File Nos. 2-29502 and 811-1677
As filed with the Securities and Exchange Commission on June 15, 1995.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /_X__/
----
Pre-Effective Amendment No. __ /____/
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Post-Effective Amendment No. ___ /____/
(Check appropriate box or boxes)
JOHN HANCOCK CAPITAL SERIES
(Exact name of registrant as specified in charter)
101 Huntington Avenue, Boston, Massachusetts 02199-7603
(Address of principal executive office) Zip Code
(617) 375-1700
(Registrant's Telephone Number, including Area Code)
With a copy to:
Thomas H. Drohan Jeffrey N. Carp, Esq.
John Hancock Advisers, Inc. Hale and Dorr
101 Huntington Avenue 60 State Street
Boston, MA 02199 Boston, MA 02109
(Name and address of agent for service)
Approximate Date of Proposed Public Offering: As soon as
practicable after the effectiveness of the registration statement.
No filing fee is required because an indefinite number of shares have
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 No. 811-1677)
It is proposed that this filing will become effective on July 15, 1995
pursuant to Rule 488 under the Securities Act of 1933.
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JOHN HANCOCK CAPITAL SERIES
CROSS-REFERENCE SHEET
Items Required by Form N-14
PART A
Item No. Item Caption Prospectus Caption
1. Beginning of Registration COVER PAGE OF REGISTRATION
Statement and Outside Front STATEMENT; FRONT COVER PAGE
Cover Page of Prospectus OF PROSPECTUS
2. Beginning and Outside Back TABLE OF CONTENTS
Cover Page of Prospectus
3. Synopsis Information and SUMMARY; RISK FACTORS AND
Risk Factors SPECIAL CONSIDERATIONS
4. Information About the INFORMATION CONCERNING THE
Transaction MEETING; PROPOSAL TO APPROVE THE
AGREEMENT AND PLAN OF
REORGANIZATION; CAPITALIZATION
5. Information About the PROSPECTUS COVER PAGE: INTRO-
Registrant DUCTION; SUMMARY; BUSINESS OF
CAPITAL GROWTH FUND; BUSINESS OF
GROWTH FUND
6. Information About the PROSPECTUS COVER PAGE: INTRO-
Company Being Acquired DUCTION; SUMMARY; BUSINESS OF
CAPITAL GROWTH FUND; BUSINESS OF
GROWTH FUND
7. Voting Information PROSPECTUS COVER PAGE; NOTICE
OF SPECIAL MEETING OF SHARE-
HOLDERS; SUMMARY; INFORMATION
CONCERNING THE MEETING
8. Interest of Certain Persons NONE
and Experts
9. Additional Information NOT APPLICABLE
Required for Reoffering by
Persons Deemed to be Under-
writers
<PAGE>
PART B
Caption in Statement of
Item No. Item Caption Additional Information
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. Additional Information ADDITIONAL INFORMATION
About the Registrant ABOUT GROWTH FUND
13. Additional Information About ADDITIONAL INFORMATION
the Company Being Acquired ABOUT CAPITAL GROWTH FUND
14. Financial Statements ADDITIONAL INFORMATION ABOUT
GROWTH FUND; ADDITIONAL
INFORMATION ABOUT CAPITAL GROWTH
FUND; PRO FORMA COMBINED
FINANCIAL STATEMENTS
PART C
Item No. Item Caption
15. Indemnification INDEMNIFICATION
16. Exhibits EXHIBITS
17. Undertakings UNDERTAKINGS
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John Hancock Funds Letterhead
July 21, 1995
Capital Growth Fund
Dear Fellow Shareholder:
As you know, your fund recently became part of the John Hancock family of funds.
This presents an opportunity to combine the money management efforts that
serving your investment with those of a similar mutual fund. For this reason, we
are proposing a merger of the Capital Growth Fund into the John Hancock Growth
Fund.
Please take the time to read the enclosed materials and cast your vote on the
enclosed proxy card. Please vote promptly. It is extremely important, no matter
how many shares you own.
Comparative performance information, investment objectives and policies are
described at length for both funds in the enclosed Proxy Statement. We believe
that this merger will benefit you in two ways:
1. Better Performance. Your Board of Trustees believes that this merger is
appropriate given that John Hancock Growth Fund has achieved a superior track
record, while pursuing a similar investment objective.
2. Increased Investment Diversification. By combining both funds assets
into a single portfolio, the John Hancock Growth Fund will be able to achieve
greater diversification.
Your Vote Is Important!
At a special meeting of shareholders to be held on September 8, 1995 at
9:00 a.m., you will be asked to approve the merger of the Capital Growth Fund
into the John Hancock Growth Fund. Your Board of Trustees has unanimously
approved the merger.
We urge you to exercise your right as a shareholder and to vote by
completing, signing and returning the enclosed proxy ballot form to us
immediately. Your prompt response will help avoid the necessity for additional
mailings at your Funds expense. For your convenience, we have provided a
postage-paid envelope.
If you have questions, please call your Financial Advisor or a John Hancock
Funds Customer Service Representative at 1-800-225-5291, Monday through Friday
between 8:00 a.m. and 8:00 p.m. Eastern time. Thank you for your prompt
attention to these important matters.
Sincerely,
Edward J. Boudreau, Jr.
Chairman and CEO
Enclosure
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JOHN HANCOCK CAPITAL GROWTH FUND
101 Huntington Avenue
Boston, Massachusetts 02199
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 8, 1995
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of John Hancock Capital Growth Fund ("Capital Growth Fund"),
a Massachusetts business trust, will be held at 101 Huntington Avenue,
Boston, Massachusetts 02199 on Friday, September 8, 1995 at 9:00 a.m.,
Boston time, and at any adjournment thereof, for the following
purposes:
1. To consider and act upon a proposal to approve an Agreement
and Plan of Reorganization (the "Reorganization Agreement")
between Capital Growth Fund and John Hancock Capital Series,
on behalf of John Hancock Growth Fund ("Growth Fund"),
providing for Growth Fund's acquisition of all Capital Growth
Fund's assets in exchange solely for: (a) Growth Fund's
assumption of Capital Growth Fund's liabilities and (b) the
issuance of Growth Fund Class A and Class B shares to Capital
Growth Fund for distribution to its shareholders; and
2. To consider and act upon such other matters as may properly
come before the Meeting or any adjournment of the Meeting.
The Board of Trustees has fixed the close of business on July 14,
1995 as the record date for determination of shareholders who are
entitled to notice of and to vote at the Meeting and any adjournment of
the Meeting.
If you cannot attend the Meeting in person, please complete, date
and sign the enclosed proxy and return it to John Hancock Investor
Services Corporation, 101 Huntington Avenue, Boston, Massachusetts
02199 in the enclosed envelope. It is important that you exercise your
right to vote. THE ENCLOSED PROXY IS BEING SOLICITED BY THE BOARD OF
TRUSTEES OF JOHN HANCOCK CAPITAL GROWTH FUND.
By order of the Board of Trustees,
THOMAS H. DROHAN, Secretary
Boston, Massachusetts
July 21, 1995
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JOHN HANCOCK CAPITAL GROWTH FUND
PROXY STATEMENT
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JOHN HANCOCK GROWTH FUND
PROSPECTUS
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This Proxy Statement and Prospectus sets forth the information you
should know before voting on the proposed reorganization of John
Hancock Capital Growth Fund ("Capital Growth Fund") into John Hancock
Growth Fund ("Growth Fund"). Capital Growth Fund is a Massachusetts
business trust. Growth Fund is a series of John Hancock Capital Series,
a Massachusetts business trust (the "Trust").
This Proxy Statement and Prospectus relates to Class A and Class B
shares of beneficial interest, no par value per share (collectively,
the "Growth Fund Shares"), of Growth Fund which will be issued in
exchange for all of Capital Growth Fund's assets. In exchange for these
assets, Growth Fund will also assume all of the liabilities of Capital
Growth Fund.
The Growth Fund Class A Shares issued to Capital Growth Fund for
distribution to Capital Growth Fund's Class A shareholders will have an
aggregate net asset value equal to the aggregate net asset value of
Capital Growth Fund's Class A shares. The Growth Fund Class B Shares
issued to Capital Growth Fund for distribution to Capital Growth Fund's
Class B shareholders will have an aggregate net asset value equal to
the aggregate net asset value of Capital Growth Fund's Class B shares.
The asset values of Capital Growth Fund and Growth Fund will be
determined at the close of business (4:00 p.m. Eastern Time) on the
Closing Date (as defined below) for purposes of the proposed
reorganization.
Following the receipt of Growth Fund Shares (1) Capital Growth
Fund will be liquidated, (2) the Growth Fund Shares will be distributed
to Capital Growth Fund's shareholders pro rata in exchange for their
shares of Capital Growth Fund and (3) Capital Growth Fund will be
terminated. Consequently, Class A Capital Growth Fund shareholders will
become Class A shareholders of Growth Fund, and Class B Capital Growth
Fund shareholders will become Class B shareholders of Growth Fund.
These transactions are collectively referred to in this Proxy Statement
and Prospectus as the "Reorganization."
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The Reorganization is being structured as a tax-free
reorganization so that, in the opinion of tax counsel, no gain or loss
will be recognized by Growth Fund, Capital Growth Fund or the
shareholders of Capital Growth Fund. The terms and conditions of this
transaction are more fully described in this Proxy Statement and
Prospectus, and in the Form of Agreement and Plan of Reorganization
that is attached as Exhibit A.
Growth Fund is a diversified open-end management investment
company organized as a Massachusetts business trust in 1984. Growth
Fund seeks to achieve long-term appreciation of capital. Growth Fund
seeks this objective by investing principally in common stocks (and in
securities convertible into or with rights to purchase common stocks)
of companies which the Fund's management believes offer outstanding
growth potential over both the intermediate and long term.
The principal place of business of both the Trust and Capital
Growth Fund is 101 Huntington Avenue, Boston, Massachusetts 02199.
Their toll-free telephone number is 1-800-225-5291.
Please read this Proxy Statement and Prospectus carefully and
retain it for future reference. This Proxy Statement and Prospectus,
which is accompanied by the Prospectus of Growth Fund for Class A and
Class B shares, dated May 1, 1995 (Exhibit B), sets forth information
that you should know before approving the Reorganization. The
Prospectus of Capital Growth Fund for Class A and Class B shares, dated
May 1, 1995, is incorporated herein by reference and is available upon
oral or written request and at no charge from Capital Growth Fund.
A Statement of Additional Information dated July 15, 1995 relating
to this Proxy Statement and Prospectus, and containing additional
information about each of Growth Fund and Capital Growth Fund,
including historical financial statements, is on file with the
Securities and Exchange Commission ("SEC"). It is available, upon oral
or written request and at no charge, from the Trust. The Statement of
Additional Information is incorporated by reference into this
Prospectus.
Shares of Growth Fund are not deposits or obligations of, or
guaranteed or endorsed by, any bank or other depository institution,
and the shares of Growth Fund are not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other
government agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
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OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Proxy Statement and Prospectus is July 15, 1995.
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<PAGE>
TABLE OF CONTENTS
Page
INTRODUCTION.............................................
SUMMARY..................................................
RISK FACTORS AND SPECIAL CONSIDERATIONS .................
INFORMATION CONCERNING THE MEETING.......................
PROPOSAL TO APPROVE AGREEMENT AND PLAN OF REORGANIZATION
CAPITALIZATION...........................................
COMPARATIVE PERFORMANCE INFORMATION......................
BUSINESS OF GROWTH FUND..................................
General............................................
Investment Objective and Policies..................
Portfolio Management...............................
Trustees...........................................
Investment Adviser and Distributor.................
Expenses...........................................
Custodian and Transfer Agent.......................
Growth Fund Shares.................................
Purchase of Growth Fund Shares.....................
Redemption of Growth Fund Shares...................
Dividends, Distributions and Taxes.................
BUSINESS OF CAPITAL GROWTH FUND..........................
General............................................
Investment Objective and Policies..................
Portfolio Management...............................
Trustees...........................................
Investment Adviser and Distributor.................
Expenses...........................................
Custodian and Transfer Agent.......................
Capital Growth Fund Shares.........................
Purchase of Capital Growth Fund Shares.............
Redemption of Capital Growth Fund Shares...........
Dividends, Distributions and Taxes.................
EXPERTS..................................................
AVAILABLE INFORMATION....................................
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EXHIBITS
A - Form of Agreement and Plan of Reorganization by and
between John Hancock Capital Growth Fund and John
Hancock Capital Series, on behalf of John Hancock Growth
Fund (attached hereto).
B - Prospectus of John Hancock Growth Fund for Class A and
Class B shares, dated May 1, 1995 (included herewith).
C - Annual Report to Shareholders of John Hancock Growth Fund,
dated December 31, 1994 (included herewith).
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PROXY STATEMENT AND PROSPECTUS
FOR SPECIAL MEETING OF SHAREHOLDERS OF
JOHN HANCOCK CAPITAL GROWTH FUND
TO BE HELD ON SEPTEMBER 8, 1995
INTRODUCTION
This Proxy Statement and Prospectus is furnished in connection
with the solicitation of proxies by the Board of Trustees of Capital
Growth Fund (the "Board of Trustees"). The proxies will be voted at the
Special Meeting of Shareholders (the "Meeting") of Capital Growth Fund
to be held at 101 Huntington Avenue, Boston, Massachusetts 02199 on
Friday, September 8, 1995 at 9:00 a.m., Boston time, and at any
adjournment or adjournments of the Meeting. The purposes of the Meeting
are set forth in the accompanying Notice of Special Meeting of
Shareholders.
This Proxy Statement and Prospectus incorporates by reference the
prospectus of Capital Growth Fund for Class A and Class B shares, dated
May 1, 1995 (the "Capital Growth Fund Prospectus"), and includes the
prospectus of Growth Fund for Class A and Class B shares, dated May 1,
1995 (the "Growth Fund Prospectus"). The Annual Report to Shareholders
of Growth Fund, dated December 31, 1994, is included with this Proxy
Statement and Prospectus. These materials will be mailed to
shareholders of Capital Growth Fund on or after July 21, 1995. Capital
Growth Fund's Annual Report to Shareholders was previously sent to
shareholders on or about February 28, 1995.
As of June 30, 1995, ______ shares of beneficial interest of
Capital Growth Fund were outstanding.
All properly executed proxies received by management prior to the
Meeting, unless revoked, will be voted at the Meeting according to the
instructions on the proxies. If no instructions are given, shares of
Capital Growth Fund represented by proxies will be voted FOR the
proposal (the "Proposal") to approve the Agreement and Plan of
Reorganization (the "Agreement") between Capital Growth Fund and the
Trust, on behalf of Growth Fund.
The Board of Trustees knows of no business that will be presented
for consideration at the Meeting other than that mentioned in the
immediately preceding paragraph. 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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In addition to the mailing of these proxy materials, proxies may
be personally solicited by Trustees, officers and employees of Capital
Growth Fund; by personnel of Capital Growth Fund's investment adviser,
John Hancock Advisers, Inc., Capital Growth Fund's transfer agent, John
Hancock Investor Services Corporation ("Investor Services"); by
broker-dealer firms; or by a professional solicitation organization, in
person or by telephone. Capital Growth Fund and Growth Fund (each, a
"Fund" and collectively, the "Funds") will each bear its own fees and
expenses in connection with the Reorganization discussed in this Proxy
Statement and Prospectus.
The information concerning Growth Fund in this Proxy Statement and
Prospectus has been supplied by the Trust. The information regarding
Capital Growth Fund in this Proxy Statement and Prospectus has been
supplied by Capital Growth Fund.
SUMMARY
The following is a summary of certain information contained
elsewhere in this Proxy Statement and Prospectus. The summary is
qualified by reference to the more complete information contained in
this Proxy Statement and Prospectus, and in the Exhibits attached and
included with this document. Please read this entire Proxy Statement
and Prospectus carefully.
Reasons for the Proposed Reorganization
Capital Growth Fund's Board of Trustees has determined that the
proposed Reorganization is in the best interests of Capital Growth Fund
and its shareholders. In making this determination, the Trustees
considered several relevant factors, including the comparative
performance of each Fund, the fact that the investment objectives and
policies of Capital Growth Fund and Growth Fund are generally similar,
and the fact that combining the Funds' assets into a single portfolio
will enable Growth Fund to achieve greater diversification than either
Fund is now able to achieve. The Board of Trustees believes that the
Growth Fund Shares received in the Reorganization will provide existing
Capital Growth Fund shareholders with substantially the same investment
advantages that they currently enjoy at a comparable level of risk. For
a more detailed discussion of the reasons for the proposed
Reorganization, see "Proposal to Approve the Agreement and Plan of
Reorganization--Reasons For The Proposed Reorganization."
The Funds' Expenses
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<PAGE>
Both Funds and their shareholders are subject to various fees and
expenses. The two tables set forth below show the operating expenses of
Class A and Class B shares of the Funds. These expenses are based on
fees and expenses incurred during the Funds' most recently completed
fiscal years.
Capital Growth Fund
Annual Fund Operating Expenses Class A Class B
(as a percentage of net assets) Shares Shares
Management fee......................... 0.63% 0.63%
12b-1 fee.............................. 0.25% 1.00%
Other expenses......................... 0.71% 0.71%
---- ----
Total Fund operating expenses.......... 1.59% 2.34%
Growth Fund
Annual Fund Operating Expenses Class A Class B
(as a percentage of net assets) Shares Shares
Management fee......................... 0.80% 0.80%
12b-1 fee.............................. 0.30% 1.00%
Other expenses......................... 0.55% 0.58%
---- ----
Total Fund operating expenses.......... 1.65% 2.38%
The table set forth below shows the pro forma operating expenses
of Class A and Class B shares of Growth Fund, which assume that the
proposed Reorganization took place on December 31, 1994. These expenses
are based on fees and expenses incurred during the Funds' most recently
completed fiscal years.
Growth Fund (pro forma)
Annual Fund Operating Expenses Class A Class B
(as a percentage of net assets) Shares Shares
Management fee......................... 0.80% 0.80%
12b-1 fee.............................. 0.30% 1.00%
Other expenses......................... 0.54% 0.56%
---- ----
Total Fund operating expenses.......... 1.64% 2.36%
If the proposed Reorganization is consummated, the actual total
operating expenses of Class A and Class B shares of Growth Fund may
vary from the pro forma operating expenses indicated above.
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<PAGE>
The Funds' Investment Adviser
John Hancock Advisers, Inc. (the "Adviser") acts as
investment adviser to both Funds.
Business of John Hancock Capital Growth Fund
Capital Growth Fund is a diversified, open-end management
investment company organized as a Massachusetts business trust in 1984.
As of December 31, 1994, Capital Growth Fund's net assets were
approximately $86,741,611. Investment decisions for Capital Growth Fund
are made primarily by Ben Hock, the Fund's portfolio manager. Mr. Hock
will continue to serve as Capital Growth Fund's portfolio manager until
the Reorganization.
Business of John Hancock Growth Fund
Growth Fund is a diversified series of the Trust, an open-end
management investment company organized as a Massachusetts business
trust in 1984. The Trust's predecessor was organized in 1968. As of
December 31, 1994, Growth Fund's net assets were approximately
$151,847,464. All investment decisions for Growth Fund are made by
a portfolio management team consisting of investment professionals
employed by the Adviser. No single person is primarily responsible for
making recommendations to the team.
Comparison of the Investment Objectives and Policies of John
Hancock Capital Growth Fund and John Hancock Growth Fund
Capital Growth Fund. The investment objective of Capital Growth
Fund is capital appreciation. Under normal circumstances, at least 65%
of Capital Growth Fund's total assets are invested in common stocks
(including warrants and other securities which are convertible into or
exchangeable for common stocks). The remaining portion of Capital
Growth Fund's assets (up to 35% under normal circumstances) may be
invested in investment grade debt securities and preferred stocks.
Capital Growth Fund may invest in certain derivative instruments,
including forward foreign currency contracts, stock options, stock
index options, stock index futures and related options. Capital Growth
Fund may also purchase foreign securities, lend portfolio securities
and enter into repurchase agreements and reverse repurchase agreements.
Growth Fund. The investment objective of Growth Fund is long-term
capital appreciation. Growth Fund invests principally in common stocks
(and in securities convertible into or with rights to purchase common
stocks) of companies which the Adviser believes offer outstanding
growth potential over both the intermediate and long term. Growth Fund
may also purchase foreign securities, lend portfolio securities and
enter into repurchase
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<PAGE>
agreements. Growth Fund does not engage in derivatives
transactions.
Growth Fund's investment objective is fundamental and may not be
changed without the approval of Growth Fund's shareholders. Capital
Growth Fund's investment objective is nonfundamental and may be changed
by the Fund's Board of Trustees without shareholder approval.
In considering whether to approve the Reorganization, you should
consider the differences between the two Funds' investment objectives
and policies. For a discussion of the risks associated with an
investment in the Funds, see "Risk Factors and Special Considerations."
Capital Growth Fund Growth Fund
Investment Objective is to achieve Objective is to
Objective capital appreciation achieve long-term
capital appreciation
Primary At least 65% of Capital Principally in common
Investments Growth Fund's assets in stocks (and securities
domestic or foreign convertible into
equity securities common stocks) of
(including common companies believed to
stocks and securities offer outstanding
convertible into common intermediate and long-
stocks). The issuers term growth potential.
of these securities may The emphasis is on
include smaller, less common stocks of those
well established companies whose 5-year
companies as well as average operating
larger or better earnings and revenue
established companies. growth are at least 2
Capital Growth Fund may times the growth of
not invest more than the U.S. Gross
25% of its assets in Domestic Product.
the securities of However, Growth Fund
issuers located in a may invest in
single foreign country. companies that do not
meet this test.
Other Capital Growth Fund may Growth fund may invest
Investments invest in restricted in restricted and Rule
securities, subject to 144A securities,
a 10% limit on illiquid subject to a 15% limit
investments. Up to 35% on illiquid
of Capital Growth investments. Growth
Fund's assets may be Fund may invest up to
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invested in investment 15% of its assets in
grade debt securities American Depositary
and preferred stocks Receipts. For
that are believed to defensive purposes,
offer opportunities for Growth Fund may
long-term capital temporarily hold cash
appreciation. For or invest in preferred
defensive purposes, stock, nonconvertible
Capital Growth Fund may bonds and other fixed
temporarily hold cash income securities.
and invest without Fixed income
limit in investment securities are rated
grade debt securities, at least BBB by
repurchase agreements Standard & Poor's
and preferred stocks. Ratings Group or Baa
Capital Growth Fund may by Moody's Investors
borrow money and enter Service, Inc., except
into reverse repurchase that Growth Fund may
agreements for leverage invest up to 5% of its
purposes. Capital net assets in lower
Growth Fund may also rated fixed income
lend portfolio securities.
securities.
Permitted Forward currency None.
Transactions contracts (subject to a
in Derivative 15% limit on the amount
Instruments committed), options on
stock and stock indices,
stock index futures
contracts and options on
such futures contracts.
Diversification Capital Growth Fund is Growth fund is
and Industry diversified and does diversified and does
Concentration not concentrate more not concentrate more
than 25% of its assets than 25% of its assets
in any one industry. in any one industry.
Form of Organization
Capital Growth Fund is a Massachusetts business trust. Growth Fund
is one of two separate series of the Trust, a Massachusetts business
trust. Both Funds have authorized and outstanding Class A and Class B
shares.
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Each share of a Fund represents an equal proportionate interest in
the assets belonging to that Fund. The liabilities attributable to
Growth Fund are not charged against the assets of the other series of
the Trust. Shares of Growth Fund and the other series of the Trust are
voted separately with respect to matters pertaining to the Fund or the
other series, but all shares vote together for the election of the
Trust's Trustees and the ratification of the Trust's independent
accountants.
The shares of each class of Capital Growth Fund and Growth Fund
represent an interest in the same portfolio of investments of that
Fund. Except as stated below, each class of each Fund has equal rights
as to voting, redemption, dividends and liquidation. Each class bears
different distribution and transfer agent fees, and may bear other
expenses properly attributable to the particular class. Class A and
Class B shareholders of each Fund have exclusive voting rights with
regard to the Rule 12b-1 distribution plan covering their class of
shares.
Class A shares of each Fund are offered with a front-end sales
charge. Class A shares of Capital Growth Fund are subject to a Rule
12b-1 fee of 0.25% of the average daily net assets attributable to
Class A shares, of which up to 0.25% of these average daily net assets
is for service expenses and the remainder is for distribution services.
Class A shares of Growth Fund are subject to a Rule 12b-1 fee of 0.30%
of the Fund's average daily net assets, of which up to 0.25% of these
average daily net assets is for service expenses and the remainder is
for distribution services.
Class B shares of each Fund are offered with a contingent deferred
sales charge ("CDSC") payable upon redemption of these shares. The Rule
12b-1 fee for Class B shares is 1.00% of the average daily net assets
attributable to Class B shares, of which up to 0.25% of these average
daily net assets is for service expenses and the remainder is for
distribution services.
As part of the Reorganization, Class A shares of Growth Fund will
be issued to Capital Growth Fund and then distributed by it to Capital
Growth Fund's Class A shareholders. Similarly, Class B shares of Growth
Fund will be issued to Capital Growth Fund and then distributed by it
to Capital Growth Fund's Class B shareholders.
Sales Charges and Distribution and Service Fees.
Class A Shares. Both Funds impose an initial sales charge on Class
A shares at rates ranging from 5.00% to 0.00% of the amount invested
depending on the size of the purchase, the size of the purchaser's
existing investment, if any, at the time of the
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purchase, and the participation of the shareholder in special purchase
plans or arrangements to purchase additional shares. A CDSC of up to
1.00% is imposed on certain Class A shares purchased without an initial
sales charge and redeemed within one year of purchase. An initial sales
charge does not apply to Class A shares acquired through the
reinvestment of dividends from net investment income or capital gain
distributions.
Class A shares of Growth Fund acquired by Capital Growth Fund's
Class A shareholders pursuant to the Reorganization will not be subject
to any initial sales charge or CDSC. However, the CDSC imposed upon
certain redemptions within one year of purchase (referred to above)
will continue to apply to the Class A shares of Growth Fund issued in
the Reorganization. The holding period for determining the application
of this CDSC will be calculated from the date the Capital Growth Fund
Class A shares were issued.
Class B Shares. Capital Growth Fund and Growth Fund do not impose
an initial sales charge on Class B shares. However, Class B shares
redeemed within six years of purchase will be subject to a CDSC at the
rates set forth below. This CDSC will be assessed on an amount equal to
the lesser of the current market value or the original purchase cost of
the Class B shares being redeemed. Accordingly, Class B shareholders
will not be assessed a CDSC on increases in account value above the
initial purchase price, including shares derived from reinvested
dividends. The amount of the CDSC, if any, will vary depending on the
number of years from the time the Class B shares were purchased until
the time they are redeemed, as follows:
The Contingent
Deferred Sales
Year in Charge As a
Which Class B Percentage of
Shares Redeemed Dollar Amount
Following Purchase Subject to CDSC
First 5.0%
Second 4.0%
Third 3.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Seventh and
thereafter None
Class B shares of Growth Fund acquired by Capital Growth Fund's
Class B shareholders pursuant to the Reorganization will not be subject
to any CDSC at the time of the Reorganization, but will remain subject
to any CDSC applicable upon redemption of
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these shares. For purposes of computing the CDSC payable upon
redemption of Class B shares of Growth Fund acquired pursuant to the
Reorganization and the automatic conversion of Class B shares into
Class A shares, the holding period of the Capital Growth Fund Class B
shares will be added to that of the Growth Fund Class B shares acquired
in the Reorganization.
Distribution and Service Fees. Both Funds have adopted
distribution plans pursuant to Rule 12b-1 under the Investment Company
Act of 1940, as amended (the "Investment Company Act"). Under these
plans, each Fund may pay fees to John Hancock Funds, Inc. ("John
Hancock Funds") to reimburse distribution and service expenses in
connection with Class A shares. These fees are payable at an annual
rate of up to 0.25% and 0.30%, respectively, of the average daily net
assets attributable to the Class A shares of Capital Growth Fund and
Growth Fund. Of this fee, up to 0.25% may be for service expenses and
the remainder will be for distribution services.
In addition, under the plans, each Fund may pay fees to John
Hancock Funds to reimburse it for distribution and service expenses in
connection with Class B shares. These fees are payable at an annual
rate of 1.00% of the Fund's average daily net assets attributable to
its Class B shares. Of this fee, up to 0.25% may be for service
expenses and the remainder will be for distribution services. With
respect to Class B shares only, if John Hancock Funds is not fully
reimbursed for payments made or expenses incurred in any fiscal year,
it is entitled to carry forward these expenses to subsequent fiscal
years for submission to the applicable Fund for payment, subject always
to the maximum annual distribution fee for Class B shares described
above.
The Board of Trustees of the Trust, on behalf of Growth Fund, has
determined that, if the Reorganization is consummated, unreimbursed
distribution and shareholder service expenses originally incurred in
connection with Capital Growth Fund's shares will be reimbursable under
Growth Fund's Rule 12b-1 Plans. As of December 31, 1994, the
unreimbursed distribution and shareholder service expenses for Class A
shares of Growth Fund and Capital Growth Fund were $148,982 and $0,
respectively. The unreimbursed distribution and shareholder service
expenses for Class B shares of Growth Fund and Capital Growth Fund were
$152,358 and $12,865, respectively. See "Unreimbursed Distribution and
Shareholder Expenses" below.
Purchases and Exchanges
Shares of Growth Fund may be purchased through certain
broker-dealers and through John Hancock Funds at the public offering
price, which is based on the next determined net asset
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value per share, plus any applicable sales charge. The minimum initial
investment in Growth Fund is $1,000 ($250 for group investments and
retirement plans). In anticipation of the Reorganization, as of the
Record Date, Capital Growth Fund stopped offering its shares to all
investors other than existing shareholders.
Shareholders of both Funds may exchange their shares at net asset
value for shares of the same class, if applicable, of certain other
funds managed by the Adviser. Shares of any fund acquired in this
manner that are subject to a CDSC will incur the CDSC, if still
applicable, upon redemption. The exchange privilege is available only
in those states where exchanges can be made legally.
Distribution Procedures
It is the policy of both Funds to pay dividends annually from net
investment income. Each Fund also distributes annually all of its other
taxable income, including both net realized short-term and long-term
capital gains, if any. Capital Growth Fund will make, immediately prior
to the Closing Date (as defined below), a distribution of all of its
net income and net realized capital gains, if any, not previously
distributed.
Reinvestment Options
Unless an election is made to receive cash, the shareholders of
both Funds automatically reinvest all of their respective dividends and
capital gain distributions in additional shares of the same class of
the same Fund. These reinvestments are made at the net asset value per
share and are not subject to any sales charge.
Redemption Procedures
Shares of both Funds may be redeemed on any business day at a
price equal to the net asset value of the shares next determined after
receipt of a redemption request in good order, less any applicable
CDSC. Alternatively, shareholders of both Funds may sell their shares
through securities dealers, who may charge a fee. Redemptions and
repurchases of Class B shares and certain Class A shares of Capital
Growth Fund and Growth Fund are subject to the applicable CDSC, if any.
Class A and Class B shares of Capital Growth Fund may be redeemed up to
and including the Closing Date (as defined below).
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Reorganization
Effect of the Reorganization. Pursuant to the terms of the
Agreement, the proposed Reorganization will consist of the acquisition
by Growth Fund of all the assets of Capital Growth Fund in exchange
solely for (i) the assumption by Growth Fund of all the liabilities of
Capital Growth Fund and (ii) the issuance of Growth Fund shares equal
to the value of these assets, less the amount of these liabilities (the
"Growth Fund Shares"), to Capital Growth Fund. As part of the
liquidation process, Capital Growth Fund will immediately distribute to
its shareholders these Growth Fund Shares in exchange for their shares
of Capital Growth Fund. Consequently, Class A shareholders of Capital
Growth Fund will become Class A shareholders of Growth Fund and Class B
shareholders of Capital Growth Fund will become Class B shareholders of
Growth Fund. After completion of the Reorganization, the existence of
Capital Growth Fund will be terminated.
The Reorganization will become effective as of 5:00 p.m. on the
closing date, scheduled for September 15, 1995, or another date on or
before December 31, 1995 as authorized representatives of the Funds may
agree (the "Closing Date"). The Growth Fund Class A Shares issued to
Capital Growth Fund for distribution to Capital Growth Fund's Class A
shareholders will have an aggregate net asset value equal to the
aggregate net asset value of Capital Growth Fund's Class A shares.
Similarly, the Growth Fund Class B shares issued to Capital Growth Fund
for distribution to Capital Growth Fund's Class B shareholders will
have an aggregate net asset value equal to the aggregate net asset
value of Capital Growth Fund's Class B shares. For purposes of the
Reorganization, the Funds' respective asset values will be determined
as of the close of business (4:00 p.m. Eastern Time) on the Closing
Date.
Capital Growth Fund's Board of Trustees, including the Trustees
not affiliated with either Fund, unanimously approved the
Reorganization, and determined that it is in the best interests of
Capital Growth Fund and that the interests of Capital Growth Fund's
shareholders will not be diluted as a result of the Reorganization.
Similarly, the Trust's Board of Trustees, including the Trustees not
affiliated with either Fund, unanimously approved the Reorganization
and determined that it is in the best interests of Growth Fund and that
the interests of Growth Fund's shareholders will not be diluted as a
result of the Reorganization. For a discussion of the factors
considered by Capital Growth Fund's Board of Trustees, see "Proposal to
Approve the Agreement and Plan of Reorganization--Reasons for the
Proposed Reorganization."
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Tax Considerations
The consummation of the Reorganization is subject to the receipt
of an opinion of Hale and Dorr, counsel to the Funds, satisfactory to
the Trust and Capital Growth Fund and substantially to the effect that:
(a) the acquisition by Growth Fund of all of Capital Growth
Fund's assets solely in exchange for the issuance of Growth Fund
Shares to Capital Growth Fund and the assumption of all of Capital
Growth Fund's liabilities by Growth Fund, followed by the
distribution by Capital Growth Fund, in liquidation of Capital
Growth Fund, of Growth Fund Shares to the shareholders of Capital
Growth Fund in exchange for their shares of beneficial interest of
Capital Growth Fund and the termination of Capital Growth Fund,
will constitute a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), and Capital Growth Fund and Growth 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 Capital Growth Fund
upon (i) the transfer of all of its assets to Growth Fund (in the
exchange described above) and (ii) the distribution by Capital
Growth Fund of Growth Fund Shares to Capital Growth Fund's
shareholders;
(c) no gain or loss will be recognized by Growth Fund upon
the receipt of Capital Growth Fund's assets in the exchange
described above;
(d) the basis of the assets of Capital Growth Fund acquired
by Growth Fund will be, in each instance, the same as the basis of
those assets in the hands of Capital Growth Fund immediately prior
to the transfer;
(e) the tax holding period of the assets of Capital Growth
Fund in the hands of Growth Fund will, in each instance, include
Capital Growth Fund's tax holding period for those assets;
(f) the shareholders of Capital Growth Fund will not
recognize gain or loss upon the exchange of all of their Capital
Growth Fund shares for Growth Fund Shares as part of the
Reorganization;
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(g) the basis of the Growth Fund Shares received by Capital
Growth Fund shareholders in the Reorganization will be the same as
the basis of the Capital Growth Fund shares surrendered in
exchange therefor; and
(h) the tax holding period of the Growth Fund Shares received
by Capital Growth Fund shareholders will include, for each
shareholder, the tax holding period for the Capital Growth Fund
shares surrendered in exchange therefor, provided the Capital
Growth Fund shares were held as capital assets on the date of the
exchange.
The Meeting
Time, Place and Date. The Meeting will be held on Friday,
September 8, 1995, at 101 Huntington Avenue, Boston, Massachusetts
02199, at 9:00 a.m. Boston time.
Record Date. The Record Date for determining shareholders
entitled to notice of and to vote at the Meeting is July 14, 1995.
Vote Required for Approval. Approval of the Agreement by the
shareholders of Capital Growth Fund requires the affirmative vote
of not less than a "majority of the outstanding voting securities"
(as defined in the Investment Company Act) of Capital Growth Fund.
The Reorganization does not require the approval of Growth Fund's
shareholders. See "Proposal to Approve the Agreement and Plan of
Reorganization--Voting Rights and Required Vote."
RISK FACTORS AND SPECIAL CONSIDERATIONS
Please see the Growth Fund Prospectus, enclosed with this Proxy
Statement and Prospectus, and the Capital Growth Fund Prospectus,
incorporated herein by reference, for a more complete description of
each Fund's investment objectives and policies, as well as their risk
factors.
In deciding whether to approve the Reorganization, you should
consider the similarities and differences between the investment
objectives and policies and risk factors of the Funds.
Given the similarity of these investment objectives, the Funds are
subject to substantially identical investment risks. However, because
of differences in certain investment policies, the Funds are subject to
different risks in certain areas. Growth Fund's ability to invest up to
15% of its net assets in illiquid securities may subject it to the
risks of such securities to a greater extent than Capital Growth Fund,
which is permitted to invest up to 10% of its net assets in such
securities. The sale
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of illiquid securities, if they can be sold at all, generally requires
more time and results in higher brokerage charges and other selling
expenses than does the sale of liquid securities.
Because it may invest in foreign securities without limit, Capital
Growth Fund may be subject to the risks of foreign investment to a
greater extent than Growth Fund. Investment in foreign securities may
involve a greater degree of risk than investment in domestic securities
due to exchange controls, less publicly available information, more
volatile or less liquid securities markets, and the possibility of
expropriation, confiscatory taxation or political, economic or social
instability. Similarly, Capital Growth Fund's ability to enter into
derivatives transactions subjects it to certain risks that do not apply
to Growth Fund.
INFORMATION CONCERNING THE MEETING
Solicitation, Revocation And Use Of Proxies
A majority of Capital Growth Fund's shares that are represented
and entitled to vote at the Meeting will be a quorum for the
transaction of business. A Capital Growth Fund shareholder executing
and returning a proxy has the power to revoke it at any time before it
is exercised, by filing a written notice of revocation with Capital
Growth Fund's transfer agent, John Hancock Investor Services
Corporation, P.O. Box 9116, Boston, Massachusetts 02205-9116, or by
returning a duly executed proxy with a later date before the time of
the Meeting. Any shareholder who has executed a proxy but is present at
the Meeting and wishes to vote in person may revoke his or her proxy by
notifying the Secretary of Capital Growth Fund (without complying with
any formalities) at any time before it is voted. Presence at the
Meeting alone will not serve to revoke a previously executed and
returned proxy.
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 with respect to the Proposal. Any adjournment
will require the affirmative vote of a majority of the shares of
Capital Growth Fund represented in person or by proxy 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
Reorganization, even though a quorum is present at the Meeting,
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the persons named as proxies will vote those proxies in favor of the
Reorganization in favor of adjournment, and will vote those proxies
against the Reorganization against adjournment.
Record Date And Outstanding Shares
Only Capital Growth Fund shareholders of record at the close of
business on July 14, 1995 (the "Record Date") are entitled to notice of
and to vote at the Meeting and any adjournment of the Meeting. At the
close of business on June 30, 1995, _____ shares of beneficial interest
of Capital Growth Fund were outstanding.
Security Ownership of Certain Beneficial Owners and
Management of Capital Growth Fund and Growth Fund
To the knowledge of Capital Growth Fund, as of June 30, 1995, no
person owned of record or beneficially 5% or more of the outstanding
Class A or Class B shares of beneficial interest of Capital Growth
Fund. To the knowledge of the Trust, as of June 30, 1995, no person
owned of record or beneficially 5% or more of Growth Fund's outstanding
Class A or Class B shares of beneficial interest.
As of June 30, 1995, the Trustees and officers of Capital Growth
Fund, as a group, owned in the aggregate less than 1% of the
outstanding Class A and Class B shares of beneficial interest of
Capital Growth Fund. As of June 30, 1995, the Trustees and officers of
the Trust, as a group, owned in the aggregate less than 1% of the
outstanding Class A and Class B shares of beneficial interest of Growth
Fund.
PROPOSAL TO APPROVE THE AGREEMENT
AND PLAN OF REORGANIZATION
General
The shareholders of Capital Growth Fund are being asked to approve
the Agreement, a copy which is attached as Exhibit A. The
Reorganization will consist of: (A) the transfer of all of Capital
Growth Fund's assets to Growth Fund, in exchange solely for the
issuance of Growth Fund Shares to Capital Growth Fund and the
assumption of Capital Growth Fund's liabilities by Growth Fund, (B) the
subsequent distribution by Capital Growth Fund, as part of its
liquidation, of the Growth Fund Shares to Capital Growth Fund's
shareholders and (C) the termination of Capital Growth Fund's
existence. The Growth Fund Class A Shares issued upon the consummation
of the Reorganization will have an aggregate net asset value equal to
the aggregate net asset value of Capital Growth Fund's Class A shares.
Similarly, the Growth Fund Class B
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Shares issued upon consummation of the Reorganization will have an
aggregate net asset value equal to the aggregate net asset value of
Capital Growth Fund's Class B shares. As noted above, the asset values
of Capital Growth Fund and Growth Fund will be determined at the close
of business (4:00 p.m. Eastern Time) on the Closing Date for purposes
of the Reorganization. See "Description of Agreement" below.
Pursuant to the Agreement, Capital Growth Fund will liquidate and
distribute the Growth Fund Shares received, as described above, pro
rata to the shareholders of record of each class determined as of the
close of regular trading on the New York Stock Exchange on the Closing
Date. The result of the transfer of assets will be that Growth Fund
will add to its portfolio the net assets of Capital Growth Fund. Class
A shareholders of Capital Growth Fund will become Class A shareholders
of Growth Fund, and Class B shareholders of Capital Growth Fund will
become Class B shareholders of Growth Fund.
The Agreement and the Reorganization were unanimously approved by
the Board of Trustees of Capital Growth Fund at a meeting held on May
16, 1995. The Agreement and the Reorganization were unanimously
approved by the Board of Trustees of the Trust on behalf of Growth Fund
at a meeting held on May 1, 1995.
Reasons For The Proposed Reorganization
Capital Growth Fund's Board of Trustees believes that the proposed
Reorganization will be advantageous to the shareholders of Capital
Growth Fund in several respects. The Board of Trustees considered the
following matters, among others, in approving the Proposal.
First, the Board of Trustees believes that it is not advantageous
to operate and market Capital Growth Fund separately from Growth Fund
because their investment objectives and policies are substantially
identical. For a complete description of Growth Fund's investment
objective and policies, see the Growth Fund Prospectus attached as
Exhibit B.
Second, the Board of Trustees considered the fact that Capital
Growth Fund is significantly smaller than Growth Fund. The Board of
Trustees determined that the existence of a larger competing fund
within the same fund complex and with substantially identical
investment characteristics is likely to impede the marketing and asset
growth of Capital Growth Fund.
Third, the Board of Trustees considered that shareholders may
be better served by a fund offering greater diversification. To
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the extent that the Funds' assets are combined into a single portfolio
and a larger asset base is created as a result of the Reorganization,
greater diversification of Growth Fund's investment portfolio can be
achieved than is currently possible in either Fund. Greater
diversification is expected to be beneficial to shareholders of both
Funds, because it may reduce the negative effect which the adverse
performance of any one security may have on the performance of the
entire portfolio.
Fourth, the Board of Trustees believes that the Growth Fund Shares
received in the Reorganization will provide existing Capital Growth
Fund shareholders with substantially the same investment advantages
that they currently enjoy at a comparable level of risk.
Fifth, a combined fund offers economies of scale that should have
a positive effect on certain expenses currently borne by the
shareholders of Capital Growth Fund. Both Funds incur substantial
overhead costs for accounting, legal, transfer agency services,
insurance, and custodial and administrative services. Although the
Reorganization is expected to result in an increase in total operating
expenses currently borne by Capital Growth Fund's shareholders, the
Board of Trustees expects that many expenses (excluding the management
fee and Class A Rule 12b-1 fee) will decrease as a result of the
Reorganization.
Sixth, the Board of Trustees considered the performance history of
each Fund, including the fact that Growth Fund has achieved a better
return for investors over the five-year and one-year periods ended
December 31, 1994. The Board of Trustees believes that this fact, among
others, supports the increased management fee that will result (for
Capital Growth Fund shareholders) from the Reorganization. See
performance information, including table, in "Comparative Performance
Information" below.
In determining that the Reorganization is in the best interests of
Capital Growth Fund and the interests of its shareholders, the Board of
Trustees considered the fact that the Adviser will receive certain
benefits from the Reorganization, including a higher management fee.
The Reorganization will result in a consolidated portfolio management
effort, and may result in time savings to the Adviser by reducing the
number of reports and regulatory filings that it needs to prepare.
Unreimbursed Distribution and Shareholder Service Expenses
The Trust's Board of Trustees has determined that, if the
Reorganization is consummated, distribution and shareholder service
expenses incurred in connection with shares of Capital Growth Fund, and
not reimbursed under Capital Growth Fund's Rule
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12b-1 Plans or through CDSCs, will be reimbursable expenses under
Growth Fund's Rule 12b-1 Plans (the "assumption"). However, the maximum
aggregate amounts payable during any fiscal year under Growth Fund's
Rule 12b-1 Plan (0.30% of average daily net assets attributable to
Class A shares and 1.00% of average daily net assets attributable to
Class B shares) will not be affected by the assumption.
With respect to Growth Fund's Class A and Class B shares, the
percentage of net assets on a pro forma combined basis that the
unreimbursed expenses represent will decrease as a result of the
Reorganization and the assumption. As of December 31, 1994, the
unreimbursed distribution and shareholder service expenses of Growth
Fund attributable to Class A and Class B shares were $148,982 (0.10% of
Growth Fund's net assets attributable to Class A shares) and $152,358
(4.0% of Growth Fund's net assets attributable to Class B shares),
respectively. As of the same date, the unreimbursed distribution and
shareholder service expenses of Capital Growth Fund attributable to
Class A and Class B shares were $0 and $12,865 (0.08% of Capital Growth
Fund's net assets attributable to Class B shares), respectively.
After the Reorganization, on a pro forma combined basis, the
unreimbursed distribution and shareholder service expenses of Growth
Fund attributable to Class A and Class B shares will be $148,982 (0.07%
of Growth Fund's pro forma net assets attributable to Class A shares)
and $165,223 (0.81% of Growth Fund's pro forma net assets attributable
to Class B shares), respectively.
The assumption will have no immediate effect upon the payments
made under Growth Fund's Rule 12b-1 Plans. While John Hancock Funds
hopes to recover unreimbursed distribution and shareholder service
expenses over an extended period of time, Growth Fund is not obligated
to assure that these amounts are recouped by John Hancock Funds.
Unreimbursed distribution and shareholder service expenses do not
currently appear as an expense or liability in the financial statements
of either Fund, nor will they appear in the financial statements of
Growth Fund after the Reorganization until paid or accrued. Even in the
event of termination or noncontinuance of Growth Fund's 12b-1 Plans,
Growth Fund is not legally committed, and is not required to commit, to
the payment of any unreimbursed distribution and shareholder service
expenses. For this reason, unreimbursed expenses do not enter into the
calculation of 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.
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Board's Evaluation and Recommendation
On the basis of the factors described above and other factors,
Capital Growth Fund's Board of Trustees, including a majority of the
Trustees who are not "interested persons" (as defined in the Investment
Company Act) of the Funds, determined that the Reorganization is in the
best interests of Capital Growth Fund and that the interests of Capital
Growth Fund's shareholders will not be diluted as a result of the
Reorganization. On the same basis, the Board of Trustees of the Trust,
including a majority of the Trustees who are not "interested persons"
(as defined in the Investment Company Act) of the Funds, determined
that the Reorganization is in the best interests of Growth Fund and the
interests of Growth Fund's shareholders will not be diluted as a result
of the Reorganization.
THE TRUSTEES OF JOHN HANCOCK CAPITAL GROWTH FUND RECOMMEND
THAT SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE AGREEMENT
AND PLAN OF REORGANIZATION.
Description of Agreement
The following description of the Agreement is a summary, does not
purport to be complete, and is subject in all respects to the
provisions of the Agreement, and is qualified in its entirety by
reference to the Agreement. A copy of the Agreement is attached to this
Proxy Statement and Prospectus as Exhibit A and should be read in its
entirety. Paragraph references are to appropriate provisions of the
Agreement.
Method of Carrying Out Reorganization. If Capital Growth Fund
shareholders approve the Agreement, the Reorganization will be
consummated promptly after the various conditions to the obligations of
each of the parties are satisfied (see Agreement, paragraphs 6 through
8). The Reorganization will be completed on the Closing Date (as
defined above).
On the Closing Date, Capital Growth Fund will transfer all of its
assets to Growth Fund in exchange for Growth Fund Shares with an
aggregate net asset value equal to the value of the assets delivered,
less the liabilities of Capital Growth Fund assumed, as of the close of
business on the Closing Date (see Agreement, paragraphs 1 and 2).
The value of Capital Growth Fund's assets and Growth Fund's net
asset values per Class A share and per Class B share will be determined
according to the valuation procedures set forth in the Trust's
Declaration of Trust and By-laws and the Growth Fund Prospectus,
respectively (see "Share Price" in the Growth Fund Prospectus). No
initial sales charge or CDSC will be imposed upon
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delivery of the Growth Fund Shares in exchange for the assets of
Capital Growth Fund.
Surrender of Share Certificates. Capital Growth Fund shareholders
whose Class A or Class B shares are represented by one or more share
certificates should, prior to the Closing Date, either surrender their
certificates to Capital Growth Fund or deliver to Capital Growth Fund
an affidavit with respect to lost certificates, in such form and
accompanied by such surety bonds as Capital Growth Fund may require
(collectively, an "Affidavit"). On the Closing Date, all certificates
which have not been surrendered will be deemed to be cancelled, will no
longer evidence ownership of Capital Growth Fund's shares and will
evidence ownership of Growth Fund Shares. Shareholders may not redeem
or transfer Growth Fund Shares received in the Reorganization until
they have surrendered their Capital Growth Fund share certificates or
delivered an Affidavit relating to them. Unless a shareholder
specifically requests a share certificate, Growth Fund will not issue
share certificates in the Reorganization.
Conditions Precedent to Closing. The obligation of Capital Growth
Fund to consummate the Reorganization is subject to the satisfaction of
certain conditions precedent, including the Trust's and Growth Fund's
performance of all acts and undertakings required under the Agreement
and the receipt of all consents, orders and permits necessary to
consummate the Reorganization (see Agreement, paragraphs 6 through 8).
The obligation of Growth Fund to consummate the Reorganization is
subject to the satisfaction of certain conditions precedent, including
the performance by Capital Growth Fund of all acts and undertakings to
be performed under the Agreement, the receipt of certain documents and
financial statements from Capital Growth Fund and the receipt of all
consents, orders and permits necessary to consummate the Reorganization
(see Agreement, paragraphs 6 through 8).
The obligations of both parties are subject to the receipt of
approval and authorization of the Agreement by the vote of not less
than a majority of the outstanding shares of beneficial interest of
Capital Growth Fund entitled to vote (as described in the section
captioned "Voting Rights and Required Vote"), and the receipt of a
favorable opinion of Hale and Dorr as to the federal income tax
consequences of the Reorganization (see Agreement, paragraph 8.6).
Termination of Agreement. The Agreement may be terminated,
whether or not approval of Capital Growth Fund's shareholders has
been obtained, by mutual agreement of the parties. In addition,
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either party may terminate its obligations under the Agreement at or
prior to the Closing Date, because of a material breach by the other
party of any representations, warranties or agreements contained in the
Agreement, or if a condition precedent in the Agreement has not been
met.
Expenses of the Reorganization. Growth Fund and Capital Growth
Fund will each be responsible for its own expenses incurred in
connection with entering into and carrying out the provisions of the
Reorganization Agreement, whether or not the Reorganization is
consummated.
Tax Considerations
The consummation of the Reorganization is subject to the receipt
of a favorable opinion of Hale and Dorr, counsel to the Funds,
satisfactory to Capital Growth Fund and the Trust and substantially to
the effect that:
(i) The acquisition by Growth Fund of all of the assets of
Capital Growth Fund solely in exchange for the issuance of Growth Fund
Shares to Capital Growth Fund and the assumption of all of Capital
Growth Fund's liabilities by Growth Fund, followed by the distribution
by Capital Growth Fund, in liquidation of Capital Growth Fund, of
Growth Fund Shares to the shareholders of Capital Growth Fund in
exchange for their shares of beneficial interest of Capital Growth Fund
and the termination of Capital Growth Fund, will constitute a
"reorganization" within the meaning of Section 368(a) of the Code, and
Capital Growth Fund and Growth Fund will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code;
(ii) no gain or loss will be recognized by Capital Growth
Fund upon (a) the transfer of all of its assets to Growth Fund solely
in exchange for the issuance of Growth Fund Shares to Capital Growth
Fund, and the assumption of all of Capital Growth Fund's liabilities by
Growth Fund; and (b) the distribution by Capital Growth Fund of these
Growth Fund Shares to the shareholders of Capital Growth Fund;
(iii) no gain or loss will be recognized by Growth Fund upon
the receipt of Capital Growth Fund's assets solely in exchange for the
issuance of Growth Fund Shares to Capital Growth Fund and the
assumption of all of Capital Growth Fund's liabilities by Growth Fund;
(iv) the basis of the assets of Capital Growth Fund
acquired by Growth Fund will be, in each instance, the same as the
basis of those assets in the hands of Capital Growth Fund immediately
prior to the transfer;
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(v) the tax holding period of the assets of Capital Growth
Fund in the hands of Growth Fund will, in each instance, include
Capital Growth Fund's tax holding period for those assets;
(vi) the shareholders of Capital Growth Fund will not
recognize gain or loss upon the exchange of all their Capital Growth
Fund shares solely for Growth Fund Shares as part of the
Reorganization;
(vii) the basis of the Growth Fund Shares received by the
Capital Growth Fund shareholders in the transaction will be the same as
the basis of the Capital Growth Fund shares surrendered in exchange
therefor; and
(viii) the tax holding period of the Growth Fund Shares
received by the Capital Growth Fund shareholders will include, for each
shareholder, the tax holding period for the Capital Growth Fund shares
surrendered in exchange therefor, provided the Capital Growth Fund
shares were held as capital assets on the date of the exchange.
Voting Rights And Required Vote
Each Capital Growth Fund share is entitled to one vote. Class A
and Class B shareholders of Capital Growth Fund vote together with
respect to the Proposal. Approval of the Proposal requires the
affirmative vote of a majority of the outstanding voting securities of
Capital Growth Fund. Under the Investment Company Act, this means that,
to be approved, the Proposal must receive the affirmative vote of the
lesser of (i) 67% or more of the outstanding shares of Capital Growth
Fund present at the Meeting and entitled to vote, if the holders of
more than 50% of the outstanding shares of Capital Growth Fund are
present or represented by proxy, or (ii) more than 50% of the
outstanding shares of Capital Growth Fund.
Shares of beneficial interest of Capital Growth Fund
represented in person or by proxy (including shares which abstain or do
not vote with respect to the Proposal) will be counted for purposes of
determining whether a quorum is present 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
as present and entitled to vote with respect to the Proposal.
Accordingly, a "broker non-vote" has no effect on the voting in
determining whether the Proposal has been adopted pursuant to item (i)
above, provided that the holders of more than 50% of the outstanding
shares (excluding the "broker non-votes") are present or represented.
However, with respect to determining whether the Proposal has been
adopted pursuant to item (ii) above,
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because shares represented by a "broker non-vote" are considered
outstanding shares, a "broker non-vote" has the same effect as a vote
against the Proposal.
If the requisite approval of shareholders is not obtained,
Capital Growth Fund will continue to engage in business as a registered
open-end, management investment company and Capital Growth Fund's Board
of Trustees will consider what further action may be appropriate.
CAPITALIZATION
The following table sets forth the capitalization of each Fund
as of December 31, 1994, 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 0.68805 Class
A Growth Fund Shares being issued for each Class A share of Capital
Growth Fund and approximately 0.68178 Class B Growth Fund Shares being
issued for each Class B share of Capital Growth Fund. If the
Reorganization is consummated, the actual exchange ratios on the
Closing Date may vary from the exchange ratios indicated due to changes
in the market value of the portfolio securities of both Growth Fund and
Capital Growth Fund between December 31, 1994 and the Closing Date,
changes in the amount of undistributed net investment income and net
realized capital gains of Growth Fund and Capital Growth Fund during
that period resulting from income and distributions, and changes in the
accrued liabilities of Growth Fund and Capital Growth Fund during the
same period.
December 31, 1994
Capital
Growth Growth Pro Forma
Fund Fund Combined
Net Assets ................. $86,741,611 $150,273,859* $237,015,470
Net Asset Value Per Share:
Class A................... $10.93 $15.89 $15.89
Class B................... $10.80 $15.83 $15.83
Shares Outstanding:
Class A................... 6,411,229 9,218,162 13,629,435(1)
Class B................... 1,542,392 240,447 1,292,026(1)
-23-
<PAGE>
(1) If the Reorganization had taken place on December 31, 1994,
Capital Growth Fund would have received 4,411,273 Class A
shares and 1,051,579 Class B shares of Growth Fund which would
have been available for distribution to shareholders of the
applicable class of Capital Growth Fund. No assurance can be
given as to the number of Class A Shares or Class B shares of
Growth Fund that will be received by Capital Growth Fund on the
Closing Date. The foregoing is merely an example of what
Capital Growth Fund would have received and distributed had the
Reorganization been consummated on December 31, 1994 and should
not be relied upon to reflect the amount that will actually be
received on the Closing Date.
