional Class A shares and
may be terminated at any time.
Because Class Y shares are sold at net asset value without the imposition of any
sales charge, none of the privileges described under these captions is available
to Class Y investors, with the following exception:
32
<PAGE>
Combination Privilege. As is explained in the Prospectus for Class Y shares, a
Class Y 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 or her current and prior investments in Class Y shares of the Fund
and Class Y shares of any other John Hancock fund 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 an initial sales charge so that the Fund will
receive the full amount of the purchase payment.
Contingent Deferred Sales Charge. Class B and Class C shares which are redeemed
within six years or one year of purchase, respectively will be subject to a CDSC
at the rates set forth in the Class A and Class B 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.
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 this 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.
33
<PAGE>
Example:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment. If
you redeem 50 shares at this time your CDSC will be calculated as follows:
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 lot not just the shares
being redeemed.
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or
in part by John Hancock Funds to defray its expenses related to providing
distribution-related services to the Fund in connection with the sale of the
Class B and Class C shares, such as the payment of compensation to select
Selling Brokers for selling Class B and Class C shares. The combination of the
CDSC and the distribution and service fees facilitates the ability of the Fund
to sell the Class B and Class C shares without a sales charge being deducted at
the time of the purchase.
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B and Class C shares and of Class A shares that are subject
to 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" in the Prospectus.
* Redemptions where the proceeds are used to purchase a John Hancock
Declaration Variable annuity.
* Redemptions of Class B shares made under a periodic withdrawal plan, or
redemptions for fees charged by planners, advisors for advisory
services, as long as your annual redemptions do not exceed 12% of your
account value, including reinvested dividends, at the time you
established your periodic withdrawal plan and 12% of the value of
subsequent investments (less redemptions) in that account at the time
you notify Signature Services. (Please note that this waiver does not
apply to periodic withdrawal plan redemptions of Class A shares that
are subject to a CDSC.)
* 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.
34
<PAGE>
* 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 and Education IRAs, SIMPLE
IRA, SIMPLE 401(k), Rollover IRA, TSA, 457, 403(b), 401(k), Money Purchase
Pension Plan, Profit-Sharing Plan and other plans as described in the Internal
Revenue Code) unless otherwise noted.
* Redemptions made to effect mandatory or life expectancy distributions
under the Internal Revenue Code.
* Returns of excess contributions made to these plans.
* Redemptions made to effect distributions to participants or
beneficiaries from employer sponsored retirement plans under sections
401(a) (such as Money Purchase Pension Plans and Profit Sharing
Plan/401(k) Plans), 457 and 408 (SEPs and SIMPLE IRAs) of the Internal
Revenue Code.
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain IRA plans that purchased shares
prior to May 15, 1995.
Please see matrix for some examples.
35
<PAGE>
<TABLE>
<CAPTION>
CDSC Waiver Matrix for Class B and Class C
<S> <C> <C> <C> <C> <C>
- ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Type of 401 (a) Plan 403 (b) 457 IRA, IRA Non-
Distribution (401 (k), Rollover retirement
MPP, PSP)
- ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Death or Waived Waived Waived Waived Waived
Disability
- ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
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 Not Waived Not Waived Not Waived Not Waived N/A
Plan
- ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
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 Waived Waived Waived Waived N/A
Excess
- ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
</TABLE>
If you qualify for a CDSC waiver under one of these situations, you must notify
Signature Services at the time you make your redemption. The waiver will be
granted once Signature Services has confirmed that you are entitled to the
waiver.
36
<PAGE>
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion, the shareholder will incur a brokerage
charge. Any such securities would be valued for the purposes of making such
payment at the same value as used in determining net asset value. The Fund has,
however, elected to be governed by Rule 18f-1 under the Investment Company Act.
Under that rule, the Fund must redeem its shares for cash except to the extent
that the redemption payments to any shareholder during any 90-day period would
exceed the lesser of $250,000 or 1% of the Fund's net asset value at the
beginning of such period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. The Fund permits exchanges of shares of any class of a fund
for shares of the same class in any other John Hancock fund offering that class.
Exchanges between funds with shares that are not subject to a CDSC are based on
their respective net asset values. No sales charge or transaction charge is
imposed. Shares of the Fund which are subject to a CDSC may be exchanged into
shares of any of the other John Hancock funds that are subject to a CDSC without
incurring the CDSC; however, the shares acquired in an exchange will be subject
to the CDSC schedule of the shares acquired if and when such shares are redeemed
(except that shares exchanged into John Hancock Short-Term Strategic Income Fund
and John Hancock Intermediate Maturity Government Fund will retain the exchanged
fund's CDSC schedule). For purposes of computing the CDSC payable upon
redemption of shares acquired in an exchange, the holding period of the original
shares is added to the holding period of the shares acquired in an exchange.
If a shareholder exchanges Class B shares purchased prior to January 1, 1994
(except John Hancock Short-Term Strategic Income Fund) for Class B shares of any
other John Hancock fund, the acquired shares will continue to be subject to the
CDSC schedule that was in effect when the exchanged shares were purchased.
The Fund reserves the right to require that previously exchanged shares (and
reinvested dividends) be in the Fund for 90 days before a shareholder is
permitted a new exchange.
The Fund may refuse any exchange order. The Fund may change or cancel its
exchange policies at any time, upon 60 days' notice to its shareholders.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares of another for Federal Income Tax purposes. An exchange may
result in a taxable gain or loss. See "TAX STATUS".
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.
37
<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 processing date of any investment.
Reinstatement or Reinvestment Privilege. If Signature Services is notified prior
to reinvestment, a shareholder who has redeemed Fund shares may, within 120 days
after the date of redemption, reinvest without payment of a sales charge any
part of the redemption proceeds in shares of the same class of the Fund or
another John Hancock fund, subject to the minimum investment limit of that fund.
The proceeds from the redemption of Class A shares may be reinvested at net
asset value without paying a sales charge in Class A shares of the Fund or in
Class A shares of any John Hancock fund. If a CDSC was paid upon a redemption, a
shareholder may reinvest the proceeds from this redemption at net asset value in
additional shares of the class from which the redemption was made. The
shareholder's account will be credited with the amount of 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.
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).
38
<PAGE>
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Fund 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 not authorized any additional series other than
the Fund, although they may do so in the future. The Declaration of Trust also
authorizes the Trustees to classify and reclassify the shares of the Fund, or
any new series of the Fund, into one or more classes. The Trustees have also
authorized the issuance of four classes of shares of the Fund, designated as
Class A, Class B, Class C and Class Y.
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.
Class Y shares of the Fund are offered only to certain institutional investors
as described in the Fund's Prospectuses. Some individual investors who are
currently eligible to purchase Class A and Class B shares may also be
participants in "participant-directed plans" (as defined in the Prospectuses)
that are eligible to purchase Class Y shares. 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 shares will be borne
exclusively by that class; (ii) Class B shares will pay higher distribution and
service fees than Class A shares and (iii) each of class of shares will bear any
class expenses properly allocable to that class of shares, subject to the
conditions the Internal Revenue Service imposes with respect to the
multiple-class structures. Similarly, the net asset value per share may vary
depending which class of shares are purchased. No interest will be paid on
uncashed dividend or redemption checks.
In the event of liquidation, shareholders are entitled to share pro rata in the
net assets of the Fund available for distribution to such shareholders. Shares
entitle their holders to one vote per share, are freely transferable and have no
preemptive, subscription or conversion rights. When issued, shares are fully
paid and non-assessable by the Fund, except as set forth below.
Unless otherwise required by the Investment Company Act or the Declaration of
Trust, the Fund has no intention of holding annual meetings of shareholders.
Fund shareholders may remove a Trustee by the affirmative vote of at least
two-thirds of the Fund's outstanding shares and the Trustees shall promptly call
a meeting for such purpose when requested to do so in writing by the record
holders of not less than 10% of the outstanding shares of the Fund. Shareholders
may, under certain circumstances, communicate with other shareholders in
connection with a request for a special meeting of shareholders. However, at any
time that less than a majority of the Trustees holding office were elected by
the shareholders, the Trustees will call a special meeting of shareholders for
the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the Fund. However, the Fund'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. Furthermore, no Fund
included in this Fund's prospectus shall be liable for the liabilities of any
other John Hancock Fund. Liability is therefore limited to circumstances in
which the Fund itself would be unable to meet its obligations, and the
possibility of this occurrence is remote.
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<PAGE>
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% nondeductible Federal excise tax on certain
amounts not distributed (and not treated as having been distributed) on a timely
basis in accordance with annual minimum distribution requirements. The Fund
intends under normal circumstances to seek to avoid or minimize liability for
such tax by satisfying such distribution requirements.
Distributions from the Fund's current or accumulated earnings and profits
("E&P") will be taxable under the Code for investors who are subject to tax. If
these distributions are paid from the Fund's "investment company taxable
income," they will be taxable as ordinary income; and if they are paid from the
Fund's "net capital gain," they will be taxable as long term capital gain. (Net
capital gain is the excess (if any) of net long-term capital gain over net
short-term capital loss, and investment company taxable income is all taxable
income and capital gains, other than 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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<PAGE>
Distributions, if any, in excess of E&P will constitute a return of capital
under the Code, which will first reduce an investor's federal tax basis in Fund
shares and then, to the extent such basis is exceeded, will generally give rise
to capital gains. Shareholders who have chosen automatic reinvestment of their
distributions will have a federal tax basis in each share received pursuant to
such a reinvestment equal to the amount of cash they would have received had
they elected to receive the distribution in cash, divided by the number of
shares received in the reinvestment.
The amount of the Fund's net realized capital gains, if any, in any given year
will vary depending upon the current investment strategy of the Adviser 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, forward
transactions or derivatives that will generate capital gains. At the time of an
investor's purchase of Fund shares, a portion of the purchase price is often
attributable to realized or unrealized appreciation in the Fund's portfolio or
undistributed taxable income of the Fund. Consequently subsequent distributions
on those shares from such appreciation or income may be taxable to such investor
even if the net asset value of the investor's shares is, as a result of the
distributions, reduced below the investor's cost for such shares, and the
distributions in reality represent a 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. This disregarded charge will result in an increase in the
shareholder's tax basis in the shares subsequently acquired. Also, any loss
realized on a redemption or exchange may be disallowed to the extent the shares
disposed of are replaced with other shares of the Fund within a period of 61
days beginning 30 days before and ending 30 days after the shares are disposed
of, such as pursuant to automatic dividend reinvestments. In such a case, the
basis of the shares acquired will be adjusted to reflect the disallowed loss.
Any loss realized upon the redemption of shares with a tax holding period of six
months or less will be treated as a long-term capital loss to the extent of any
amounts treated as distributions of long-term capital gain with respect to such
shares. Shareholders should consult their own tax advisers regarding their
particular circumstances to determine whether a disposition of Fund shares is
properly treated as a sale for tax purposes, as is assumed in the foregoing
discussion.
Although its present intention is to distribute, at least annually, all net
capital gain, if any, the Fund reserves the right to retain and reinvest all or
any portion of the excess, as computed for Federal income tax purposes, of net
long-term capital gain over net short-term capital loss in any year. The Fund
will not in any event distribute net capital gain realized in any year to the
extent that a capital loss is carried forward from prior years against such
gain. To the extent such 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.
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<PAGE>
For Federal income tax purposes, the Fund is permitted to carry forward a net
realized capital loss in any year to offset net capital gains, if any, during
the eight years following the year of the loss. To the extent subsequent net
capital gains are offset by such losses, they would not result in Federal income
tax liability to the Fund and, as noted above, would not be distributed as such
to shareholders. The Fund has does not have any capital loss carryforwards.
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.
For purposes of the dividends-received deduction available to corporations,
dividends received by the Fund, if any, from U.S. domestic corporations in
respect of the stock of such corporations held by the Fund, for U.S. Federal
income tax purposes, for at least 46 days (91 days in the case of certain
preferred stock) during a prescribed period extending before and after each
dividend and distributed and properly designated by the Fund may be treated 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 Fund shares, may be denied a
portion of the dividends received deduction. The entire qualifying dividend,
including the otherwise-deductible amount, will be included in determining the
excess (if any) of a corporate shareholder's adjusted current earnings over its
alternative minimum taxable income, which may increase its alternative minimum
tax liability. Additionally, any corporate shareholder should consult its tax
adviser regarding the possibility that its basis in its shares may be reduced,
for Federal income tax purposes, by reason of "extraordinary dividends" received
with respect to the shares and, to the extent such basis would be reduced below
zero, that current recognition of income would be required.
If the Fund invests in stock (including an option to acquire stock as is
inherent in a convertible bond) of certain foreign corporations that receive at
least 75% of their annual gross income from passive sources (such as interest,
dividends, certain rents and royalties or capital gain) or hold at least 50% of
their assets in investments producing such passive income ("passive foreign
investment companies"), the Fund could be subject to federal income tax and
additional interest charges on "excess distributions" received from such
companies or gain from the sale of stock in such companies, even if all income
or gain actually received by the Fund is timely distributed to its shareholders.
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,
foreign currency forward contracts, foreign currencies, or payables or
receivables denominated in foreign currency are subject to Section 988 of the
Code, which generally causes such gains and losses to be treated as ordinary
income and losses and may affect the amount, timing and character of
distributions to shareholders. Transactions in foreign currencies that are not
directly-related to the Fund's investment in stock or securities, including
speculative currency positions could under future Treasury regulations produce
income not among the types of "qualifying income" from which the Fund must
derive at least 90% of its gross income 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.
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<PAGE>
Limitations imposed by the Code on regulated investment companies like the Fund
may restrict the Fund's ability to enter into options and 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 applicable to options, futures or forward
contracts, including consideration of available elections, in order to seek to
minimize any potential adverse tax consequences.
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.
Investors may be entitled to claim U.S. foreign tax credits or deductions with
respect to foreign income taxes or certain other foreign taxes ("qualified
foreign taxes"), paid by the Fund subject to certain provisions and limitations
contained in the Code, if the Fund so elects. If more than 50% of the value of
the Fund's total assets at the close of any taxable year consists of stock or
securities of foreign corporations, the Fund may file an election with the
Internal Revenue Service pursuant to which shareholders of the Fund will be
required to (i) include in ordinary gross income (in addition to taxable
dividends and distributions actually received) their pro rata shares of
qualified foreign taxes paid by the Fund even though not actually received by
them, and (ii) treat such respective pro rata portions as qualified foreign
taxes paid by them.
If the Fund makes this election, shareholders may then deduct such pro rata
portions of qualified foreign taxes in computing their taxable incomes, or,
alternatively, use them as foreign tax credits, subject to applicable
limitations, against their U.S. Federal income taxes. Shareholders who do not
itemize deductions for Federal income tax purposes will not, however, be able to
deduct their pro rata portion of qualified foreign taxes paid by the Fund,
although such shareholders will be required to include their share of such taxes
in gross income. Shareholders who claim a foreign tax credit for such foreign
taxes may be required to treat a portion of dividends received from the Fund as
a separate category of income for purposes of computing the limitations on the
foreign tax credit. Tax-exempt shareholders will ordinarily not benefit from
this election. Each year (if any) that the Fund files the election described
above, its shareholders will be notified of the amount of (i) each shareholder's
pro rata share of qualified foreign taxes paid by the Fund and (ii) the portion
of Fund dividends which represents income from each foreign country. If the Fund
does not satisfy the 50% requirement described above or otherwise does not make
the election, the Fund will deduct the foreign taxes it pays in determining the
amount it has available for distribution to shareholders, and shareholders will
not include these foreign taxes in their income, nor will they be entitled to
any tax deductions or credits with respect to such taxes.
43
<PAGE>
The Fund is required to accrue income on any debt securities that have more than
a de minimis amount of original issue discount (or debt securities acquired at a
market discount, if the Fund elects to include market discount in income
currently) prior to the receipt of the corresponding cash payments. The mark to
market or constructive sale rules applicable to certain options, futures,
forwards, short sales or other transactions may also require the Fund to
recognize income or gain without a concurrent receipt of cash. Additionally,
some countries restrict repatriation which may make it difficult or impossible
for the Fund to obtain cash corresponding to its earnings or assets in those
countries. However, the Fund must distribute to shareholders for each taxable
year substantially all of its net income and net capital gains, including such
income or gain, to qualify as a regulated investment company and avoid liability
for any federal income or excise tax. Therefore, the Fund may have to dispose of
its portfolio securities under disadvantageous circumstances to generate cash,
or borrow the cash to satisfy these distribution requirements.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent (if any) the Fund's distributions
are derived from interest on (or, in the case of intangible property taxes, the
value of its assets is attributable to) certain U.S. Government obligations,
provided in some states that certain thresholds for holdings of such obligations
and/or reporting requirements are satisfied. The Fund will not seek to satisfy
any threshold or reporting requirements that may apply in particular taxing
jurisdictions, although it may in its sole discretion provide relevant
information to shareholders.
The Fund will be required to report to the Internal Revenue Service (the "IRS")
all taxable distributions to shareholders, as well as gross proceeds from the
redemption or exchange of Fund shares, except in the case of certain exempt
recipients, i.e., corporations and certain other investors distributions to
which are exempt from the information reporting provisions of the Code. Under
the backup withholding provisions of Code Section 3406 and applicable Treasury
regulations, all such reportable distributions and proceeds may be subject to
backup withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the Fund with their correct taxpayer
identification number and certain certifications required by the IRS or if the
IRS or a broker notifies the Fund that the number furnished by the shareholder
is incorrect or that the shareholder is subject to backup withholding as a
result of failure to report interest or dividend income. 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.
Non-U.S. investors not engaged in a U.S. trade or business with which their Fund
investment is effectively connected will be subject to U.S. Federal income tax
treatment that is different from that described above. These investors may be
subject to non-resident alien withholding tax at the rate of 30% (or a lower
rate under an applicable tax treaty) on amounts treated as ordinary dividends
from the Fund and, unless an affective IRS Form W-8 or authorized substitute for
Form W-8 is on file, 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.
44
<PAGE>
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
Massachusetts income tax.
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 shares of the Fund may
also be subject to state and local taxes. Shareholders should consult their own
tax advisers as to the Federal, state or local tax consequences of ownership of,
and receipt of distribution from, shares of the Fund in their particular
circumstances.
CALCULATION OF PERFORMANCE
The average annual total return on Class A shares of the Fund for the 1 year, 5
year and 10 year periods ended October 31, 1998 was -27.07%, 3.95%, and 15.81%,
respectively.
The average annual total return on Class B shares of the Fund for the 1 year, 5
years and since inception on March 1, 1993 was -27.60% and 8.69%, respectively.
The average annual total return on Class Y shares of the Fund for the 1 year, 5
years and since inception on September 1, 1993 was -22.90%, 5.52% and 6.99%,
respectively.
Class C shares commenced operations on March 1, 1999; therefore, there is not
average total return to report.
The Fund's total return is computed by finding the average annual compounded
rate of return over the 1 year, 5 year and 10 year periods that would equate the
initial amount invested to the ending redeemable value according to the
following formula:
n ______
T = \ / ERV/P - 1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment made at
the beginning of the 1 year, 5 year and 10 year periods.
Because each class has its own sales charge and fee structures, 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.
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<PAGE>
In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Cumulative total returns may be quoted as a percentage or
as a dollar amount, and may be calculated for a single investment, a series of
investments, and/or a series of redemptions, over any time period. Total returns
may be quoted with or without taking the Fund's sales charge on Class A shares
or the CDSC on Class B or Class C shares into account. Excluding the Fund's
sales charge on Class A shares and the CDSC on Class B or Class C shares from a
total return calculation produces a higher total return figure.
The Fund may advertise yield, where appropriate. The Fund's yield is computed by
dividing net investment income per share determined for a 30-day period by the
maximum offering price per share (which includes the full sales charge) on the
last day of the period, according to the following standard formula:
6
Yield = 2 ( [ ( a - b ) + 1 ] - 1 )
-----
cd
Where:
a = dividends and interest earned during the period.
b = net expenses accrued during the period.
c = the average daily number of fund shares outstanding during
the period that would be entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period (NAV where applicable).
From time to time, in reports and promotional literature, the Fund's total
return will be ranked or compared to indices of mutual funds such as Lipper
Analytical Services, Inc.'s "Lipper -Mutual Performance Analysis," a monthly
publication which tracks net assets, total return, and yield on equity 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, Barron's, and Stanger's may also be
utilized. The Fund's promotional and sales literature may make reference to the
Fund's "beta". Beta is a reflection of the market related risks 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.
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<PAGE>
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities of the Fund
and the allocation of brokerage commission are made by officers of the Fund
pursuant to recommendations made by an investment committee of the Adviser,
which consists of officers and directors of the Adviser and 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 officers of
the Fund, will offer the best price and market for the execution of each such
transaction. Purchases from underwriters of portfolio securities may include a
commission or commissions paid by the issuer, and transactions with dealers
serving as market maker 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.
The Fund's primary policy is to execute all purchases and sales of portfolio
instruments at the most favorable prices consistent with best execution,
considering all of the costs of the transaction including brokerage commissions.
This policy governs the selection of brokers and dealers and the market in which
a transaction is executed. Consistent with the foregoing primary policy, the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
and such other policies as the Trustees may determine, the Adviser may consider
sales of shares of the Fund as a factor in the selection of broker-dealers to
execute the Fund's portfolio transactions.
To the extent consistent with the foregoing, the Fund will be governed in the
selection of brokers and dealers, and the negotiation of brokerage commission
rates and dealer spreads, by the reliability and quality of the services,
including primarily the availability and value of research information and to a
lesser extent statistical assistance furnished to the Adviser of the Fund, and
their value and expected contribution to the performance of the Fund. It is not
possible to place a dollar value on information and services to be received from
brokers and dealers, since it is only supplementary to the research efforts of
the Adviser. The receipt of research information is not expected to reduce
significantly the expenses of the Adviser. The research information and
statistical assistance furnished by brokers and dealers may benefit the Life
Company or other advisory clients of the Adviser, and conversely, brokerage
commissions and spreads paid by other advisory clients of the Adviser may result
in research information and statistical assistance beneficial to the Fund. The
Fund will make no commitments to allocate portfolio transactions upon any
prescribed basis. While the Adviser's officers will be primarily responsible for
the allocation of the Fund's brokerage business, the policies and practices of
the Adviser in this regard must be consistent with the foregoing and at all
times be subject to review by the Trustees. For the years ended on October 31,
1998, 1997 and 1996, the Fund paid negotiated brokerage commissions of
$4,044,795, $1,279,921 and $1,298,680, respectively.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund
may pay a broker which provides brokerage and research services to the Fund an
amount of disclosed commission in excess of the commission which another broker
would have charged for effecting that transaction. This practice is subject to a
good faith determination by the Trustees that such price is reasonable in light
of the services provided and to such policies as the Trustees may adopt from
time to time. During the fiscal year ended October 31, 1998, the Fund paid
$879,929 in commissions to compensate brokers for research services such as
industry and company reviews and evaluations of the securities.
