FILE NO. 2-29502
FILE NO. 811-1677
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
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REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 (X)
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 47 (X)
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 (X)
Amendment No. 26 (X)
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JOHN HANCOCK CAPITAL SERIES
(Exact Name of Registrant as Specified in Charter)
101 Huntington Avenue
Boston, Massachusetts 02199-7603
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, (617) 375-1700
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SUSAN S. NEWTON
Vice President and Secretary
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199
(Name and Address of Agent for Service)
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It is proposed that this filing will become effective:
( ) immediately upon filing pursuant to paragraph (b) of Rule 485
(X) on August 30, 1996 pursuant to paragraph (b) of Rule 485
( ) 75 days after filing pursuant to paragraph (a) of Rule 485
( ) on (date) pursuant to paragraph (a) of Rule 485
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has
registered an indefinite number of securities under the Securities Act of 1933.
The Registrant filed the notice required by Rule 24f-2 for the most recent
fiscal year of John Hancock Special Value Fund on or about February 26, 1996.
The Registrant has filed the notice required by Rule 24f-2 for the most recent
fiscal year of John Hancock Independence Equity Fund and John Hancock Utilities
Fund on or about July 26, 1996.
<PAGE>
JOHN HANCOCK
GROWTH AND
INCOME FUNDS
[John Hancock's Graphic Logo. A Circle
Dianond, Triangle and a Cube]
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PROSPECTUS GROWTH AND INCOME FUND
AUGUST 30, 1996
INDEPENDENCE EQUITY FUND
This prospectus gives vital
information about these funds. SOVEREIGN BALANCED FUND
For your own benefit and
protection, please read it before SOVEREIGN INVESTORS FUND
you invest, and keep it on hand
for future reference. SPECIAL VALUE FUND
Please note that these funds: UTILITIES FUND
* are not bank deposits
* are not federally insured
* are not endorsed by any bank
or government agency
* are not guaranteed to achieve
their goal(s)
Like all mutual fund shares, these
securities have not been approved or
disapproved by the Securities and
Exchange Commission or any state
securities commission, nor has the
Securities and Exchange Commission or
any state securities commission passed
upon the accuracy or adequacy of this [LOGO]JOHN HANCOCK FUNDS
prospectus. Any representation to the A GLOBAL INVESTMENT MANAGEMENT
contrary is a criminal offense. FIRM
101 Huntington Avenue, Boston,
Massachusetts 02199-7603
<PAGE>
CONTENTS
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A fund-by-fund look at goals, GROWTH AND INCOME FUND 4
strategies, risks, expenses and
financial history. INDEPENDENCE EQUITY FUND 6
SOVEREIGN BALANCED FUND 8
SOVEREIGN INVESTORS FUND 10
SPECIAL VALUE FUND 12
UTILITIES FUND 14
Policies and instructions for YOUR ACCOUNT
opening, maintaining and closing Choosing a share class 16
an account in any growth and How sales charges are calculated 16
income fund. Sales charge reductions and waivers 17
Opening an account 17
Buying shares 18
Selling shares 19
Transaction policies 21
Dividends and account policies 21
Additional investor services 22
Details that apply to the growth FUND DETAILS
and income funds as a group. Business structure 23
Sales compensation 24
More about risk 26
FOR MORE INFORMATION BACK COVER
<PAGE>
OVERVIEW
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GOAL OF THE GROWTH AND INCOME FUNDS
John Hancock growth and income funds invest for
varying combinations of income and capital
appreciation. Each fund has its own emphasis with
regard to income, growth and total return, and has
its own strategy and risk/reward profile. Because
you could lose money by investing in these funds,
be sure to read all risk disclosure carefully
before investing.
WHO MAY WANT TO INVEST
FUND INFORMATION KEY These funds may be appropriate for investors who:
Concise fund-by-fund * are looking for a more conservative alternative
descriptions begin on the to exclusively growth-oriented funds
next page. Each description * need an investment to form the core of a
provides the following portfolio
information: * seek above-average total return over the long
term
[GOAL GRAPHIC]GOAL AND * are retired or nearing retirement
STRATEGY The fund's
particular investment goals Growth and income funds may NOT be appropriate if
and the strategies it you:
intends to use in pursuing * are investing for maximum return over a long
those goals. time horizon
* require a high degree of stability of your
[PORTFOLIO principal
GRAPHIC]PORTFOLIO
SECURITIES The primary THE MANAGEMENT FIRM
types of securities in
which the fund invests. All John Hancock growth and income funds are
Secondary investments are managed by John Hancock Advisers, Inc. Founded in
described in "More about 1968, John Hancock Advisers is a wholly owned
risk" at the end of the subsidiary of John Hancock Mutual Life Insurance
prospectus. Company and manages more than $19 billion in
assets.
[RISK GRAPHIC]RISK FACTORS
The major risk factors
associated with the fund.
[TORSO GRAPHIC]PORTFOLIO
MANAGEMENT The individual
or group (including
subadvisers, if any)
designated by the
investment adviser to
handle the fund's
day-to-day management.
[% GRAPHIC]EXPENSES The
overall costs borne by an
investor in the fund,
including sales charges and
annual expenses.
[$ GRAPHIC]FINANCIAL
HIGHLIGHTS A table showing
the fund's financial
performance for up to ten
years, by share class. A
bar chart showing total
return allows you to
compare the fund's
historical risk level to
those of other funds.
<PAGE>
GROWTH AND INCOME FUND
REGISTRANT NAME: JOHN HANCOCK INVESTMENT TRUST TICKER SYMBOL CLASS A: TAGRX
CLASS B: TSGWX
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GOAL AND STRATEGY
[GOAL GRAPHIC]The fund seeks the highest total return (capital appreciation plus
current income) that is consistent with reasonable safety of capital. To pursue
this goal, the fund invests in a diversified portfolio of stocks, bonds and
money market instruments. Although the fund may concentrate in any of these
securities, under normal circumstances it invests primarily in stocks. The fund
may not invest more than 25% of assets in any one industry.
PORTFOLIO SECURITIES
[PORTFOLIO GRAPHIC]The fund may invest in most types of securities, including:
* common and preferred stocks, warrants and convertible securities
* U.S. Government and agency debt securities, including mortgage-backed
securities
* corporate bonds, notes and other debt securities of any maturity
The fund favors stocks that have paid dividends in the past 12 months and show
potential for a dividend increase. The fund invests no more than 5% of assets in
junk bonds (bonds rated lower than BBB/Baa and their unrated equivalents), but
does not invest in bonds rated lower than B.