* Excludes net assets for Class C shares of Growth Fund, which
were outstanding on December 31, 1994.
COMPARATIVE PERFORMANCE INFORMATION
Total Return
The average annual total return at public offering price on
Capital Growth Fund's Class A shares for the one-year and five-year
periods ended December 31, 1994 was (16.42)% and 3.91%, respectively.
The average annual total return at public offering price on Capital
Growth Fund's Class A shares for the period from September 26, 1985
(commencement of operations) through December 31, 1994 was 13.76%. The
average annual total return on Capital Growth Fund's Class B shares
for the one-year period ended December 31, 1994 was (16.88)%. The
average annual total return on Capital Growth Fund's Class B shares
for the period from June 30, 1993 (commencement of operations) through
December 31, 1994 was (3.80)%. Total returns on Class B shares reflect
the applicable contingent deferred sales charge.
The average annual total return at public offering price on
Growth Fund's Class A shares for the one-year, five-year and ten-year
periods ended December 31, 1994 was (12.14)%, 6.47% and 11.90%,
respectively. The average annual total return on Growth Fund's Class B
shares for the period from January 3, 1994 (commencement of
operations) through December 31, 1994 was (11.33)%. Total return on
Class B shares reflects the applicable contingent deferred sales
charge.
The average annual total return of each class of the Funds is
determined by multiplying a hypothetical initial investment of $1,000
in a class by the average annual compound rate of return
-24-
<PAGE>
(including capital appreciation/depreciation, and dividends and
distributions paid and reinvested) attributable to that class for the
stated period and annualizing the result.
The table below indicates the total return (capital changes
plus reinvestment of all dividends and distributions) on a hypothetical
investment of $1,000 in each class of each Fund covering the indicated
periods ending December 31, 1994. The data below represent historical
performance which should not be considered indicative of future
performance of either Fund. Each Fund's performance and net asset value
will fluctuate such that shares, when redeemed, may be worth more or
less than their original cost.
-25-
<PAGE>
VALUE OF A $1,000 INVESTMENT IN JOHN HANCOCK CAPITAL GROWTH FUND
(UNAUDITED)
<TABLE>
<CAPTION>
Value of
Investment on
Dec. 31, 1994 Total Return Total Return
Investment Amount of Including Including Sales Charge Excluding Sales Charge
Investment Period Date Investment Sales Charge Cumulative Annualized Cumulative Annualized
<S> <C> <C> <C> <C> <C> <C> <C>
Class A Shares:
From Inception
(September 26, 1985)
to December 31, 1994 .............. 9/26/85 $1,000 $3,303 230.31% 13.76% 250.34% 14.49%
5 years ended
December 31, 1994 ................. 12/31/89 $1,000 $1,211 21.14% 3.91% 28.54% 5.15%
1 year ended
December 31, 1994 ................. 12/31/93 $1,000 $ 836 (16.42%) (16.42%) (11.34%) (11.34%)
Class B Shares:
From Inception:
(June 30, 1993) to
December 31, 1994 ................. 6/30/93 $1,000 $ 944 (5.64%) (3.80%) (1.64%) (1.10%)
1 year ended
December 31, 1994 ................. 12/31/93 $1,000 $ 831 (16.88%) (16.88%) (11.88%) (11.88%)
</TABLE>
VALUE OF A $1,000 INVESTMENT IN JOHN HANCOCK GROWTH FUND
(UNAUDITED)
<TABLE>
<CAPTION>
Value of
Investment on
Dec. 31, 1994 Total Return Total Return
Investment Amount of Including Including Sales Charge Excluding Sales Charge
Investment Period Date Investment Sales Charge Cumulative Annualized Cumulative Annualized
<S> <C> <C> <C> <C> <C> <C> <C>
Class A Shares:
10 years ended
December 31, 1994 ................. 12/31/84 $1,000 $3,079 207.90% 11.901% 224.15% 12.48%
5 years ended
December 31, 1994 ................. 12/31/89 $1,000 $1,368 36.79% 6.47% 44.00% 7.56%
1 year ended
December 31, 1994 ................. 12/31/93 $1,000 $ 879 (12.14%) (12.14%) (7.50%) (7.50%)
Class B Shares:
From Inception:
(January 3, 1994) to
December 31, 1994 1/3/94 $1,000 $ 888 (11.23%) (11.33%) (6.56%) (6.62%)
</TABLE>
-26-
<PAGE>
BUSINESS OF GROWTH FUND
General
For a discussion of the organization and operation of Growth
Fund, see "Investment Objectives and Policies" and "Organization and
Management of the Fund" in the Growth Fund Prospectus.
Investment Objective And Policies
For a discussion of Growth Fund's investment objectives and
policies, see "Investment Objectives and Policies" in the Growth Fund
Prospectus.
Portfolio Management
All investment decisions for Growth Fund are made by a portfolio
management team consisting of investment professionals employed by the
Adviser. No single person is primarily responsible for making
recommendations to the team.
Trustees
For a discussion of the responsibilities of Growth Fund's Board
of Trustees, see "Organization and Management of the Fund" in the
Growth Fund Prospectus.
Investment Adviser And Distributor
For a discussion regarding Growth Fund's investment adviser and
distributor, see "Organization and Management of the Fund," "How to Buy
Shares" and "Share Price" in the Growth Fund Prospectus.
Expenses
For a discussion of Growth Fund's expenses, see "Expense
Information" and "The Fund's Expenses" in the Growth Fund
Prospectus.
Custodian And Transfer Agent
Growth Fund's custodian is Investors Bank & Trust Company.
Growth Fund's transfer agent is Investor Services.
-27-
<PAGE>
Growth Fund Shares
For a discussion of the Growth Fund Shares, see "Organization
and Management of the Fund" in the Growth Fund Prospectus.
Purchase Of Growth Fund Shares
For a discussion of how Class A and Class B shares of Growth
Fund may be purchased or exchanged, see "How to Buy Shares,"
"Alternative Purchase Arrangements" and "Additional Services and
Programs" in the Growth Fund Prospectus.
Redemption Of Growth Fund Shares
For a discussion of how Class A and Class B shares of Growth
Fund may be redeemed, see "How to Redeem Shares" in the Growth Fund
Prospectus. Former shareholders of Capital Growth Fund whose shares are
represented by share certificates will be required to surrender their
certificates for cancellation or deliver an affidavit of loss
accompanied by an adequate surety bond to Investor Services in order to
redeem Growth Fund Shares received in the Reorganization.
Dividends, Distributions And Taxes
For a discussion of Growth Fund's policy with respect to
dividends, distributions and taxes, see "Dividends and Taxes" in the
Growth Fund Prospectus.
BUSINESS OF CAPITAL GROWTH FUND
General
For a discussion of the organization and operation of Capital
Growth Fund, see "Investment Objective and Policies" and "Organization
and Management of the Fund" in the Capital Growth Fund
Prospectus.
Investment Objective And Policies
For a discussion of Capital Growth Fund's investment objectives
and policies, see "Investment Objective and Policies" in the Capital
Growth Fund Prospectus.
Portfolio Management
Investment decisions for Capital Growth Fund are made primarily
by Ben Hock, the Fund's Portfolio Manager.
-28-
<PAGE>
Trustees
For a discussion of the responsibilities of the Board of
Trustees, see "Organization and Management of the Fund" in the Capital
Growth Fund Prospectus.
Investment Adviser And Distributor
For a discussion regarding Capital Growth Fund's investment
adviser and distributor, see "Organization and Management of the Fund,"
"How to Buy Shares" and "Share Price" in the Capital Growth Fund
Prospectus.
Expenses
For a discussion of Capital Growth Fund's expenses, see
"Expense Information" and "The Fund's Expenses" in the Capital
Growth Fund Prospectus.
Custodian And Transfer Agent
Capital Growth Fund's custodian is Investors Bank & Trust
Company. Capital Growth Fund's transfer agent is Investor Services.
Capital Growth Fund Shares
For a discussion of Capital Growth Fund's shares of beneficial
interest, see "Organization and Management of the Fund" in the Capital
Growth Fund Prospectus.
Purchase Of Capital Growth Fund Shares
For a discussion of how shares of Capital Growth Fund may be
purchased or exchanged, see "How to Buy Shares," "Alternative Purchase
Arrangements" and "Additional Services and Programs" in the Capital
Growth Fund Prospectus. In anticipation of the Reorganization, Capital
Growth Fund has stopped offering its shares to all investors other than
existing shareholders.
Redemption Of Capital Growth Fund Shares
For a discussion of how Class A and Class B shares of Capital
Growth Fund may be redeemed (other than in the Reorganization), see
"How to Redeem Shares" in the Capital Growth Fund Prospectus. Capital
Growth Fund shareholders whose shares are represented by share
certificates will be required to surrender their certificates for
cancellation or deliver an affidavit of loss accompanied by an adequate
surety bond to Investor Services in order to redeem Growth Fund Shares
received in the Reorganization.
-29-
<PAGE>
Dividends, Distributions And Taxes
For a discussion of Capital Growth Fund's policy with respect
to dividends, distributions and taxes, see "Distributions and Taxes" in
the Capital Growth Fund Prospectus.
EXPERTS
The respective financial statements and the financial
highlights of Growth Fund and Capital Growth Fund as of December 31,
1994 and for the year then ended, incorporated by reference into this
Proxy Statement and Prospectus, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing in
the Statement of Additional Information, and are included in reliance
upon such reports given upon the authority of such firm 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, and in
accordance therewith files reports, proxy statements and other
information with the SEC. Such reports, proxy statements and other
information filed by Capital Growth Fund and the Trust, on behalf of
Growth Fund, can be inspected and copied (at prescribed rates) at the
public reference facilities of the SEC at 450 Fifth Street, N.W.,
Washington, D.C., and at the following regional offices: Chicago (500
West Madison Street, Suite 1400, Chicago, Illinois); and New York (7
World Trade Center, Suite 1300, New York, New York). Copies of such
material can also be obtained by mail from the Public Reference Section
of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates.
-30-
<PAGE>
EXHIBIT A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement")
is made this __ day of __________, 1995, by and between John
Hancock Growth Fund (the "Acquiring Fund"), a series of John
Hancock Capital Series (the "Trust"), a Massachusetts business
trust, and John Hancock Capital Growth Fund (the "Acquired Fund"),
a Massachusetts business trust. The principal place of business
of the Trust and the Acquired Fund is 101 Huntington Avenue,
Boston, Massachusetts 02199. The Acquiring Fund and the Acquired
Fund are sometimes referred to collectively herein as the "Funds"
and individually as a "Fund."
This Agreement is intended to be and is adopted as a plan of
"reorganization," as such term is used in Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization will consist of the transfer of all of the assets
of the Acquired Fund to the Acquiring Fund in exchange solely for
the issuance of Class A and Class B shares of beneficial interest
of the Acquiring Fund (the "Acquiring Fund Shares") to the
Acquired Fund and the assumption by the Acquiring Fund of all of
the liabilities of the Acquired Fund, followed by the distribution
by the Acquired Fund, on or promptly after the Closing Date
hereinafter referred to, of the Acquiring Fund Shares to the
shareholders of the Acquired Fund in liquidation and termination
of the Acquired Fund as provided herein, all upon the terms and
conditions set forth in this Agreement.
In consideration of the premises of the covenants and
agreements hereinafter set forth, the parties hereto covenant and
agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR
ASSUMPTION OF LIABILITIES AND ISSUANCE OF ACQUIRING FUND
SHARES; LIQUIDATION OF THE ACQUIRED FUND
1.1 The Acquired Fund will transfer all of its assets
(consisting, without limitation, of portfolio securities and
instruments, dividends and interest receivables, cash and other
assets), as set forth in the statement of assets and liabilities
referred to in Paragraph 7.2 hereof (the "Statement of Assets and
Liabilities"), to the Acquiring Fund free and clear of all liens
and encumbrances, except as otherwise provided herein, in exchange
for (i) the assumption by the Acquiring Fund of the known and
unknown liabilities of the Acquired Fund, including the
liabilities set forth in the Statement of Assets and Liabilities
(the "Acquired Fund Liabilities"), which shall be assigned and
transferred to the Acquiring Fund by the Acquired Fund and assumed
<PAGE>
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 Class A and Class B shareholders in proportion to their
respective ownership of Class A and/or Class B shares of
beneficial interest of the Acquired Fund, as of the close of
business on the closing date (the "Closing Date"), of a number of
the Acquiring Fund Shares having an aggregate net asset value
equal to the value of the assets, less such liabilities (herein
referred to as the "net value of the assets"), of the Acquired
Fund so transferred, 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, and shall be
recomputed by Ernst & Young LLP, the independent accountants of
the Acquiring Fund. The determination of the Custodian, as
recomputed by said accountants, shall, absent manifest error, be
conclusive and binding on all parties in interest.
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 of the
applicable class (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
2
<PAGE>
Fund will receive Class A Acquiring Fund Shares, and Acquired Fund
shareholders who own Class B shares of the Acquired Fund will
receive Class B Acquiring Fund Shares. The Acquiring Fund shall
not issue certificates representing Acquiring Fund Shares in
connection with such exchange.
1.5 The Acquired Fund shareholders holding certificates
representing their ownership of shares of beneficial interest of
the Acquired Fund shall surrender such certificates or deliver an
affidavit with respect to lost certificates in such form and
accompanied by such surety bonds as the Acquired Fund may require
(collectively, an "Affidavit"), to John Hancock Investor Services
Corporation prior to the Closing Date. Any Acquired Fund share
certificate which remains outstanding on the Closing Date shall be
deemed to be cancelled, shall no longer evidence ownership of
shares of beneficial interest of the Acquired Fund and shall
evidence ownership of Acquiring Fund Shares. Unless and until any
such certificate shall be so surrendered or an Affidavit relating
thereto shall be delivered, dividends and other distributions
payable by the Acquiring Fund subsequent to the Liquidation Date
with respect to Acquiring Fund Shares shall be paid to the holder
of such certificate(s), but such shareholders may not redeem or
transfer Acquiring Fund Shares received in the Reorganization.
The Acquiring Fund will not issue share certificates in the
Reorganization.
1.6 Any transfer taxes payable upon issuance of Acquiring
Fund Shares in a name other than the registered holder of the
Acquiring 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.
3
<PAGE>
2. VALUATION
2.1 The net asset values of the Class A and Class B
Acquiring Fund Shares and the net values of the assets of the
Acquired Fund attributable to its Class A and Class B shares to be
transferred shall in each case be determined as of the close of
business (4:00 p.m. Boston time) on the Closing Date. The net
asset values of the Class A and Class B Acquiring Fund Shares
shall be computed by the Custodian in the manner set forth in the
Trust's Declaration of Trust, as amended and restated, or By-laws
and the Acquiring Fund's then-current prospectus and statement of
additional information and shall be computed in each case to not
fewer than four decimal places. The net values of the assets of
the Acquired Fund attributable to its Class A and Class B shares
to be transferred shall be computed by the Custodian by
calculating the value of the assets of each class transferred by
the Acquired Fund and by subtracting therefrom the amount of the
liabilities of each respective class assigned and transferred to
and assumed by the Acquiring Fund on the Closing Date, said assets
and liabilities to be valued in the manner set forth in the
Acquired Fund's then-current prospectus and statement of
additional information and shall be computed in each case to not
fewer than four decimal places.
2.2 The number of shares of each class of Acquiring Fund
Shares to be issued (including fractional shares, if any) in
exchange for the Acquired Fund's assets shall be determined by
dividing the value of the Acquired Fund's assets attributable to a
class, less the liabilities attributable to that class assumed by
the Acquiring Fund, by the Acquiring Fund's net asset value per
share of the same class, all as determined in accordance with
Paragraph 2.1 hereof.
2.3 All computations of value shall be made by the Custodian
in accordance with its regular practice as pricing agent for the
Funds.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be Septembe 8, 1995 or such other
date on or before December 31, 1995, as the parties may agree in
writing. The Closing shall be held as of 5:00 p.m. at the offices
of the Trust and the Acquiring Fund, 101 Huntington Avenue,
Boston, Massachusetts 02199, or at such other time and/or place as
the parties may agree in writing.
4
<PAGE>
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 five 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 December 31, 1995, this Agreement
may be terminated by the Acquiring Fund or by the Acquired Fund
upon the giving of written notice to the other party.
3.4 The Acquired Fund shall deliver at the Closing a list of
the names, addresses, federal taxpayer identification numbers and
backup withholding and nonresident alien withholding status of the
Acquired Fund shareholders and the number of outstanding shares of
each class of beneficial interest of the Acquired Fund owned by
each such shareholder, all as of the close of business on the
Closing Date, certified by its Treasurer, Secretary or other
authorized officer (the "Shareholder List"). The Acquiring Fund
shall issue and deliver to the Acquired Fund a confirmation
evidencing the Acquiring Fund Shares to be credited on the Closing
Date, or provide evidence satisfactory to the Acquired Fund that
such Acquiring Fund Shares have been credited to the Acquired
Fund's account on the books of the Acquiring Fund. At the
Closing, each party shall deliver to the other such bills of sale,
checks, assignments, stock certificates, receipts or other
5
<PAGE>
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 its shareholders, 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 not 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, or By-Laws or of any agreement, indenture,
instrument, contract, lease or other undertaking to which the
Acquired Fund is a party or by which it is bound;
(d) Except as otherwise disclosed in writing and
accepted by the Acquiring Fund, no material litigation or
administrative proceeding or investigation of or before any
court or governmental body is currently pending or threatened
against the Acquired Fund or any of the Acquired Fund's
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;
6
<PAGE>
(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 statement of assets and liabilities, including
the schedule of investments, of the Acquired Fund as of
June 30, 1995 and the related statement of operations for the
six months then ended (unaudited), and the statement of
assets and liabilities, including the schedule of
investments, of the Acquired Fund as of December 31, 1994 and
the related statement of operations for the year then ended,
and the statement of changes in net assets for the years
ended December 31, 1994 and 1993 (audited by Ernst & Young
LLP) (copies of which have been furnished to the Acquiring
Fund) present fairly in all material respects the financial
condition of the Acquired Fund as of June 30, 1995 and
December 31, 1994, respectively, and the results of its
operations and changes in net assets for the respective
stated periods in accordance with generally accepted
accounting principles consistently applied, and there were no
actual or contingent liabilities of the Acquired Fund as of
the respective dates thereof not disclosed therein;
(g) Since June 30, 1995, 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;
7
<PAGE>
(i) The Acquired Fund has elected to be treated as a
regulated investment company for federal income tax purposes,
has qualified as such for each taxable year of its operation
and will qualify as such as of the Closing Date with respect
to its final 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, $0.01 par value per share. 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 Trust on behalf of 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;
8
<PAGE>
(n) The proxy statement of the Acquired Fund
(the "Proxy Statement") to be included in the Registration
Statement referred to in Paragraph 5.7 hereof (other than
written information furnished by the Acquiring Fund for
inclusion therein, as covered by the Acquiring Fund's
warranty in Paragraph 4.2(m) hereof), on the effective date
of the Registration Statement, on the date of the meeting of
the Acquired Fund shareholders and on the Closing Date, shall
not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which such statements were made, not
misleading;
(o) No consent, approval, authorization or order of any
court or governmental authority is required for the
consummation by the Acquired Fund of the transactions
contemplated by this Agreement;
(p) All of the issued and outstanding shares of
beneficial interest of the Acquired Fund have been offered
for sale and sold in conformity with all applicable federal
and state securities laws;
(q) The prospectus of the Acquired Fund, dated May 1,
1995 (the "Acquired Fund Prospectus"), previously furnished
to the Acquiring Fund, does not contain any untrue statements
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 not 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;
9
<PAGE>
(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 and
Class B shares of the Acquiring Fund, each dated May 1, 1995,
and any amendments or supplements thereto on or prior to the
Closing Date, and the Registration Statement on Form N-14 to
be filed in connection with this Agreement (the "Registration
Statement") (other than written information furnished by the
Acquired Fund for inclusion therein, as covered by the
Acquired Fund's warranty in Paragraph 4.1(m) hereof) will
conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules
and regulations of the Commission thereunder, the Acquiring
Fund Prospectus does not include any untrue statement of a
material fact or omit to state any material fact required to
be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading and the Registration Statement will not
include any untrue statement of material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(d) At the Closing Date, the Trust 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 violation of any
provisions of Trust's Declaration of Trust, as amended and
restated, 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
10
<PAGE>
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 statement of assets and liabilities of the
Acquiring Fund, as of June 30, 1995, and the related
statement of operations for the period then ended and the
schedule of investments (unaudited) (copies of which have
been furnished to the Acquired Fund), present fairly in all
material respects the financial position of the Acquiring
Fund as of June 30, 1995 and the results of its operations
for the period then ended in accordance with generally
accepted accounting principles consistently applied and there
are no known actual or contingent liabilities of the
Acquiring Fund as of the respective dates thereof not
disclosed herein;
(h) Since June 30, 1995, 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;
(i) The Acquiring Fund has elected to be treated as a
regulated investment company for federal income tax purposes,
has qualified as such for each taxable year of its operation
and will qualify as such as of the Closing Date;
(j) The authorized capital of the Trust consists of an
unlimited number of shares of beneficial interest, no par
value per share. All issued and outstanding shares of
beneficial interest of the Acquiring Fund are, and at the
Closing Date will be, duly and validly issued and
outstanding, fully paid and nonassessable by the Trust. The
Acquiring Fund does not have outstanding any options,
warrants or other rights to subscribe for or purchase any of
its shares of beneficial interest, nor is there outstanding
any security convertible into any of its shares of beneficial
interest;
(k) The execution, delivery and performance of this
Agreement have 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;
11
<PAGE>
(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, the 1940 Act
and under state securities laws.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1 Except as expressly contemplated herein to the contrary,
the Acquired Fund and the Trust, on behalf of the Acquiring Fund,
will operate their respective businesses in the ordinary course
between the date hereof and the Closing Date, it being understood
that such ordinary course of business will include customary
dividends and distributions and any other distributions necessary
or desirable to avoid federal income or excise taxes.
5.2 The Acquired Fund will call a meeting of its
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
12
<PAGE>
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.
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
13
<PAGE>
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;
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
14
<PAGE>
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 or
state-imposed expense limitation.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST, THE
ACQUIRING FUND AND THE ACQUIRED FUND
The obligations of the Trust, the Acquiring Fund and the
Acquired Fund hereunder 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 of Trust, as amended and restated, 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 of state Blue
Sky and securities authorities, including "no-action" positions of
such federal or state authorities) deemed necessary by the Trust
or the Acquiring Fund 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;
15
<PAGE>
8.5 The Acquired Fund shall have distributed to its
shareholders all of its investment company taxable income (as
defined in Section 852(b)(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 Section 852(b)(3)(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
Messrs. Hale and Dorr, 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;
(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;
16
<PAGE>
(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 his shares of
beneficial interest of the Acquired Fund surrendered in
exchange therefor, provided that such Acquired Fund shares
were held as capital assets on the date of the exchange.
The Trust and the Acquired Fund agree to make and provide
representations which are reasonably necessary to enable Hale and
Dorr 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 Acquired Fund and the Trust on behalf of the
Acquiring Fund 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 Acquired Fund and the Trust, on behalf of the
Acquiring Fund, agree that neither party has made any
representation, warranty or covenant not set forth herein or
17
<PAGE>
referred to in Paragraph 4 hereof and that this Agreement
constitutes the entire agreement between the parties.
10.2 The representations, warranties and covenants contained
in this Agreement or in any document delivered pursuant hereto or
in connection herewith shall survive the consummation of the
transactions contemplated hereunder.
11. TERMINATION
11.1 This Agreement may be terminated by the mutual
agreement of the Acquired Fund and the Trust. 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 interest of the Acquiring Fund's shareholders; or
(d) by resolution of the Acquired Fund's Board of
Trustees in circumstances should develop that, in the good
faith opinion of such Board, make proceeding with the
Agreement no in the best interest 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 in writing by the
authorized officers of the Trust and the Acquired Fund. However,
18
<PAGE>
following the meeting of shareholders of the Acquired Fund held
pursuant to Paragraph 5.2 of this Agreement, no such amendment may
have the effect of changing the provisions regarding the method
for determining the number of Acquiring Fund Shares to be received
by the Acquired Fund shareholders under this Agreement to the
detriment of such shareholders without their further approval;
provided that nothing contained in this Article 12 shall be
construed to prohibit the parties from amending this Agreement to
change the Closing Date.
13. NOTICES
Any notice, report, statement or demand required or permitted
by any provisions of this Agreement shall be in writing and shall
be given by prepaid telegraph, telecopy or certified mail
addressed to the Trust 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,
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
msut 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 neither the Trustees, officers,
19
<PAGE>
agents or shareholders of the Trust or the Acquired Fund assume
any 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 or on behalf of the Acquiring Fund under this
Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused
this Agreement to be executed by its President or Vice President
and attested by its Secretary or Assistant Secretary and has
caused its corporate seal to be affixed hereto.
JOHN HANCOCK CAPITAL SERIES, on
behalf of JOHN HANCOCK GROWTH FUND
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
JOHN HANCOCK CAPITAL GROWTH FUND
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
20
<PAGE>
EXHIBIT B
John Hancock
Growth Fund
Class A and Class B Shares
Prospectus
May 1, 1995
TABLE OF CONTENTS
Page
Expense Information 2
The Fund's Financial Highlights 3
Investment Objective and Policies 5
Organization and Management of the Fund 7
Alternative Purchase Arrangements 8
The Fund's Expenses 9
Dividends and Taxes 10
Performance 11
How to Buy Shares 12
Share Price 13
How to Redeem Shares 18
Additional Services and Programs 20
This Prospectus sets forth information about John Hancock Growth Fund (the
"Fund"), a diversified series of John Hancock Capital Series (the "Trust "),
that you should know before investing. Please read and retain it for future
reference.
Additional information about the Fund has been filed with the Securities and
Exchange Commission (the "SEC"). You can obtain a copy of the Fund's Statement
of Additional Information, dated May 1, 1995, and incorporated by reference in
this Prospectus, free of charge by writing or telephoning: John Hancock Investor
Services Corporation, P.O. Box 9116, Boston, Massachusetts 02205-9116,
1-800-225-5291, (1-800-554-6713 TDD).
Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and the shares are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
EXPENSE INFORMATION
The purpose of the following information is to help you understand the various
fees and expenses that you will bear, directly or indirectly, when you purchase
Fund shares. The operating expenses included in the table and hypothetical
example below are based on fees and expenses of the Fund's Class A and Class B
shares for the fiscal year ended December 31, 1994, adjusted to reflect current
fees and expenses. Actual fees and expenses in the future may be greater or less
than those indicated.
Class A Class B
Shares Shares
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases (as a
percentage of offering price) 5.00% None
Maximum sales charge imposed on reinvested dividends None None
Maximum deferred sales charge None* 5.00%
Redemption fee+ None None
Exchange fee None None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fee 0.80% 0.80%
12b-1 fee** 0.30% 1.00%
Other expenses 0.51% 0.74%
Total Fund operating expenses 1.61% 2.54%
*No sales charge is payable at the time of purchase on investments in Class A
shares of $1 million or more, but a contingent deferred sales charge may be
imposed on these investments, as described below under the caption "Share
Price," in the event of certain redemption transactions within one year of
purchase.
**The amount of the 12b-1 fee used to cover service expenses will be up to 0.25%
of the Fund's average net assets, and the remaining portion will be used to
cover distribution expenses. See "The Fund's Expenses." +Redemption by wire
fee (currently $4.00) not included.
<TABLE>
<CAPTION>
Example: 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
You would pay the following expenses for the indicated period
of years on a hypothetical $1,000 investment, assuming a 5%
annual return:
Class A shares $ 66 $ 98 $133 $231
Class B shares
--Assuming complete redemption at end of period $ 75 $109 $155 $264
--Assuming no redemption $ 26 $ 79 $135 $264
</TABLE>
(This example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.)
The Fund's payment of a distribution fee may result in a long-term shareholder
indirectly paying more than the economic equivalent of the maximum front-end
sales charge permitted under the National Association of Securities Dealers
Rules of Fair Practice.
The management and 12b-1 fees referred to above are more fully explained in this
Prospectus under the caption "The Fund's Expenses" and in the Statement of
Additional Information under the captions "Investment Advisory and Other
Services" and "Distribution Contract."
2
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
The following table of Financial Highlights has been audited by Ernst & Young
LLP, the Fund's independent auditors, whose unqualified report is included in
the Fund's 1994 Annual Report and is included in the Statement of Additional
Information. Further information about the performance of the Fund is contained
in the Fund's Annual Report to shareholders, that may be obtained free of charge
by writing or telephoning John Hancock Investor Services Corporation ("Investor
Services") at the address or telephone number listed on the front page of this
Prospectus.
Selected data for each class of shares outstanding throughout each period
indicated is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
CLASS A
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net Asset Value, Beginning
of Period $17.40 $17.32 $17.48 $12.93 $15.18 $13.33 $12.34 $14.03 $14.50 $12.13
Net Investment
Income/(Loss) (0.10) (0.11) (0.06) 0.04 0.16 0.28 0.23 0.22 0.11 0.18
Net Realized and Unrealized
Gain/(Loss) on Investments (1.21) 2.33 1.10 5.36 (1.47) 3.81 1.16 0.64 1.79 3.11
Total from Investment
Operations (1.31) 2.22 1.04 5.40 (1.31) 4.09 1.39 0.86 1.90 3.29
Less Distributions:
Dividends from Net
Investment Income -- -- -- (0.04) (0.16) (0.29) (0.23) (0.28) (0.17) (0.21)
Distributions from Net
Realized Gain on
Investments Sold (0.20) (2.14) (1.20) (0.81) (0.78) (1.95) (0.17) (2.27) (2.20) (0.71)
Total Distributions (0.20) (2.14) (1.20) (0.85) (0.94) (2.24) (0.40) (2.55) (2.37) (0.92)
Net Asset Value, End of
Period $15.89 $17.40 $17.32 $17.48 $12.93 $15.18 $13.33 $12.34 $14.03 $14.50
Total Investment Return at
Net Asset Value (7.50%) 13.03% 6.06% 41.68% (8.34)% 30.96% 11.23% 6.03% 13.83% 28.04%
Ratios and Supplemental Data
Net Assets, End of Period
(000's omitted) $146,466 $162,937 $153,057 $145.287 $102.416 $105,014 $101,497 $86,426 $87,468 $72,049
Ratio of Expenses to
Average Net Assets 1.65% 1.56% 1.60% 1.44% 1.46% 0.96% 1.06% 1.00% 1.03% 1.09%
Ratio of Net Investment
Income/(Loss) to Average
Net Assets (0.64%) (0.67%) (0.36%) 0.27% 1.12% 1.73% 1.76% 1.41% 0.77% 1.40%
Portfolio Turnover Rate 52% 68% 71% 82% 102% 61% 47% 68% 62% 67%
1994
CLASS B (a)
Per Share Operating
Performance
Net Asset Value, Beginning
of Period $17.16(b)
Net Investment Loss (0.20)(c)
Net Realized and Unrealized
Loss on Investments (0.93)
Total from Investment
Operations (1.13)
Less Distributions:
Distributions from Net
Realized Gain on
Investments Sold (0.20)
Net Asset Value, End of
Period $15.83
Total Investment Return at
Net Asset Value (6.56%)
Ratios and Supplemental Data
Net Assets, End of Period
(000's omitted) $3,807
Ratio of Expenses to
Average Net Assets 2.38%(d)
Ratio of Net Investment
Loss to Average Net Assets (1.25%)(d)
Portfolio Turnover Rate 52%
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993(e)
CLASS C
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $17.46 $17.05(b)
Net Investment Income/(Loss) (0.01) (0.02)
Net Realized and Unrealized Gain/(Loss) on
Investments (1.23) 2.57
Total from Investment Operations (1.24) 2.55
Less Distributions:
Distributions from Net Realized Gain on
Investments Sold (0.20) (2.14)
Net Asset Value, End of Period $16.02 $17.46
Total Investment Return at Net Asset Value (7.07%) 15.18%
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $1,574 $1,285
Ratio of Expenses to Average Net Assets 1.12% 1.05%(d)
Ratio of Net Investment Income to Average Net
Assets (0.08%) 0.17%(d)
Portfolio Turnover Rate 52% 68%
</TABLE>
(a) Class B shares commenced operations on January 3, 1994.
(b) Initial price at commencement of operations.
(c) On average month end shares outstanding.
(d) On an annualized basis.
(e) Class C shares commenced operations on May 7, 1993.
(f) Class C shares were no longer offered for sale after March 31, 1995.
4
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment
objective is to seek long-term
capital appreciation.
The Fund's investment objective is to achieve long-term appreciation of capital.
The Fund will diversify its investments among a number of industry groups
without concentration in any particular industry. There is no assurance that the
Fund will achieve its investment objective. The Fund believes its shares are
suitable for investment by those who are in search of above-average long-term
reward and can invest without concern for current income.
The Fund invests principally in common stocks (and in securities convertible
into or with rights to purchase common stocks) of companies which the Fund's
management believes to offer outstanding growth potential over both the
intermediate and long term. John Hancock Advisers, Inc. (the "Adviser") will
pursue a strategy of investing in common stocks of those companies whose
five-year average operating earnings and revenue growth are at least two times
that of the economy, as measured by the Gross Domestic Product. Companies
selected will generally have positive operating earnings growth for five
consecutive years, although companies without a five-year record of positive
earnings growth may also be selected if, in the opinion of the Adviser, they
have significant growth potential. The Fund may invest up to 15% of its net
assets in securities having a limited or restricted market. The Adviser expects
that the median market capitalization of the portfolio will be over three
billion dollars.
Restricted Securities. The Fund may purchase restricted securities including
those eligible for resale to "qualified institutional buyers" pursuant to Rule
144A under the Securities Act of 1933 (the "Securities Act"). The Trustees will
monitor the Fund's investments in these securities, focusing on certain factors,
including valuation, liquidity and availability of information. Purchases of
restricted securities are subject to an investment restriction limiting all the
Fund's illiquid securities to not more than 15% of its net assets.
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. When the Fund
lends portfolio securities, there is a risk that the borrower may fail to return
the securities. 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.
Repurchase Agreements. The Fund may enter into repurchase agreements. In a
repurchase agreement, the Fund buys a security subject to the right and
obligation to sell it back at a higher price. These transactions must be fully
collateralized at all times, but involve some credit risk to the Fund if the
other party defaults on its obligation and the Fund is delayed in or prevented
from liquidating the collateral.
Foreign Issuers. The Fund may invest up to 15% of its assets in securities of
foreign issuers in the form of American Depositary Receipts (ADRs). ADRs
(sponsored or unsponsored) are receipts typically issued by an American bank or
trust company. They evidence ownership of underlying securities issued by a
foreign corporation
5
<PAGE>
and are designated for trading in United States securities markets. Issuers of
the shares underlying unsponsored ADRs are not contractually obligated to
disclose material information in the United States and, therefore, there may not
be a correlation between this information and the market value of an unsponsored
ADR.
When management believes that current market or economic conditions warrant, the
Fund temporarily may retain cash or invest in preferred stock, nonconvertible
bonds or other fixed-income securities. Fixed income securities in the Fund's
portfolio will generally be rated at least BBB by Standard & Poor's Ratings
Group ("S&P") or Baa by Moody's Investor's Service, Inc. ("Moody's"), or if
unrated, determined by the Adviser to be of comparable quality. The Fund may,
however, invest up to 5% of its net assets in lower rated securities, commonly
known as "junk bonds."
Investments in foreign
securities may involve risks
that are not present in
domestic investments.
Global Risks. Investments in foreign securities may involve risks not present in
domestic investments due to exchange controls, less publicly available
information, more volatile or less liquid securities markets, and the
possibility of expropriation, confiscatory taxation or political, economic or
social instability. There may be difficulty in enforcing legal rights outside
the United States. Some foreign companies are not subject to the same uniform
financial reporting requirements, accounting standards and government
supervision as domestic companies, and foreign exchange markets are regulated
differently from the American stock market.
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,
unstable currencies or inflation rates. Securities of issuers located in these
countries may have limited marketability and may be subject to more abrupt or
erratic price movements.
The Fund follows certain
policies, which may help to
reduce investment risk.
Investment Restrictions. The Fund has adopted certain investment restrictions
that are detailed in the Statement of Additional Information, where they are
classified as fundamental or nonfundamental. The Fund's investment objective and
those investment restrictions designated as fundamental may not be changed
without shareholder approval. All other investment policies and restrictions,
however, are nonfundamental and can be changed by a vote of the Trustees without
shareholder approval. The Fund's portfolio turnover rates for recent years are
shown in the section "The Fund's Financial Highlights."
6
<PAGE>
Brokers are chosen based on best price and execution.
When choosing brokerage firms to carry out the Fund's transactions, the Adviser
gives primary consideration to execution at the most favorable price, taking
into account the broker's professional ability and quality of service.
Consideration may also be given to the broker's sales of Fund shares. Pursuant
to procedures established by the Trustees, the Adviser may place securities
transactions with brokers affiliated with the Adviser. These brokers include
Tucker Anthony Incorporated, John Hancock Distributors, Inc. and Sutro &
Company, Inc. which are indirectly owned by John Hancock Mutual Life Insurance
Company, which in turn indirectly owns the Adviser.
ORGANIZATION AND MANAGEMENT OF THE FUND
The Trustees elect officers and retain the investment adviser who is responsible
for the day-to-day operations of the Fund, subject to the Trustees' policies and
supervision.
The Fund is a separate, diversified portfolio of the Trust, an open-end
management investment company organized as a Delaware corporation in 1968 and
reorganized as a Massachusetts business trust in 1984. The Fund has an unlimited
number of authorized shares of beneficial interest. The Trust's Declaration of
Trust permits the Trustees to create and classify shares of beneficial interest
into separate series of the Trust without shareholder approval. As of the date
of this Prospectus, the Trustees have authorized the Fund and one other series.
Although additional series may be added in the future, the Trustees have no
current intention of creating additional series of the Trust. The Trust's
Declaration of Trust also permits the Trustees to classify and reclassify any
series or portfolio of shares of the Fund into one or more classes. Accordingly,
the Trustees have authorized the issuance of two classes of the Fund, designated
Class A and Class B. The Trustees terminated Class C on May 1, 1995. The shares
of each class represent an interest in the same portfolio of investments of the
Fund. Each class has equal rights as to voting, redemption, dividends and
liquidation. However, each class bears different distribution and transfer agent
fees and other expenses. Also, Class A and Class B shareholders have exclusive
voting rights with respect to their distribution plans.
Shareholders have certain rights to remove Trustees. The Fund is not required
and does not intend to hold annual shareholder meetings, although special
meetings may be held for such purposes as electing or removing Trustees,
changing fundamental investment restrictions and policies or approving a
management contract. The Fund, under certain circumstances, will assist in
shareholder communications with other shareholders.
John Hancock Advisers, Inc.
advises investment companies
having a total asset value of
more than $13 billion.
The Adviser was organized in 1968 and is a wholly-owned indirect subsidiary of
the John Hancock Mutual Life Insurance Company, a financial services company. It
provides the Fund, and other investment companies in the John Hancock group of
funds, with investment research and portfolio management services. John Hancock
Funds, Inc. ("John Hancock Funds") distributes shares for all of the John
Hancock funds directly and through selected broker-dealers ("Selling Brokers").
Certain Fund officers are also officers of the Adviser and John Hancock Funds.
Pursuant to an order granted by the Securities and Exchange Commission, the Fund
has adopted a deferred compensation plan for its independent Trustees which
allows Trustees' fees to be invested by the Fund in other John Hancock funds.
Benjamin J. Williams, Jr. manages this Fund as well as John Hancock Global Rx
Fund and works in various analytical capabilities for other John Hancock equity
funds. Prior to joining John Hancock Funds in 1990, Mr. Williams spent four
years with Robertson Stephens & Company and Eagle Investment Associates, an
investment subsidiary of Bank of Boston.
7
<PAGE>
In order to avoid any conflict 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.
ALTERNATIVE PURCHASE ARRANGEMENTS
An alternative purchase plan
allows you to choose the
method of purchase that is
best for you.
You can purchase shares of the Fund at a price equal to their net asset value
per share, plus a sales charge. At your election, this charge may be imposed
either at the time of the purchase (See "Initial Sales Charge Alternative--Class
A Shares") or on a contingent deferred basis (See "Contingent Deferred Sales
Charge Alternative--Class B Shares"). If you do not specify on your account
application the class of shares you are purchasing, it will be assumed that you
are investing in Class A shares.
Investments in Class A shares are subject to an initial sales charge.
Class A Shares. If you elect to purchase Class A shares, you will incur an
initial sales charge unless your purchase is $1 million or more. If you purchase
$1 million or more of Class A shares, you will not be subject to an initial
sales charge, but you will incur a sales charge if you redeem your shares within
one year of purchase. Class A shares are subject to ongoing distribution and
service fees at a combined annual rate of up to 0.30% of the Fund's average
daily net assets attributable to the Class A shares. Certain purchases of Class
A shares qualify for reduced initial sales charges. See "Share Price--Qualifying
for a Reduced Sales Charge."
Investments in Class B shares are
subject to a contingent deferred
sales charge.
Class B Shares. You will not incur a sales charge when you purchase Class B
shares, but the shares are subject to a sales charge if you redeem them within
six years of purchase (the "contingent deferred sales charge" or the "CDSC").
Class B shares are subject to ongoing distribution and service fees at a
combined annual rate of up to 1.00% of the Fund's average daily net assets
attributable to the Class B shares. Investing in Class B shares permits all of
your dollars to work from the time your investment is made, but the higher
ongoing distribution fee will cause these shares to have higher expenses than
that of Class A shares. To the extent that any dividends are paid by the Fund,
these higher expenses will result in lower dividends than those paid on Class A
shares.
Class B shares are not available to full-service defined contribution plans
administered by Investor Services or John Hancock Mutual Life Insurance Company
that had more than 100 eligible employees at the inception of the Fund account.
Factors to Consider in Choosing an Alternative
You should consider
which class of shares would be
more beneficial for you.
The alternative purchase arrangement allows you to choose the most beneficial
way to buy shares, given the amount of your purchase, the length of time that
you expect to hold the shares and other circumstances. You should consider
whether, during the anticipated life of your Fund investment the accumulated
CDSC and fees on Class B shares would be less than the initial sales charge and
accumulated fees on Class A shares purchased at the same time, and to what
extent this differential would be offset by the Class A shares' lower expenses.
To help you make this determination, the table under the caption "Expense
Information" on page 2 of this Prospectus shows
8
<PAGE>
examples of the charges applicable to each class of shares. Class A shares will
normally be more beneficial if you qualify for a reduced sales charge. See
"Share Price-- Qualifying for a Reduced Sales Charge".
Class A shares are subject to lower distribution and service fees and,
accordingly, pay correspondingly higher dividends per share, to the extent that
any dividends are paid. However, because initial sales charges are deducted at
the time of purchase, you would not have all of your funds invested initially
and, therefore, would initially own fewer shares. If you do not qualify for
reduced initial sales charges and expect to maintain your investment for an
extended period of time, you might consider purchasing Class A shares. This is
because the accumulated distribution and service charges on Class B shares may
exceed the initial sales charge and accumulated distribution and service charges
on Class A shares during the life of your investment.
Alternatively, you might determine that it is more advantageous to purchase
Class B shares to have all of your funds invested initially. However, you will
be subject to higher distribution fees and, for a six-year period, a CDSC.
In the case of Class A shares, the distribution expenses that John Hancock Funds
incurs in connection with the sale of shares will be paid from the proceeds of
the initial sales charge and the ongoing distribution and service fees. In the
case of Class B shares, the expenses will be paid from the proceeds of the
ongoing distribution and service fees, as well as from the CDSC incurred upon
redemption within six years of purchase. The purpose and function of the Class B
shares' CDSC and ongoing distribution and service fees are the same as those of
the Class A shares' initial sales charge and ongoing distribution and service
fees. Sales personnel distributing the Fund's shares may receive different
compensation for selling each class of shares.
Dividends, if any, on Class A and Class B shares will be calculated in the same
manner, at the same time, and on the same day. They will also be in the same
amount, except for differences resulting from each class bearing only its own
distribution and service fees, shareholder meeting expenses and any incremental
transfer agency costs. See "Dividends and Taxes."
THE FUND'S EXPENSES
For managing its investment and business affairs, the Fund pays a fee, effective
January 1, 1994, to the Adviser which is based on a stated percentage of the
Fund's average daily net asset value, as follows:
Net Asset Value Annual Rate
First $250,000,000 0.80%
Next $250,000,000 0.75%
Amount over $500,000,000 0.70%
The investment management fee for the 1994 fiscal year was 0.80% of the Fund's
average daily net asset value.
The investment management fee is higher than the fees paid to most mutual funds,
but comparable to fees paid by funds that invest in similar securities.
From time to time, the Adviser may reduce its fee or make other arrangements to
limit the Fund's expenses to not more than a specified percentage of average
daily
9
<PAGE>
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 the limit.
The Fund pays distribution
and service fees for
marketing and sales-related
shareholder servicing.
The Class A and Class B shareholders have adopted distribution plans (each a
"Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under
these Plans, the Fund will pay distribution and service fees at an aggregate
annual rate of up to 0.30% of the Class A shares' average daily net assets and
an aggregate annual rate of up to 1.00% of the Class B shares' average daily net
assets. In each case, up to 0.25% is for service expenses and the remaining
amount is for distribution expenses. The distribution fees are used to reimburse
John Hancock Funds for its distribution expenses, including but not limited to:
(i) initial and ongoing sales compensation to Selling Brokers and others
(including affiliates of John Hancock Funds) engaged in the sale of Fund shares;
(ii) marketing, promotional and overhead expenses incurred in connection with
the distribution of Fund shares; and (iii) with respect to Class B shares only,
interest expenses on unreimbursed distribution expenses. The service fees will
be used to compensate Selling Brokers for providing personal and account
maintenance services to shareholders. In the event John Hancock Funds is not
fully reimbursed for payments it makes or expenses it incurs under the Class A
Plan, these expenses will not be carried beyond one year from the date they were
incurred. These unreimbursed expenses under the Class B Plan will be carried
forward together with interest on the balance of these unreimbursed expenses.
For the fiscal year ended December 31, 1994 an aggregate of $152,358 of
distribution expenses or 7.0% of the average net assets of the Class B shares of
the Fund, was not reimbursed or recovered by the John Hancock Funds through the
receipt of deferred sales charges or 12b-1 fees in prior periods.
Information on the Fund's total expenses is in the Fund's Financial Highlights
section of the prospectus.
DIVIDENDS AND TAXES
Dividends. Dividends from the Fund's net investment income and capital gains are
generally declared and paid annually. Dividends are reinvested in additional
shares of your class unless you elect the option to receive them in cash. If you
elect the cash option and the U.S. Postal Service cannot deliver your checks,
your election will be converted to the reinvestment option. Because of the
higher expenses associated with Class B shares, any dividend on Class B shares
will be lower than that on Class A shares. See "Share Price."
Taxation. Dividends from the Fund's net investment income, certain net foreign
currency gains, and net short-term capital gains are taxable to you as ordinary
income. Dividends from the Fund's net long-term capital gains are taxable as
long-term capital gain. These dividends are taxable whether received in cash or
reinvested in additional shares. Certain dividends paid in January of a given
year may be taxable as if you received them the previous December. Corporate
shareholders may be entitled to take a corporate dividends-received deduction
for dividends received by the Fund from U.S. domestic corporations, subject to
certain restrictions under the Internal Revenue Code. The Fund will send you a
statement by January 31 showing the tax status of the dividends you received for
the prior year.
10
<PAGE>
The Fund has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Code. As a regulated investment
company, the Fund will not be subject to Federal income tax on any net
investment income and net realized capital gains that are distributed to its
shareholders within the time period prescribed by the Code. When you redeem
(sell) or exchange shares, you may realize a taxable gain or loss.
On the account application, you must certify that your social security or other
taxpayer identification number is correct, and that you are not subject to
backup withholding of Federal income tax. If you do not provide this information
or are otherwise subject to backup withholding, the Fund may be required to
withhold 31% of your dividends and the proceeds of redemptions and exchanges.
In addition to Federal taxes, you may be subject to state, local or foreign
taxes with respect to your investment in and distributions from the Fund.
Non-U.S. shareholders and tax-exempt shareholders are subject to different tax
treatment not described above. You should consult your tax adviser for specific
advice.
PERFORMANCE
The Fund may advertise its total return.
The Fund's total return shows the overall change in value of a hypothetical
investment in the Fund, assuming the reinvestment of all dividends. Cumulative
total return shows the Fund's performance over a period of time. Average annual
total return shows the cumulative return of the Fund shares divided over the
number of years included in the period. Because average annual total return
tends to smooth out variations in the Fund's performance, you should recognize
that it is not the same as actual year-to-year results.
Total return calculations for Class A shares generally include the effect of
paying the maximum sales charge (except as shown in "The Fund's Financial
Highlights"). Investments at a lower sales charge would result in higher
performance figures. Total return for the Class B shares reflect the deduction
of the applicable CDSC imposed on a redemption of shares held for the applicable
period. All calculations assume that all dividends are reinvested at net asset
value on the reinvestment dates during the periods. The total return of Class A
and Class B shares will be calculated separately and, because each class is
subject to different expenses, the total return may differ with respect to that
class for the same period. The relative performance of the Class A and Class B
shares will be affected by a variety of factors, including the higher operating
expenses attributable to the Class B shares, whether the Fund's investment
performance is better in the earlier or later portions of the period measured
and the level of net assets of the classes during the period. The Fund will
include the total return of Class A and Class B shares in any advertisement or
promotional materials including Fund performance data. The value of Fund shares,
when redeemed, may be more or less than their original cost. Total return is a
historical calculation and is not an indication of future performance. See
"Factors to Consider in Choosing an Alternative."
11
<PAGE>
HOW TO BUY SHARES
Opening an account
The minimum initial investment in Class A and Class B shares is $1,000 ($250 for
group investments and retirement plans).
Complete the Account Application attached to this Prospectus. Indicate whether
you are purchasing Class A or Class B shares. If you do not specify which class
of shares you are purchasing, Investor Services will assume you are investing in
Class A shares.
By Check
1. Make your check payable to John Hancock Investor Services Corporation
("Investor") Services").
2. Deliver the completed application and check to your registered representative
or Selling Broker, or mail it directly to Investor Services.
By Wire
1. Obtain an account number by contacting your registered representative or
Selling Broker, or by calling 1-800-225-5291.
2. Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Growth Fund
(Class A or Class B shares)
Your Account Number
Name(s) under which account is registered
3. Deliver the completed application to your registered representative or
Selling Broker, or mail it directly to Investor Services.
Buying additional Class A
and Class B shares
Monthly Automatic
Accumulation
Program (MAAP)
1. Complete the "Automatic Investing" and "Bank Information" sections on the
Account Privileges Application, designating a bank account from which your funds
may be drawn.
2. The amount you elect to invest will be automatically withdrawn from your bank
or credit union account.
By Telephone
1. Complete the "Invest-By-Phone" and "Bank Information" sections on the Account
Privileges Application, designating a bank account from which your funds may be
drawn. Note that in order to invest by phone, your account must be in a bank or
credit union that is a member of the Automated Clearing House system (ACH). 2.
After your authorization form has been processed, you may purchase additional
Class A or Class B shares by calling Investor Services toll-free at 1-800-
225-5291. 3. Give the Investor Services representative the name(s) in which your
account is registered, the Fund name, the class of shares you own, your account
number and the amount you wish to invest. 4. Your investment normally will be
credited to your account the business day following your phone request.
By Check
1. Either fill out the detachable stub included on your account statement or
include a note with your investment listing the name of the Fund, the class of
shares you own, your account number and the name(s) in which the account is
registered.
2. Make your check payable to John Hancock Investor Services Corporation
3. Mail the account information and check to:
John Hancock Investor Services Corporation
P.O. Box 9115
Boston, MA 02205-9115
or deliver it to your registered representative or Selling Broker.
12
<PAGE>
By Wire
Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Growth Fund
(Class A or Class B shares)
Your Account Number
Name(s) under which account is registered
Other Requirements: All purchases must be made in U.S. dollars. Checks written
on foreign banks will delay purchases until U.S. funds are received, and a
collection charge may be imposed. Shares of the Fund are priced at the offering
price based on the net asset value computed after John Hancock Funds receives
notification of the dollar equivalent from the Fund's custodian bank. Wire
purchases normally take two or more hours to complete and, to be accepted the
same day, must be received by 4:00 p.m., New York time. Your bank may charge a
fee to wire funds. Telephone transactions are recorded to verify information.
Share certificates are not issued unless a request is made to Investor Services.
You will receive account statements,
which you should keep to help with
your personal recordkeeping.
You will receive a statement of your account after any transaction that affects
your share balance or registration (statements related to reinvestment of
dividends and automatic investment/withdrawal plans will be sent to you
quarterly). A tax information statement will be mailed to you by January 31 of
each year.
SHARE PRICE
The offering price of your shares is their net asset value plus a sales charge,
if applicable, which will vary with the purchase alternative you choose.
The net asset value per share ("NAV") is the value of one share. The NAV is
calculated by dividing the net asset value of each class by the number of
outstanding shares of that class. The NAV of each class can differ. 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 according to procedures approved by the Trustees. Short-term debt
investments maturing within 60 days are valued at amortized cost which
approximates market value. Foreign securities are valued on the basis of
quotations from the primary market in which they are traded, and are translated
from the local currency into U.S. dollars using current exchange rates. 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 is
calculated once daily as of the close of regular trading on the New York Stock
Exchange (generally at 4:00 p.m., New York time) on each day that the Exchange
is open.
Shares of the Fund are sold at the offering price based on the NAV computed
after your investment request is received in good order by John Hancock Funds.
If you buy shares of the Fund through a Selling Broker, the Selling Broker must
receive your investment before the close of regular trading on the New York
Stock Exchange, and transmit it to John Hancock Funds before its close of
business, to receive that day's offering price.
Initial Sales Charge Alternative--Class A Shares. The offering price you pay for
Class A shares of the Fund equals the NAV plus a sales charge as follows:
13
<PAGE>
<TABLE>
<CAPTION>
Sales Sales Combined Reallowance
Charge Charge Reallowance to Selling
as a as a and Service Brokers as a
Percentage Percentage Fee as a Percentage
of the of the Percentage of the
Amount Invested Offering Amount of Offering Offering
(Including Sales Charge) Price Invested Price(+) Price(*)
<S> <C> <C> <C> <C>
Less than $50,000 5.00% 5.26% 4.25% 4.01%
$50,000 to $99,999 4.50% 4.71% 3.75% 3.51%
$100,000 to $249,999 3.50% 3.63% 2.85% 2.61%
$250,000 to $499,999 2.50% 2.56% 2.10% 1.86%
$500,000 to $999,999 2.00% 2.04% 1.60% 1.36%
$1,000,000 and over 0.00%(**) 0.00%(**) (***) 0.00%(***)
</TABLE>
(*)Upon notice to Selling Brokers with whom it has sales agreements, John
Hancock Funds may reallow an amount up to the full applicable sales charge. In
addition to the reallowance allowed to all Selling Brokers, John Hancock Funds
will pay the following: round trip airfare to a resort will be given to each
registered representative of a Selling Broker (if the Selling Broker has agreed
to participate) who sells certain amounts of shares of John Hancock funds. John
Hancock Funds will make these incentive payments out of its own resources. Other
than distribution fees, the Fund does not bear distribution expenses. A Selling
Broker to whom substantially the entire sales charge is reallowed or who
receives these incentives may be deemed to be an underwriter under the
Securities Act of 1933.
(**)No sales charge is payable at the time of purchase of Class A shares of $1
million or more, but a contingent deferred sales charge may be imposed in the
event of certain redemption transactions within one year of purchase.
(***)John Hancock Funds may pay a commission and first year's service fee (as
described in (+) below) to Selling Brokers who initiate and are responsible for
purchases of $1 million or more in aggregate as follows: 1% on sales to
$4,999,999, 0.50% on the next $5 million and 0.25% on $10 million and over.
(+) At the time of sale, John Hancock Funds pays to Selling Brokers the first
year's service fee in advance, in an amount equal to 0.25% of the net assets
invested in the Fund. Thereafter it pays the service fee periodically in arrears
in an amount up to 0.25% of the Fund's average annual net assets. Selling
Brokers receive the fee as compensation for providing personal and account
maintenance services to shareholders.
Sales charges ARE NOT APPLIED to any dividends that are reinvested in additional
shares of the Fund.
John Hancock Funds will pay certain affiliated Selling Brokers at an annual rate
of up to 0.05% of the daily net assets of the accounts attributable to these
brokers.
Under certain circumstances described below, investors in Class A shares may be
entitled to pay reduced sales charges. See "Qualifying For a Reduced Sales
Charge" below.