47
<PAGE>
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of Signator Investors, Inc., a broker-dealer ("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 Affiliated Broker. During the
year ended October 31, 1998, 1997 and 1996, the Fund did not execute any
portfolio transactions with 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 for its other most favored,
but unaffiliated, customers, except for accounts for which the Affiliated Broker
acts as clearing broker for another brokerage firm, and any customers of the
Affiliated Broker not comparable to the Fund as determined by a majority of the
Trustees who are not interested persons (as defined in the Investment Company
Act) of the Fund, the Adviser or the Affiliated Broker. Because the Adviser,
which is affiliated with the Affiliated 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, this investment procedure may adversely affect the price paid or
received by the Fund or the size of the position obtainable for it. On the other
hand, to the extent permitted by law, the Adviser may aggregate securities to be
sold or purchased for the Fund with those to be sold or purchased for other
clients managed by it in order to obtain best execution.
TRANSFER AGENT SERVICES
John Hancock Signature Services, Inc., 1 John Hancock Way, Suite 1000, Boston,
MA 02217-1000, a wholly-owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent for the Fund. The Fund pays Signature
Services an annual fee of $19.00 for each Class A shareholder account, $21.50
for each Class B shareholder account, $20.50 for each Class C shareholder
account and 0.10% of the average daily net assets attributable to the Class Y
shares. The Fund also pay 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 value
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 Company performs custody, portfolio and fund accounting services.
48
<PAGE>
INDEPENDENT AUDITORS
Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts 02116, has been
selected as the independent auditors of the Fund. The financial statements of
the Fund included in the Prospectus and this Statement of Additional Information
have been audited by Ernst & Young LLP for the periods indicated in their
report, appearing elsewhere herein, and have been included in reliance on their
report as experts in accounting and auditing.
49
<PAGE>
APPENDIX A
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's primary securities and
investment practices. You may find the most concise description of the fund's
risk profile in the prospectus.
A fund is permitted to utilize -- within limits established by the trustees --
certain other securities and investment practices that have higher risks and
opportunities associated with them. To the extent that the Fund utilizes these
securities or practices, its overall performance may be affected, either
positively or negatively. On the following pages are brief definitions of
certain associated risks with them with examples of related securities and
investment practices included in brackets. See the "Investment Objective and
Policies" and "Investment Restrictions" sections of this Statement of Additional
Information for a description of this Fund's investment policies. The Fund
follows certain policies that may reduce these risks.
As with any mutual fund, there is no guarantee that the Fund will earn income or
show a positive return over any period of time -- days, months or years.
TYPES OF INVESTMENT RISK
Correlation risk The risk that changes in the value of a hedging instrument will
not match those of the asset being hedged (hedging is the use of one investment
to offset the effects of another investment). Incomplete correlation can result
in unanticipated risks. (e.g., short sales, financial futures and options;
securities and index options, currency contracts).
Credit risk The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation. (e.g., borrowing; reverse repurchase agreements, repurchase
agreements, securities lending, non-investment-grade securities, financial
futures and options; securities and index options).
Currency risk The risk that fluctuations in the exchange rates between the U.S.
dollar and foreign currencies may negatively affect an investment. Adverse
changes in exchange rates may erode or reverse any gains produced by foreign
currency denominated investments and may widen any losses. (e.g., foreign
equities, financial futures and options; securities and index options, currency
contracts).
Information risk The risk that key information about a security or market is
inaccurate or unavailable. (e.g., non-investment-grade securities, foreign
equities).
Interest rate risk The risk of market losses attributable to changes in interest
rates. With fixed-rate securities, a rise in interest rates typically causes a
fall in values, while a fall in rates typically causes a rise in values. (e.g.,
non-investment-grade securities, financial futures and options; securities and
index options).
Leverage risk Associated with securities or practices (such as borrowing) that
multiply small index or market movements into large changes in value. (e.g.,
borrowing; reverse repurchase agreements, when-issued securities and forward
commitments).
o Hedged When a derivative (a security whose value is based on another
security or index) is used as a hedge against an opposite position that the
fund also holds, any loss generated by the derivative 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).
A-1
<PAGE>
o Speculative To the extent that a derivative is not used as a hedge, the
fund is directly exposed to the risks of that derivative. Gains or losses
from speculative positions in a derivative may be substantially greater
than the derivative's original cost. (e.g., short sales, financial futures
and options securities and index options; currency contracts).
o Liquidity risk The risk that certain securities may be difficult or
impossible to sell at the time and the price that the seller would like.
The seller may have to lower the price, sell other securities instead or
forego an investment opportunity, any of which could have a negative effect
on fund management or performance. (e.g., non-investment-grand securities,
short sales, restricted and illiquid securities, financial futures and
options securities and index options; currency contracts).
Management risk The risk that a strategy used by a fund's management may fail to
produce the intended result. Common to all mutual funds.
Market risk The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. These fluctuations may cause a security to
be worth less than the price originally paid for it, or less than it was worth
at an earlier time. Market risk may affect a single issuer, industry, sector of
the economy or the market as a whole. Common to all stocks and bonds and the
mutual funds that invest in them. (e.g., short sales, short-term trading,
when-issued securities and forward commitments, non-investment-grade securities,
foreign equities, financial futures and options; securities and index options
restricted and illiquid securities).
Natural event risk The risk of losses attributable to natural disasters, crop
failures and similar events. (e.g., foreign equities).
Opportunity risk The risk of missing out on an investment opportunity because
the assets necessary to take advantage of it are tied up in less advantageous
investments. (e.g., short sales, when-issued securities and forward commitments;
financial futures and options; securities and index options, currency
contracts).
Political risk The risk of losses attributable to government or political
actions, from changes in tax or trade statutes to governmental collapse and
war.(e.g., foreign equities).
Valuation risk The risk that a fund has valued certain of its securities at a
higher price than it can sell them for. (e.g., non-investment-grade securities,
restricted and illiquid securities).
A-2
<PAGE>
APPENDIX B
RATINGS
Bonds.
Standard & Poor's Bond Ratings
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal, and differs from the highest rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
To provide more detailed indications of credit quality, the ratings AA to BBB
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
A provisional rating, indicated by "p" following a rating, is sometimes used by
Standard & Poor's. It assumes the successful completion of the project being
financed by the issuance of the bonds being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion, makes no comment on the likelihood of,
or the risk of default upon failure of, such completion.
Moody's Bond Ratings
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge". Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues. Generally speaking, the safety of
obligations of this class is so absolute that with the occasional exception of
oversupply in a few specific instances, characteristically, their market value
is affected solely by money market fluctuations.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities. The market
value of Aa bonds is virtually immune to all but money market influences, with
the occasional exception of oversupply in a few specific instances.
B-1
<PAGE>
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Rating symbols may include numerical modifiers 1, 2 or 3. The numerical modifier
1 indicates that the security ranks at the high end, 2 in the mid-range, and 3
nearer the low end, of the generic category. These modifiers of rating symbols
Aa, A and Baa are to give investors a more precise indication of relative debt
quality in each of the historically defined categories.
Conditional ratings, indicated by "Con", are sometimes given when the security
for the bond depends upon the completion of some act or the fulfillment of some
condition. Such bonds, are given a conditional rating that denotes their
probably credit statute upon completion of that act or fulfillment of that
condition.
Rating symbols may include numerical modifiers 1, 2 or 3. The numerical modifier
1 indicates that the security ranks at the high end, 2 in the mid-range, and 3
nearer the low end, of the generic category. These modifiers are to give
investors a more precise indication of relative debt quality in each of the
historically defined categories.
Commercial Paper.
Standard & Poor's Commercial Paper Ratings
A Standard & Poor's Commercial Paper Rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The two highest categories are as follows:
A-Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designation 1, 2 and 3 to indicate the relative degree of safety.
A-1This designation indicates that the degree of safety regarding timely payment
is either overwhelming or very strong. Those issues determined to possess
overwhelming safety characteristics are denoted with a plus(+) sign designation.
The Commercial Paper Rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer and obtained by Standard & Poor's from other sources it
considers reliable. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information.
Moody's Commercial Paper Ratings
Moody's Commercial Paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
nine months. Moody's employs the following designations, judged to be investment
grade, to indicate the relative repayment capacity of rated issuers.
B-2
<PAGE>
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; well established access to
a range of financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
B-3
<PAGE>
FINANCIAL STATEMENTS
s:/n1a/sai/speceq/99march.doc
F-1
<PAGE>
John Hancock Funds
SPECIAL EQUITIES
FUND
ANNUAL REPORT
OCTOBER 31, 1998
TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz
Richard P. Chapman, Jr.*
William J. Cosgrove
Douglas M. Costle
Leland O. Erdahl
Richard A. Farrell
Gail D. Fosler
William F. Glavin
Anne C. Hodsdon
Dr. John A. Moore
Patti McGill Peterson
John W. Pratt*
Richard S. Scipione
Edward J. Spellman*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President and Chief Operating Officer
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Vice President and Compliance Officer
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116-5072
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116-5072
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
An often-used analogy for stock market performance over the short term
is a roller coaster. That is because, while long-term history suggests
the market's general direction is up, its swings over the short term can
be dramatic and, at times, violent. This year, the market has given us
several stark examples of this phenomenon. From the new highs set in
mid-July, the major indices plunged by 19% through the end of August. It
was the worst such fall since 1990. For the first time in a number of
years, some bonds and bond mutual funds outperformed stocks and stock
mutual funds. Seeking safety in a world of global economic
uncertainties, investors everywhere converged on U.S. Treasury bonds and
pushed their yields to historic lows.
Then in early October, the market staged a remarkable rebound that was
sparked by the Federal Reserve's two cuts in interest rates. The major
indices regained all their previously lost ground and the S&P 500 Stock
Index ended October actually up by 15% year-to-date.
Investors have been understandably shaken by these dramatic twists and
turns, but we are pleased to report that most individual investors did
not panic, and we hope that means they've taken our words to heart. Over
the long term, markets do not move up or down in a straight line. That's
why after watching the market charge ahead almost uninterrupted for so
many years, we have been striking a more cautionary stance in this space
over the last several months.
Analysts are still pondering the implications of global turmoil and the
potential for slower U.S. economic and corporate earnings growth. While
we don't make a practice of opining on what the market will do next, we
continue to believe it would be wise for investors to set more realistic
expectations. Over the long term, the market's historical results have
been more in the 10% per year range, which is still a solid result,
considering it has been produced despite wars, depressions and other
social upheavals along the way.
There is no doubt, however, that the market's heightened volatility and
recent dramatic moves have been cause for concern. In these uncertain
times, it becomes even harder to remember to "stay the course" and stick
to your long-term investment plan. But this remains the essential tenet
of successful investing. Now could also be a good time to review your
asset allocation with your investment professional, keeping in mind that
the last six months' divergence in performance of stocks and high-
quality bonds is a perfect example of why all your eggs shouldn't be in
one basket.
Sincerely,
/S/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
A 1-1/4" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.
BY LAURA ALLEN, CFA, PORTFOLIO MANAGEMENT TEAM LEADER, AND
BERNICE BEHAR, CFA, AND ANURAG PANDIT, CFA, PORTFOLIO MANAGERS
John Hancock
Special Equities Fund
Global uncertainty trounces small-cap market; late-period rally holds
promise
A 3" x 2" photo at bottom right side of page of John Hancock Special Equities
Fund's management team. Caption below reads "Fund management team members
(l-r): Anurag Pandit, Bernice Behar and Laura Allen."
On July 1, 1998, an investment team led by Laura Allen, CFA, assumed
management responsibility of John Hancock Special Equities Fund. Prior
to joining John Hancock Funds in early 1998, Ms. Allen, a senior vice
president, spent 17 years as an analyst and portfolio manager at
Wellington Management Company.
The last 12 months represented an extremely difficult period for small-
company stocks, capping a record five years of underperformance compared
to their large-company counterparts. For almost the entire past fiscal
year, share prices of small companies suffered from the ongoing global
economic turmoil that began in July 1997 with the first wave of Asian
currency devaluations. As a result, investors became more risk averse
and favored the relative safety and liquidity of shares of larger, more
well-known companies. The worst turn, however, came this summer, when
Russia's economic collapse led a second wave of currency devaluations in
emerging markets and, ultimately, a few prominent hedge fund debacles,
that sent stocks of all sizes plummeting, including the previously
immune large caps. Investor sentiment changed dramatically amid
heightened fears that a global financial crisis would precipitate an
imminent profit, if not economic, recession in the U.S. Many investors
sought shelter from the tsunami in the safety of U.S. Treasury bonds,
resulting in a plunge in U.S. long-term interest rates to historically
low levels. Small companies -- despite their compelling valuations,
stronger earnings projections and largely domestic focus -- fell faster
and harder than other segments of the market. Small-cap growth stocks
that the Fund targets were particularly hard hit. The Russell 2000
Growth Index, a proxy for our style, plummeted 22% in the three month
period from June 30 to September 30, one of the worst declines in the
20-year history of this index.
"Small
companies...
fell faster
and harder
than other
segments..."
Table at top left hand column entitled "Top Five Common Stock Holdings". The
first listing is Elan Corp. 2.9%, the second is Premier Parks 2.9%, the third
Wind River Systems 2.2%, the fourth is Vitesse Semiconductor 2.1%, and the
fifth is Metromedia Fiber Network 2.1%. A note below the table reads "As a
percentage of net assets on October 31, 1998."
"...the Fund's
restructuring
is now
virtually
complete..."
In early October, however, the tide of investor sentiment turned again,
as the market rebounded after the Federal Reserve signaled its intent to
restore global financial stability by lowering interest rates twice in
three weeks. This time, small caps led the advance through the close of
the fiscal year. After reaching a 27-month low on October 8, the
Russell 2000 Index -- a broader benchmark for small-cap performance --
began one of its more remarkable recoveries, rising 22% over the next
three weeks. This final push was nowhere near enough to close the wide
gap between large- and small-company stock performance, however. For the
year ended October 31, 1998, the Standard & Poor's 500 Stock Index still
managed to advance by 22% despite the volatility, while the Russell 2000
Index lost ground, returning -12%.
Restructuring and performance review
As we communicated to you several months ago, the Fund experienced a
change in portfolio managers on July 1 aimed at improving investment
performance. Our team's first step was to scrutinize the Fund's holdings
to ensure that each one met our selection criteria. These include
companies with strong and accelerating revenue and earnings growth,
dominant market share and proven management. As a result of this
analysis, we eliminated a number of holdings that either did not meet
this criteria, or in which we lacked sufficient confidence in the
earnings outlook. In their place, we added several higher-quality small
companies (under $1 billion in market capitalization) that were selling
at unusually attractive prices, thanks to the plunge in the small-cap
sector. Examples included Duane Reade, a regional drugstore chain;
Novellus Systems, a semiconductor equipment manufacturer; and energy
services company Core Laboratories.
Over the past several months, it was a challenge to restructure the Fund
in the midst of the small cap market's decline. Our goal was to position
the Fund in a carefully chosen list of small-sized companies in which we
have confidence in the long-term earnings outlook. In the short term,
however, several of the stocks we had targeted to sell were punished for
reporting lower-than-expected earnings. In addition, the Fund's
overweighted positions in the retail and media sectors that we inherited
also held back investment results, especially in the summer and early
fall when these groups fell sharply on worries about future consumer and
corporate spending.
For the year ended October 31, 1998, John Hancock Special Equities
Fund's Class A, Class B and Class Y shares posted total returns of
- -23.21%, -23.79% and -22.90%, respectively, at net asset value. The
Fund's performance fell behind the -13.76% return of the average small-
cap fund, according to Lipper Analytical Services, Inc.,(1) and the
- -15.86% return of the Russell 2000 Growth Index. Keep in mind that your
net asset value return will be different from the Fund's stated
performance if you were not invested in the Fund for the entire period
and did not reinvest all distributions. See pages seven and eight for
historical performance information.
Bar chart at top of left hand column with heading "Fund Performance". Under
the heading is a note that reads "For the year ended October 31, 1998". The
chart is scaled in increments of 5% with -25% at the bottom and 0% at the
top. The first bar represents the -23.21% Total return for John Hancock
Special Equities Fund Class A. The second bar represents the -23.79% total
return for John Hancock Special Equities Fund Class B. The third bar
represents the -22.90% total return for John Hancock Special Equities Fund
Class Y* and the fourth bar represents the -13.76% total return for the
Average small-cap fund. A note below the chart reads "Total returns for John
Hancock Special Equities Fund are at net asset value with all distributions
reinvested. The average small-cap fund is tracked by Lipper Analytical
Services, Inc. See pages seven and eight for historical performance
information. A footnote below the chart reads "On June 1, 1998, Class C
shares were renamed Class Y shares."
The good news is that the Fund's restructuring is now virtually
complete, and we believe we have positioned the Fund to perform
competitively versus its peer group. As we mentioned, small caps have
staged an impressive rebound in the past month, and we have been
encouraged by the Fund's near-term performance, boosted in part by some
of our more recent additions.
Investment philosophy and choices
The Fund continues to seek capital appreciation by investing in
aggressively growing small companies. Our rigorous fundamental analysis
applies not only to our aforementioned selection criteria, but equally
importantly to our sell discipline. It requires us to trim or eliminate
holdings that show deteriorating fundamentals or whose stock price has
risen enough to change the risk/reward balance. The Fund's focus will
remain solidly on small companies. To stay true to this goal, we
continued to reduce the Fund's average market capitalization, which
ended the year at half its level of six months earlier.
While we build the portfolio company-by-company, we continue to find
strong earnings growth potential within the broad technology sector.
Specifically, we have focused on software companies such as Aspect
Development and information services outsourcer Whittman-Hart. We also
continued to emphasize retail companies that can gain market share in a
more difficult economic environment, such as 99 Cents Only Stores. In
the health-care sector, we own several later-stage biotechnology
companies including Alkermes and Gilead Sciences that we believe have
strong new product potential.
"The Fund's
focus will
remain
solidly
on small
companies."
Going forward
We are encouraged about the prospects for the equity market and in
particular for small-cap stocks. Over the past year, investors
experienced an enormous amount of volatility, and we believe price
action will most likely remain fairly erratic as long as concerns
persist about how emerging-market turmoil will impact future economic
and corporate earnings growth. That said, an environment of declining
interest rates and minimal inflation still provides a solid underpinning
for stock prices.
Only time will tell whether this latest move in small caps is the start
of a prolonged rise. As investors, we often need to look beyond the
daily headlines and focus on the longer-term outlook. The dramatic
underperformance of small-cap companies relative to big caps presents
investors with an unusual opportunity. We strongly believe that small-
cap stocks are poised to make headway versus their larger brethren.
Despite their recent gains, the small-cap sector continues to sell at a
discount to the large-company universe using forward-year price-earnings
ratios, even though we expect the majority of companies in the Fund to
grow well in excess of large companies. This is a highly unusual
circumstance, as historically small-cap stocks have traded at a handsome
premium to large-cap stocks, and it is a compelling combination that
investors have begun to recognize. Although we know history is no
guarantee of future results, the last time small caps sold at a discount
to big caps was in late 1990, at which point small caps went on to
generate outsized returns relative to big caps over a period that lasted
close to three years.
"...the
small-cap
sector
continues
to sell at
a discount
to the large-
company
universe..."
Looking ahead, we will continue to focus our efforts on strong
fundamental company analysis, which we believe to be essential,
especially in a more challenging investment climate. Over time, stock
prices move with earnings growth, and our experience has been that
remaining patient and consistent with a disciplined investment
philosophy will be rewarded with superior returns.
This commentary reflects the views of the portfolio managers through the
end of the Fund's period discussed in this report. Of course, the
managers' views are subject to change as market and other conditions
warrant.
1 Figures from Lipper Analytical Services, Inc. include reinvested
dividends and do not take into account sales charges. Actual load-
adjusted performance is lower.
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the
average annual total returns for the John Hancock Special Equities Fund.
Total return measures the change in value of an investment from the
beginning to the end of a period, assuming all distributions were
reinvested.
For Class A shares, total return figures include a maximum applicable
sales charge of 5%. Prior to January 1992, different sales charges were
in effect for Class A shares and are not reflected in the performance
information. Class B performance reflects a maximum contingent deferred
sales charge (maximum 5% and declining to 0% over six years).
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may
be worth more or less than their original cost, depending on when you
sell them. Please read your prospectus carefully before you invest or
send money.
CLASS A
For the period ended September 30, 1998
ONE FIVE TEN
YEAR YEARS YEARS
-------- -------- --------
Cumulative Total Returns (32.81%) 19.09% 307.98%
Average Annual Total Returns (32.81%) 3.56% 15.10%
CLASS B
For the period ended September 30, 1998
SINCE
ONE FIVE INCEPTION
YEAR YEARS (3/1/93)
-------- -------- --------
Cumulative Total Returns (33.32%) 19.05% 53.71%
Average Annual Total Returns (33.32%) 3.55% 8.00%
CLASS Y
For the period ended September 30, 1998
SINCE
ONE FIVE INCEPTION
YEAR YEARS (9/1/93)
-------- -------- --------
Cumulative Total Returns (28.97%) 28.37% 35.78%
Average Annual Total Returns (28.97%) 5.12% 6.21%
*Effective June 1, 1998, Class C shares were renamed Class Y shares.
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in the John
Hancock Special Equities Fund would be worth, assuming all distributions
were reinvested for the period indicated. For comparison, we've shown
the same $10,000 investment in the Russell 2000 Index and the Russell
2000 Growth Index. The Russell 2000 Index is an unmanaged, small-cap
index that is comprised of 2,000 U.S. stocks. The Russell 2000 Growth
Index is an unmanaged index containing those Russell 2000 Index stocks
with a greater-than-average growth orientation. Past performance is not
indicative of future results.