The fund may invest up to 25% of assets in foreign securities (35% during
adverse U.S. market conditions); however, foreign securities typically have not
exceeded 5% of assets. To a limited extent the fund also may invest in certain
higher-risk securities, and may engage in other investment practices.
For temporary defensive purposes, the fund may invest some or all of its assets
in investment-grade short-term securities.
RISK FACTORS
[RISK GRAPHIC]As with any growth and income fund, the value of your investment
will fluctuate in response to stock and bond market movements.
To the extent that it invests in certain securities, the fund may be affected by
additional risks:
* foreign securities: currency, information, natural event and political risks
* mortgage-backed securities: extension and prepayment risks
These risks are defined in "More about risk" starting on page 26. This section
also details other higher-risk securities and practices that the fund may
utilize. Before you invest, please read "More about risk" carefully.
PORTFOLIO MANAGEMENT
[TORSO GRAPHIC]Timothy E. Keefe, leader of the fund's portfolio management team
since joining John Hancock Funds in July 1996, is a senior vice president of the
adviser and has been in the investment business since 1987.
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INVESTOR EXPENSES
<TABLE>
[% GRAPHIC]Fund investors pay various expenses, either directly or indirectly.
The figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
<CAPTION>
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SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
- --------------------------------------------------------------
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
<CAPTION>
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ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
- --------------------------------------------------------------
<S> <C> <C>
Management fee 0.625% 0.625%
12b-1 fee(3) 0.250% 1.00%
Other expenses 0.445% 0.445%
Total fund operating expenses 1.320% 2.070%
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<CAPTION>
- --------------------------------------------------------------
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $63 $90 $119 $201
Class B shares
Assuming redemption
at end of period $71 $95 $131 $221
Assuming no redemption $21 $65 $111 $221
This example is for comparison purposes only and is not a representation of
the fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
</TABLE>
4 GROWTH AND INCOME FUND
<PAGE>
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FINANCIAL HIGHLIGHTS
<TABLE>
[$ GRAPHIC]The figures below have
been audited by the fund's
independent auditors, Ernst & Young
LLP.
VOLATILITY, AS INDICATED BY CLASS A [BAR GRAPH]
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) 19.90 22.58 (9.86) 23.47 0.18 23.80 10.47 13.64
<CAPTION>
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CLASS A - YEAR ENDED AUGUST 31, 1986 1987 1988 1989 1990 1991 1992 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 10.42 $ 11.11 $ 12.04 $ 8.83 $ 10.19 $ 9.87 $ 11.77 $ 12.43
Net investment income (loss) 0.35 0.42 0.50 0.55 0.20 0.20 0.32(2) 0.40(2)
Net realized and unrealized gain (loss)
on investments 1.48 1.77 (1.73) 1.42 (0.18) 2.07 0.89 1.12
Total from investment operations 1.83 2.19 (1.23) 1.97 0.02 2.27 1.21 1.52
Less distributions:
Dividends from net investment income (0.36) (0.38) (0.49) (0.61) (0.27) (0.19) (0.25) (0.42)
Distributions from net realized gain on
investments sold (0.78) (0.88) (1.49) -- (0.07) (0.18) (0.30) (1.45)
Total distributions (1.14) (1.26) (1.98) (0.61) (0.34) (0.37) (0.55) (1.87)
Net asset value, end of period $ 11.11 $ 12.04 $ 8.83 $ 10.19 $ 9.87 $ 11.77 $ 12.43 $ 12.08
TOTAL INVESTMENT RETURN AT NET ASSET
VALUE(3) (%) 19.90 22.58 (9.86) 23.47 0.18 23.80 10.47 13.64
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted)($) 69,516 90,974 69,555 70,513 63,150 77,461 89,682 115,780
Ratio of expenses to average
net assets (%) 1.12 1.21 1.29 1.12 1.29 1.38 1.34 1.29
Ratio of net investment income (loss) to
average net assets (%) 3.53 3.86 5.45 6.07 1.96 1.90 2.75 3.43
Portfolio turnover rate (%) 150 138 120 214 69 70 119 107
Average brokerage commission rate(6) ($) N/A N/A N/A N/A N/A N/A N/A N/A
VOLATILITY, AS INDICATED BY CLASS A [BAR GRAPH]
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) (2.39) 19.22 12.58(4)
<CAPTION>
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CLASS A - YEAR ENDED AUGUST 31, 1994 1995 1996(1)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 12.08 $ 11.42 $ 13.38
Net investment income (loss) 0.32(2) 0.21(2) 0.11
Net realized and unrealized gain (loss)
on investments (0.61) 1.95 1.56
Total from investment operations (0.29) 2.16 1.67
Less distributions:
Dividends from net investment income (0.37) (0.20) (0.11)
Distributions from net realized gain on
investments sold -- -- (0.15)
Total distributions (0.37) (0.20) (0.26)
Net asset value, end of period $ 11.42 $ 13.38 $ 14.79
TOTAL INVESTMENT RETURN AT NET ASSET
VALUE(3) (%) (2.39) 19.22 12.58(4)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted)($) 121,160 130,183 135,820
Ratio of expenses to average
net assets (%) 1.31 1.30 1.16(5)
Ratio of net investment income (loss) to
average net assets (%) 2.82 1.82 1.60(5)
Portfolio turnover rate (%) 195 99 36
Average brokerage commission rate(6) ($) N/A N/A 0.0658
<CAPTION>
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CLASS B - YEAR ENDED AUGUST 31, 1991(7) 1992 1993 1994 1995 1996(1)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $11.52 $ 11.77 $ 12.44 $ 12.10 $ 11.44 $ 13.41
Net investment income (loss) -- 0.23(2) 0.30(2) 0.24(2) 0.13(2) 0.07
Net realized and unrealized gain (loss)
on investments 0.25 0.89 1.12 (0.61) 1.96 1.56
Total from investment operations 0.25 1.12 1.42 (0.37) 2.09 1.63
Less distributions:
Dividends from net investment income -- (0.15) (0.31) (0.29) (0.12) (0.07)
Distributions from net realized gain on
investments sold -- (0.30) (1.45) -- -- (0.15)
Total distributions -- (0.45) (1.76) (0.29) (0.12) (0.22)
Net asset value, end of period $11.77 $ 12.44 $ 12.10 $ 11.44 $ 13.41 $ 14.82
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 2.17(4) 9.67 12.64 (3.11) 18.41 12.18(4)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 7,690 29,826 65,010 114,025 114,723 125,071
Ratio of expenses to average net assets (%) 2.19(5) 2.07 2.19 2.06 2.03 1.87(5)
Ratio of net investment income (loss) to average
net assets (%) 1.46(5) 2.02 2.53 2.07 1.09 0.89(5)
Portfolio turnover rate (%) 70 119 107 195 99 36
Average brokerage commission rate(6) ($) N/A N/A N/A N/A N/A 0.0658
(1) Six months ended February 29, 1996. (Unaudited.)