Contingent Deferred Sales Charge--Investments of $1 Million or More in Class A
Shares. Purchases of $1 million or more in Class A shares will be made at net
asset value with no initial sales charge, but if the shares are redeemed within
12 months after the end of the calendar month in which the purchase was made
(the contingent deferred sales charge period), a contingent deferred sales
charge ("CDSC") will be imposed. The rate of the CDSC will depend on the amount
invested as follows:
Amount Invested CDSC Rate
$1 million to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
14
<PAGE>
Existing full service clients of John Hancock Mutual Life Insurance Company who
were group annuity contract holders as of September 1, 1994, and participant
directed defined contribution plans with at least 100 eligible employees at the
inception of the Fund account, may purchase Class A shares with no initial sales
charge. However, if the shares are redeemed within 12 months after the end of
the calendar year in which the purchase was made, a contingent deferred sales
charge will be imposed at the above rate.
The charge will be assessed on an amount equal to the lesser of the current
market value or the original purchase cost of the redeemed Class A shares.
Accordingly, no CDSC will be imposed on increases in account value above the
initial purchase price, including any dividends which have been reinvested in
additional Class A shares.
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.
Therefore, it will be assumed that the redemption is first made from any shares
in your account that are not subject to the CDSC. The CDSC is waived on
redemption in certain circumstances. See the discussion under "Waiver of
Contingent Deferred Sales Charges."
You may qualify for a reduced sales charge on your investments in Class A
shares.
Qualifying for a Reduced Sales Charge.
If you invest more than $50,000 in Class A shares of the Fund or a combination
of funds in the John Hancock funds (except money market funds), you may qualify
for a reduced sales charge on your investments in Class A shares through a
LETTER OF INTENTION. You may also be able to use the ACCUMULATION PRIVILEGE and
COMBINATION PRIVILEGE to take advantage of the value of your previous
investments in Class A shares of John Hancock funds when meeting the breakpoints
for a reduced sales charge. For the ACCUMULATION PRIVILEGE and COMBINATION
PRIVILEGE, the applicable sales charge will be based on the total of:
1. Your current purchase of Class A shares of the Fund;
2. The net asset value (at the close of business on the previous day) of (a) all
Class A shares of the Fund you hold, and (b) all Class A shares of any other
John Hancock funds you hold; and 3. The net asset value of all shares held by
another shareholder eligible to combine his or her holdings with you into a
single "purchase."
Example:
If you hold Class A shares of a John Hancock fund with a net asset value of
$20,000, and subsequently invest $30,000 in Class A shares of the Fund, the
sales charge on this subsequent investment would be 4.50% and not 5.00%. This
rate is the rate that would otherwise be applicable to investments of less than
$50,000. See "Initial Sales Charge Alternative--Class A Shares."
Class A shares may be available without a sales charge to certain individuals
and organizations.
If you are in one of the following categories, you may purchase Class A shares
of the Fund without paying a sales charge:
(bullet) 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 and Directors of any of the
foregoing; a member of the immediate family of any of the foregoing; or any
fund, pension, profit sharing or other benefit plan for the individuals
described above.
15
<PAGE>
(bullet) Any state, county, city or any instrumentality, department, authority
or agency of these entities that is prohibited by applicable investment laws
from paying a sales charge or commission when it purchases shares of any
registered investment management company.*
(bullet) A bank, trust company, credit union, savings institution or other type
of depository institution, its trust departments or common trust funds (an
"eligible depository institution") if it is purchasing $1 million or more for
non-discretionary customers or accounts.*
(bullet) A broker, dealer or registered investment adviser that has entered into
an agreement with John Hancock Funds providing specifically for the use of Fund
shares in fee- based investment products make available to their clients.
(bullet) A former participant in an employee benefit plan with John Hancock
funds, when he/she withdraws from his/her plan and transfers any or all of
his/her plan distributions directly to the Fund.
* For investments made under these provisions, John Hancock Funds may make a
payment out of its own resources to the Selling Broker in an amount not to
exceed 0.25% of the amount invested.
Class A shares of the Fund 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.
Contingent Deferred Sales Charge Alternative--Class B Shares. Class B shares are
offered at net asset value per share without a sales charge, so that your entire
investment will go to work at the time of purchase. However, Class B shares
redeemed within six years of purchase will be subject to a CDSC at the rates set
forth below. This charge will be assessed on an amount equal to the lesser of
the current market value or the original purchase cost of the shares being
redeemed. Accordingly, you will not be assessed a CDSC on increases in account
value above the initial purchase price, including shares derived from dividend
reinvestment or capital gains distributions.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from shares you have held
beyond the six-year CDSC redemption period or those you acquired through
reinvestment of dividends or distributions, and next from the shares you have
held the longest during the six-year period. The CDSC is waived on redemptions
in certain circumstances. See the discussion "Waiver of Contingent Deferred
Sales Charges" below.
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:
16
<PAGE>
(bullet) Proceeds of 50 shares redeemed at $12 per share $ 600
(bullet) Minus proceeds of 10 shares not subject to CDSC because
they were acquired through dividend reinvestment (10 X $12) -120
(bullet) Minus appreciation on remaining shares, also not subject to
CDSC (40 X $2) -80
(bullet) Amount subject to CDSC $ 400
Proceeds from the CDSC are paid to John Hancock Funds. John Hancock Funds uses
all or in part of them to defray its expenses related to providing the Fund with
distribution services connected to the sale of Class B shares, such as
compensating selected Selling Brokers for selling these shares. The combination
of the CDSC and the distribution and service fees makes it possible for the Fund
to sell Class B shares without deducting a sales charge at the time of the
purchase.
The amount of the CDSC, if any, will vary depending on the number of years from
the time you purchase your Class B shares until the time you redeem them. Solely
for purposes of determining this holding period, any payments you make during
the month will be aggregated and deemed to have been made on the last day of the
month.
Contingent Deferred Sales
Year in Which Class B Shares Charge As a Percentage of
Redeemed Following Purchase Dollar Amount Subject to CDSC
First 5.0%
Second 4.0%
Third 3.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
A commission equal to 3.75% of the amount invested and a first year's service
fee equal to 0.25% of the amount invested are paid to Selling Brokers. The
initial service fee is paid in advance at the time of sale for personal and
account maintenance services provided to shareholders during the twelve months
following the sale. Thereafter the service fee is paid in arrears.
Under certain
circumstances, the CDSC on
Class B and certain Class A
share redemptions will be
waived.
Waiver of Contingent Sales Charges. The CDSC will be waived on redemptions of
Class B shares and Class A shares that are subject to a CDSC, unless indicated
otherwise, in the circumstances defined below:
(bullet) Redemptions of Class B shares made under Systematic Withdrawal Plan
(see "How to Redeem Shares"), as long as your annual redemptions do not exceed
10% of your account value at the time you established your Systematic Withdrawal
Plan and 10% of the value of your subsequent investments (less redemptions) in
that account at the time you notify Investor Services. This waiver does not
apply to Systematic Withdrawal Plan redemptions of Class A shares that are
subject to a CDSC.
(bullet) Redemptions made to effect distributions from an Individual Retirement
Account either before or after age 59-1/2, as long as the distributions are
based on the life expectancy or the joint-and-last survivor life expectancy of
you and your beneficiary. These distributions must be free from penalty under
the Code.
(bullet) Redemptions made to effect mandatory distributions under the Code after
age 70-1/2 from a tax-deferred retirement plan.
17
<PAGE>
(bullet) Redemptions made to effect distributions to participants or
beneficiaries from certain employer-sponsored retirement plans including those
qualified under Section 401(a) of the Code, custodial accounts under Section
403(b)(7) of the Code and deferred compensation plans under Section 457 of the
Code. The waiver also applies to certain returns of excess contributions made to
these plans. In all cases, the distributions must be free from penalty under the
Code.
(bullet) Redemptions due to death or disability.
(bullet) Redemptions made under the Reinvestment Privilege, as described in
"Additional Services and Programs" of this Prospectus.
(bullet) Redemptions made pursuant to the Fund's right to liquidate your account
if you own fewer than 50 shares.
(bullet) Redemptions made in connection with certain liquidation, merger or
acquisition transactions involving other investment companies or personal
holding companies.
(bullet) Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992.
If you qualify for a CDSC waiver under one of these situations, you must notify
Investor Services either directly or through your Selling Broker at the time you
make your redemption. The waiver will be granted once Investor Services has
confirmed that you are entitled to the waiver.
Conversion of Class B Shares. Your Class B shares, and an appropriate portion of
reinvested dividends on those shares, will be converted into Class A shares
automatically. This will occur at the end of the month eight years after the
shares were purchased, and will result in lower annual distribution fees. If you
exchanged Class B shares into this Fund from another John Hancock fund, the
calculation will be based on the time you purchased the shares in the original
fund. The Fund has been advised that the conversion of Class B shares to Class A
shares should not be taxable for Federal income tax purposes, nor should it not
change your tax basis or tax holding period for the converted shares.
HOW TO REDEEM SHARES
You may redeem all or a portion of your shares on any business day. Your shares
will be redeemed at the next NAV calculated after your redemption request is
received in good order by Investor Services, less any applicable CDSC. The Fund
may hold payment until it is reasonably satisfied that investments recently made
by check or Invest-by-Phone have been collected (which may take up to 10
calendar days).
Once your shares are redeemed, the Fund generally sends you payment on the next
business day. When you redeem your shares, you may realize a taxable gain or
loss depending usually on the difference between what you paid for them and what
you receive for them, subject to certain tax rules. Under unusual circumstances,
the Fund may suspend redemptions or postpone payment for up to seven days or
longer, as permitted by Federal securities laws.
18
<PAGE>
To assure acceptance of your redemption request, please follow these procedures.
By Telephone
All Fund shareholders are automatically eligible for the telephone redemption
privilege. Call 1-800-225-5291, from 8:00 A.M. to 4:00 P.M. (New York time),
Monday through Friday, excluding days on which the New York Stock Exchange is
closed. Investor Services employs the following procedures to confirm that
instructions received by telephone are genuine. Your name, the account number,
taxpayer identification number applicable to the account and other relevant
information may be requested. In addition, telephone instructions are recorded.
You may redeem up to $100,000 by telephone, but the address on the account must
not have changed for the last 30 days. A check will be mailed to the exact
name(s) and address shown on the account.
If reasonable procedures, such as those described above, are not followed, the
Fund may be liable for any loss due to unauthorized or fraudulent telephone
instructions. In all other cases, neither the Fund nor Investor Services will be
liable for any loss or expense for acting upon telephone instructions made in
accordance with the telephone transaction procedures mentioned above.
Telephone redemption is not available for IRAs or other tax-qualified retirement
plans or shares of the Fund that are in certificate form.
During periods of extreme economic conditions or market changes, telephone
requests may be difficult to implement due to a large volume of calls. During
these times you should consider placing redemption requests in writing or using
EASI-Line. EASI-Line's telephone number is 1-800-538-8080.
By Wire
If you have a telephone redemption form on file with the Fund, redemption
proceeds of $1,000 or more can be wired on the next business day to your
designated bank account, and a fee (currently $4.00) will be deducted. You may
also use electronic funds transfer to your assigned bank account, and the funds
are usually collectable after two business days. Your bank may or may not charge
for this service. Redemptions of less than $1,000 will be sent by check or
electronic funds transfer.
This feature may be elected by completing the "Telephone Redemption" section on
the Account Privileges Application that is included with this Prospectus.
In Writing
Send a stock power or letter of instruction specifying the name of the Fund, the
dollar amount or the number of shares to be redeemed, your name, class of
shares, your account number and the additional requirements listed below that
apply to your particular account.
Who may guarantee your signature
Additional information about redemptions
Type of Registration Requirements
Individual, Joint Tenants, Sole A letter of instruction signed (with
Proprietorship, Custodial (Uniform titles where applicable) by all persons
Gifts or Transfer to Minors Act), authorized to sign for the account,
General Partners. exactly as it is registered with the
signature(s) guaranteed.
Corporation, Association A letter of instruction and
a corporate resolution, signed by
person(s) authorized to act on the
account, with the signature(s)
guaranteed.
Trusts A letter of instruction signed by the
Trustee(s) with the signature(s)
guaranteed. (If the Trustee's name is
not registered on your account, also
provide a copy of the trust document,
certified within the last 60 days.)
If you do not fall into any of these registration categories, please call
1-800-225-5291 for further instructions.
19
<PAGE>
A signature guarantee is a widely accepted way to protect you and the Fund by
verifying the signature on your request. It may not be provided by a notary
public. If the net asset value of the shares redeemed is $100,000 or less, John
Hancock Funds may guarantee the signature. The following institutions may
provide you with a signature guarantee, provided that the institution meets
credit standards established by Investors Services: (i) a bank; (ii) a
securities broker or dealer, including a government or municipal securities
broker or dealer, that is a member of a clearing corporation or meets certain
net capital requirements; (iii) a credit union having authority to issue
signature guarantees; (iv) a savings and loan association, a building and loan
association, a cooperative bank, a federal savings bank or association; or (v) a
national securities exchange, a registered securities exchange or a clearing
agency.
Through Your Broker
Your broker may be able to initiate the redemption. Contact him or her for
instructions.
If you have certificates for your shares, you must submit them with your stock
power or a letter of instruction. Unless you specify to the contrary, any
outstanding Class A shares will be redeemed before Class B shares. You may not
redeem certificated shares by telephone.
Due to the proportionately high cost of maintaining smaller accounts, the Fund
reserves the right to redeem at net asset value all shares in an account which
holds fewer than 50 shares (except accounts under retirement plans) and to mail
the proceeds to the shareholder, or the transfer agent may impose an annual fee
of $10. No account will be involuntarily redeemed or additional fee imposed, if
the value of the account is in excess of the Fund's minimum initial investment.
No CDSC will be imposed on involuntary redemptions of shares.
Shareholders will be notified before these redemptions are to be made or this
fee is imposed, and will have 30 days to purchase additional shares to bring
their account balance up to the required minimum. Unless the number of shares
acquired by further purchases and dividend reinvestments, if any, exceeds the
number of shares redeemed, repeated redemptions from a smaller account may
eventually trigger this policy.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege
You may exchange shares of the Fund
only for shares of the same class of
another John Hancock fund.
If your investment objective changes, or if you wish to achieve further
diversification, John Hancock offers other funds with a wide range of investment
goals. Contact your registered representative or Selling Broker and request a
prospectus for the John Hancock funds that interest you. Read the prospectus
carefully before exchanging your shares. You can exchange shares of each class
of the Fund only for shares of the same class of another John Hancock fund. For
this purpose, John Hancock funds with only one class of shares will be treated
as Class A whether or not they have been so designated.
Exchanges between funds that are not subject to a CDSC are based on their
respective net asset values. No sales charge or transaction charge is imposed.
Class B shares of the Fund that are subject to a CDSC may be exchanged for Class
B shares of another John Hancock fund without incurring the CDSC; however these
shares will be subject to the CDSC schedule of the shares acquired (except that
exchanges into John Hancock Short-Term Strategic Income Fund, John Hancock
Adjustable U.S. Government Trust and John Hancock Limited-Term Government Fund
will be subject to the initial fund's CDSC). 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. However, if you exchange Class B shares purchased prior to January 1,
1994 for Class B shares of any other John Hancock fund, you will continue to be
subject to the CDSC schedule that was in effect at your initial purchase date.
20
<PAGE>
You may exchange Class B shares of the Fund into a John Hancock money market
fund at net asset value. However, you will continue to be subject to a CDSC upon
redemption.
The Fund reserves the right to require that you keep previously exchanged shares
(and reinvested dividends) in the Fund for 90 days before you are permitted a
new exchange. The Fund may also terminate or alter the terms of the exchange
privilege, upon 60 days' notice to shareholders.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares in another fund for Federal income tax purposes. An exchange
may result in a taxable gain or loss.
When you make an exchange, your account registration in both the existing and
new account must be identical. The exchange privilege is available only in
states where the exchange can be made legally.
Under exchange agreements with John Hancock Funds, certain dealers, brokers and
investment advisers may exchange their clients' Fund shares, subject to the
terms of those agreements and John Hancock Funds' right to reject or suspend
those exchanges at any time. Because of the restrictions and procedures under
those agreements, the exchanges may be subject to timing limitations and other
restrictions that do not apply to exchanges requested by shareholders directly,
as described above.
Because Fund performance and shareholders can be hurt by excessive trading, the
Fund reserves the right to terminate the exchange privilege for any person or
group that, in John Hancock Funds' judgment, is involved in a pattern of
exchanges that coincide with a "market timing" strategy that may disrupt the
Fund's ability to invest effectively according to its investment objective and
policies, or might otherwise affect the Fund and its shareholders adversely. The
Fund may also temporarily or permanently terminate the exchange privilege for
any person who makes seven or more exchanges out of the Fund per calendar year.
Accounts under common control or ownership will be aggregated for this purpose.
Although the Fund will attempt to give you prior notice whenever it is
reasonably able to do so, it may impose these restrictions at any time.
By Telephone
1. When you fill out the application for your purchase of Fund shares, you
automatically authorize exchanges by telephone unless you check the box
indicating that you do not wish to authorize telephone exchanges.
2. Call 1-800-225-5291. Have the account number of your current fund and the
exact name in which it is registered available to give to the telephone service
representative.
3. Your name, the account number, taxpayer identification number applicable to
the account and other relevant information may be requested. In addition,
telephone instructions are recorded.
21
<PAGE>
In Writing
1. In a letter request an exchange and list the following: -- the name and class
of the fund whose shares you currently own -- your account number -- the name(s)
in which the account is registered -- the name of the fund in which you wish
your exchange to be invested -- the number of shares, all shares or the dollar
amount you wish to exchange Sign your request exactly as the account is
registered.
2. Mail the request and information to:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
Reinvestment Privilege
If you redeem shares of the Fund, you may be able to reinvest the proceeds in
shares of the Fund or another John Hancock fund without paying an additional
sales charge.
1. You will not be subject to a sales charge on Class A shares that you reinvest
in any John Hancock fund that is otherwise subject to a sales charge, as long as
you reinvest within 120 days from the redemption date. If you paid a CDSC upon a
redemption, you may reinvest at net asset value in the same class of shares from
which you redeemed within 120 days. Your account will be credited with the
amount of the CDSC previously charged, and the reinvested shares will continue
to be subject to a CDSC. The holding period of the shares acquired through
reinvestment, for purposes of computing the CDSC payable upon a subsequent
redemption, will include the holding period of the redeemed shares.
2. Any portion of your redemption may be reinvested in Fund shares or in shares
of any of the other John Hancock funds, subject to the minimum investment limit
of that fund.
3. To reinvest, you must notify Investor Services in writing. Include the
Fund(s) name, account number and class from which your shares were originally
redeemed.
Systematic Withdrawal Plan
You can pay routine bills from your account, or make periodic disbursements from
your retirement account to comply with IRS regulations.
1. You can elect the Systematic Withdrawal Plan at any time by completing the
Account Privileges Application which is attached to this Prospectus. You can
also obtain the application by calling your registered representative or by
calling 1-800-225-5291.
2. To be eligible, you must have at least $5,000 in your account.
3. Payments from your account can be made monthly, quarterly, semi-annually or
annually or on a selected monthly basis to yourself or any other designated
payee.
4. There is no limit on the number of payees you may authorize, but all payments
must be made at the same time or intervals.
5. It is not advantageous to maintain a Systematic Withdrawal Plan concurrently
with purchases of additional Class A or Class B shares because you may be
subject to an initial sales charge on your purchases of Class A shares or a CDSC
on your redemptions of Class B shares. In addition, your redemptions are taxable
events.
22
<PAGE>
6. Redemptions will be discontinued if the U.S. Postal Service cannot deliver
your checks, or if deposits to a bank account are returned for any reason.
Monthly Automatic Accumulation Program (MAAP)
You can make automatic investments and simplify your investing.
1. You can authorize an investment to be drawn automatically each month from
your bank for investment in Fund shares, under the "Automatic Investing" and
"Bank Information" sections of the Account Privileges Application.
2. You can also authorize automatic investing through payroll deduction by
completing the "Direct Deposit Investing" section of the Account Privileges
Application.
3. You can terminate your Monthly Automatic Accumulation Program at any time.
4. There is no charge to you for this program, and there is no cost to the Fund.
5. If you have payments being withdrawn from a bank account and we are notified
that the account has been closed, your withdrawals will be discontinued.
Group Investment Program
Organized groups of at least four persons may establish accounts.
1. An individual account will be established for each participant, but the
initial sales charge for Class A shares will be based on the aggregate dollar
amount of all participants' investments. To determine how to qualify for this
program, contact your registered representative or call 1-800-225-5291.
2. The initial aggregate investment of all participants in the group must be at
least $250.
3. There is no additional charge for this program. There is no obligation to
make investments beyond the minimum, and you may terminate the program at any
time.
Retirement Plans
1. You may use the Fund to fund various types of qualified retirement plans,
including Individual Retirement Accounts, Keogh Plans (H.R. 10), Pension and
Profit Sharing Plans (including 401(k) plans), Tax-Sheltered Annuity Retirement
Plans (403(b) or TSA Plans) and 457 Plans.
2. The initial investment minimum or aggregate minimum for any of these plans is
$250. However, accounts being established as group IRA, SEP, SARSEP, TSA, 401(k)
and 457 Plans will be accepted without an initial minimum investment.
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<PAGE>
John Hancock Growth Fund
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
Custodian
Investors Bank & Trust Company
24 Federal Street
Boston, Massachusetts 02110
Transfer Agent
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
Independent Auditors
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
HOW TO OBTAIN INFORMATION
ABOUT THE FUND
For: Service Information
Telephone Exchange call 1-800-225-5291
Investment-by-Phone
Telephone Redemption
For: TDD call 1-800-554-6713
JH2000P 5/95
<PAGE>
JOHN HANCOCK
GROWTH FUND
Class A and Class B Shares
Prospectus
May 1, 1995
A mutual fund seeking to achieve long-term capital appreciation.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Telephone 1-800-225-5291
(Recycle Logo) Printed on Recycled Paper
<PAGE>
EXHIBIT C
John Hancock Funds
- -------------------------------------------------------------------------------
GROWTH
FUND
ANNUAL REPORT
December 31, 1994
<PAGE>
TRUSTEES
EDWARD J. BOUDREAU, JR.
Chairman
DENNIS S. ARONOWITZ*
RICHARD P. CHAPMAN, JR.*
WILLIAM J. COSGROVE*
GAIL D. FOSLER
BAYARD HENRY*
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
THOMAS H. DROHAN
Senior Vice President and Secretary
JAMES B. LITTLE
Senior Vice President and
Chief Financial Officer
MICHAEL P. DICARLO
Senior Vice President
JAMES K. HO
Senior Vice President
JOHN A. MORIN
Vice President
SUSAN S. NEWTON
Vice President, Assistant Secretary and
Compliance Officer
JAMES J. STOKOWSKI
Vice President and Treasurer
CUSTODIAN
INVESTORS BANK & TRUST COMPANY
89 SOUTH STREET
BOSTON, MASSACHUSETTS 02111
TRANSFER AGENT
JOHN HANCOCK INVESTORS SERVICES CORPORATION
P.O. BOX 9116
BOSTON, MASSACHUSETTS 02205-9116
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
LEGAL COUNSEL
HALE AND DORR
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
200 CLARENDON STREET
BOSTON, MASSACHUSETTS -2116
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
With 1995 upon us, New Year's resolutions abound. Dieting and saving money --
Americans' long-time favorites -- are sure to top the list once again. And once
again, they'll probably be the most difficult to keep. This year, however,
Congress may give savers an additional incentive to stick to their guns.
Both the Republicans and Democrats want to revive Individual Retirement
Accounts (IRAs). In an effort to encourage savings, IRAs were made available to
all working Americans in 1981. Anyone with earned income could contribute up to
$2,000 annually. The contributions were fully tax-deductible, and the earnings
weren't taxed until withdrawal. IRAs became the most successful savings program
in the U.S., drawing in more than $250 billion and 13 million new participants
by 1985.
Sweeping tax reforms in 1986, however, changed all that. As it stands now,
the full deduction only applies to individuals who earn less than $25,000,
married couples who earn less than $40,000 and people without employer-sponsored
retirement plans. The result of this congressional tinkering: the number of IRA
contributors declined dramatically, from 16.2 million in 1985 to 4.2 million in
1992.
Legislators are now taking a closer look at expanding the accessibility of
IRAs once again. Several proposals are on the table: (1) the Republicans'
"Contract with America" includes the American Dream Savings Account, a type of
IRA; (2) President Clinton has proposed expanding eligibility by raising income
limits; and (3) several congressional representatives have introduced
legislation to restore the universal availability of a fully tax-deductible IRA.
We enthusiastically support restoring IRAs to their original luster. Not
only will they provide a tax break to middle-income Americans, but they'll go a
long way toward raising the nation's dangerously low personal savings rate --
the lowest of any major industrialized country. There's an increasing awareness
that Social Security and pension plans will no longer provide for the retirement
needs of middle-income Americans. Increasing IRA accessibility for more working
individuals and families is one of the most sensible ways to help Americans take
responsibility for their future financial needs. We urge you to support the
expanded IRA by contacting your congressional representative or senator.
Sincerely,
/s/ Edward J. Boudreau, Jr.
- ---------------------------
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
BY ROBERT G. FREEDMAN, CHIEF INVESTMENT OFFICER AND
BENJAMIN J. WILLIAMS JR., PORTFOLIO MANAGER
JOHN HANCOCK
GROWTH FUND
Rising interest rates hurt growth stocks in 1994;
prospects appear better in 1995
Effective January 1, 1995, Robert G. Freedman, who has managed John Hancock
Growth Fund since 1993, assumed full-time responsibility as vice chairman and
chief investment officer of John Hancock Funds. Benjamin J. Williams, Jr., who
joined John Hancock in 1990, has been named portfolio manager. Mr. Williams also
manages John Hancock Global Rx Fund. What follows is Mr. Freedman's discussion
of the Fund's performance in 1994 and Mr. Williams' outlook and strategy for
1995.
[A 2 3/8" x 2 3/8" photo of Robert G. Freedman and Benjamin J. Williams, Jr. at
bottom right. Caption reads: "Robert J. Freedman (left) and Benjamin J.
Williams, Jr. (right)]
Victims of rising interest rates, stocks stumbled in 1994 despite a strong
economy and rising corporate profits. In the first half of the year, growth
stocks were among the most severely impacted. During that time, investors
favored cyclical stocks, which benefit more from an improving economy than their
growth counterparts.
By the third quarter, however, that trend reversed. Fears that higher
interest rates would slow the economy drove investors out of cyclicals and into
growth stocks -- which tend to generate steady earnings regardless of the
economic environment. Some of our largest, highest-quality holdings benefited
from the growth stock resurgence. After slumping in the first half, Coca-Cola,
McDonald's and Walt
[CAPTION]
"...STOCKS STUMBLED IN 1994 DESPITE A STRONG ECONOMY..."
3
<PAGE>
John Hancock Funds - Growth Fund
[Chart with heading "Top Five Common Stock Holdings" at top of left hand column.
The chart lists five holdings: 1) Motorola 3.1% 2) McDonald's 2.9% 3) Adaptec
2.6% 4) Polygram N.V. 2.3% 5) HBO & Co. 2.3%. A footnote below reads: "As a
percentage of net assets on December 31, 1994."]
Disney jumped in the second half, recouping some of their losses by year-end.
Unfortunately, the ground we gained in the second half wasn't enough to
help the Fund come out ahead of its average competitor in 1994. For the twelve
months ended December 31, 1994, John Hancock Growth Fund's Class A, B and C
shares had total returns of -7.50%, -6.56% and -7.07%, respectively, at net
asset value. Those compared to a return of -2.15% for the average growth fund,
according to Lipper Analytical Services.1 The primary reason for the difference
in performance is that the Growth Fund is invested more aggressively than many
of its peers. So when the market turned down in the first half, our stocks were
hit harder. However, when growth stocks rebounded in the second half, many of
our stocks led the way. For the six months ended December 31, 1994, the Fund's
Class A, B and C shares returned 8.73%, 8.40% and 9.02%, respectively, at net
asset value. The average growth fund posted a return of 4.07% for the same
period.
RESPONSE TO RISING RATES
During the year, we took measures to minimize the Fund's vulnerability to the
market's volatility. First, we moved out of more volatile, smaller company
growth stocks and emphasized larger, less volatile companies. Second, we raised
the Fund's cash level -- to as high as 15% in the third quarter. Though neither
of these measures proved enough to protect the Fund entirely from losses, they
did help stem the decline. There was an additional upside: The extra cash we had
on hand in the fourth quarter allowed to us to buy stocks at very attractive
prices.
FOCUS ON SECTORS
At about 15%, health care remained one of the Fund's largest sector
concentrations throughout the period. As the near-term prospect for nationally
mandated health-care reform evaporated, we emphasized companies that specialize
in cost containment and alternative care. Holdings include Health Management
Associates, Value Health and HBO & Co. We've also added drug stocks, including
Pfizer and Johnson & Johnson. After taking a beating in the last few years,
these stocks were attractively priced. What's more, both companies far outpaced
many of their competitors with double-digit sales.
Technology stocks -- which made up about 20% of the Fund's assets -- once
again lived up to their volatile nature. For that reason, we continued to favor
technology companies we believe can successfully ride out the market's
technical, short-term ups and downs. Despite
[Table entitled "Scorecard" at bottom of left hand column. The header for the
left column is "Investment"; the header for the right column is "Recent
performance ... and what's behind the numbers." The first listing is Motorola
followed by an up arrow and the phrase "Wireless/semiconductor business takes
off." The second listing is International Game Technology followed by a down
arrow and the phrase "Gaming stocks roll snake eyes." The third listing is
Telefonos de Mexico followed by a down arrow and the phrase "Troubles in Mexican
market." Footnote below reads: "See "Schedule of Investments. "Investment
holdings are subject to change."]
[CAPTION]
"...WE TOOK MEASURES TO MINIMIZE THE FUND'S VULNERABILITY..."
4
<PAGE>
John Hancock Funds - Growth Fund
[Bar chart with heading " Fund Performance" at top of left hand column. Under
the heading is the footnote: "For the year ended December 31, 1994." The chart
is scaled in increments of 5% from bottom to top, with 0% at the top and -10%
at the bottom. Within the chart, there are four solid bars. The first
represents the -7.50% total return for John Hancock Growth Fund: Class A. The
second represents the -6.56% total return for John Hancock Growth Fund: Class
B. The third represents the -7.07% total return of John Hancock Growth Fund:
Class C. The fourth represents the -2.15% total return for the average growth
fund. The footnote below states: "Total returns for John Hancock Growth Fund
are at net asset value with all distributions reinvested. The average growth
fund is tracked by Lipper Analytical Services. See following page for
historical performance information."]
a difficult environment, companies with leadership positions in their industries
- -- like Motorola -- escaped the sector's volatility and proved to be big
winners. Even though personal computer companies posted record sales in 1994, we
avoided them. Because personal computer (PC) sales can vary widely from season
to season, we're more comfortable owning networking and other companies that
will benefit from the personal computer boom but aren't as sensitive to PC sales
cycles. Adaptec, one of our largest holdings, is a good example. During the
year, we also added on-line companies like America Online (AOL), whose stock has
jumped more than 60% from when we bought it in the fourth quarter. With more
consumers and businesses tapping into the Internet, AOL's earnings picture is
bright.
Apparel retailers turned in mixed results for the year, partly due to
unseasonably warm winter weather across the country. However, we think that
high-quality companies like AnnTaylor and Nordstrom can continue to post
attractive rates of earnings growth. Since stock prices tend to follow earnings,
we expect that their stock prices will eventually turn around.
STRATEGY SHIFTS AND OUTLOOK
As always, we'll remain committed to investing in companies that have dynamic
growth with above-average earnings potential. However, we'll most likely make
two modifications. We'll pare back the number of holdings in the Fund and we'll
concentrate more on large-capitalization growth stocks.
Looking out into 1995, the Federal Reserve Board will probably make
additional interest rates hikes, although it's unlikely those increases will be
as dramatic as those in 1994. Given that, the stock market as a whole could
remain choppy for at least the first several months of 1995 -- and perhaps for
the entire year.
Still, we're optimistic about growth stocks. Once the Fed is convinced that
inflation is in check and economic growth has slowed, interest rates should
stabilize and provide a better backdrop for the stock market. And if interest
rates do stop rising -- which we think they might by mid-year -- and economic
growth remains slow but steady, prospects for growth stocks could be good. In
that kind of environment, investors will likely continue to shift out of
cyclical stocks -- since their earnings would be vulnerable to a slower economy
- -- and into growth stocks. That renewed investor interest, in turn, could help
boost the prices of growth stocks and help the Fund's performance.
- --------------------------------------------------------------------------------
(1) Figures from Lipper Analytical Services include reinvested dividends and do
not take into account sales charges. Actual load-adjusted performance would be
lower.
[CAPTION]
"...WE'RE OPTIMISTIC ABOUT GROWTH STOCKS."
5
<PAGE>
NOTES TO PERFORMANCE INFORMATION
John Hancock Funds - Growth Fund
In accordance with the reporting requirements of the Securities and Exchange
Commission, the following data are supplied for the periods ended December 31,
1994 with all distributions reinvested in shares. The average annualized total
returns for Class A shares for the 1-year, 5-year and 10-year periods were
(12.14%), 6.47%, and 11.90%, respectively, and reflect payment of the maximum
sales charges of 5.0%. Total return (not annualized) since inception on January
3, 1994 for Class B shares was (11.23%) and reflects the applicable contingent
deferred sales charge (maximum contingent deferred sales charge is 5% and
declines to 0% over 6 years). The average annualized total returns for the
1-year period and since inception on May 7, 1993 for Class C shares were (7.07%)
and 4.21%, respectively. All performance data shown represent past performance,
and should not be considered indicative of future performance. Returns and
principal values of Fund investments will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
Different sales charges for Class A shares were in effect prior to January 2,
1992 (maximum sales charge of 8.5%) and are not reflected in the above
performance information. Performance is affected by a 12b-1 plan, which
commenced on January 1, 1990 and January 3, 1994 for Class A and Class B shares,
respectively. Class C shares are sold at net asset value to certain institutions
and retirement accounts.
HYPOTHETICAL $10,000 INVESTMENT OVER LIFE OF THE FUND (OR MOST RECENT TEN YEARS)
[Growth Fund
Class A shares
Line chart with the heading Growth Fund: Class A, representing the growth of a
hypothetical $10,000 investment over the life of the fund (or most recent 10
years). Within the chart are three lines. The first line represents the value of
the Standard & Poor's 500 Stock Index and is equal to $38,268 as of December
31, 1994. The second line represents Growth Fund before sales charge and is
equal to $32,414 as of December 31, 1994. The third line represents the Growth
Fund after sales charge and is equal to $30,790 as of December 31, 1994.
Growth Fund
Class B shares
Line chart with the heading Growth Fund: Class B, representing the growth of a
hypothetical $10,000 investment over the life of the fund (or most recent 10
years). Within the chart are three lines. The first line represents the value of
the Standard & Poor's 500 Stock Index and is equal to $10,131 as of December
31, 1994. The second line represents the Growth Fund before contingent deferred
sales charge and is equal to $9,344 as of December 31, 1994. The third line
represents Growth Fund after contingent deferred sales charge and is equal to
$8,877 as of December 31, 1994.
Growth Fund
Class C shares
Line chart with the heading Growth Fund: Class C, representing the growth of a
hypothetical $10,000 investment over the life of the fund (or most recent 10
years). Within the chart are two lines. The first line represents the value of
the Standard & Poor's 500 Stock Index and is equal to $10,949 as of December 31,
1994. The second line represents the Growth Fund and is equal to $10,704 as of
December 31, 1994.
*The Standard & Poor's 500 Stock Index is an unmanaged index that includes 500
widely traded common stocks and is a commonly used measure of stock market
performance.]
6
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - 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 DECEMBER 31, 1994. YOU'LL
ALSO FIND THE NET ASSET VALUE AND THE MAXIMUM OFFERING PRICE PER SHARE AS OF
THAT DATE.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments at value - Note C:
Common and preferred stocks and other
investments (cost - $99,222,702) ................................... $133,044,530
Publicly traded convertible bonds (cost - $650,000)................... 680,063
Joint repurchase agreement (cost - $18,236,000) ...................... 18,236,000
Corporate savings account ............................................ 217
------------
151,960,810
Receivable for shares sold ............................................. 2,016
Interest receivable .................................................... 11,045
Dividends receivable ................................................... 86,456
------------
Total Assets ................................... 152,060,327
---------------------------------------------------------------
LIABILITIES:
Payable to John Hancock Advisers, Inc. and
affiliates - Note B ................................................ 152,434
Accounts payable and accrued expenses ................................ 60,429
------------
Total Liabilities .............................. 212,863
---------------------------------------------------------------
NET ASSETS:
Capital paid-in ...................................................... 118,146,978
Accumulated net realized loss on investments ......................... ( 151,405)
Net unrealized appreciation of investments ........................... 33,851,891
------------
Net Assets ..................................... $151,847,464
===============================================================
NET ASSET VALUE PER SHARE:
(Based on net asset values and shares of beneficial
interest outstanding -- unlimited number of shares
authorized with no par value, respectively)
Class A - $146,466,468/9,218,162 ..................................... $ 15.89
=====================================================================================
Class B - $3,807,391/240,447 ......................................... $ 15.83
=====================================================================================
Class C - $1,573,605/98,220 .......................................... $ 16.02
=====================================================================================
MAXIMUM OFFERING PRICE PER SHARE*
Class A - ($15.89 x 105.26%) ......................................... $ 16.73
=====================================================================================
</TABLE>
* 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.
** Class B shares commenced operations on January 3, 1994
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 December 31, 1994
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $30,851) ............... $ 932,417
Interest .............................................................. 627,462
----------
1,559,879
----------
Expenses:
Investment management fee - Note B .................................... 1,231,294
Transfer agent fee - Note B
Class A ............................................................. 601,585
Class B ** .......................................................... 9,113
Class C ............................................................. 2,156
Distribution/service fee - Note B
Class A ............................................................. 451,377
Class B ** .......................................................... 21,705
Registration and filing fees .......................................... 59,064
Custodian fee ......................................................... 55,716
Printing .............................................................. 44,806
Auditing fee .......................................................... 34,700
Trustees' fees ........................................................ 16,215
Miscellaneous ......................................................... 10,798
Legal fees ............................................................ 8,130
----------
Total Expenses .................................. 2,546,659
---------------------------------------------------------------
Net Investment Loss ............................. ( 986,780)
---------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments sold ................................. 1,529,276
Change in net unrealized appreciation/depreciation
of investments ...................................................... ( 13,091,731)
----------
Net Realized and Unrealized
Loss on Investments ............................. ( 11,562,455)
---------------------------------------------------------------
Net Decrease in Net Assets
Resulting from Operations ....................... ($12,549,235)
===============================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1993
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment loss........................................................................... ($ 986,780) ($ 1,051,228)
Net realized gain on investments sold ........................................................ 1,529,276 19,949,589
Change in net unrealized appreciation/depreciation of investments ............................ ( 13,091,731) 707,708
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations ........................... ( 12,549,235) 19,606,069
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net realized gain on investments sold
Class A - ($0.2020 and $2.1376 per share, respectively) ............................. ( 1,850,208) ( 18,554,024)
Class B** - ($0.2020 and none per share, respectively) ................................... ( 43,984) --
Class C*** - ($0.2020 and $2.1376 per share, respectively) .............................. ( 18,255) ( 139,862)
------------ ------------
Total Distributions to Shareholders ...................................................... ( 1,912,447) ( 18,693,886)
------------ ------------
FROM FUND SHARE TRANSACTIONS -- NET* 2,086,820 10,252,971
NET ASSETS:
Beginning of period .......................................................................... 164,222,326 153,057,172
------------ ------------
End of period ................................................................................ $151,847,464 $164,222,326
============ ============
* ANALYSIS OF FUND SHARE TRANSACTIONS:
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1994 1993
------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------------ ------------ ------------
CLASS A
Shares sold .................................................... 4,198,071 $71,177,794 7,812,551 $142,828,715
Shares issued to shareholders in reinvestment of distributions . 110,953 1,738,305 1,019,169 17,417,659
--------- ------------ ------------ ------------
4,309,024 72,916,099 8,831,720 160,246,374
Less shares repurchased ........................................ (4,457,375) ( 75,094,698) ( 8,300,651) ( 151,269,460)
--------- ------------ ------------ ------------
Net increase (decrease) ........................................ ( 148,351) ($ 2,178,599) 531,069 $ 8,976,914
========= =========== ============ ============
CLASS B **
Shares sold .................................................... 259,658 $ 4,192,534
Shares issued to shareholders in reinvestment of distributions . 2,737 42,721
--------- -----------
262,395 4,235,255
Less shares repurchased ........................................ ( 21,948) ( 347,495)
--------- -----------
Net increase ................................................... 240,447 $ 3,887,760
========= ===========
CLASS C ***
Shares sold .................................................... 30,518 $ 480,690 65,430 $ 1,136,195
Shares issued to shareholders in reinvestment of distributions . 1,121 17,646 8,165 139,862
--------- ----------- ----------- ------------
31,639 498,336 73,595 1,276,057
Less shares repurchased ........................................ ( 7,014) ( 120,677)
--------- ----------- ----------- ------------
Net increase ................................................... 24,625 $ 377,659 73,595 $ 1,276,057
========= =========== =========== ============
</TABLE>
** Class B shares commenced operations on January 3, 1994.
*** Class C shares commenced operations on May 7, 1993.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
period indicated: investment returns, key ratios and supplemental data are as
follows:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period .............................. $ 17.40 $ 17.32 $ 17.48 $ 12.93 $ 15.18
-------- -------- -------- -------- --------
Net Investment Income (Loss) ...................................... ( 0.10) ( 0.11) ( 0.06) 0.04 0.16
Net Realized and Unrealized Gain (Loss) on Investments ............ ( 1.21) 2.33 1.10 5.36 ( 1.47)
-------- -------- -------- -------- --------
Total from Investment Operations .................................. ( 1.31) 2.22 1.04 5.40 ( 1.31)
-------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income .............................. -- -- -- ( 0.04) ( 0.16)
Distributions from Net Realized Gain on Investments Sold .......... ( 0.20) ( 2.14) ( 1.20) ( 0.81) ( 0.78)
-------- -------- -------- -------- --------
Total Distributions ............................................... ( 0.20) ( 2.14) ( 1.20) ( 0.85) ( 0.94)
-------- -------- -------- -------- --------
Net Asset Value, End of Period .................................... $ 15.89 $ 17.40 $ 17.32 $ 17.48 $ 12.93
======== ======== ======= ======== ========
Total Investment Return at Net Asset Value ........................ ( 7.50%) 13.03% 6.06% 41.68% ( 8.34%)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) ......................... $146,466 $162,937 $153,057 $145,287 $102,416
Ratio of Expenses to Average Net Assets ........................... 1.65% 1.56% 1.60% 1.44% 1.46%
Ratio of Net Investment Income (Loss) to Average Net Assets ....... ( 0.64%) ( 0.67%) ( 0.36%) 0.27% 1.12%
Portfolio Turnover Rate ........................................... 52% 68% 71% 82% 102%
CLASS B (a)
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period .............................. $ 17.16 (b)
--------
Net Investment Loss ............................................... ( 0.20)(c)
Net Realized and Unrealized Loss on Investments ................... ( 0.93)
--------
Total from Investment Operations .................................. ( 1.13)
--------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold .......... ( 0.20)
--------
Net Asset Value, End of Period .................................... $ 15.83
========
Total Investment Return at Net Asset Value ........................ ( 6.56%)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (OOO's omitted) ......................... $ 3,807
Ratio of Expenses to Average Net Assets ........................... 2.38% (d)
Ratio of Net Investment Loss to Average Net Assets ................ ( 1.25%)(d)
Portfolio Turnover Rate ........................................... 52%
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
FINANCIAL HIGHLIGHTS (continued)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, PERIOD ENDED
1994 DECEMBER 31, 1993(e)
------------ -----------------
<S> <C> <C>
CLASS C
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period ........................... $ 17.46 $ 17.05 (b)
-------- --------
Net Investment Loss ............................................ ( 0.01) ( 0.02)
Net Realized and Unrealized Gain (Loss) on Investments ......... ( 1.23) 2.57
-------- --------
Total from Investment Operations ............................... ( 1.24) 2.55
-------- --------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold ....... ( 0.20) ( 2.14)
-------- --------
Net Asset Value, End of Period ................................. $ 16.02 $ 17.46
======== ========
Total Investment Return at Net Asset Value ..................... ( 7.07%) ( 15.18%)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (OOO's omitted) ...................... $ 1,574 $ 1,285
Ratio of Expenses to Average Net Assets ........................ 1.12% 1.05% (d)
Ratio of Net Investment Loss to Average Net Assets ............. ( 0.08%) ( 0.17%)(d)
Portfolio Turnover Rate ........................................ 52% 68%
</TABLE>
(a) Class B shares commenced operations on January 3, 1994.
(b) Initial price at commencement of operations.
(c) On average month end shares outstanding.
(d) On an annualized basis.
(e) Class C shares commenced operations on May 7, 1993.
THE FINANCIAL HIGHLIGHTS SUMMARIZES THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIOD INDICATED: THE NET INVESTMENT INCOME, GAINS
(LOSSES), DISTRIBUTIONS AND TOTAL INVESTMENT RETURN OF THE FUND. IT SHOWS HOW
THE FUND'S NET ASSET VALUE FOR A SHARE HAS CHANGED SINCE THE END OF THE PREVIOUS
PERIOD. ADDITIONALLY, IMPORTANT RELATIONSHIPS BETWEEN SOME ITEMS PRESENTED IN
THE FINANCIAL STATEMENTS ARE EXPRESSED IN RATIO FORM.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY THE
GROWTH FUND ON DECEMBER 31, 1994. IT'S DIVIDED INTO FIVE MAIN CATEGORIES: COMMON
STOCKS, PREFERRED STOCKS, OTHER INVESTMENTS, PUBLICLY TRADED CONVERTIBLE BONDS
AND SHORT-TERM INVESTMENTS. THE INVESTMENTS ARE FURTHER BROKEN DOWN BY INDUSTRY
GROUPS. SHORT-TERM INVESTMENTS, WHICH REPRESENT THE FUND'S "CASH" POSITION, ARE
LISTED LAST.
SCHEDULE OF INVESTMENTS
December 31, 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ISSUER, DESCRIPTION NUMBER OF SHARES MARKET VALUE
- ------------------- ---------------- ------------
<S> <C> <C>
COMMON STOCKS
APPLIANCES - HOUSEHOLD (0.42%)
Fedders Corp.** .......................... 70,000* $ 498,750
Fedders Corp. (Class A)** ................ 25,000* 131,250
------------
630,000
------------
BANKS (0.87%)
West One Bancorp .......................... 50,000 1,325,000
------------
BEVERAGES (1.87%)
Coca-Cola Co. (The) ...................... 55,000 2,832,500
------------
BROADCASTING (5.52%)
Gaylord Entertainment Co. (Class A) ...... 100,000 2,275,000
Grupo Televisa S.A., Global
Depository Receipt (GDR) ............... 20,000 635,000
Infinity Broadcasting Corp. (Class A)** .. 90,000 2,835,000
Tele-Communications, Inc. (Class A)** .... 60,000 1,305,000
Telewest Communications PLC, American
Depositary Receipt, (ADR)** ............ 50,000* 1,325,000
------------
8,375,000
------------
BUILDING PRODUCTS (1.97%)
Home Depot, Inc. (The) ................... 65,000 2,990,000
------------
COMPUTERS (10.91%)
Adaptec, Inc.** .......................... 170,000 3,995,000
America Online, Inc.** ................... 40,000* 2,230,000
cisco Systems, Inc.** .................... 60,000 2,100,000
Computer Associates International, Inc. .. 50,000 2,425,000
EMC Corp.** .............................. 110,400 2,387,400
HBO & Co. ................................ 100,000* 3,425,000
------------
16,562,400
------------
COSMETICS & TOILETRIES (2.22%)
Gillette Co. (The) ....................... 45,000 3,363,750
------------
DRUGS (1.02%)
Pfizer, Inc. ............................. 20,000* 1,545,000
------------
ELECTRONICS (8.01%)
Molex Inc. (Class A) ..................... 75,000* 2,325,000
Motorola, Inc. ........................... 80,400 4,653,150
Scientific-Atlanta, Inc. ................. 100,000* 2,100,000
Vishay Intertechnology, Inc.** ........... 63,000 3,087,000
------------
12,165,150
------------
FINANCE (3.82%)
MBNA Corp. ............................... 120,000 2,805,000
Paychex, Inc. ............................ 75,000 3,000,000
------------
5,805,000
------------
FINANCIAL/BUSINESS SERVICES (0.47%)
Robert Half International, Inc.** ........ 30,000* 720,000
------------
FURNITURE (1.07%)
Heilig Meyers Co. ........................ 64,300* 1,623,575
------------
HEALTHCARE (8.44%)
Health Management Associates,
Inc. (Class A)** ....................... 90,000* 2,250,000
Humana, Inc.** ........................... 110,000* 2,488,750
Johnson & Johnson ........................ 35,000* 1,916,250
Physician Corp. of America** ............. 75,000* 1,518,750
United Healthcare Corp. .................. 70,000* 3,158,750
Value Health, Inc.** ..................... 40,000* 1,490,000
------------
12,822,500
------------
HOTELS & MOTELS (1.33%)
Doubletree Corp.** ....................... 40,000* 730,000
La Quinta Motor Inns, Inc. ............... 60,000* 1,282,500
------------
2,012,500
------------
LEISURE & RECREATION (6.34%)
Disney (Walt) Co., (The) ................. 70,000 3,228,750
International Game Technology ............ 90,000 1,395,000
PolyGram N.V. (ADR) ...................... 75,000 3,459,375
Promus Companies, Inc. (The)** ........... 50,000 1,550,000
------------
9,633,125
------------
LINEN SUPPLY (1.38%)
Cintas Corp. ............................. 60,000 2,100,000
------------
MEDICAL/DENTAL (1.60%)
Cardinal Health, Inc. .................... 52,500* 2,434,687
------------
MOTION PICTURES (1.48%)
King World Productions, Inc.** ........... 65,000 2,242,500
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
<TABLE>
<CAPTION>
ISSUER, DESCRIPTION NUMBER OF SHARES MARKET VALUE
- ------------------- ---------------- ------------
<S> <C> <C>
NURSING HOMES (3.34%)
Health Care & Retirement** ............... 100,000 $ 3,012,500
Manor Care, Inc. ......................... 75,000* 2,053,125
------------
5,065,625
------------
OFFICE EQUIPMENT & SUPPLIES (1.26%)
Office Depot, Inc.** ..................... 80,000* 1,920,000
------------
PUBLISHING (1.90%)
News Corp. Ltd. (The) (ADR) .............. 50,000* 781,250
Time Warner, Inc. ........................ 60,000 2,107,500
------------
2,888,750
------------
RESTAURANTS (3.67%)
Brinker International, Inc.** ............ 65,000 1,178,125
McDonald's Corp. ......................... 150,000 4,387,500
------------
5,565,625
------------
RETAIL (12.84%)
Albertson's, Inc. ........................ 70,000 2,030,000
AnnTaylor Stores, Corp.** ................ 70,000 2,406,250
Barnes & Noble, Inc.** ................... 25,000* 781,250
CUC International, Inc.** ................ 70,000 2,345,000
Dollar General Corp. ..................... 100,000 2,950,000
Gap, Inc. (The) .......................... 60,000* 1,830,000
Nordstrom, Inc. .......................... 40,000* 1,680,000
Sports & Recreation, Inc. ................ 80,000* 2,060,000
Sports Authority, Inc. (The)** ........... 21,000* 441,000
Wal-Mart Stores, Inc. .................... 140,000 2,975,000
------------
19,498,500
------------
TELECOMMUNICATIONS (5.05%)
Airtouch Communications, Inc.** .......... 70,000* 2,038,750
LDDS Communications, Inc.** .............. 50,000* 968,750
Telefonos de Mexico, S.A., (ADR) ......... 40,000* 1,640,000
Vodafone Group PLC (ADR) ................. 90,000 3,026,250
------------
7,673,750
------------
TEXTILES (0.59%)
Tommy Hilfiger Corp.** ................... 20,000* 902,500
------------
TOTAL COMMON STOCKS
(Cost $98,751,932) ( 87.39%) 132,697,437
------- ------------
PREFERRED STOCK
PUBLISHING (0.23%)
News Corp. Ltd. (The) ADR ................ 25,000* 346,875
------------
TOTAL PREFERRED STOCK
(Cost $399,895) ( 0.23%) 346,875
------- ------------
OTHER INVESTMENTS
DRUGS (0.00%)
Lilly (Eli) & Co., Contingent
Payment Units** ........................ 14,000 218
------------
TOTAL OTHER INVESTMENT
(COST $ 70,875) ( 0.00%) 218
------- ------------
TOTAL COMMON STOCKS,
PREFERRED STOCKS AND
OTHER INVESTMENTS
(COST $ 99,222,702) ( 87.62%) 133,044,530
------- ------------
</TABLE>
<TABLE>
<CAPTION>
INTEREST S&P PAR VALUE
RATE RATING*** (000'S OMITTED)
-------- ------ ---------------
<S> <C> <C> <C>
PUBLICLY TRADED
CONVERTIBLE BONDS
TOYS/GAMES/
HOBBY PRODUCTS (0.44%)
Hasbro, Inc.
Conv. Sub.
Note 11-15-98 ....... 6.00% A- $ 650 680,063
------------
TOTAL PUBLICLY TRADED
CONVERTIBLE BONDS
(Cost $ 650,000) ( 0.44%) 680,063
------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
<TABLE>
<CAPTION>
INTEREST PAR VALUE
ISSUER, DESCRIPTION RATE (000'S OMITTED) MARKET VALUE
- ------------------- -------- --------------- ------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (12.01%)
Investment in a joint
repurchase agreement
transaction with Lehman
Bros., Inc. - Dated 12-30-94,
Due 01-03-95 (Secured
by US Treasury Bonds,
9.25% due 02-15-16; and
8.125% due 08-15-21; and
US Treasury Notes, 5.50%
due 02-15-95 and 4.625%
due 08-15-95) ..................... 5.85% $18,236 $ 18,236,000
------------
CORPORATE SAVINGS ACCOUNT (0.00%)
Investors Bank & Trust
Company Daily Interest
Savings Account
Current Rate 3.00% ................ 217
------------
TOTAL SHORT-TERM INVESTMENTS ( 12.01%) 18,236,217
-------- ------------
TOTAL INVESTMENTS (100.07%) $151,960,810
======= ============
</TABLE>
* Securities, other than short-term investments, newly added to the portfolio
during the year ended December 31, 1994.
** Non-income producing securities.
*** Credit ratings are unaudited.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
NOTE A --
ACCOUNTING POLICIES
John Hancock Capital Series (the "Trust"), is an open-end management investment
company, registered under the Investment Company Act of 1940. The Trust consists
of two series portfolios: John Hancock Growth Fund (the "Fund") and John Hancock
Special Value Fund. The Trustees have authorized the issuance of multiple
classes of the Fund, designated as Class A, Class B and Class C. 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/service expenses
under terms of a distribution plan, have exclusive voting rights regarding such
distribution plan. Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or, at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial Group
may participate in a joint repurchase agreement. Aggregate cash balances are
invested in one or more repurchase agreements, whose underlying securities are
obligations of the U.S. government and/or its agencies. The Fund's custodian
bank receives delivery of the underlying securities for the joint account on the
Fund's behalf. The Adviser is responsible for ensuring that the agreement is
fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all its taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required. Net capital losses of $151,430 attributable to security transactions
occurring after October 31, 1994 and are treated as arising on the first day
(January 1, 1995) of the Fund's next taxable year.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date. 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, and 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 as explained previously.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the Funds.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are determined at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes. Transfer
agent expenses and distribution/service fees if any, are calculated daily at the
class level based on the appropriate
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
net assets of each class and the specific expense rate(s) applicable to each
class.
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) 0.80% of the first $250,000,000 of the Fund's
average daily net asset value, (b) 0.75% of the next $250,000,000 and (c) 0.70%
of the Fund's average daily net asset value in excess of $500,000,000.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Fund is registered to sell shares of beneficial interest, the
fee payable to the Adviser will be reduced to the extent of such excess and the
Adviser will make additional arrangements necessary to eliminate any remaining
excess expenses. The current limits are 2.5% of the first $30,000,000 of the
Fund's average daily net asset value, 2.0% of the next $70,000,000, and 1.5% of
the remaining 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. Prior to January 1, 1995, JH
Funds was known as John Hancock Broker Distribution Services, Inc. For the
period ended December 31, 1994, JH Funds received net sales charges of $393,400.
Out of this amount, $59,810 was retained and used for printing prospectuses,
advertising, sales literature, and other purposes, $44,496 was paid as sales
commissions and first year service fees to unrelated broker-dealers, and
$289,094 was paid as sales commissions and first year service fees to sales
personnel of John Hancock Distributors, Inc. ("Distributors"), Tucker Anthony,
Incorporated ("Tucker Anthony") and Sutro & Co., Inc. ("Sutro"). The Adviser's
indirect parent, John Hancock Mutual Life Insurance Company, is the indirect
sole shareholder of Distributors and John Hancock Freedom Securities Corporation
and its subsidiaries, which include Tucker Anthony and Sutro, all of which are
broker-dealers.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses related to providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended December 31,
1994 contingent deferred sales charges received by JH Funds amounted to $29,565.