Line chart with the heading Special Equities Fund Class A, representing the
growth of a hypothetical $10,000 investment over the life of the fund.
Within the chart are four lines. The first line represents the value of the
hypothetical $10,000 investment made in the Special Equities Fund on October
31, 1988, before sales charge, and is equal to $45,701 as of October 31,
1998. The second line represents the value of the same investment made in
the Special Equities Fund, after sales charge, and is equal to $43,393 as of
October 31, 1998. The third line represents the Russell 2000 Index and is
equal to $30,316 as of October 31, 1998. The fourth line represents the
Russell 2000 Growth Index and is equal to $25,567 as of October 31, 1998.
Line chart with the heading Special Equities Fund Class B, representing the
growth of a hypothetical $10,000 investment over the life of the fund.
Within the chart are four lines. The first line represents the Russell 2000
Index and is equal to $18,452 as of October 31, 1998. The second line
represents the Russell 2000 Growth Index and is equal to $16,388 as of
October 31, 1998. The third line represents the value of the hypothetical
$10,000 investment made in the Special Equities Fund on march 1, 1993, before
sales charge, and is equal to $16,134 as of October 31, 1998. The fourth
line represents the value of the same hypothetical investment made in the
Special Equities Fund, after sales charge, and is equal to $16,034 as of
October 31, 1998.
Line chart with the heading Special Equities Fund Class Y*, representing the
growth of a hypothetical $10,000 investment over the life of the fund.
Within the chart are three lines. The first line represents the
Russell 2000 Index and is equal to $16,536 as of October 31, 1998. The
second line represents the Russell 2000 Growth Index and is equal to $14,674
as of October 31, 1998. The third line represents the value of the
hypothetical $10,000 investment made in the Special Equities Fund on
September 1, 1993, before sales charge, and is equal to $14,174 as of October
31, 1998.
*Effective June 1, 1998, Class C shares were renamed Class Y shares.
FINANCIAL STATEMENTS
The Statement of Assets and Liabilities is the Fund's balance sheet and
shows the value of what the Fund owns, is due and owes on October 31,
1998. You'll also find the net asset value and the maximum offering
price per share as of that date.
Statement of Assets and Liabilities
October 31, 1998
- --------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common stocks (cost - $755,950,154) $867,314,222
Joint repurchase agreement (cost - $98,127,000) 98,127,000
Corporate savings account 1,226
------------
965,442,448
Receivable for investments sold 3,435,911
Receivable for shares sold 4,302,631
Interest receivable 29,435
Other assets 69,193
------------
Total Assets 973,279,618
- --------------------------------------------------------------------
Liabilities:
Payable for investments purchased 15,142,332
Payable for shares repurchased 2,308,396
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 525,781
Accounts payable and accrued expenses 121,841
------------
Total Liabilities 18,098,350
- --------------------------------------------------------------------
Net Assets:
Capital paid-in 829,509,827
Accumulated net realized gain on investments 14,349,964
Net unrealized appreciation of investments 111,369,582
Accumulated net investment loss (48,105)
------------
Net Assets $955,181,268
====================================================================
Net Asset Value Per Share:
(Based on net asset values and shares of beneficial
interest outstanding - unlimited number of shares
authorized with no par value)
Class A - $453,919,263/22,455,977 $20.21
====================================================================
Class B - $460,971,346/23,700,698 $19.45
====================================================================
Class Y*- $40,290,659/1,945,113 $20.71
====================================================================
Maximum Offering Price Per Share**
Class A - ($20.21 x 105.26%) $21.27
====================================================================
* Effective June 1, 1998, Class C shares were renamed Class Y shares.
** On single retail sales of less than $50,000. On sales of $50,000 or
more and on group sales the offering price is reduced.
The Statement of Operations summarizes the Fund's investment income
earned and expenses incurred in operating the Fund. It also shows net
gains (losses) for the period stated.
Statement of Operations
Year ended October 31, 1998
- --------------------------------------------------------------------
Investment Income:
Interest $3,858,152
Dividends 779,237
------------
4,637,389
------------
Expenses:
Investment management fee - Note B 11,915,601
Distribution and service fee - Note B
Class A 1,950,043
Class B 7,440,347
Transfer agent fee - Note B 3,827,167
Custodian fee 268,655
Financial services fee - Note B 248,703
Printing 158,162
Trustees' fees 101,681
Registration and filing fees 67,542
Auditing fee 47,611
Miscellaneous 25,490
Legal fees 17,500
------------
Total Expenses 26,068,502
- --------------------------------------------------------------------
Net Investment Loss (21,431,113)
- --------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments sold 249,345,263
Change in net unrealized appreciation/depreciation
of investments (519,503,107)
------------
Net Realized and Unrealized
Loss on Investments (270,157,844)
- --------------------------------------------------------------------
Net Decrease in Net Assets
Resulting from Operations ($291,588,957)
====================================================================
See notes to financial statements.
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------
1997 1998
------------- -------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss ($28,901,150) ($21,431,113)
Net realized gain on investments sold 14,736,245 249,345,263
Change in net unrealized appreciation/depreciation of investments 150,858,729 (519,503,107)
--------------- ---------------
Net Increase (Decrease) in Net Assets Resulting from Operations 136,693,824 (291,588,957)
--------------- ---------------
From Fund Share Transactions - Net:* (269,581,490) (616,525,449)
--------------- ---------------
Net Assets:
Beginning of period 1,996,183,340 1,863,295,674
--------------- ---------------
End of period (including accumulated net investment loss
of $41,161 and $48,105, respectively) $1,863,295,674 $955,181,268
=============== ===============
*Analysis of Fund Share Transactions:
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------
1997 1998
-------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ---------- --------- ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold 159,331,596 $3,736,259,803 100,661,197 $2,413,669,605
Less shares repurchased (168,292,664) (3,969,808,409) (108,875,492) (2,650,476,277)
--------------- --------------- --------------- ---------------
Net decrease (8,961,068) ($233,548,606) (8,214,295) ($236,806,672)
=============== =============== =============== ===============
CLASS B
Shares sold 26,806,305 $621,229,331 3,960,429 $95,092,203
Less shares repurchased (29,432,594) (686,306,670) (17,545,625) (422,907,651)
--------------- --------------- --------------- ---------------
Net decrease (2,626,289) ($65,077,339) (13,585,196) ($327,815,448)
=============== =============== =============== ===============
CLASS Y(1)
Shares sold 1,863,540 $45,155,315 875,735 $23,077,653
Less shares repurchased (682,739) (16,110,860) (2,820,828) (74,980,982)
--------------- --------------- --------------- ---------------
Net increase (decrease) 1,180,801 $29,044,455 (1,945,093) ($51,903,329)
=============== =============== =============== ===============
(1) Effective June 1, 1998, Class C shares were renamed Class Y shares.
See notes to financial statements.
The Statement of Changes in Net Assets shows how the value of the Fund's net assets has changed since the end of the
previous period. The difference reflects earnings less expenses, any investment gains and losses, distributions paid to
shareholders and any increase or decrease in money shareholders invested in the Fund. The footnote illustrates the
number of Fund shares sold, reinvested and repurchased during the last two periods, along with the corresponding dollar
value.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each period indicated, investment
returns, key ratios and supplemental data are listed as follows:
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period $16.13 $16.11 $22.15 $24.53 $26.32
------------ ------------ ------------ ------------ ------------
Net Investment Loss(1) (0.21) (0.18) (0.22) (0.29) (0.27)
Net Realized and Unrealized Gain (Loss) on Investments 0.19 6.22 3.06 2.08 (5.84)
------------ ------------ ------------ ------------ ------------
Total from Investment Operations (0.02) 6.04 2.84 1.79 (6.11)
------------ ------------ ------------ ------------ ------------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold -- -- (0.46) -- --
------------ ------------ ------------ ------------ ------------
Net Asset Value, End of Period $16.11 $22.15 $24.53 $26.32 $20.21
============ ============ ============ ============ ============
Total Investment Return at Net Asset Value(2) (0.12%) 37.49% 12.96% 7.30% (23.21%)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $310,625 $555,655 $972,312 $807,371 $453,919
Ratio of Expenses to Average Net Assets 1.62% 1.48% 1.42% 1.43% 1.41%
Ratio of Net Investment Loss to Average Net Assets (1.40%) (0.97%) (0.89%) (1.18%) (1.09%)
Portfolio Turnover Rate 66% 82% 59% 41% 107%
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period $16.08 $15.97 $21.81 $23.96 $25.52
------------ ------------ ------------ ------------ ------------
Net Investment Loss(1) (0.30) (0.31) (0.40) (0.46) (0.45)
Net Realized and Unrealized Gain (Loss) on Investments 0.19 6.15 3.01 2.02 (5.62)
------------ ------------ ------------ ------------ ------------
Total from Investment Operations (0.11) 5.84 2.61 1.56 (6.07)
------------ ------------ ------------ ------------ ------------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold -- -- (0.46) -- --
------------ ------------ ------------ ------------ ------------
Net Asset Value, End of Period $15.97 $21.81 $23.96 $25.52 $19.45
============ ============ ============ ============ ============
Total Investment Return at Net Asset Value(2) (0.68%) 36.57% 12.09% 6.51% (23.79%)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $191,979 $454,934 $956,374 $951,449 $460,971
Ratio of Expenses to Average Net Assets 2.25% 2.20% 2.16% 2.19% 2.16%
Ratio of Net Investment Loss to Average Net Assets (2.02%) (1.69%) (1.65%) (1.95%) (1.84%)
Portfolio Turnover Rate 66% 82% 59% 41% 107%
See notes to financial statements.
<CAPTION>
Financial Highlights (continued)
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CLASS Y (3)
Per Share Operating Performance
Net Asset Value, Beginning of Period $16.14 $16.20 $22.40 $24.91 $26.86
------------ ------------ ------------ ------------ ------------
Net Investment Loss(1) (0.13) (0.09) (0.14) (0.18) (0.17)
Net Realized and Unrealized Gain (Loss) on Investments 0.19 6.29 3.11 2.13 (5.98)
------------ ------------ ------------ ------------ ------------
Total from Investment Operations 0.06 6.20 2.97 1.95 (6.15)
------------ ------------ ------------ ------------ ------------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold -- -- (0.46) -- --
------------ ------------ ------------ ------------ ------------
Net Asset Value, End of Period $16.20 $22.40 $24.91 $26.86 $20.71
============ ============ ============ ============ ============
Total Investment Return at Net Asset Value(2) 0.37% 38.27% 13.40% 7.83% (22.90%)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $7,123 $13,701 $67,498 $104,476 $40,291
Ratio of Expenses to Average Net Assets 1.11% 1.01% 1.03% 0.97% 0.97%
Ratio of Net Investment Loss to Average Net Assets (0.89%) (0.50%) (0.54%) (0.73%) (0.66%)
Portfolio Turnover Rate 66% 82% 59% 41% 107%
(1) Based on the average of the shares outstanding at the end of each month.
(2) Assumes dividend reinvestment and does not reflect the effect of sales charge.
(3) Effective June 1, 1998, Class C shares were renamed Class Y shares.
The Financial Highlights summarizes the impact of the following factors on a single share for each period indicated: net
investment income, gains (losses), dividends and total investment return of the Fund. It shows how the Fund's net asset value
for a share has changed since the end of the previous period. Additionally, important relationships between some items
presented in the financial statements are expressed in ratio form.
See notes to financial statements.
</TABLE>
Schedule of Investments
October 31, 1998
- ----------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities
owned by the Special Equities Fund on October 31, 1998. It's divided
into two main categories: common stocks and short-term investments.
The stocks are further broken down by industry groups. Short-term
investments, which represents the Fund's "cash" position are listed
last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
COMMON STOCKS
Advertising (1.62%)
Outdoor Systems, Inc.* 700,000 $15,443,750
-------------
Broker Services (0.48%)
Raymond James Financial, Inc. 200,000 4,587,500
-------------
Business Services - Misc. (9.89%)
Boron, LePore & Associates, Inc.* 26,100 704,700
Charles River Associates, Inc.* 224,500 5,612,500
First Consulting Group, Inc.* 450,000 7,396,875
INSpire Insurance Solutions, Inc.* 540,000 13,500,000
Interim Services, Inc. * 590,000 12,537,500
Mac-Gray Corp.* 98,700 987,000
META Group, Inc. * 550,000 13,200,000
Metzler Group, Inc. (The)* 400,000 16,800,000
On Assignment, Inc.* 270,000 9,180,000
Pre-Paid Legal Services, Inc.* 350,000 8,378,125
Profit Recovery Group International, Inc.
(The)* 200,000 6,137,500
-------------
94,434,200
-------------
Computers (20.77%)
Acxiom Corporation* 360,000 9,045,000
America Online, Inc.* 120,000 15,247,500
AnswerThink Consulting Group, Inc.* 475,000 9,173,437
Aspect Development, Inc.* 500,000 15,796,900
BARRA, Inc.* 400,000 10,550,000
CBT Group Plc, American Depositary
Receipt (ADR) (Ireland)* 400,000 4,775,000
Concentric Network Corp. * 500,000 12,125,000
Dendrite International, Inc.* 307,200 6,336,000
E*TRADE Group, Inc.* 550,000 9,900,000
EarthLink Network, Inc.* 325,000 12,512,500
Exodus Communications, Inc.* 151,500 4,810,125
HNC Software, Inc.* 330,000 11,096,250
IDX Systems Corp.* 175,000 7,415,625
PSINet, Inc.* 125,000 1,804,687
RealNetworks, Inc.* 300,000 10,106,250
Verio, Inc.* 430,000 5,966,250
VeriSign, Inc.* 340,000 10,433,750
Visio Corp.* 350,000 9,318,750
Whittman-Hart, Inc.* 550,000 10,931,250
Wind River Systems, Inc.* 480,000 21,030,000
-------------
198,374,274
-------------
Electronics (7.10%)
ATMI, Inc.* 341,200 4,691,500
DuPont Photomasks, Inc.* 161,200 5,843,500
Level One Communications, Inc.* 200,000 5,262,500
Novellus Systems, Inc.* 250,000 9,703,125
PMC-Sierra, Inc.* (Canada) 250,000 11,218,750
Uniphase Corp.* 220,000 10,890,000
Vitesse Semiconductor Corp.* 625,000 20,156,250
-------------
67,765,625
-------------
Finance (3.13%)
AmeriCredit Corp.* 550,000 7,356,250
Financial Federal Corp. 500,000 11,656,250
Medallion Financial Corp. 615,300 10,921,575
-------------
29,934,075
-------------
Food (1.44%)
American Italian Pasta Co. (Class A)* 600,000 13,800,000
-------------
Insurance (1.64%)
Capital Re Corp. 400,000 7,325,000
Executive Risk, Inc. 175,000 8,312,500
-------------
15,637,500
-------------
Leisure (6.58%)
Cinar Films, Inc. (Class B) (Canada)* 700,000 14,787,500
Family Golf Centers, Inc.* 501,350 10,559,684
Premier Parks, Inc. 1,233,400 27,366,062
Steiner Leisure Ltd.* 249,700 6,086,438
Travel Services International, Inc.* 200,000 4,050,000
-------------
62,849,684
-------------
Linen Supply & Related (1.20%)
G & K Services, Inc. (Class A) 250,000 11,437,500
-------------
Machinery (1.39%)
Applied Power, Inc. (Class A) 156,600 4,316,287
Hanover Compressor Co.* 355,000 8,963,750
-------------
13,280,037
-------------
Media (2.79%)
Chancellor Media Corp.* 500,000 19,187,500
Cox Radio, Inc. (Class A)* 200,000 7,487,500
-------------
26,675,000
-------------
Medical (15.12%)
Alkermes, Inc.* 300,000 5,850,000
CareMatrix Corp.* 500,000 12,312,500
Elan Corp., Plc (ADR) (Ireland)* 400,000 28,025,000
Gilead Sciences, Inc.* 190,000 5,391,250
Hanger Orthopedic Group, Inc.* 480,000 9,480,000
Human Genome Sciences, Inc.* 240,000 8,310,000
IDEC Pharmaceuticals Corp.* 170,000 5,078,750
Incyte Pharmaceuticals, Inc.* 135,000 4,117,500
Ocular Sciences, Inc.* 378,900 9,519,863
PAREXEL International Corp.* 185,000 4,081,563
Province Healthcare Co.* 205,200 5,360,850
Renal Care Group, Inc.* 425,000 12,378,125
Res-Care, Inc.* 380,000 8,407,500
Universal Health Services, Inc. (Class B) 380,000 19,498,750
Ventana Medical Systems, Inc.* 356,200 6,589,700
-------------
144,401,351
-------------
Oil & Gas (3.07%)
Core Laboratories N.V. (Netherlands)* 385,000 8,686,563
Dril-Quip, Inc.* 350,000 7,350,000
Newfield Exploration Co.* 300,000 7,293,750
Stone Energy Corp.* 187,600 6,026,650
-------------
29,356,963
-------------
Printing - Commercial (0.84%)
Consolidated Graphics, Inc.* 170,000 8,064,375
-------------
Real Estate Operations (0.92%)
Central Parking Corp. 210,000 8,806,875
-------------
Retail (8.81%)
99 Cents Only Stores* 280,000 12,950,000
Abercrombie & Fitch Co. (Class A)* 200,000 7,937,500
Dominick's Supermarkets, Inc.* 272,000 13,277,000
Duane Reade, Inc.* 300,000 11,587,500
Hibbett Sporting Goods, Inc.* 250,000 6,765,625
Linens 'n Things, Inc.* 200,000 6,187,500
Stage Stores, Inc.* 419,000 5,551,750
Trans World Entertainment Corp.* 577,200 11,904,750
Whole Foods Market, Inc.* 200,000 8,012,500
-------------
84,174,125
-------------
Telecommunications (3.28%)
Metromedia Fiber Network, Inc.
(Class A)* 527,200 $19,967,700
NEXTLINK Communications, Inc.
(Class A)* 209,400 5,365,875
OmniAmerica, Inc.* 300,000 5,962,500
-------------
31,296,075
-------------
Transport (0.73%)
MotivePower Industries, Inc. 275,000 6,995,313
-------------
TOTAL COMMON STOCKS
(Cost $755,950,154) (90.80%) 867,314,222
-------------
INTEREST PAR VALUE
RATE (000s OMITTED)
-------- ------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (10.27%)
Investment in a joint repurchase
agreement transaction with
HSBC Securities, Inc.
- - Dated 10-30-98, due 11-02-98
(Secured by U.S. Treasury Bond,
7.125%, due 2-15-23, and U.S.
Treasury Notes, 6.250%, due
01-31-02 thru 2-28-02) --
Note A 5.38% $98,127 98,127,000
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.35% 1,226
-------------
TOTAL SHORT-TERM INVESTMENTS (10.27%) 98,128,226
------------- -------------
TOTAL INVESTMENTS (101.07%) 965,442,448
------------- -------------
OTHER ASSETS AND LIABILITIES, NET (1.07%) (10,261,180)
------------- -------------
TOTAL NET ASSETS (100.00%) $955,181,268
============= =============
*Non-income producing security.
Parenthetical disclosure of a foreign country in the security
description represents country of foreign issuer; however, security
is U.S. dollar denominated.
The percentage shown for each investment category is the total value
of that category as a percentage of the net assets of the Fund.
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
NOTE A -
ACCOUNTING POLICIES
John Hancock Special Equities Fund (the "Fund") is a diversified open-
end management investment company registered under the Investment
Company Act of 1940. The investment objective of the Fund is to seek
growth of capital by investing in a diversified portfolio of equity
securities consisting primarily of small-capitalization companies and
companies in situations offering unusual or non-recurring opportunities.
The Trustees have authorized the issuance of multiple classes of shares
of the Fund, designated as Class A, Class B and Class Y shares.
Effective June 1, 1998, Class C shares were renamed Class Y shares.
Effective December 8, 1998, the Board of Trustees have authorized the
issuance of new Class C shares in 1999. The shares of each class represent
an interest in the same portfolio of investments of the Fund and have equal
rights to voting, redemptions, dividends and liquidation, except that
certain expenses, subject to the approval of the Trustees, may be
applied differently to each class of shares in accordance with current
regulations of the Securities and Exchange Commission and the Internal
Revenue Service. Shareholders of a class which bears distribution and
service expenses under terms of a distribution plan have exclusive
voting rights to that distribution plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued
on the basis of market quotations, valuations provided by independent
pricing services or at fair value as determined in good faith in
accordance with procedures approved by the Trustees. Short-term debt
investments maturing within 60 days are valued at amortized cost, which
approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other
registered investment companies having a management contract with John
Hancock Advisers, Inc. (the "Adviser"), a wholly owned subsidiary of The
Berkeley Financial Group, Inc., may participate in a joint repurchase
agreement transaction. Aggregate cash balances are invested in one or
more large repurchase agreements, whose underlying securities are
obligations of the U.S. government and/or its agencies. The Fund's
custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for
ensuring that the agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the
date of purchase, sale or maturity. Net realized gains and losses on
sales of investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund qualifies as a "regulated investment
company" by complying with the applicable provisions of the Internal
Revenue Code and will not be subject to federal income tax on taxable
income which is distributable to shareholders. Therefore, no federal
income tax provision is required.
DIVIDENDS, INTEREST AND DISTRIBUTIONS Dividend income on investment
securities is recorded on the ex-dividend date. Interest income on
investment securities is recorded on the accrual basis.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions
are determined in conformity with income tax regulations, which may
differ from generally accepted accounting principles. Dividends paid by
the Fund with respect to each class of shares will be calculated in the
same manner, at the same time and will be in the same amount, except for
the effect of expenses that may be applied differently to each class.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized
gains (losses) are calculated at the fund level and allocated daily to
each class of shares based on the appropriate net assets of the
respective classes. Distribution and service fees, if any, are
calculated daily at the class level based on the appropriate net assets
of each class and the specific expense rate(s) applicable to each class.