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) Annualized.
(6) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(7) Class B shares commenced operations on August 22, 1991.
</TABLE>
GROWTH AND INCOME FUND 5
<PAGE>
INDEPENDENCE EQUITY FUND
REGISTRANT NAME: JOHN HANCOCK CAPITAL SERIES
TICKER SYMBOL CLASS A: JHDCX
CLASS B: JHIDX
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GOAL AND STRATEGY
[LOGO]The fund seeks above-average total return (capital appreciation plus
current income). To pursue this goal, the fund invests primarily in a
diversified stock portfolio whose risk profile is similar to that of the S&P 500
index. The fund does not invest exclusively in S&P 500 stocks.
In choosing stocks, the fund uses a proprietary computer model (NIXDEX) to
identify stocks that appear to be undervalued. The fund favors those undervalued
stocks that are selected by its model and that are believed to have improving
fundamentals. The fund may not invest more than 25% of assets in any one
industry.
PORTFOLIO SECURITIES
[LOGO]Under normal circumstances, the fund invests at least 65% of assets in
common stocks. It may also invest in warrants, preferred stocks and investment-
grade convertible debt securities.
The fund may invest in foreign securities in the form of American Depository
Receipts (ADRs) and U.S. dollar-denominated securities of foreign issuers
traded on U.S. exchanges. To a limited extent the fund also may invest in
certain higher-risk securities, and may engage in other investment practices.
For temporary defensive purposes, the fund may invest some or all of its assets
in investment-grade short-term securities.
RISK FACTORS
[LOGO]As with any growth and income fund, the value of your investment will
fluctuate in response to stock and bond market movements. Because the fund
follows an index-tracking strategy, it is likely to remain fully invested even
if the fund's managers anticipate a market downturn.
To the extent that it invests in foreign securities, the fund may be affected by
additional risks, such as information, natural event and political risks. These
risks are defined in "More about risk" starting on page 26. This section also
details other higher-risk securities and practices that the fund may utilize.
Please read "More about risk" carefully before you invest.
MANAGEMENT/SUBADVISER
[LOGO]The fund's investment decisions are made by a portfolio management team,
and no individual is primarily responsible for making them. Team members are
employees of Independence Investment Associates, Inc., the fund's subadviser and
a subsidiary of John Hancock Mutual Life Insurance Company.
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INVESTOR EXPENSES
[LOGO]Fund investors pay various expenses, either directly or indirectly. The
figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
<TABLE>
<CAPTION>
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SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
- -------------------------------------------------------------------------------
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
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ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
- -------------------------------------------------------------------------------
Management fee (after expense limitation)(3) 0.00% 0.00%
12b-1 fee(4) 0.30% 1.00%
Other expenses 1.00% 1.00%
Total fund operating expenses (after limitation)(3) 1.30% 2.00%
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<CAPTION>
- -------------------------------------------------------------------------------
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10
- -------------------------------------------------------------------------------
Class A shares $63 $89 $118 $199
Class B shares
Assuming redemption
at end of period $70 $93 $128 $215
Assuming no redemption $20 $63 $108 $215
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Reflects the adviser's temporary agreement to limit expenses. Without this
limitation, management fee would be 0.75% for each class and total fund
operating expenses would be 2.05% for Class A and 2.75% for Class B.
Management fee includes a subadviser fee equal to 55% of the management
fee.
(4) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
</TABLE>
6 INDEPENDENCE EQUITY FUND
<PAGE>
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FINANCIAL HIGHLIGHTS
<TABLE>
[LOGO]The figures below have been audited by the fund's independent auditors,
Price Waterhouse LLP.
<CAPTION>
VOLATILITY, AS INDICATED BY CLASS A
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) [BAR CHART 10.95(4) 13.58 6.60 16.98 29.12]
- --------------------------------------------------------------------------------------------------------------
CLASS A - YEAR ENDED MAY 31, 1992(1) 1993 1994 1995 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.00 $ 10.98 $ 12.16 $ 12.68 $14.41
Net investment income (loss) 0.15 0.22 0.28(2) 0.32(2) 0.20(2)
Net realized and unrealized gain (loss) on investments 0.94 1.25 0.52 1.77 3.88
Total from investment operations 1.09 1.47 0.80 2.09 4.08
Less distributions:
Dividends from net investment income (0.11) (0.23) (0.23) (0.28) (0.22)
Distributions from net realized gain on
investments sold -- (0.06) (0.05) (0.08) (0.29)
Total distributions (0.11) (0.29) (0.28) (0.36) (0.51)
Net asset value, end of period $10.98 $ 12.16 $ 12.68 $ 14.41 $17.98
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 10.95(4) 13.58 6.60 16.98 29.12
Total adjusted investment return at net asset
value(3,5) (%) 9.23(4) 11.40 6.15 16.94 28.47
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 2,622 12,488 66,612 101,418 14,878
Ratio of expenses to average net assets (%) 1.66(6) 0.76 0.70 0.70 0.94
Ratio of adjusted expenses to average net assets(7) (%) 3.38(6) 2.94 1.15 0.74 1.59
Ratio of net investment income (loss) to average
net assets (%) 1.77(6) 2.36 2.20 2.43 1.55
Ratio of adjusted net investment income (loss) to average
net assets(7) (%) 0.05(6) 0.18 1.75 2.39 0.90
Portfolio turnover rate (%) 53 53 43 71 157
Fee reduction per share ($) 0.15 0.20 0.06(2) 0.005(2) 0.08(2)
Average brokerage commission rate(8) ($) N/A N/A N/A N/A N/A
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CLASS B - YEAR ENDED MAY 31, 1996(1)
- --------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $15.25
Net investment income (loss) 0.09 (2)
Net realized and unrealized gain (loss) on investments 2.71
Total from investment operations 2.80
Less distributions:
Dividends from net investment income (0.09)
Net asset value, end of period $17.96
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 18.46 (4)
Total adjusted investment return at net asset value(3,5) (%) 17.59 (4)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 15,125
Ratio of expenses to average net assets (%) 2.00 (6)
Ratio of adjusted expenses to average net assets(7) (%) 3.21 (6)
Ratio of net investment income (loss) to average net assets (%) 0.78 (6)
Ratio of adjusted net investment income (loss) to average net assets(7) (%) (0.43)(6)
Portfolio turnover rate (%) 157
Fee reduction per share ($) 0.13 (2)
Average brokerage commission rate(8) ($) N/A
- ----------
(1) Class A and Class B shares commenced operations on June 10, 1991 and
September 7, 1995, respectively.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
</TABLE>
INDEPENDENCE EQUITY FUND 7
<PAGE>
SOVEREIGN BALANCED FUND
REGISTRANT NAME: JOHN HANCOCK SOVEREIGN INVESTORS FUND, INC.