In addition, to compensate 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 Investor Services
Corporation, ("Investor Services"), a wholly-owned subsidiary of The Berkeley
Financial Group. Prior to January 1, 1995, Investor Services was known as John
Hancock Fund Services, Inc. For the period ended December 31, 1994, the Fund
paid Investor Services a monthly transfer agent fee equivalent, on an annual
basis, to 0.40%, 0.42% and 0.10% (0.40% prior to April 1, 1994) of the average
daily net asset value, attributable to Class A, Class B and Class C shares of
the Fund, respectively, plus out of pocket expenses incurred by Investor
Services on behalf of the Fund for proxy mailings. Effective January 1, 1995,
Class A and Class B shares will pay transfer agent fees based on transaction
volume and the number of shareholder accounts.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
Messrs. Edward J. Boudreau, Jr., Francis C. Cleary, Jr., (until December
14, 1994) and Richard S. Scipione are directors and/or officers of the Adviser,
and/or its affiliates as well as Trustees of the Fund. John Hancock Mutual Life
Insurance Company owns 400,000 Class A shares of beneficial interest of the
Fund. The compensation of unaffiliated Trustees is borne by the Fund.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the period
ended December 31, 1994, aggregated $74,445,236 and $95,019,524, respectively.
There were no purchases or sales of long-term obligations of the U.S. government
and its agencies during the period ended December 31, 1994.
The cost of investments owned at December 31, 1994 (excluding the corporate
savings account) for federal income tax purposes was $118,108,702. Gross
unrealized appreciation and depreciation of investments aggregated $38,739,795
and $4,887,904, respectively, resulting in net unrealized appreciation of
$33,851,891.
NOTE D --
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the year ended December 31, 1994, the Fund has reclassified the
accumulated net investment loss $986,780 to capital paid-in. This represents the
cumulative amount necessary to report these balances on a tax basis, excluding
certain temporary differences, as of December 31, 1994. Additional adjustments
may be needed in subsequent reporting periods. These reclassifications, which
have no impact on the net asset value of the Fund, are primarily attributable to
certain differences in the computation of distributable income and capital gains
under federal tax rules versus generally accepted accounting principles.
16
<PAGE>
John Hancock Funds - Growth Fund
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To the Trustees and Shareholders of
John Hancock Growth Fund
We have audited the accompanying statement of assets and liabilities of John
Hancock Growth Fund (the "Fund"), one of the portfolios constituting John
Hancock Capital Series, including the schedule of investments, as of December
31, 1994, 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 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
December 31, 1994, by correspondence with the custodian. 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
John Hancock Growth Fund portfolio of John Hancock Capital Series at December
31, 1994, 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 financial
highlights for each of the five years in the period then ended, in conformity
with generally accepted accounting principles.
[SIGNATURE]
/s/ Ernst & Young LLP
Boston, Massachusetts
February 13, 1995
TAX INFORMATION NOTICE (UNAUDITED)
For Federal Income Tax purposes, the following information is furnished with
respect to the distributions of the Fund for its fiscal year ended December 31,
1994.
The Fund designated distributions to shareholders of $1,863,000 as
long-term capital gain dividends. Shareholders were mailed a 1994 U.S. Treasury
Department Form 1099-DIV in January 1995 representing their proportionate share.
United States Government Obligations: None of the 1994 income earned by the
Fund was derived from obligations of the U.S. government or its agencies. The
Fund did not have any assets invested in U.S. Treasury bond, bills, notes or
other U.S. Government Agencies at year end.
With respect to the Fund's ordinary taxable income for the fiscal year
ended December 31, 1994 none of the dividends qualify for the corporate
dividends received deduction.
For specific information on exemption provisions in your state, consult
your local state tax office or your tax adviser.
17
<PAGE>
NOTES
John Hancock Funds - Growth Fund
18
<PAGE>
NOTES
John Hancock Funds - Growth Fund
19
<PAGE>
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
101 HUNTINGTON AVENUE BOSTON, MA 02199-7603
[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."]
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock
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.
[A recycled logo in lower left hand corner with the caption "Printed on
Recycled Paper."]
JH 2000A 12/94
<PAGE>
APPENDIX
JOHN HANCOCK CAPITAL GROWTH FUND
PROXY SOLICITATION BY THE BOARD OF TRUSTEES
The undersigned, revoking previous proxies, hereby appoint(s) Edward
J. Boudreau, Jr., Thomas H. Drohan and James B. Little, with full power
of substitution in each, to vote all the shares of beneficial interest of
John Hancock Capital Growth Fund ("Capital Growth Fund") which the
undersigned is (are) entitled to vote at the Special Meeting of
Shareholders (the "Meeting") of Capital Growth Fund to be held at 101
Huntington Avenue, Boston, Massachusetts, on September 8, 1995 at 9:00
a.m., Boston time, and at any adjournment of the Meeting. All powers may
be exercised by a majority of said proxy holders or substitutes voting or
acting, or, if only one votes and acts, then by that one. Receipt of the
Proxy Statement dated July 15, 1995 is hereby acknowledged. If not
revoked, this proxy shall be voted:
(1) To approve an Agreement and Plan of Reorganization between
Capital Growth Fund and John Hancock Capital Series, on behalf
of John Hancock Growth Fund, providing for Growth Fund's
acquisition of all Capital Growth Fund's assets in exchange
solely for Growth Fund's assumption of Capital Growth Fund's
liabilities and the issuance of Growth Fund Class A and Class B
shares to Capital Growth Fund for distribution to its
shareholders.
---- ---- ----
FOR :____: AGAINST :____: ABSTAIN :____:
(2) In the discretion of said proxy or proxies, to act upon such
other matters as may properly come before the Meeting or any
adjournment of the Meeting.
<PAGE>
THIS PROXY SHALL BE VOTED IN FAVOR OF (FOR) PROPOSAL (1) IF NO
SPECIFICATION IS MADE ABOVE. AS TO ANY OTHER MATTER, SAID PROXY OR
PROXIES SHALL VOTE IN ACCORDANCE WITH THEIR BEST JUDGMENT.
Date __________________, 1995 ________________________________
Signature(s)
--------------------------------
NOTE: Signature(s) should agree with
name(s) printed herein. When signing
as attorney, executor, administrator,
trustee or guardian, please give your
full title as such. If a corporation,
please sign in full corporate name by
president or other authorized officer.
If a partnership, please sign in
partnership name by authorized person.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN ENCLOSED ENVELOPE
<PAGE>
JOHN HANCOCK GROWTH FUND
a series of
JOHN HANCOCK CAPITAL SERIES
STATEMENT OF ADDITIONAL INFORMATION
July 15, 1995
This Statement of Additional Information is not a prospectus. It
should be read in conjunction with the related Prospectus (also dated
July 15, 1995) which covers Class A and Class B shares of beneficial
interest of John Hancock Growth Fund ("Growth Fund") to be issued in
exchange for all of the net assets of John Hancock Capital Growth
Fund ("Capital Growth Fund"). Please retain this Statement of
Additional Information for future reference.
A copy of the Prospectus can be obtained free of charge by calling
Shareholder Services at 1-800-225-5291 or by written request to John
Hancock Capital Series at 101 Huntington Avenue, Boston,
Massachusetts 02199.
TABLE OF CONTENTS
Page
Introduction................................................... 3
Additional Information about Growth Fund....................... 3
General Information and History
Investment Objectives and Policies
Management of Growth Fund
Investment Advisory and Other Services
Brokerage Allocation and Other Practices
Shares of Beneficial Interest
Purchase, Redemption and Pricing of
Growth Fund Shares
Underwriters
Calculation of Performance Data
Financial Statements
Additional Information About Capital Growth Fund............... 4
General Information and History
Investment Objective and Policies
Management of Capital Growth Fund
Control Persons and Principal Holders of Shares
Investment Advisory and Other Services
Brokerage Allocation and Other Practices
Shares of Beneficial Interest
Purchase, Redemption and Pricing of
Capital Growth Fund Shares
Underwriters
Calculation of Performance Data
Financial Statements
<PAGE>
EXHIBITS
A - Statement of Additional Information, dated May 1, 1995 of
Capital Growth Fund.
B - Statement of Additional Information, dated May 1, 1995 of
Growth Fund.
C - Pro Forma Combined Financial Statements at December 31, 1994
and for the period then ended of Growth Fund and Capital Growth
Fund.
-2-
<PAGE>
INTRODUCTION
This Statement of Additional Information is intended to
supplement the information provided in a Proxy Statement and
Prospectus dated July 15, 1995 (the "Proxy Statement and
Prospectus"). The Proxy Statement and Prospectus has been sent to the
shareholders of Capital Growth Fund in connection with the
solicitation by the management of Capital Growth Fund of proxies to
be voted at the Special Meeting of Shareholders of Capital Growth
Fund to be held on September 8, 1995. This Statement of Additional
Information includes the statements of additional information of
Capital Growth Fund, dated May 1, 1995 (the "Capital Growth Fund
SAI"), and Growth Fund, dated May 1, 1995 (the "Growth Fund SAI").
The Capital Growth Fund SAI and the Growth Fund SAI are included with
this Statement of Additional Information and are incorporated herein
by reference.
ADDITIONAL INFORMATION ABOUT GROWTH FUND
General Information and History
For additional information about Growth Fund generally and its
history, see "Organization of the Fund" in the Growth Fund SAI.
Investment Objectives and Policies
For additional information about Growth Fund's investment
objectives and policies, see "Investment Objectives and Policies" and
"Investment Restrictions" in the Growth Fund SAI.
Management of Growth Fund
For additional information about Growth Fund's Board of
Trustees, officers and management personnel, see "Those Responsible
for Management" in the Growth Fund SAI.
Investment Advisory and Other Services
For additional information about Growth Fund's investment
adviser, custodian and independent accountants, see "Investment
Advisory and Other Services," "Distribution Contract," "Transfer
Agent Services," "Custody of Portfolio" and "Independent Auditors" in
the Growth Fund SAI.
Brokerage Allocation and Other Practices
For additional information about Growth Fund's brokerage
allocation practices, see "Brokerage Allocation" in the Growth Fund
SAI.
Shares of Beneficial Interest
For additional information about the voting rights and other
characteristics of Growth Fund's shares of beneficial interest, see
"Description of the Fund's Shares" in the Growth Fund SAI.
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Purchase, Redemption and Pricing of Growth Fund Shares
For additional information about the determination of net asset
value, see "Net Asset Value" in the Growth Fund SAI.
Underwriters
For additional information about Growth Fund's principal
underwriter and the distribution contract between the principal
underwriter and Growth Fund, see "Distribution Contract" in the
Growth Fund SAI.
Calculation of Performance Data
For additional information about the investment performance of
Growth Fund, see "Calculation of Performance" in the Growth Fund SAI.
Financial Statements
Audited financial statements of Growth Fund as at December 31,
1994 are set forth in the Growth Fund SAI included herein as Exhibit
B.
ADDITIONAL INFORMATION ABOUT CAPITAL GROWTH FUND
General Information and History
For additional information about Capital Growth Fund generally
and its history, see "Organization of the Fund" in the Capital Growth
Fund SAI.
Investment Objectives and Policies
For additional information about Capital Growth Fund's
investment objectives, policies and restrictions see "Investment
Objectives and Policies" and "Investment Restrictions" in the Capital
Growth Fund SAI.
Management of Capital Growth Fund
For additional information about Capital Growth Fund's Board of
Trustees, officers and management personnel, see "Those Responsible
for Management" in the Capital Growth Fund SAI.
Control Persons and Principal Holders of Shares
For additional information about control persons of Capital
Growth Fund and principal holders of shares of Capital Growth Fund
see "Those Responsible for Management" in the Capital Growth Fund
SAI.
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<PAGE>
Investment Advisory and Other Services
For additional information about Capital Growth Fund's
investment adviser, custodian and independent accountants, see
"Investment Advisory and Other Services," "Distribution Contract,"
"Transfer Agent Services," "Custody of Portfolio" and "Independent
Auditors" in the Capital Growth Fund SAI.
Brokerage Allocation and Other Practices
For additional information about Capital Growth Fund's
brokerage allocation practices, see "Brokerage Allocation" in the
Capital Growth Fund SAI.
Shares of Beneficial Interest
For additional information about the voting rights and other
characteristics of shares of beneficial interest of Capital Growth
Fund, see "Description of the Fund's Shares" in the Capital Growth
Fund SAI.
Purchase, Redemption and Pricing of Growth Fund Shares
For additional information about the determination of net asset
value, see "Net Asset Value" in the Capital Growth Fund SAI.
Underwriters
For additional information about Capital Growth Fund's
principal underwriter and the distribution contract between the
principal underwriter and Capital Growth Fund, see "Distribution
Contract" in the Capital Growth Fund SAI.
Calculation of Performance Data
For additional information about the investment performance of
Capital Growth Fund, see "Calculation of Performance" in the Capital
Growth Fund SAI.
Financial Statements
Audited financial statements of Capital Growth Fund as at
December 31, 1994 are set forth in the Capital Growth Fund SAI
included herein as Exhibit A. Pro Forma combined financial statements
as at December 31, 1994 and for the period then ended for Capital
Growth Fund as though the Reorganization had occurred on December 31,
1994 are attached as Exhibit C.
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<PAGE>
EXHIBIT A
JOHN HANCOCK CAPITAL GROWTH FUND
CLASS A AND CLASS B SHARES
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1995
This Statement of Additional Information is not a Prospectus, but is
intended to provide additional information regarding the activities and
operations of the John Hancock Capital Growth Fund (the "Fund") and should be
read in conjunction with the Prospectus.
A Prospectus for the Fund, dated May 1, 1995, which provides the basic
information an investor should know before investing may be obtained without
charge from:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-5291
1-800-225-5291
TABLE OF CONTENTS
<TABLE>
<S> <C>
Investment Objective and Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Special Investment Techniques . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Those Responsible for Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Investment Advisory and Other Services . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Distribution Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Deferred Sales Charge on Class B Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Additional Services and Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Tax Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Brokerage Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Transfer Agent Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Calculation of Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
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INVESTMENT OBJECTIVE AND POLICIES
PRIOR TO THE APPROVAL OF JOHN HANCOCK ADVISERS, INC. (THE "INVESTMENT ADVISER")
AS THE FUND'S ADVISER EFFECTIVE DECEMBER 22, 1994, THE FUND WAS MANAGED BY
TRANSAMERICA FUND MANAGEMENT COMPANY.
INVESTMENT OBJECTIVE. As discussed under "Investment Objective and
Policies" in the Prospectus, the primary investment objective of the Fund is
capital appreciation. The Fund seeks to achieve its objective by investing
primarily in equity securities of domestic and foreign companies. The Fund may
also, from time to time, in pursuit of its investment objective, engage in
leveraging and in a variety of special investment techniques in seeking to
hedge against changes in the prices of securities held in its portfolio or
which it intends to purchase such as the purchase and sale of standardized
stock options as well as options on stock indexes, stock index futures and
options on such futures. The investment policies and techniques employed by
the Fund involve a greater degree of risk than those inherent with more
conservative investment approaches.
LEVERAGE. As discussed under "Investment Objectives and Policies" in
the Prospectus, the Fund may from time to time borrow money from banks for
investment in portfolio securities. The time and extent to which the Fund may
engage in such borrowing will be determined by the Investment Adviser in light
of changing facts and circumstances, including general economic and market
conditions. Under the Investment Company Act of 1940, the Fund may borrow
money only from banks, and only if the value of the Fund's assets, including
the proceeds of the loan, less other liabilities of the Fund, are at least
three times the proposed bank borrowing. The amount of borrowing will also be
limited by applicable margin limitations imposed by the Federal Reserve Board.
In order to generate additional income, the Fund may, from time to
time, lend securities from its portfolios to brokers, dealers and financial
institutions such as banks and trust companies. Such loans will be secured by
collateral consisting of cash or U.S. Government securities which will be
maintained in an amount equal to at least 100% of the current market value of
the loaned securities. During the period of the loan, the fund will receive
the income on both the loaned securities and the collateral and thereby
increase its return. Cash collateral will be invested in short-term high
quality debt securities, which will increase the current income of the Fund.
The loans will be terminable by the Fund at any time and by the borrower on one
day's notice. The Fund will have the right to regain record ownership of
loaned securities to exercise beneficial rights such as rights to interest or
other distributions or voting rights on important issues. The Fund may pay
reasonable fees to persons unaffiliated with the Fund for services in arranging
such loans. Lending of portfolio securities involves a risk of failure by the
borrower to return the loaned securities, in which event the Fund may incur a
loss.
FORWARD FOREIGN CURRENCY CONTRACTS. The Fund may enter into forward
contracts to purchase or sell foreign currencies as a hedge against possible
variations in foreign exchange rates. A forward foreign currency contract is
an agreement between the contracting parties to exchange an amount of currency
at some future time at an agreed upon rate. The rate can be higher or lower
than the spot rate between the currencies that are the subject of the contract.
A forward contract generally has no deposit requirement and such transactions
do not involve commissions. By entering into a forward contract for the
purchase or sale of the amount of foreign currency invested in a foreign
security transaction, the Fund can hedge against possible variations in the
value of the dollar versus the subject currency either between the date the
foreign security is purchased or sold and the date on which payment is made or
received or during the time the Fund holds the foreign
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<PAGE>
security. If the Fund enters into a "position hedging transaction," which is
the sale of forward foreign currency with respect to a portfolio security
denominated in such foreign currency, its custodian bank will place cash or
liquid equity or debt securities in a separate account of the Fund in an amount
equal to the value of the Fund's total assets committed to the consummation of
such forward contract. If the value of the securities placed in the separate
account declines, additional cash or securities will be placed in the account
so that the value of the account will equal the amount of the Fund's commitment
with respect to such contracts. The Investment Adviser does not intend to
enter into position hedging transactions on a regular or continuous basis and
will not do so if as a result more than 15% of the value of the Fund's total
assets would be committed to the consummation of such contracts. In addition,
the Fund will not enter into a forward contract if as a result the Fund would
be obligated to deliver an amount of foreign currency to consummate the
contract in excess of the value of the Fund's portfolio securities or other
assets denominated in that currency.
STOCK OPTIONS. A call option gives the purchaser of the option, in
return for a premium paid, the right to buy the security underlying the option
at a specified price at any point during the term of the option. The seller
("writer") of the call option who receives the premium has the obligation to
sell the underlying security to the purchaser at the exercise price during the
option period, if assigned an exercise notice. A put option gives the
purchaser thereof the right to sell and the writer the obligation to buy the
security underlying the option at the exercise price upon exercise of the
option during the option period.
A writer of an option may terminate the obligation to purchase or sell
prior to expiration of the option by making an offsetting purchase of an
identical option ("closing purchase transaction"). Similarly, the buyer of an
option may, prior to expiration, make an offsetting sale of an identical option
("closing sale transaction"). A closing purchase or sale transaction cancels
out an investor's previous position as the holder or the writer of an option.
An option may be exercised at any time from the day on which it is
bought until the last trading day before it expires. To exercise an option the
holder must direct his broker to give exercise instructions to the Options
Clearing Corporation ("OCC"). On the business day following receipt of an
exercise instruction, OCC randomly assigns the exercise to a Clearing Member
account that reflects the writing of an option or options identical to the
exercised option. The brokerage firm to which the exercise notice is assigned
must then allocate the assignment to a customer maintaining a position as an
option writer, whether on a random selection basis or on a "first-in,
first-out" basis. Brokers are required to inform their customers which
allocation method is used and how it works.
An option position may be closed out only on an exchange which
provides a secondary market for an option of the same series. Although the
Fund will generally purchase or write only those options for which there
appears to be an active secondary market, there is no assurance that a liquid
secondary market on an exchange will exist for any particular option at any
particular time. In such event it might not be possible to effect closing
transactions in particular options with the result that the Fund would have to
exercise its options in order to realize any profit. This would result in the
Fund incurring brokerage commissions upon the exercise of call options and upon
the subsequent disposition of underlying securities acquired through the
exercise of call options or upon
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<PAGE>
the purchase of underlying securities for the exercise of put options. If the
Fund as a covered call option writer is unable to effect a closing purchase
transaction in a secondary market, unless the Fund is required to deliver the
stock pursuant to the assignment of an exercise notice, it will not be able to
sell the underlying security until the option expires.
Reasons for the potential 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 or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the
facilities of an exchange or a clearing corporation may not at all times be
adequate to handle current trading volume or (vi) one or more exchanges could,
for economic or other reasons decide or be compelled at some future date to
discontinue the trading of options (or a particular class or series of options)
in which event the secondary market on that exchange (or in the class or series
of options) would cease to exist, although outstanding options on that exchange
that had been issued by a clearing corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at a particular time, render certain of the
facilities of any of the clearing corporations inadequate and thereby result in
the institution by an exchange of special procedures which may interfere with
the timely execution of customers' orders. However, the Options Clearing
Corporation, based on forecasts provided by the U.S. exchanges, believes that
its facilities are adequate to handle the volume of reasonably anticipated
options transactions, and such exchanges have advised such clearing corporation
that they believe their facilities will also be adequate to handle reasonably
anticipated volume.
INVESTMENT RESTRICTIONS. The Fund has adopted certain fundamental
investment restrictions. Under these investment restrictions, the Fund may
not:
(1) Invest more than 5% of its assets (taken at market value at
the time of each investment) in the securities of any one
issuer or purchase more than 10% of the outstanding voting
securities of any one company or more than 10% of any class of
a company's outstanding securities, except that these
restrictions shall not apply to U.S. government securities.
(2) Invest more than 10% of its total assets (taken at market
value at the time of each investment) in securities of
companies having a record, together with predecessors, of less
than three years of continuous operations, except that this
restriction shall not apply to U.S. government securities.
(3) Make short sales of securities.
(4) Purchase securities on margin or borrow money, except as set
forth in the Prospectus and Statement of Additional
Information under "Leverage" provided however, that the Fund
may borrow money from a bank for temporary or emergency
purposes in amounts not exceeding 5% (taken at the lower of
cost or market) of the Fund's total assets (not including the
proceeds of any borrowings). The borrowing restriction does
not prohibit the use of reverse repurchase agreements, in an
amount, (including any borrowings) not to exceed 33 1/3% of
its net assets.
4
<PAGE>
(5) Engage in the underwriting of securities except insofar as the
Fund may be deemed an underwriter under the Securities Act of
1933 in disposing of a portfolio security.
(6) Purchase or sell commodities or commodity futures contracts
except stock index futures and options on such futures for
hedging purposes under policies developed by the Fund's Board
of Trustees and forward foreign currency contracts as
described in the Prospectus and Statement of Additional
Information.
(7) Make loans, except through loans of portfolio securities, the
purchase of fixed income securities and by entering into
repurchase agreements. For the purpose of this restriction,
collateral arrangements with respect to stock options, options
on stock indices, stock index futures and options on such
futures are not deemed to be a loan of assets.
(8) Engage in arbitrage transactions or purchase oil, gas or other
mineral leases, rights or royalty contracts or exploration or
development programs, except that the Fund may invest in the
securities of companies which invest in or sponsor such
programs.
(9) Purchase securities of other investment companies in an amount
exceeding the limitations set forth in Section 12(d) of the
Investment Company Act of 1940 and the rules thereunder,
except in connection with a merger, consolidation,
reorganization or acquisition of assets.
(10) Invest for the purpose of exercising control or management of
another company.
(11) Invest in securities of any company if, to the knowledge of
the Fund, any officer or trustee or director of the Fund or of
the Investment Adviser owns more than 1/2 of 1% of the
outstanding securities of such company, and such officers and
trustees or directors who own 1/2 of 1% in the aggregate more
than 5% of the outstanding securities of such company.
(12) Issue senior securities, as defined in the Investment Company
Act, except that the Fund may enter into repurchase
agreements, lend its portfolio securities, and may borrow
money from banks.
(13) Purchase any security or enter into a repurchase agreement if
as a result more than 10% of the value of the Fund's total
assets (taken at market value at the time of each investment)
would be invested in any combination of: securities that are
subject to legal or contractual restrictions on resale
("restricted securities"); securities for which there are no
readily available market quotations; or repurchase agreements
maturing in more than seven days.
(14) Invest in real estate or interests therein.
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<PAGE>
(15) Invest more than 5% of its total assets in warrants, including
not more than 2% of such assets in warrants not listed on
either the NYSE or American Stock Exchange. However, the
acquisition of warrants attached to other securities is not
subject to this restriction.
The fundamental investment restrictions set forth above may not be
changed without the prior approval by the holders of a majority of the
outstanding shares of the Fund as defined in the Investment Company Act of 1940
(the "Act"). A majority for this purpose means: (a) more than 50% of the
outstanding shares, or (b) 67% or more of the shares represented at a meeting
where more than 50% of the outstanding shares are represented, whichever is
less.
The Fund's Board of Trustees has approved the following
non-fundamental investment policy pursuant to an order of the SEC:
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.
SPECIAL INVESTMENT TECHNIQUES
REGULATORY MATTERS. The Fund has undertaken with the Commodity
Futures Trading Commission ("CFTC") staff that its transactions in futures and
in options on futures will be exclusively for hedging purposes and that it will
adhere to all limitations in the manner and extent to which it may effect
transactions in futures and options on such futures currently imposed by the
CFTC as conditions for exemption of a mutual fund or investment advisers thereto
from registration as a commodity pool operator.
OPTIONS ON STOCK INDEXES AND ITS' RISKS. As discussed under "Special
Investment Techniques - Options on Stock Indexes" in the Prospectus, the Fund's
purchase and sale of options on stock indexes will be subject to risks
applicable to options transactions generally. In addition, the distinctive
characteristics of options on indexes create certain risks that are not present
with stock options.
A stock index is a method of reflecting in a single number of the
market value of many different stocks. An index may be designed to be
representative of the market as a whole, of a broad market segment (e.g.,
industrials), or of a particular industry (e.g., computers). A stock index
assigns relative values to the stocks included in the index and the index
fluctuates with changes in the market values of those stocks . Options on
stock indexes are similar to options on stock except that when an index option
is exercised, the exercise is settled by the payment of cash rather than by the
delivery of stock. The writer of an option, when assigned an exercise notice
is obligated to pay the exercising holder an amount of cash if the closing
level of the index upon which the option is based is greater, in the case of a
call, or lesser, in the case of a put, than the exercise price of the option.
This amount of cash is equal to the difference between the closing level of the
underlying index on the exercise date and the exercise price of the option
multiplied by a specified index "multiplier."
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<PAGE>
Index prices may be distorted if trading of certain stocks included in
the index is interrupted. Trading in index options also may be interrupted in
certain circumstances such as if trading were halted in a substantial number of
stocks included in the index or if dissemination of the current level of an
underlying index is interrupted. If this occurred, the Fund would not be able
to close out options which it had purchased and, if restrictions on exercise
were imposed, may be unable to exercise an option it holds, which could result
in losses to the Fund if the underlying index moves adversely before trading
resumes. However, it is the Fund's policy to purchase options only on indexes
which include a sufficient number of stocks so that the likelihood of a trading
halt in the index is minimized.
The purchaser of an index option may also be subject to a timing risk.
If an option is exercised by the Fund before final determination of the closing
index value for that day, the risk exists that the level of the underlying
index may subsequently change. If such a change caused the exercised option to
fall out-of-the-money (that is, the exercising of the option would result in a
loss, not a gain), the Fund would be required to pay the difference between the
closing index value and the exercise price of the option (times the applicable
multiple) to the assigned writer. Although the Fund may be able to minimize
this risk by withholding exercise instructions until just before the daily
cutoff time, it may not be possible to eliminate this risk entirely because the
exercise cutoff times for index options may be earlier than those fixed for
other types of options and may occur before definitive closing index values are
announced. Alternatively, when the index level is close to the exercise price
the Fund may sell rather than exercise the option.
Although the markets for certain index option contracts have developed
rapidly, the markets for other index options are still relatively illiquid.
The ability to establish and close out positions on such options will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop in all index option contracts. The
Fund will not purchase or sell any index option contract unless and until in
the Investment Adviser's opinion the market for such options has developed
sufficiently that such risk in connection with such transactions is not greater
than such risk in connection with options on stocks.
LIMITATION ON TRANSACTIONS IN STOCK INDEX OPTIONS. The Fund will
write put options on indexes only if they are covered by segregating with the
Fund's custodian an amount of cash or short-term investments equal to the
aggregate exercise price of the puts. In addition, the Fund will write call
options on indexes only if, on the date of which any such option is written, it
holds securities qualified to serve as "cover" under applicable rules of the
national securities exchanges with a value at least equal to the value of the
index times the multiplier or maintains in a segregated account an amount of
cash or short-term investments equal to the aggregate exercise price of such
call options. In the case of both put and call options on indexes, the Fund
will satisfy the foregoing conditions while such options are outstanding.
STOCK INDEX FUTURES CHARACTERISTICS. Currently, stock index futures
contracts can be purchased or sold with respect to several different stock
indexes, each based on a different measure of market performance. A
determination as to which of the index contracts would be appropriate for
purchase or sale by the Fund will be based upon, among other things, the
liquidity offered by such contracts and the volatility of the underlying index.
Prior to effecting a transaction in stock index futures or options thereon, the
Investment Adviser will determine the total value of the
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<PAGE>
Fund's stock portfolio which it desires to hedge and, by computer program or
otherwise, determine the stock index whose performance most accurately tracks
that portfolio at such time. Positions in futures on the index so identified
or options on such futures will be established unless the trading market for
futures or options on the index is not believed by the Investment Adviser to be
sufficiently liquid, in which case positions will be established on the index
next most closely tracking the portfolio and which is appropriately liquid.
Positions will be established in an amount which correlates to the market value
of the Fund's stock portfolio which the Investment Adviser wishes to hedge,
taking into account the relative volatility of the Fund's stock portfolio to
the index. As the portion of the Fund's assets invested in stocks is reduced,
a corresponding portion of the hedge will be lifted (i.e., will be closed out).
Unlike when the Fund purchases or sells a security, no price is paid
or received by the Fund upon the purchase or sale of a futures contract.
Instead, the Fund will be required to deposit with its broker an amount of cash
or U.S. treasury bills equal to approximately 5% of the contract amount. This
is called "initial margin." Such initial margin is in the nature of a
performance bond or good faith deposit on the contract which is returned to the
Fund upon termination of the futures contract assuming all contractual
obligations have been satisfied. In addition, because under current futures
industry practice daily variations in gains and losses on open contracts are
required to be reflected in cash in the form of variation margin payments, the
Fund may be required to make additional payments during the term of the
contract to its broker. Such payments would be required where, during the term
of a stock index futures contract purchased by the Fund, the price of the
underlying stock index declined, thereby making the Fund's position less
valuable. In all instances involving the purchase of stock index futures
contracts by the Fund, an amount of cash together with such other securities as
permitted by applicable regulatory authorities to be utilized for such purpose,
at least equal to the market value of the futures contracts, will be deposited
in a segregated account with the Fund's Custodian to collateralize the
position. At any time prior to the expiration of a futures contract, the Fund
may elect to close its position by taking an opposite position which will
operate to terminate the Fund's position in the futures contract.
Where futures are purchased to hedge against a possible increase in
the price of a security before the Fund is able in an orderly fashion to invest
in the security, it is possible that the market may decline instead. If the
Fund, as a result, concluded not to make the planned investment at that time
because of concern as to possible further market decline or for other reasons,
the Fund would realize a loss on the futures contract that is not offset by a
reduction in the price of securities purchased.
In addition to the possibility that there may be an imperfect
correlation or no correlation at all between movements in the stock index
futures and the portion of the portfolio being hedged, the price of stock index
futures may not correlate perfectly with movements in the stock index due to
certain market distortions. All participants in the futures market are subject
to margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which could distort the normal relationship between the
index itself and the value of a future. Moreover, the deposit requirements in
the future market are less onerous than margin requirements in the securities
market and may therefor cause increased participation by speculators in the
futures market. Such increased participation may also cause temporary price
distortions. Due to the possibility of price distortion in the futures market
and because of the imperfect correlation between movements in stock indexes and
movements in the prices of stock index futures, the value of stock index
futures contracts as a hedging device may be reduced.
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In addition, if the Fund has insufficient available cash it may at
times have to sell securities to meet variation margin requirements. Such
sales may have to be effected at a time when it may be disadvantageous to do
so.
RISKS OF TRANSACTIONS IN STOCK INDEX FUTURES. As discussed under
"Special Investment Techniques", there are several risks in connection with the
use of stock index futures by the Fund as a hedging device. One risk arises
because of the imperfect correlation between movements in the price of the
stock index future and movement in the prices of the securities which are the
subject of the hedge. The risk of imperfect correlation increases as the
composition of the Fund's securities portfolio diverges from the securities
included in the applicable stock index. The price of a stock index future may
move more than or less than the price of the securities being hedged. If the
price of the stock index future moves less than the price of the securities
which are the subject of the hedge, the hedge will not be fully effective but,
if the price of the securities being hedged has moved in an unfavorable
direction, the Fund would be in a better position than if it had not hedged at
all. If the price of the securities being hedged has moved in a favorable
direction, this advantage will be partially or totally offset by the losses on
the corresponding futures positions. If the price of the future moves more
than the price of the stock, the Fund will experience either a loss or a gain
on the future which will not be completely offset by movement in the price of
the securities which are the subject of the hedge.
To compensate for the imperfect correlation of movements in the price
of securities being hedged and movements in the price of the stock index
futures, the Fund may buy or sell stock index futures contracts in a greater
dollar amount than the dollar amount of securities being hedged if the
historical volatility of the prices of such securities has been greater than
the historical volatility of the index. Conversely, the Fund may buy or sell
fewer stock index futures contracts if the historical volatility of the prices
of such securities has been less than the historical volatility of the stock
index. It is also possible that, where the Fund has sold futures to hedge its
portfolio against a decline in the market, the market may advance and the value
of securities held in the Fund's portfolio may decline. If this occurred, the
Fund would lose money on the future and also experience a decline in value in
its portfolio securities. However, while this could occur for a very brief
period or to a very small degree, over time the value of a diversified
portfolio will tend to move in the same direction as the market indexes upon
which the futures are based.
Positions in stock index futures may be closed out only on an exchange
or board of trade which provides a secondary market for such futures. Although
the Fund intends to purchase or sell futures only on exchanges or boards of
trade where there appears to be an active secondary market, as with stock
options there is no assurance that a liquid secondary market on an exchange or
board of trade will exist for any particular contract or at any particular
time. In such event, it may not be possible to close a futures position and,
in the event of adverse price movements, the Fund would continue to be required
to make daily cash payments of variation margin. In such circumstances, an
increase in the price of securities which are the subject of the hedge, if any,
may partially or completely offset losses on the futures contract. However, as
described above, there is no guarantee that the price of the securities will,
in fact, correlate with the price movements in the futures contract and thus
provide an offset to losses on a futures contract.
9
<PAGE>
THOSE RESPONSIBLE FOR MANAGEMENT
The overall direction and supervision of the Fund is the
responsibility of the Board of Trustees which has the primary duty of seeing
that the Fund's general investment policies and programs are carried out and
properly administered. The officers of the Fund are responsible for the
day-to-day administration of the Fund. Several of the officers and Trustees of
the Fund are also officers and directors of the Investment Adviser or officers
and directors of the Fund's Distributor.
Set forth below is information with respect to each of the Fund's
officers and Trustees. The officers and Trustees may be contacted at 101
Huntington Avenue, Boston, MA 02199-7603. Their affiliations represent their
principal occupations during the past five years.
EDWARD J. BOUDREAU, JR., Trustee, Chairman and Chief Executive Officer.
Chairman and Chief Executive Officer, the Investment Adviser and The
Berkeley Financial Group ("The Berkeley Group"); Chairman, NM Capital
Management, Inc. ("NM Capital"); John Hancock Advisers International
Limited ("Advisers International"); John Hancock Funds, Inc; John
Hancock Investor Services Corporation ("Investor Services"); and
Sovereign Asset Management Corporation ("SAMCorp"); (hereinafter the
Investment Adviser, the Berkeley Group, NM Capital, Advisers
International, John Hancock Funds, Inc., Investor Services and SAMCorp
are collectively referred to as the "Affiliated Companies"); Chairman,
First Signature Bank & Trust; Director, John Hancock Freedom Securities
Corporation, John Hancock Capital Corporation, New England/Canada
Business Council; Member, Investment Company Institute Board of
Governors; Trustee, Museum of Science; President, the Investment
Adviser (until July 1992); Trustee or Director of other investment
companies managed by the Investment Adviser; and Chairman, John Hancock
Distributors, Inc. (until April, 1994).
JAMES F. CARLIN, Trustee. Chairman and CEO, Carlin Consolidated, Inc.
(insurance); Director, Arbella Mutual Insurance Company (insurance),
Consolidated Group Trust (group health plan), Carlin Insurance Agency,
Inc. and West Insurance Agency, Inc.; Receiver, the City of Chelsea
(until August 1992); and Trustee or Director of other investment
companies managed by the Investment Adviser.
WILLIAM H. CUNNINGHAM, Trustee. Chancellor, University of Texas System and
former President of the University of Texas, Austin, Texas; Regents
Chair in Higher Education Leadership; James L. Bayless Chair for Free
Enterprise; Professor of Marketing and Dean College of Business
Administration/Graduate School of Business (1983-1985); Centennial
Chair in Business Education Leadership, 1983-1985; Director, LaQuinta
Motor Inns, Inc. (hotel management company); Director, Jefferson-Pilot
Corporation (diversified life insurance company); Director,
Freeport-McMoran Inc. (oil and gas company); Director, Barton Creek
Properties, Inc. (1988-1990) (real estate development) and LBJ
Foundation Board (education foundation); and Advisory Director, Texas
Commerce Bank - Austin.
CHARLES L. LADNER, Trustee. Director, Energy North, Inc. (public utility
holding company); Senior Vice President, Finance UGI Corp (public
utility holding company) (until 1992); and Trustee or Director of other
investment companies managed by the Investment Adviser.
10
<PAGE>
LEO E. LINBECK, JR., Trustee. Chairman, President, Chief Executive Officer and
Director, Linbeck Corporation (a holding company engaged in various
phases of the construction industry and warehousing interests);
Director and Chairman, Federal Reserve Bank of Dallas; Chairman of the
Board and Chief Executive Officer, Linbeck Construction Corporation;
Director, Panhandle Eastern Corporation (a diversified energy company);
Director, Daniel Industries, Inc. (manufacturer of gas measuring
products and energy related equipment); Director, GeoQuest
International, Inc. (a geophysical consulting firm); and Director,
Greater Houston Partnership.
PATRICIA P. MCCARTER, Trustee. Director and Secretary, the McCarter Corp.
(machine manufacturer); and Trustee or Director of other investment
companies managed by the Investment Adviser.
STEVEN R. PRUCHANSKY, Trustee. Director and Treasurer, Mast Holdings, Inc.;
Director, First Signature Bank & Trust Company (until August 1991);
General Partner, Mast Realty Trust; President, Maxwell Building Corp.
(until 1991); and Trustee or Director of other investment companies
managed by the Investment Adviser.
NORMAN H. SMITH, Trustee. Lieutenant General, USMC, Deputy Chief of Staff for
Manpower and Reserve Affairs, Headquarters Marine Corps; Commanding
General III Marine Expeditionary Force/3rd Marine Division (retired
1991); and Trustee or Director of other investment companies managed
by the Investment Adviser.
JOHN P. TOOLAN, Trustee. Director, The Smith Barney Muni Bond Funds, The Smith
Barney Tax-Free Money Fund, Inc., Vantage Money Market Funds (mutual
funds), The Inefficient-Market Fund, Inc. (closed-end investment
company) and Smith Barney Trust Company of Florida; Chairman, Smith
Barney Trust Company (retired December, 1991); Director, Smith Barney,
Inc., Mutual Management Company and Smith, Barney Advisers, Inc.
(investment advisers) (retired 1991); and Senior Executive Vice
President, Director and member of the Executive Committee, Smith
Barney, Harris Upham & Co, Incorporated (investment bankers) (until
1991); and Trustee or Director of other investment companies managed
by the Investment Adviser.
*ROBERT G. FREEDMAN, Vice Chairman and Chief Investment Officer. President and
Chief Investment Officer, the Investment Adviser.
*ANNE C. HODSDON, Executive Vice President. President and Chief Operations
Officer, the Investment Adviser.
*JAMES B. LITTLE, Senior Vice President and Chief Financial Officer. Senior
Vice President, the Investment Adviser.
*THOMAS H. DROHAN, Senior Vice President and Secretary. Senior Vice President
and Secretary, the Investment Adviser.
* An "interested person" of the Fund, as such term is defined in the
Investment Company Act of 1940, as amended (the "Investment Company
Act").
11
<PAGE>
*MICHAEL P. DICARLO, Senior Vice President. Senior Vice President, the
Investment Adviser.
*EDGAR LARSEN, Senior Vice President. Senior Vice President, the Investment
Adviser.
*B.J. WILLINGHAM, Senior Vice President. Senior Vice President, the Investment
Adviser. Formerly, Director and Chief Investment Officer of
Transamerica Fund Management Company.
*JAMES J. STOKOWSKI, Vice President and Treasurer. Vice President, the
Investment Adviser.
*SUSAN S. NEWTON, Vice President and Compliance Officer. Vice President and
Assistant Secretary, the Investment Adviser.
*JOHN A. MORIN, Vice President. Vice President, the Investment Adviser.
*THOMAS J. PRESS, Vice President and Assistant Secretary. Vice President and
Assistant Secretary, the Investment Adviser. Formerly, General Counsel
and Secretary, Transamerica Management Company; Secretary and
Treasurer, Transamerica Asset Management Group, Inc.; and Secretary,
Transamerica Funds Distributors, Inc.
As of April 6, 1995, there were 7,007,983 shares of the Fund
outstanding and officers and trustees of the Fund as a group beneficially owned
less than 1% of these outstanding shares. As of such date, Continental Trust
Company, Chicago, IL held of record 866,725 Class B Shares representing 79% of
the Fund's Class B Shares. Such ownership represents separate interests of
more than 25% of the outstanding Class B Shares of the Fund resulting in the
presumption of "control" as defined under the Investment Company Act of 1940
and has the likely result that each such shareholder can materially affect a
positive or negative vote on any matters which require the vote of all
shareholders of the Fund. At such date no other person owned of record or
beneficially as much as 5% of the outstanding shares of the Fund. At such
date, no person owned of record or was known by the Fund to own beneficially as
much as 5% of the outstanding shares of the Fund.
As of December 22, 1994, the Trustees have established an Advisory
Board which acts to facilitate a smooth transition of management over a
two-year period (between Transamerica Fund Management Company ("TFMC"), the
prior investment adviser, and the Investment Adviser). The members of the
Advisory Board are distinct from the Board of Trustees, do not serve the Fund
in any other capacity and are persons who have no power to determine what
securities are purchased or sold and behalf of the Fund. Each member of the
Advisory Board may be contacted at 101 Huntington Avenue, Boston, Massachusetts
02199.
Members of the Advisory Board and their respective principal occupations
during the past five years are as follows:
R. Trent Campbell, President, FMS, Inc. (financial and management services);
former Chairman of the Board, Mosher Steel Company.
* An "interested person" of the Fund, as such term is defined in the
Investment Company Act of 1940, as amended (the "Investment Company
Act").
12
<PAGE>
Mrs. Lloyd Bentsen, Formerly National Democratic Committeewoman from Texas;
co-founder, Houston Parents' League; former board member of various
civic and cultural organizations in Houston, including the Houston
Symphony, Museum of Fine Arts and YWCA. Mrs. Bentsen is presently
active in various civic and cultural activities in the Washington,
D.C. area, including membership on the Area Board for The March of
Dimes and is a National Trustee for the Botanic Gardens of Washington,
D. C.
Thomas R. Powers, Formerly Chairman of the Board, President and Chief Executive
Officer, TFMC; Director, West Central Advisory Board, Texas Commerce
Bank; Trustee, Memorial Hospital System; Chairman of the Board of
Regents of Baylor University; Member, Board of Governors, National
Association of Securities Dealers, Inc.; Formerly, Chairman, Investment
Company Institute; formerly, President, Houston Chapter of Financial
Executive Institute.
Thomas B. McDade, Chairman and Director, TransTexas Gas Company; Director,
Houston Industries and Houston Lighting and Power Company; Director,
TransAmerican Companies (natural gas producer and transportation);
Member, Board of Managers, Harris County Hospital District; Advisory
Director, Commercial State Bank, El Campo; Advisory Director, First
National Bank of Bryan; Advisory Director, Sterling Bancshares; Former
Director and Vice Chairman, Texas Commerce Bancshares; and Vice
Chairman, Texas Commerce Bank.
COMPENSATION OF THE BOARD OF TRUSTEES AND ADVISORY BOARD. The
following table provides information regarding the compensation paid by the
Fund and the other investment companies in the John Hancock Fund Complex to the
Independent Trustees and the Advisory Board members for their services. Mr.
Boudreau, a non-Independent Trustee, and each of the officers of the Funds are
interested persons of the Investment Adviser, are compensated by the
Investment Adviser and received no compensation from the Funds for their
services.
<TABLE>
<CAPTION>
Pension or Total Compensation
Retirement from all Funds in
Aggregate Benefits Accrued John Hancock
Compensation as Part of the Fund Complex to
Trustees from the Fund Fund's Expenses Trustees**
- -------- ------------- --------------- ------------------
<S> <C> <C> <C>
James F. Carlin $ 0 $0 $ 60,450
William H. Cunningham $ 3,500 * $0 $ 0
Charles L. Ladner $ 0 $0 $ 60,450
Leo E. Linbeck, Jr. $ 4,700 * $0 $ 0
Patricia P. McCarter $ 0 $0 $ 60,200
Steven R. Pruchansky $ 0 $0 $ 62,450
Norman H. Smith $ 0 $0 $ 62,450
John P. Toolan $ 0 $0 $ 60,450
</TABLE>
13
<PAGE>
* Compensation made pursuant to different compensation arrangements then
in effect.
** The total compensation paid by the John Hancock Fund Complex to the
Independent Trustees was $366,450 as of the calendar year ended
December 31, 1994. All Trustees/Directors except Messrs. Cunningham
and Linbeck are Trustees/Directors of 39 funds in the John Hancock
Fund Complex. Messrs. Cunningham and Linbeck are Trustees of 21
funds.(The Fund was not part of the John Hancock Fund Complex until
December 22, 1994 and Messrs. Cunningham and Linbeck were not trustees
or directors of any funds in the John Hancock Fund Complex prior to
December 22, 1994.)
<TABLE>
<CAPTION>
Pension or Total Compensation
Retirement from all Funds in
Aggregate Benefits Accrued John Hancock
Compensation as Part of the Fund Complex to
Advisory Board*** from the Fund Fund's Expenses Advisory
Board*** ------------- ---------------- ------------------
- -----------------
<S> <C> <C>
R. Trent Campbell $ 3,176 $ 54,000
Mrs. Lloyd Bentsen $ 3,176 $ 54,000
Thomas R. Powers $ 3,176 $ 54,000
Thomas B. McDade $ 3,176 $ 54,000
TOTAL $12,704 $216,000
</TABLE>
*** Estimated for the Fund's current fiscal year ending December 31, 1995.
Advisory Board members receive compensation from 17 Funds.
INVESTMENT ADVISORY AND OTHER SERVICES
Each of the Trustees and principal officers affiliated with the Fund
who is also an affiliated person of the Investment Adviser is named above,
together with the capacity in which such person is affiliated with the Fund or
the Investment Adviser.
The Investment Adviser, located at 101 Huntington Avenue, Boston,
Massachusetts 02199-7603, was organized in 1968 and has more than $13 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 1,000,000 shareholders.
The Investment Adviser is a wholly-owned subsidiary of The Berkeley Financial
Group, which is in turn a wholly-owned subsidiary of John Hancock Subsidiaries,
Inc., which is in turn a wholly-owned subsidiary of John Hancock Mutual Life
Insurance Company (the "Life Company"), one of the nation's oldest and largest
financial services companies. With total assets under management of over $80
billion, the Life Company is one of the ten largest life insurance companies in
the United States, and carries Standard & Poor's and A.M. Best's highest
ratings. Founded in 1862, the Life Company has been serving clients for over
130 years.
The Fund has entered into an investment management contract with the
14
<PAGE>
Investment Adviser. Under the investment management contract, the Investment
Adviser provides the Fund with (i) a continuous investment program, consistent
with the Fund's stated investment objective and policies, (ii) supervision of
all aspects of the Fund's operations except those that are delegated to a
custodian, transfer agent or other agent and (iii) such executive,
administrative and clerical personnel, officers and equipment as are necessary
for the conduct of its business. See "Organization and Management of the Fund"
and "The Fund's Expenses" in the Prospectus for a description of certain
information concerning the Fund's investment management contract.
No person other than the Investment Adviser and its directors and
employees regularly furnishes advice to the Fund with respect to the
desirability of the Fund investing in, purchasing or selling securities. The
Investment Adviser may from time to time receive statistical or other similar
factual information, and information regarding general economic factors and
trends, from the Life Company and its affiliates.
Under the terms of the investment management contract with the Fund,
the Investment Adviser provides the Fund with office space, equipment and
supplies and other facilities and personnel required for the business of the
Fund. The Investment Adviser pays the compensation of all officers and
employees of the Fund and Trustees of the Fund affiliated with the Investment
Adviser, the office expenses of the Fund, including those of the Fund's
Treasurer and Secretary, and other expenses incurred by the Investment Adviser
in connection with the performance of its duties. All expenses which are not
specifically paid by the Investment Adviser and which are incurred in the
operation of the Fund including, but not limited to, (i) the fees of the
Trustees of the Fund who are not "interested persons," as such term is defined
in the 1940 Act (the "Independent Trustees"), (ii) the fees of the members of
the Fund's Advisory Board (described above) and (iii) the continuous public
offering of the shares of the Fund are borne by the Fund.
As provided by the investment management contract, the Fund pays the
Investment Adviser an investment management fee, which is accrued daily and
paid monthly in arrears, equal on an annual basis to a 0.625% of the Fund's
average daily net asset value. See "Organization and Management of the Fund"
in the Prospectus.
The Investment Adviser may voluntarily and temporarily reduce its
advisory fee or make other arrangements to limit the Fund's expenses to a
specified percentage of average daily net assets. The Investment Adviser
retains the right to re-impose the advisory fee and recover any other payments
to the extent that, at the end of any fiscal year, the Fund's annual expenses
fall below this limit.
In the event normal operating expenses of the Fund, exclusive of
certain expenses prescribed by state law, are in excess of any state limit
where the Fund is registered to sell shares of beneficial interest, the fee
payable to the Investment Adviser will be reduced to the extent required by
law. At this time, the most restrictive limit on expenses imposed by a state
requires that expenses charged to the Fund in any fiscal year
15
<PAGE>
not exceed 2.5% of the first $30,000,000 of the Fund's average daily net asset
value, 2% of the next $70,000,000 and 1.5% of the remaining average daily net
asset value. When calculating the limit above, the Fund may exclude interest,
brokerage commissions and extraordinary expenses.
Pursuant to the investment management contract, the Investment Adviser
is not liable to the Fund or its shareholders for any error of judgment or
mistake of law or for any loss suffered by the Fund in connection with the
matters to which the contract relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Investment
Adviser in the performance of its duties or from reckless disregard of the
obligations and duties under the applicable contract.
The investment management contract initially expires on December 22,
1996 and will continue in effect from year to year thereafter if approved
annually by a vote of a majority of the Trustees of the Fund who are not
interested persons of one of the parties to the contract, cast in person at a
meeting called for the purpose of voting on such approval, and by either a
majority of the Trustees or the holders of a majority of the Fund's outstanding
voting securities. The investment management contract may, on 60 days' written
notice, be terminated at any time without the payment of any penalty by the
Fund by vote of a majority of the outstanding voting securities of the Fund, by
the Trustees or by the Investment Adviser. The investment management contract
terminates automatically in the event of its assignment.
Securities held by the Fund may also be held by other funds or
investment advisory clients for which the Investment Adviser or its affiliates
provide investment advice. Because of different investment objectives or
other factors, a particular security may be bought for one or more funds or
clients when one or more are selling the same security. If opportunities for
purchase or sale of securities by the Investment Adviser or for other funds or
clients for which the Investment 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 Investment Adviser or its affiliates may increase
the demand for securities being purchased or the supply of securities being
sold, there may be an adverse effect on price.
Under the investment management contract, the Fund may use the name
"John Hancock" or any name derived from or similar to it only as long as the
investment management contract or any extension, renewal or amendment thereof
remains in effect. If the Fund's investment management contract is no longer
in effect, the Fund (to the extent that it lawfully can) will cease to use such
name or any other name indicating that it is advised by or otherwise connected
with the Investment Adviser. In addition, the Investment 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.
16
<PAGE>
For the fiscal years ended December 31, 1992, 1993 and 1994 advisory
fees payable by the Fund to TFMC, the Fund's former investment adviser,
amounted to $558,156, $544,746 and $539,809, respectively. For the period from
December 22, 1994 to December 31, 1994, advisory fees payable by the Fund were
paid to the Investment Adviser.
ADMINISTRATIVE SERVICES AGREEMENT. The Fund was a party to an
administrative services agreement with TFMC (the "Services Agreement"),
pursuant to which TFMC performed bookkeeping and accounting services and
functions, including preparing and maintaining various accounting books,
records and other documents and keeping such general ledgers and portfolio
accounts as are reasonably necessary for the operation of the Fund. Other
administrative services included communications in response to shareholder
inquiries and certain printing expenses of various financial reports. In
addition, such staff and office space, facilities and equipment was provided as
necessary to provide administrative services to the Fund. The Services
Agreement was amended in connection with the appointment of the Investment
Adviser as adviser to the Fund to permit services under the Agreement to be
provided to the Fund by the Investment Adviser and its affiliates. The
Services Agreement was terminated during the current fiscal year.
For the fiscal years ended December 31, 1992, 1993 and 1994, the Fund
paid to TFMC (pursuant to the Services Agreement) $86,996, $113,187 and
$115,878, respectively, of which $86,996, $99,121 and $101,838, respectively,
was paid to TFMC and $0, $14,066 and $14,040, respectively, were paid for
certain data processing and pricing information services.
PURCHASE OF 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 only will be issued for full shares. The Board of Trustees reserves
the right to change or waive the minimum investment requirements and to reject
any order to purchase shares (including purchase by exchange) when in the
judgment of the Investment Adviser such rejection is in the Fund's best
interest.
INITIAL SALES CHARGE ON CLASS A SHARES. The sales charges applicable
to purchases of Class A Shares of the Fund are described in the Fund's Class A
and Class B Prospectus. Methods of obtaining reduced sales charges referred to
generally in the Prospectus are described in detail below. In calculating the
sales charge applicable to current purchases of Class A Shares, the investor is
entitled to cumulate current purchases with the greater of the current value
(at offering price) of the Class A Shares of the Fund, or if Investor Services
is notified by the investor's dealer or the investor at the time of the
purchase, the cost of the Class A Shares owned.
17
<PAGE>
COMBINED PURCHASES. In calculating the sales charge applicable to
purchases of Class A Shares made at one time, the purchases will be combined if
made by (a) an individual, his or her spouse and their children under the age
of 21 purchasing securities for his or her own account, (b) a trustee or other
fiduciary purchasing for a single trust, estate or fiduciary account and (c)
certain groups of four or more individuals making use of salary deductions or
similar group methods of payment whose funds are combined for the purchase of
mutual fund shares. Further information about combined purchases, including
certain restrictions on combined group purchases, is available from Investor
Services or a Selling Broker's representative.
WITHOUT SALES CHARGE. As described in the Class A and Class B
Prospectus, Class A Shares of the Fund may be sold without a sales charge to
certain persons described in the Prospectus.
ACCUMULATION PRIVILEGE. Investors (including investors combining
purchases) who are already Class A Shareholders may also obtain the benefit of
the reduced sales charge by taking into account not only the amount then being
invested but also the purchase price or value of the Class A Shares already
held by such person.
COMBINATION PRIVILEGE. Reduced sales charges (according to the
schedule set forth in the Class A and Class B Prospectus) also are available to
an investor based on the aggregate amount of his concurrent and prior
investments in Class A Shares of the Fund and shares of all other John Hancock
funds which carry a sales charge.
LETTER OF INTENTION. The reduced sales loads are also applicable to
investments made over a specified period pursuant to a Letter of Intention
("LOI"), which should be read carefully prior to its execution by an investor.
Thy Fund offers two options regarding the specified period for making
investments under the LOI. All investors have the option of making their
investments over a period of thirteen (13) months. Investors who are using the
Fund as a funding medium for a qualified retirement plan, however, may opt to
make the necessary investments called for by the LOI over a forty-eight (48)
month period. These qualified retirement plans include IRA's, SEP, SARSEP,
TSA, 401(k) plans, TSA plans and 457 plans. Such an investment (including
accumulations and combinations) must aggregate $50,000 or more invested during
the specified period from the date of the LOI or from a date within ninety (90)
days prior thereto, upon written request to Investor 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 with
the specified period (either 13 or 48 months), the sales charge applicable will
not be higher than that which would have been applied (including accumulations
and combinations) had the LOI been for the amount actually invested.