USE OF ESTIMATES The preparation of these financial statements in
accordance with generally accepted accounting principles incorporates
estimates made by management in determining the reported amounts of
assets, liabilities, revenues and expenses of the Fund. Actual results
could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings
for temporary or emergency purposes, including the meeting of redemption
requests that otherwise might require the untimely disposition of
securities. These agreements enable the Fund to participate with other
funds managed by the Adviser in unsecured lines of credit with banks
which permit borrowings up to $800 million, collectively. Interest is
charged to each fund, based on its borrowing, at a rate equal to 0.50%
over the Fed Funds Rate. In addition, a commitment fee, at a rate
ranging from 0.070% to 0.075% per annum based on the average daily
unused portion of the line of credit, is allocated among the
participating funds. The Fund had no borrowing activity for the year
ended October 31, 1998.
NOTE B -
MANAGEMENT FEE AND TRANSACTIONS WITH
AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a
monthly management fee to the Adviser for a continuous investment
program equivalent, on an annual basis, to the sum of (a) 0.85% of the
first $250,000,000 of the Fund's average daily net asset value and
(b) 0.80% of the Fund's average daily net asset value in excess
of $250,000,000.
DiCarlo, Forbes and St. Pierre Advisors, LLC ("DFS") served as
subadviser to the Fund pursuant to a subadvisory agreement with the Fund
and the Adviser. The Adviser, not the Fund, paid all subadvisory fees.
The Adviser paid DFS an annual fee of 0.25% of the average daily net
assets of the Fund. DFS was terminated as subadviser to the Fund.
DFS' service as subadviser to the Fund has ended.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the year ended
October 31, 1998 net sales charges received with regard to sales of
Class A shares amounted to $1,050,785. Out of this amount, $137,920 was
retained and used for printing prospectuses, advertising, sales
literature and other purposes, $609,561 was paid as sales commissions to
unrelated broker-dealers and $303,304 was paid as sales commissions to
sales personnel of John Hancock Distributors, Inc. ("Distributors"), a
related broker-dealer. The Adviser's indirect parent, John Hancock
Mutual Life Insurance Company ("JHMLICo"), is the indirect sole
shareholder of Distributors.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining
rates beginning at 5.00% of the lesser of the current market value at
the time of redemption or the original purchase cost of the shares being
redeemed. Proceeds from the CDSC are paid to JH Funds and are used in
whole or in part to defray its expenses for providing distribution
related services to the Fund in connection with the sale of Class B
shares. For the year ended October 31, 1998, contingent deferred sales
charges paid to JH Funds amounted to $5,532,949.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted Distribution
Plans with respect to Class A and Class B pursuant to Rule 12b-1 under
the Investment Company Act of 1940. Accordingly, the Fund will make
payments to JH Funds for distribution and service expenses, at an annual
rate not to exceed 0.30% of Class A average daily net assets and 1.00%
of Class B average daily net assets, to reimburse JH Funds for its
distribution and service costs. Up to a maximum of 0.25% of such
payments may be service fees as defined by the amended Rules of Fair
Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's
12b-1 payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of
JHMLICo. Class A and Class B shares pay transfer agent fees based on the
number of shareholder accounts and certain out-of-pocket expenses. Class
Y shares pay a monthly transfer agent fee equivalent to 0.10% of the
average daily net assets of the Class Y shares of the Fund.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for the
year was at an annual rate of less than 0.02% of the average net assets
of the Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S.
Scipione are trustees and/or officers of the Adviser and/or its
affiliates, as well as trustees of the Fund. Effective July 1, 1998, Mr.
DiCarlo resigned as trustee of the Fund. The compensation of
unaffiliated trustees is borne by the Fund. The unaffiliated trustees
may elect to defer for tax purposes their receipt of this compensation
under the John Hancock Group of Funds Deferred Compensation Plan. The
Fund makes investments into other John Hancock funds, as applicable, to
cover its liability for the deferred compensation. Investments to cover
the Fund's deferred compensation liability are recorded on the Fund's
books as an other asset. The deferred compensation liability and the
related other asset are always equal and are marked to market on a
periodic basis to reflect any income earned by the investment as well as
any unrealized gains or losses. At October 31, 1998, the Fund's
investments to cover the deferred compensation liability had unrealized
appreciation of $5,514.
NOTE C -
INVESTMENT TRANSACTIONS:
Purchases and proceeds from sales of securities, other than obligations
of the U.S. government and its agencies and short-term securities,
during the year ended October 31, 1998, aggregated $1,494,228,475 and
$2,188,474,806, respectively. There were no purchases or sales of
obligations of the U.S. government and its agencies during the year
ended October 31, 1998.
The cost of investments owned at October 31, 1998 (excluding the
corporate savings account) for federal income tax purposes was
$857,250,395. Gross unrealized appreciation and depreciation of
investments aggregated $175,136,551 and $66,945,724, respectively,
resulting in net unrealized appreciation of $108,190,827.
NOTE D -
RECLASSIFICATION OF ACCOUNTS
During the year ended October 31, 1998, the Fund has reclassified
amounts to reflect a decrease in accumulated net realized gain on
investments of $222,770,065, a decrease in accumulated net investment
loss of $21,424,169 and an increase in capital paid-in of $201,345,896.
This represents the amount necessary to report these balances on a tax
basis, excluding certain temporary differences, as of October 31, 1998.
Additional adjustments may be needed in subsequent reporting periods.
These reclassifications, which have no impact on the net asset value of
the Fund, are primarily attributable to the treatment of net operating
losses in the computation of distributable income and capital gains
under federal tax rules versus generally accepted accounting principles,
and the fund's use of the tax accounting practice known as equalization.
The calculation of net investment income per share in the financial
highlights excludes these adjustments.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of
John Hancock Special Equities Fund
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of the John Hancock Special
Equities Fund (the "Fund"), as of October 31, 1998, and the related
statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the
period then ended. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is
to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of October 31, 1998, by
correspondence with the custodian and brokers, or other appropriate
auditing procedures where replies from brokers were not received. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of the John Hancock Special Equities Fund at October
31, 1998, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting
principles.
/S/ ERNST & YOUNG LLP
Boston, Massachusetts
December 11, 1998
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is
furnished with respect to the taxable distributions of the Fund during
its fiscal year ended October 31, 1998.
The Fund has designated $222,774,452 as a capital gain dividend.
NOTES
John Hancock Funds - Special Equities Fund
A 1/2" by 1/2" John Hancock Funds logo in upper left hand corner of the
page. A box sectioned in quadrants with a triangle in upper left, a
circle in upper right, a cube in lower left and a diamond in lower
right. A tag line below reads: "A Global Investment Management Firm."
101 Huntington Avenue, Boston, MA 02199-7603
1-800-225-5291 1-800-554-6713 (TDD)
Internet: www.jhancock.com/funds
Bulk Rate
U.S. Postage
PAID
Randolph, MA
Permit No. 75
This report is for the information of shareholders of the John Hancock
Special Equities Fund. It may be used as sales literature when preceded
or accompanied by the current prospectus, which details charges,
investment objectives and operating policies.
A recycled logo in lower left hand corner with the caption "Printed on
Recycled Paper."
1800A 10/98
12/98
<PAGE>
SEMIANNUAL REPORT
The latest report from your
Fund's management team
Special Equities Fund
APRIL 30, 1999
TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Stephen L. Brown
Richard P. Chapman, Jr.*
William J. Cosgrove
Douglas M. Costle
Leland O. Erdahl
Richard A. Farrell
Gail D. Fosler
William F. Glavin
Anne C. Hodsdon
Dr. John A. Moore
Patti McGill Peterson
John W. Pratt*
Richard S. Scipione
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Anne C. Hodsdon
President, Chief Operating Officer and
Chief Investment Officer
Osbert M. Hood
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Vice President and Compliance Officer
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116-5072
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
CHAIRMAN'S MESSAGE
[A 1" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief
Executive Officer, flush right next to third paragraph.]
DEAR SHAREHOLDERS:
The Year 2000 is fast approaching and people around the world are getting
ready to celebrate this historic transition to a new millennium. At John
Hancock Funds, we share the excitement, but we aren't popping the
champagne corks just yet. Rather, we are staying on the course that
we set more than two years ago to ensure that the transition to a
new millennium is a smooth one for our shareholders.
As many already know, the Year 2000 has created more than the prospect of
New Year's festivities of epic proportions. It has also presented the
world with a challenge: making sure that older computers, and any
equipment powered by computer chips, can properly read and process the
date "00" as 2000, not 1900. Much has been written about how the world
will weather the change. Some view it as a non-event, while others see the
potential for disruptions. How much disruption, and for how long, depends
on whom you talk to.
As a company, we recognize that the Year 2000 ("Y2K") phenomenon is an
important issue to be dealt with and we have made it a top priority. Two
years ago, John Hancock Funds put a full-time team of experts on the case
and established a company-wide program to evaluate all computer
applications and to modify or replace those that needed changing.
These modifications and replacements are nearly done, and the tests of all
our systems are on schedule for completion by the end of July. The rest of
1999 will be spent testing with our business partners and continuing to
participate in industry testing. We have also established additional
contingency plans beyond our regular ones to prepare for any challenges
that the Year 2000 might present. In the end, John Hancock will spend
approximately $90-$95 million to ensure we make a successful transition to
the Year 2000.
Throughout 1999, each of our quarterly "Fundamentals" newsletters is
featuring articles with more detailed information on Y2K matters of
importance to our shareholders. I encourage you to read them, or contact
one of our Customer Service Representatives at 1-800-225-5291 for another
copy. For your own peace of mind, we also recommend that you save your
1999 statements, especially those you receive between October and
December, so that you are able to check them against the first one you
receive in 2000. It's a measure of prudence, not panic. Good record
keeping is part of good planning.
No one knows how the dawning of the new millennium will unfold. Although
we cannot make any ironclad assurances, we are confident that the steps we
have taken will provide shareholders with as smooth a transition as
possible. Once that occurs, we will happily raise our glasses to toast the
New Year, future prosperity and our hopes to serve you well into the
2000's.
Sincerely,
/S/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
BY LAURA ALLEN, CFA, BERNICE BEHAR, CFA, AND ANURAG PANDIT, CFA,
PORTFOLIO MANAGERS
[A 3" x 2" photo at bottom right side of page of John Hancock
Special Equities Fund. Caption below reads "Fund management team
members (l-r): "Scott Mayo, Laura Allen, Anurag Pandit and Bernice
Behar."]
John Hancock Special Equities Fund
Technology and Internet stocks lead two small-cap rallies
As the six-month period began last November, the small-cap market had
started to rebound, sparked by the reductions in interest rates by the
Federal Reserve. From early October 1998 through year end, small caps
experienced a dramatic upturn in price and significantly outperformed
their larger peers. Nevertheless, this rebound was short-lived, as
investors once again gravitated to size, liquidity and earnings visibility
in January. While major indices reached new milestones in early 1999,
small caps gave up much of their relative gains in the first three months
and, as a result, finished behind large caps for the latest six-month
period.
Trends in interest rates, the global economy and earnings continued to be
the primary drivers of stock price returns. Renewed concerns that the U.S.
economy would slow markedly from the vibrant pace set in the fourth
quarter of 1998 caused investors to favor companies and sectors with more
stable earnings growth. However, with gathering evidence that domestic
growth was not slowing and overseas economies were improving, investor
sentiment shifted again towards small caps and economically sensitive
sectors of the market in April.
"...small caps
...finished
behind
large caps
for the
latest
six-month
period."
Fund performance
For the six months ended April 30, 1999, the Fund's Class A, Class B and
Class Y shares posted total returns of 12.11%, 11.75% and 12.30%,
respectively, at net asset value, compared to the 14.68% return of the
average small-cap fund, according to Lipper, Inc.1 Class C shares, which
were introduced on March 1, 1999, returned 1.96% at net asset value in the
two months since inception. Keep in mind that your net asset value return
will be different from the Fund's stated performance if you were not
invested in the Fund for the entire period and did not reinvest all
distributions. Historical performance information can be found on pages
six and seven.
While the Fund performed quite well compared to its peers in the final
quarter of 1998, we gave back some of this relative gain in the first part
of 1999. Specifically, our exposure to the underperforming software,
computer services and health-care services areas hurt the Fund's results.
[Table at top left hand column entitled "Top Five Stock Holdings."
The first listing is Exodus Communications 2.4%, the second is
Intermedia Communications 2.2%, the third Metromedia Fiber Network
2.2%, the fourth Premier Parks 2.1% and the fifth National
Computer Systems 2.1%. A note below the table reads "As a
percentage of net assets on April 30, 1999."]
[Table at bottom of left hand column entitled "Scorecard". The
header for the left column is "Investment" and the header for the
right column is "Recent Performance...and What's Behind the
Numbers". The first listing is RealNetworks followed by an up
arrow with the phrase "Dominates Internet audio/visual
technology." The second listing is NEXTLINK Communications
followed by an up arrow with the phrase "Growing demand for fiber-
optic services." The third listing is Renal Care Group followed
by a down arrow with the phrase "Hurt by health-service sector
weakness." A note below the table reads "See 'Schedule of
Investments.' Investment holdings are subject to change."]
"...technology
stocks were
the top
performers
regardless
of company
size."
Technology, telecommunications connect
During the last six months, technology stocks were the top performers
regardless of company size. Internet and Internet-related companies were
particularly strong, driven in part by the continued boom in new stock
offerings. One of the Fund's best performers was RealNetworks, the leader
in the development of streaming audio and video over the Internet. Other
Internet-related names that performed exceptionally well included
Concentric Network, which provides web hosting services to small and
mid-sized businesses.
While we remain quite positive on the Internet sector over the long term,
we sense that an important sorting out process has begun. Who will be the
ultimate winners? In the absence of real earnings and with very few
barriers to entry, the challenge (and risk for investors) -- like the
opportunity -- is great. As with all companies in the Fund, we intend to
adhere to our investment philosophy of applying in-depth fundamental
analysis to find those Internet companies that we believe offer
proprietary products or services that allow them to achieve a dominant
position in their markets. Examples include Multex.com, which provides
on-line stock-market research data, and Exodus Communications, which
maintains websites for a growing, blue-chip list of clients. In addition,
we are also focusing on companies that are expanding their existing
businesses to include the Internet, such as audience tracking company
Nielsen Media Research.
The telecommunications sector also posted strong gains in the past six
months, as the industry continues to benefit from deregulation, enabling
companies to provide bundled voice, data and Internet services. NEXTLINK
Communications, for example, is experiencing rapidly growing demand for
its enhanced communications services to small and mid-sized businesses. By
association, the electronics companies serving various telecommunications
end markets have also thrived, including Level One Communications and RF
Micro Devices, the latter of which is a leading manufacturer of integrated
circuits for the wireless market. Beneficiaries of the telecom sector
gains also included service companies like Quanta Services, which offers
equipment maintenance and servicing for electric utility and telecom
companies.
[Bar chart at top of left hand column with heading "Fund
Performance". Under the heading is a note that reads "For six
months ended April 30, 1999." The chart is scaled in increments
of 5% with 0% at the bottom and 15% at the top. The first bar
represents the 12.11% total return for John Hancock Special
Equities Fund Class A. The second bar represents the 11.75% total
return for John Hancock Special Equities Fund Class B. The third
bar represents the 12.30% total return for John Hancock Special
Equities Fund Class Y. The fourth bar represents the 1.96%*
total return for John Hancock Special Equities Fund Class C. The
fifth bar represents the 14.68% total return for Average small-cap
fund. A note below the chart reads "Total returns for John
Hancock Special Equities Fund are at net asset value with all
distributions reinvested. The average small-cap fund is tracked
by Lipper, Inc. See the following two pages for historical
performance information. * From inception March 1, 1999 through
April 30, 1999."]
Software, health-care services lag
Not all sectors in the technology area performed well in the past six
months, with the most notable example being the software and services
companies. These two sub-sectors were negatively impacted by fears of a
Y2K-induced slowdown in corporate spending as well as a few significant
earnings disappointments. One of our holdings, Aspect Development,
reported a substantial profit shortfall, and we sold the position at a
loss primarily due to concerns over internal management issues. However,
other companies like Whittman-Hart were tainted by the sector's fall and
saw their share prices plunge despite solid fundamentals. We took
advantage of this price break to add to the Fund's position in this
high-quality technology services company.
Among the worst-performing groups in the past six months was health-care
services, as fears of further Medicare reimbursement cuts, concerns that
assisted living operators would be subject to increased government
scrutiny, and weak earnings at HMOs, physician practice management groups
and smaller hospitals weighed on investor confidence. Negative sentiment
cast a pall over the entire sector, regardless of fundamentals, hurting
one of our holdings, Renal Care Group, a dominant owner and operator of
kidney dialysis centers. We remain positive on the outlook for this
company given its strong earnings record and well-regarded management.
"Overall,
the stock
market's
underpinnings
are solid..."
Outlook
We are encouraged about the prospects for the stock market in general and
small-cap stocks in particular. The news from overseas is favorable, as
emerging-market economies are stabilizing and, in some cases, improving.
The U.S. economy remains robust, while inflation and interest rates are
still low - a good combination that bodes well for corporate profit
growth. Overall, the stock market's underpinnings are solid, although the
mega-cap stocks, with their lofty valuations, could be in for a pullback.
By contrast, small-cap stock valuations remain historically low, despite
the expectations of strong relative earnings growth. At the risk of
sounding like a broken record, we continue to believe that at these price
levels, small-caps are still overdue for a sustained rise, because,
inevitably, valuation does matter and stock prices do follow earnings.
This commentary reflects the views of the portfolio managers through the
end of the Fund's period discussed in this report. Of course, the
managers' views are subject to change as market and other conditions
warrant.
1 Figures from Lipper, Inc. include reinvested dividends and do not take
into account sales charges. Actual load-adjusted performance is lower.
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the average
annual total returns for the John Hancock Special Equities Fund. Total
return measures the change in value of an investment from the beginning to
the end of a period, assuming all distributions were reinvested.
For Class A shares, total return figures include a maximum applicable
sales charge of 5%. Prior to January 1992, different sales charges were in
effect for Class A shares and are not reflected in the performance
information. Class B performance reflects a maximum contingent deferred
sales charge (maximum 5% and declining to 0% over six years). Class C
performance includes a contingent deferred sales charge (1% declining to
0% after one year).
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the Fund's
investments will fluctuate. As a result, your Fund's shares may be worth
more or less than their original cost, depending on when you sell them.
Please read your prospectus carefully before you invest or send money.
CLASS A
For the period ended March 31, 1999
ONE FIVE TEN
YEAR YEARS YEARS
------- ------- -------
Cumulative Total Returns (22.60%) 50.39% 338.17%
Average Annual Total Returns (22.60%) 8.50% 15.92%
CLASS B
For the period ended March 31, 1999
SINCE
ONE FIVE INCEPTION
YEAR YEARS (3/1/93)
------- ------- -------
Cumulative Total Returns (23.07%) 50.86% 81.32%
Average Annual Total Returns (23.07%) 8.57% 10.28%
CLASS C
For the period ended March 31, 1999
SINCE
INCEPTION
(3/1/99)
-------
Cumulative Total Return 1.53%
Average Annual Total Return 1.53%(1)
CLASS Y
For the period ended March 31, 1999
SINCE
ONE FIVE INCEPTION
YEAR YEARS (9/1/93)
------- ------- -------
Cumulative Total Returns (18.23%) 62.12% 59.94%
Average Annual Total Returns (18.23%) 10.15% 8.78%
Notes to Performance
(1) Not annualized.
WHAT HAPPENED TO A $10,000 INVESTMENT...
The chart on the right shows how much a $10,000 investment in the John
Hancock Special Equities Fund would be worth, assuming all distributions
were reinvested for the period indicated. For comparison, we've shown the
same $10,000 investment in the Russell 2000 Index and the Russell 2000
Growth Index. The Russell 2000 Index is an unmanaged, small-cap index that
is comprised of 2,000 U.S. stocks. The Russell 2000 Growth Index is an
unmanaged index containing those Russell 2000 Index stocks with a
greater-than-average growth orientation. Past performance is not
indicative of future results.
[Line chart with the heading John Hancock Special Equities Fund
Class A, representing the growth of a hypothetical $10,000
investment over the life of the fund. Within the chart are four
lines. The first line represents the value of the hypothetical
$10,000 investment made in the John Hancock Special Equites Fund
on December 31, 1988, before sales charge, and is equal to $51,235
as of April 30, 1999. The second line represents the value of the
same hypothetical investment made in the John Hancock Special
Equities Fund, after sales charge, and is equal to $48,648 as of
April 30, 1999. The third line represents the Russell 2000 Index
and is equal to $34,912. The fourth line represents the Russell
2000 Growth Index and is equal to $32,159.]
Assuming all distributions were reinvested for the period indicated, the
chart below shows the value of a $10,000 investment in the Fund's Class B,
Class C and Class Y shares, respectively, as of April 30, 1999.
Performance of the classes will vary based on the difference in sales
charges paid by shareholders investing in the different classes and the
fee structure of those classes. Past performance is not indicative of
future results.
Class B Class C Class Y
Inception Date 3/1/93 3/1/99 9/1/93
Without Sales Charge $18,031 $10,196 $15,918
With Maximum Sales Charge -- $10,095 N/A
Russell 2000 Index $21,249 $11,066 $19,043
Russell 2000 Growth Index $20,606 $11,271 $18,451
FINANCIAL STATEMENTS
The Statement of Assets and Liabilities is the Fund's balance sheet and
shows the value of what the Fund owns, is due and owes on April 30, 1999.
You'll also find the net asset value and the maximum offering price per
share as of that date.
Statement of Assets and Liabilities
April 30, 1999 (Unaudited)
- - -----------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common stocks (cost - $589,495,251) $712,991,475
Receivable for investments sold 51,400,389
Receivable for shares sold 115,756
Other assets 69,195
--------------
Total Assets 764,576,815
- - -----------------------------------------------------------------------
Liabilities:
Due to custodian 26,613,739
Payable for investments purchased 24,935,962
Payable for shares repurchased 1,263,431
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 674,079
Accounts payable and accrued expenses 102,804
--------------
Total Liabilities 53,590,015
- - -----------------------------------------------------------------------
Net Assets:
Capital paid-in 487,338,416
Accumulated net realized gain on investments and
financial futures contracts 108,113,697
Net unrealized appreciation of
investments 123,501,738
Accumulated net investment loss (7,967,051)
--------------
Net Assets $710,986,800
=======================================================================
Net Asset Value Per Share:
(Based on net asset values and shares of beneficial
interest outstanding - unlimited number of shares
authorized with no par value)
Class A - $331,175,523/14,880,966 $22.25
=======================================================================
Class B - $367,090,178/17,212,798 $21.33
=======================================================================
Class C* - $7,065/331 $21.33
=======================================================================
Class Y - $12,714,034/556,526 $22.85
=======================================================================
Maximum Offering Price Per Share**
Class A - ($22.25 x 105.26%) $23.42
=======================================================================
* Class C shares commenced operations on March 1, 1999.