TICKER SYMBOL CLASS A: SVBAX CLASS B: SVBBX
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GOAL AND STRATEGY
[LOGO]The fund seeks current income, long-term growth of capital and income, and
preservation of capital. To pursue these goals, the fund allocates its assets
among a diversified mix of debt and equity securities. While the relative
weightings of debt and equity securities will shift over time, at least 25% of
assets will be invested in senior debt securities. The fund may not invest more
than 25% of assets in any one industry.
PORTFOLIO SECURITIES
[LOGO]The fund may invest in any type or class of security, including (but not
limited to) stocks, warrants, U.S. Government and agency securities, corporate
debt securities, investment-grade short-term securities, foreign currencies and
options and futures contracts.
The fund's stock investments are exclusively in companies that have increased
their dividend payout in each of the last ten years. Up to 25% of the fund's
bond investments may be rated from BB/Ba to C (junk bonds).
The fund may invest up to 35% of assets in foreign securities; however, these
typically have not exceeded 5% of assets. To a limited extent the fund also may
invest in certain higher-risk securities, and may engage in other investme nt
practices.
For temporary defensive purposes, the fund may invest some or all of its assets
in investment-grade short-term securities.
RISK FACTORS
[LOGO]As with any growth and income fund, the value of your investment will
fluctuate in response to stock and bond market movements. To the extent that it
invests in certain securities, the fund may be affected by additional risks:
* junk bonds: above-average credit, market and other risks
* foreign securities: currency, information, natural event and political risks
* mortgage-backed securities: extension and prepayment risks
These risks are listed and defined in "More about risk" starting on page 26.
This section also details other higher-risk securities and practices that the
fund may utilize. Please read "More about risk" carefully before you invest.
MANAGEMENT/SUBADVISER
[LOGO]John F. Snyder III and Barry H. Evans lead the fund's portfolio management
team. Mr. Snyder, an investment manager since 1971, is an executive vice
president of Sovereign Asset Management Corporation, the fund's subadviser and a
subsidiary of John Hancock Funds. Mr. Evans, a senior vice president of the
adviser, has been in the investment business since joining John Hancock Funds in
1986.
- -------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[LOGO]Fund investors pay various expenses, either directly or indirectly. The
figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
<CAPTION>
- -------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
- -------------------------------------------------------------------------------
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- -------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
- -------------------------------------------------------------------------------
Management fee(3) 0.60% 0.60%
12b-1 fee(4) 0.30% 1.00%
Other expenses 0.39% 0.39%
Total fund operating expenses 1.29% 1.99%
</TABLE>
<TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<CAPTION>
- -------------------------------------------------------------------------------
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $62 $89 $117 $198
Class B shares
Assuming redemption
at end of period $70 $92 $127 $214
Assuming no redemption $20 $62 $107 $214
- ----------
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Management fee includes a subadviser fee equal to 40% of the stock portion
of the management fee.
(4) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
</TABLE>
8 SOVEREIGN BALANCED FUND
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
[LOGO]The figures below have been audited by the fund's independent auditors,
Ernst & Young LLP.
<CAPTION>
VOLATILITY, AS INDICATED BY CLASS A
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) [BAR CHART 2.37(4) 11.38 (3.51) 24.23]
- ---------------------------------------------------------------------------------------------------------------
CLASS A - YEAR ENDED DECEMBER 31, 1992(1) 1993 1994 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 10.00 $ 10.19 $ 10.74 $ 9.84
Net investment income (loss) 0.04 0.46 0.50 0.44(2)
Net realized and unrealized gain (loss) on investments 0.20 0.68 (0.88) 1.91
Total from investment operations 0.24 1.14 (0.38) 2.35
Less distributions:
Dividends from net investment income (0.05) (0.45) (0.50) (0.44)
Distributions from net realized gain on investments sold -- (0.14) (0.02) --
Total distributions (0.05) (0.59) (0.52) (0.44)
Net asset value, end of period $ 10.19 $ 10.74 $ 9.84 $ 11.75
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 2.37(4) 11.38 (3.51) 24.23
Total adjusted investment return at net asset value(3,5) (%) 2.22(4) -- -- --
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 5,796 62,218 61,952 69,811
Ratio of expenses to average net assets (%) 2.79(6) 1.45 1.23 1.27
Ratio of adjusted expenses to average net assets(7) (%) 2.94(6) -- -- --
Ratio of net investment income (loss) to average net assets (%) 3.93(6) 4.44 4.89 3.99
Ratio of adjusted net investment income (loss) to average
net assets(7) (%) 3.78(6) -- -- --
Portfolio turnover rate (%) 0 85 78 45
Fee reduction per share ($) 0.0016 N/A N/A N/A
Average brokerage commission rate(8) ($) N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------
CLASS B - YEAR ENDED DECEMBER 31, 1992(1) 1993 1994 1995
- ---------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 10.00 $ 10.20 $ 10.75 $ 9.84
Net investment income (loss) 0.03 0.37 0.43 0.36(2)
Net realized and unrealized gain (loss) on investments 0.20 0.70 (0.89) 1.90
Total from investment operations 0.23 1.07 (0.46) 2.26
Less distributions:
Dividends from net investment income (0.03) (0.38) (0.43) (0.36)
Distributions from net realized gain on investments sold -- (0.14) (0.02) --
Total distributions (0.03) (0.52) (0.45) (0.36)
Net asset value, end of period $ 10.20 $ 10.75 $9.84 $11.74
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 2.29(4) 10.63 (4.22) 23.30
Total adjusted investment return at net asset value(3,5) (%) 2.14(4) -- -- --
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 14,311 78,775 79,176 87,827
Ratio of expenses to average net assets (%) 3.51(6) 2.10 1.87 1.96
Ratio of adjusted expenses to average net assets(7) (%) 3.66(6) -- -- --
Ratio of net investment income (loss) to average net assets (%) 3.21(6) 4.01 4.25 3.31
Ratio of adjusted net investment income (loss) to average
net assets(7) (%) 3.06(6) -- -- --
Portfolio turnover rate (%) 0 85 78 45
Fee reduction per share ($) 0.0012 -- -- --
Average brokerage commission rate(8) ($) N/A N/A N/A N/A
(1) Class A and Class B shares commenced operations on October 5, 1992. This
period is covered by the report of other independent auditors (not included
herein).