DISTRIBUTION CONTRACT
As discussed in the Prospectus, the Fund's shares are sold on a
continuous basis at the public offering price. The Distributor, a wholly-owned
subsidiary of
18
<PAGE>
the Investment Adviser, has the exclusive right, pursuant to the Distribution
Agreement dated December 22, 1994 (the "Distribution Agreement"), to purchase
shares from the Fund at net asset value for resale to the public or to
broker-dealers at the public offering price. Upon notice to all broker-dealers
("Selling Brokers") with whom it has sales agreements, the Distributor may allow
such Selling Brokers up to the full applicable sales charge during periods
specified in such notice. During these periods, such Selling Brokers may be
deemed to be underwriters as that term is defined in the Securities Act of 1933.
The Distribution Agreement was initially adopted by the affirmative
vote of the Fund's Board of Trustees including the vote a majority of Trustees
who are not parties to the agreement or interested persons of any such party,
cast in person at a meeting called for such purpose. The Distribution
Agreement shall continue in effect until December 22, 1994 and from year to
year if approved by either the vote of the Fund's shareholders or the Board of
Trustees including the vote of a majority of Trustees who are not parties to
the agreement or interested persons of any such party, cast in person at a
meeting called for such purpose. The Distribution Agreement may be terminated
at any time, without penalty, by either party upon sixty (60) days' written
notice or by a vote of a majority of the outstanding voting securities of the
Fund and terminates automatically in the case of an assignment by the
Distributor.
Total underwriting commissions for sales of the Fund's Class A Shares
for the fiscal years ended December 31, 1992, 1993 and 1994, respectively,
were $570,463, $168,662 and $89,913, respectively. Of such amounts $60,449,
$17,932 and $8,567, respectively, were retained by the Fund's former
distributor, Transamerica Fund Distributors, Inc. and the remainder was
reallowed to dealers. For the period from December 22, 1994 to December 31,
1994, underwriting commissions were paid to the Distributor.
DISTRIBUTION PLAN. The Board of Trustees, including the Independent
Trustees of the Fund, approved new distribution plans pursuant to Rule 12b-1
under the 1940 Act for Class A Shares ("Class A Plan") and Class B Shares
("Class B Plan"). Such Plans were approved by a majority of the outstanding
shares of each respective class on December 16, 1994 and became effective on
December 22, 1994.
Under the Class A Plan, the distribution or service fee will not
exceed an annual rate of 0.25% of the average daily net asset value of the
Class A Shares of the Fund (determined in accordance with such Fund's
Prospectus as from time to time in effect). Any expenses under the Class A
Plan not reimbursed within 12 months of being presented to the Fund for
repayment are forfeited and not carried over to future years. Under the Class
B Plan, the distribution or service fee to be paid by the Fund will not exceed
an annual rate of 1.00% of the average daily net assets of the Class B Shares
of the Fund (determined in accordance with such Fund's prospectus as from time
to time in effect); provided that the portion of such fee used to cover Service
Expenses (described below) shall not exceed an annual rate of 0.25% of the
average daily net asset value of
19
<PAGE>
the Class B Shares of the Fund. Under the Class B Plan, the fee covers the
Distribution and Service Expenses (described below) and interest expenses on
unreimbursed distribution expenses. In accordance with generally accepted
accounting principles, the Fund does not treat distribution fees in excess of
0.75% of the Fund's net assets attributable to Class B Shares as a liability of
the Fund and does not reduce the current net assets of Class B by such amount
although the amount may be payable in the future.
Under the Plans, expenditures shall be calculated and accrued daily
and paid monthly or at such other intervals as the Trustees shall determine.
The fee may be spent by the Distributor on Distribution Expenses or Service
Expenses. "Distribution Expenses" include any activities or expenses primarily
intended to result in the sale of shares of the relevant class of the Fund,
including, but not limited to: (i) initial and ongoing sales compensation
payable out of such fee as such compensation is received by the Distributor or
by Selling Brokers, (ii) direct out-of-pocket expenses incurred in connection
with the distribution of shares, including expenses related to printing of
prospectuses and reports; (iii) preparation, printing and distribution of sales
literature and advertising material; (iv) an allocation of overhead and other
branch office expenses of the Distributor related to the distribution of Fund
Shares (v) distribution expenses that were incurred by the Fund's former
distributor and not recovered through payments under the Class A or Class B
former plans or through receipt of contingent deferred sales charges; and (vi)
in the event that any other investment company (the "Acquired Fund") sells all
or substantially all of its assets, merges or otherwise engages in a
combination with the Fund, distribution expenses originally incurred in
connection with the distribution of the Acquired Fund's shares. Service
Expenses under the Plans include payments made to, or on account of, account
executives of selected broker-dealers (including affiliates of the Distributor)
and others who furnish personal and shareholder account maintenance services to
shareholders of the relevant class of the Fund.
During the fiscal year ended December 31, 1994, total payments made by
the Fund under the former Class A Rule 12b-1 plan to the former distributor
amounted to $193,470, and of such amount $23,705, $44,492, $15,078, $99,050 and
$11,145 represented payments for (1) the cost of printing and distribution
prospectuses and financial reports to investors, (2) various sales literature,
(3) advertising expenses, (4) distribution and/or administrative services and
(5) service fees, respectively. During the period from December 22, 1994 to
December 31, 1994, payment under the Class A Plan was made to the Distributor.
During the fiscal year ended December 31, 1994, total payments made by
the Fund under the former Class B Rule 12b-1 plan to the former distributor
amounted to $89,720 of which:
** (1) $22,615 represented service fees which were comprised of
$1,213 for distribution and/or administrative services
provided by the Fund's former distributor and $21,402 for
service fees paid to broker/dealers.
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<PAGE>
(2) $67,105 represented as the total of distribution fees paid to
the former distributor which are comprised of:
a) $51,909 for dealer commission payments;
b) $12,977 for underwriting fees; and
c) $2,219 for interest or carrying charges.
For the fiscal year ended December 31, 1994, the former distributor
received $8,342 in contingent deferred sales charges from redemption of the
Fund's Class B shares. For the period from December 22, 1994 to December 31,
1994, the Distributor received fees under the Class B Plan and contingent
deferred sales charges from redemptions of Class B shares.
Each of the Plans provides that it will continue in effect only so
long as its continuance is approved at least annually by a majority of both the
Trustees and the Independent Trustees. Each of the Plans provides that it may
be terminated (a) at any time by vote of a majority of the Trustees, a majority
of the Independent Trustees, or a majority of the respective Class' outstanding
voting securities or (b) by the Distributor on 60 days' notice in writing to
the Fund. Each of the Plans further provides that it may not be amended to
increase the maximum amount of the fees for the services described therein
without the approval of a majority of the outstanding shares of the class of
the Fund which has voting rights with respect to the Plan. Each of the Plans
provides that no material amendment to the Plan will, in any event, be
effective unless it is approved by a majority vote of the Trustees and the
Independent Trustees of the Fund. The holders of Class A Shares and Class B
Shares have exclusive voting rights with respect to the Plan applicable to
their respective class of shares. The Board of Trustees, including the
Trustees who are not interested in the Fund and have no direct or indirect
interest in the Plans, has determined 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.
Information regarding the services rendered under the Plans and the
Distribution Agreement and the amounts paid therefore by the respective Class
of the Fund are provided to, and reviewed by, the Board of Trustees on a
quarterly basis. In its quarterly review, the Board of Trustees considers the
continued appropriateness of the Plans and the Distribution Agreement and the
level of compensation provided therein.
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
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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.
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
Investment 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.
Any assets or liabilities expressed in terms of foreign currencies are
translated into U.S. dollars by the custodian bank based on London currency
exchange quotations as of 5:00 p.m., London time (12:00 noon, New York time) on
the date of any determination of a Fund's NAV.
A Fund will not price its securities on the following national
holidays: New Year's Day; Presidents' Day; Good Friday; Memorial Day;
Independence Day; Labor Day; Thanksgiving Day; and Christmas Day. On any day
an international market is closed and the New York Stock Exchange is open, any
foreign securities will be valued at the prior day's close with the current
day's exchange rate. Trading of foreign securities may take place on Saturdays
and U.S. business holidays on which a Fund's NAV is not calculated.
Consequently, a Fund's portfolio securities may trade and the NAV of the Fund's
redeemable securities may be significantly affected on days when a shareholder
has no access to the Fund.
DEFERRED SALES CHARGE ON CLASS B SHARES
CONTINGENT DEFERRED SALES CHARGE. Investments in Class B shares are
purchased at net asset value per share without the imposition of a sales charge
so that the Fund will receive the full amount of the purchase payment. Class B
Shares which are redeemed within six years of purchase will be subject to a
contingent deferred sales charge ("CDSC") at the rates set forth in the 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 Shares being
redeemed. Accordingly, no CDSC will be imposed on increases in account value
above the initial purchase prices, including Class B Shares derived from
reinvestment of dividends or capital gains distributions.
The amount of the CDSC, if any, will vary depending on the number of
years
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<PAGE>
from the time of payment for the purchase of Class B Shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchases of shares, all payments
during a month will be aggregated and deemed to have been made on the last day
of the month.
Proceeds from the CDSC are paid to the Distributor and are used in
whole or in part by the Distributor to defray its expenses related to providing
distribution-related services to the Fund in connection with the sale of the
Class B Shares, such as the payment of compensation to select Selling Brokers
for selling Class B Shares. The combination of the CDSC and the distribution
and service fees facilitates the ability of the Fund to sell the Class B Shares
without a sales charge being deducted at the time of the purchase. See the
Class A and Class B Prospectus for additional information regarding the CDSC.
SPECIAL REDEMPTIONS. Although it is the Fund's present policy to make
payment of redemption proceeds in cash, if the Board of Trustees determines
that a material adverse effect would otherwise be experienced by remaining
investors, redemption proceeds may be paid in whole or in part by a
distribution in kind of securities from the Fund in conformity with rules of
the Securities and Exchange Commission, valuing such securities in the same
manner they are valued in determining NAV, and selecting the securities in such
manner as the Board may deem fair and equitable. If such a distribution
occurs, investors receiving securities and selling them before their maturity
could receive less than the redemption value of such securities and, in
addition, could incur certain transaction costs. Such a redemption is not as
liquid as a redemption paid in cash or federal funds. The Fund has elected to
be governed by Rule 18f-1 under the 1940 Act, pursuant to which the Fund is
obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of
the net asset value of the Fund during any 90 day period for any one account.
ADDITIONAL SERVICES AND PROGRAMS
EXCHANGE PRIVILEGE. As described more fully in the Prospectus, the
Fund permits exchanges of shares of any class of the Fund for shares of the
same class in any other John Hancock fund offering that class.
SYSTEMATIC WITHDRAWAL PLAN. As described briefly in the Class A and
Class B Prospectus, the Fund permits the establishment of a Systematic
Withdrawal Plan. Payments under this plan represent proceeds arising from the
redemption of Fund shares. Since the redemption price of Fund shares may be
more or less than the shareholder's cost, depending upon the market value of
the securities owned by the Fund at the time of redemption, the distribution of
cash pursuant to this plan may result in realization of gain or loss for
purposes of Federal, state and local income taxes. The maintenance of a
Systematic Withdrawal Plan concurrently with purchases of additional Class A or
Class B Shares of the Fund could be disadvantageous to a shareholder
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<PAGE>
because of the initial sales charge payable on such purchases of Class A Shares
and the CDSC imposed on redemptions of Class B Shares and because redemptions
are taxable events. Therefore, a shareholder should not purchase Fund shares
at the same time as a Systematic Withdrawal Plan is in effect. 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 Fund Services.
MONTHLY AUTOMATIC ACCUMULATION PROGRAM ("MAAP"). This program is
explained fully in the Fund's Class A and Class B Prospectus and the Account
Privileges Application. The program, as it relates to automatic investment
checks, is subject to the following conditions;
The investments will be drawn on or about the day of the month
indicated.
The privilege of making investments through the Monthly Automatic
Accumulation Program may be revoked by Investor Services without prior notice
if any investment is not honored by the shareholder's bank. The bank shall be
under no obligation to notify the shareholder as to the non-payment of any
check.
The program may be discontinued by the shareholder either by calling
Investor Services or upon written notice to Investor Services which is received
at least five (5) business days prior to the due date of any investment.
REINVESTMENT PRIVILEGE. A shareholder who has redeemed Fund shares
may, within 120 days after the date of redemption, reinvest without payment of
a sales charge any part of the redemption proceeds in shares of the same class
of the Fund or another John Hancock mutual fund, subject to the minimum
investment limit in that fund. The proceeds from the redemption of Class A
Shares may be reinvested at net asset value without paying a sales charge in
Class A Shares of the Fund or in Class A Shares of another John Hancock mutual
fund. If a CDSC was paid upon a redemption, a shareholder may reinvest the
proceeds from that redemption at net asset value in additional shares of the
class from which the redemption was made. The shareholder's account will be
credited with the amount of any CDSC charged upon the prior redemption and the
new shares will continue to be subject to the CDSC. The holding period of the
shares acquired through reinvestment will, for purposes of computing the CDSC
payable upon a subsequent redemption, include the holding period of the
redeemed shares. The Fund may modify or terminate the reinvestment privilege
at any time.
A redemption or exchange of Fund shares is a taxable transaction for
Federal income tax purposes even if the reinvestment privilege is exercised,
and any gain or loss realized by a shareholder on the redemption or other
disposition of Fund shares will be treated for tax purposes as described under
the caption "Dividends, Distributions and Tax Status."
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<PAGE>
TAX STATUS
The Fund has qualified and elected to be treated as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), and intends to continue to so qualify in the future. As
such and by complying with the applicable provisions of the Code regarding the
sources of its income, the timing of its distributions, and the diversification
of its assets, the Fund will not be subject to Federal income tax on taxable
income (including net short-term and long-term capital gains which is
distributed to shareholders at least annually 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 avoid liability for such tax by
satisfying such distribution requirements.
Distributions from the Fund's current or accumulated earnings and
profits ("E&P"), as computed for Federal income tax purposes, will be taxable
as described in the Fund's Prospectus whether taken in shares or in cash.
Distributions, if any, in excess of E&P will constitute a return of capital,
which will first reduce an investor's tax basis in Fund shares and thereafter
(after such basis is reduced to zero) will generally give rise to capital
gains for shareholders who hold their shares as capital assets. Shareholders
electing to receive distributions in the form of additional shares will have a
cost basis for Federal income tax purposes in each share so received equal to
the amount of cash they would have received had they elected to receive the
distributions in cash, divided by the number of shares received.
If the Fund acquires stock in certain non-U.S. corporations that
receive at least 75% of their annual gross income from passive sources (such as
interest, dividends, rents, royalties or capital gain) or hold at least 50% of
their assets in investments producing such passive income ("passive foreign
investment companies"), the Fund could be subject to Federal income tax and
additional interest charges on "excess distributions" received from such
companies or gain from the sale of stock in such companies, even if all income
or gain actually received by the Fund is timely distributed to its
shareholders. The Fund would not be able to pass through to its shareholders
any credit or deduction for such a tax. Certain elections may, if available,
ameliorate these adverse tax consequences, but any such election would require
the Fund to recognize taxable income or gain without the concurrent receipt of
cash. The Fund may limit and/or manage its holdings in passive foreign
investment companies to minimize its tax liability or maximize its return from
these investments.
Foreign exchange gains and losses realized by the Fund in connection
with certain transactions involving foreign currency denominated debt
securities, foreign currency forward contracts, foreign currencies, or payables
or receivables denominated in a foreign
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<PAGE>
currency are subject to Section 988 of the Code, which generally causes such
gains and losses to be treated as ordinary income and losses and may affect the
amount, timing and character of distributions to shareholders. Any such
transactions that are not directly related to the Fund's investment in stock or
securities may increase the amount of gain it is deemed to recognize from the
sale of certain investments held for less than three months, which gain is
limited under the Code to less than 30% of its annual gross income, and could
under future Treasury regulations produce income not among the types of
"qualifying income" from which the Fund must derive at least 90% of its annual
gross income.
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. It is possible, but not generally anticipated, that investors may be
entitled to claim U.S. foreign tax credits with respect to such taxes, subject
to certain provisions and limitations contained in the Code. Specifically, in
the unusual event that 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 actually received)
their pro rata shares of foreign income taxes paid by the Fund even though not
actually received by them, and (ii) treat such respective pro rata portions as
foreign income taxes paid by them.
If the Fund makes this election, shareholders may then deduct such pro
rata portions of foreign income taxes in computing their taxable incomes, or,
alternatively, use them as foreign tax credits, subject to applicable
limitations, against their U.S. Federal income taxes. Shareholders who do not
itemize deductions for Federal income tax purposes will not, however, be able
to deduct their pro rata portion of foreign income taxes paid by the Fund,
although such shareholders will be required to include their share of such
taxes in gross income. Shareholders who claim a foreign tax credit for such
foreign taxes may be required to treat a portion of dividends received from the
Fund as a separate category of income for purposes of computing the limitations
on the foreign tax credit. Tax-exempt shareholders will ordinarily not benefit
from this election. Each year, 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 foreign income taxes paid by the Fund and (ii)
the portion of Fund dividends which represents income from each foreign
country.
The amount of the Fund's net short-term and long-term capital gains,
if any, in any given year will vary depending upon the Adviser's current
investment strategy and whether the Adviser believes it to be in the best
interest of the Fund to dispose of portfolio securities or enter into options
or futures transactions that will generate capital gains. At the time of an
investor's purchase of Fund shares, a portion of the purchase price is often
attributable to realized or unrealized appreciation in the Fund's portfolio or,
to undistributed taxable income of the Fund. Consequently, subsequent
distributions from such appreciation or income may be taxable to such investor
even if the net asset value of the investor's shares is, as a result of the
distributions, reduced below the investor's cost for such shares, and the
distributions in reality represent a return of a
26
<PAGE>
portion of the purchase price.
Upon a redemption of shares of the Fund (including by exercise of the
exchange privilege) a shareholder may realize a taxable gain or loss depending
upon his basis in his shares. Such gain or loss will be treated as capital
gain or loss if the shares are capital assets in the shareholder's hands and
will be long-term or short-term, depending upon the shareholder's tax holding
period for the shares. A sales charge paid in purchasing Class A shares of the
Fund cannot be taken into account for purposes of determining gain or loss on
the redemption or exchange of such shares within 90 days after their purchase
to the extent shares of the Fund or another John Hancock Fund are subsequently
acquired without payment of a sales charge pursuant to the reinvestment or
exchange privilege. Such disregarded load will result in an increase in the
shareholder's tax basis in the shares subsequently acquired. Also, any loss
realized on a redemption or exchange will be disallowed to the extent the
shares disposed of are replaced with other shares of the Fund within a period
of 61 days beginning 30 days before and ending 30 days after the shares are
disposed of, such as pursuant to an election to reinvest dividends in
additional shares. In such a case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss. Any loss realized upon the redemption
of shares with a tax holding period of six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain with respect to such shares.
Although its present intention is to distribute all net short-term and
long-term capital gains, if any, the Fund reserves the right to retain and
reinvest all or any portion of its "net capital gain," which is the excess, as
computed for Federal income tax purposes, of net long-term capital gain over
net short-term capital loss in any year. The Fund will not in any event
distribute net long-term capital 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. Each shareholder would be treated for Federal income tax purposes
as if the Fund had distributed to him on the last day of its taxable year his
pro rata share of such excess, and he had paid his pro rata share of the taxes
paid by the Fund and reinvested the remainder in the Fund. Accordingly, each
shareholder would (a) include his pro rata share of such excess as long-term
capital gain income in his return for his taxable year in which the last day of
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 capital gains, if any,
during the eight years following the year of the loss. To the extent
subsequent capital gains are offset by such losses, they would not result in
Federal income tax liability to the Fund and, as noted above, would not be
distributed as such to shareholders. The Fund has $7,349,795 of capital
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<PAGE>
loss carry forwards, which expire in 2002, available to offset future capital
gains.
For purposes of the dividends received deduction available to
corporation, dividends received by the Fund from U.S. domestic corporations in
respect of the stock of such corporations held by the Fund, for U.S. Federal
income tax purposes, for at least 46 days (91 days in the case of certain
preferred stock) and distributed and designated by the Fund may be treated as
qualifying dividends. Corporate shareholders must meet the minimum holding
period requirement stated above (46 or 91 days) with respect to their shares of
the Fund in order to qualify for the deduction and, if they borrow to acquire
such shares, may be denied a portion of the dividends received deduction. The
entire qualifying dividend, including the otherwise deductible amount, will be
included in determining the excess (if any) of a corporate shareholder's
adjusted current earnings over its alternative minimum taxable income, which
may increase its alternative minimum tax liability. Additionally, any
corporate shareholder should consult its tax adviser regarding the possibility
that its basis in its shares may be reduced, for Federal income tax purposes,
by reason of "extraordinary dividends" received with respect to the shares, for
the purpose of computing its gain or loss on redemption or other disposition of
the shares.
If the Fund invests in certain PIKS, zero coupon securities or certain
increasing rate securities (and, in general, any other securities with original
issue discount or with market discount if the Fund elects to include accrued
market discount in income currently), the Fund must accrue income on such
investments prior to the receipt of the corresponding cash payments. However,
the Fund must distribute, at least annually, all or substantially all of its
net income, including such accrued income, to shareholders to qualify as a
regulated investment company under the Code and avoid Federal income and excise
taxes. Therefore, the Fund may have to dispose of its portfolio securities
under disadvantageous circumstances to generate cash, or may have to leverage
itself by borrowing the cash, to satisfy distribution requirements.
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 futures, options and
foreign currency forward transactions.
Certain options, futures and foreign currency forward transactions
undertaken by the Fund may cause the Fund to recognize gains or losses from
marking to market even though its positions have not been sold or terminated
and affect the character as long- term or short-term (or, in the case of
certain currency forwards, as ordinary income or loss) and timing of some
capital gains and losses realized by the Fund. Also, certain of the Fund's
losses on its transactions involving options or futures contracts and/or
offsetting portfolio positions may be deferred rather than being taken into
account currently in calculating the Fund's income and/or gains. These
transactions may therefore affect the amount, timing and character of the
Fund's distributions to
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<PAGE>
shareholders. Certain of the applicable tax rules may be modified if the Fund
is eligible and chooses to make one or more of certain tax elections that may be
available. The Fund will take into account the special tax rules (including
consideration of available elections) applicable to options, futures or forward
contracts in order to minimize any potential adverse tax consequences.
The foregoing discussion relates solely to U.S. Federal income tax law
as applicable to U.S. persons (i.e., U.S. citizens or residents and U.S.
domestic corporations, partnerships, trusts or estates) subject to tax under
such law. The discussion does not address special tax rules applicable to
certain classes of investors, such as tax-exempt entities, insurance companies,
and financial institutions. Dividends, capital gain distributions, and
ownership of or gains realized on the redemption (including an exchange) of
Fund shares may also be subject to state and local taxes. Shareholders should
consult their own tax advisers as to the Federal, state or local tax
consequences of ownership of shares of, and receipt of distributions from, the
Fund in their particular circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which
their investment in the Fund is effectively connected will be subject to U.S.
Federal income tax treatment that is different from that described above.
These investors may be subject to nonresident alien withholding tax at the rate
of 30% (or a lower rate under an applicable tax treaty) on amounts treated as
ordinary dividends from the Fund and, unless an effective IRS Form W-8 or
authorized substitute is on file, to 31% backup withholding on certain other
payments from the Fund. Non-U.S. investors should consult their tax advisers
regarding such treatment and the application of foreign taxes to an investment
in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise
taxes. Provided that the Fund qualifies as a regulated investment company
under the Code, it will also not be required to pay any Massachusetts income
tax.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and
the allocation of brokerage commissions are made by the Investment Adviser and
officers of the Fund pursuant to recommendations made by an investment
committee of the Investment Adviser, which consists of officers and directors
of the Investment Adviser and affiliates 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
makers reflect a "spread." Investments in debt securities are generally traded
on a net basis through dealers acting for their own account as principals and
not as brokers;
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<PAGE>
no brokerage commissions are payable on such transactions.
The Fund's primary policy is to execute all purchases and sales of
portfolio instruments at the most favorable prices consistent with best
execution, considering all of the costs of the transaction including brokerage
commissions. This policy governs the selection of brokers and dealers and the
market in which a transaction is executed. Consistent with the foregoing
primary policy, the Rules of Fair Practice of the NASD and other policies that
the Trustees may determine, the Investment 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
Investment 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 Investment Adviser. The
receipt of research information is not expected to reduce significantly the
expenses of the Investment Adviser. The research information and statistical
assistance furnished by brokers and dealers may benefit the Life Company or
other advisory clients of the Investment Adviser, and conversely, brokerage
commissions and spreads paid by other advisory clients of the Investment
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 Fund'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 December 31, 1994, 1993 and 1992, the aggregate
brokerage commissions paid by the Fund on portfolio transactions were $784,456,
$ , and $103,742, 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 December
31, 1994, the Fund did not pay commissions as compensation to any brokers for
research services such as industry, economic and company reviews and
evaluations of securities.
The Investment Adviser's indirect parent, the Life Company, is the
indirect sole shareholder of John Hancock Freedom Securities Corporation and
its subsidiaries, three of which, Tucker Anthony Incorporated ("Tucker
Anthony") John Hancock Distributors, Inc. ("John Hancock Distributors") and
Sutro & Company, Inc. ("Sutro"), are broker-dealers ("Affiliated Brokers").
Pursuant to procedures determined by the Trustees and consistent with the above
policy of obtaining best net results, the Fund may execute
30
<PAGE>
portfolio transactions with or through Tucker Anthony, Sutro or John Hancock
Distributors. During the year ended December 31, 1994, the Fund did not execute
any portfolio transactions with then affiliated brokers.
Any of the Affiliated Brokers may act as broker for the Fund on
exchange transactions, subject, however, to the general policy of the Fund set
forth above and the procedures adopted by the Trustees pursuant to the 1940
Act. Commissions paid to an Affiliated Broker must be at least as favorable as
those which the Trustees believe to be contemporaneously charged by other
brokers in connection with comparable transactions involving similar securities
being purchased or sold. A transaction would not be placed with an Affiliated
Broker if the Fund would have to pay a commission rate less favorable than the
Affiliated Broker's contemporaneous charges for comparable transactions for its
other most favored, but unaffiliated, customers, except for accounts for which
the Affiliated Broker acts as a clearing broker for another brokerage firm, and
any customers of the Affiliated Broker not comparable to the Fund as determined
by a majority of the Trustees who are not interested persons (as defined in the
1940 Act) of the Fund, the Investment Adviser or the Affiliated Brokers.
Because the Investment Adviser, which is affiliated with the Affiliated
Brokers, has, as an investment adviser to the Fund, the obligation to provide
investment management services, which includes elements of research and related
investment skills, such research and related skills will not be used by the
Affiliated Brokers as a basis for negotiating commissions at a rate higher than
that determined in accordance with the above criteria. The Fund will not
effect principal transactions with Affiliated Brokers.
TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation, P.O. Box 9116, Boston, MA
02205-9116, a wholly owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent for the Fund. The Fund pays Investor
Services a monthly transfer agent fee of $19 per account for the Class A Shares
and $22.50 per account for the Class B Shares, plus out-of-pocket expenses.
ADDITIONAL INFORMATION
SHARES OF THE FUND. Ownership of the Fund is represented by
transferable shares of beneficial interest. The Declaration of Trust permits
the Trustees to create an unlimited number of series and classes of shares of
the Fund and, with respect to each series and class, to issue an unlimited
number of full or fractional shares and to divide or combine the shares into a
greater or lesser number of shares without thereby changing the proportionate
beneficial interests of the Fund.
Each share of each series or class of the Fund represents an equal
proportionate interest with each other in that series or class, none having
priority or preference over
31
<PAGE>
other shares of the same series or class. The interest of investors in the
various series or classes of the Fund is separate and distinct. All
consideration received for the sales of shares of a particular series or class
of the Fund, all assets in which such consideration is invested and all income,
earnings and profits derived from such investments will be allocated to and
belong to that series or class. As such, each such share is entitled to
dividends and distributions out of the net income belonging to that series or
class as declared by the Board of Trustees. Shares of the Fund have a par value
of $0.01 per share. The assets of each series are segregated on the Fund's
books and are charged with the liabilities of that series and with a share of
the Fund's general liabilities. The Board of Trustees determines those assets
and liabilities deemed to be general assets or liabilities of the Fund, and
these items are allocated among each series in proportion to the relative total
net assets of each series. In the unlikely event that the liabilities allocable
to a series exceed the assets of that series, all or a portion of such
liabilities may have to be borne by the other series.
Pursuant to the Declaration of Trust, the Trustees may authorize the
creation of additional series of shares (the proceeds of which would be
invested in separate, independently managed portfolios) and additional classes
within any series (which would be used to distinguish among the rights of
different categories of shareholders, as might be required by future
regulations or other unforeseen circumstances). As of the date of this
Statement of Additional Information, the Trustees have authorized the issuance
of two classes of shares of the Fund designated as Class A and Class B. Class
A and Class B Shares of the Fund represent an equal proportionate interest in
the aggregate net asset values attributable to that class of the Fund. Holders
of Class A Shares and Class B Shares each have certain exclusive voting rights
on matters relating to the Class A Plan and the Class B Plan, respectively.
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 caused by the fact
that (i) Class B Shares will pay higher distribution and service fees than
Class A Shares and (ii) each of Class A Shares and Class B Shares will bear any
class expenses properly allocable to such class of shares, subject to the
conditions set forth in a private letter ruling that the Fund has received from
the Internal Revenue Service relating to its multiple-class structure.
Similarly, the net asset value per share may vary depending whether Class A
Shares or Class B Shares are purchased.
VOTING RIGHTS. Shareholders are entitled to a full vote for each full
share held. The Trustees themselves have the power to alter the number and the
terms of office of Trustees, and they may at any time lengthen their own terms
or make their terms of unlimited duration (subject to certain removal
procedures) and appoint their own successors, provided that at all times at
least a majority of the Trustees have been elected by shareholders. The voting
rights of shareholders are not cumulative, so that holders of more than 50
percent of the shares voting can, if they choose, elect all Trustees being
selected, while the holders of the remaining shares would be unable to elect
any Trustees. Although the Fund need not hold annual meetings of shareholders,
32
<PAGE>
the trustees may call special meetings of shareholders for action by shareholder
vote as may be required by the 1940 Act or the Declaration of Trust. Also, a
shareholder's meeting must be called if so requested in writing by the holders
of record of 10% or more of the outstanding shares of the Fund. In addition, the
Trustees may be removed by the action of the holders of record of two-thirds or
more of the outstanding shares.
SHAREHOLDER LIABILITY. The Declaration of Trust provides that no
Trustee, officer, employee or agent of the Fund is liable to the Fund or to a
shareholder, nor is any Trustee, officer, employee or agent liable to any third
persons in connection with the affairs of the Fund, except as such liability
may arise from his or its own bad faith, willful misfeasance, gross negligence
or reckless disregard of his duties. It also provides that all third persons
shall look solely to the Fund's property for satisfaction of claims arising in
connection with the affairs of the Fund. With the exceptions stated, the
Declaration of Trust provides that a Trustee, officer, employee or agent is
entitled to be indemnified against all liability in connection with the affairs
of the Fund.
As a Massachusetts business trust, the Fund is not required to issue
share certificates. The Fund shall continue without limitation of time subject
to the provisions in the Declaration of Trust concerning termination by action
of the shareholders.
INDEPENDENT AUDITORS. Ernst & Young LLP, 200 Clarendon Street,
Boston, Massachusetts 02116, has been selected as the independent auditors of
the Fund. The financial statements of the Fund included in the Prospectus and
this Statement of Additional Information have been audited by Ernst & Young
LLP for the periods indicated in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
CUSTODIAN. Investor Bank and Trust ("IBT") 24 Federal Street, Boston,
Massachusetts, serves as custodian of the cash and investment securities of the
Fund. IBT is also responsible for, among other things, receipt and delivery of
the Fund's investment securities in accordance with procedures and conditions
specified in the custody agreement.
REPORTS TO SHAREHOLDERS. Shareholders of the Fund will receive annual
and semi-annual reports showing diversification of investments, securities
owned and other information regarding the Fund's activities. The financial
statements of the Fund are audited at least once a year by the Fund's
independent auditors.
REGISTRATION STATEMENT. This Statement of Additional Information and
the Prospectus do not contain all of the information set forth in the Fund's
Registration Statement filed with the Securities and Exchange Commission. The
complete Registration Statement may be obtained from the Securities and
Exchange Commission upon payment of the fee prescribed by the rules and
regulations of the Commission.
33
<PAGE>
CALCULATION OF PERFORMANCE
As of December 31, 1994 the average annual total returns of the Class
A Shares of the Fund for the one year period, five year period and life of the
Fund were (16.42)%, 3.91% and 13.76%, respectively. As of December 31, 1994,
the average annual returns for the Fund's Class B Shares for the one year
period and since inception were (16.88)% and (3.80)%, respectively.
The Fund's total return is computed by finding the average annual
compounded rate of return over the 1-year, 5-year, and 10-year periods that
would equate the initial amount invested to the ending redeemable value
according to the following formula:
P(1+T)N = ERV
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 and life-of-fund periods.
In the case of Class A Shares or Class B Shares, this calculation
assumes the maximum sales charge is included in the initial investment or the
CDSC is applied at the end of the period. This calculation also assumes that
all dividends and distributions are reinvested at net asset value on the
reinvestment dates during the period. The "distribution rate" is determined by
annualizing the result of dividing the declared dividends of the Fund during
the period stated by the maximum offering price or net asset value at the end
of the period.
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
maximum sales charge on Class A Shares or the CDSC on Class B Shares into
account. Excluding the Fund's sales charge on Class A Shares and the CDSC on
Class B Shares from a total return calculation produces a higher total return
figure.
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 Systems, Ibottson and Associates, CDA
Weisenberger and F.C. Towers. The Russell and Wilshire Indices are also used for
comparison purposes.
Performance rankings and ratings reported periodically in national
financial publications such as MONEY Magazine, FORBES, BUSINESS WEEK, THE WALL
34
<PAGE>
STREET JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRON'S, etc. will
also be utilized.
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.
ADDITIONAL PERFORMANCE INFORMATION. The Fund may use comparative
performance information from certain industry research materials and/or
published in various periodicals. The characteristics of the investments in
such comparisons may be different from those investments of the Fund's
portfolio. In addition, the formula used to calculate the performance
statistics of such investments may not be identical to the formula used by the
Fund to calculate its performance figures. From time to time, advertisements
or information for the Fund may include a discussion of certain attributes or
benefits to be derived by an investment in the Fund. Such advertisements or
information may include symbols, headlines or other material which highlight or
summarize the information discussed in more detail in the communication.
The following publications, indexes, averages and investments which
may be used in advertisements or information concerning the Fund for
dissemination to investors or shareholders, include, but are not limited, to:
a) Dow Jones Composite Average or its component averages -an
unmanaged index composed of 30 blue-chip industrial corporation stocks
(Dow Jones Industrial Average), 15 utilities company stocks (Dow Jones
Utilities Average), and 20 transportation company stocks. Comparisons
of performance assume reinvestment of dividends.
b) Standard & Poor's 500 Stock Index or its component indices -
an unmanaged index composed of 400 industrial stocks, 40 financial
stocks, 40 utilities stocks, and 20 transportation stocks.
Comparisons of performance assume reinvestment of dividends.
c) The New York Stock Exchange composite or component indices -
unmanaged indices of all industrial, utilities, transportation, and
finance stocks listed on the New York Stock Exchange.
d) Wilshire 5000 Equity Index - represents the return on the
market value of all common equity securities of which daily pricing is
available. Comparisons of performance assume reinvestment of
dividends.
35
<PAGE>
e) Lipper - Mutual Fund Performance Analysis, Lipper
- Fixed Income Analysis, and Lipper Mutual Fund indices - measure
total return and average current yield for the mutual fund industry.
Ranks individual mutual fund performance over specified time periods
assuming reinvestment of all distributions, exclusive of any
applicable sales charges.
f) CDA Mutual Fund Report, published by CDA Investment
Technologies, Inc. - analyzes price, current yield, risk, total
return, and average rate of return (average annual compounded growth
rate) over specified time periods for the mutual fund industry.
g) Mutual Fund Source Book and other similar rating publications
by Morningstar, Inc. - independent performance monitor of equity and
fixed income mutual funds. Morningstar ratings (ranging from one star
for lowest and five stars for highest) are based on analysis of a
fund's ratio, i.e., price yield, risk (volatility) and total return,
including all loads and fees, compared with similar funds for three-,
five- and ten-year periods.
h) Financial publications: Barrons, Business Week, Personal
Finance, Financial World, Forbes, Fortune, "The Wall Street Journal",
"New York Times", Weisenberger Investment Companies Service,
Institutional Investor, and Money - rate fund performance over
specified time periods and provide other relative performance or
industry information.
i) Consumer Price Index (or Cost of Living Index), published by
the U. S. Bureau of Labor Statistics - a statistical measure of
change, over time, in the price of goods and services in major
expenditure groups.
j) Stocks, Bonds, Bills, and Inflation, published by Ibbotson
Associates - historical measure of yield, price, and total return for
common and small company stock, long-term government bonds, Treasure
bills, and inflation.
k) Savings and Loan Historical Interest Rates - as published in
the U. S. Savings & Loan League Fact Book.
l) Salomon Brothers Broad Bond Index or its component indices -
The Broad Index measures yield, price and total return for Treasury,
Agency, Corporate, and Mortgage bonds.
m) Salomon Brothers Composite High Yield Index or its component
indices - The High Yield Index measures yield, price and total return
for Long-Term High-Yield Index, Intermediate-Term High-Yield index and
Long-Term Utility High-Yield Index.
n) Shearson Lehman Brothers Aggregate Bond index or its component
indices (including Municipal Bond Index) - The Aggregate Bond Index
measures yield, price and total return for Treasury, Agency,
Corporate, Mortgage, and Yankee bonds.
36
<PAGE>
o) Standard & Poor's Bond Indices - measure yield and price of
Corporate, Municipal, and government bonds.
p) Other taxable investments, including certificates of deposit
(CDs), money market deposit accounts (MMDAs), checking accounts,
savings accounts, money market mutual funds, and repurchase
agreements.
q) Historical data supplied by the research departments of
Shearson Lehman Hutton, First Boston Corporation, Morgan Stanley,
Salomon Brothers, Merrill Lynch, and Donaldson Lufkin and Jenrette.
r) Donoghues's Money Fund Report - industry averages for 7-day
annualized and compounded yields of taxable, tax-free and government
money funds.
s) Russell 2000 (small capitalization stock index), Bond Buyer 25
Revenue Bond Index and other indices as may from time to time become
available.
t) The Value Line Mutual Fund Survey, published by Value Line,
assigns rankings of 1 (best) to 5 (worst) in terms of risk adjusted
performance covering more than 2,000 equity and fixed income mutual
funds.
From time to time, in reports and promotional literature, the Fund's
performance will be compared to other mutual funds and investment vehicles such
as F.C. Towers.
In addition, advertisements and sales materials may from time to time,
contain hypothetical performance examples for purposes of illustrating
reinvestment (or "compounding") of dividends at fixed rates of return or tax
advantages to be derived from deferring payment of federal (and state) income
taxes (at maximum rates) as compared to taxable investments assuming fixed
rates of return. Illustrations may also include (1) hypothetical investments
in various retirement plans, such as IRAs, made by investors of various ages or
(2) comparisons to retirement plans funded by annuity or bank products.
In assessing such comparisons, an investor should consider the
following factors:
a) It is generally either not possible or not practicable to
invest in an average or index of certain investments.
b) Certificates of deposit issued by banks and other depository
institutions represent an alternative income producing product.
Certificates of deposit may offer fixed or variable interest rates and
principal is guaranteed and may be insured. Withdrawal of deposits
prior to maturity will normally be subject to a penalty. Rates
offered by banks and other depository institutions are subject to
change at any time specified by the issuing institution.
37
<PAGE>
STATEMENT OF NET ASSETS
December 31, 1994
<TABLE>
<CAPTION>
COMPANY SHARES VALUE
- ------- -------- ---------
<S> <C> <C>
COMMON STOCKS-92.68%
- -------------------
COMPUTERS AND OFFICE
EQUIPMENT-22.07%
Corel Corp.*................................. 170,000 $ 2,348,125
EMC Corp.*................................... 140,000 3,027,500
LEGENT Co.*.................................. 50,000 1,437,500
Paychex, Inc. ............................... 70,000 2,835,000
Silicon Graphics, Inc.*...................... 110,000 3,396,250
Sterling Software, Inc.*..................... 80,000 2,940,000
Sun Microsystems Inc.*....................... 40,000 1,420,000
SyBase Inc.*................................. 25,000 1,300,000
VMARK Software Inc.*......................... 25,000 443,750
-----------
19,148,125
CONSUMER CYCLICALS-3.97%
Men's Wearhouse Inc.*........................ 70,000 1,575,000
Rite Aid Corp................................ 80,000 1,870,000
-----------
3,445,000
CONSUMER GOODS &
SERVICES-9.20%
Landry's Seafood
Restaurants Inc.*.......................... 40,000 1,135,000
Marriott International Inc................... 120,000 3,375,000
Outback Steakhouse Inc.*..................... 60,000 1,410,000
Sysco Corp................................... 80,000 2,060,000
-----------
7,980,000
ENERGY-4.45%
Enron Oil & Gas Co........................... 60,000 1,125,000
Noble Drilling Corp.*........................ 75,000 440,625
Phillips Petroleum Co........................ 70,000 2,292,500
-----------
3,858,125
HEALTH CARE-19.07%
Columbia/HCA
Healthcare Corp.............................. 75,000 2,737,500
Envoy Corp.*................................. 60,000 1,230,000
Humana Inc.*................................. 90,000 2,036,250
Manor Care, Inc.............................. 120,000 3,285,000
Merck & Co., Inc............................. 75,000 2,859,375
Schering-Plough Corp......................... 35,000 2,590,000
United Healthcare Corp....................... 40,000 1,805,000
-----------
16,543,125
INDUSTRIAL-10.60%
Allwaste Inc.*............................... 200,000 1,125,000
Cognex Corp.*................................ 40,000 1,030,000
Eastman Chemical Co.......................... 50,000 2,525,000
Federal Paper Board Co., Inc................. 95,000 2,755,000
Union Carbide Corp........................... 60,000 1,762,500
-----------
9,197,500
MEDIA & LEISURE-4.03%
Brassie Golf Corp.*.......................... 315,000 1,023,750
Harcourt General Inc......................... 70,000 2,467,500
-----------
3,491,250
TECHNOLOGY- RELATED - 14.23%
E-Systems Inc. .............................. 20,000 832,500
Lithium Technology Corp.*.................... 2,611,890 365,664
Millipore Corp. ............................. 40,000 1,935,000
Molex, Inc. ................................. 75,000 2,587,500
Motorola, Inc. .............................. 50,000 2,893,750
Tektronix, Inc. ............................. 50,000 1,712,500
Thomas & Betts Corp. ........................ 30,000 2,013,750
-----------
12,340,664
TELECOMMUNICATIONS - 5.06%
Ericsson (L.M.) Telephone, Co. Class B....... 50,000 2,756,250
Tele-Communications, Inc. Class A*.......... 75,000 1,631,250
-----------
4,387,500
-----------
TOTAL COMMON STOCKS
(Cost $77,128,322)........................... 80,391,289
</TABLE>
7
<PAGE>
STATEMENT OF NET ASSETS
Continued
<TABLE>
<CAPTION>
FACE
ISSUER AMOUNT VALUE
- ------ ---------- -----------
<S> <C> <C>
SHORT-TERM
OBLIGATIONS--11.92%
COMMERCIAL PAPER--8.64%
CONSUMER CYCLICALS--2.30%
Warner Lambert Co.
5.900% due 01/03/95........................ $2,000,000 1,999,344
CONSUMER GOODS &
SERVICES--4.61%
McDonald's Corp.
5.800% due 01/05/95........................ 4,000,000 3,997,422
TELECOMMUNICATIONS--1.73%
American Telephone &
Telegraph Co.
5.850% due 01/09/95...................... 1,500,000 1,498,050
-----------
TOTAL COMMERCIAL PAPER
(Cost $7,494,816)............................ 7,494,816
REPURCHASE
AGREEMENT--3.28%
Lehman Brothers 5.500% due
01/03/95 (dated 12/30/94).
Collateralized by
$2,910,755 value, U.S.
Treasury Bonds 8.125%
due 08/15/21. (Repurchase
proceeds $2,850,741)
(Cost $2,849,871)............................ 2,849,000 2,849,871
-----------
TOTAL SHORT-TERM
OBLIGATIONS
(Cost $10,344,687)........................... 10,344,687
-----------
TOTAL INVESTMENTS--104.60%
(Cost $87,473,009)........................... 90,735,976
CASH AND OTHER ASSETS,
LESS LIABILITIES--(4.60)%.................... (3,994,365)
-----------
NET ASSETS, at value,
equivalent to $10.93 per
share for 6,411,229 Class A
Shares ($.01 par value)
outstanding and $10.80 per
share for 1,542,392 Class B
Shares ($.01 par value)
outstanding-- 100.00%...................... $86,741,611
===========
*Non-income producing.
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
STATEMENT OF OPERATIONS / STATEMENTS OF CHANGES IN NET ASSETS
STATEMENT OF OPERATIONS
Year Ended December 31, 1994
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME
Dividends ...................... $ 1,062,137
Interest ....................... 186,714
-----------
1,248,851
EXPENSES
Management fees ................ $539,809
Transfer agent fees ............ 323,567
Distribution expenses
(see Note D) ................. 283,190
Administrative service fees .... 115,878
Custodian fees ................. 49,605
Audit and legal fees ........... 38,998
Shareholder reports ............ 28,222
Registration fees .............. 24,313
Trustees' fees and expenses .... 23,216
Miscellaneous .................. 12,386 1,439,184
-------- -----------
NET INVESTMENT LOSS .......... (190,333)
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain on
investments .................. 2,453,497
Net change in unrealized
appreciation of investments .. (12,203,891)
------------
NET REALIZED AND UNREALIZED
LOSS ON INVESTMENTS .......... (9,750,394)
------------
DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS .... $ (9,940,727)
============
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1993
------------ ------------
<S> <C> <C>
OPERATIONS
Net investment loss ........... $ (190,333) $ (804,875)
Net realized gain on
investments ................. 2,453,497 919,090
Net change in unrealized
appreciation of
investments ................. (12,203,891) 4,715,305
------------ ------------
Increase (decrease) in net
assets resulting from
operations .................. (9,940,727) 4,829,520
DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net realized gain on
investments-
Class A ...................... (1,798,987) -
Class B ...................... (429,429) -
------------ ------------
Total distributions to
shareholders ................ (2,228,416) -
SHARE TRANSACTIONS
Increase (decrease) in
shares outstanding .......... 12,917,743 (13,697,388)
------------ ------------
Increase (decrease) in
net assets .................. 748,600 (8,867,868)
NET ASSETS
Beginning of year ............. 85,993,011 94,860,879
------------ ------------
End of year ................... $ 86,741,611 $ 85,993,011
============ ============
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Class A Shares Class B Shares
------------------------------------------- ------------------------------
Year Period From
Year Ended December 31 Ended June 30, 1993
------------------------------------------- December 31, to December 31,
1994(1) 1993 1992 1991 1990(2) 1994(1) 1993(3)
------- ------- ------- ------- ------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per share income and capital changes
for a share outstanding during
each period:(4)
Net asset value, beginning of period...... $ 12.66 $ 11.90 $ 11.47 $ 9.82 $ 10.65 $ 12.59 $11.28
INCOME FROM INVESTMENT OPERATIONS
Net investment loss....................... (0.02) (0.11) (0.14) (0.13) (0.09) (0.09) (0.07)
Net realized and unrealized gain (loss)
on investments.......................... (1.42) 0.87 0.76 3.73 (0.60) (1.41) 1.38
------- ------- ------- ------- ------- ------- ------
Total from Investment Operations........ (1.44) 0.76 0.62 3.60 (0.69) (1.50) 1.31
LESS DISTRIBUTIONS
Dividends from net investment income...... -- -- -- -- (0.01) -- --
Distributions from realized gains......... (0.29) -- (0.19) (1.95) (0.13) (0.29) --
------- ------- ------- ------- ------- ------- ------
Total Distributions..................... (0.29) -- (0.19) (1.95) (0.14) (0.29) --
------- ------- ------- ------- ------- ------- ------
Net asset value, end of period............ $ 10.93 $ 12.66 $ 11.90 $ 11.47 $ 9.82 $ 10.80 $12.59
======= ======= ======= ======= ======= ======= ======
TOTAL RETURN(5)........................... (11.34)% 6.39% 5.48% 38.00% (6.37)% (11.88)% 11.61%
======= ======= ======= ======= ======= ======= ======
RATIOS AND SUPPLEMENTAL DATA
Ratio of expenses to average net assets... 1.59% 1.46% 1.41% 1.68% 1.54% 2.34% 1.06%
Ratio of net investment loss to average
net assets.............................. (0.14)% (0.92)% (1.20)% (1.04)% (0.82)% (0.89)% (0.54)%
Portfolio turnover........................ 290% 159% 70% 139% 152% 290% 159%
Net Assets, end of period (in thousands).. $70,090 $85,553 $94,861 $89,008 $56,794 $16,652 $ 440
======= ======= ======= ======= ======= ======= ======
</TABLE>
(1) On December 22, 1994, John Hancock Advisers, Inc. became the Investment
Adviser. Prior to this date, Transamerica Fund Management Company was the
Investment Adviser.
(2) Per share information has been adjusted retroactively for the 2 for 1
stock split to shareholders of record on September 10, 1990.
(3) Financial highlights, including total return, have not been annualized.
Portfolio turnover is for the year ended December 31, 1993.
(4) Per share information has been calculated using the average number of
shares outstanding.
(5) Total return does not include the effect of the initial sales charge for
Class A Shares nor the contingent deferred sales charge for Class B Shares.
See Notes to Financial Statements.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1994
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
John Hancock Capital Growth Fund (the ``Fund''), formerly Transamerica
Capital Growth Fund, is a diversified, open-end management investment company
registered under the Investment Company Act of 1940, as amended. On December
16, 1994, the shareholders of each of the mutual funds managed by Transamerica
Fund Management Company (TFMC) voted to approve new Investment Advisory
contracts with John Hancock Advisers, Inc. Each such approval was subject to
the acquisition of TFMC by The Berkeley Financial Group (known beginning
January 1, 1995 as John Hancock Funds), the parent company of John Hancock
Advisers, Inc. The acquisition became effective on December 22, 1994. The
Fund's name change was also effective on this date.
The Fund offers two classes of shares to the public. Class A Shares are
subject to an initial sales charge of up to 5.75% and a 12b-1 distribution
plan. Class B Shares are subject to a contingent deferred sales charge and a
separate 12b-1 distribution plan. The following is a summary of significant
accounting policies consistently followed by the Fund.
(1) Securities traded on stock exchanges or in the over-the-counter
market are valued at the last sale price on the primary exchange or market on
which such securities are traded, as of the close of business on the day the
securities are being valued or, lacking any sales, at the mean between the most
recent closing bid and asked prices. Securities for which market quotations are
not readily available are valued at a fair value as determined in good faith by
the Fund's Board of Trustees. Short-term investments are valued at amortized
cost (original cost plus amortized discount or accrued interest).
(2) Security transactions are accounted for on the trade date. Dividend
income is recorded on the ex-dividend date for both financial reporting and
federal income tax purposes. Interest income on investments is accrued daily.
Realized gains and losses from security transactions are determined on the
basis of identified cost for both financial reporting and federal income tax
purposes.
(3) No provision for federal income taxes has been made since it is the
Fund's intention to distribute all of its taxable income and profits to its
shareholders and to comply with the requirements applicable to regulated
investment companies and the minimum distribution requirements of the Internal
Revenue Code.
(4) The Fund reports custodian fees net of credits and charges
resulting from cash positions in the custodial accounts greater than or less
than the amounts required to settle portfolio transactions. For the year ended
December 31, 1994, these amounts were $4,810 and $14,037, respectively.
(5) Dividends and other distributions are recorded by the Fund on the
ex-dividend date and may be reinvested at net asset value. Income distributions
and capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
Distributions payable to shareholders at December 31, 1994 were $232,814.
(6) On a daily basis, income, unrealized and realized gains and losses,
and expenses which are not class specific are allocated to each class based on
their respective relative net assets. Class specific expenses, such as
distribution expenses, are applied to the class to which they are attributed.
NOTE B - MANAGEMENT FEE AND OTHER
TRANSACTIONS WITH AFFILIATES
From January 1, 1994 through December 21, 1994, TFMC acted as the Investment
Adviser to the Fund. On December 22, 1994, John Hancock Advisers, Inc., a
wholly-owned subsidiary of John Hancock Funds, became the Investment Adviser
following the approval of the Fund's shareholders. Throughout these financial
statement notes, TFMC and John Hancock Advisers, Inc. are referred to
collectively as the ``Investment Adviser'', as each acted in this capacity
during the time periods noted above. TFMC was, prior to December 22, 1994, a
subsidiary of Transamerica Corporation.
The Fund's management fee is payable monthly and is calculated based on
the monthly average daily net assets of the Fund at an annual rate of 0.625%.
At December 31, 1994, the management fee payable to the Investment Adviser was
$43,133.
The Investment Adviser also provided administrative services to the
Fund pursuant to an administrative service agreement. During the year ended
December 31, 1994, the Fund paid or accrued $101,838 to the Investment Adviser
for these services, of which $17,669 was payable at December 31, 1994.
During the year ended December 31, 1994, Transamerica Fund
Distributors, Inc., an affiliate of TFMC and principal underwriter of the Fund
through December 22,
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Continued
NOTE B (Continued)
1994 and John Hancock Funds, Inc., an affiliate of John Hancock Advisers,
Inc. and principal underwriter since December 22, 1994, retained $8,567 as
their portion of the commissions charged on sales of Class A Shares of the
Fund. Throughout these financial statement notes, Transamerica Fund
Distributors, Inc. and John Hancock Funds, Inc. are referred to collectively as
the "Distributor", as each acted in this capacity during the time periods noted
above. At December 31, 1994, receivables from and payables to the Distributor
for Fund share transactions were $22,505 and $37,968, respectively.
The Fund paid no compensation directly to any officer. Certain officers
of the Fund are affiliated with the Investment Adviser.
During the year ended December 31, 1994, the Fund paid legal fees of
$12,034 to Baker & Botts. A partner with Baker & Botts was an officer of the
Fund until December 22, 1994.
NOTE C - COST, PURCHASES AND SALES OF
INVESTMENT SECURITIES
During the year ended December 31, 1994, purchases and sales of securities,
other than short-term obligations, aggregated $248,472,504 and $243,300,663,
respectively. At December 31, 1994, receivables from and payables to brokers
for securities sold and purchased were $1,859,500 and $5,583,708,
respectively.
The identified cost of total investments owned is the same for both
financial reporting and federal income tax purposes. At December 31, 1994, the
gross unrealized appreciation and gross unrealized depreciation of investments
for federal income tax purposes were $5,197,025 and $1,934,058, respectively.
NOTE D - PLAN OF DISTRIBUTION
Pursuant to Rule 12b-1 of the Investment Company Act of 1940, the Fund is
authorized under separate distribution plans to finance activities
related to the distribution of its Class A and Class B Shares (the ``Class A
Plan'' and the ``Class B Plan,'' respectively). The distribution plans,
together with the initial sales charge on Class A Shares and the contingent
deferred sales charge on Class B Shares, comply with the regulations covering
maximum sales charges assessed by mutual funds distributed through securities
dealers that are NASD members.
The Class A Plan and the Class B Plan permit each class to make
payments to the Distributor up to 0.25% annually of average daily net assets
for certain distribution costs such as service fees paid to dealers, production
and distribution of prospectuses to prospective investors, services provided to
new and existing shareholders and other distribution related activities. During
the year ended December 31, 1994, Class A and Class B made payments to the
Distributor of $193,470 or 0.25% and $22,615 or 0.25%, respectively, related to
these activities.
The Class B Plan also permits Class B to reimburse the Distributor up
to 0.75% annually of average daily net assets for costs related to compensation
paid to securities dealers, in place of an initial sales charge to investors,
on the sale of Class B Shares. These costs are based upon a commission payment
charge of 5% of the value of Class B Shares sold (excluding shares acquired
through reinvestment), reduced by the amount of contingent deferred sales
charges (CDSC) that have been received by the Distributor on redemptions of
Class B Shares. These costs also include a charge of interest (carrying charge)
at an annual rate of 1% over the prevailing prime rate to the extent cumulative
commission payment charges, plus any previous carrying charges, less CDSC
received by the Distributor, have not been paid in full by the Fund. For the
year ended December 31, 1994, Class B reimbursed the Distributor $67,105 or
0.75% for such costs. For the year ended December 31, 1994, the Distributor
received $8,342 in CDSC.