** On single retail sales of less than $50,000. On sales of $50,000 or
more and on group sales the offering price is reduced.
The Statement of Operations summarizes the Fund's investment income earned
and expenses incurred in operating the Fund. It also shows net gains for
the period stated.
Statement of Operations
Six months ended April 30, 1999 (Unaudited)
- - -----------------------------------------------------------------------
Investment Income:
Interest $600,904
Dividends 512,280
--------------
1,113,184
--------------
Expenses:
Investment management fee - Note B 3,641,708
Distribution and service fee - Note B
Class A 623,124
Class B 2,177,301
Class C 7
Transfer agent fee - Note B 2,135,013
Interest - Note A 121,267
Custodian fee 104,784
Financial services fee - Note B 64,480
Registration and filing fees 51,809
Printing 32,606
Miscellaneous 29,212
Trustees' fees 23,942
Auditing fee 22,280
Legal fees 4,597
--------------
Total Expenses 9,032,130
- - -----------------------------------------------------------------------
Net Investment Loss (7,918,946)
- - -----------------------------------------------------------------------
Realized and Unrealized Gain on Investments
and Financial Futures Contracts:
Net realized gain on investments sold 109,383,881
Net realized gain on financial futures
contracts 1,903,057
Change in net unrealized
appreciation/depreciation
of investments 12,132,156
--------------
Net Realized and Unrealized
Gain on Investments and
Financial Futures Contracts 123,419,094
- - -----------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $115,500,148
=======================================================================
See notes to financial statements.
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- - ----------------------------------------------------------------------------------------------
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1999
OCTOBER 31, 1998 (UNAUDITED)
---------------- ----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss ($21,431,113) ($7,918,946)
Net realized gain on investments sold and
financial futures contracts 249,345,263 111,286,938
Change in net unrealized
appreciation/depreciation of investments (519,503,107) 12,132,156
---------------- --------------
Net Increase (Decrease) in Net Assets Resulting
from Operations (291,588,957) 115,500,148
---------------- --------------
Distributions to Shareholders:
Distributions from net realized gain on
investments sold
Class A - (none and $0.3730 per share,
respectively) -- (8,117,761)
Class B - (none and $0.3730 per share,
respectively) -- (8,822,320)
Class Y - (none and $0.3730 per share,
respectively) -- (583,124)
---------------- --------------
Total Distributions to Shareholders -- (17,523,205)
---------------- --------------
From Fund Share Transactions - Net: * (616,525,449) (342,171,411)
---------------- --------------
Net Assets:
Beginning of period 1,863,295,674 955,181,268
---------------- --------------
End of period (including accumulated net
investment loss of $48,105 and $7,967,051,
respectively) $955,181,268 $710,986,800
================ ==============
<CAPTION>
Statement of Changes in Net Assets (continued)
- - --------------------------------------------------------------------------------------------------------------------------
* Analysis of Fund Share Transactions:
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1999
OCTOBER 31, 1998 (UNAUDITED)
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold 100,661,197 $2,413,669,605 49,946,468 $1,116,924,774
Shares issued to shareholders in reinvestment
of distributions -- -- 327,000 6,661,532
-------------- -------------- -------------- --------------
100,661,197 2,413,669,605 50,273,468 1,123,586,306
Less shares repurchased (108,875,492) (2,650,476,277) (57,848,479) (1,294,262,521)
-------------- -------------- -------------- --------------
Net decrease (8,214,295) ($236,806,672) (7,575,011) ($170,676,215)
============== ============== ============== ==============
CLASS B
Shares sold 3,960,429 $95,092,203 976,624 $20,838,121
Shares issued to shareholders in reinvestment
of distributions -- -- 348,110 6,820,514
-------------- -------------- -------------- --------------
3,960,429 95,092,203 1,324,734 27,658,635
Less shares repurchased (17,545,625) (422,907,651) (7,812,634) (168,334,322)
-------------- -------------- -------------- --------------
Net decrease (13,585,196) ($327,815,448) (6,487,900) ($140,675,687)
============== ============== ============== ==============
CLASS C **
Shares sold -- -- 331 $6,934
-------------- -------------- -------------- --------------
Net increase -- -- 331 $6,934
============== ============== ============== ==============
CLASS Y
Shares sold 875,735 $23,077,653 87,627 $2,013,176
Shares issued to shareholders in reinvestment
of distributions -- -- 27,910 583,047
-------------- -------------- -------------- --------------
875,735 23,077,653 115,537 2,596,223
Less shares repurchased (2,820,828) (74,980,982) (1,504,124) (33,422,666)
-------------- -------------- -------------- --------------
Net decrease (1,945,093) ($51,903,329) (1,388,587) ($30,826,443)
============== ============== ============== ==============
* Class C shares commenced operations on March 1, 1999.
The Statement of Changes in Net Assets shows how the value of the Fund's
net assets has changed since the end of the previous period. The
difference reflects earnings less expenses, any investment gains and
losses, distributions paid to shareholders and any increase or decrease in
money shareholders invested in the Fund. The footnote illustrates the
number of Fund shares sold, reinvested and repurchased during the last two
periods, along with the corresponding dollar value.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each period indicated, investment returns,
key ratios and supplemental data are listed as follows:
- - ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, SIX MONTHS ENDED
---------------------------------------------------------------- APRIL 30, 1999
1994 1995 1996 1997 1998 (UNAUDITED)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of
Period $16.13 $16.11 $22.15 $24.53 $26.32 $20.21
-------- -------- -------- -------- -------- --------
Net Investment Loss(1) (0.21) (0.18) (0.22) (0.29) (0.27) (0.16)
Net Realized and Unrealized
Gain (Loss) on Investments and
Financial Futures Contracts 0.19 6.22 3.06 2.08 (5.84) 2.57
-------- -------- -------- -------- -------- --------
Total from Investment
Operations (0.02) 6.04 2.84 1.79 (6.11) 2.41
-------- -------- -------- -------- -------- --------
Less Distributions:
Distributions from Net Realized
Gain on Investments Sold -- -- (0.46) -- -- (0.37)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $16.11 $22.15 $24.53 $26.32 $20.21 $22.25
======== ======== ======== ======== ======== ========
Total Investment Return at Net
Asset Value(2) (0.12%) 37.49% 12.96% 7.30% (23.21%) 12.11%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s
omitted) $310,625 $555,655 $972,312 $807,371 $453,919 $331,176
Ratio of Expenses to Average
Net Assets 1.62% 1.48% 1.42% 1.43% 1.41% 1.69%(5,6)
Ratio of Net Investment Loss to
Average Net Assets (1.40%) (0.97%) (0.89%) (1.18%) (1.09%) (1.44%)(5)
Portfolio Turnover Rate 66% 82% 59% 41% 107% 74%
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of
Period $16.08 $15.97 $21.81 $23.96 $25.52 $19.45
-------- -------- -------- -------- -------- --------
Net Investment Loss(1) (0.30) (0.31) (0.40) (0.46) (0.45) (0.23)
Net Realized and Unrealized
Gain (Loss) on Investments and
Financial Futures Contracts 0.19 6.15 3.01 2.02 (5.62) 2.48
-------- -------- -------- -------- -------- --------
Total from Investment
Operations (0.11) 5.84 2.61 1.56 (6.07) 2.25
-------- -------- -------- -------- -------- --------
Less Distributions:
Distributions from Net Realized
Gain on Investments Sold -- -- (0.46) -- -- (0.37)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $15.97 $21.81 $23.96 $25.52 $19.45 $21.33
======== ======== ======== ======== ======== ========
Total Investment Return at Net
Asset Value(2) (0.68%) 36.57% 12.09% 6.51% (23.79%) 11.75%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s
omitted) $191,979 $454,934 $956,374 $951,449 $460,971 $367,090
Ratio of Expenses to Average
Net Assets 2.25% 2.20% 2.16% 2.19% 2.16% 2.36%(5,6)
Ratio of Net Investment Loss to
Average Net Assets (2.02%) (1.69%) (1.65%) (1.95%) (1.84%) (2.11%)(5)
Portfolio Turnover Rate 66% 82% 59% 41% 107% 74%
See notes to financial statements.
<CAPTION>
Financial Highlights (continued)
- - -------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD FROM
MARCH 1, 1999
(COMMENCEMENT OF
OPERATIONS)
TO APRIL 30, 1999
(UNAUDITED)
----------
<S> <C>
CLASS C (3)
Per Share Operating Performance
Net Asset Value, Beginning of
Period $20.92
--------
Net Investment Loss(1) (0.21)
Net Realized and Unrealized
Gain on Investments and
Financial Futures Contracts 0.62
--------
Total from Investment
Operations 0.41
--------
Net Asset Value, End of Period $21.33
========
Total Investment Return at Net
Asset Value(2) 1.96%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s
omitted) $7
Ratio of Expenses to Average
Net Assets 2.49%(5,6)
Ratio of Net Investment Loss to
Average Net Assets (2.45%)(5)
Portfolio Turnover Rate 74%
<CAPTION>
YEAR ENDED OCTOBER 31, SIX MONTHS ENDED
---------------------------------------------------------------- APRIL 30, 1999
1994 1995 1996 1997 1998 (UNAUDITED)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS Y (3)
Per Share Operating Performance
Net Asset Value, Beginning of
Period $16.14 $16.20 $22.40 $24.91 $26.86 $20.71
-------- -------- -------- -------- -------- --------
Net Investment Loss(1) (0.13) (0.09) (0.14) (0.18) (0.17) (0.14)
Net Realized and Unrealized
Gain (Loss) on Investments and
Financial Futures Contracts 0.19 6.29 3.11 2.13 (5.98) 2.65
-------- -------- -------- -------- -------- --------
Total from Investment
Operations 0.06 6.20 2.97 1.95 (6.15) 2.51
-------- -------- -------- -------- -------- --------
Less Distributions:
Distributions from Net Realized
Gain on Investments Sold -- -- (0.46) -- -- (0.37)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $16.20 $22.40 $24.91 $26.86 $20.71 $22.85
======== ======== ======== ======== ======== ========
Total Investment Return at Net
Asset Value(2) 0.37% 38.27% 13.40% 7.83% (22.90%) 12.30%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s
omitted) $7,123 $13,701 $67,498 $104,476 $40,291 $12,714
Ratio of Expenses to Average
Net Assets 1.11% 1.01% 1.03% 0.97% 0.97% 1.48%(5,6)
Ratio of Net Investment Loss to
Average Net Assets (0.89%) (0.50%) (0.54%) (0.73%) (0.66%) (1.21%)(5)
Portfolio Turnover Rate 66% 82% 59% 41% 107% 74%
(1) Based on the average of the shares outstanding at the end of each month.
(2) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(3) Effective June 1, 1998, Class C shares were renamed Class Y shares. The Fund issued new Class C shares on March 1, 1999.
(4) Not annualized.
(5) Annualized.
(6) Expense ratios do not include interest expense due to bank loans, which amounted to less than $0.01 per share.
The Financial Highlights summarizes the impact of the following factors on
a single share for each period indicated: net investment income, gains
(losses), dividends and total investment return of the Fund. It shows how
the Fund's net asset value for a share has changed since the end of the
previous period. Additionally, important relationships between some items
presented in the financial statements are expressed in ratio form.
See notes to financial statements.
</TABLE>
Schedule of Investments
April 30, 1999 (Unaudited)
- - -------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
the Special Equities Fund on April 30, 1999. It's made up of common
stocks, which are broken down by industry groups.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- - ------------------- --------- ------
COMMON STOCKS
Advertising (1.56%)
Catalina Marketing Corp.* 130,000 $11,106,875
------------
Beverages (1.11%)
Beringer Wine Estates Holdings, Inc.
(Class B)* 200,000 7,875,000
------------
Business Services - Misc. (17.99%)
Abacus Direct Corp.* 200,000 14,800,000
Charles River Associates,
Inc.* 355,700 7,825,400
Coinstar, Inc.* 260,000 6,110,000
INSpire Insurance Solutions,
Inc.* 600,000 13,050,000
META Group, Inc. * 13,300 121,362
MedQuist, Inc.* 300,000 10,275,000
Metro Networks, Inc.* 200,000 9,000,000
Metzler Group, Inc. (The)* 300,000 8,362,500
Nielsen Media Research, Inc. 450,000 12,318,750
On Assignment, Inc.* 330,000 10,003,125
ProBusiness Services, Inc.* 342,500 12,287,188
Profit Recovery Group
International, Inc. (The)* 300,000 10,950,000
Quanta Services, Inc.* 427,100 12,305,819
topjobs.net Plc, American Depositary
Receipt (ADR) (United
Kingdom)* 33,500 475,281
------------
127,884,425
------------
Computers (22.49%)
AboveNet Communications,
Inc.* 110,000 9,418,750
Advent Software, Inc.* 140,000 8,627,500
BARRA, Inc.* 340,000 6,651,250
BindView Development Corp.* 360,000 7,740,000
Concentric Network Corp. * 175,000 14,612,500
Exodus Communications, Inc.* 185,000 16,673,125
Fundtech Ltd. (Israel)* 310,000 10,675,625
IMRglobal Corp.* 375,000 6,468,750
Micromuse, Inc. * 250,000 8,609,375
Multex.com, Inc.* 210,100 9,034,300
National Computer Systems,
Inc. 530,000 14,840,000
pcOrder.com, Inc.* 145,000 8,962,812
Proxicom, Inc. * 14,150 317,491
RealNetworks, Inc.* 34,000 7,531,000
Rhythms NetConnections,
Inc.* 21,350 1,761,375
SCM Microsystems, Inc.* 103,000 6,785,125
Verio, Inc.* 100,000 7,100,000
Whittman-Hart, Inc.* 500,000 14,125,000
------------
159,933,978
------------
Electronics (9.76%)
ATMI, Inc.* 270,000 6,210,000
Level One Communications,
Inc.* 130,000 6,678,750
Micrel, Inc.* 155,000 9,125,625
Novellus Systems, Inc.* 150,000 7,087,500
PMC-Sierra, Inc. (Canada)* 80,000 7,670,000
PRI Automation, Inc.* 42,500 1,054,531
Powerwave Technologies, Inc.* 310,000 9,416,250
QLogic Corp. * 137,900 9,644,381
Vitesse Semiconductor Corp.* 270,000 12,504,375
------------
69,391,412
------------
Finance (2.36%)
AmeriCredit Corp.* 289,000 4,786,562
Medallion Financial Corp. 710,300 11,986,313
------------
16,772,875
------------
Food (1.36%)
American Italian Pasta Company
(Class A)* 360,000 9,675,000
------------
Insurance (0.96%)
Horace Mann Educators Corp. 300,000 6,825,000
------------
Leisure (5.53%)
Cinar Corp. (Class B)
(Canada)* 450,000 9,393,750
Imax Corp. (Canada)* 400,000 7,575,000
Premier Parks, Inc. 440,000 15,207,500
Steiner Leisure Ltd.* 225,000 7,143,750
------------
39,320,000
------------
Linen Supply & Related (1.05%)
G & K Services, Inc. (Class A) 160,000 $7,480,000
------------
Machinery (1.20%)
Applied Power, Inc. (Class A) 270,000 8,521,875
------------
Media (3.85%)
Adelphia Communications
Corp. (Class A)* 150,000 10,237,500
Cumulus Media, Inc. (Class A) 400,000 6,475,000
Network Event Theater, Inc.* 175,800 2,582,063
Pegasus Communications
Corp.* 198,000 8,118,000
------------
27,412,563
------------
Medical (7.75%)
Alkermes, Inc.* 280,000 7,490,000
CLOSURE Medical Corp.* 140,000 4,515,000
Gilead Sciences, Inc.* 150,000 6,909,375
Hanger Orthopedic Group,
Inc.* 247,800 3,624,075
IDEC Pharmaceuticals Corp.* 135,000 6,851,250
Inhale Therapeutic Systems,
Inc.* 270,000 7,762,500
Millennium Pharmaceuticals,
Inc.* 170,000 6,321,875
Renal Care Group, Inc.* 410,000 8,558,750
Vertex Pharmaceuticals, Inc.* 145,000 3,063,125
------------
55,095,950
------------
Oil & Gas (1.00%)
Stone Energy Corp.* 210,000 7,126,875
------------
Retail (8.38%)
99 Cents Only Stores* 240,000 11,310,000
Abercrombie & Fitch Co.
(Class A)* 100,000 9,512,500
CSK Auto Corp.* 350,000 8,750,000
Linens 'n Things, Inc.* 200,000 9,150,000
Pacific Sunwear of
California, Inc.* 300,000 11,128,140
Whole Foods Market, Inc.* 250,000 9,750,000
------------
59,600,640
------------
Schools/Education (0.94%)
ITT Educational Services,
Inc.* 270,750 6,650,297
------------
Telecommunications (10.18%)
Allegiance Telecom, Inc.* 150,000 6,900,000
Com21, Inc.* 180,000 5,602,500
Intermedia Communications,
Inc.* 486,000 15,643,125
Metromedia Fiber Network, Inc.
(Class A)* 185,000 15,586,250
NEXTLINK Communications, Inc.
(Class A)* 200,000 14,650,000
RF Micro Devices, Inc.* 250,000 13,968,750
------------
72,350,625
------------
Transport (2.81%)
Expeditors International of
Washington, Inc. 178,168 10,801,435
Forward Air Corp.* 66,900 1,488,525
MotivePower Industries,
Inc.* 450,000 7,678,125
------------
19,968,085
------------
TOTAL COMMON STOCKS
(Cost $589,495,251) (100.28%) 712,991,475
------------ ------------
TOTAL INVESTMENTS (100.28%) 712,991,475
------------ ------------
OTHER ASSETS AND
LIABILITIES, NET (0.28%) (2,004,675)
------------ ------------
TOTAL NET ASSETS (100.00%) $710,986,800
============ ============
*Non-income producing security.
Parenthetical disclosure of a foreign country in the security description
represents country of foreign issuer; however, security is U.S. dollar
denominated.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A -
ACCOUNTING POLICIES
John Hancock Special Equities Fund (the "Fund") is a diversified open-end
management investment company registered under the Investment Company Act
of 1940. The investment objective of the Fund is to seek growth of capital
by investing in a diversified portfolio of equity securities consisting
primarily of emerging growth companies and companies in "special"
situations.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A, Class B, Class C and Class Y shares. The
Fund issued Class C shares on March 1, 1999. The shares of each class
represent an interest in the same portfolio of investments of the Fund and
have equal rights to voting, redemptions, dividends and liquidation,
except that certain expenses, subject to the approval of the Trustees, may
be applied differently to each class of shares in accordance with current
regulations of the Securities and Exchange Commission and the Internal
Revenue Service. Shareholders of a class which bears distribution and
service expenses under terms of a distribution plan have exclusive voting
rights to that distribution plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on
the basis of market quotations, valuations provided by independent
pricing services or at fair value as determined in good faith in
accordance with procedures approved by the Trustees. Short-term debt
investments maturing within 60 days are valued at amortized cost, which
approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock
Advisers, Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley
Financial Group, Inc., may participate in a joint repurchase agreement
transaction. Aggregate cash balances are invested in one or more large
repurchase agreements, whose underlying securities are obligations of the
U.S. government and/or its agencies. The Fund's custodian bank receives
delivery of the underlying securities for the joint account on the Fund's
behalf. The Adviser is responsible for ensuring that the agreement is
fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the
date of purchase, sale or maturity. Net realized gains and losses on sales
of investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund qualifies as a "regulated investment
company" by complying with the applicable provisions of the Internal
Revenue Code and will not be subject to federal income tax on taxable
income which is distributed to shareholders. Therefore, no federal income
tax provision is required.
DIVIDENDS, INTEREST AND DISTRIBUTIONS Dividend income on investment
securities is recorded on the ex-dividend date. Interest income on
investment securities is recorded on the accrual basis.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations, which may differ
from generally accepted accounting principles. Dividends paid by the Fund
with respect to each class of shares will be calculated in the same
manner, at the same time and will be in the same amount, except for the
effect of expenses that may be applied differently to each class.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized
gains (losses) are calculated at the Fund level and allocated daily to
each class of shares based on the appropriate net assets of the respective
classes. Distribution and service fees, if any, are calculated daily at
the class level based on the appropriate net assets of each class and the
specific expense rate(s) applicable to each class.
USE OF ESTIMATES The preparation of these financial statements in
accordance with generally accepted accounting principles incorporates
estimates made by management in determining the reported amounts of
assets, liabilities, revenues and expenses of the Fund. Actual results
could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for
temporary or emergency purposes, including the meeting of redemption
requests that otherwise might require the untimely disposition of
securities. Effective March 12, 1999, the Fund entered into a syndicated
line of credit agreement with various banks, and the agreements previously
in effect were terminated. This agreement enables the Fund to participate
with other funds managed by the Adviser in an unsecured line of credit
with banks which permit borrowings up to $500 million, collectively.
Interest is charged to each fund, based on its borrowing. In addition, a
commitment fee based on the average daily unused portion of the line of
credit is allocated among the participating funds. The maximum loan
balance during the period amounted to $63,100,000. The annualized interest
rate charged during the period ranged from 5.1250% thru 5.5625%. At April
30, 1999, there were no outstanding borrowings.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts to hedge against the effects of fluctuations in interest rates
and other market conditions. Buying futures tends to increase the Fund's
exposure to the underlying instrument. Selling futures tends to decrease
the Fund's exposure to the underlying instrument or hedge other Fund
instruments. At the time the Fund enters into a financial futures
contract, it is required to deposit with its custodian a specified amount
of cash or U.S. government securities, known as "initial margin," equal to
a certain percentage of the value of the financial futures contract being
traded. Each day, the futures contract is valued at the official
settlement price of the board of trade or U.S. commodities exchange on
which it trades. Subsequent payments, known as "variation margin," to and
from the broker are made on a daily basis as the market price of the
financial futures contract fluctuates. Daily variation margin
adjustments, arising from this "mark to market," are recorded by the Fund
as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss. Risks
of entering into futures contracts include the possibility that there may
be an illiquid market and/or that a change in the value of the contracts
may not correlate with changes in the value of the underlying securities.