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
</TABLE>
SOVEREIGN BALANCED FUND 9
<PAGE>
SOVEREIGN INVESTORS FUND
REGISTRANT NAME: JOHN HANCOCK SOVEREIGN INVESTORS FUND, INC.
TICKER SYMBOL CLASS A: SOVIX CLASS B:SOVBX
- -------------------------------------------------------------------------------
GOAL AND STRATEGY
[LOGO]The fund seeks long-term growth of capital and of income without assuming
undue market risks. Under normal circumstances, the fund invests most of its
assets in a diversified selection of stocks, although it may respond to market
conditions by investing in other types of securities such as bonds or short-term
securities. The fund may not invest more than 25% of assets in any one industry.
Currently, the fund utilizes a "dividend performers" strategy in selecting
portfolio stocks, investing exclusively in companies that have increased their
dividend payout in each of the last ten years.
PORTFOLIO SECURITIES
[LOGO]The fund may invest in most types of securities, including:
* common and preferred stocks, warrants and convertible securities
* U.S. Government and agency debt securities, including mortgage-backed
securities
* corporate bonds, notes and other debt securities of any maturity
The fund's bond investments are primarily investment-grade, although up to 5% of
assets may be invested in junk bonds rated as low as C and their unrated
equivalents. To a limited extent the fund may invest in certain higher-risk
securities, and may engage in other investment practices.
For temporary defensive purposes, the fund may invest some or all of its assets
in investment-grade short-term securities.
RISK FACTORS
[LOGO]As with any growth and income fund, the value of your investment will
fluctuate in response to stock and bond market movements.
To the extent that the fund invests in higher-risk securities, it takes on
additional risks that could adversely affect its performance. Before you invest,
please read "More about risk" starting on page 26.
MANAGEMENT/SUBADVISER
[LOGO]John F. Snyder III and Barry H. Evans lead the fund's portfolio management
team. Mr. Snyder, an investment manager since 1971, is an executive vice
president of Sovereign Asset Management Corporation, the fund's subadviser and a
subsidiary of John Hancock Funds. Mr. Evans, a senior vice president of the
adviser, has been in the investment business since joining John Hancock Funds in
1986.
- -------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
Fund investors pay various expenses, either directly or indirectly. The figures
below show the expenses for the past year, adjusted to reflect any changes.
Future expenses may be greater or less.
<CAPTION>
- -------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
- -------------------------------------------------------------------------------
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- -------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
- -------------------------------------------------------------------------------
Management fee(3) 0.58% 0.58%
12b-1 fee(4) 0.30% 1.00%
Other expenses 0.28% 0.34%
Total fund operating expenses 1.16% 1.92%
</TABLE>
<TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<CAPTION>
- -------------------------------------------------------------------------------
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $61 $85 $111 $184
Class B shares
Assuming redemption
at end of period $70 $90 $124 $205
Assuming no redemption $20 $60 $104 $205
- ----------
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Management fee includes a subadviser fee equal to 40% of the management
fee.
(4) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
</TABLE>
10 SOVEREIGN INVESTORS FUND
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
[LOGO]The figures below have been audited by the fund's independent auditors,
Ernst & Young LLP.
VOLATILITY, AS INDICATED BY CLASS A [BAR CHART
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) 21.70 0.28 11.23 23.76 4.38 30.48 7.23 5.71 (1.85) 29.15
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
CLASS A - YEAR ENDED DECEMBER 31, 1986(1,2) 1987(1) 1988(1) 1989(1) 1990(1) 1991(1,3) 1992(1) 1993 1994 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $11.31 $12.36 $10.96 $11.19 $12.60 $ 11.94 $ 14.31 $ 14.78 $ 15.10 $ 14.24
Net investment income (loss) 0.58 0.53 0.57 0.59 0.58 0.54 0.47 0.44 0.46 0.40
Net realized and unrealized gain (loss)
on investments 1.89 (0.45) 0.65 2.01 (0.05) 3.03 0.54 0.39 (0.75) 3.71
Total from investment operations 2.47 0.08 1.22 2.60 0.53 3.57 1.01 0.83 (0.29) 4.11
Less distributions:
Dividends from net investment income (0.55) (0.58) (0.61) (0.61) (0.59) (0.53) (0.45) (0.42) (0.46) (0.40)
Distributions from net realized gain
on investments sold (0.87) (0.90) (0.38) (0.58) (0.60) (0.67) (0.09) (0.09) (0.11) (0.08)
Total distributions (1.42) (1.48) (0.99) (1.19) (1.19) (1.20) (0.54) (0.51) (0.57) (0.48)
Net asset value, end of period $12.36 $10.96 $11.19 $12.60 $11.94 $ 14.31 $ 14.78 $ 15.10 $ 14.24 $ 17.87
TOTAL INVESTMENT RETURN AT NET
ASSET VALUE(4) (%) 21.70 0.28 11.23 23.76 4.38 30.48 7.23 5.71 (1.85) 29.15
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(000s omitted) ($) 34,708 40,564 45,861 66,466 83,470 194,055 872,932 1,258,575 1,090,231 1,280,321
Ratio of expenses to average
net assets (%) 0.70 0.85 0.86 1.07 1.14 1.18 1.13 1.10 1.16 1.14
Ratio of net investment income
(loss) to average net assets (%) 4.28 3.96 4.97 4.80 4.77 4.01 3.32 2.94 3.13 2.45
Portfolio turnover rate (%) 34 59 35 40 55 67 30 46 45 46
Average brokerage commission rate(5) ($) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
CLASS B - YEAR ENDED DECEMBER 31, 1994(6) 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 15.02 $ 14.24
Net investment income (loss) 0.38 (7) 0.27(7)
Net realized and unrealized gain (loss) on investment (0.69) 3.71
Total from investment operations (0.31) 3.98
Less distributions:
Dividends from net investment income (0.36) (0.28)
Distributions from net realized gain on investments sold (0.11) (0.08)
Total distributions (0.47) (0.36)
Net asset value, end of period $ 14.24 $ 17.86
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4) (%) (2.04)(8) 28.16
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 128,069 257,781
Ratio of expenses to average net assets (%) 1.86(9) 1.90
Ratio of net investment income (loss) to average net assets (%) 2.57(9) 1.65
Portfolio turnover rate (%) 45 46
Average brokerage commission rate(5) ($) N/A N/A
- ----------
(1) These periods are covered by the report of other independent auditors (not
included herein).