At December 31, 1994, Class A had $74,119 and Class B had $17,603
payable to the Distributor pursuant to the above distribution plans.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Continued
NOTE E - SHARE AND RELATED TRANSACTIONS
A summary of share transactions follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1994 1993(1)
----------------------- -----------------------
Shares Dollars Shares Dollars
--------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold - Class A........................................... 3,163,337 $ 37,415,876 2,167,638 $ 25,193,278
Shares sold - Class B........................................... 2,312,014 27,133,045 36,251 449,933
Shares issued in reinvestment of distributions - Class A........ 150,788 1,640,574 -- --
Shares issued in reinvestment of distributions - Class B........ 33,057 355,028 -- --
Shares redeemed - Class A....................................... (3,660,949) (43,573,191) (3,377,746) (39,325,285)
Shares redeemed - Class B....................................... (837,605) (10,053,589) (1,325) (15,314)
--------- ------------ ---------- ------------
Net increase (decrease) in shares outstanding................... 1,160,642 $ 12,917,743 (1,175,182) $(13,697,388)
========= ============ ========== ============
</TABLE>
___________
(1) Class B Share transactions are for the period June 30, 1993 to
December 31, 1993.
The components of net assets at December 31, 1994, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Capital paid-in (unlimited number of shares authorized)................... $83,428,097
Accumulated net realized gain on investments.............................. 50,547
Net unrealized appreciation of investments................................ 3,262,967
-----------
Net Assets................................................................ $86,741,611
===========
</TABLE>
13
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Trustees
John Hancock Capital Growth Fund
We have audited the accompanying statement of net assets of John Hancock
Capital Growth Fund, formerly Transamerica Capital Growth Fund, as of
December 31, 1994, and the related statement of operations for the year then
ended, the statements 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
December 31, 1994, by correspondence with the custodian and brokers. 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 John Hancock Capital Growth Fund at December 31, 1994, 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 indicated periods, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Houston, Texas
February 3, 1995
14
<PAGE>
EXHIBIT B
JOHN HANCOCK GROWTH FUND
Class A and Class B Shares
Statement of Additional Information
May 1, 1995
This Statement of Additional Information provides information about John
Hancock Growth Fund (the "Fund") in addition to the information that is
contained in the Fund's Class A and Class B Shares Prospectus, dated May 1,
1995 (the "Prospectus").
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 Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
1-800-225-5291
TABLE OF CONTENTS
Statement of
Additional
Information Page
Organization of the Fund 2
Investment Objective and Policies 2
Investment Restrictions 4
Those Responsible for Management 7
Investment Advisory and
Other Services 13
Distribution Contract 15
Net Asset Value 17
Initial Sales Charge On Class A
Shares 18
Deferred Sales Charge On Class B
Shares 19
Special Redemptions 20
Additional Services and Programs 20
Description of the Fund's Shares 21
Tax Status 23
Calculation of Performance 25
Brokerage Allocation 27
Transfer Agent Services 28
Custody of Portfolio 29
Independent Auditors 29
Appendix 30
Financial Statements 32
<PAGE>
ORGANIZATION OF THE FUND
John Hancock Growth Fund (the "Fund") is organized as a separate, diversified
series of John Hancock Capital Series (the "Trust"), an open-end management
investment company organized as a Massachusetts business trust under the laws
of The Commonwealth of Massachusetts. The Trust was organized in 1984 by
John Hancock Advisers, Inc. (the "Adviser") as the successor to John Hancock
Growth Fund, Inc., a Delaware corporation organized in 1968 by the John
Hancock Mutual Life Insurance Company (the "Life Insurance Company"), a
Massachusetts life insurance company chartered in 1862 with national
headquarters at John Hancock Place, Boston, Massachusetts. The Adviser is an
indirect wholly-owned subsidiary of the Life Insurance Company. Prior to
October 1, 1993, the Trust was known as "John Hancock Growth Fund."
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to achieve long-term appreciation of
capital. The types of securities the Fund invests in are more fully
described in the Prospectuses.
Purchases and sales of securities will be made whenever necessary in
management's view to achieve the objectives of the Fund. Management believes
that unsettled market and economic conditions during certain periods require
greater portfolio turnover in pursuing the Fund's objective than would
otherwise be the case.
Repurchase Agreements. A repurchase agreement is a contract under which the
Fund would acquire a security for a relatively short period (usually not more
than seven days) subject to the obligation of the seller to repurchase and
the Fund to resell such security at a fixed time and price (representing the
Fund's cost plus interest). The Fund will enter into repurchase agreements
only with member banks of the Federal Reserve System and with "primary
dealers" in U.S. Government securities. The Adviser will continuously
monitor the creditworthiness of the parties with whom the Fund enters into
repurchase agreements.
The Fund has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral
must be marked to market daily to ensure that each repurchase agreement is
fully collateralized at all times. In the event of bankruptcy or other
default by a seller of a repurchase agreement, the Fund could experience
delays in liquidating the underlying securities and could experience losses,
including the possible decline in the value of the underlying securities
during the period while the Fund seeks to enforce its rights thereto,
possible subnormal levels of income and lack of access to income during this
period, and the expense of enforcing its rights.
<PAGE>
Restricted Securities. The Fund may invest in restricted securities,
including those eligible for resale to certain institutional investors
pursuant to Rule 144A under the Securities Act of 1933 and foreign securities
acquired in accordance with Regulation S under the Securities Act of 1933.
The Fund will not invest more than 15% of its net assets in illiquid
investments, which includes repurchase agreements maturing in more than seven
days, OTC options, securities that are not readily marketable and restricted
securities. However, if the Board of Trustees determines, based upon a
continuing review of the trading markets for specific Rule 144A securities,
that they are liquid then such securities may be purchased without regard to
the 15% limit. The Board of Trustees may adopt guidelines and delegate to
the Adviser the daily function of determining and monitoring the liquidity of
restricted securities. The Board, however, will retain sufficient oversight
and be ultimately responsible for the determinations. The Board 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 to the extent that
qualified institutional buyers become for a time uninterested in purchasing
these restricted securities.
Lower Rated Bonds. The Fund may invest in debt securities rated as low as C
by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings
Group ("S&P") and unrated securities deemed of equivalent quality by the
Adviser. These securities are speculative to a high degree and often have
very poor prospects of attaining real investment standing. Lower rated
securities are generally referred to as junk bonds. No more than 5% of the
Fund's net assets, however, will be invested in securities rated lower than
BBB by S&P or Baa by Moody's. In addition, no more than 5% of the Fund's net
assets may be invested in securities rated BBB or Baa and unrated securities
deemed of equivalent quality. See the Appendix attached to this Statement of
Additional Information which describes the characteristics of the securities
in the various ratings categories. The Fund may invest in comparable quality
unrated securities which, in the opinion of the Adviser, offer comparable
yields and risks to those securities which are rated.
Debt obligations rated in the lower ratings categories, or which are unrated,
involve greater volatility of price and risk of loss of principal and
income. In addition, lower ratings reflect a greater possibility of an
adverse change in financial condition affecting the ability of the issuer to
make payments of interest and principal. The high yield fixed income market
is relatively new and its growth occurred during a period of economic
expansion. The market has not yet been fully tested by an economic recession.
The market price and liquidity of lower rated fixed income securities
generally respond to short term corporate and market developments to a
greater extent than do the price and liquidity of higher rated securities
because such developments are perceived to have a more direct relationship to
the ability of an issuer of such lower rated securities to meet its ongoing
debt obligations. The market prices of zero coupon bonds are affected to a
greater extent by interest rate changes, and thereby tend to be more volatile
than securities which pay interest periodically. Increasing rate note
securities are typically refinanced by the issuers within a short period of
time.
<PAGE>
Reduced volume and liquidity in the high yield bond market or the reduced
availability of market quotations will make it more difficult to dispose of
the bonds and to value accurately the Fund's assets. The reduced
availability of reliable, objective data may increase the Fund's reliance on
management's judgment in valuing high yield bonds. In addition, the Fund's
investments in high yield securities may be susceptible to adverse publicity
and investor perceptions, whether or not justified by fundamental factors.
The Fund's investments, and consequently its net asset value, will be subject
to the market fluctuations and risks inherent in all securities.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions
The following investment restrictions (as well as the Fund's investment
objective) will not be changed without approval of a majority of the Fund's
outstanding voting securities which, as used in the Prospectuses and this
Statement of Additional Information, means approval of the lesser of (1) the
holders of 67% or more of the shares represented at a meeting if the holders
of more than 50% of the outstanding shares are present in person or by proxy
or (2) the holders of more than 50% of the outstanding shares.
The Fund observes the following fundamental investment restrictions.
The Fund may not:
(1) Purchase or sell real estate or any interest therein, except that the
Fund may invest in securities of corporate entities secured by real estate or
marketable interests therein or issued by companies that invest in real
estate or interests therein.
(2) Make loans, except that the Fund (1) may lend portfolio securities in
accordance with the Fund's investment policies up to 33 1/3% of the Funds
total assets taken at market value, (2) enter into repurchase agreements, and
(3) purchase all or a portion of securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, bank loan participation
interests, bank certificates of deposit, bankers' acceptances, debentures or
other securities, whether or not the purchase is made upon the original
issuance of the securities.
(3) Invest in commodities or in commodity contracts or in puts, calls, or
combinations of both except options on securities, securities indices,
currency and other financial instruments, futures contracts on securities,
securities indices, currency and other financial instruments, options on such
futures contracts, forward commitments, forward foreign currency exchange
contracts, interest rate or currency swaps, securities index put or call
warrants and repurchase agreements entered into in accordance with the Fund's
investment policies.
(4) 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.
<PAGE>
(5) Act as an underwriter, except to the extent that, in connection with
the disposition of portfolio securities, the Fund may be deemed to be an
underwriter for purposes of the Securities Act of 1933.
(6) Borrow money, except from banks as a temporary measure for
extraordinary 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.
(7) Pledge, mortgage or hypothecate its assets, except to secure
indebtedness permitted by paragraph (6) above and then only if such pledging,
mortgaging or hypothecating does not exceed 33 1/3% of the Fund's total
assets taken at market value.
(8) 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) Issue senior securities, except as permitted by paragraphs (2), (3) and
(6) above. For purposes of this restriction, the issuance of shares of
beneficial interest in multiple classes or series, the purchase or sale of
options, futures contracts and options on futures contracts, forward
commitments, forward foreign currency exchange contracts and repurchase
agreements entered into in accordance with the Fund's investment policy, and
the pledge, mortgage or hypothecation of the Fund's assets within the meaning
of paragraph (7) above are not deemed to be senior securities.
In connection with the lending of portfolio securities under item (2) above,
such loans must at all times be fully collateralized by cash or securities of
the U.S. Government or its agencies or instrumentalities, and the Fund's
custodian must take possession of the collateral either physically or in book
entry form. Any cash collateral will consist of short-term high quality debt
instruments. Securities used as collateral must be marked to market daily.
Nonfundamental Investment Restrictions
The following restrictions are designated as nonfundamental and may be
changed by the Trustees without shareholder approval.
The Fund may not:
(a) 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.
<PAGE>
(b) purchase securities of any company with a record of less than three
years' continuous operation, if such purchase would cause the Fund's
investment in such company taken at cost to exceed 5% of the Fund's total
assets taken at market value.
(c) invest for the purpose of exercising control over or management of any
company.
(d) purchase a security if, as a result, (i) more than 10% of the Fund's
total assets would be invested in 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 total assets would be invested in any
securities of any one such investment company. The Fund may not invest in
the securities of any other open-end investment company.
(e) knowingly purchase or retain securities of an issuer if one or more of
the Trustees or officers of the Trust or directors or officers of the Adviser
or any investment management subsidiary of the Adviser individually owns
beneficially more than 0.5%, and together own beneficially more than 5%, of
the securities of such issuer.
(f) invest in interests in oil, gas or other mineral leases or exploration
or development programs, provided that this restriction shall not prohibit
the acquisition of securities of companies engaged in the production or
transmission of oil, gas or other minerals.
(g) purchase warrants if as a result (i) more than 5% of the Fund's net
assets, valued at the lower of cost or market value, would be invested in
warrants or (ii) more than 2% of its net assets would be invested in
warrants, valued as aforesaid, which are not traded on the New York Stock
Exchange or American Stock Exchange, provided that for these purposes,
warrants acquired in units or attached to securities will be deemed to be
without value.
(h) purchase any security, including any repurchase agreement maturing in
more than seven days, which is not readily marketable, if more than 15% of
the net assets of the Fund, taken at market value, would be invested in such
securities. (The staff of the Securities and Exchange Commission may
consider over-the-counter options to be illiquid securities subject to the
15% limit).
(i) purchase interests in real estate limited partnerships.
(j) 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.
<PAGE>
In order to permit the sale of shares of the Fund in certain states, the
Trustees may, in their sole discretion, adopt restrictions or investment
policies more restrictive than those described above. Should the Trustees
determine that any such more restrictive policy is no longer in the best
interests of the Fund and its shareholders, the Fund may cease offering
shares in the state involved and the Trustees may revoke such restrictive
policy. Moreover, if the states involved shall no longer require any such
restrictive policy, the Trustees may, at their sole discretion, revoke such
policy.
If a percentage restriction on investment or utilization of assets as set
forth above is adhered to at the time an investment is made, a later change
in percentage resulting from changes in the values of the Fund's assets will
not be considered a violation of the restriction.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by the Trustees of the Trust, who elect
officers who are responsible for the day-to-day operations of the Fund and
who execute policies formulated by the Trustees. Several of the officers and
Trustees of the Trust are also officers and directors of the Adviser or
officers and directors of the Fund's principal distributor, John Hancock
Funds, Inc. ("John Hancock Funds").
<PAGE>
The following table sets forth the principal occupation or employment of the
Trustees and principal officers of the Fund during the past five years:
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With The Fund During the Past Five Years
*Edward J. Boudreau, Jr. Chairman (1,2) Chairman and Chief Executive
101 Huntington Avenue Officer, the Adviser and The
Boston, Massachusetts Berkeley Financial Group ("The
Berkeley Group"); Chairman, NM
Capital Management, Inc. ("NM
Capital"); John Hancock
Advisers International Limited;
("Advisers International");
John Hancock Funds, Inc.,
("John Hancock Funds"); John
Hancock Investor Services
Corporation ("Investor
Services") and Sovereign Asset
Management Corporation
("SAMCorp"); (herein after the
Adviser, the Berkeley Group, NM
Capital, Advisers
International, John Hancock
Funds, Investor Services and
SAMCorp are collectively
referred to as the "Affiliated
Companies"); Chairman, First
Signature Bank & Trust;
Director, John Hancock Freedom
Securities Corp., John Hancock
Capital Corp., New
England/Canada Business
Council; Member, Investment
Company Institute Board of
Governors; Director, Asia
Strategic Growth Fund, Inc.;
Trustee, Museum of Science;
President, the Adviser (until
July 1992). Chairman John
Hancock Distributors, Inc.
(until April, 1994).
- --------------
*An "interested person" of the Fund, as such term is defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act:).
(1) A Member of the Executive Committee.
(2) A Member of Investment Committee of the Adviser.
(3) An Alternate Member of the Executive Committee.
(4) A Member of the Audit and Administration Committees.
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With The Fund During the Past Five Years
Dennis S. Aronowitz Trustee (4) Professor of Law, Boston
Boston University University School of Law;
Boston, Massachusetts Trustee, Brookline Savings
Bank; Director, Boston
University Center for Banking
Law Studies (until 1990).
Richard P. Chapman, Jr. Trustee (4) President, Brookline Savings
160 Washington Street Bank.
Brookline, Massachusetts
William J. Cosgrove Trustee (4) Vice President, Senior Banker
20 Buttonwood Place and Senior Credit Officer,
Saddle River, New Jersey Citibank, N.A. (retired
September 1991); Executive Vice
President, Citadel Group
Representative, Inc.
Gail D. Fosler Trustee (4) Vice President and Chief
4104 Woodbine Street Economist, The Conference Board
Chevy Chase, MD (non-profit economic and
business research).
Bayard Henry Trustee (4) Corporate Advisor; Director,
121 High Street Fiduciary Trust Company (a
Boston, Massachusetts trust company); Director,
Groundwater Technology, Inc.
(remediation); Samuel Cabot,
Inc.; Advisor, Corning Capital
Corp.
- -------------------
An "interested person" of the Fund, as such term is defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act").
(1) A Member of the Executive Committee.
(2) A Member of Investment Committee of the Adviser.
(3) An Alternate Member of the Executive Committee.
(4) A Member of the Audit and Administration Committees.
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With The Fund During the Past Five Years
*Richard S. Scipione Trustee (3) General Counsel, the Life
John Hancock Place Insurance Company; Director,
P.O. Box 111 the Adviser, the Affiliated
Boston, Massachusetts Companies, John Hancock
Distributors, Inc., JH
Networking Insurance Agency,
Inc., John Hancock
Subsidiaries, Inc., SAMCorp,
NM Capital and John Hancock
Property and Casualty
Insurance and its affiliates
(until November, 1993);
Trustee; The Berkeley Group;
Director, John Hancock Home
Mortgages Corp. and John
Hancock Financial Access, Inc.
(until July 1990).
Edward J. Spellman Trustee (4) Partner, KPMG Peat Marwick
259C Commercial Bld. (retired June 1990).
Suite 200
Lauderdale by the Sea, FL
*Robert G. Freedman Vice Chairman and Vice Chairman and Chief
101 Huntington Avenue Chief Investment Investment Officer, the
Boston, Massachusetts Officer (2) Adviser; President, the
Adviser (until December 1994).
*Anne C. Hodsdon President (2) President and Chief Operations
101 Huntington Avenue Officer, the Adviser;
Boston, Massachusetts Executive Vice President, the
Adviser (until December 1994).
*Thomas H. Drohan Senior Vice Senior Vice President and
101 Huntington Avenue President and Secretary, the Adviser.
Boston, Massachusetts Secretary
*James K. Ho Senior Vice Senior Vice President, the
101 Huntington Avenue President (2) Adviser.
Boston, Massachusetts
- ------------------
An "interested person" of the Fund, as such term is defined in the
Investment Company Act.
(1) A Member of the Executive Committee.
(2) A Member of Investment Committee of the Adviser.
(3) An Alternate Member of the Executive Committee.
(4) A Member of the Audit and Administration Committees.
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With The Fund During the Past Five Years
*James B. Little Senior Vice Senior Vice President the
101 Huntington Avenue President and Chief Adviser.
Boston, Massachusetts Financial Officer (2)
*Michael P. DiCarlo Senior Vice Senior Vice President, the
101 Huntington Avenue President (2) Adviser.
Boston, Massachusetts
*John A. Morin Vice President Vice President, the Adviser.
101 Huntington Avenue
Boston, Massachusetts
*Susan S. Newton Vice President, Vice President and Assistant
101 Huntington Avenue Assistant Secretary Secretary, the Adviser.
Boston, Massachusetts and Compliance
Officer
*James J. Stokowski Vice President and Vice President, the Adviser.
101 Huntington Avenue Treasurer
Boston, Massachusetts
- ------------------
An "interested person" of the Fund, as such term is defined in the
Investment Company Act.
(1) A Member of the Executive Committee.
(2) A Member of Investment Committee of the Adviser.
(3) An Alternate Member of the Executive Committee.
(4) A Member of the Audit and Administration Committees.
All of the officers listed are officers or employees of the Adviser or the
Affiliated Companies. Some of the directors and officers may also be
officers and/or directors or trustees of one or more of the other funds for
which the Adviser serves as investment adviser.
<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 for each Fund's fiscal year.
The two non-Independent Trustees, Messrs. Boudreau and Scipione, and each of
the officers of the Funds are interested persons of the Adviser, are
compensated by the Adviser and receive no compensation from the Fund for
their services.
Total
Pensions or Compensation
Retirement From the Fund
Benefits and John
Aggregate Accrued as Estimated Hancock Fund
Compensation Part of the Annual Complex to
Independent Trustees From the Fund Fund's Benefits Upon Trustees (1)
Expenses Retirement (Total of 18
Funds)
Dennis S. Aronowitz $ 2,430 - - $ 60,950
Richard P. Chapman, $ 2,511 - - $ 62,950
Jr.
William J. Cosgrove $ 2,430 - - $ 60,950
Gail D. Fosler $ 2,430 - - $ 62,950
Bayard Henry $ 2,511 - - $ 60,950
Edward J. Spellman $ 2,430 - - $ 60,950
-------- ------
$14,742 $369,700
(1)The total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is as of the calendar year ended December 31, 1994.
The nominees of the Funds may at times be the record holders of in excess of
5% of shares of any one or more Funds by virtue of holding shares in "street
name." As of April 11, 1995 the officers and trustees of the Trusts as a
group owned less than 1% of the outstanding shares of each class of each of
the Funds.
As of April 11, 1995 the following shareholders beneficially owned 5% of or
more of the outstanding shares of the Funds listed below:
Number of Percentage of
Fund and Class shares of total
Name and Address of of Shares beneficial outstanding
Shareholder interest owned shares of the
class of the
Fund
Donaldson Lufkin Jernette Class B Shares 14,799 5.63%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
As described in the Prospectuses, the Fund receives its investment advice
from the Adviser. Investors should refer to the Prospectuses for a
description of certain information concerning the investment management
contract. Each of the Trustees and principal officers of the Trust who is
also an affiliated person of the Adviser is named above, together with the
capacity in which such person is affiliated with the Trust and the Adviser.
As described in the Prospectuses under the caption "Organization and
Management of the Fund," the Fund has entered into an investment management
contract with the Adviser. Under the investment management contract, the
Adviser provides the Fund with (i) a continuous investment program,
consistent with the Fund's stated investment objective and policies, (ii)
supervision of all aspects of the Fund's operations except those that are
delegated to a custodian, transfer agent or other agent and (iii) such
executive, administrative and clerical personnel, officers and equipment as
are necessary for the conduct of its business. The Adviser is responsible
for the management of the Fund's portfolio assets.
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.
No person other than the Adviser and its directors and employees regularly
furnishes advice to the Fund with respect to the desirability of the Fund's
investing in, purchasing or selling securities. The Adviser may from time to
time receive statistical or other similar factual information, and
information regarding general economic factors and trends, from the Life
Insurance Company and its affiliates.
Under the terms of the investment management contract with the Fund, the
Adviser provides the Fund with office space, supplies and other facilities
required for the business of the Fund. The Adviser pays the compensation of
all other officers and employees of the Trust, and pays the expenses of
clerical services relating to the administration of the Fund.
<PAGE>
All expenses which are not specifically paid by the Adviser and which are
incurred in the operation of the Fund (including fees of Trustees of the
Trust who are not "interested persons," as such term is defined in the
Investment Company Act, but excluding certain distribution related activities
required to be paid by the Adviser or John Hancock Funds) and the continuous
public offering of the shares of the Fund are borne by the Fund. Class
expenses properly allocable to Class A and Class B shares will be borne
exclusively by such class of shares, subject to conditions set forth in a
private letter ruling that the Fund has received from the Internal Revenue
Service relating to its multiple-class structure.
As discussed in the Prospectuses and as provided by the investment management
contract, the Fund pays the Adviser monthly an investment management fee,
which is accrued daily, 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, 0000 0.80%
Next $250,000,000 0.75%
Amount over $500,000,000 0.70%
On December 31, 1994, the net assets of the Fund were $151,847,464 For the
years ended December 31, 1992, 1993 and 1994, the Adviser received fees of
$704,071, $784,618, and $1,231,294 respectively. These advisory fee figures
reflect the different advisory fee schedule that was in effect before
January 1, 1994.
From time to time, the Adviser may reduce its fee or make other arrangements
to limit the Fund's expenses to a specified percentage of average daily net
assets. The Adviser retains the right to re-impose a fee and recover any
other payments to the extent that, at the end of any fiscal year, the Fund's
annual expenses fall below this limit.
If the total of all ordinary business expenses of the Fund for any fiscal
year exceeds limitations prescribed in any state in which shares of the Fund
are qualified for sale, the fee payable to the Adviser will be reduced to the
extent required by these limitations. At this time, the most restrictive
limit on expenses imposed by a state requires that expenses charged to the
Fund in any fiscal year may not exceed 2 1/2% of the first $30,000,000 of the
Fund's average net assets, 2% of the next $70,000,000 of such net assets and
1 1/2% of the remaining average net assets. When calculating the above limit,
the Fund may exclude interest, brokerage commissions and extraordinary
expenses.
Pursuant to its investment management contract, the Adviser is not liable for
any error of judgment or mistake of law or for any loss suffered by the Fund
in connection with the matters to which the investment management contract
relates, except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Adviser in the performance of its duties or
from reckless disregard by the Adviser of its obligations and duties under
the investment management contract.
<PAGE>
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts
02199-7603, was organized in 1968 and presently has more than $13 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 1,060,000
shareholders. The Adviser is an affiliate of the Life Insurance Company, one
of the most recognized and respected financial institutions in the nation.
With total assets under management of $80 billion, the Life Insurance Company
is one of the ten largest life insurance companies in the United States, and
carries S&P's and A. M. Best's highest ratings. Founded in 1862, the Life
Insurance Company has been serving clients for over 130 years.
Under the investment management contract, the Fund may use the name "John
Hancock" or any name derived from or similar to it only for so long as the
contract or any extension, renewal or amendment thereof remains in effect.
If the contract is no longer in effect, the Fund (to the extent that it
lawfully can) will cease to use such a name or any other name indicating that
it is advised by or otherwise connected with the Adviser. In addition, the
Adviser or the Life Insurance 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
Insurance 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 investment management contract and the distribution contract discussed
below continue in effect from year to year if approved annually by vote of a
majority of the Independent Trustees (as defined below), cast in person at a
meeting called for the purpose of voting on such approval, and by either the
Trustees or the holders of a majority of the Fund's outstanding voting
securities. Each contract automatically terminates upon assignment. Each
contract may be terminated without penalty on 60 days' notice at the option
of either party to the respective contract or by vote of a majority of the
outstanding voting securities of the Fund.
DISTRIBUTION CONTRACT
The Fund has a distribution contract with John Hancock Funds pertaining to
each class of shares. Under the contract, John Hancock Funds is obligated to
use its best efforts to sell shares on behalf of the Fund. Shares of the
Fund are also sold by selected broker-dealers (the "Selling Brokers") which
have entered into selling agency agreements with John Hancock Funds. John
Hancock Funds accepts orders for the purchase of the shares of the Fund which
are continually offered at net asset value next determined, plus any
applicable sales charge. In connection with the sale of Class A or Class B
shares of the Fund, John Hancock Funds and Selling Brokers receive
compensation in the form of a sales charge imposed, in the case of Class A
shares, at the time of sale or, in the case of Class B shares, on a deferred
basis. The sales charges are listed in the Fund's Class A and Class B Shares
Prospectus (the "Class A and Class B Prospectus").
The Fund's Trustees have adopted Distribution Plans with respect to Class A
and Class B shares (together, the "Plans") pursuant to Rule 12b-1 under the
Investment Company Act. Under the Class A Plan and the Class B Plan, the
Fund will pay distribution and service fees at an aggregate annual rate of up
to 0.30% and 1.00%, respectively, of the Fund's average daily net assets.
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
reimburse John Hancock Funds for its distribution costs incurred in the
promotion of sales of Fund shares, and the service fees compensate Selling
Brokers for providing personal and account maintenance services to
shareholders. The Plans were approved by a majority of the voting securities
of the applicable class of the Fund. Both Plans and all amendments were
approved by a majority of 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 provides the
Fund with a written report of the amounts expended under the Plan and the
purpose for which these expenditures were made. The Trustees review these
reports on a quarterly basis.
During the fiscal year ended December 31, 1994 the Fund paid Investor
Services the following amounts of expenses with respect to the Class A and
Class B shares of the Fund:
Expense Items
Printing Interest
and Mailing Expenses Carrying or
of Compensation of John Other
Prospectus to Selling Hancock Finance
Advertising to New Brokers Funds Charges
Shareholders Other
Growth Fund
Class A shares $ 43,864 $ 8,697 $ 301,129 $ 97,687 $ 0
Class B shares $ 801 $ 135 $ 18,534 $ 1,887 $ 348
shares
Each of the Plans provides that it will continue in effect only so long as
its continuance is approved at least annually by a majority of both the
Trustees and the Independent Trustees. Each of the Plans may be terminated
without penalty (a) by vote of a majority of the Independent Trustees, by 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. Each of the Plans further provides that it may not be amended
to increase the maximum amount of the fees for the services described therein
without the approval of a majority of the outstanding shares of the class of
the Fund which has voting rights with respect to the Plan. Each of the Plans
provides that no material amendment to the Plan will, in any event, be
effective unless it is approved by a vote of a majority of both 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 each
of the Plans will benefit the holders of the applicable class of shares of
the Fund.
<PAGE>
When the Fund seeks an Independent Trustee to fill a vacancy or as a nominee
for election by shareholders, the selection or nomination of the Independent
Trustee is, under resolutions adopted by the Trustees contemporaneously with
their adoption of the Plans, committed to the discretion of the Committee on
Administration of the Trustees. The members of the Committee on
Administration are all Independent Trustees and are identified in this
Statement of Additional Information under the heading "Those Responsible for
Management."
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of a 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.
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.
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 a determination of a Fund's NAV.
A Fund will not price its securities on the following national holidays: New
Year's Day; Presidents' Day; Good Friday; Memorial Day; Independence Day;
Labor Day; Thanksgiving Day; and Christmas Day. On any day an international
market is closed and the New York Stock Exchange is open, any foreign
securities will be valued at the prior day's close with the current day's
exchange rate. Trading of foreign securities may take place on Saturdays and
U.S. business holidays on which a Fund's NAV is not calculated.
Consequently, a Fund's portfolio securities may trade and the NAV of the
Fund's redeemable securities may be significantly affected on days when a
shareholder has no access to the Fund.
<PAGE>
INITIAL SALES CHARGE ON CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the Fund are
described in the Fund's 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 cumulate current purchases with the greater of the current
value (at offering price) of the Class A shares of the Fund, or if Investor
Services is notified by the investor's dealer or the investor at the time of
the purchase, the cost of the Class A shares owned.
Combined Purchases. In calculating the sales charge applicable to purchases
of Class A shares made at one time, the purchases will be combined if made by
(a) an individual, his 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)
certain groups of four or more individuals making use of salary deductions or
similar group methods of payment whose funds are combined for the purchase of
mutual fund shares. Further information about combined purchases, including
certain restrictions on combined group purchases, is available from Investor
Services or a Selling Broker's representative.
Without Sales Charges. As described in the Class A and Class B Prospectus,
Class A shares of the Fund may be sold without a sales charge to certain
persons described in the prospectus.
Accumulation Privilege. Investors (including investors combining purchases)
who are already Class A shareholders may also obtain the benefit of the
reduced sales charge by taking into account not only the amount then being
invested but also the purchase price or value of the Class A shares already
held by such person.
Combination Privilege. Reduced sales charges (according to the schedule set
forth in the Class A and Class B Prospectus) also are available to an
investor based on the aggregate amount of his concurrent and prior
investments in Class A shares of the Fund and shares of all other John
Hancock funds which carry a sales charge.
Letter of Intention. The reduced sales charges are also applicable to
investments made over a specified period pursuant to a Letter of Intention
(the "LOI"), which should be read carefully prior to its execution by an
investor. The Fund offers two options regarding the specified period for
making investments under the LOI. All investors have the option of making
their investments over a specified period of thirteen (13) months. Investors
who are using the Fund as a funding medium for a qualified retirement plan,
however, may opt to make the necessary investments called for by the LOI over
a forty-eight (48) month period. These qualified retirement plans include
group IRA, SEP, SARSEP, TSA, 401(k), 403(b) and 457 plans. Such an
investment (including accumulations and combinations) must aggregate $50,000
or more invested during the specified period from the date of the LOI or from
a date within ninety (90) days prior thereto, upon written request to
Investor 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
<PAGE>
be higher than that which would have applied (including accumulations and
combinations) had the LOI been for the amount actually invested.
The LOI authorizes Investor Services to hold in escrow sufficient Class A
shares (approximately 5% of the aggregate) to make up any difference in sales
charges on the amount intended to be invested and the amount actually
invested, until such investment is completed within the specified period, at
which time the escrow shares will be released. If the total investment
specified in the LOI is not completed, the Class A shares held in escrow may
be redeemed and the proceeds used as required to pay such sales charge as may
be due. By signing the LOI, the investor authorizes Investor Services to act
as his attorney-in-fact to redeem any escrowed Class A shares and adjust the
sales charge, if necessary. An LOI does not constitute a binding commitment
by an investor to purchase, or by the Fund to sell, any additional Class A
shares and may be terminated at any time.
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per share
without the imposition of an initial sales charge so the Fund will receive
the full amount of the purchase payment.
Contingent Deferred Sales Charge. Class B shares which are redeemed within
six years of purchase will be subject to a contingent deferred sales charge
("CDSC") at the rates set forth in the 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 shares being redeemed. Accordingly, no
CDSC will be imposed on increases in account value above the initial purchase
prices, including Class B shares derived from reinvestment of dividends or
capital gains distributions.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchases of shares, all payments
during a month will be aggregated and deemed to have been made on the last
day of the month.
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole
or in part by John Hancock Funds to defray its expenses related to providing
distribution-related services to the Fund in connection with the sale of the
Class B shares, such as the payment of compensation to select Selling Brokers
for selling Class B shares. The combination of the CDSC and the distribution
and service fees facilitates the ability of the Fund to sell the Class B
shares without a sales charge being deducted at the time of the purchase.
See the Class A and Class B Prospectus for additional information regarding
the CDSC.
<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. If the shareholder were to sell
portfolio securities received in this fashion, he would 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. As describe d more fully in the Prospectuses, the Fund
permits exchanges of shares of any class of the Fund for shares of the same
class in any other John Hancock fund offering that class.
Systematic Withdrawal Plan. As described briefly in the Class A and Class B
Prospectus, the Fund permits the establishment of a Systematic Withdrawal
Plan. Payments under this plan represent proceeds from the redemption of
shares of the Fund. Since the redemption price of the shares of the Fund may
be more or less than the shareholder's cost, depending upon the market value
of the securities owned by the Fund at the time of redemption, the
distribution of cash pursuant to this plan may result in realization of gain
or loss for purposes of Federal, state and local income taxes. The
maintenance of a Systematic Withdrawal Plan concurrently with purchases of
additional Class A or Class B shares of the Fund could be disadvantageous to
a shareholder because of the initial sales charge payable on such purchases
of Class A shares and the CDSC imposed on redemptions of Class B shares and
because redemptions are taxable events. Therefore, a shareholder should not
purchase Class A or Class B shares at the same time that a Systematic
Withdrawal Plan is in effect. The Fund reserves the right to modify or
discontinue the Systematic Withdrawal Plan of any shareholder on 30 days'
prior written notice to such shareholder, or to discontinue the availability
of such plan in the future. The shareholder may terminate the plan at any
time by giving proper notice to Investor Services.
Monthly Automatic Accumulation Program ("MAAP"). This program is explained
fully in the Class A and Class B 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 Monthly Automatic
Accumulation Program may be revoked by Investor Services without prior notice
if any investment is not honored by the shareholder's bank. The bank shall
be under no obligation to notify the shareholder as to the non-payment of any
check.
The program may be discontinued by the shareholder either by calling Investor
Services or upon written notice to Investor Services which is received at
least five (5) business days prior to the due date of any investment.
Reinvestment Privilege. A shareholder who has redeemed Fund shares may,
within 120 days after the date of redemption, reinvest without payment of a
sales charge any part of the
<PAGE>
redemption proceeds in shares of the same class of the Fund or any of the
other John Hancock funds, subject to the minimum investment limit of that
fund. The proceeds from the redemption of Class A shares may be reinvested at
net asset value without paying a sales charge in Class A shares of the Fund or
in Class A shares of any of the other John Hancock funds. If a CDSC was paid
upon a redemption, a shareholder may reinvest the proceeds from this
redemption at net asset value in additional shares of the class from which the
redemption was made. The shareholder's account will be credited with the
amount of any CDSC charged upon the prior redemption and the new shares will
continue to be subject to the CDSC. The holding period of the shares acquired
through reinvestment will, for purposes of computing the CDSC payable upon a
subsequent redemption, include the holding period of the redeemed shares. The
Fund may modify or terminate the reinvestment privilege at any time.
A redemption or exchange of Fund shares is a taxable transaction for Federal
income tax purposes even if the reinvestment privilege is exercised, and any
gain or loss realized by a shareholder on the redemption or other disposition
of Fund shares will be treated for tax purposes as described under the
caption "Tax Status."
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Trust are responsible for the management and supervision
of the Fund. The Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest of the
Fund without par value. Under the Declaration of Trust, the Trustees have the
authority to create and classify shares of beneficial interest in separate
series, without further action by shareholders. As of the date of this
Statement of Additional Information, the Trustees have authorized shares of
the Fund and one other series. Additional series may be added in the
future. The Declaration of Trust also authorizes the Trustees to classify
and reclassify the shares of the Fund, or any other series of the Trust, into
one or more classes. As of the date of this Statement of Additional
Information, the Trustees have authorized the issuance of two classes of
shares of the Fund, designated as Class A and Class B.
The shares of each class of the Fund represent an equal proportionate
interest in the aggregate net assets attributable to that class of the Fund.
Class A shares and Class B shares of the Fund will be sold exclusively to
members of the public (other than the institutional investors described in
the Prospectuses) at net asset value. A sales charge will be imposed either
at the time of the purchase, for Class A shares, or on a contingent deferred
basis, for Class B shares. For Class A shares, no sales charge is payable at
the time of purchase on investments of $1 million or more, but for such
investments a contingent deferred sales charge may be imposed in the event of
certain redemption transactions within one year of purchase.
<PAGE>
The holders of Class A and Class B shares have certain exclusive voting
rights on matters relating to their respective Rule 12b-1 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 will be in the same
amount, except that (i) the distribution and service fees relating to Class A
and Class B shares will be borne exclusively by that class, (ii) Class B
shares will pay higher distribution and service fees than Class A shares and
(iii) each of Class A and Class B shares will bear any class expenses
properly allocable to that class of shares, subject to the conditions set
forth in a private letter ruling that the Fund has received from the Internal
Revenue Service relating to its multiple-class structure. Similarly, the net
asset value per share may vary depending on whether Class A shares or Class B
shares are purchased.
In the event of liquidation, shareholders of each class are entitled to share
pro rata in the net assets of the class 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 Trust has no intention of holding annual meetings of
shareholders. Trust shareholders may remove a Trustee by the affirmative
vote of at least two-thirds of the Trust's outstanding shares and the
Trustees shall promptly call a meeting for such purpose when requested to do
so in writing by the record holders of not less than 10% of the outstanding
shares of the Trust. Shareholders may, under certain circumstances,
communicate with other shareholders in connection with requesting a special
meeting of shareholders. However, at any time that less than a majority of
the Trustees holding office were elected by the shareholders, the Trustees
will call a special meeting of shareholders for the purpose of electing
Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust
could, under certain circumstances, be held personally liable for acts or
obligations of the trust. However, the Fund's Declaration of Trust contains
an express disclaimer of shareholder liability for acts, obligations or
affairs of the Fund. The Declaration of Trust also provides for
indemnification out of the Fund's assets for all losses and expenses of any
shareholder held personally liable for reason of being or having been a
shareholder. 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.
<PAGE>
TAX STATUS
Each series of the Trust, including the Fund, is treated as a separate
entity for accounting and tax purposes. The Fund has qualified and has
elected to be treated as a "regulated investment company" under Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code") and intends to
continue to so qualify in the future. As such and by complying with the
applicable provisions of the Code regarding the sources of its income, the
timing of its distributions and the diversification of its assets, the Fund
will not be subject to Federal income tax on taxable income (including net
realized capital gains) which is distributed to shareholders at least
annually in accordance with the timing requirements of the Code.
The Fund will be subject to a four percent 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 avoid liability
for such tax by satisfying such distribution requirements.
Distributions from the Fund's current or accumulated earnings and profits
("E&P"), as computed for Federal income tax purposes, will be taxable as
described in the Fund's Prospectus, whether taken in shares or in cash.
Distributions, if any, in excess of E&P will constitute a return of capital,
which will first reduce an investor's tax basis in Fund shares and thereafter
(after such basis is reduced to zero) will generally give rise to capital
gains. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for Federal income tax purposes in
each share so received equal to the amount of cash that they would have
received had they elected to receive the distribution in cash, divided by the
number of shares received.
The Fund may be subject to foreign taxes on its income from investments in
certain ADRs representing foreign securities. Tax conventions between
certain countries and the U.S. may reduce or eliminate such taxes. Because
more than 50% of the Fund's assets at the close of any taxable year will not
consist of stocks or securities of foreign corporation, the Fund will be
unable to pass such taxes through to shareholders (as additional income)
along with a corresponding entitlement to a foreign tax credit or deduction.
If the fund acquires ADRs representing stock in certain non-U.S. corporations
that receive at least 75% of their annual gross income from passive sources
(such as interest, dividends, rents royalties or capital gain) or hold at
least 50% of their asset 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 it shareholders any credit or deduction for such a tax. Certain elections
may, if available, ameliorate these adverse tax consequences, but any such
election would require the Fund to recognize taxable income or gain without
the concurrent receipt of cash. The Fund may limit and/or manage its
holdings in passive foreign investment companies to minimize its tax
liability or maximize its return for these investments.
<PAGE>
The amount of net realized capital gains, if any, in any given year will
result from sales of securities made with a view to the maintenance of a
portfolio believed by the Fund's management to be most likely to attain the
Fund's objective. Such sales, and any resulting gains or losses, may
therefore vary considerably from year to year. At the time of an investor's
purchase of shares of the Fund, 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 such shares may be taxable to such investor even if the net
asset value of the investor's shares is, as a result of the distributions,
reduced below the investor's cost for such shares, and the distributions in
reality represent a return of a portion of the purchase price.
Upon a redemption of shares (including by exercise of the exchange privilege)
a shareholder will ordinarily realize a taxable gain or loss depending upon
his basis in his shares. Such gain or loss will be treated as capital gain
or loss if the shares are capital assets in the shareholder's hands and will
be long-term or short-term, depending upon the shareholder's holding period
for the shares. A sales charge paid in purchasing Class A shares of the Fund
cannot be taken into account for purposes of determining gain or loss on the
redemption or exchange of such shares within 90 days after their purchase to
the extent Class A shares of the Fund or another John Hancock fund are
subsequently acquired without payment of a sales charge pursuant to the
reinvestment or exchange privilege. Such disregarded charge will result in
an increase in the shareholder's tax basis in the Class A shares subsequently
acquired. Also, any loss realized on a redemption or exchange may be
disallowed to the extent the shares disposed of are replaced with other
shares of the Fund within a period of 61 days beginning 30 days before and
ending 30 days after the shares are disposed of, such as pursuant to the
Dividend Reinvestment Plan. In such a case, the basis of the shares acquired
will be adjusted to reflect the disallowed loss. Any loss realized upon the
redemption of shares with a tax holding period of six months or less will be
treated as a long-term capital loss to the extent of any amounts treated as
distributions of long-term capital gain with respect to such shares.
Although its present intention is to distribute all net capital gains, if
any, the Fund reserves the right to retain and reinvest all or any portion of
the excess, as computed for Federal income tax purposes, of net long-term
capital gain over net short-term capital loss in any year. The Fund will not
in any event distribute net long-term capital gains realized in any year to
the extent that a capital loss is carried forward from prior years against
such gain. To the extent such excess was retained and not exhausted by the
carry forward of prior years' capital losses, it would be subject to Federal
income tax in the hands of the Fund. Each shareholder would be treated for
Federal income tax purposes as if the Fund had distributed to him on the last
day of its taxable year his pro rata share of such excess, and he had paid
his pro rata share of the taxes paid by the Fund and reinvested the remainder
in the Fund. Accordingly, each shareholder would (a) include his pro rata
share of such excess as long-term capital gain 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 net capital gains, if any, during the
eight years following the year of the
<PAGE>
loss. To the extent subsequent net capital gains are offset by such losses,
they would not result in Federal income tax liability to the Fund and, as
noted above, would not be distributed as such to shareholders. Presently,
there are no realized capital loss carry forwards available to offset future
net realized capital gains.
If the Fund invests in certain PIKs, zero coupon securities or certain
increasing rate securities (and, in general, any other securities with
original issue discount or with market discount if the Fund elects to include
market discount in income currently), the Fund will be required to accrue
income on such investments prior to the receipt of the corresponding cash
payments. However, the Fund must distribute, at least annually, all or
substantially all of its net income, including such accrued income, to
shareholders to qualify as a regulated investment company under the Code and
avoid Federal income and excise taxes. Therefore, the Fund may have to
dispose of its portfolio securities under disadvantageous circumstances to
generate cash, or may have to leverage itself by borrowing the cash, to
satisfy distribution requirements.
Investment in debt obligations that are at risk of or in default present
special tax issues for the Fund. Tax rules are not entirely clear about
issues such as when the Fund may cease to accrue interest, original issue
discount, or market discount, when and to what extent deductions may be taken
for bad debts or worthless securities, how payments received on obligations
in default should be allocated between principal and income, and whether
exchanges of debt obligations in a workout context are taxable. These and
other issues will be addressed by the Fund, in the event it acquires or holds
any such obligations, in order to reduce the risk of distributing
insufficient income to reserve its status as a regulated investment company
and seeks to avoid becoming subject to Federal income or excise tax.
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 designated by the Fund may be treated as
qualifying dividends. Corporate shareholders must meet the minimum holding
period requirement stated above (46 or 91 days) with respect to their shares
of the Fund in order to qualify for the deduction and, if they borrow to
acquire such shares, may be denied a portion of the dividends received
deduction. The entire qualifying dividend, including the
otherwise-deductible amount, will be included in determining the excess (if
any) of a corporate shareholder's adjusted current earnings over its
alternative minimum taxable income, which may increase its alternative
minimum tax liability. Additionally, any corporate shareholder should
consult its tax adviser regarding the possibility that its basis in its
shares may be reduced, for Federal income tax purposes, by reason of
"extraordinary dividends" received with respect to the shares, for the
purpose of computing its gain or loss on redemption or other disposition of
the shares.
Different tax treatment, including penalties on certain excess contributions
and deferrals, certain pre-retirement and post-retirement distributions and
certain prohibited transactions, is accorded to accounts maintained as
qualified retirement plans. Shareholders should consult their tax advisers
for more information.
The foregoing discussion relates solely to Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S.
domestic corporations, partnerships, trusts or
<PAGE>
estates) subject to tax under such law. The discussion does not address
special tax rules applicable to certain classes of investors, such as
tax-exempt entities, insurance companies and financial institutions.
Dividends, capital gain distributions and ownership of or gains realized on
the redemption (including an exchanges) of shares of the Fund may also be
subject to state and local taxes. Shareholders should consult their own tax
advisers as to the Federal, state or local tax consequences of ownership of
shares of, and receipt of distributions from, the Fund in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their
Fund investment is effectively connected will be subject to U.S. Federal
income tax treatment that is different from that described above. These
investors may be subject to non-resident alien withholding tax at the rate of
30% (or a lower rate under an applicable tax treaty) on amounts treated as
ordinary dividends from the Fund and, unless an effective IRS Form W-8 or
authorized substitute is on file, to 31% backup withholding on certain other
payments from the Fund. Non-U.S. investors should consult their tax advisers
regarding such treatment and the application of foreign taxes to an
investment in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise
taxes. Provided that the Fund qualifies as a regulated investment company
under the Code, it will also not be required to pay any Massachusetts income
tax.
CALCULATION OF PERFORMANCE
The average annual total return on Class A shares of the Fund for the 1 year,
5 year and 10 year periods ended December 31, 1994 was (12.14%), 6.47%, and
11.90%, respectively and reflect payment of the maximum sales charge of
5.0%. Total return (not annualized) since inception on January 3, 1994 for
Class B shares was (11.23%) and reflects the applicable contingent deferred
sales charge.
<PAGE>
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:
[EQUATION]
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.
In the case of Class A shares or Class B shares, this calculation assumes the
maximum sales charge of 5.00% is included in the initial investment or the
CDSC is applied at the end of the period, respectively. This calculation
also assumes that all dividends and distributions are reinvested at net asset
value on the reinvestment dates during the period.
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
5.00% sales charge on Class A shares or the CDSC on Class B shares into
account. 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 on Class A shares and the CDSC on Class B
shares from a total return calculation produces a higher total return figure.
From time to time, in reports and promotional literature, the Fund's total
return will be compared to indices of mutual funds such as Lipper Analytical
Services, Inc.'s "Lipper - Mutual Performance Analysis," a monthly
publication which tracks net assets, total return and yield on more than
1,000 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, STANGER'S and BARRON'S may also be
utilized.
<PAGE>
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 its investment committee, which consists of officers
and directors of the Adviser and affiliates 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 Adviser, will offer the
best price and market for the execution of each such transaction. Purchases
from underwriters of portfolio securities may include a commission or
commissions paid by the issuer, and transactions with dealers serving as
market makers reflect a "spread." Investments in debt securities are
generally traded on a net basis through dealers acting for their own account
as principals and not as brokers; no brokerage commissions are payable on
such transactions.
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 Insurance 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 not make
commitments to allocate portfolio transactions upon any prescribed basis.
While the Fund'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 years ended on December 31, 1994, 1993 and
1992, the Fund paid negotiated brokerage commissions in the amount of
$236,226,$244,879 and $251,062, respectively.
<PAGE>
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
commission 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 December 31, 1994, the Fund directed commissions in the amount of
$43,3694 to compensate brokers for research services such as industry,
economic and company reviews and evaluations of securities.
The Adviser's indirect parent, the Life Insurance Company, is the indirect
sole shareholder of John Hancock Freedom Securities Corporation and its
subsidiaries, two of which, Tucker Anthony Incorporated ("Tucker Anthony")
and Sutro & Company, Inc. ("Sutro"), are broker-dealers ("Affiliated
Brokers"). Pursuant to procedures determined by the Trustees and consistent
with the above policy of obtaining best net results, the Fund may execute
portfolio transactions with or through Tucker Anthony or Sutro. During the
year ended December 31, 1994, the Fund did not execute any portfolio
transactions with Affiliated Brokers.
Any of the Affiliated Brokers may act as broker for the Fund on exchange
transactions, subject, however, to the general policy of the Fund set forth
above and the procedures adopted by the Trustees pursuant to the Investment
Company Act. Commissions paid to an Affiliated Broker must be at least as
favorable as those which the Trustees believe to be contemporaneously charged
by other brokers in connection with comparable transactions involving similar
securities being purchased or sold. A transaction would not be placed with
an Affiliated Broker if the Fund would have to pay a commission rate less
favorable than the Affiliated Broker's contemporaneous charges for comparable
transactions for its other most favored, but unaffiliated, customers, except
for accounts for which the Affiliated Broker acts as clearing broker for
another brokerage firm, and any customers of the Affiliated Broker not
comparable to the Fund as determined by a majority of the Trustees who are
not "interested persons" (as defined in the Investment Company Act) of the
Fund, the Adviser or the Affiliated Broker. Because the Adviser, which is
affiliated with the Affiliated Brokers, has, as an investment adviser to the
Fund, the obligation to provide investment management services, which include
elements of research and related investment skills, such research and related
skills will not be used by the Affiliated Broker as a basis for negotiating
commissions at a rate higher than that determined in accordance with the
above criteria. The Fund will not effect principal transactions with
Affiliated Brokers.
TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation, P.O. Box 9116, Boston, MA
02205-9116, a wholly owned indirect subsidiary of the Life Insurance Company,
is the transfer and dividend paying agent for the Fund. The Fund pays
Investor Services an annual fee for Class A of $16.00 per shareholder account
and for Class B shares of $18.50 plus certain out-of-pocket expenses.
<PAGE>
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Fund and Investors Bank & Trust Company, 24 Federal Street,
Boston, Massachusetts 02110. Under the custodian agreement, Investors Bank &
Trust Company performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Fund are Ernst & Young LLP, 200 Clarendon
Street, Boston, Massachusetts 02116. Ernst & Young audits and renders an
opinion of the Fund's annual financial statements and prepares the Fund's
annual Federal income tax return.
<PAGE>
APPENDIX
Moody's describes its lower ratings for corporate bonds as follows:
Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
Bonds which are rated B generally lack characteristics of the 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.
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Bonds which are rated Ca represented obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
S&P describes its lower ratings for corporate bonds as follows:
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.
Debt rated BB, B, CCC, or CC is regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligations. 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.
Moody's describes its three highest ratings for commercial paper as follows:
<PAGE>
Issuers rated P-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. P-1 repayment
capacity will normally be evidenced by the following characteristics:
(1) leading market positions in well-established industries; (2) high rates
of return on funds employed; (3) conservative capitalization structures with
moderate reliance on debt and ample asset protections; (4) broad margins in
earnings coverage of fixed financial charges and high internal cash
generation; and (5) well established access to a range of financial markets
and assured sources of alternate liquidity.
Issuers rated P- (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.
Issuers rated P-3 (or supporting institutions) have an acceptable ability for
repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability
in earnings and profitability may result in changes in the level of debt
protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
S&P describes its three highest ratings for commercial paper as follows:
A-1. This designation indicated that the degree of safety regarding timely
payment is very strong.
A-2. Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
A-3. Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
y:\corpsec\n1a\sai\growth\94growth.doc
<PAGE>
The Annual Report of John Hancock Growth Fund dated December 31, 1994 appears as
Exhibit C to the Prospectus/Proxy Statement included in this Registration
Statement on Form N-14.
<PAGE>
EXHIBIT C
To Statement of Additional Information
John Hancock Growth Fund
Pro-forma statement of assets and liabilities
December 31, 1994
Unaudited
<TABLE>
<CAPTION>
John Hancock John Hancock Pro
Growth Capital Growth Forma
Fund Fund Adjustments Combined
<S> <C> <C> <C> <C>
Assets:
Investments at value $151,960,810 $90,735,976 $ -- $ 242,696,786
Cash -- 50,329 -- 50,329
Receivable for shares sold 2,016 22,505 24,521
Dividends and interest receivable 97,501 107,700 205,201
Receivable for investments sold -- 1,859,500 1,859,500
Other Assets -- 33,862 33,862
Total Assets 152,060,327 92,809,872 -- 244,870,199
Liabilities:
Distribution Payable 232,814 -- 232,814
Payable for investments purchased 5,583,707 -- 5,583,707
Payable for shares purchased 37,968 -- 37,968
Payable to John Hancock Advisers
and affiliates 152,434 152,524 -- 304,958
Accounts payable and accrued expenses 60,429 61,248 121,677
Total liabilities 212,863 6,068,261 -- 6,281,124
Net Assets:
Capital paid-in 118,146,978 83,428,097 -- 201,575,075
Accumulated net realized loss
on investment (151,405) 50,547 -- (100,858)
Net unrealized depreciation
of investments 33,851,891 3,262,967 -- 37,114,858
Net assets $151,847,464 $86,741,611 $ -- $ 238,589,075
Net assets:
Growth
Class A $146,466,468 $ -- $ 70,090,278 (a) $ 216,556,746
Class B 3,807,391 -- 16,651,333 (a) 20,458,724
Class C 1,573,605 -- -- 1,573,605
Capital Growth
Class A - 70,090,278 (70,090,278)(a) --
Class B - 16,651,333 (16,651,333)(a) --
$151,847,464 $86,741,611 $ -- $ 238,589,075
Shares outstanding:
Growth
Class A 9,218,162 -- 4,411,273 (a) 13,629,435
Class B 240,447 -- 1,051,579 (a) 1,292,026
Class C 98,220 -- -- 98,220
Capital Growth
Class A - 6,411,229 (6,411,229)(a) --
Class B - 1,542,392 (1,542,392)(a) --
Net asset value per share:
Growth
Class A $ 15.89 -- - $ 15.89
Class B $ 15.83 -- - $ 15.83
Class C $ 16.02 -- - $ 16.02
Capital Growth
Class A - $ 10.93 $ (10.93) --
Class B - $ 10.80 $ (10.80) --
</TABLE>
<PAGE>
John Hancock Growth Fund
Pro-forma statement of operations
For the year ended December 31, 1994
Unaudited
<TABLE>
<CAPTION>
John Hancock John Hancock Pro
Growth Capital Growth Forma
Fund Fund Adjustments Combined
<S> <C> <C> <C> <C>
Investment income
Dividends $ 932,417 $ 1,062,137 $ -- $ 1,994,554
Interest 627,462 186,714 -- 814,176
Total 1,559,879 1,248,851 -- 2,808,730
Expenses
Investment management fee 1,231,294 539,809 151,070 (b) 1,922,173
Distribution fee--
Class A 451,377 193,470 38,693 (f) 683,540
Class B 21,705 89,720 -- 111,425
Transfer agent fee--
Class A 601,585 345,445 -- 947,030 (e)
Class B 9,113 40,049 -- 49,162 (e)
Class C 2,156 -- -- 2,156
Custodian fee 59,064 24,313 (20,844) (d) 62,533
Auditing fee 34,700 26,213 (20,913) (d) 40,000
Legal fees 8,130 12,785 (8,223) (d) 12,692
Printing 44,806 28,222 (18,257) (d) 54,771
Trustees' fee 16,215 23,216 (14,118) (d) 25,313
Miscellaneous 10,798 12,386 (5,796) (d) 17,388
Total expenses 2,546,659 1,439,184 25,169 4,011,012
Net investment loss (986,780) (190,333) (25,169) (1,202,282)
Realized and Unrealized
Gain (loss) on Investments:
Net realized gain (loss) on
investments sold 1,529,276 2,453,497 -- 3,982,773
Change in net unrealized appreciation/
depreciation of investments (13,091,731) (12,203,891) -- (25,295,622)
Net Realized and Unrealized
Gain (loss) on Investments (11,562,455) (9,750,394) -- (21,312,849)
Net increase (decrease) in Net Assets
Resulting from Operations $(12,549,235) $ (9,940,727) $ (25,169) $ (22,515,131)
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY THE
GROWTH FUND ON DECEMBER 31, 1994. IT'S DIVIDED INTO FIVE MAIN CATEGORIES: COMMON
STOCKS, PREFERRED STOCKS, OTHER INVESTMENTS, PUBLICLY TRADED CONVERTIBLE BONDS
AND SHORT-TERM INVESTMENTS. THE INVESTMENTS ARE FURTHER BROKEN DOWN BY INDUSTRY
GROUPS. SHORT-TERM INVESTMENTS, WHICH REPRESENT THE FUND'S "CASH" POSITION, ARE
LISTED LAST.