In addition, the Fund could be prevented from opening or realizing the
benefits of closing out futures positions because of position limits or
limits on daily price fluctuation imposed by an exchange.
For federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of futures
contracts.
At April 30, 1999, there were no open positions in financial futures
contracts.
NOTE B -
MANAGEMENT FEE AND TRANSACTIONS WITH
AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program
equivalent, on an annual basis, to the sum of (a) 0.85% of the first
$250,000,000 of the Fund's average daily net asset value and (b) 0.80% of
the Fund's average daily net asset value in excess of $250,000,000.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended
April 30, 1999, net sales charges received with regard to sales of Class A
shares amounted to $259,499. Out of this amount, $32,438 was retained and
used for printing prospectuses, advertising, sales literature and other
purposes, $143,879 was paid as sales commissions to unrelated
broker-dealers and $83,182 was paid as sales commissions to sales
personnel of Signator Investors, Inc. ("Signator Investors"), a related
broker-dealer, formerly known as John Hancock Distributors, Inc. The
Adviser's indirect parent, John Hancock Mutual Life Insurance Company
("JHMLICo"), is the indirect sole shareholder of Signator Investors.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.00% of the lesser of the current market value at the time
of redemption or the original purchase cost of the shares being redeemed.
Proceeds from the CDSC are paid to JH Funds and are used in whole or in
part to defray its expenses for providing distribution related services to
the Fund in connection with the sale of Class B shares. For the period
ended April 30, 1999, contingent deferred sales charges paid to JH Funds
amounted to $2,156,128.
Class C shares which are redeemed within one year of purchase will be
subject to a CDSC at a rate of 1.00% of the lesser of the current market
value at the time of redemption or the original purchase cost of the
shares being redeemed. Proceeds from the CDSC are paid to JH Funds and
are used in whole or in part to defray its expenses for providing
distribution related services to the Fund in connection with the sale of
Class C shares. There were no contingent deferred sales charges paid to JH
Funds for the year ended April 30, 1999.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted Distribution Plans
with respect to Class A, Class B and Class C pursuant to Rule 12b-1 under
the Investment Company Act of 1940. Accordingly, the Fund will make
payments to JH Funds for distribution and service expenses, at an annual
rate not to exceed 0.30% of Class A average daily net assets and 1.00% of
Class B and Class C average daily net assets, to reimburse JH Funds for
its distribution and service costs. Up to a maximum of 0.25% of such
payments may be service fees as defined by the amended Rules of Fair
Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's
12b-1 payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of JHMLICo.
Class A, Class B and Class C shares pay transfer agent fees based on the
number of shareholder accounts and certain out-of-pocket expenses. Class Y
shares pay a monthly transfer agent fee equivalent to 0.10% of the average
daily net assets of the Class Y shares of the Fund.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for the
period was at an annual rate of less than 0.02% of the average net assets
of the Fund.
Mr. Edward J. Boudreau, Jr., Mr. Stephen L. Brown, Ms. Anne C. Hodsdon and
Mr. Richard S. Scipione are trustees and/or officers of the Adviser and/or
its affiliates, as well as Trustees of the Fund. The compensation of
unaffiliated Trustees is borne by the Fund. The unaffiliated Trustees may
elect to defer for tax purposes their receipt of this compensation under
the John Hancock Group of Funds Deferred Compensation Plan. The Fund makes
investments into other John Hancock funds, as applicable, to cover its
liability for the deferred compensation. Investments to cover the Fund's
deferred compensation liability are recorded on the Fund's books as an
other asset. The deferred compensation liability and the related other
asset are always equal and are marked to market on a periodic basis to
reflect any income earned by the investment as well as any unrealized
gains or losses. At April 30, 1999, the Fund's investments to cover the
deferred compensation liability had unrealized appreciation of $5,514.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other then obligations of
the U.S. government and its agencies and short-term securities, during
the period ended April 30, 1999, aggregated $651,316,082 and $926,652,946,
respectively. There were no purchases or sales of obligations of the U.S.
government and its agencies during the period ended April 30, 1999.
The cost of investments owned at April 30, 1999 (excluding the corporate
savings account) for federal income tax purposes was $590,349,914. Gross
unrealized appreciation and depreciation of investments aggregated
$163,262,788 and $40,621,227, respectively, resulting in net unrealized
appreciation of $122,641,561.
NOTE D -
TRANSACTIONS IN SECURITIES OF AFFILIATED ISSUERS
Affiliated issuers, as defined by the Investment Company Act of 1940, are
those in which the Fund's holdings of an issuer represent 5% or more of
the outstanding voting securities of the issuer. A summary of the Fund's
transactions in the securities of these issuers during the period ended
April 30, 1999 is set forth below.
<TABLE>
<CAPTION>
ACQUISITIONS DISPOSITIONS
BEGINNING ------------------- --------------- ENDING
SHARE SHARE SHARE SHARE REALIZED DIVIDEND ENDING
AFFILIATE AMOUNT AMOUNT COST AMOUNT COST AMOUNT GAIN (LOSS) INCOME VALUE
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Medallion Financial Corp. 615,300 95,000 $1,916,318 -- $ -- 710,300 $ -- $393,792 $11,986,313
pcOrder.com, Inc. -- 145,000 9,664,927 -- -- 145,000 -- -- 8,962,812
----------- ---- -------- -------- -----------
$11,581,245 $ -- $ -- $393,792 $20,949,125
</TABLE>
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180SA 4/99
6/99
<PAGE>
Exhibit C
JOHN HANCOCK SMALL CAP GROWTH FUND
NOTES TO PRO-FORMA COMBINED FINANCIAL STATEMENTS
APRIL 30, 1999
Pro-forma information is intended to provide shareholders of the John Hancock
Small Cap Growth Fund (JHSCGF) and John Hancock Special Equities Fund (JHSEF)
with information about the impact of the proposed merger by indicating how the
merger might have affected information had the merger been consummated as of
April 30, 1998.
The pro-forma combined statements of assets and liabilities and results of
operations as of April 30, 1999, have been prepared to reflect the merger of
JHSCGF and JHSEF after giving effect to pro-forma adjustments described in the
notes listed below.
(a) Acquisition by John Hancock Small Cap Growth Fund of all
the assets of John Hancock Special Equities Fund and issuance
of John Hancock Small Cap Growth Fund Class A, Class B and
Class C shares in exchange for all of the outstanding Class A,
Class B and Class C shares, respectively of John Hancock
Special Equities Fund. Small Cap Growth Fund will issue Class I
shares to Special Equities Fund in an amount equal to the value
of Special Equities Fund's net assets attributable to Class Y.
(b) The investment advisory fee was adjusted to reflect the
application of the fee structure which will be in effect for
John Hancock Small Cap Growth Fund: 0.75% of the first
$1,500,000,000 of the Fund's average daily net asset value and
0.70% of the Fund's average daily net asset value in excess of
$1,500,000,000.
(c) The 12b-1 fee was adjusted to reflect the application of
the fee structure at the maxium rates, which will be in effect
for the John Hancock Small Cap Growth Fund: 0.25% of Class A
average daily net assets, 1.00% of Class B average daily net
assets and 1.00% of Class C average daily net assets.
(d) The transfer agent fee for the Class A, Class B and Class
C shares is the total of the respective individual Fund's
transfer agent fees. The main criteria in determining the
transfer agent fees for a specific class is the number of
shareholder accounts.
(e) The actual expenses incurred by the John Hancock Small Cap
Growth Fund and John Hancock Special Equities Fund for various
expenses included on a pro-forma basis were reduced to reflect
the estimated savings arising from the merger.
<PAGE>
John Hancock Small Cap Growth Fund
Pro-forma combined statement of assets and liabilities
For the year ended April 30, 1999
<TABLE>
<CAPTION>
John Hancock John Hancock
Small Cap Growth Special Equities Pro-Forma
Fund Fund Adjustments Combined
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Assets
Investments at value $ 646,560,907 $ 712,991,475 $ - $ 1,359,552,382
Receivable for investments sold 6,163,975 51,400,389 - 57,564,364
Receivable for foreign currency exchange contracts sold - - - -
Receivable for shares sold 257,711 115,756 - 373,467
Dividends receivable 4,157 - - 4,157
Interest receivable 1,847 - - 1,847
Other Assets 109,789 69,195 - 178,984
----------------- ----------------- ----------------- -----------------
Total Assets 653,098,386 764,576,815 - 1,417,675,201
----------------- ----------------- ----------------- -----------------
Liabilities
Payable for investments purchased 12,278,809 24,935,962 - 37,214,771
Payable for shares repurchased 357,676 1,263,431 - 1,621,107
Due to custodian - 26,613,739 - 26,613,739
Payable to John Hancock Advisers, Inc, and affiliates 620,393 674,079 - 1,294,472
Accounts payable and accrued expenses 113,336 102,804 - 216,140
----------------- ----------------- ----------------- -----------------
Total Liabilities 13,370,214 53,590,015 - 66,960,229
----------------- ----------------- ----------------- -----------------
Net Assets:
Capital paid-in 359,095,874 487,338,416 - 846,434,290
Accumulated net realized gain on investments, financial
futures contracts, and foreign currency transactions 63,740,164 108,113,697 - 171,853,861
Net unrealized appreciation of investments,
financial futures contracts and foreign currency
transactions 221,812,714 123,501,738 - 345,314,452
Accumulated net investment loss (4,920,580) (7,967,051) - (12,887,631)
----------------- ----------------- ----------------- -----------------
Net Assets $ 639,728,172 $ 710,986,800 $ - $ 1,350,714,972
================= ================= ================= =================
Net Assets:
Small Cap Growth
Class A $ 212,739,382 $ - $ 331,175,523 (a) $ 543,914,905
Class B 426,084,058 - 367,090,178 (a) 793,174,236
Class C 904,732 - 7,065 (a) 911,797
Class Y - - 12,714,034 (a) 12,714,034
Special Equities
Class A - 331,175,523 (331,175,523)(a) -
Class B - 367,090,178 (367,090,178)(a) -
Class C - 7,065 (7,065)(a) -
Class Y - 12,714,034 (12,714,034)(a) -
================= ================= ================= =================
$ 639,728,172 $ 710,986,800 $ - $ 1,350,714,972
================= ================= ================= =================
Shares Outstanding:
Small Cap Growth
Class A 19,439,594 30,271,986 (a) 49,711,580
Class B 42,139,173 36,309,612 (a) 78,448,785
Class C 89,564 700 (a) 90,264
Class Y - 1,162,160.00 (a) 1,162,160
Special Equities
Class A - 14,880,966 (14,880,966)(a) -
Class B - 17,212,798 (17,212,798)(a) -
Class C - 331 (331)(a) -
Class Y - 556,526 (556,526)(a) -
----------------- ----------------- ----------------- -----------------
Net Asset Value Per Share:
Small Cap Growth
Class A $10.94 - - $10.94
Class B $10.11 - - $10.11
Class C $10.10 - - $10.10
Class Y $10.94 - - $10.94
Special Equities
Class A - $22.25 ($22.25)(a) -
Class B - $21.33 ($21.33)(a) -
Class C - $21.33 ($21.33)(a) -
Class Y - $22.85 ($22.85)(a) -
================= ================= ================= =================
<PAGE>
John Hancock Small Cap Growth Fund Exhibit C
Pro-forma combined statement of operations
For the year ended April 30, 1999
John Hancock
John Hancock Special
Small Cap Growth Equities
Fund Fund Pro Forma
April 30, 1999 April 30, 1999 Adjustments Combined
-------------- -------------- ----------- --------
<S> <C> <C> <C> <C>
Investment Income:
Interest $ 377,740 $ 2,640,001 $ - $ 3,017,741
Dividends 926,649 863,464 - 1,790,113
------------------ ---------------- ---------------- ----------------
Total 1,304,389 3,503,465 - 4,807,854
------------------ ---------------- ---------------- ----------------
Expenses:
Investment management fee 4,549,840 8,565,481 (733,379) (b) 12,381,942
Distribution and service fee
Class A 491,537 1,436,500 (239,417) (c) 1,688,620
Class B 3,763,663 5,209,669 - 8,973,332
Class C 4,635 7 - 4,642
Transfer agent fee (d) 1,539,180 3,593,753 - 5,132,933
Custodian fee 229,406 231,345 (55,300) (e) 405,451
Financial services fee 91,032 160,120 - 251,152
Registration and filing fee 100,685 51,768 (7,600) (e) 144,853
Trustees' fee 46,942 75,668 - 122,610
Printing 59,044 137,244 (19,600) (e) 176,688
Auditing fees 42,349 47,074 (40,240) (e) 49,183
Miscellaneous 19,824 35,594 - 55,418
Legal fees 10,495 12,359 - 22,854
------------------ ---------------- ---------------- ----------------
Total Expenses 10,948,632 19,556,582 (1,095,536) 29,409,678
------------------ ---------------- ---------------- ----------------
Net Investment Income (9,644,243) (16,053,117) 1,095,536 (24,601,824)
------------------ ---------------- ---------------- ----------------
Realized and Unrealized Gain (Loss) on
Investments, Financial Futures Contracts,
and Foreign Currency Transactions:
Net realized gain (loss) on investments 59,462,501 101,345,547 - 160,808,048
Change in net unrealized appreciation
(depreciation) of investments 104,622,837 202,007,910 - 306,630,747
------------------ ----------------- ------------------ ------------------
Net Realized and Unrealized
Gain (Loss) on Investments 164,085,338 303,353,457 - 467,438,795
------------------ ----------------- ------------------ ------------------
Net Increase in Net Assets
Resulting from Operation $ 154,441,095 $ 287,300,340 $ 1,095,536 $ 442,836,971
================== ================= ================== ==================
<PAGE>
Schedule of Investments
April 30, 1999 (Unaudited)
- ------------------------------------
Small Cap Growth Fund Special Equities Fund Combined
NUMBER OF NUMBER OF NUMBER OF
ISSUER, DESCRIPTION SHARES MARKET VALUE SHARES MARKET VALUE SHARES MARKET VALUE
- ------------------------------------ --------- ------------ --------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS
Advertising (1.66%)
Catalina Marketing Corp.* 65,400 $5,587,613 130,000 $11,106,875 195,400 $16,694,488
Getty Images, Inc* 222,300 5,779,800 222,300 5,779,800
-------------------------- -------------------------- --------------------------
11,367,413 11,106,875 22,474,288
------------- ------------- ------------
Automobile / Trucks (0.76%)
Gentex Corp.* 183,400 5,513,463 183,400 5,513,463
United Rentals, Inc. * 159,000 4,740,188 159,000 4,740,188
-------------------------- --------------------------
10,253,651 10,253,651
------------- ------------
Beverages (0.81%)
Beringer Wine Estates Holdings, Inc. (Class B)* 79,500 3,130,313 200,000 7,875,000 279,500 11,005,313
-------------------------- -------------------------- --------------------------
Broker Services (0.20%)
Raymond James Financial, Inc. 126,087 2,718,751 126,087 2,718,751
-------------------------- -------------------------
Building (0.14%)
Crossmann Communities, Inc.* 72,300 1,897,875 72,300 1,897,875
-------------------------- -------------------------
Business Services - Misc (14.83%)
Abacus Direct Corp.* 83,500 6,179,000 200,000 14,800,000 283,500 20,979,000
Charles River Associates Inc.* 138,000 3,036,000 355,700 7,825,400 493,700 10,861,400
Coinstar, Inc.* 260,800 6,128,800 260,000 6,110,000 520,800 12,238,800
Corporate Executive Board Co. (The)* 68,200 1,918,125 68,200 1,918,125
Forrester Research, Inc.* 168,200 5,718,800 168,200 5,718,800
INSpire Insurance Solutions, Inc.* 255,300 5,552,775 600,000 13,050,000 855,300 18,602,775
MedQuist Inc.* 143,000 4,897,750 300,000 10,275,000 443,000 15,172,750
META Group, Inc. * 135,200 1,233,700 13,300 121,362 148,500 1,355,062
Metro Networks, Inc.* 101,596 4,571,820 200,000 9,000,000 301,596 13,571,820
Metzler Group, Inc. (The)* 121,550 3,388,206 300,000 8,362,500 421,550 11,750,706
Modem Media Poppe Tyson, Inc.* 75,500 2,661,375 75,500 2,661,375
Nielsen Media Research, Inc.* 185,000 5,064,375 450,000 12,318,750 635,000 17,383,125
On Assignment, Inc.* 145,900 4,422,594 330,000 10,003,125 475,900 14,425,719
ProBusiness Services, Inc.* 139,650 5,009,944 342,500 12,287,188 482,150 17,297,132
Professional Detailing, Inc.* 109,000 3,133,750 109,000 3,133,750
Profit Recovery Group International, Inc. (The)* 129,200 $4,715,800 300,000 $10,950,000 429,200 $15,665,800
Quanta Services, Inc.* 151,800 4,373,737 427,100 12,305,819 578,900 16,679,556
topjobs.net Plc, American Depositary Receipts
(United Kingdom)* 29,700 421,369 33,500 475,281 63,200 896,650
------------------------- -------------------------- -------------------------
72,427,920 127,884,425 200,312,345
----------- ------------- -------------
Computers (21.93%)
AboveNet Communications Inc.* 63,100 5,402,937 110,000 9,418,750 173,100 14,821,687
Advent Software, Inc.* 72,000 4,437,000 140,000 8,627,500 212,000 13,064,500
AnswerThink Consulting Group, Inc.* 155,500 3,450,156 155,500 3,450,156
Apex PC Solutions, Inc.* 219,750 3,653,344 219,750 3,653,344
AppliedTheory Corp.* 4,600 94,300 4,600 94,300
Aspect Development, Inc.* 174,700 1,910,781 174,700 1,910,781
autobytel.com, inc.* 38,700 1,161,000 38,700 1,161,000
BARRA, Inc.* 42,650 834,341 340,000 6,651,250 382,650 7,485,591
BindView Development Corp.* 153,900 3,308,850 360,000 7,740,000 513,900 11,048,850
BMC Software, Inc.* 39,000 1,679,437 39,000 1,679,437
Bottomline Technologies, Inc.* 26,500 1,550,250 26,500 1,550,250
Cognizant Technology Solutions Corp.* 155,800 3,495,762 155,800 3,495,762
Concentric Network Corp. * 71,500 5,970,250 175,000 14,612,500 246,500 20,582,750
Critical Path, Inc.* 8,100 805,950 8,100 805,950
Dendrite International, Inc.* 103,100 2,667,713 103,100 2,667,713
Exodus Communications, Inc.* 61,800 5,569,725 185,000 16,673,125 246,800 22,242,850
Extreme Networks, Inc.* 7,300 404,694 7,300 404,694
Fundtech Ltd. (Israel)* 210,000 7,231,875 310,000 10,675,625 520,000 17,907,500
IMRglobal Corp.* 155,700 2,685,825 375,000 6,468,750 530,700 9,154,575
Informatica Corp.* 4,800 135,600 4,800 135,600
International Network Services, Inc.* 93,550 3,554,900 93,550 3,554,900
Intraware, Inc.* 46,000 1,408,750 46,000 1,408,750
iVillage, Inc.* 4,600 363,400 4,600 363,400
Marimba, Inc.* 2,200 133,650 2,200 133,650
Micromuse Inc. * 126,800 4,366,675 250,000 8,609,375 376,800 12,976,050
MiningCo.com, Inc.* 3,900 255,450 3,900 255,450
Mpath Interactive, Inc.* 30,600 1,204,875 30,600 1,204,875
Multex.com Inc.* 116,700 5,018,100 210,100 9,034,300 326,800 14,052,400
National Computer Systems, Inc. 167,700 4,695,600 530,000 14,840,000 697,700 19,535,600
National Instruments Corp.* 86,050 2,925,700 86,050 2,925,700
NEON Systems, Inc.* 7,450 312,900 7,450 312,900
Net Perceptions, Inc.* 4,300 113,412 4,300 113,412
Network Appliance, Inc.* 125,600 6,319,250 125,600 6,319,250
ONYX Software Corp.* 7,000 163,625 7,000 163,625
pcOrder.com, Inc.* 47,100 2,911,369 145,000 8,962,812 192,100 11,874,181
Prodigy Communications Corp.* 86,800 2,332,750 86,800 2,332,750
Proxicom, Inc.* 12,400 278,225 14,150 317,491 26,550 595,716
PSINet Inc.* 79,100 3,994,550 79,100 3,994,550
Razorfish Inc.* 1,400 60,900 1,400 60,900
RealNetworks, Inc.* 17,900 3,964,850 34,000 7,531,000 51,900 11,495,850
Rhythms NetConnections, Inc.* 17,300 1,427,250 21,350 1,761,375 38,650 3,188,625
Sagent Technology, Inc.* 81,700 776,150 81,700 776,150
SCM Microsystems, Inc.* 66,900 4,407,037 103,000 6,785,125 169,900 11,192,162
SEI Investments Co. 17,000 1,615,000 17,000 1,615,000
SOFTWORKS, Inc.* 70,000 870,625 70,000 870,625
SportsLine USA Inc.* 87,100 3,484,000 87,100 3,484,000
Sterling Commerce, Inc.* 46,323 1,450,489 46,323 1,450,489
USinternetworking, Inc.* 4,300 219,838 4,300 219,838
Value America, Inc.* 6,900 272,119 6,900 272,119