(2) Restated for 2-for-1 stock split effective April 29, 1987.
(3) On October 23, 1991, John Hancock Advisers, Inc. became the investment
adviser of the fund.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(6) Class B shares commenced operations on January 3, 1994.
(7) Based on the average of the shares outstanding at the end of each month.
(8) Not annualized.
(9) Annualized.
</TABLE>
SOVEREIGN INVESTORS FUND 11
<PAGE>
SPECIAL VALUE FUND
REGISTRANT NAME: JOHN HANCOCK CAPITAL SERIES TICKER SYMBOL CLASS A: SPVAX
CLASS B: SPVBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[GOAL GRAPHIC]The fund seeks capital appreciation, with income as a secondary
consideration. To pursue this goal, the fund invests primarily in stocks that
appear comparatively undervalued and are out of favor. The fund looks for
companies of any size whose earnings power or asset value does not appear to be
reflected in the current stock price, and whose stocks thus have potential for
appreciation. The fund also takes a "margin of safety" approach, seeking those
stocks that are believed to have limited downside risk. The fund may not invest
more than 25% of assets in any one industry.
PORTFOLIO SECURITIES
[PORTFOLIO GRAPHIC]The fund invests primarily in the common stocks of U.S.
companies. It may also invest in warrants, preferred stocks and convertible
securities.
The fund may invest up to 50% of assets in foreign securities (including
American Depository Receipts), and under normal circumstances may invest up to
10% of net assets in investment-grade debt securities. To a limited extent the
fund also may invest in certain higher-risk securities and may engage in other
investment practices.
For temporary defensive purposes, the fund may invest some or all of its assets
in investment-grade short-term securities.
RISK FACTORS
[RISK GRAPHIC]As with any growth and income fund, the value of your investment
will fluctuate. Even comparatively undervalued stocks typically fall in price
during broad market declines. Small- and medium-sized company stocks, which may
comprise a portion of the fund's portfolio, tend to be more volatile than the
market as a whole.
To the extent that it invests in foreign securities, the fund may be affected by
additional risks, such as currency, information, natural event and political
risks. These risks are defined in "More about risk" starting on page 26. This
section also details other higher-risk securities and practices that the fund
may utilize. Please read "More about risk" carefully before you invest.
PORTFOLIO MANAGEMENT
[TORSO GRAPHIC]Timothy E. Keefe, leader of the fund's portfolio management team
since August 1996, is a senior vice president of the adviser. He joined John
Hancock Funds in July 1996 and has been in the investment business since 1987.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[% GRAPHIC]Fund investors pay various expenses, either directly or indirectly.
The figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
<CAPTION>
- ---------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
- ---------------------------------------------------------------
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
<CAPTION>
- ---------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
- ---------------------------------------------------------------
<S> <C> <C>
Management fee (after expense
limitation)(3,4) 0.00% 0.00%
12b-1 fee(5) 0.30% 1.00%
Other expenses (after limitation)(3) 0.71% 0.71%
Total fund operating expenses
(after limitation)(3) 1.01% 1.71%
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<CAPTION>
- -----------------------------------------------------------
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $60 $81 $103 $167
Class B shares
Assuming redemption
at end of period $67 $84 $113 $183
Assuming no redemption $17 $54 $ 93 $183
This example is for comparison purposes only and is not a representation of
the fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Reflects the adviser's temporary agreement to limit expenses (except for
12b-1 and transfer agent expenses). Without this limitation, management fees
would be 0.70% for each class, other expenses would be 0.90% for each class,
and total fund operating expenses would be 1.90% for Class A and 2.60% for
Class B.
(4) Includes a subadviser fee equal to 0.40% of the management fee.
(5) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
</TABLE>
12 SPECIAL VALUE FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
[$ GRAPHIC]The figures below have been audited
by the fund's independent auditors,
Ernst & Young LLP.
VOLATILITY, AS INDICATED BY CLASS A [BAR GRAPH]
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) 7.81(4) 20.26
<CAPTION>
- --------------------------------------------------------------------------------------------
CLASS A - YEAR ENDED DECEMBER 31, 1994(1) 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 8.50 $ 8.99
Net investment income (loss) 0.18(2) 0.21(2)
Net realized and unrealized gain (loss) on investments 0.48 1.60
Total from investment operations 0.66 1.81
Less distributions:
Dividends from net investment income (0.17) (0.20)
Distributions from net realized gain on investments sold -- (0.21)
Total distributions (0.17) (0.41)
Net asset value, end of period $ 8.99 $ 10.39
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 7.81(4) 20.26
Total adjusted investment return at net asset value(3,5) (%) 7.30(4) 19.39
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 4,420 12,845
Ratio of expenses to average net assets (%) 0.99(6) 0.98
Ratio of adjusted expenses to average net assets(7) (%) 4.98(6) 1.85
Ratio of net investment income (loss) to average net assets (%) 2.10(6) 2.04
Ratio of adjusted net investment income (loss) to average
net assets(7) (%) (1.89)(6) 1.17
Portfolio turnover rate (%) 0.3 9
Fee reduction per share ($) 0.34(2) 0.09(2)
Average brokerage commission rate(8) ($) N/A N/A
<CAPTION>
- --------------------------------------------------------------------------------------------
CLASS B - YEAR ENDED DECEMBER 31, 1994(1) 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 8.50 $ 9.00
Net investment income (loss) 0.13(2) 0.12(2)
Net realized and unrealized gain (loss) on investments 0.48 1.59
Total from investment operations 0.61 1.71
Less distributions:
Dividends from net investment income (0.11) (0.12)
Distributions from net realized gain on investments sold -- (0.21)
Total distributions (0.11) (0.33)
Net asset value, end of period $ 9.00 $ 10.38
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 7.15(4) 19.11
Total adjusted investment return at net asset value(3,5) (%) 6.64(4) 18.24
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 3,296 16,994
Ratio of expenses to average net assets (%) 1.72(6) 1.73
Ratio of adjusted expenses to average net assets(7) (%) 5.71(6) 2.60
Ratio of net investment income (loss) to average net assets (%) 1.53(6) 1.21
Ratio of adjusted net investment income (loss) to average net
assets(7) (%) (2.46)(6) 0.34
Portfolio turnover rate (%) 0.3 9
Fee reduction per share ($) 0.34(2) 0.09(2)
Average brokerage commission rate(8) ($) N/A N/A
(1) Class A and Class B shares commenced operations on January 3, 1994.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(4) Not annualized.