SCHEDULE OF INVESTMENTS
December 31, 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ISSUER, DESCRIPTION NUMBER OF SHARES MARKET VALUE
- ------------------- ---------------- ------------
<S> <C> <C>
COMMON STOCKS
APPLIANCES - HOUSEHOLD (0.42%)
Fedders Corp.** .......................... 70,000* $ 498,750
Fedders Corp. (Class A)** ................ 25,000* 131,250
------------
630,000
------------
BANKS (0.87%)
West One Bancorp .......................... 50,000 1,325,000
------------
BEVERAGES (1.87%)
Coca-Cola Co. (The) ...................... 55,000 2,832,500
------------
BROADCASTING (5.52%)
Gaylord Entertainment Co. (Class A) ...... 100,000 2,275,000
Grupo Televisa S.A., Global
Depository Receipt (GDR) ............... 20,000 635,000
Infinity Broadcasting Corp. (Class A)** .. 90,000 2,835,000
Tele-Communications, Inc. (Class A)** .... 60,000 1,305,000
Telewest Communications PLC, American
Depositary Receipt, (ADR)** ............ 50,000* 1,325,000
------------
8,375,000
------------
BUILDING PRODUCTS (1.97%)
Home Depot, Inc. (The) ................... 65,000 2,990,000
------------
COMPUTERS (10.91%)
Adaptec, Inc.** .......................... 170,000 3,995,000
America Online, Inc.** ................... 40,000* 2,230,000
cisco Systems, Inc.** .................... 60,000 2,100,000
Computer Associates International, Inc. .. 50,000 2,425,000
EMC Corp.** .............................. 110,400 2,387,400
HBO & Co. ................................ 100,000* 3,425,000
------------
16,562,400
------------
COSMETICS & TOILETRIES (2.22%)
Gillette Co. (The) ....................... 45,000 3,363,750
------------
DRUGS (1.02%)
Pfizer, Inc. ............................. 20,000* 1,545,000
------------
ELECTRONICS (8.01%)
Molex Inc. (Class A) ..................... 75,000* 2,325,000
Motorola, Inc. ........................... 80,400 4,653,150
Scientific-Atlanta, Inc. ................. 100,000* 2,100,000
Vishay Intertechnology, Inc.** ........... 63,000 3,087,000
------------
12,165,150
------------
FINANCE (3.82%)
MBNA Corp. ............................... 120,000 2,805,000
Paychex, Inc. ............................ 75,000 3,000,000
------------
5,805,000
------------
FINANCIAL/BUSINESS SERVICES (0.47%)
Robert Half International, Inc.** ........ 30,000* 720,000
------------
FURNITURE (1.07%)
Heilig Meyers Co. ........................ 64,300* 1,623,575
------------
HEALTHCARE (8.44%)
Health Management Associates,
Inc. (Class A)** ....................... 90,000* 2,250,000
Humana, Inc.** ........................... 110,000* 2,488,750
Johnson & Johnson ........................ 35,000* 1,916,250
Physician Corp. of America** ............. 75,000* 1,518,750
United Healthcare Corp. .................. 70,000* 3,158,750
Value Health, Inc.** ..................... 40,000* 1,490,000
------------
12,822,500
------------
HOTELS & MOTELS (1.33%)
Doubletree Corp.** ....................... 40,000* 730,000
La Quinta Motor Inns, Inc. ............... 60,000* 1,282,500
------------
2,012,500
------------
LEISURE & RECREATION (6.34%)
Disney (Walt) Co., (The) ................. 70,000 3,228,750
International Game Technology ............ 90,000 1,395,000
PolyGram N.V. (ADR) ...................... 75,000 3,459,375
Promus Companies, Inc. (The)** ........... 50,000 1,550,000
------------
9,633,125
------------
LINEN SUPPLY (1.38%)
Cintas Corp. ............................. 60,000 2,100,000
------------
MEDICAL/DENTAL (1.60%)
Cardinal Health, Inc. .................... 52,500* 2,434,687
------------
MOTION PICTURES (1.48%)
King World Productions, Inc.** ........... 65,000 2,242,500
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
<TABLE>
<CAPTION>
ISSUER, DESCRIPTION NUMBER OF SHARES MARKET VALUE
- ------------------- ---------------- ------------
<S> <C> <C>
NURSING HOMES (3.34%)
Health Care & Retirement** ............... 100,000 $ 3,012,500
Manor Care, Inc. ......................... 75,000* 2,053,125
------------
5,065,625
------------
OFFICE EQUIPMENT & SUPPLIES (1.26%)
Office Depot, Inc.** ..................... 80,000* 1,920,000
------------
PUBLISHING (1.90%)
News Corp. Ltd. (The) (ADR) .............. 50,000* 781,250
Time Warner, Inc. ........................ 60,000 2,107,500
------------
2,888,750
------------
RESTAURANTS (3.67%)
Brinker International, Inc.** ............ 65,000 1,178,125
McDonald's Corp. ......................... 150,000 4,387,500
------------
5,565,625
------------
RETAIL (12.84%)
Albertson's, Inc. ........................ 70,000 2,030,000
AnnTaylor Stores, Corp.** ................ 70,000 2,406,250
Barnes & Noble, Inc.** ................... 25,000* 781,250
CUC International, Inc.** ................ 70,000 2,345,000
Dollar General Corp. ..................... 100,000 2,950,000
Gap, Inc. (The) .......................... 60,000* 1,830,000
Nordstrom, Inc. .......................... 40,000* 1,680,000
Sports & Recreation, Inc. ................ 80,000* 2,060,000
Sports Authority, Inc. (The)** ........... 21,000* 441,000
Wal-Mart Stores, Inc. .................... 140,000 2,975,000
------------
19,498,500
------------
TELECOMMUNICATIONS (5.05%)
Airtouch Communications, Inc.** .......... 70,000* 2,038,750
LDDS Communications, Inc.** .............. 50,000* 968,750
Telefonos de Mexico, S.A., (ADR) ......... 40,000* 1,640,000
Vodafone Group PLC (ADR) ................. 90,000 3,026,250
------------
7,673,750
------------
TEXTILES (0.59%)
Tommy Hilfiger Corp.** ................... 20,000* 902,500
------------
TOTAL COMMON STOCKS
(Cost $98,751,932) ( 87.39%) 132,697,437
------- ------------
PREFERRED STOCK
PUBLISHING (0.23%)
News Corp. Ltd. (The) ADR ................ 25,000* 346,875
------------
TOTAL PREFERRED STOCK
(Cost $399,895) ( 0.23%) 346,875
------- ------------
OTHER INVESTMENTS
DRUGS (0.00%)
Lilly (Eli) & Co., Contingent
Payment Units** ........................ 14,000 218
------------
TOTAL OTHER INVESTMENT
(COST $ 70,875) ( 0.00%) 218
------- ------------
TOTAL COMMON STOCKS,
PREFERRED STOCKS AND
OTHER INVESTMENTS
(COST $ 99,222,702) ( 87.62%) 133,044,530
------- ------------
</TABLE>
<TABLE>
<CAPTION>
INTEREST S&P PAR VALUE
RATE RATING*** (000'S OMITTED)
-------- ------ ---------------
<S> <C> <C> <C>
PUBLICLY TRADED
CONVERTIBLE BONDS
TOYS/GAMES/
HOBBY PRODUCTS (0.44%)
Hasbro, Inc.
Conv. Sub.
Note 11-15-98 ....... 6.00% A- $ 650 680,063
------------
TOTAL PUBLICLY TRADED
CONVERTIBLE BONDS
(Cost $ 650,000) ( 0.44%) 680,063
------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
<TABLE>
<CAPTION>
INTEREST PAR VALUE
ISSUER, DESCRIPTION RATE (000'S OMITTED) MARKET VALUE
- ------------------- -------- --------------- ------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (12.01%)
Investment in a joint
repurchase agreement
transaction with Lehman
Bros., Inc. - Dated 12-30-94,
Due 01-03-95 (Secured
by US Treasury Bonds,
9.25% due 02-15-16; and
8.125% due 08-15-21; and
US Treasury Notes, 5.50%
due 02-15-95 and 4.625%
due 08-15-95) ..................... 5.85% $18,236 $ 18,236,000
------------
CORPORATE SAVINGS ACCOUNT (0.00%)
Investors Bank & Trust
Company Daily Interest
Savings Account
Current Rate 3.00% ................ 217
------------
TOTAL SHORT-TERM INVESTMENTS ( 12.01%) 18,236,217
-------- ------------
TOTAL INVESTMENTS (100.07%) $151,960,810
======= ============
</TABLE>
* Securities, other than short-term investments, newly added to the portfolio
during the year ended December 31, 1994.
** Non-income producing securities.
*** Credit ratings are unaudited.
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.
<PAGE>
John Hancock Funds--Capital Growth Fund
STATEMENT OF NET ASSETS
SCHEDULE OF INVESTMENTS
December 31, 1994
<TABLE>
<CAPTION>
COMPANY SHARES VALUE
- ------- -------- ---------
<S> <C> <C>
COMMON STOCKS-92.68%
- -------------------
COMPUTERS AND OFFICE
EQUIPMENT-22.07%
Corel Corp.*................................. 170,000 $ 2,348,125
EMC Corp.*................................... 140,000 3,027,500
LEGENT Co.*.................................. 50,000 1,437,500
Paychex, Inc. ............................... 70,000 2,835,000
Silicon Graphics, Inc.*...................... 110,000 3,396,250
Sterling Software, Inc.*..................... 80,000 2,940,000
Sun Microsystems Inc.*....................... 40,000 1,420,000
SyBase Inc.*................................. 25,000 1,300,000
VMARK Software Inc.*......................... 25,000 443,750
-----------
19,148,125
CONSUMER CYCLICALS-3.97%
Men's Wearhouse Inc.*........................ 70,000 1,575,000
Rite Aid Corp................................ 80,000 1,870,000
-----------
3,445,000
CONSUMER GOODS &
SERVICES-9.20%
Landry's Seafood
Restaurants Inc.*.......................... 40,000 1,135,000
Marriott International Inc................... 120,000 3,375,000
Outback Steakhouse Inc.*..................... 60,000 1,410,000
Sysco Corp................................... 80,000 2,060,000
-----------
7,980,000
ENERGY-4.45%
Enron Oil & Gas Co........................... 60,000 1,125,000
Noble Drilling Corp.*........................ 75,000 440,625
Phillips Petroleum Co........................ 70,000 2,292,500
-----------
3,858,125
HEALTH CARE-19.07%
Columbia/HCA
Healthcare Corp.............................. 75,000 2,737,500
Envoy Corp.*................................. 60,000 1,230,000
Humana Inc.*................................. 90,000 2,036,250
Manor Care, Inc.............................. 120,000 3,285,000
Merck & Co., Inc............................. 75,000 2,859,375
Schering-Plough Corp......................... 35,000 2,590,000
United Healthcare Corp....................... 40,000 1,805,000
-----------
16,543,125
INDUSTRIAL-10.60%
Allwaste Inc.*............................... 200,000 1,125,000
Cognex Corp.*................................ 40,000 1,030,000
Eastman Chemical Co.......................... 50,000 2,525,000
Federal Paper Board Co., Inc................. 95,000 2,755,000
Union Carbide Corp........................... 60,000 1,762,500
-----------
9,197,500
MEDIA & LEISURE-4.03%
Brassie Golf Corp.*.......................... 315,000 1,023,750
Harcourt General Inc......................... 70,000 2,467,500
-----------
3,491,250
TECHNOLOGY- RELATED - 14.23%
E-Systems Inc. .............................. 20,000 832,500
Lithium Technology Corp.*.................... 2,611,890 365,664
Millipore Corp. ............................. 40,000 1,935,000
Molex, Inc. ................................. 75,000 2,587,500
Motorola, Inc. .............................. 50,000 2,893,750
Tektronix, Inc. ............................. 50,000 1,712,500
Thomas & Betts Corp. ........................ 30,000 2,013,750
-----------
12,340,664
TELECOMMUNICATIONS - 5.06%
Ericsson (L.M.) Telephone, Co. Class B....... 50,000 2,756,250
Tele-Communications, Inc. Class A*.......... 75,000 1,631,250
-----------
4,387,500
-----------
TOTAL COMMON STOCKS
(Cost $77,128,322)........................... 80,391,289
</TABLE>
<PAGE>
STATEMENT OF NET ASSETS
Continued
<TABLE>
<CAPTION>
FACE
ISSUER AMOUNT VALUE
- ------ ---------- -----------
<S> <C> <C>
SHORT-TERM
OBLIGATIONS--11.92%
COMMERCIAL PAPER--8.64%
CONSUMER CYCLICALS--2.30%
Warner Lambert Co.
5.900% due 01/03/95........................ $2,000,000 1,999,344
CONSUMER GOODS &
SERVICES--4.61%
McDonald's Corp.
5.800% due 01/05/95........................ 4,000,000 3,997,422
TELECOMMUNICATIONS--1.73%
American Telephone &
Telegraph Co.
5.850% due 01/09/95...................... 1,500,000 1,498,050
-----------
TOTAL COMMERCIAL PAPER
(Cost $7,494,816)............................ 7,494,816
REPURCHASE
AGREEMENT--3.28%
Lehman Brothers 5.500% due
01/03/95 (dated 12/30/94).
Collateralized by
$2,910,755 value, U.S.
Treasury Bonds 8.125%
due 08/15/21. (Repurchase
proceeds $2,850,741)
(Cost $2,849,871)............................ 2,849,000 2,849,871
-----------
TOTAL SHORT-TERM
OBLIGATIONS
(Cost $10,344,687)........................... 10,344,687
-----------
TOTAL INVESTMENTS--104.60%
(Cost $87,473,009)........................... 90,735,976
CASH AND OTHER ASSETS,
LESS LIABILITIES--(4.60)%.................... (3,994,365)
-----------
NET ASSETS, at value,
equivalent to $10.93 per
share for 6,411,229 Class A
Shares ($.01 par value)
outstanding and $10.80 per
share for 1,542,392 Class B
Shares ($.01 par value)
outstanding-- 100.00%...................... $86,741,611
===========
*Non-income producing.
</TABLE>
See Notes to Financial Statements.
<PAGE>
JOHN HANCOCK GROWTH FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS--(Unaudited)
DECEMBER 31, 1994
Pro forma information is intended to provide shareholders of the John Hancock
Capital Growth Fund (JHCG) 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 December 31, 1993.
The pro forma statements of assets and liabilities and results of operations as
of December 31, 1994 have been prepared to reflect the merger of John Hancock
Growth Fund (JHG) and JHCG after giving effect to pro forma adjustments
described in the notes listed below.
(a) Acquisition by JHG of all of the net assets of JHCG and issuance of
JHG Class A and Class B shares in exchange for all of the outstanding
Class A and Class B shares, respectively of JHCG.
(b) The investment advisory fee was adjusted to reflect the application of
the fee structure in effect for JHG.
(c) Custodian fees were adjusted to reflect the apllication of the fee structure
in effect for for JHG during the year.
(d) The actual expenses incurred by JHG and JHCG for various expenses included
on a pro forma basis were reduced to reflect the estimated savings arising
from the merger.
(e) The transfer agent fee for the Class A and Class B shares is the total of
the respective individual fund's transfer agent fees. The main criteria in
determining the transfer agent fees for a specific class is the number of
shareholder accounts.
(f) It was assumed that pursuant to the Class A and Class B Plans of
Distribution under rule 12b-1 of the Investment Company Act of 1940, JHG is
to pay a distribution/service fee at 0.30% and 1.00% of the average net
assets of the Class A and Class B shares, respectively.
<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 Capital Series (the "Registrant") on Form
N-1A under the Securities Act of 1933 and the Investment Company Act of
1940 and (File No. 811-1677), which information is incorporated herein
by reference.
ITEM 16. EXHIBITS:
1. Registrant's Amended and Filed as Exhibit 1 to
Restated Declaration of Trust Registrant's Registration
dated February 28, 1992. Statement on Form N-1A and
incorporated herein by
reference.
1.1 Amendment to Registrant's Filed as Exhibit 1.1 to
Declaration of Trust dated Registrant's Registration
September 14, 1993. Statement on Form N-1A and
incorporated herein by
reference.
2.1 Amended and Restated By-Laws Filed as Exhibit 2 to the
of Registrant as adopted on Registrant's Registration
December 8, 1993. Statement on Form N-1A and
incorporated herein by
reference.
2.2 Amendment to By-Laws of Filed as Exhibit 2.1 to
Registrant dated the Registrant's
December 13, 1994. Registration Statement on
Form N-1A and incorporated
herein by reference.
3. Not applicable.
4. Form of Agreement and Plan of Filed herewith as Exhibit
Reorganization between the A to the Proxy Statement
Registrant, on behalf of John and Prospectus included as
Hancock Growth Fund, and Part A of this
John Hancock Capital Growth Registration Statement on
Fund Form N-14.
5. Not applicable.
<PAGE>
6. Investment Management Contract Filed as Exhibit 5 to
between the Registrant, on Registrant's Registration
behalf of John Hancock Growth Statement on Form N-1A and
Fund, and John Hancock Advisers, incorporated herein by
Inc. reference.
7.1 Distribution Agreement between Filed as Exhibit 6 to
the Registrant, on behalf of Registrant's Registration
John Hancock Growth Fund, and Statement on Form N-1A and
John Hancock Funds, Inc. incorporated herein by
(formerly named John Hancock reference.
Broker Distribution Services,
Inc.)
7.2 Form of Soliciting Dealer Filed as Exhibit 6.1 to
Agreement between John Hancock Registrant's Registration
Funds, Inc. and Selected Dealers Statement on Form N-1A and
incorporated herein by
reference.
7.3 Form of Financial Institution Filed as Exhibit 6.2 to
Sales and Service Agreement Registrant's Registration
between John Hancock Funds, Inc. Statement on Form N-1A and
and Selected Financial incorporated herein by
Institutions. reference.
8. Not applicable.
9. Master Custodian Agreement Filed as Exhibit 8 to
between John Hancock Mutual Registrant's Registration
Funds (including Registrant) and Statement on Form N-1A and
Investors Bank & Trust Company. incorporated herein by
reference.
10.1 Class A Distribution Plan between Filed as Exhibit 15 to
John Hancock Growth Fund and Registrant's Registration
John Hancock Funds, Inc. Statement on Form N-1A and
incorporated herein by
reference.
10.2 Class B Distribution Plan between Filed as Exhibit 15.3 to
John Hancock Growth Fund and Registrant's Registration
John Hancock Funds, Inc. Statement on Form N-1A and
incorporated herein by
reference.
- 2 -
<PAGE>
10.3 Class A Distribution Plan between Filed as Exhibit 15 to
John Hancock Capital Growth John Hancock Capital
and John Hancock Funds, Inc. Growth Fund's Registration
Statement on Form N-1A and
incorporated herein by
reference.
10.4 Class B Distribution Plan between Filed as Exhibit 15.2 to
John Hancock Capital Growth Fund John Hancock Capital
and John Hancock Funds, Inc. Growth Fund's Registration
Statement on Form N-1A and
incorporated herein by
reference.
11. Opinion as to legality of Filed herewith as Exhibit
shares, and consent. 11.
12. Form of Opinion as to Filed herewith as Exhibit
tax matters. 12.
13. Not applicable.
14. Consent of Ernst & Young LLP Filed herewith as Exhibit
regarding the financial 14.
statements and highlights of
John Hancock Capital Growth
Fund and John Hancock Growth
Fund.
15. Not applicable.
16. Powers of Attorney. Filed as addendum to
signature pages of
Registrant's Registration
Statement on Form N-1A and
incorporated herein by
reference.
17.1 Declaration of the Registrant Filed herewith as Exhibit
pursuant to Rule 24f-2 under 17.1.
the Investment Company Act of
1940.
17.2 Prospectus of John Hancock Filed herewith as Exhibit
Capital Growth Fund for Class 17.2.
A and Class B shares, dated
May 1, 1995.
ITEM 17. UNDERTAKINGS.
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a prospectus
which is a part of this Registration Statement by any person or party
who is deemed to be an underwriter within the
- 3 -
<PAGE>
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.
(3) The undersigned Registrant agrees that it will furnish to each
person to whom a Prospectus of the Registrant is delivered a copy of
the latest annual report to shareholders of the Registrant, upon
request and without charge.
- 4 -
<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 13th day of June,
1995.
JOHN HANCOCK CAPITAL SERIES
By:/s/Edward J. Boudreau, Jr.
-------------------------
Edward J. Boudreau, Jr.
Chairman and Trustee
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated:
Signature Title
/s/ Edward J. Boudreau, Jr. Chairman and Trustee )
-------------------------- (Principal Executive )
Edward J. Boudreau, Jr. Officer) )
)
) June 13, 1995
)
/s/James B. Little Senior Vice President )
------------------ and Chief Financial )
James B. Little Officer (Principal )
Financial and )
Accounting Officer) )
Trustees:
Dennis S. Aronowitz Trustee )
------------------- )
Dennis S. Aronowitz )
)
)
Richard P. Chapman* Trustee )
------------------ )
Richard P. Chapman )
- 5 -
<PAGE>
)
)
William J. Cosgrove* Trustee )
-------------------- )
William J. Cosgrove )
)
)
Gail D. Fosler* Trustee )
--------------- )
Gail D. Fosler )
)
)
Bayard Henry* Trustee )
------------- )
Bayard Henry )
)
)
Richard S. Scipione* Trustee )
-------------------- )
Richard S. Scipione )
)
)
Edward J. Spellman* Trustee )
------------------- )
Edward J. Spellman )
)
)
--------------
*By:/s/Thomas H. Drohan Dated: June 13, 1995
-------------------
Thomas H. Drohan, Attorney-in-fact
- 6 -
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as part of this Registration
Statement.
Exhibit No. Description
4. Form of Agreement and Plan of
Reorganization Between the
Registrant, on behalf of John
Hancock Growth Fund, and John
Hancock Capital Growth Fund.
11. Opinion as to legality of shares, and
consent.
12. Form of Opinion as to tax matters.
14. Consent of Ernst & Young LLP
regarding the financial statements
and highlights of John Hancock Growth
Fund and John Hancock Capital Growth Fund.
17.1 Declaration of the Registrant pursuant
to Rule 24f-2 under the Investment
Company Act of 1940.
17.2 Prospectus of John Hancock Capital Growth
Fund for Class A and Class B shares, dated
May 1, 1995.
- 7 -
EXHIBIT 11
June 14, 1995
John Hancock 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 1993, as amended (the "Act"), on Form N-14, with respect to
the shares of beneficial interest of John Hancock Growth Fund ("the Fund"), a
series of John Hancock Capital Series, a Massachusetts business trust (the
"Trust"), it is the opinion of the undersigned that these shares when issued
will be legally issued, fully paid and nonassessable.
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 such
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 such 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, with the
Securities and Exchange Commission and with the various state securities
administrators.
Sincerely,
JOHN HANCOCK ADVISERS, INC.
/s/ Avery P. Maher
- ------------------
Avery P. Maher
Assistant Secretary
Member of Massachusetts Bar
APM/dmm
s:\corpsec\corresp\maher\letter\95june14.doc
EXHIBIT 12
, 1995
Board of Trustees
John Hancock Capital Growth Fund
101 Huntington Avenue
Boston, Massachusetts 02199
Board of Trustees
John Hancock Capital Series, on behalf of
John Hancock Growth Fund
101 Huntington Avenue
Boston, Massachusetts 02199
Dear Members of the Boards of Trustees:
You have requested our opinion regarding the federal income tax
consequences of the acquisition by John Hancock Growth Fund ("Acquiring
Fund"), a series of John Hancock Capital Series (the "Trust"), of all
of the assets of John Hancock Capital Growth 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 and Class
B voting shares of beneficial interest of Acquiring Fund (the
"Acquiring Fund Shares") to Acquired Fund, followed by the distribution
by Acquired Fund, in liquidation of 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 (i)
the prospectus for the Class A and Class B shares of Acquired Fund,
dated May 1, 1995, (ii) the statement of additional information for the
Class A and Class B shares of Acquired Fund, dated May 1, 1995, (iii)
the prospectus for the Class A and Class B shares of Acquiring Fund,
dated May 1, 1995, (iv) the statement of additional information for the
Class A and Class B shares of Acquiring Fund, dated May 1, 1995, (v)
the registration statement on Form N-14 of Acquired Fund relating to
the transaction (the "Registration Statement") filed with the
Securities and Exchange Commission (the "SEC") on June __, 1995,
<PAGE>
Boards of Trustees
John Hancock Capital Growth Fund
John Hancock Capital Series
, 1995
Page 2
(vi) the proxy statement/prospectus relating to the transaction (the
"Proxy Statement") included in the Registration Statement, (vii) the
Agreement and Plan of Reorganization, dated as of
, 1995, between the Trust, on behalf of Acquiring Fund,
and Acquired Fund (the "Agreement"), (viii) the representation letters
on behalf of Acquiring Fund and Acquired Fund referred to below and
(ix) such other documents as we deemed appropriate. We have assumed
that all parties to the Agreement and to other documents relating to
the transaction have acted and will act in accordance with the terms of
the Agreement and such other documents.
The conclusions expressed herein represent our judgment regarding
the proper treatment of 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, all of which are subject to prospective or
retroactive change. Our opinion represents our best judgment regarding
the issues presented 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.
Acquiring Fund is a series of a business trust, the Trust, which
was established under the laws of The Commonwealth of Massachusetts in
1984 and is registered as an open-end investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Trust
has two series and may create additional series in the future. Each
series of the Trust has separate assets and liabilities from those of
each other series. Each such series is treated as a separate
corporation and regulated investment company pursuant to Section 851(h)
of the Code.
The investment objective of Acquiring Fund is to achieve long-term
appreciation of capital. Acquiring Fund seeks to achieve its investment
objective by investing principally in common stocks (and in securities
convertible into or with rights to purchase common stocks) of companies
believed to offer outstanding growth potential over both the
intermediate and long term. Acquiring Fund may also enter into
repurchase agreements, lend portfolio securities, invest to a limited
extent in junk bonds, and acquire certain other investments, as
described in its prospectus.
<PAGE>
Boards of Trustees
John Hancock Capital Growth Fund
John Hancock Capital Series
, 1995
Page 3
Acquired Fund is a business trust established under the laws of
The Commonwealth of Massachusetts in 1984 and registered as an open-end
investment company under the 1940 Act.
The primary investment objective of Acquired Fund is capital
appreciation. In normal circumstances, at least 65% of Acquired Fund's
total assets will be invested in domestic or foreign equity securities,
including securities convertible into or exchangeable for equity
securities. Acquired Fund may also invest in preferred stocks and
investment grade debt securities, enter into certain options and
futures transactions, and acquire certain other investments, as
described in its prospectus.
The steps to be taken in the reorganization, as set forth in the
Agreement, will be as follows:
(i) Acquired Fund will transfer to Acquiring Fund all of its
assets (consisting, without limitation, of portfolio securities and
instruments, dividend and interest receivables, cash and other assets).
In exchange for the assets transferred to it, Acquiring Fund will (A)
assume all of the liabilities of Acquired Fund (comprising all of its
known and unknown liabilities and referred to hereinafter as the
"Acquired Fund Liabilities") and (B) issue Acquiring Fund Shares to
Acquired Fund that have an aggregate net asset value equal to the value
of the assets transferred to Acquiring Fund by Acquired Fund, less the
value of the Acquired Fund Liabilities assumed by Acquiring Fund.
(ii) Promptly after the transfer of its assets to Acquiring
Fund, Acquired Fund will distribute in liquidation the Acquiring Fund
Shares it receives in the exchange to Acquired Fund shareholders pro
rata in exchange for their surrender of their shares of Acquired Fund
("Acquired Fund Shares"). In these exchanges, holders of Acquired Fund
Shares designated as Class A ("Class A Acquired Fund Shares") will
receive Acquiring Fund Shares designated as Class A ("Class A Acquiring
Fund Shares"), and holders of Acquired Fund Shares designated as Class
B ("Class B Acquired Fund Shares") will receive Acquiring Fund Shares
designated as Class B ("Class B Acquiring Fund Shares").
(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 the Trust, on behalf of Acquiring
Fund, at a meeting held on May 1, 1995. Acquiring Fund shareholders are
not required and were not asked to approve the
<PAGE>
Boards of Trustees
John Hancock Capital Growth Fund
John Hancock Capital Series
, 1995
Page 4
transaction. The Agreement and the transactions contemplated thereby
were approved by the Board of Trustees of Acquired Fund at a meeting
held on May 16, 1995, subject to the approval of Acquired Fund
shareholders. Acquired Fund shareholders approved the transaction at a
meeting held on , 1995.
Massachusetts law does not provide dissenters' rights for Acquired
Fund shareholders in the transaction. Additionally, it is the position
of the Division of Investment Management of the SEC that appraisal
rights, in contexts such as the reorganization, are inconsistent with
Rule 22c-1 under the 1940 Act and are therefore preempted and
invalidated by such rule. Consequently, Acquired Fund shareholders will
not have dissenters' or appraisal rights in the transaction.
Our opinions set forth below are subject to the following factual
assumptions being true on the date the transaction is consummated,
i.e., the date of this opinion letter. Authorized representatives of
Acquiring Fund and Acquired Fund have represented to us by letters of
even date herewith that the following assumptions are true on this
date:
(a) Acquiring Fund has no plan or intention to redeem or otherwise
reacquire any of the Acquiring Fund Shares received by shareholders of
Acquired Fund in the transaction except in connection with its legal
obligation under Section 22(e) of the 1940 Act as a registered open-end
investment company to redeem its own shares.
(b) After the transaction, Acquiring Fund will continue the
historic business of Acquired Fund and will use all of the assets
acquired from Acquired Fund 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 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. If any
liabilities of Acquired Fund attributable to such expenses remain
unpaid on the closing date of the transaction and are assumed by
Acquiring Fund in the transaction, the amount assumed will be
<PAGE>
Boards of Trustees
John Hancock Capital Growth Fund
John Hancock Capital Series
, 1995
Page 5
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 its inception,
and qualifies as such for its final taxable year ending on the closing
date of the transaction.
(h) Acquiring Fund has elected to be treated as a regulated
investment company under Subchapter M of the Code, has qualified as a
regulated investment company for each taxable year since its inception,
and qualifies as such as of the date of the transaction.
(i) Neither Acquiring Fund nor Acquired Fund is under the
jurisdiction of a court in a Title 11 or similar case within the
meaning of Section 368(a)(3)(A) of the Code.
(j) Acquiring Fund does not own and since its inception has not
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
value of the Acquired Fund Liabilities assumed by Acquiring Fund.
(m) Acquired Fund shareholders will not be in control (within the
meaning of Sections 368(a)(2)(H) and 304(c) of the Code, which provide
that control means the ownership of shares possessing at least 50% of
the total combined voting power of all classes of shares that are
entitled to vote or at least 50% of the total value of shares of all
classes) of Acquiring Fund after the transaction.
(n) The principal business purposes of the transaction are to
combine the assets of Acquiring Fund and Acquired Fund in order to
capitalize on economies of scale in expenses such as the costs
<PAGE>
Boards of Trustees
John Hancock Capital Growth Fund
John Hancock Capital Series
, 1995
Page 6
of accounting, legal, transfer agency, insurance, custodial, and
administrative services and to increase diversification.
(o) As of the date of the transaction, the fair market value of
the Class A Acquiring Fund Shares received by each holder of Class A
Acquired Fund Shares is approximately equal to the fair market value of
the Class A Acquired Fund Shares surrendered by such shareholder, and
the fair market value of the Class B Acquiring Fund Shares received by
each holder of Class B Acquired Fund Shares is approximately equal to
the fair market value of the Class B Acquired Fund Shares surrendered
by such shareholder.
(p) There is no plan or intention on the part of any shareholder
of Acquired Fund that owns beneficially 5% or more of the Acquired Fund
Shares and, to the best knowledge of management of Acquired Fund, there
is no plan or intention on the part of the remaining shareholders of
Acquired Fund to sell, redeem, exchange or otherwise dispose of a
number of the Acquiring Fund Shares received in the transaction that
would reduce the aggregate ownership of the Acquiring Fund Shares by
former Acquired Fund shareholders to a number of shares having a value,
as of the date of the transaction, of less than fifty percent (50%) of
the value of all of the formerly outstanding Acquired Fund Shares as of
the same date. Shares of Acquired Fund and Acquiring Fund held by
Acquired Fund shareholders and otherwise sold, redeemed, exchanged or
disposed of prior or subsequent to the transaction as part of the plan
of reorganization are taken into account for purposes of this
representation.
(q) Acquired Fund assets transferred to Acquiring Fund comprise at
least ninety percent (90%) of the fair market value of the net assets
of Acquired Fund and at least seventy percent (70%) of the fair market
value of the gross assets held by Acquired Fund immediately prior to
the transaction. For purposes of this representation, amounts used by
Acquired Fund to pay its outstanding liabilities, including
reorganization expenses, and all redemptions and distributions (except
for redemptions in the ordinary course of business upon demand of a
shareholder that Acquired Fund is required to make as an open-end
investment company pursuant to Section 22(e) of the 1940 Act and
regular, normal dividends, which dividends include any final
distribution of previously undistributed investment company taxable
income and net capital gain for Acquired Fund's final taxable year
ending on the closing date of the transaction) made by Acquired Fund
immediately preceding the transaction are taken into account as assets
of Acquired Fund held immediately prior to the transaction.
<PAGE>
Boards of Trustees
John Hancock Capital Growth Fund
John Hancock Capital Series
, 1995
Page 7
(r) The Acquired Fund Liabilities assumed by Acquiring Fund plus
the liabilities, if any, to which the transferred assets are subject
were incurred by Acquired Fund in the ordinary course of its business
or are expenses of the transaction.
(s) The fair market value of the Acquired Fund assets transferred
to Acquiring Fund equals or exceeds the sum of the Acquired Fund
Liabilities assumed by Acquiring Fund and the amount of liabilities, if
any, to which the transferred assets are subject.
(t) 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 Acquiring Fund and the amount of
liabilities, if any, to which the transferred assets are subject.
(u) Acquired Fund does not pay compensation to any
shareholder-employee.
(v) Acquired Fund has no outstanding warrants, options,
convertible securities or any other type of right pursuant to which any
person could acquire Acquired Fund Shares.
On the basis of and subject to the foregoing and in reliance upon
the representations described above, we are of the opinion that:
(a) The acquisition by Acquiring Fund of all of the assets of
Acquired Fund solely in exchange for the issuance of Acquiring Fund
Shares to Acquired Fund and the assumption of all of the Acquired Fund
Liabilities by Acquiring Fund, followed by the distribution by Acquired
Fund, in liquidation of Acquired Fund, of Acquiring Fund Shares to
Acquired Fund shareholders in exchange for their Acquired Fund Shares
and the termination of Acquired Fund, will constitute a
"reorganization" within the meaning of Section 368(a)(1)(C) of the
Code. Acquiring Fund and Acquired Fund will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code.
(b) No gain or loss will be recognized by Acquired Fund upon (i)
the transfer of all of its assets to Acquiring Fund solely in exchange
for the issuance of Acquiring Fund Shares to Acquired Fund and the
assumption of all of the Acquired Fund Liabilities by Acquiring Fund
and (ii) the distribution by Acquired Fund of such Acquiring Fund
Shares to the shareholders of Acquired Fund (Sections 361(a) and 361(c)
of the Code).
<PAGE>
Boards of Trustees
John Hancock Capital Growth Fund
John Hancock Capital Series
, 1995
Page 8
(c) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Acquired Fund solely in exchange for the
issuance of Acquiring Fund Shares to Acquired Fund and the assumption
of all of the Acquired Fund Liabilities by Acquiring Fund (Section
1032(a) of the Code).
(d) The basis of the assets of Acquired Fund acquired by Acquiring
Fund will be, in each instance, the same as the basis of such 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)(l) 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 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.
Very truly yours,
Hale and Dorr
EXHIBIT 14
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the Proxy
Statement and Prospectus and to the use, in this Registration Statement (Form
N-14) dated June 15, 1995, of our report on the financial statements and
financial highlights of John Hancock Capital Growth Fund, dated February 3, 1995
and our report on the financial statements and financial highlights of John
Hancock Growth Fund, a series of John Hancock Capital Series, dated February 13,
1995.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Boston, Massachusetts
June 9, 1995
EXHIBIT 17.1
Registration No. 2-29502
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
Pre-Effective Amendment No .
Post-Effective Amendment No. 28
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 7
(Check appropriate box or boxes)
___________________________
JOHN HANCOCK GROWTH TRUST
(Exact name of registrant as specified in charter)
John Hancock Place
P.O. Box 111
Boston, MA 02117
(Address of principal executive offices)
Registrant's Telephone Number -- (617) 421-4506
R. Bruce Oliver
John Hancock Advisers, Inc.
John Hancock Place
P.O. Box 111
Boston, MA 02117
(Name and Address of Agent for Service)
Copies to:
Woodrow W. Campbell, Jr. Esq. Richard S. Scipione, Esq
Debevoise & Plimpton John Hancock Mutual Life Insurance Company
875 Third Avenue John Hancock Place, P.O. Box 111
New York, NY 10022 Boston, MA 02117
______________________________
It is proposed that this filing will be come effective:
On April 30, 1985 pursuant to paragraph (b).
______________________________
Pursuant to Rule 24f-2(a)(1) under the Investment Company Act of 1940,
Registrant has registered an indefinite number of shares under the Securities
Act of 1933, and Registrant's rule 24f-2 Notice for fiscal year ended December
31, 1984 was filed on
February 22, 1985.
EXHIBIT 17.2
JOHN HANCOCK
CAPITAL GROWTH
FUND
CLASS A AND CLASS B SHARES
PROSPECTUS
MAY 1, 1995
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Expense Information................................................................... 2
The Fund's Financial Highlights....................................................... 3
Investment Objective and Policies..................................................... 5
Organization and Management of the Fund............................................... 7
Alternative Purchase Arrangements..................................................... 8
The Fund's Expenses................................................................... 10
Dividends and Taxes................................................................... 10
Performance........................................................................... 12
How to Buy Shares..................................................................... 13
Share Price........................................................................... 14
How to Redeem Shares.................................................................. 21
Additional Services and Programs...................................................... 23
Investments, Techniques and Risk Factors.............................................. 26
</TABLE>
This Prospectus sets forth the information about John Hancock Capital Growth
Fund (the "Fund"), a diversified fund, that you should know before investing.
Please read and retain it for future reference.
Additional information about the Fund has been filed with the Securities and
Exchange Commission (the "SEC"). You can obtain a copy of the Fund's Statement
of Additional Information, dated May 1, 1995 and incorporated by reference into
this Prospectus, free of charge by writing or telephoning: John Hancock Investor
Services Corporation, P.O. Box 9116, Boston, Massachusetts 02205-9116,
1-800-225-5291 (1-800-554-6713 TDD).
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
EXPENSE INFORMATION
The purpose of the following information is to help you to understand the
various fees and expenses you will bear, directly or indirectly, when you
purchase Fund shares. The operating expenses included in the table and
hypothetical example below are based on fees and expenses for the Fund's fiscal
year ended December 31, 1994 adjusted to reflect certain current expenses.
Actual fees and expenses in the future may be greater or less than those
indicated.
<TABLE>
<CAPTION>
CLASS A CLASS B
SHARES SHARES
------- -------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases (as a percentage of offering price).................... 5.00% None
Maximum sales charge imposed on reinvested dividends............................................. None None
Maximum deferred sales charge.................................................................... None* 5.00%
Redemption fee+.................................................................................. None None
Exchange fee..................................................................................... None None
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)
Management fee................................................................................... 0.63% 0.63%
12b-1 fee***..................................................................................... 0.25% 1.00%
Other expenses**................................................................................. 0.71% 0.71%
Total Fund operating expenses.................................................................... 1.59% 2.34%
</TABLE>
* No sales charge is payable at the time of purchase on investments of $1
million or more, but for these investments a contingent deferred sales
charge may be imposed, as described below under the caption "Share Price,"
in the event of certain redemption transactions within one year of purchase.
** Other Expenses include transfer agent, legal, audit, custody and other
expenses.
*** The amount of the 12b-1 fee used to cover service expenses will be up to
0.25% of the Fund's average net assets, and the remaining portion will be
used to cover distribution expenses.
+ Redemption by wire fee (currently $4.00) not included.
<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses for the indicated period of years on a
hypothetical $1,000 investment, assuming 5% annual return
Class A Shares...................................................................... $ 65 $ 98 $ 132 $229
Class B Shares
-- Assuming complete redemption at end of period................................ $ 74 $ 103 $ 145 $249
-- Assuming no redemption....................................................... $ 24 $ 73 $ 125 $249
</TABLE>
(This example should not be considered a representation of past or future
expenses. Actual expenses may be greater or lesser than those shown.)
The Fund's payment of a distribution fee may result in a long-term shareholder
indirectly paying more than the economic equivalent of the maximum front-end
sales charge permitted under the National Association of Securities Dealers,
Inc.'s Rules of Fair Practice.
The management and 12b-1 fees referred to above are more fully explained in
this Prospectus under the caption "The Fund's Expenses" and in the Statement of
Additional Information under the captions "Investment Advisory and Other
Services" and "Distribution Contract."
2
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
The following table of financial highlights has been audited by Ernst & Young
LLP, the Fund's independent auditors, whose unqualified report is included in
the Statement of Additional Information. Further information about the
performance of the Fund is contained in the Fund's Annual Report to shareholders
which may be obtained free of charge by writing or telephoning John Hancock
Investor Services Corporation ("Investor Services"), at the address or telephone
number listed on the front page of this Prospectus.
Selected data for each class of shares outstanding throughout each period is
as follows:
<TABLE>
<CAPTION>
CLASS A SHARES
--------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------
1994(1)(2) 1993(2) 1992(2) 1991(2) 1990(2)(3) 1989(2)(3) 1988(2)(3)
---------- ------- ------- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE INCOME AND CAPITAL
CHANGES FOR A SHARE
OUTSTANDING DURING EACH
PERIOD:
Net asset value, beginning of
period...................... $12.66 $11.90 $11.47 $ 9.82 $10.65 $ 9.00 $7.52
INCOME FROM INVESTMENT
OPERATIONS
Net investment income
(loss)...................... (0.02) (0.11) (0.14) (0.13) (0.09) 0.05 0.09
Net realized and unrealized
gain (loss) on
investments................. (1.42) 0.87 0.76 3.73 (0.60) 1.82 1.45
----- ------- ------- ------- ------- ------- ------
Total from Investment
Operations.................. (1.44) 0.76 0.62 3.60 (0.69) 1.87 1.54
LESS DISTRIBUTIONS
Dividends from net investment
income...................... -- -- -- -- (0.01) (0.07) (0.06)
Distributions from realized
gains....................... (0.29) -- (0.19) (1.95) (0.13) (0.15) --
----- ------- ------- ------- ------- ------- ------
Total Distributions.......... (0.29) -- (0.19) (1.95) (0.14) (0.22) (0.06)
----- ------- ------- ------- ------- ------- ------
Net asset value, end of
period...................... $10.93 $12.66 $11.90 $11.47 $ 9.82 $10.65 $9.00
====== ======= ======= ======= ======= ======= ======
TOTAL RETURN(5).............. (11.34)% 6.39% 5.48% 38.00% (6.37)% 20.71% 20.42%
====== ======= ======= ======= ======= ======= ======
RATIOS AND SUPPLEMENTAL DATA
Ratio of expenses to average
net assets.................. 1.59% 1.46% 1.41% 1.68% 1.54% 1.83% 3.87%
Ratio of expense
reimbursement to average net
assets...................... -- -- -- -- -- -- (1.37)%
------ ------- ------- ------- ------- ------- ------
Ratio of net expenses to
average net assets.......... 1.59% 1.46% 1.41% 1.68% 1.54% 1.83% 2.50%
====== ======= ======= ======= ======= ======= ======
Ratio of net investment
income (loss) to average net
assets...................... (0.14)% (0.92)% (1.20)% (1.04)% (0.82)% 0.46% 1.01%
Portfolio turnover........... 290% 159 % 70 % 139% 152% 108% 220%
Net Assets, end of period
(in thousands).............. $70,090 $85,553 $94,861 $89,008 $56,794 $59,357 $5,851
<CAPTION>
CLASS A SHARES
----------------------------------------
YEAR ENDED
DECEMBER 31, PERIOD ENDED
---------------------- DECEMBER 31,
1987(2)(3) 1986(3) 1985(4)(3)
---------- ------- -------------
<S> <C> <C> <C>
PER SHARE INCOME AND CAPITAL
CHANGES FOR A SHARE
OUTSTANDING DURING EACH
PERIOD:
Net asset value, beginning of
period...................... $6.87 $6.56 $5.45
INCOME FROM INVESTMENT
OPERATIONS
Net investment income
(loss)...................... (0.08) (0.06) (0.03)
Net realized and unrealized
gain (loss) on
investments................. 1.69 1.83 1.14
----- ------ -----
Total from Investment
Operations.................. 1.61 1.77 1.11
LESS DISTRIBUTIONS
Dividends from net investment
income...................... -- -- --
Distributions from realized
gains....................... (0.96) (1.46) --
----- ------- -----
Total Distributions.......... (0.96) (1.46) --
----- ------ -----
Net asset value, end of
period...................... $7.52 $6.87 $6.56
===== ====== =====
TOTAL RETURN(5).............. 22.43% 27.10% 20.50%
===== ====== =====
RATIOS AND SUPPLEMENTAL DATA
Ratio of expenses to average
net assets.................. 5.57% 20.94% 4.43%
Ratio of expense
reimbursement to average net
assets...................... (3.07)% (19.45)% (3.84)%
----- ------ -----
Ratio of net expenses to
average net assets.......... 2.50% 1.49% 0.59%
===== ====== =====
Ratio of net investment
income (loss) to average net
assets...................... (0.88)% (1.11)% (0.52)%
Portfolio turnover........... 272% 267% 36%
Net Assets, end of period
(in thousands).............. $3,910 $208 $164
</TABLE>
- ---------------
(1) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser. Prior to this date, Transamerica Fund Management Company was the
investment adviser.
(2) Per share information has been calculated using the average number of shares
outstanding.
(3) Per share information has been adjusted retroactively for the 2 for 1 stock
split to shareholders of record on September 10, 1990.
(4) Financial highlights, including total return, are for the period September
26, 1985 (date that the Fund's initial registration statement under the
Securities Act of 1933 became effective) to December 31, 1985 and have not
been annualized.
(5) Total return does not include the effect of the initial sales charge for
Class A Shares.
3
<PAGE>
<TABLE>
<CAPTION>
CLASS B SHARES
-----------------------------------
PERIOD FROM
YEAR ENDED JUNE 30, 1993
DECEMBER 31, TO DECEMBER 31,
1994(1)(2) 1993(2)(3)
------------- ---------------
<S> <C> <C>
Per share income and capital changes for a share outstanding during each period:
Net asset value, beginning of period.................................................... $12.59 $11.28
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)............................................................ (0.09) (0.07)
Net realized and unrealized gain (loss) on investments.................................. (1.41) 1.38
------- ------
Total from Investment Operations........................................................ (1.50) 1.31
LESS DISTRIBUTIONS
Dividends from net investment income.................................................... -- --
Distributions from realized gains....................................................... (0.29) --
------- ------
Total Distributions..................................................................... (0.29) --
------- ------
Net asset value, end of period.......................................................... $10.80 $12.59
======= ======
Total Return(4)......................................................................... (11.88)% 11.61%
======= ======
RATIOS AND SUPPLEMENTAL DATA
Ratio of expenses to average net assets................................................. 2.34% 1.06%
Ratio of expense reimbursement to average net assets.................................... -- --
------- ------
Ratio of net expenses to average net assets............................................. 2.34% 1.06%
======= ======
Ratio of net investment income (loss) to average net assets............................. (0.89)% (0.54)%
Portfolio turnover...................................................................... 290% 159%
Net Assets, end of period (in thousands)................................................ $16,652 $440
</TABLE>
- ---------------
(1) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser. Prior to this date, Transamerica Fund Management Company was the
investment adviser.
(2) Per share information has been calculated using the average number of shares
outstanding.
(3) Financial highlights, including total return, have not been annualized.
Portfolio turnover is for the year ended December 31, 1993.
(4) Total return does not include the effect of the contingent deferred sales
charge for Class B Shares.
4
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's primary objective is capital appreciation. Current income may be
incidental and is not an important factor in the selection of portfolio
securities. In normal circumstances, at least 65% of the Fund's total assets
will be invested in domestic or foreign equity securities (i.e., both dividend
and non-dividend paying common stocks or securities which are convertible or
exchangeable for such stocks including warrants). While investment in equity
securities for long-term capital appreciation will be emphasized, investments
for short-term capital appreciation may be made from time to time when such
action is believed by John Hancock Advisers Inc. (the "Adviser") to be desirable
and consistent with sound investment practice. The Fund maintains a flexible
investment approach toward types of companies as well as types of industries and
market sectors depending upon such factors as the economic and industry
environment, market conditions and the relative attractiveness of various market
sectors and industries. See "Investments, Techniques and Risk Factors" for a
discussion of the risks of investing in foreign securities.
- -------------------------------------------------------------------------------
THE FUND'S PRIMARY OBJECTIVE IS CAPITAL
APPRECIATION.
- -------------------------------------------------------------------------------
Under favorable economic and market conditions, as determined by the Adviser,
the Fund will pursue its investment objective aggressively. For example, a
substantial portion of the Fund's portfolio may at times be fully invested in
equity securities that the Adviser believes to have the greatest potential for
capital appreciation and which, therefore, may be more volatile over the short
and medium terms than other types of investments. Under less favorable economic,
industry and market conditions, the Fund would employ a less aggressive
investment management strategy.
The Fund's investments, at any given time, may include or emphasize securities
of smaller, less well established companies as well as those of larger or better
established companies and may include securities traded over-the-counter as well
as those traded on a primary exchange. Because these smaller, rapidly growing
companies may still be in an early developmental stage, they are subject to
additional risks, and their securities will typically have more market
volatility than the equity securities of larger, well-established companies.
Developing companies often have limited product lines, markets or financial
resources or they may be dependent upon a limited management group. The Fund may
invest in newly issued securities of startup companies or companies whose
securities have not previously been publicly traded, provided that no more than
10% of the Fund's total assets will be invested in securities of companies
having a record, together with predecessors, of less than three years continuous
operation. Such unseasoned issuers share similar risks to developing companies
described above.
The Fund will ordinarily diversify its investments among various industries;
however, the Fund has as an investment restriction that, even at times when it
emphasizes its investments in a limited number of industries, no more than 25%
of its assets will be invested in any one industry. To the extent the Fund
invests in a group of industries which has common characteristics, the Fund will
be subject to the similar risks affecting that group. Groups of industries
include, but are not
5
<PAGE>
limited to, construction, energy, health care, financial services, consumer
products/services, technology and transportation.
Since the Fund may pursue its goal of capital appreciation aggressively, the
Fund may emphasize those industries which have not reached maturity of product
development or growth in demand or market segmentation. In addition, the Fund's
diversification policy permits more than 25% of the Fund's assets to be held in
a group of similar industries (i.e., certain industries overlap in particular
respects, creating a "sector.") For example, the biotechnology, electronics,
computer and telecommunications industries include companies whose products,
processes or services are derived from or applied to commercial utilization of
technological or scientific advancements. Although the Fund will be required to
invest in at least four industries, when the Fund should emphasize investment in
a sector characterized by the common elements held by a group of industries, the
Fund will be especially subject to the particular common risks affecting that
group. Companies in the technology sector, for example, face the lack of
commercial acceptance of a new product or process from technological change or
obsolescence.
OTHER INVESTMENTS. Under normal circumstances, up to 35% of the Fund's assets
may be invested in investment grade debt securities and preferred stocks which
are believed to offer opportunities for long-term capital appreciation (e.g.,
where interest rates are expected to decline or the credit rating of the issuer
is expected to improve). For defensive purposes of preserving capital, the Fund
may temporarily invest without limit in investment grade debt securities,
repurchase agreements or preferred stocks or hold its assets in cash. During
such times, the Fund would not be pursuing its investment objective. Bonds rated
BBB or lower by Standard & Poor's Ratings Group ("S&P") or Baa by Moody's
Investor Services, Inc. ("Moody's"), although of investment quality, may have
speculative characteristics as well. The prices of fixed-income securities in
which the Fund may invest will generally increase as market rates of interest
fall and will decrease as market rates of interest rise. The amount of the
increase or decrease in the price of a fixed-income security in response to a
given change in interest rates is typically dependent upon the maturity of the
security, with longer term securities being more volatile than shorter term
securities such as money market instruments.
The Fund may purchase and write (sell) options on securities in which it may
invest and on securities indices and may purchase and sell securities index
futures and options on such futures. Options and futures contracts are generally
considered to be "derivative" instruments because they derive their value from
the performance of an underlying asset, index or other economic benchmark. See
"Investments, Techniques and Risk Factors" for additional discussion of
derivative instruments.
- -------------------------------------------------------------------------------
THE FUND MAY EMPLOY CERTAIN INVESTMENT
STRATEGIES TO HELP ACHIEVE ITS INVESTMENT
OBJECTIVE.
- -------------------------------------------------------------------------------
The Fund may invest without limitation in securities of foreign issuers and in
connection with such investments may enter into contracts to purchase and sell
foreign currency, may lend its portfolio securities, enter into repurchase
agreements and reverse repurchase agreements, purchase restricted and illiquid
securities and purchase securities on a when-issued or delayed delivery basis.
The Fund may, from time to time, engage in leverage, a practice which involves
borrowing
6
<PAGE>
money from banks for investing in portfolio securities. The use of leverage,
whether through direct borrowing from banks or engaging in reverse repurchase
agreements, is considered a speculative investment technique. See "Investments,
Techniques and Risk Factors" for more information about the Fund's investments.
The Fund has adopted certain investment restrictions which are enumerated in
detail in the Statement of Additional Information where they are classified as
fundamental or nonfundamental. Those restrictions designated as fundamental may
not be changed without shareholder approval. The Fund's investment objective and
its investment policies may be changed by a vote of the Trustees without
shareholder approval. Shareholders will be given 60 days advance written notice
of a change to the Fund's investment objective and its policy to invest, under
normal market conditions, 65% of its assets in equity securities of domestic and
foreign issuers. Notwithstanding the Fund's fundamental investment restriction
prohibiting investments in other investment companies, the Fund may, pursuant to
an order granted by the SEC, invest in other investment companies in connection
with a deferred compensation plan for the non-interested trustees of the John
Hancock Group of Funds. There can be no assurance that the Fund will achieve its
investment objective.
- -------------------------------------------------------------------------------
THE FUND FOLLOWS CERTAIN POLICIES WHICH
MAY HELP TO REDUCE INVESTMENT RISK.
- -------------------------------------------------------------------------------
RISK FACTORS. The Fund's investments will be subject to market fluctuation and
other risks inherent in all securities. The return and price volatility of the
Fund depend on the type and quality of its investments as well as market and
other factors. In addition, the Fund's potential investments and management
techniques may entail specific risks. There can be no assurance that the Fund
will achieve its investment objective. For additional information about risks
associated with an investment in the Fund, see "Investments, Techniques and Risk
Factors."
The primary consideration in choosing brokerage firms to carry out the Fund's
transactions is execution at the most favorable prices, taking into account the
broker's professional ability and quality of service. Consideration may also be
given to the broker's sales of Fund shares. Pursuant to procedures determined by
the Trustees, the Adviser may place securities transactions with brokers
affiliated with the Adviser. The brokers include Tucker Anthony Incorporated,
Sutro and Company, Inc. and John Hancock Distributors, Inc., which are
indirectly owned by the John Hancock Mutual Life Insurance Company (the "Life
Company"), which in turn indirectly owns the Adviser.
- -------------------------------------------------------------------------------
BROKERS ARE CHOSEN ON BEST PRICE AND
EXECUTION.