Verio Inc.* 110,800 7,866,800 100,000 7,100,000 210,800 14,966,800
VerticalNet, Inc.* 22,100 2,508,350 22,100 2,508,350
Vignette Corp.* 12,500 $1,187,500 12,500 $1,187,500
WebTrends Corp.* 5,400 286,875 5,400 286,875
Whittman-Hart, Inc.* 255,200 7,209,400 500,000 14,125,000 755,200 21,334,400
Wind River Systems, Inc.* 123,700 1,855,500 123,700 1,855,500
-------------------------- -------------------------- -------------------------
136,265,654 159,933,978 296,199,632
------------- -------------- -------------
Consumer Products Misc. (0.10%)
Select Comfort Corp.* 84,000 1,359,750 84,000 1,359,750
-------------------------- -------------
Containers (0.07%)
Ivex Packaging Corp.* 50,000 984,375 50,000 984,375
-------------------------- -------------
Electronics (9.17%)
ATMI, Inc.* 160,900 3,700,700 270,000 6,210,000 430,900 9,910,700
Credence Systems Corp.* 154,300 3,963,581 154,300 3,963,581
DuPont Photomasks, Inc.* 80,000 3,500,000 80,000 3,500,000
Flextronics International Ltd.* 104,000 4,855,500 104,000 4,855,500
KLA-Tencor Corp.* 40,000 1,985,000 40,000 1,985,000
L-3 Communications Holdings, Inc.* 21,400 1,044,588 21,400 1,044,588
Level One Communications, Inc.* 78,925 4,054,772 130,000 6,678,750 208,925 10,733,522
Micrel, Inc.* 71,200 4,191,900 155,000 9,125,625 226,200 13,317,525
Microwave Power Devices, Inc.* 240,000 3,075,000 240,000 3,075,000
Novellus Systems, Inc.* 50,400 2,381,400 150,000 7,087,500 200,400 9,468,900
PLX Technology, Inc.* 140,100 2,714,437 140,100 2,714,437
PMC-Sierra, Inc. (Canada)* 27,200 2,607,800 80,000 7,670,000 107,200 10,277,800
Powerwave Technologies, Inc. * 151,300 4,595,737 310,000 9,416,250 461,300 14,011,987
PRI Automation, Inc.* 111,100 2,756,669 42,500 1,054,531 153,600 3,811,200
QLogic Corp. * 81,800 5,720,888 137,900 9,644,381 219,700 15,365,269
Semtech Corp.* 103,600 3,379,950 103,600 3,379,950
Vitesse Semiconductor Corp 270,000 12,504,375 270,000 12,504,375
-------------------------- -------------------------- -------------------------
54,527,922 69,391,412 123,919,334
------------ ------------- ------------
Finance (2.82%)
Affiliated Managers Group, Inc.* 118,400 3,441,000 118,400 3,441,000
AmeriCredit Corp.* 217,700 3,605,656 289,000 4,786,562 506,700 8,392,218
Medallion Financial Corp. 270,800 4,569,750 710,300 11,986,313 981,100 16,556,063
Metris Cos., Inc. 62,400 3,814,200 62,400 3,814,200
Price (T. Rowe) Associates, Inc. 39,500 1,488,656 39,500 1,488,656
TeleBanc Financial Corp.* 42,200 4,372,975 42,200 4,372,975
-------------------------- -------------------------- -------------------------
21,292,237 16,772,875 38,065,112
------------ ------------ -----------
Food (1.14%)
American Italian Pasta Co. (Class A)* 212,300 5,705,562 360,000 9,675,000 572,300 15,380,562
-------------------------- -------------------------- -------------------------
Insurance (0.84%)
Executive Risk, Inc. 24,200 $1,736,350 24,200 $1,736,350
Horace Mann Educators Corp. 86,800 1,974,700 300,000 6,825,000 386,800 8,799,700
Medical Assurance, Inc.* 28,750 790,625 28,750 790,625
-------------------------- -------------------------- -------------------------
4,501,675 6,825,000 11,326,675
----------- ----------- -----------
Leisure (4.44%)
Cinar Films, Inc. (Class B) (Canada)* 235,000 4,905,625 450,000 9,393,750 685,000 14,299,375
Imax Corp. (Canada)* 160,000 3,030,000 400,000 7,575,000 560,000 10,605,000
Premier Parks, Inc.* 189,800 6,559,962 440,000 15,207,500 629,800 21,767,462
Steiner Leisure Ltd.* 195,500 6,207,125 225,000 7,143,750 420,500 13,350,875
-------------------------- -------------------------- -------------------------
20,702,712 39,320,000 60,022,712
------------ ------------ -----------
Linen Supply & Related (0.83%)
G & K Services, Inc. (Class A) 81,000 3,786,750 160,000 7,480,000 241,000 11,266,750
-------------------------- -------------------------- -------------------------
Machinery (0.88%)
Applied Power, Inc. (Class A) 106,800 3,370,875 270,000 8,521,875 376,800 11,892,750
-------------------------- -------------------------- -------------------------
Media (5.06%)
Adelphia Communications Corp. (Class A)* 114,000 7,780,500 150,000 10,237,500 264,000 18,018,000
Citadel Communications Corp.* 155,800 4,362,400 155,800 4,362,400
Clear Channel Communications, Inc.* 56,414 3,920,773 56,414 3,920,773
Cumulus Media Inc. (Class A) * 150,000 2,428,125 400,000 6,475,000 550,000 8,903,125
Entercom Communications Corp.* 30,600 1,136,025 30,600 1,136,025
Harte-Hanks, Inc. 141,800 3,580,450 141,800 3,580,450
Heftel Broadcasting Corp. (Class A)* 73,000 3,969,375 73,000 3,969,375
Network Event Theater, Inc.* 369,800 5,431,437 175,800 2,582,063 545,600 8,013,500
Pegasus Communications Corp.* 143,500 5,883,500 198,000 8,118,000 341,500 14,001,500
Wiley (John) & Sons, Inc. (Class A) 59,700 2,414,119 59,700 2,414,119
-------------------------- -------------------------- -------------------------
40,906,704 27,412,563 68,319,267
------------ ------------ -----------
Medical (7.20%)
Alkermes, Inc.* 156,900 4,197,075 280,000 7,490,000 436,900 11,687,075
CLOSURE Medical Corp.* 59,600 1,922,100 140,000 4,515,000 199,600 6,437,100
Gilead Sciences, Inc.* 80,600 3,712,637 150,000 6,909,375 230,600 10,622,012
HCR Manor Care, Inc.* 40,950 1,136,363 40,950 1,136,363
Hanger Orthopedic Group, Inc. 247,800 3,624,075 247,800 3,624,075
Human Genome Sciences, Inc.* 51,000 1,887,000 51,000 1,887,000
IDEC Pharmaceuticals Corp.* 106,700 5,415,025 135,000 6,851,250 241,700 12,266,275
Inhale Therapeutic Systems, Inc.* 148,900 4,280,875 270,000 7,762,500 418,900 12,043,375
Millennium Pharmaceuticals, Inc.* 55,000 2,045,313 170,000 6,321,875 225,000 8,367,188
MiniMed, Inc.* 87,600 5,475,000 87,600 5,475,000
Perclose, Inc.* 109,600 4,164,800 109,600 4,164,800
Pharmacyclics, Inc.* 151,900 2,164,575 151,900 2,164,575
Renal Care Group, Inc.* 175,900 3,671,912 410,000 8,558,750 585,900 12,230,662
Res-Care, Inc.* 114,050 2,109,925 114,050 2,109,925
Vertex Pharmaceuticals, Inc. 145,000 $3,063,125 145,000 $3,063,125
-------------------------- -------------------------- -------------------------
42,182,600 55,095,950 97,278,550
------------ ------------ -----------
Metal (0.05%)
NCI Building Systems, Inc.* 28,400 683,375 28,400 683,375
-------------------------- ------------------------
Oil & Gas (1.01%)
Dril-Quip, Inc.* 89,900 2,191,313 89,900 2,191,313
J. Ray McDermott, S.A.* 46,700 1,471,050 46,700 1,471,050
Newfield Exploration Co.* 90,200 2,424,125 90,200 2,424,125
Stone Energy Corp* 210,000 7,126,875 210,000 7,126,875
Veritas DGC, Inc.* 22,350 452,588 22,350 452,588
-------------------------- -------------------------- -------------------------
6,539,076 7,126,875 13,665,951
----------- ----------- -----------
Pollution Control (0.38%)
Newpark Resources, Inc.* 201,200 1,848,525 201,200 1,848,525
Tetra Tech, Inc.* 133,900 3,238,706 133,900 3,238,706
-------------------------- -------------------------
5,087,231 5,087,231
----------- ----------
Printing - Commercial (0.36%)
Consolidated Graphics, Inc.* 60,400 2,574,550 60,400 2,574,550
Mail-Well, Inc.* 178,800 2,335,575 178,800 2,335,575
-------------------------- -------------------------
4,910,125 4,910,125
----------- ----------
Retail (10.21%)
99 Cents Only Stores* 95,062 4,479,797 240,000 11,310,000 335,062 15,789,797
Abercrombie & Fitch Co. (Class A)* 56,600 5,384,075 100,000 9,512,500 156,600 14,896,575
Applebee's International, Inc. 147,050 3,795,728 147,050 3,795,728
bebe stores, inc.* 128,200 4,871,600 128,200 4,871,600
Buca, Inc.* 42,500 770,313 42,500 770,313
CSK Auto Corp.* 189,500 4,737,500 350,000 8,750,000 539,500 13,487,500
CVS Corp.* 43,000 2,047,875 43,000 2,047,875
Duane Reade Inc.* 93,000 2,493,562 93,000 2,493,562
Ethan Allen Interiors, Inc. 77,500 3,928,281 77,500 3,928,281
Garden Fresh Restaurant Corp.* 145,500 2,364,375 145,500 2,364,375
Insight Enterprises, Inc.* 124,400 3,358,800 124,400 3,358,800
Linens 'N Things, Inc.* 135,000 6,176,250 200,000 9,150,000 335,000 15,326,250
Lowe's Cos., Inc. 56,136 2,961,174 56,136 2,961,174
Noodle Kidoodle, Inc.* 277,200 1,975,050 277,200 1,975,050
O'Reilly Automotive, Inc.* 98,000 4,483,500 98,000 4,483,500
P.F. Chang's China Bistro, Inc.* 96,200 2,429,050 96,200 2,429,050
Pacific Sunwear of California, Inc.* 144,800 5,371,182 300,000 11,128,140 444,800 16,499,322
Starbucks Corp.* 106,600 3,937,538 106,600 3,937,538
Wet Seal, Inc. (The) (Class A)* 105,600 $4,303,200 105,600 $4,303,200
Whole Foods Market, Inc.* 98,900 3,857,100 250,000 9,750,000 348,900 13,607,100
Wild Oats Markets, Inc.* 163,700 4,532,444 163,700 4,532,444
-------------------------- -------------------------- -------------------------
78,258,394 59,600,640 137,859,034
------------ ------------ ------------
Schools / Education (1.33%)
Education Management Corp.* 170,400 3,397,350 170,400 3,397,350
ITT Educational Services, Inc.* 172,150 4,228,434 270,750 6,650,297 442,900 10,878,731
Strayer Education, Inc. 106,750 3,696,219 106,750 3,696,219
-------------------------- -------------------------- -------------------------
11,322,003 6,650,297 17,972,300
------------ ----------- -----------
Telecommunications (10.14%)
Allegiance Telecom, Inc.* 160,000 7,360,000 150,000 6,900,000 310,000 14,260,000
Com21, Inc.* 139,400 4,338,825 180,000 5,602,500 319,400 9,941,325
Crown Castle International Corp.* 282,300 5,398,987 282,300 5,398,987
Global TeleSystems Group, Inc.* 57,200 3,782,350 57,200 3,782,350
Intermedia Communications Inc.* 207,200 6,669,250 486,000 15,643,125 693,200 22,312,375
Launch Media, Inc.* 152,700 3,855,675 152,700 3,855,675
Metromedia Fiber Network, Inc. (Class A)* 90,000 7,582,500 185,000 15,586,250 275,000 23,168,750
NEXTLINK Communications, Inc. (Class A)* 119,000 8,716,750 200,000 14,650,000 319,000 23,366,750
Qwest Communications International Inc.* 40,089 3,425,104 40,089 3,425,104
RF Micro Devices, Inc.* 128,300 7,168,762 250,000 13,968,750 378,300 21,137,512
Tellabs, Inc.* 30,000 3,282,187 30,000 3,282,187
WinStar Communications, Inc.* 58,500 2,844,562 58,500 2,844,562
-------------------------- -------------------------- -------------------------
64,424,952 72,350,625 136,775,577
------------ ------------ ------------
Textile (0.30%)
Cutter & Buck, Inc.* 155,300 4,018,388 155,300 4,018,388
-------------------------- -------------------------
Transport (2.62%)
Eagle USA Airfreight, Inc.* 124,900 4,558,850 124,900 4,558,850
Expeditors International of Washington, Inc. 90,000 5,456,250 178,168 10,801,435 268,168 16,257,685
Forward Air Corp.* 99,450 2,212,763 66,900 1,488,525 166,350 3,701,288
MotivePower Industries, Inc.* 184,500 3,148,031 450,000 7,678,125 634,500 10,826,156
-------------------------- -------------------------- -------------------------
15,375,894 19,968,085 35,343,979
------------ ------------ -----------
Waste Disposal Service & Equip (0.37%)
Waste Connections, Inc.* 189,100 4,987,513 189,100 4,987,513
-------------------------- -------------------------
TOTAL COMMON STOCKS (99.65%)
(Cost $1,000,677,203) 632,989,690 712,991,475 1,345,981,165
=========================== ============= ============= ==============
<PAGE>
INTEREST PAR VALUE
ISSUER, DESCRIPTION RATE (000'S OMITTED) MARKET VALUE
- ---------------------- -------- --------------- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.00%)
Investment in a joint repurchase
agreement transaction with SBC Warburg, Inc.
- - Dated 04-30-99, due 05-03-99 (Secured by U.S.
Treasury Bonds, 6.625% thru 9.25%, due 02-15-16
thru 02-15-27 and U.S. Treasury Note,
5.625% due 04/30/00) - Note A 4.89 13,571 $13,571,000 13,571 $13,571,000
Corporate Savings Account (0.00%)
Investors Bank $ Trust Company
Daily Interest Savings Account
Current Rate 4.00% 217 217
------------- -------------- -----------------------
TOTAL SHORT-TERM INVESTMENTS (1.00%)
13,571,217 13,571,217
--------------- -------------
TOTAL INVESTMENTS (100.65%) 646,560,907 712,991,475 1,359,552,382
--------------- -------------
OTHER ASSETS AND LIABILITIES, NET (0.65%) (6,832,736) (2,004,675) (8,837,411)
--------------- -------------
TOTAL NET ASSETS (100.00%) $639,728,171 $710,986,800 $1,350,714,971
================ ============== ===============
</TABLE>
* Non-income producing security.
Parenthetical disclosure of a foreign country in the security description
represents country of foreign issuer; however, security is U.S. dollar
denominated.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
<PAGE>
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
No change from the information set forth in Item 27 of the Registration
Statement of John Hancock Small Cap Growth Fund (the "Registrant") on Form N-1A
under the Securities Act of 1933 and the Investment company Act of 1940 (File
Nos. 2-75807 and 811-3392), which information is incorporated herein by
reference.
ITEM 16. EXHIBITS:
1 Registrant's Amended and Filed as Exhibits a through a.6
Restated Declaration of Trust to Registrant's Registration
Statement on Form N-1A and
incorporated herein by reference
to post-effective amendments nos.
28, 31, 32, 34 and 35 (file nos.
811-3392 and 2-75807 on February
26, 1997: accession nos.
0001010521-97-000222, ("PEA 31"),
on December 21, 1998 accession
no. 0001010521-98-000399;
("PEA 32") on February 25, 1999
accession no. 0001010521-99-
000140, ("PEA 34") on June 4,
1999 accession no. 0001010521-99-
000229; ("PEA 35") on
August 13, 1999 accession no.
0001010521-99-000317.
2 Amended and Restated By-Laws of Filed as Exhibit b to PEA 28 and
Registrant. incorporated herein by reference.
3 Not applicable
4 Form of Agreement and Plan of Filed herewith as Exhibit A to
reorganization between the the Proxy Statement and
Registrant and John Hancock Prospectus included as Part A of
Special Equities Fund this Registration Statement.
5 Not applicable
<PAGE>
6 Investment Management Contract Filed as Exhibit d through d.5 to
between the Registrant and John PEA 28, 34, 35 and incorporated
Hancock Advisers, Inc. herein by reference.
7 Distribution Agreement between Filed as Exhibit e to PEA 28 and
the Registrant and John Hancock incorporated herein by reference.
Funds, Inc.
7.1 Form of Soliciting Dealer Filed as Exhibit e.1 to PEA 34
Agreement between John Hancock incorporated herein by reference.
Funds, Inc. and Selected Dealers
7.2 Form of Financial Institution Filed as Exhibit e.2 on form N-1A
Sales and Service Agreement and incorporated herein by
reference to post-effective
amendment no. 24 filed April 26,
1995, accession number 0000950135
-95-001000.
7.3 Amendments to Distribution Filed as Exhibits e.3 and e.4 to
Agreements. PEA 35 and incorporated herein by
reference.
8 Not applicable.
9 Amended and Restated Master Filed as Exhibit g to PEA 34
Custodian Agreement between John and incorporated herein by
Hancock Mutual Funds (including reference.
Registrant) and Investors
Bank & Trust Company and State
Street and Bank.
9.1 Amendment to Master Custodian Filed as Exhibit g.2 incorporated
Agreement between Millennium herein by reference.
Fund and State Street Bank.
9.2 Amended and Restated Master Filed as Exhibits g.3 and g.4 to
Custodian Agreement and PEA 35 incorporated herein by
Amendment between Brown Brothers reference.
Harriman and Company.
10 Class A, Class B, Class C and Filed as Exhibit m through m.5
Class R Distribution Plans between to PEA nos. 28, 31, 33, 34 and
Registrant and John Hancock 35 and incorporated herein by
Funds, Inc. reference.
11 Not applicable.
12 Opinion as to legality of shares Filed herewith as Exhibit 11
and consent.
13 Form of opinion as to tax matters Filed herewith as Exhibit 12
and consent.
14 Rule 18f-3 Plan Amended and Restated Filed as Exhibits o through o.2
Multiple Class Plan pursuant to to PEA 31 and 35 incorporated
Rule 18f-3 for Registrant. herein by reference.
<PAGE>
15 Not applicable
16 Consents of Ernst and Young Filed herewith as Exhibit 14
LLP regarding the audited financial
statements of Registrant and John
Hancock Special Equities Fund.
17 Not applicable
18 Prospectus of Registrant and Included in Part A as part of the
John Hancock Special Equities combined Prospectus with Small
Fund dated July 1, 1999 Cap Growth Fund.
19 Prospectus of John Hancock Filed herewith as Exhibit B
Special Equities Fund Class Y to Part B of this Registration
dated March 1, 1999 Statement.
20 Statement of Additional Filed herewith as Exhibit B
Information of John Hancock to Part B of this Registration
Special Equities Fund Statement.
dated June 1, 1999
21 Statement of Additional Filed herewith as Exhibit A to
Information of John Hancock Part B of this Registration
Small Cap Growth Fund Statement.
dated September 27, 1999
ITEM 17
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of a propectus which is a part of
this Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) under the Securities Act of 1933,
as amended (the "1933 Act"), the reoffering prospectus will contain the
information called for by the applicable registration form for reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston and the
Commonwealth of Massachusetts, on the 18th day of August, 1999.
JOHN HANCOCK SERIES TRUST
By:________*________________
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman and Chief Executive August 18, 1999
- ------------------------------------ Officer (Principal Executive Officer)
Edward J. Boudreau, Jr.
/s/James J. Stokowski
- ------------------ Vice President, Treasurer and
James J. Stokowski Chief Accounting Officer
_________*____________ Trustee
James F. Carlin
_________*____________ Trustee
William H. Cunningham
_________*____________ Trustee
Harold R. Hiser, Jr.
_________*____________ Trustee
Anne C. Hodsdon
_________*____________ Trustee
Charles L. Ladner
_________*____________ Trustee
Leo E. Linbeck, Jr.
</TABLE>
<PAGE>
_______*_____________ Trustee
Ronald R. Dion
_______*_____________ Trustee
Steven R. Pruchansky
_______*_____________ Trustee
Richard S. Scipione
________*_______________ Trustee
Norman H. Smith
________*_______________ Trustee
John P. Toolan
By: /s/Susan S. Newton August 18, 1999
------------------
Susan S. Newton,
Attorney-in-Fact, under
Powers of Attorney dated
January 1, 1999 and March 17, 1999.
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as part of this Registration Statement:
Exhibit No. Description
- ----------- -----------
4. Agreement and Plan of Regorganization between the Registrant
and John Hancock Special Equities Fund (filed as EXHIBIT A to
Part A of this Registration Statement).
11. Opinion as to legality of shares and consent.
12. Form of opinion as to tax matters and consent.
16. Consent of Ernst and Young, LLP regarding the
audited financial statements and highlights of the Registrant
and John Hancock Special Equities Fund.
September 27, 1999
John Hancock Series Trust
on behalf of John Hancock Small Cap Growth Fund
101 Huntington Avenue
Boston, MA 02199
Ladies and Gentlemen:
In connection with the filing of a registration statement under the Securities
Act of 1933, as amended (the "Act"), on Form N-14, with respect to the shares of
beneficial interest of John Hancock Small Cap Growth Fund (the "Fund"), a series
of John Hancock Series Trust (the "Trust"), a Massachusetts business trust, it
is the opinion of the undersigned that these shares when issued, will be legally
issued, fully paid and non-assessable.
In connection with this opinion it should be noted that the Trust is an entity
of the type generally known as a "Massachusetts business trust." Under
Massachusetts law, shareholders of a Massachusetts business trust may be held
personally liable for the obligations of the trust. However, the Trust's
Declaration of Trust disclaims shareholder liability for obligations of the
Trust and indemnifies any shareholder of the Fund, with this indemnification to
be paid solely out of the assets of the Fund. Therefore, the shareholder's risk
is limited to circumstances in which the assets of the Fund are insufficient to
meet the obligations asserted against the Fund's assets.
The undersigned hereby consents to the filing of a copy of this opinion as an
exhibit to the Trust's registration statement on Form N-14 and with the
Securities and Exchange Commission.
Sincerely,
/s/Timothy M. Fagan
- -------------------
Timothy M. Fagan
Attorney and Assistant Secretary
John Hancock Advisers, Inc.