(5) An estimated total return calculation that does not take into consideration fee reductions
by the adviser during the periods shown.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Per portfolio share traded. Required for fiscal years that began September 1, 1995 or later.
</TABLE>
SPECIAL VALUE FUND 13
<PAGE>
UTILITIES FUND
REGISTRANT NAME: JOHN HANCOCK CAPITAL SERIES
TICKER SYMBOL CLASS A: JHUAX CLASS B: JHUBX
- -------------------------------------------------------------------------------
GOAL AND STRATEGY
[LOGO]The fund seeks current income and, to the extent consistent with this
goal, growth of income and long-term growth of capital. To pursue this goal, the
fund invests primarily in public utilities companies, such as those whose
principal business involves the generation, handling or sale of electricity,
natural gas, water, waste management services or non-broadcast
telecommunications services. Under normal circumstances, the fund will invest at
least 65% of assets in these companies. The fund may invest in other industries
if fund management believes it would help the fund meet its goal.
PORTFOLIO SECURITIES
[LOGO]The fund invests primarily in the common stocks of U.S. and foreign
companies. It may also invest in warrants, preferred stocks and convertible
securities.
Foreign securities (including American Depository Receipts) and investment-grade
debt securities may each comprise up to 25% of portfolio investments. To a
limited extent the fund also may invest in certain higher-risk securities, and
may engage in other investment practices.
For temporary defensive purposes, the fund may invest some or all of its assets
in investment-grade short-term securities.
RISK FACTORS
[LOGO]As with any growth and income fund, the value of your investment will
fluctuate in response to stock and bond market movements. Because the fund
concentrates on a narrow segment of the economy, its performance is largely
dependent on that segment's performance. Utilities stocks may be adversely
affected by numerous factors, including government regulation and deregulation,
environmental issues, competition and rising interest rates.
To the extent that it invests in foreign securities, the fund may be affected by
additional risks such as currency, information, natural event and political
risks. These risks are defined in "More about risk" starting on page 26. This
section also details other higher-risk securities and practices that the fund
may utilize. Please read "More about risk" carefully before you invest.
PORTFOLIO MANAGEMENT
[LOGO]Gregory K. Phelps, leader of the fund's portfolio management team since
April 1996, is a vice president of the adviser. He joined John Hancock Funds in
January 1995 and has been in the investment business since 1981.
- -------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[LOGO]Fund investors pay various expenses, either directly or indirectly. The
figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
<CAPTION>
- -------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
- -------------------------------------------------------------------------------
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- -------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
- -------------------------------------------------------------------------------
Management fee (after expense limitation)(3) 0.26% 0.26%
12b-1 fee(4) 0.30% 1.00%
Other expenses 0.49% 0.49%
Total fund operating expenses (after limitation)(3) 1.05% 1.75%
</TABLE>
<TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<CAPTION>
- -------------------------------------------------------------------------------
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $60 $82 $105 $172
Class B shares
Assuming redemption
at end of period $68 $85 $115 $188
Assuming no redemption $18 $55 $ 95 $188
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
- ----------
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Reflects the adviser's temporary agreement to limit expenses (except for
12b-1 and transfer agent expenses). Without this limitation, management
fees would be 0.70% for each class and total fund operating expenses would
be 1.49% for Class A and 2.19% for Class B.
(4) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
</TABLE>
14 UTILITIES FUND
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
[LOGO]The figures below have been audited by the fund's independent auditors,
Price Waterhouse LLP.
<CAPTION>
VOLATILITY, AS INDICATED BY CLASS A
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) [BAR CHART 2.82(4) 7.10 14.44]
- ------------------------------------------------------------------------------------------------------
CLASS A - YEAR ENDED MAY 31, 1994(1) 1995 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 8.50 $ 8.26 $ 8.48
Net investment income (loss) 0.12 (2) 0.44(2) 0.41(2)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions (0.36) 0.12 0.79
Total from investment operations (0.24) 0.56 1.20
Less distributions:
Dividends from net investment income -- (0.34) (0.41)
Distributions from net realized gains on investments sold -- -- (0.10)
Total distributions -- (0.34) (0.51)
Net asset value, end of period $ 8.26 $ 8.48 $ 9.17
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) (2.82)(4) 7.10 14.44
Total adjusted investment return at net asset value(3,5) (13.89)(4) 6.44 14.01
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 781 19,229 22,574
Ratio of expenses to average net assets (%) 1.00 (6) 1.04 1.04
Ratio of adjusted expenses to average net assets(7) (%) 12.07 (6) 1.70 1.47
Ratio of net investment income (loss) to average net assets (%) 4.53 (6) 5.39 4.49
Ratio of adjusted net investment income (loss) to average
net assets(7)(%) (6.54)(6) 4.73 4.06
Portfolio turnover rate (%) 6 98 124
Fee reduction per share ($) 0.27 (2) 0.05(2) 0.04(2)
Average brokerage commission rate(8) ($) N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
CLASS B - YEAR ENDED MAY 31, 1994(1) 1995 1996
- ------------------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $ 8.50 $ 8.25 $ 8.45
Net investment income (loss) 0.08 (2) 0.38(2) 0.34(2)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions (0.33) 0.12 0.79
Total from investment operations (0.25) 0.50 1.13
Less distributions:
Dividends from net investment income -- (0.30) (0.34)
Distributions from net realized gains on investments sold -- -- (0.10)
Total distributions -- (0.30) (0.44)
Net asset value, end of period $ 8.25 $ 8.45 $ 9.14
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) (2.94)(4) 6.31 13.68
Total adjusted investment return at net asset value(3,5) (14.01)(4) 5.65 13.25
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 445 38,344 47,759
Ratio of expenses to average net assets (%) 1.72 (6) 1.71 1.77
Ratio of adjusted expenses to average net assets(7) (%) 12.79 (6) 2.37 2.20
Ratio of net investment income (loss) to average net assets (%) 4.20 (6) 4.64 3.77
Ratio of adjusted net investment income (loss) to average
net assets(7)(%) (6.87)(6) 3.98 3.34
Portfolio turnover rate (%) 6 98 124
Fee reduction per share ($) 0.27 (2) 0.05(2) 0.04(2)
Average brokerage commission rate(8) ($) N/A N/A N/A
- ----------
(1) Class A and Class B shares commenced operations on February 1, 1994.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
</TABLE>
UTILITIES FUND 15
<PAGE>
YOUR ACCOUNT
- -------------------------------------------------------------------------------
CHOOSING A SHARE CLASS
All John Hancock growth and income funds offer two classes of shares, Class A
and Class B. Each class has its own cost structure, allowing you to choose the
one that best meets your requirements. Your financial representative can help
you decide.