- -------------------------------------------------------------------------------
ORGANIZATION AND MANAGEMENT OF THE FUND
The Fund is a diversified open-end management investment company organized as a
Massachusetts business trust in 1984. The Fund reserves the right to create and
issue a number of series of shares, or funds or classes thereof, which are
separately managed and have different investment objectives. The Fund is not
required to and does not intend to hold annual meetings of shareholders,
although special meetings may be held for such purposes as electing or removing
Trustees, changing fundamental policies or approving a management contract. The
Fund, under certain circumstances, will assist in shareholder communications
with other shareholders.
- -------------------------------------------------------------------------------
THE TRUSTEES ELECT OFFICERS AND RETAIN THE
INVESTMENT ADVISER WHO IS RESPONSIBLE FOR
THE DAY-TO-DAY OPERATIONS OF THE FUND,
SUBJECT TO THE TRUSTEES' POLICIES AND
SUPERVISION.
- -------------------------------------------------------------------------------
7
<PAGE>
The Adviser was organized in 1968 and is a wholly-owned indirect subsidiary of
the Life Company, a financial services company. The Adviser provides the Fund,
and other investment companies in the John Hancock group of funds, with
investment research and portfolio management services. John Hancock Funds, Inc.
("John Hancock Funds") distributes shares for all of the John Hancock mutual
funds through Selling Brokers. Certain Fund officers are also officers of the
Adviser and John Hancock Funds. Investment decisions are made primarily by the
portfolio manager, Ben Hock. Mr. Hock has served as the Fund's portfolio manager
since August 1993. Prior to managing the Fund, Mr. Hock was senior vice-
president at Securities Management Research and at Interfirst Investment
Management.
- -------------------------------------------------------------------------------
JOHN HANCOCK ADVISERS, INC. ADVISES
INVESTMENT COMPANIES HAVING A TOTAL ASSET
VALUE OF APPROXIMATELY $13 BILLION.
- -------------------------------------------------------------------------------
In order to avoid any conflict 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:
preclearance 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.
ALTERNATIVE PURCHASE ARRANGEMENTS
You can purchase shares of the Fund at a price equal to their net asset value
per share plus a sales charge. At your election, this charge may be imposed
either at the time of the purchase (see "Initial Sales Charge Alternative,"
Class A shares) or on a contingent deferred basis (the "Contingent Deferred
Sales Charge Alternative," Class B shares). If you do not specify on your
account application the class of shares you are purchasing, it will be assumed
that you are investing in Class A shares.
- -------------------------------------------------------------------------------
AN ALTERNATIVE PURCHASE PLAN ALLOWS YOU TO
CHOOSE THE METHOD OF PAYMENT THAT IS BEST
FOR YOU.
- -------------------------------------------------------------------------------
CLASS A SHARES. If you elect to purchase Class A shares, you will incur an
initial sales charge unless the amount of your purchase is $1 million or more.
If you purchase $1 million or more of Class A shares, you will not be subject to
an initial sales charge, but you will incur a sales charge if you redeem your
shares within one year of purchase. Class A shares are subject to ongoing
distribution and service fees at a combined annual rate of up to 0.25% of the
Fund's average daily net assets attributable to the Class A shares. Certain
purchases of Class A shares qualify for reduced initial sales charges. See
"Share Price -- Qualifying for a Reduced Sales Charge."
- -------------------------------------------------------------------------------
INVESTMENTS IN CLASS A SHARES ARE SUBJECT
TO AN INITIAL SALES CHARGE.
- -------------------------------------------------------------------------------
CLASS B SHARES. You will not incur a sales charge when you purchase Class B
shares, but the shares are subject to a sales charge if you redeem them within
six years of purchase (the "contingent deferred sales charge" or the "CDSC").
Class B shares are subject to ongoing distribution and service fees at a
combined annual rate of up to 1.00% of the Fund's average daily net assets
attributable to the Class B shares. Investing in Class B shares permits all of
your dollars to work from the time you make your investment, but the higher
ongoing distribution fee will cause these shares to have higher expenses than
those of Class A shares. To the
- -------------------------------------------------------------------------------
INVESTMENTS IN CLASS B SHARES ARE SUBJECT
TO A CONTINGENT DEFERRED SALES CHARGE.
- -------------------------------------------------------------------------------
8
<PAGE>
extent that any dividends are paid by the Fund, these higher expenses will
also result in lower dividends than those paid on Class A shares.
Class B shares are not available for full-service defined contribution plans
administered by Investor Services or the Life Company that had more than 100
eligible employees at the inception of the Fund account.
FACTORS TO CONSIDER IN CHOOSING AN ALTERNATIVE. The alternative purchase
arrangement allows you to choose the most beneficial way to buy shares, given
the amount of your purchase, the length of time you expect to hold your shares
and other circumstances. You should consider whether, during the anticipated
life of your Fund investment, the CDSC and accumulated fees on Class B shares
would be less than the initial sales charge and accumulated fees on Class A
shares purchased at the same time, and to what extent this differential would be
offset by the Class A shares' lower expenses. To help you make this
determination, the table under the caption "Expense Information" on the inside
cover page of this Prospectus shows examples of the charges applicable to each
class of shares. Class A shares will normally be more beneficial if you qualify
for reduced sales charges. See "Share Price -- Qualifying for a Reduced Sales
Charge."
- -------------------------------------------------------------------------------
YOU SHOULD CONSIDER WHICH CLASS OF SHARES
WOULD BE MORE BENEFICIAL TO YOU.
- -------------------------------------------------------------------------------
Class A shares are subject to lower distribution fees and, accordingly, pay
correspondingly higher dividends per share, to the extent any dividends are
paid. However, because initial sales charges are deducted at the time of
purchase, you would not have all of your funds invested initially and,
therefore, would initially own fewer shares. If you do not qualify for reduced
initial sales charges and expect to maintain your investment for an extended
period of time, you might consider purchasing Class A shares. This is because
the accumulated distribution and service charges on Class B shares may exceed
the initial sales charge and accumulated distribution and service charges on
Class A shares during the life of your investment.
Alternatively, you might determine that it is more advantageous to purchase
Class B shares to have all of your funds invested initially. However, you will
be subject to higher distribution and service fees and, for a six-year period, a
CDSC.
In the case of Class A shares, the distribution expenses that John Hancock Funds
incurs in connection with the sale of the shares will be paid from the proceeds
of the initial sales charge and ongoing distribution and service fees. In the
case of Class B shares, the expenses will be paid from the proceeds of the
ongoing distribution and service fees, as well as from the CDSC incurred upon
redemption within six years of purchase. The purpose and function of the Class B
shares' CDSC and ongoing distribution and service fees are the same as those of
the Class A shares' initial sales charge and ongoing distribution and service
fees. Sales personnel distributing the Fund's shares may receive different
compensation for selling each class of shares.
Dividends, if any, on Class A and Class B shares will be calculated in the same
manner, at the same time and on the same day. They also will be in the same
amount, except for differences resulting from each class bearing only its own
9
<PAGE>
distribution and service fees, shareholder meeting expenses and any incremental
transfer agency costs. See "Dividends and Taxes."
THE FUND'S EXPENSES
For managing its investment and business affairs, the Fund pays to the Adviser a
monthly fee of .625% of the Fund's average daily net assets.
The Class A and Class B shareholders have adopted distribution plans (each a
"Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act"). Under these Plans, the Fund will pay distribution and service fees
at an aggregate annual rate of up to 0.25% of the Class A shares' average daily
net assets and an aggregate annual rate of 1.00% of the Class B shares' average
daily net assets. In each case, up to 0.25% is for service expenses and the
remaining amount is for distribution expenses. The distribution fees will be
used to reimburse John Hancock Funds for its distribution expenses, including
but not limited to: (i) initial and ongoing sales compensation to Selling
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; (iii) unreimbursed
distribution expenses under the Fund's prior distribution plans; (iv)
distribution expenses incurred by other investment companies which sell all or
substantially all of their assets to, merge or otherwise engage in a
reorganization transaction with the Fund; and (v) with respect to Class B shares
only, interest expenses on unreimbursed distribution expenses. The service fees
will be used to compensate Selling Brokers for providing personal and account
maintenance services to shareholders.
- -------------------------------------------------------------------------------
THE FUND PAYS DISTRIBUTION AND SERVICE
FEES FOR MARKETING AND SALES-RELATED
SHAREHOLDER SERVICING.
- -------------------------------------------------------------------------------
In the event John Hancock Funds is not fully reimbursed for payments it makes or
expenses it incurs under the Class A Plan, these expenses will not be carried
beyond one year from the date they were incurred. Unreimbursed expenses under
the Class B Plan will be carried forward together with interest on the balance
of these unreimbursed expenses. For the fiscal year ended December 31, 1994, an
aggregate of $13,713 of distribution expenses or .08% of the average net assets
of the Fund's Class B Shares was not reimbursed or recovered by John Hancock
Funds through the receipt of deferred sales charges or Rule 12b-1 fees in prior
periods.
Information on the Fund's total expenses is in the Financial Highlights section
of this Prospectus.
DIVIDENDS AND TAXES
DIVIDENDS. The Fund generally declares and distributes dividends representing
all or substantially all of its net investment income, if any, annually. The
fund will distribute realized net short-term or long-term capital gains, if any,
annually after the close of the fiscal year (December 31).
Dividends are reinvested in additional shares of your class unless you elect the
option to receive them in cash. If you elect the cash option and the U.S. Postal
Service cannot deliver your checks, your election will be converted to the
10
<PAGE>
reinvestment option. Because of the higher expenses associated with Class B
shares, any dividends on these shares will be lower than those on the Class A
shares. See "Share Price."
TAXATION. Dividends from the Fund's net investment income, certain net foreign
currency gains and the Fund's net short-term capital gains are taxable to you as
ordinary income. Dividends from the Fund's net long-term capital gains are
taxable as long-term capital gains. These dividends are taxable, whether
received in cash or reinvested in additional shares. Certain dividends may be
paid by the Fund in January of a given year but may be taxable to you as if you
received them the previous December. Corporate shareholders may be entitled to
take the corporate dividends received deduction for dividends received from the
Fund that are attributable to dividends received by the Fund from U.S. domestic
corporations, subject to certain restrictions under the Internal Revenue Code of
1986, as amended (the "Code"). The Fund will send you a statement by January 31
showing the tax status of the dividends you received for the prior year.
- -------------------------------------------------------------------------------
YOU SHOULD KEEP YOUR ACCOUNT STATEMENTS
RECEIVED FROM THE FUND FOR YOUR PERSONAL
TAX RECORDS.
- -------------------------------------------------------------------------------
The Fund has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Code. As a regulated investment
company, the Fund will not be subject to Federal income tax on any net
investment income or net realized capital gains distributed to its shareholders
within the time period prescribed by the Code. When you redeem (sell) or
exchange shares, you may realize a taxable gain or loss.
On the account application, you must certify that the social security or other
tax-payer identification number you provide is correct and that you are not
subject to backup withholding of Federal income tax. If you do not provide this
information or are otherwise subject to this withholding, the Fund may be
required to withhold 31% of your taxable dividends, the proceeds of redemptions
or exchanges.
The Fund may be subject to foreign withholding taxes or other foreign taxes on
income (possibly including capital gains) on certain of its foreign investments,
if any, which will reduce the yield or return from those investments. The Fund
expects that it will generally not qualify to pass such taxes through to its
shareholders, who consequently will generally not include them in income or be
entitled to associated foreign tax credits or deductions.
In addition to Federal taxes, you may be subject to state, local or foreign
taxes with respect to your investment in and distributions from the Fund. A
state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent the Fund's distributions are
derived from interest on (or, in the case of intangibles taxes, the value of its
assets is attributable to) certain U.S. Government obligations, provided in some
states that certain thresholds for holdings of such obligations and/or reporting
requirements are satisfied. Non-U.S. shareholders and tax-exempt shareholders
are subject to different tax treatment not described above. You should consult
your tax adviser for specific advice.
11
<PAGE>
PERFORMANCE
The Fund's total return shows the overall dollar or percentage change in value
of a hypothetical investment in the Fund, assuming the reinvestment of all
dividends. Cumulative total return shows the Fund's performance over a period of
time. Average annual total return shows the cumulative return divided over the
number of years included in the period. Because average annual total return
tends to smooth out variations in the Fund's performance, you should recognize
that it is not the same as actual year-to-year results.
- -------------------------------------------------------------------------------
THE FUND MAY ADVERTISE ITS TOTAL RETURN.
- -------------------------------------------------------------------------------
Total return calculations are based on the overall change in value of a
hypothetical investment in the Fund. Total return calculations for Class A
shares generally include the effect of paying the maximum sales charge (except
as shown in "The Fund's Financial Highlights"). Investments at a lower sales
charge would result in higher performance figures. Total return for Class B
shares reflects the deduction of the applicable CDSC imposed on a redemption of
shares held for the applicable period. All calculations assume that all
dividends are reinvested at net asset value on the reinvestment dates during the
periods. Total return of Class A and Class B shares will be calculated
separately and, because each class is subject to different expenses, the total
return may differ with respect to that class for the same period. The relative
performance of the Class A and Class B shares will be affected by a variety of
factors, including the higher operating expenses attributable to the Class B
shares, whether the Fund's investment performance is better in the earlier or
later portions of the period measured and the level of net assets of the Classes
during the period. The Fund will include the total return of Class A and Class B
shares in any advertisement or promotional materials including Fund performance
data. The value of Fund shares, when redeemed, may be more or less than their
original cost. Total return is a historical calculation, and are not an
indication of future performance. See "Factors to Consider in Choosing an
Alternative."
12
<PAGE>
HOW TO BUY SHARES
- --------------------------------------------------------------------------------
The minimum initial investment in Class A and Class B shares is $1,000
($250 for group investments and retirement plans). Complete the Account
Application attached to this Prospectus. Indicate whether you are
purchasing Class A or Class B shares. If you do not specify which class of
shares you are purchasing, Investor Services will assume that you are
investing in Class A shares.
- -------------------------------------------------------------------------------
OPENING AN ACCOUNT
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------
BY CHECK 1. Make your check payable to John Hancock Investor Services
Corporation,
P.O. Box 9115, Boston, MA 02205-9115.
2. Deliver the completed application and check to your registered
representative, or broker with an agreement with John Hancock
Funds ("Selling Broker") or mail it directly to Investor
Services.
- ---------------------------------------------------------------------------------
BY WIRE 1. Obtain an account number by contacting your registered
representative or Selling Broker, or by calling 1-800-225-5291.
2. Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Capital Growth Fund
Class A or Class B shares
Your Account Number
Name(s) under which account is registered
3. Deliver the completed application to your registered
representative or Selling Broker or mail it directly to
Investor Services.
- ---------------------------------------------------------------------------------
MONTHLY 1. Complete the "Automatic Investing" and "Bank Information"
AUTOMATIC sections on the Account Privileges Application designating a
ACCUMULATION bank account from which funds may be drawn.
PROGRAM 2. The amount you elect to invest will be automatically withdrawn
(MAAP) from your bank or credit union account.
</TABLE>
- -------------------------------------------------------------------------------
BUYING ADDITIONAL CLASS A AND CLASS B
SHARES
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------
BY TELEPHONE 1. Complete the "Invest-By-Phone" and "Bank Information" sections
on the Account Privileges Application designating a bank
account from which your funds may be drawn. Note that in order
to invest by phone, your account must be in a bank or credit
union that is a member of the Automated Clearing House system
(ACH).
2. After your authorization form has been processed, you may
purchase additional Class A or Class B shares by calling
Investor Services toll-free 1-800-225-5291.
3. Give the Investor Services representative the name(s) in which
your account is registered, the Fund name, the class of shares
you own, your account number, and the amount you wish to
invest.
4. Your investment normally will be credited to your account the
business day following your phone request.
- ---------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
BY CHECK 1. Either complete the detachable stub included on your account
statement or include a note with your investment listing the
name of the Fund, the class of shares you own, your account
number and the name(s) in which the account is registered.
</TABLE>
- -------------------------------------------------------------------------------
BUYING ADDITIONAL
CLASS A AND CLASS B
SHARES (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
2. Make your check payable to John Hancock Investor Services
Corporation.
3. Mail the account information and check to:
John Hancock Investor Services Corporation
P.O. Box 9115
Boston, MA 02205-9115
or deliver it to your registered representative or Selling
Broker.
- ---------------------------------------------------------------------------------
BY WIRE Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Capital Growth Fund
Class A or Class B shares
Your Account Number
Name(s) under which account is registered
- ---------------------------------------------------------------------------------
</TABLE>
Other Requirements: All purchases must be made in U.S. dollars. Checks
written on foreign banks will delay purchases until U.S. funds are received,
and a collection charge may be imposed. Shares of the Fund are priced at the
offering price based on the net asset value computed after Investor Services
receives notification of the dollar equivalent from the Fund's custodian
bank. Wire purchases normally take two or more hours to complete and, to be
accepted the same day, must be received by 4:00 P.M., New York time. Your
bank may charge a fee to wire funds. Telephone transactions are recorded to
verify information. Certificates are not issued unless a request is made
in writing to Investor Services.
- --------------------------------------------------------------------------------
You will receive a statement of your account after any transaction that affects
your share balance or registration (statements related to reinvestment of
dividends and automatic investment/withdrawal plans will be sent to you
quarterly). A tax information statement will be mailed to you by January 31 of
each year.
- -------------------------------------------------------------------------------
YOU WILL RECEIVE ACCOUNT STATEMENTS THAT
YOU SHOULD KEEP TO HELP WITH YOUR PERSONAL
RECORDKEEPING.
- -------------------------------------------------------------------------------
SHARE PRICE
The net asset value per share ("NAV") is the value of one share. The NAV is
calculated by dividing the net assets of each class by the number of outstanding
shares of that class. The NAV of each class can differ. 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. Foreign securities are valued on the basis of quotations from the primary
market in which they are traded and are translated from the local currency into
U.S. dollars using current exchange rates. If quotations are not readily
available, assets are valued by a method that the Trustees believe accurately
reflects fair value.
- -------------------------------------------------------------------------------
THE OFFERING PRICE OF YOUR SHARES IS THEIR
NET ASSET VALUE PLUS A SALES CHARGE, IF
APPLICABLE, WHICH WILL VARY WITH THE
PURCHASE ALTERNATIVE YOU CHOOSE.
- -------------------------------------------------------------------------------
The NAV is calculated once daily as of the close of regular trading on the New
York Stock Exchange (the "Exchange") (generally at 4:00 P.M., New York time) on
each day that the Exchange is open.
14
<PAGE>
Shares of the Fund are sold at the offering price based on the NAV computed
after your investment request is received in good order by John Hancock Funds.
If you buy shares of the Fund through a Selling Broker, the Selling Broker must
receive your investment before the close of regular trading on the Exchange and
transmit it to John Hancock Funds before its close of business to receive that
day's offering price.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES. The offering price you pay
for Class A shares of the Fund equals the NAV plus a sales charge as follows:
<TABLE>
<CAPTION>
COMBINED
SALES CHARGE AS REALLOWANCE REALLOWANCE TO
AMOUNT INVESTED SALES CHARGE AS A PERCENTAGE OF AND SERVICE FEE AS SELLING BROKERS AS
(INCLUDING SALES A PERCENTAGE OF THE AMOUNT A PERCENTAGE OF A PERCENTAGE OF
CHARGE) OFFERING PRICE INVESTED OFFERING PRICE(+) THE OFFERING PRICE(*)
- ------------------------------------- --------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
Less than $50,000 5.00% 5.26% 4.25% 4.01%
$50,000 to $99,999 4.50% 4.71% 3.75% 3.51%
$100,000 to $249,999 3.50% 3.63% 2.85% 2.61%
$250,000 to $499,999 2.50% 2.56% 2.10% 1.86%
$500,000 to $999,999 2.00% 2.04% 1.60% 1.36%
$1,000,000 and over 0.00%(**) 0.00%(**) (***) 0.00%(***)
</TABLE>
(*) Upon notice to Selling Brokers with whom it has sales agreements, John
Hancock Funds may reallow an amount up to the full applicable sales
charge. In addition to the reallowance allowed to all selling Brokers,
John Hancock Funds will pay the following: Round trip airfare to a resort
will be offered to each registered representative of a Selling Broker (if
the Selling Broker has agreed to participate) who sells certain amounts of
shares of John Hancock funds. John Hancock Funds will make these incentive
payments out of its own resources. A Selling Broker to whom substantially
the entire sales charge is reallowed or who receives these incentives may
be deemed to be an underwriter under the Securities Act of 1933. Other
than distribution and service fees, the Fund does not bear distribution
expenses.
(**) No sales charge is payable at the time of purchase of Class A shares of $1
million or more, but a CDSC may be imposed in the event of certain
redemption transactions within one year of purchase.
(***) John Hancock Funds may pay a commission and the first year's service fee
(as described in (+) below) to Selling Brokers who initiate and are
responsible for purchases of $1 million or more in aggregate as follows:
1% on sales to $4,999,999, 0.50% on the next $5 million and 0.25% on
amounts over $10 million.
(+) At the time of sale, John Hancock Funds pays to Selling Brokers the first
year's service fee in advance in an amount equal to 0.25% of the net
assets invested in the Fund. Thereafter, it pays the service fee
periodically in arrears in an amount up to 0.25% of the Fund's average
annual net assets. Selling Brokers receive the fee as compensation for
providing personal and account maintenance services to shareholders.
15
<PAGE>
Sales charges ARE NOT APPLIED to any dividends that are reinvested in additional
Class A shares of the Fund.
In addition, John Hancock Funds will pay certain affiliated Selling Brokers at
an annual rate of up to 0.05% of the daily net assets of accounts attributable
to these brokers.
Under certain circumstances described below, investors in Class A shares may be
entitled to pay reduced sales charges. See "Qualifying for a Reduced Sales
Charge."
CONTINGENT DEFERRED SALES CHARGE -- INVESTMENTS OF $1 MILLION OR MORE IN CLASS A
SHARES. Purchases of $1 million or more of Class A shares will be made at net
asset value with no initial sales charge, but if the shares are redeemed within
12 months after the end of the calendar month in which the purchase was made
(the CDSC period), a CDSC will be imposed. The rate of the CDSC will depend on
the amount invested as follows:
<TABLE>
<CAPTION>
AMOUNT INVESTED CDSC RATE
--------------- ---------
<S> <C>
$1 million to $4,999,999............................................. 1.00%
Next $5 million to $9,999,999........................................ 0.50%
Amounts of $10 million and over...................................... 0.25%
</TABLE>
Existing full service clients of the Life Company who were group annuity
contract holders as of September 1, 1994 and participant directed defined
contribution plans with at least 100 eligible employees at the inception of the
Fund account may purchase Class A shares with no initial sales charge. However,
if the shares are redeemed within 12 months after the end of the calendar year
in which the purchase was made, a CDSC will be imposed at the above rate.
The CDSC will be assessed on an amount equal to the lesser of the current market
value or the original purchase cost of the redeemed Class A shares. Accordingly,
no CDSC will be imposed on increases in account value above the initial purchase
price, including any distributions which have been reinvested in additional
Class A shares.
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.
Therefore, it will be assumed that the redemption is first made from any shares
in your account that are not subject to the CDSC. The CDSC is waived on
redemptions in certain circumstances. See "Waiver of Contingent Deferred Sales
Charge" below.
QUALIFYING FOR A REDUCED SALES CHARGE. If you invest more than $50,000 in Class
A shares of the Fund or a combination of funds within the John Hancock family of
funds (except money market funds), you may qualify for a reduced sales charge on
your investments in Class A shares through a LETTER OF INTENTION. You may also
be able to use the ACCUMULATION PRIVILEGE and the COMBINATION PRIVILEGE to take
advantage of the value of your previous investments in Class A shares of the
John Hancock funds in meeting the breakpoints for a
- -------------------------------------------------------------------------------
YOU MAY QUALIFY FOR A REDUCED SALES CHARGE
ON YOUR INVESTMENT IN CLASS A SHARES.
- -------------------------------------------------------------------------------
16
<PAGE>
reduced sales charge. For the ACCUMULATION PRIVILEGE and COMBINATION
PRIVILEGE, the applicable sales charge will be based on the total of:
1. Your current purchase of Class A shares of the Fund.
2. The net asset value (at the close of business on the previous day) of (a) all
Class A shares of the Fund you hold, and (b) all Class A shares of any other
John Hancock funds you hold; and
3. The net asset value of all shares held by another shareholder eligible to
combine his or her holdings with you into a single "purchase."
EXAMPLE:
If you hold Class A shares of a John Hancock fund with a net asset value of
$20,000 and, subsequently, invest $30,000 in Class A shares of the Fund, the
sales charge on this subsequent investment would be 4.50% and not 5.00% (the
rate that would otherwise be applicable to investments of less than $50,000. See
"Initial Sales Charge alternative -- Class A Shares.")
- -------------------------------------------------------------------------------
CLASS A SHARES MAY BE AVAILABLE WITHOUT A
SALES CHARGE TO CERTAIN INDIVIDUALS AND
ORGANIZATIONS.
- -------------------------------------------------------------------------------
If you are in one of the following categories, you may purchase Class A shares
of the Fund without paying a sales charge:
o A Trustee/Director or officer of the Fund; 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 of any of
the foregoing; or any Fund, pension, profit sharing or other benefit plan for
the individuals described above.
o Any state, county, city or any instrumentality, department, authority, or
agency of these entities that is prohibited by applicable investment laws from
paying a sales charge or commission when it purchases shares of any registered
investment management company.*
o A bank, trust company, credit union, savings institution or other type of
depository institution, its trust departments or common trust funds if it is
purchasing $1 million or more for non-discretionary customers or accounts.*
o A broker, dealer or registered investment adviser that has entered into an
agreement with John Hancock Funds providing specifically for the use of Fund
shares in fee-based investment products made available to their clients.
o A former participant in an employee benefit plan with John Hancock Funds, when
he/she withdraws from his/her plan and transfers any or all of his/her plan
distributions directly to the Fund.
- ------------------
*For investments made under these provisions, John Hancock Funds may make a
payment out of its own resources to the Selling Broker in an amount not to
exceed 0.25% of the amount invested.
Class A Shares of the Fund may be purchased without an initial sales charge in
connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
17
<PAGE>
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE -- CLASS B SHARES. Class B shares
are offered at net asset value per share without a sales charge so that your
entire initial investment will go to work at the time of purchase. However,
Class B shares redeemed within six years of purchase will be subject to a CDSC
at the rates set forth below. This charge will be assessed on an amount equal to
the lesser of the current market value or the original purchase cost of the
shares being redeemed. Accordingly, you will not be assessed a CDSC on increases
in account value above the initial purchase price, including shares derived from
dividend reinvestment.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from shares you have held
beyond the six-year CDSC redemption period or those you acquired through
reinvestment of dividends, and next from the shares you have held the longest
during the six-year period. The CDSC is waived on redemptions in certain
circumstances. See the discussion "Waiver of Contingent Deferred Sales Charge"
below.
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:
<TABLE>
<S> <C>
o Proceeds of 50 shares redeemed at $12 per share $ 600
o Minus proceeds of 10 shares not subject to CDSC because they were
acquired through dividend reinvestment (10 X $12) -120
o Minus appreciation on remaining shares, also not subject to CDSC
(40 X $2) - 80
------
- - Amount subject to CDSC $ 400
</TABLE>
Proceeds from the CDSC are paid to John Hancock Funds. John Hancock Funds uses
part of them to defray its expenses related to providing the Fund with
distribution services connected to the sale of Class B shares, such as
compensating Selling Brokers for selling these shares. The combination of the
CDSC and the distribution and service fees makes it possible for the Fund to
sell Class B shares without deducting a sales charge at the time of the
purchase.
18
<PAGE>
The amount of the CDSC, if any, will vary depending on the number of years from
the time you purchase your Class B shares until the time you redeem them. Solely
for the purposes of determining this holding period, any payments you make
during the month will be aggregated and deemed to have been made on the last day
of the month.
<TABLE>
<CAPTION>
YEAR IN WHICH
CLASS B SHARES CONTINGENT DEFERRED SALES
REDEEMED FOLLOWING CHARGE AS A PERCENTAGE OF
PURCHASE DOLLAR AMOUNT SUBJECT TO CDSC
- ------------------ -----------------------------
<S> <C>
First 5.0%
Second 4.0%
Third 3.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
A commission equal to 3.75% of the amount invested and a first year's service
fee equal to 0.25% of the amount invested are paid to Selling Brokers. The
initial service fee is paid in advance at the time of sale for the provision of
personal and account maintenance services to shareholders during the twelve
months following the sale, and thereafter the service fee is paid in arrears.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to a CDSC,
unless indicated otherwise, in these circumstances:
- -------------------------------------------------------------------------------
UNDER CERTAIN CIRCUMSTANCES, THE CDSC ON
CLASS B AND CLASS A SHARE REDEMPTIONS WILL
BE WAIVED.
- -------------------------------------------------------------------------------
o Redemptions of Class B shares made under Systematic Withdrawal Plan (see "How
to Redeem Shares"), as long as your annual redemptions do not exceed 10% of
your original account value plus 10% of the value of your subsequent
investments (less redemptions) in that account at the time you notify Investor
Services. This waiver does not apply to Systematic Withdrawal Plan redemptions
of Class A shares that are subject to a CDSC.
o Redemptions made to effect distributions from an Individual Retirement Account
either before or after age 59 1/2, as long as the distributions are based on
the life expectancy or the joint-and-last survivor life expectancy of you and
your beneficiary. These distributions must be free from penalty under the
Code.
o Redemptions made to effect mandatory distributions under the Code after age
70 1/2 from a tax-deferred retirement plan.
o Redemptions made to effect distributions to participants or beneficiaries from
certain employer-sponsored retirement plans including those qualified under
Section 401(a) of the Code, custodial accounts under Section 403(b)(7) of the
Code and deferred compensation plans under Section 457 of the Code. The waiver
also applies to certain returns of excess contributions made to these plans.
In all cases, the distributions must be free from penalty under the Code.
o Redemptions due to death or disability.
o Redemptions made under the Reinvestment Privilege, as described in "Additional
Services and Programs" of this Prospectus.
19
<PAGE>
o Redemptions made pursuant to the Fund's right to liquidate your account if you
have less than $100 invested in the Fund.
o Redemptions made in connection with certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
o Redemptions from certain IRA and retirement plans that purchased shares prior
to October 1, 1992.
If you qualify for a CDSC waiver under one of these situations, you must notify
Investor Services either directly or through your Selling Broker at the time you
make your redemption. The waiver will be granted once Investor Services has
confirmed that you are entitled to the waiver.
CONVERSION OF CLASS B SHARES. Your Class B shares and an appropriate portion of
reinvested dividends on those shares will be converted into Class A shares
automatically. This will occur no later than the month following eight years
after the shares were purchased, and will result in lower annual distribution
fees. If you exchanged Class B shares into the Fund from another John Hancock
fund, the calculation will be based on the time you purchased the shares in the
original fund. The Fund has been advised that the conversion of Class B Shares
to Class A Shares should not be taxable for Federal income tax purposes and
should not change a shareholder's tax basis or tax holding period for the
converted shares.
20
<PAGE>
HOW TO REDEEM SHARES
You may redeem all or a portion of your shares on any business day. Your shares
will be redeemed at the next NAV calculated after your redemption request is
received in good order by Investor Services, less any applicable CDSC. The Fund
may hold payment until it is reasonably satisfied that investments recently made
by check or Invest-by-Phone have been collected (which may take up to 10
calendar days).
Once your shares are redeemed, the Fund generally sends you payment on the next
business day. When you redeem your shares, you may realize a taxable gain or
loss depending usually on the difference between what you paid for them and what
you receive for them, subject to certain tax rules. Under unusual circumstances,
the Fund may suspend redemptions or postpone payment for up to seven days or
longer, as permitted by Federal securities laws.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
BY TELEPHONE All Fund shareholders are automatically eligible for the
telephone redemption privilege. Call 1-800-225-5291, from
8:00 A.M. to 4:00 P.M. (New York time), Monday through
Friday, excluding days on which the Exchange is closed.
Investor Services employs the following procedures to
confirm that instructions received by telephone are
genuine. Your name, the account number, taxpayer
identification number applicable to the account and other
relevant information may be requested. In addition,
telephone instructions are recorded.
</TABLE>
- -------------------------------------------------------------------------------
TO ASSURE ACCEPTANCE OF YOUR REDEMPTION
REQUEST, PLEASE FOLLOW THESE PROCEDURES.
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
You may redeem up to $100,000 by telephone, but the address
on the account must not have changed for the last thirty
days. A check will be mailed to the exact name(s) and
address shown on the account.
If reasonable procedures, such as those described above,
are not followed, the Fund may be liable for any loss due
to unauthorized or fraudulent telephone instructions. In
all other cases, neither the Fund nor Investor Services
will be liable for any loss or expense for acting upon
telephone instructions made in accordance with the
telephone transaction procedures mentioned above.
Telephone redemption is not available for IRAs or other
tax-qualified retirement plans or shares of the Fund that
are in certificated form.
During periods of extreme economic conditions or market
changes, telephone requests may be difficult to implement
due to a large volume of calls. During these times, you
should consider placing redemption requests in writing or
use EASI-Line. EASI-Line's telephone number is
1-800-338-8080.
- ---------------------------------------------------------------------------------
BY WIRE If you have a telephone redemption form on file with the
Fund, redemption proceeds of $1,000 or more can be wired on
the next business day to your designated bank account, and
a fee (currently $4.00) will be deducted. You may also use
electronic funds transfer to your assigned bank account,
and the funds are usually collectible after two business
days. Your bank may or may not charge a fee for this
service. Redemptions of less than $1,000 will be sent by
check or electronic funds transfer.
This feature may be elected by completing the "Telephone
Redemption" section on the Account Privileges Application
included with this Prospectus.
- ---------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
IN WRITING Send a stock power or "letter of instruction" specifying
the name of the Fund, the dollar amount or the number of
shares to be redeemed, your name, class of shares, your
account number and the additional requirements listed below
that apply to your particular account.
- ---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TYPE OF REGISTRATION REQUIREMENTS
-------------------- -------------
<S> <C>
Individual, Joint Tenants, Sole A letter of instruction signed (with titles
Proprietorship, Custodial where applicable) by all persons authorized
(Uniform Gifts or Transfer to to sign for the account, exactly as it is
Minors Act), General Partners registered with the signature(s) guaran-
teed.
Corporation, Association A letter of instruction and a corporate
resolution, signed by person(s) authorized
to act on the account with the signature(s)
guaranteed.
Trusts A letter of instruction signed by the
trustee(s) with the signature(s) guaranteed.
(If the trustee's name is not registered on
your account, also provide a copy of the
trust document, certified within the last 60
days.)
If you do not fall into any of these registration categories, please call
1-800-225-5291 for further instructions.
- ---------------------------------------------------------------------------------
A signature guarantee is a widely accepted way to protect you and the Fund by
verifying the signature on your request. It may not be provided by a notary
public. If the net asset value of the shares redeemed is $100,000 or less, John
Hancock Funds may guarantee the signature. The following institutions may
provide you with a signature guarantee, provided that the institution meets
credit standards established by Investor Services: (i) a bank; (ii) a securities
broker or dealer, including a government or municipal securities broker or
dealer, that is a member of a clearing corporation or meets certain net capital
requirements; (iii) a credit union having authority to issue signature
guarantees; (iv) a savings and loan association, a building and loan
association, a cooperative bank, a federal savings bank or association; or (v) a
national securities exchange, a registered securities exchange or a clearing
agency.
</TABLE>
- -------------------------------------------------------------------------------
WHO MAY GUARANTEE YOUR SIGNATURE.
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------
THROUGH YOUR BROKER. Your broker may be able to initiate the redemption.
Contact your broker for instructions.
</TABLE>
- -------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT REDEMPTIONS.
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------
If you have certificates for your shares, you must submit them with your stock
power or a letter of instructions. Unless you specify to the contrary, any
outstanding Class A shares will be redeemed before Class B shares. You may not
redeem certificated shares by telephone.
Due to the proportionately high cost of maintaining small accounts, the Fund
reserves the right to redeem at net asset value all shares in an account which
holds less than $100 (except accounts under retirement plans) and to mail the
proceeds to the shareholder, or the transfer agent may impose an annual fee of
$10.00. No account will be involuntarily redeemed or additional fee imposed, if
the value of the account is in excess of the Fund's minimum initial investment.
No CDSC will be imposed on involuntary redemptions of shares.
Shareholders will be notified before these redemptions are to be made or this
fee is imposed, and will have 30 days to purchase additional shares to bring
their account balance up to the required minimum. Unless the number of shares
acquired by further purchases and dividend reinvestments, if any, exceeds the
number of shares redeemed, repeated redemptions from a smaller account may
eventually trigger this policy.
- ---------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
ADDITIONAL SERVICES AND PROGRAMS
EXCHANGE PRIVILEGE
If your investment objective changes, or if you wish to achieve further
diversification, John Hancock offers other funds with a wide range of investment
goals. Contact your registered representative or Selling Broker and request a
prospectus for the John Hancock funds that interest you. Read the prospectus
carefully before exchanging your shares. You can exchange shares of each class
of the Fund only for shares of the same class of another John Hancock fund. For
this purpose, John Hancock funds with only one class of shares will be treated
as Class A, whether or not they have been so designated.
- -------------------------------------------------------------------------------
YOU MAY EXCHANGE SHARES OF THE FUND ONLY
FOR SHARES OF THE SAME CLASS OF ANOTHER
JOHN HANCOCK FUND.
- -------------------------------------------------------------------------------
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. Class B shares of the Fund that are subject to a CDSC may be exchanged
into Class B shares of another John Hancock fund without incurring the CDSC;
however, these shares will be subject to the CDSC schedule of the shares
acquired (except that exchanges into John Hancock Short-Term Strategic Income
Fund, John Hancock Limited-Term Government Fund and John Hancock Adjustable U.S.
Government Trust will be subject to the initial fund's CDSC). 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. However, if you exchange Class B shares
purchased prior to January 1, 1994 for Class B shares of any other John Hancock
Fund, you will be subject to the CDSC schedule in effect on your initial
purchase date.
You may exchange Class B shares of the Fund into shares of a John Hancock Money
Market fund at net asset value; however, you will continue to be subject to a
CDSC upon redemption.
The Fund reserves the right to require you to keep previously exchanged shares
(and reinvested dividends) in the Fund for 90 days before you are permitted to
execute a new exchange. The Fund may also terminate or alter the terms of the
exchange privilege, upon 60 days' notice to shareholders.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares in another for Federal income tax purposes. An exchange may
result in a taxable gain or loss.
When you make an exchange, your account registration in both the existing and
new account must be identical. The exchange privilege is available only in
states where the exchange can be made legally.
Under exchange agreements with John Hancock Funds, certain dealers, brokers and
investment advisers may exchange their clients' Fund shares, subject to the
terms of those agreements and John Hancock Funds' right to reject or suspend
those exchanges at any time. Because of the restrictions and procedures under
those agreements, the exchanges may be subject to timing limitations and other
23
<PAGE>
restrictions that do not apply to exchanges requested by shareholders directly,
as described above.
Because Fund performance and shareholders can be hurt by excessive trading, the
Fund reserves the right to terminate the exchange privilege for any person or
group that, in John Hancock Funds' judgment, is involved in a pattern of
exchanges that coincide with a "market timing" strategy that may disrupt the
Fund's ability to invest effectively according to its investment objective and
policies, or might otherwise affect the Fund and its shareholders adversely. The
Fund may also temporarily or permanently terminate the exchange privilege for
any person who makes seven or more exchanges out of the Fund per calendar year.
Accounts under common control or ownership will be aggregated for this purpose.
Although the Fund will attempt to give you prior notice whenever it is
reasonably able to do so, it may impose these restrictions at any time.
BY TELEPHONE
1. When you complete the application for your initial purchase of Fund shares,
you automatically authorize exchanges by telephone unless you check the box
indicating that you do not wish to authorize telephone exchanges.
2. Call 1-800-225-5291. Have the account number of your current fund and the
exact name in which it is registered available to give to the telephone
representative.
3. Your name, the account number, taxpayer identification number applicable to
the account and other relevant information may be requested. In addition,
telephone instructions are recorded.
IN WRITING
1. In a letter, request an exchange and list the following:
-- the name and class of the Fund whose shares you currently own
-- your account number
-- the name(s) in which the account is registered
-- the name of the fund in which you wish your exchange to be invested
-- the number of shares, all shares or dollar amount you wish to exchange
Sign your request exactly as the account is registered.
2. Mail the request and information to:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
24
<PAGE>
REINVESTMENT PRIVILEGE
1. You will not be subject to a sales charge on Class A shares reinvested in
shares of any John Hancock fund that is otherwise subject to a sales charge
as long as you reinvest within 120 days from the redemption date. If you paid
a CDSC upon a redemption, you may reinvest at net asset value in the same
class of shares from which you redeemed within 120 days. Your account will be
credited with the amount of the CDSC previously charged, and the reinvested
shares will continue to be subject to a CDSC. For purposes of computing the
CDSC payable upon a subsequent redemption, the holding period of the shares
acquired through reinvestment will include the holding period of the redeemed
shares.
- -------------------------------------------------------------------------------
IF YOU REDEEM SHARES OF THE FUND, YOU MAY
BE ABLE TO REINVEST ALL OR PART OF THE
PROCEEDS IN SHARES OF THIS FUND OR ANOTHER
JOHN HANCOCK FUND WITHOUT PAYING AN
ADDITIONAL SALES CHARGE.
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2. Any portion of your redemption may be reinvested in Fund shares or in shares
of any of the other John Hancock funds, subject to the minimum investment
limit of that fund.
3. To reinvest, you must notify Investor Services in writing. Include the Fund's
name, the account number and class from which your shares were originally
redeemed.
SYSTEMATIC WITHDRAWAL PLAN
1. You can elect the Systematic Withdrawal Plan at any time by completing the
Account Privileges Application which is attached to this Prospectus. You can
also obtain this application by calling your registered representative or by
calling 1-800-225-5291.
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YOU CAN PAY ROUTINE BILLS FROM YOUR
ACCOUNT, OR MAKE PERIODIC DISBURSEMENTS OF
FUNDS FROM YOUR RETIREMENT ACCOUNT TO
COMPLY WITH IRS REGULATIONS.
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2. To be eligible, you must have at least $5,000 in your account.
3. Payments from your account can be made monthly, quarterly, semi-annually or
annually or on a selected monthly basis to yourself or any other designated
payee.
4. There is no limit on the number of payees you may authorize, but all payments
must be made at the same time or intervals.
5. It is not advantageous to maintain a Systematic Withdrawal Plan concurrently
with purchases of additional Class A or Class B shares, because you may be
subject to initial sales charges on your purchases of Class A shares or to a
CDSC on your redemptions of Class B shares. In addition, your redemptions are
taxable events.
6. Redemptions will be discontinued if the U.S. Postal Service cannot deliver
your checks or if deposits to a bank account are returned for any reason.
MONTHLY AUTOMATIC ACCUMULATION PROGRAM (MAAP)
1. You can authorize an investment to be automatically withdrawn each month from
your bank, for investment in Fund shares under the "Automatic Investing" and
"Bank Information" sections of the Account Privileges Application.
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YOU CAN MAKE AUTOMATIC INVESTMENTS AND
SIMPLIFY YOUR INVESTING.
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2. You can also authorize automatic investment through payroll deduction by
completing the "Direct Deposit Investing" section of the Account Privileges
Application.
3. You can terminate your Monthly Automatic Accumulation Program plan at any
time.
4. There is no charge to you for this program, and there is no cost to the Fund.
5. If you have payments being withdrawn from a bank account and we are notified
that the account has been closed, your withdrawals will be discontinued.
GROUP INVESTMENT PROGRAM
1. An individual account will be established for each participant, but the
initial sales charge for Class A shares will be based on the aggregate dollar
amount of all participants' investments. To determine how to qualify for this
program, contact your registered representative or call 1-800-225-5291.
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ORGANIZED GROUPS OF AT LEAST FOUR PERSONS
MAY ESTABLISH ACCOUNTS.
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2. The initial aggregate investment of all participants in the group must be at
least $250.
3. There is no additional charge for this program. There is no obligation to
make investments beyond the minimum, and you may terminate the program at any
time.
RETIREMENT PLANS
1. You can use the Fund as a funding medium for various types of qualified
retirement plans, including Individual Retirement Accounts, Keogh Plans (H.R.
10), Pension and Profit Sharing Plans (including 401(k) plans), Tax Sheltered
Annuity Retirement Plans (403(b) plans) and 457 Plans.
2. The initial investment minimum or aggregate minimum for any of the above
plans is $250. However, accounts being established as Group IRA, SEP, SARSEP,
TSA, 401(k) and 457 Plans will be accepted without an initial minimum
investment.
INVESTMENTS, TECHNIQUES AND RISK FACTORS
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 10% of its net
assets in illiquid investments, which include repurchase agreements maturing in
more than seven days, restricted securities and securities not readily
marketable.
LENDING OF SECURITIES AND REPURCHASE AGREEMENTS. For the purpose of realizing
additional (taxable) income, the Fund may lend to broker-dealers portfolio
securities amounting to not more than 33% of its total assets taken at current
value or may enter into repurchase agreements. In a repurchase agreement, the
Fund buys a security subject to the right and obligation to sell it back to the
issuer at the same price plus accrued interest. These transactions must be fully
collateralized at all times. The Fund may reinvest any cash collateral in
short-term highly liquid debt securities. However, they may involve some credit
risk to the
26
<PAGE>
Fund if the other party should default on its obligation and the Fund is delayed
in or prevented from recovering the collateral. Securities loaned by the Fund
will remain subject to fluctuations of market value.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES. The Fund may purchase securities
on a forward or "when-issued" basis and may purchase or sell securities on a
forward commitment basis to hedge against anticipated changes in interest rates
and prices. When the Fund engages in such transactions, it relies on the seller
or the buyer, as the case may be, to consummate the transaction. Failure to
consummate the transaction may result in the Fund's losing the opportunity to
obtain an advantageous price and yield. If the Fund chooses to dispose of the
right to acquire a when-issued security prior to its acquisition or dispose of
its right to deliver or receive against a forward commitment, it can incur a
taxable gain or a loss.
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. Short term trading may have the effect of
increasing portfolio turnover and may increase net short-term capital gains,
distributions from which would be taxable to shareholders as ordinary income.
The Fund does not intend to invest for the purpose of seeking short-term
profits. The Fund's portfolio securities may be changed, however, without regard
to the holding period of these securities (subject to certain tax restrictions),
when the Adviser deems that this action will help achieve the Fund's objective
given a change in an issuer's operations or changes in general market
conditions. A turnover rate of 100% would occur if the value of the lesser of
purchases and sales of portfolio securities for a particular year equaled the
average monthly value of portfolio securities owned during the year (excluding
short-term securities). A high rate of portfolio turnover (100% or more)
involves a correspondingly greater amount of brokerage commissions and other
costs which must be borne directly by the Fund and thus indirectly its
shareholders. It may also result in the realization of larger amounts of net
short-term capital gains, distributions from which are taxable to shareholders
as ordinary income and may, under certain circumstances, make it more difficult
for the Fund to qualify as a regulated investment company under the Code. The
Fund's portfolio turnover rate is set forth in the table under the caption
"Financial Highlights."
OPTIONS AND FUTURES TRANSACTIONS. The Fund may buy and sell options contracts
on securities and stock indices, stock index futures contracts and options on
such futures contracts. Options and futures contracts are bought and sold to
manage the Fund's exposure to changing interest rates and security prices. Some
options and futures strategies, including selling futures, buying puts and
writing calls, tend to hedge a Fund's investment against price fluctuations.
Other strategies, including buying futures, writing puts, and buying calls, tend
to increase market exposure. Options and futures may be combined with each other
or with forward contracts in order to adjust the risk and return characteristics
of the overall strategy. The Fund may invest in options and futures based on
securities and securities indices. The Fund may enter into transactions in
over-the-counter (OTC) options under the
27
<PAGE>
same circumstances in which it may effect transactions in exchange traded
options.
Options and futures can be volatile investments and involve certain risks.
Options and futures do not pay interest, but may produce taxable capital gains
or losses. The Fund will not engage in a transaction in futures or options on
futures if, immediately thereafter, the sum of initial margin deposits and
premiums paid for all options on securities and securities indices exceeds 5% of
the Fund's net assets, or required to establish positions in futures contracts
and options on futures would exceed 10% of the Fund's net assets. The Fund may
not write options on securities or securities indices with aggregate exercise
prices in excess of 30% of the Fund's total net assets measured at the time the
option is written. The Fund's transactions in options and futures contracts may
be limited by the requirements of the Code for qualification as a regulated
investment company. See the Statement of Additional Information for further
discussion of options and futures transactions, including tax effects and
investment risks.
REVERSE REPURCHASE AGREEMENTS. The Fund may also enter into reverse repurchase
agreements which involve the sale of securities held in its portfolio to a bank
or securities firm with an agreement that the Fund will buy back the securities
at a fixed future date at a fixed price plus an agreed amount of "interest"
which may be reflected in the repurchase price. Reverse repurchase agreements
are considered to be borrowings by the Fund. The Fund will use proceeds obtained
from the sale of securities pursuant to reverse repurchase agreements to
purchase other investments. The use of borrowed funds to make investments is a
practice known as "leverage," which is considered speculative. The Fund will
enter into a reverse repurchase agreement only when the Adviser determines that
the interest income to be earned from the investment of the proceeds is greater
than the interest expense of the transaction. However, there is a risk that
interest expense will nevertheless exceed the income earned. Reverse repurchase
agreements involve the risk that the market value of securities purchased by 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
would 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 risks associated with
reverse repurchase agreements, the Fund would establish and maintain with the
Fund's custodian a separate account consisting of highly liquid, marketable
securities in an amount at least equal to the repurchase prices of the
securities (plus any accrued interest thereon) under such agreements. The Fund
would not enter into reverse repurchase agreements exceeding in the aggregate
more than 33 1/3% of the value of its total net assets (including for this
purpose other borrowings of the Fund). The Fund will enter into reverse
repurchase agreements only with selected registered broker/dealers or with
federally insured banks or savings and loan associations which are approved in
advance as being creditworthy by the Board of Trustees. Under procedures
established by the Board of Trustees, the Adviser will monitor the
creditworthiness of the firms involved.
28
<PAGE>
LEVERAGE. In seeking to enhance investment performance, the Fund may, from time
to time, borrow money from banks for investment in portfolio securities. The
Fund may borrow only from banks and only if the value of the Fund's assets
(including the loan proceeds) less other liabilities of the Fund are at least
three (3) times the amount of the bank borrowing. This speculative practice may
help the Fund increase the net asset value of its shares in an amount greater
than would otherwise be the case when the market values of the securities
purchased through borrowing increase. However, if the return on the investment
of borrowed monies does not fully recover the costs of such borrowings to the
Fund, the net asset value of the Fund would fall in an amount greater than would
otherwise be the case. The time and extent to which the Fund may employ leverage
will be determined by the Adviser in light of changing facts and circumstances,
including general economic and market conditions. Under the 1940 Act, the value
of the Fund's assets, including the proceeds of the loan, less other liabilities
of the Fund, must be at least three times the proposed bank borrowing. If, due
to market conditions or other reasons, the value of the Fund's assets falls
below such requirement, the Fund must within three business days, reduce such
borrowings to satisfy such requirement. To do this, the Fund may have to sell a
portion of its investments at a time when it may be disadvantageous to do so.
RISKS OF FOREIGN INVESTMENTS. The Fund may invest without limitation in
securities issued by foreign companies and principally traded in securities
markets outside the United States; however, the Fund does not intend to invest
more than 25% of its assets in securities issued by companies located in any one
country outside of the United States. There are certain risks associated with
investments in foreign securities. Foreign investments may be affected favorably
or unfavorably by changes in currency rates and exchange control regulations and
costs will be incurred in connection with conversions between various
currencies. There may be less publicly available information about a foreign
company than about a U.S. company, and foreign companies may not be subject to
uniform accounting, auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies. Securities of some foreign
companies may be less liquid or more volatile than securities of U.S. companies,
and foreign brokerage commissions and custodian fees are generally higher than
in the U.S. In addition, there is generally less government regulation of stock
exchanges, brokers and listed companies abroad than in the U.S. Investments in
foreign securities may also be subject to other risks different from those
affecting U.S. investments, including local political or economic developments,
expropriation or nationalization of assets, the possible difficulty in obtaining
and enforcing judgments against a foreign issuer, and imposition of withholding
taxes on dividend or interest payments. Foreign securities, like other assets of
the Fund, will be held by the Fund's custodian or by any sub-custodian which may
hereafter be appointed in accordance with applicable requirements of the 1940
Act and the rules thereunder.
Generally, the Fund's foreign currency exchange transactions will be conducted
on a spot basis (i.e., cash basis) at the spot rate for purchasing or selling
currency prevailing in the foreign currency exchange market. However, in order
to hedge against possible variations in foreign exchange rates pending the
settlement of
29
<PAGE>
transactions in foreign securities or during the time the Fund holds the foreign
security, the Fund may enter into forward foreign currency contracts. This is
accomplished through agreements to purchase or sell a specified currency at a
specified date and price in amounts corresponding to specific payables or
receivables arising out of the purchase or sale of foreign securities. However,
such hedging transactions may not eliminate fluctuations in the prices of
portfolio securities due to factors other than currency fluctuations or prevent
losses if the prices of securities decline. In addition, such hedging
transactions preclude the opportunity for gain if the value of the hedged
security should rise due to changes in currency values. The Fund will not
speculate in forward foreign exchange transactions and will not effect a
position hedging transaction (i.e., the sale of forward foreign currency with
respect to a portfolio security denominated in such foreign currency) if as a
result more than 15% of the value of the Fund's total assets (exclusive of the
proceeds of any borrowings) would be committed to the consummation of such
contracts.
DERIVATIVE CONTRACTS. The Fund may purchase or enter into derivative contracts
to hedge against fluctuations in interest rates or securities prices or as a
substitute for the purchase or sale of securities. The Fund's transactions in
derivative contracts may include the purchase or sale of futures contracts on
securities or indices; options on futures contracts; and options on securities
or indices. All of the Funds' transactions in derivative contracts involve a
risk of loss or depreciation due to unanticipated adverse changes in interest
rates or securities prices. The loss on derivative contracts may exceed the
Fund's initial investment in these contracts. In addition, the Fund may lose the
entire premium paid for purchased options that expire before they can be
profitably exercised by the Fund.
RISKS ASSOCIATED WITH DERIVATIVE CONTRACTS. The risks associated with the
Fund's transactions in derivative contracts may include some or all of the
following:
Market Risk. Entering into a derivative contract involves a risk that the
applicable market will move against the Fund's position and that the Fund will
incur a loss. For derivative contracts other than purchased options, this loss
may exceed the amount of the initial investment made or the premium received by
the Fund.
Leverage and Volatility Risk. Derivative contracts may sometimes increase or
leverage the Fund's exposure to a particular market risk. Leverage enhances the
price volatility of derivative contracts held by the Fund. The Fund may
partially offset the leverage inherent in derivative contracts by maintaining a
segregated account consisting of cash and liquid, high grade debt securities, by
holding offsetting portfolio securities or contracts or by covering written
options.
Correlation Risk. A Fund's success in using derivative contracts to hedge
portfolio assets depends on the degree of price correlation between the
derivative instrument and the hedged asset. Imperfect correlation may be caused
by several factors, including temporary price disparities among the trading
markets for the derivative instrument, the assets underlying the derivative
instrument and the Fund's portfolio assets.
30
<PAGE>
Credit Risk. Over-the-counter derivative contracts involve a risk that the
issuer or counterparty will fail to perform its contractual obligations.
Liquidity and Valuation Risk. Some derivative securities are not readily
marketable or may become illiquid under adverse market conditions. In addition,
during periods of extreme market volatility, a commodity or exchange may suspend
or limit trading in an exchange-traded derivative contract, which may make the
contract temporarily illiquid and difficult to price. The staff of the
Securities and Exchange Commission ("SEC") takes the position that certain
over-the-counter options are subject to the Fund's 10% limit on illiquid
investments. The Fund's ability to terminate over-the-counter derivative
contracts may depend on the cooperation of the counterparties to such contracts.
For thinly traded derivative securities and contracts, the only source of price
quotations may be the selling dealer or counterparty.
31
<PAGE>
JOHN HANCOCK JOHN HANCOCK
CAPITAL CAPITAL
GROWTH FUND GROWTH FUND
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
CLASS A AND CLASS B SHARES
PROSPECTUS
PRINCIPAL DISTRIBUTOR MAY 1, 1995
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
A MUTUAL FUND SEEKING
CAPITAL APPRECIATION
CUSTODIAN
Investors Bank
& Trust Company
24 Federal Street
Boston, Massachusetts 02110
TRANSFER AGENT
John Hancock Investor Services
Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
HOW TO OBTAIN INFORMATION
ABOUT THE FUND
For Service Information
For Telephone Exchange call
1-800-225-5291
For Investment-by-Phone
For Telephone Redemption
For TDD call 1-800-554-6713
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
T14OP 5/95 (LOGO) Printed
TELEPHONE 1-800-225-5291
on Recycled Paper