Counsellors at Law
60 State Street, Boston, Massachusetts 02109
617-526-6000 o fax 617-526-5000
DRAFT
-----
December 10, 1999
Board of Trustees
John Hancock Series Trust, on behalf of
John Hancock Small Cap Growth Fund
101 Huntington Avenue
Boston, Massachusetts 02199
Board of Trustees
John Hancock Special Equities Fund
101 Huntington Avenue
Boston, Massachusetts 02199
Dear Members of the Boards of Trustees:
You have requested our opinion regarding certain federal income tax
consequences described below of the acquisition by John Hancock Small Cap Growth
Fund ("Acquiring Fund"), a series of John Hancock Series Trust ("Trust"), of all
of the assets of John Hancock Special Equities Fund ("Acquired Fund"), in
exchange solely for (i) the assumption by Acquiring Fund of all of the
liabilities of Acquired Fund and (ii) the issuance of Class A, Class B, Class C
and Class I voting shares of beneficial interest of Acquiring Fund (the
"Acquiring Fund Shares") to Acquired Fund, followed by the distribution by
Acquired Fund, in liquidation of Acquired Fund, of the Acquiring Fund Shares to
the shareholders of Acquired Fund and the termination of Acquired Fund (the
foregoing together constituting the "reorganization" or the "transaction").
In rendering this opinion, we have examined and relied upon the facts
stated and representations made in (i) the combined prospectus for Class A,
Class B and Class C shares of Acquiring Fund, Acquired Fund and certain other
John Hancock mutual funds, dated July 1, 1999, (ii) the prospectus for Class I
shares of Acquiring Fund, dated December 1, 1999, (iii) the prospectus
<PAGE>
for Class Y shares of Acquired Fund, dated July 1, 1999, (iv) the statement of
additional information for Acquiring Fund, dated September 27, 1999, (v) the
statement of additional information for Acquired Fund, dated March 1, 1999, (vi)
the Notice of Meeting of Shareholders Scheduled for December 1, 1999 and the
accompanying proxy statement and prospectus relating to the transaction, dated
September 27, 1999 (the "Proxy Statement"), (vii) the memorandum, dated July 9,
1999, regarding the transaction from Anne Hodsdon to the Boards of Trustees of
Trust and Acquired Fund, (viii) the memorandum, dated July 19, 1999, regarding
the transaction from John Hancock Advisers, Inc. to the Boards of Trustees of
Trust and Acquired Fund, (ix) the Agreement and Plan of Reorganization, made
July 20, 1999, between Acquiring Fund and Acquired Fund (the "Agreement"), (x)
the representation letters on behalf of Acquiring Fund and Acquired Fund
referred to below and (xi) such other documents as we deemed appropriate.
In our examination of documents, we have assumed the authenticity of
original documents, the accuracy of copies, the genuineness of signatures, and
the legal capacity of signatories. We have assumed that all parties to the
Agreement have acted and will act in accordance with the terms of the Agreement
and all other documents relating to the transaction and that the transaction
will be consummated pursuant to the terms and conditions set forth in the
Agreement without the waiver or modification of any such terms and conditions.
Furthermore, we have assumed that all representations contained in the
Agreement, as well as those representations contained in the representation
letters referred to below are, on the date hereof, true and complete in all
material respects, and that any representation made in any of the documents
referred to herein "to the best of the knowledge and belief" (or similar
qualification) of any person or party is correct without such qualification. We
have not attempted to verify independently such representations, but in the
course of our representation, nothing has come to our attention that would cause
us to question the accuracy thereof.
The conclusions expressed herein represent our judgment regarding the
proper treatment of certain aspects of the transaction affecting Acquiring Fund,
Acquired Fund and the shareholders of Acquired Fund on the basis of our analysis
of the Internal Revenue Code of 1986, as amended (the "Code"), case law,
Treasury regulations and the rulings and other pronouncements of the Internal
Revenue Service (the "Service") which exist at the time this opinion is
rendered. Such authorities are subject to prospective or retroactive change, and
we do not undertake any responsibility to advise you of any such change. Our
opinion represents our best judgment regarding how a court would decide if
presented with the issues addressed herein and is not binding upon the Service
or any court. Moreover, our opinion does not provide any assurance that a
position taken in reliance on such opinion will not be challenged by the Service
and does not constitute any representation or warranty that such position, if so
challenged, will not be rejected by a court.
<PAGE>
This opinion addresses only the specific United States federal income
tax consequences of the transaction set forth below, and does not address any
other federal, state, local, or foreign income, estate, gift, transfer, sales,
or other tax consequences that may result from the transaction or any other
transaction.
FACTS
-----
We understand that the facts relating to the transaction are as
described hereinafter.
Acquiring Fund is a series of Trust, a business trust established under
the laws of The Commonwealth of Massachusetts in 1996. Trust is registered as an
open-end investment company under the Investment Company Act of 1940, as amended
(the "1940 Act"). Each of Acquiring Fund and its predecessors (John Hancock
Emerging Growth Fund, which was the name under which Acquiring Fund operated
prior to March 31, 1999, and Transamerica Emerging Growth Fund, which became
John Hancock Emerging Growth Fund in a reorganization under Section 368(a)(1)(F)
of the Code that was consummated on December 22, 1994) has operated as an
investment company since the inception of business. Acquiring Fund is one of two
series of Trust. Each series of Trust has assets and liabilities that are
separate from those of the other series, and each such series is treated as a
separate corporation and regulated investment company under Section 851(g) of
the Code.
The investment objective of Acquiring Fund is to seek long-term capital
appreciation. To pursue its investment objective, Acquiring Fund normally
invests at least 80% of its assets in stocks of United States emerging growth
companies with market capitalizations of no more than $1 billion (a
capitalization limitation that will be changed, effective March 1, 2000, to a
variable range based on the Russell 2000 Index (currently $10 million to $2.8
billion)). Acquiring Fund may also invest in other types of companies and
securities, including foreign securities, and certain derivatives.
Acquired Fund is a business trust established under the laws of The
Commonwealth of Massachusetts in 1984 and is registered as an open-end
investment company under the 1940 Act. Acquired Fund has been operating as an
investment company since the inception of business in 1984.
<PAGE>
The investment objective of Acquired Fund is to seek growth of capital
by investing in a diversified portfolio of equity securities consisting
primarily of emerging growth companies and of companies in "special situations."
To pursue its investment objective, Acquired Fund normally invests at least 65%
of its assets in stocks of emerging growth companies and companies in situations
offering unusual or one-time opportunities. The Proxy Statement and Acquired
Fund's prospectus state that emerging growth companies tend to have small market
capitalizations, typically less than $1 billion. Acquired Fund may also invest
in certain other types of equity securities, foreign securities, and the same
derivatives in which Acquiring Fund is permitted to invest.
The steps comprising the reorganization, as set forth in the Agreement,
are as follows:
(i) Acquired Fund will transfer to Acquiring Fund all of its assets
(consisting, without limitation, of portfolio securities and instruments,
dividend and interest receivables, cash and other assets). In exchange for the
assets transferred to it, Acquiring Fund will (A) assume all of the liabilities
of Acquired Fund (comprising all of its known and unknown liabilities and
referred to hereinafter as the "Acquired Fund Liabilities") and (B) issue
Acquiring Fund Shares to Acquired Fund that have an aggregate net asset value
equal to the value of the assets transferred to Acquiring Fund by Acquired Fund,
less the Acquired Fund Liabilities assumed by Acquiring Fund.
(ii) Promptly after the transfer of its assets to Acquiring Fund,
Acquired Fund will distribute in liquidation the Acquiring Fund Shares it
receives in the exchange to Acquired Fund shareholders pro rata in exchange for
their surrender of their shares of beneficial interest of Acquired Fund
("Acquired Fund Shares"). In these exchanges, holders of Acquired Fund Shares
designated as Class A ("Class A Acquired Fund Shares") will receive Acquiring
Fund Shares designated as Class A ("Class A Acquiring Fund Shares"), holders of
Acquired Fund Shares designated as Class B ("Class B Acquired Fund Shares") will
receive Acquiring Fund Shares designated as Class B ("Class B Acquiring Fund
Shares"), holders of Acquired Fund Shares designated as Class C ("Class C
Acquired Fund Shares") will receive Acquiring Fund Shares designated as Class C
("Class C Acquiring Fund Shares") and holders of Acquired Fund Shares designated
as Class Y ("Class Y Acquired Fund Shares") will receive Acquiring Fund Shares
designated as Class I ("Class I Acquiring Fund Shares").
<PAGE>
(iii) After such exchanges, liquidation and distribution, the existence
of Acquired Fund will be promptly terminated in accordance with Massachusetts
law.
The Agreement and the transactions contemplated thereby were approved
by the Board of Trustees of Trust, on behalf of Acquiring Fund, at a meeting
held on July 19, 1999. Acquiring Fund shareholders are not required and were not
asked to approve the transaction. The Agreement and the transactions
contemplated thereby were approved by the Board of Trustees of Acquired Fund at
a meeting held on July 19, 1999, subject to the approval of Acquired Fund
shareholders. Acquired Fund shareholders approved the transaction at a meeting
held on December 1, 1999.
Massachusetts law does not provide dissenters' rights for Acquired Fund
shareholders in the transaction. Additionally, it is the position of the
Division of Investment Management of the Securities and Exchange Commission that
appraisal rights, in contexts such as the reorganization, are inconsistent with
Rule 22c-1 under the 1940 Act and are therefore preempted and invalidated by
such rule. Consequently, Acquired Fund shareholders will not have dissenters' or
appraisal rights in the transaction.
Our opinions set forth below are subject to the following factual
assumptions being true and correct (including statements relating to future
actions and facts represented to be to the best knowledge of management, whether
or not known). Authorized representatives of Acquiring Fund and Acquired Fund
have represented to us by letters of even date herewith that the following
assumptions are true and correct:
(a) Neither Acquiring Fund nor any person treated as related to
Acquiring Fund under Treasury Regulation Section 1.368-1(e)(3) has any plan or
intention to redeem or otherwise reacquire any of the Acquiring Fund Shares
received by shareholders of Acquired Fund in the transaction except in the
ordinary course of Acquiring Fund's business in connection with its legal
obligation under Section 22(e) of the 1940 Act as a registered open-end
investment company to redeem its own shares (which obligation is not in
connection with, modified in connection with, or in any way related to the
transaction).
<PAGE>
(b) After the transaction, Acquiring Fund will continue the historic
business of Acquired Fund and will use all of the assets acquired from Acquired
Fund, which are Acquired Fund's historic business assets, i.e., assets not
acquired as part of or in contemplation of the transaction, in the ordinary
course of a business.
(c) Acquiring Fund has no plan or intention to sell or otherwise
dispose of any assets of Acquired Fund acquired in the transaction, except for
dispositions made in the ordinary course of its business (i.e., dispositions
resulting from investment decisions made after the reorganization on the basis
of investment considerations independent of the reorganization) or to maintain
its qualification as a regulated investment company under Subchapter M of the
Code.
(d) The shareholders of Acquiring Fund and the shareholders of Acquired
Fund will bear their respective expenses, if any, in connection with the
transaction.
(e) Acquiring Fund and Acquired Fund will each bear its own expenses
incurred in connection with the transaction. Any liabilities of Acquired Fund
attributable to such expenses that remain unpaid on the closing date of the
transaction and are assumed by Acquiring Fund in the transaction are
attributable to Acquired Fund's expenses that are solely and directly related to
the transaction in accordance with the guidelines established in Rev. Rul.
73-54, 1973-1 C.B. 187.
(f) There is no indebtedness between Acquiring Fund and Acquired Fund.
(g) Acquired Fund has elected to be treated as a regulated investment
company under Subchapter M of the Code, has qualified as a regulated investment
company for each taxable year since inception, and qualifies as such for its
taxable year ending on the closing date of the transaction.
(h) Acquiring Fund or a predecessor of Acquiring Fund has elected to be
treated as a regulated investment company under Subchapter M of the Code. Each
of Acquiring Fund and its predecessors has qualified as a regulated investment
company for each taxable year since inception, and Acquiring Fund qualifies as
such as of the date of the transaction.
(i) Neither Acquiring Fund nor Acquired Fund is under the jurisdiction
of a court in a Title 11 or similar case within the meaning of Section
368(a)(3)(A) of the Code.
<PAGE>
(j) Acquiring Fund does not own and neither it nor any of its
predecessors has ever owned, directly or indirectly, any shares of Acquired
Fund.
(k) Acquiring Fund will not pay cash in lieu of fractional shares in
connection with the transaction.
(l) As of the date of the transaction, the fair market value of the
Acquiring Fund Shares issued to Acquired Fund in exchange for the assets of
Acquired Fund is approximately equal to the fair market value of the assets of
Acquired Fund received by Acquiring Fund, minus the Acquired Fund Liabilities
assumed by Acquiring Fund. Acquiring Fund will not furnish any consideration in
connection with the acquisition of Acquired Fund's assets other than the
assumption of these Acquired Fund Liabilities and the issuance of these
Acquiring Fund Shares.
(m) Acquired Fund shareholders will be in control (within the meaning
of Sections 368(a)(2)(H) and 304(c) of the Code, which provide that control
means the ownership of shares possessing at least 50% of the total combined
voting power of all classes of shares that are entitled to vote or at least 50%
of the total value of shares of all classes) of Acquiring Fund after the
transaction, and to the best knowledge of management of Acquired Fund, there is
no intention on the part of any shareholders of Acquired Fund to redeem, sell,
exchange or otherwise dispose of a number of the shares of Acquiring Fund
received in the transaction that would affect the retention of control of
Acquiring Fund by former shareholders of Acquired Fund after consummation of the
transaction.
(n) At the time of the transaction, Acquiring Fund does not have
outstanding any warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire shares of Acquiring Fund that,
if exercised or converted, would affect the acquisition or retention of control
(within the meaning of Sections 368(a)(2)(H) and 304(c) of the Code) of
Acquiring Fund by the shareholders of Acquired Fund.
(o) The principal business purposes of the transaction are to combine
the assets of Acquiring Fund and Acquired Fund in order to capitalize on
economies of scale in expenses, including the costs of accounting, legal,
transfer agency, insurance, custodial, and administrative services, to eliminate
adverse effects on the marketing and asset growth of Acquiring Fund and Acquired
Fund that may result from the existence of competing funds with substantially
similar investment characteristics within the same fund complex, to benefit from
the anticipated better performance of Acquiring Fund, and to increase
diversification.
<PAGE>
(p) As of the date of the transaction, the fair market value of the
Class A Acquiring Fund Shares received by each shareholder that holds Class A
Acquired Fund Shares is approximately equal to the fair market value of the
Class A Acquired Fund Shares surrendered by such shareholder, the fair market
value of the Class B Acquiring Fund Shares received by each shareholder that
holds Class B Acquired Fund Shares is approximately equal to the fair market
value of the Class B Acquired Fund Shares surrendered by such shareholder, the
fair market value of the Class C Acquiring Fund Shares received by each
shareholder that holds Class C Acquired Fund Shares is approximately equal to
the fair market value of the Class C Acquired Fund Shares surrendered by such
shareholder and the fair market value of the Class I Acquiring Fund shares
received by each shareholder that holds Class Y Acquired Fund Shares is
approximately equal to the fair market value of the Class Y Acquired Fund Shares
surrendered by such shareholder. No property other than Acquiring Fund Shares
will be distributed to shareholders of Acquired Fund in exchange for their
Acquired Fund Shares, nor will any such shareholder receive cash or other
property as part of the transaction.
<PAGE>
(q) There is no plan or intention on the part of any shareholder of
Acquired Fund that owns beneficially 5% or more of the Acquired Fund Shares and,
to the best knowledge of management of Acquired Fund, there is no plan or
intention on the part of the remaining shareholders of Acquired Fund, in
connection with the transaction, to engage in any transaction with Acquired
Fund, Acquiring Fund, or any person treated as related to Acquired Fund or
Acquiring Fund under the standards made applicable by Treasury Regulation
Section 1.368-1(e)(1)(i) involving the sale, redemption, exchange, transfer,
pledge, or other disposition resulting in a direct or indirect transfer of the
risks of ownership (a "Sale") of any of the Acquired Fund Shares or any of the
Acquiring Fund Shares to be received in the transaction that, considering all
Sales, would reduce the aggregate ownership of the Acquiring Fund Shares by
former Acquired Fund shareholders to a number of shares having a value, as of
the date of the transaction, of less than fifty percent (50%) of the value of
all of the formerly outstanding Acquired Fund Shares as of the same date. All
Sales involving shares of Acquired Fund and Acquiring Fund held by Acquired Fund
shareholders that have occurred or will occur in connection with the transaction
are taken into account for purposes of this representation. No such Sale that is
in connection with the transaction has, to the best knowledge of the management
of Acquired Fund, occurred on or prior to the date of the transaction.
(r) Acquired Fund assets transferred to Acquiring Fund comprise at
least ninety percent (90%) of the fair market value of the net assets and at
least seventy percent (70%) of the fair market value of the gross assets held by
Acquired Fund immediately prior to the transaction. For purposes of this
representation, amounts used by Acquired Fund to pay its outstanding
liabilities, including reorganization expenses, and all redemptions and
distributions (except for redemptions in the ordinary course of business upon
demand of a shareholder that Acquired Fund is required to make as an open-end
investment company pursuant to Section 22(e) of the 1940 Act and regular, normal
dividends, which dividends include any final distribution of previously
undistributed investment company taxable income and net capital gain for
Acquired Fund's final taxable year ending on the date of the transaction) made
by Acquired Fund immediately preceding the transaction are taken into account as
assets of Acquired Fund held immediately prior to the transaction.
(s) The Acquired Fund Liabilities assumed by Acquiring Fund plus the
liabilities, if any, to which the transferred assets are subject were incurred
by Acquired Fund in the ordinary course of its business or are expenses of the
transaction.
<PAGE>
(t) The fair market value of the Acquired Fund assets transferred to
Acquiring Fund equals or exceeds the sum of the Acquired Fund Liabilities
assumed by Acquiring Fund and the amount of liabilities, if any, to which the
transferred assets are subject.
(u) The total adjusted basis of the Acquired Fund assets transferred to
Acquiring Fund equals or exceeds the sum of the Acquired Fund Liabilities
assumed by Acquired Fund and the amount of liabilities, if any, to which the
transferred assets are subject.
(v) Acquired Fund does not pay compensation to any shareholder-employee.
OPINION
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On the basis of and subject to the foregoing and in reliance upon the
representations described above, we are of the opinion that:
(a) The acquisition by Acquiring Fund of all of the assets of Acquired
Fund solely in exchange for the issuance of Acquiring Fund Shares to Acquired
Fund and the assumption of all of the Acquired Fund Liabilities by Acquiring
Fund, followed by the distribution by Acquired Fund, in liquidation of Acquired
Fund, of Acquiring Fund Shares to Acquired Fund shareholders in exchange for
their Acquired Fund Shares and the termination of Acquired Fund, will constitute
a "reorganization" within the meaning of Section 368(a) of the Code. Acquiring
Fund and Acquired Fund will each be "a party to a reorganization" within the
meaning of Section 368(b) of the Code.
(b) No gain or loss will be recognized by Acquired Fund upon (i) the
transfer of all of its assets to Acquiring Fund solely in exchange for the
issuance of Acquiring Fund Shares to Acquired Fund and the assumption of all of
the Acquired Fund Liabilities by Acquiring Fund and (ii) the distribution by
Acquired Fund of such Acquiring Fund Shares to the shareholders of Acquired Fund
(Sections 361(a) and 361(c) of the Code).
(c) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Acquired Fund solely in exchange for the issuance of
Acquiring Fund Shares to Acquired Fund and the assumption of all of the Acquired
Fund Liabilities by Acquiring Fund (Section 1032(a) of the Code).
<PAGE>
(d) The basis of the assets of Acquired Fund acquired by Acquiring Fund
will be, in each instance, the same as the basis of those assets in the hands of
Acquired Fund immediately prior to the transfer (Section 362(b) of the Code).
(e) The tax holding period of the assets of Acquired Fund in the hands
of Acquiring Fund will, in each instance, include Acquired Fund's tax holding
period for those assets (Section 1223(2) of the Code).
(f) The shareholders of Acquired Fund will not recognize gain or loss
upon the exchange of all of their Acquired Fund Shares solely for Acquiring Fund
Shares as part of the transaction (Section 354(a)(1) of the Code).
(g) The basis of the Acquiring Fund Shares received by the Acquired
Fund shareholders in the transaction will be the same as the basis of the
Acquired Fund Shares surrendered in exchange therefor (Section 358(a)(1) of the
Code).
(h) The tax holding period of the Acquiring Fund Shares received by
Acquired Fund shareholders will include, for each shareholder, the tax holding
period for the Acquired Fund Shares surrendered in exchange therefor, provided
that the Acquired Fund Shares were held as capital assets on the date of the
exchange (Section 1223(1) of the Code).
No opinion is expressed or implied regarding the federal income tax
consequences to Acquiring Fund, Acquired Fund or Acquired Fund shareholders of
any conditions existing at the time of, effects resulting from, or other aspects
of the transaction except as expressly set forth above. This opinion may not be
relied upon except with respect to the consequences specifically discussed
herein nor may it be relied upon by persons or entities to whom it is not
addressed, other than with our prior written consent.
Very truly yours,
/s/Hale and Dorr LLP
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Combined Prospectus/Proxy Statement in the Registration Statement on Form N-14,
dated August 18, 1999, of John Hancock Series Trust.
We also consent to the references to our firm under the captions "Financial
Highlights" in the John Hancock Growth Funds Prospectus with respect to the John
Hancock Large Cap Growth Fund, John Hancock Small Cap Growth Fund (formerly the
John Hancock Emerging Growth Fund), John Hancock Small Cap Value Fund, and John
Hancock Special Equities Fund, dated July 1, 1999, and "Financial Highlights" in
the John Hancock Special Equities Fund Class Y Prospectus, and to the references
to our firm under the captions "Independent Auditors" in the John Hancock Small
Cap Growth Fund Class A, Class B, Class C and Class I Statement of Additional
Information dated September 27, 1999 and in the John Hancock Special Equities
Fund Class A, Class B, Class C, and Class Y Statement of Additional Information
dated June 1, 1999, and to the use of our reports for the year ended October 31,
1998, dated December 12, 1998, with respect to the financial statements and
financial highlights of the John Hancock Emerging Growth Fund and John Hancock
Special Equities Fund, included in the Statement of Additional Information
included in this Registration Statement on Form N-14, dated August 18, 1999.
/s/Ernst & Young LLP
--------------------
ERNST & YOUNG LLP
Boston, Massachusetts
August 17, 1999