- -------------------------------------------------------------------------------
CLASS A CLASS B
- -------------------------------------------------------------------------------
* Front-end sales charges, as * No front-end sales charge;
described below. There are all your money goes to work
several ways to reduce these for you right away.
charges, also described below.
* Higher annual expenses than
* Lower annual expenses than Class A shares.
Class B shares.
* A deferred sales charge on
shares you sell within six years
of purchase, as described below.
* Automatic conversion to Class A
shares after eight years, thus
reducing future annual expenses.
For actual past expenses of Class A and B shares, see the fund-by-fund
information earlier in this prospectus.
Sovereign Investors Fund offers Class C shares, which have their own expense
structure and are available to financial institutions only. Call Investor
Services for more information (see the back cover of this prospectus).
- -------------------------------------------------------------------------------
HOW SALES CHARGES ARE CALCULATED
<TABLE>
CLASS A Sales charges are as follows:
<CAPTION>
- -------------------------------------------------------------------------------
CLASS A SALES CHARGES
- -------------------------------------------------------------------------------
AS A % OF AS A % OF YOUR
YOUR INVESTMENT OFFERING PRICE INVESTMENT
<S> <C> <C>
Up to $49,999 5.00% 5.26%
$50,000 - $99,999 4.50% 4.71%
$100,000 - $249,999 3.50% 3.63%
$250,000 - $499,999 2.50% 2.56%
$500,000 - $999,999 2.00% 2.04%
$1,000,000 and over See below
</TABLE>
<TABLE>
INVESTMENTS OF $1 MILLION OR MORE Class A shares are available with no front-end
sales charge. However, there is a contingent deferred sales charge (CDSC) on any
shares sold within one year of purchase, as follows:
<CAPTION>
- -------------------------------------------------------------------------------
CDSC ON $1 MILLION + INVESTMENTS
- -------------------------------------------------------------------------------
YOUR INVESTMENT CDSC ON SHARES BEING SOLD
<S> <C>
First $1M - $4,999,999 1.00%
Next $1 - $5M above that 0.50%
Next $1 or more above that 0.25%
</TABLE>
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the last day of that month.
The CDSC is based on the lesser of the original purchase cost or the current
market value of the shares being sold, and is not charged on shares you acquired
by reinvesting your dividends. To keep your CDSC as low as possible, each time
you place a request to sell shares we will first sell any shares in your account
that are not subject to a CDSC.
<TABLE>
CLASS B Shares are offered at their net asset value per share, without any
initial sales charge. However, there is a contingent deferred sales charge
(CDSC) on shares you sell within six years of buying them. There is no CDSC on
shares acquired through reinvestment of dividends. The CDSC is based on the
original purchase cost or the current market value of the shares being sold,
whichever is less. The longer the time between the purchase and the sale of
shares, the lower the rate of the CDSC:
<CAPTION>
- -------------------------------------------------------------------------------
Class B deferred charges
- -------------------------------------------------------------------------------
YEARS AFTER PURCHASE CDSC ON SHARES BEING SOLD
<S> <C>
1st year 5.00%
2nd year 4.00%
3rd or 4th year 3.00%
5th year 2.00%
6th year 1.00%
After 6 years None
</TABLE>
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the first day of that month.
CDSC calculations are based on the number of shares involved, not on the value
of your account. To keep your CDSC as low as possible, each time you place a
request to sell shares we will first sell any shares in your account that carry
no CDSC. If there are not enough of these to meet your request, we will sell
those shares that have the lowest CDSC.
16 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
SALES CHARGE REDUCTIONS AND WAIVERS
REDUCING YOUR CLASS A SALES CHARGES There are several ways you can combine
multiple purchases of Class A shares of John Hancock funds to take advantage of
the breakpoints in the sales charge schedule. The first three ways can be
combined in any manner.
* Accumulation Privilege -- lets you add the value of any Class A shares you
already own to the amount of your next Class A investment for purposes of
calculating the sales charge.
* Letter of Intention -- lets you purchase Class A shares of a fund over a
13-month period and receive the same sales charge as if all shares had been
purchased at once.
* Combination Privilege -- lets you combine Class A shares of multiple funds
for purposes of calculating the sales charge.
To utilize: complete the appropriate section of your application, or contact
your financial representative or Investor Services to add these options.
GROUP INVESTMENT PROGRAM Allows established groups of four or more investors to
invest as a group. Each investor has an individual account, but for sales charge
purposes the group's investments are lumped together, making the investors
potentially eligible for reduced sales charges. There is no charge, no
obligation to invest (although initial aggregate investments must be at least
$250) and you may terminate the program at any time.
To utilize: contact your financial representative or Investor Services to find
out how to qualify.
CDSC WAIVERS As long as Investor Services is notified at the time you sell, the
CDSC for either share class will generally be waived in the following cases:
* to make payments through certain systematic withdrawal plans
* to make certain distributions from a retirement plan
* because of shareholder death or disability
To utilize: If you think you may be eligible for a CDSC waiver, contact your
financial representative or Investor Services, or consult the SAI (see the back
cover of this prospectus).
REINSTATEMENT PRIVILEGE If you sell shares of a John Hancock fund, you may
invest some or all of the proceeds in the same share class of any John Hancock
fund within 120 days without a sales charge. If you paid a CDSC when you sold
your shares, you will be credited with the amount of the CDSC. All accounts
involved must have the same registration.
To utilize: contact your financial representative or Investor Services.
WAIVERS FOR CERTAIN INVESTORS Class A shares may be offered without front-end
sales charges or CDSCs to various individuals and institutions, including:
* government entities that are prohibited from paying mutual fund sales charges
* financial institutions or common trust funds investing $1 million or more for
non-discretionary accounts
* selling brokers and their employees and sales representatives
* financial representatives utilizing fund shares in fee-based investment
products under agreement with John Hancock Funds
* fund trustees and other individuals who are affiliated with these or other
John Hancock funds
* individuals transferring assets to a John Hancock growth fund from an
employee benefit plan that has John Hancock funds
* members of an approved affinity group financial services program
* certain insurance company contract holders (one-year CDSC usually applies)
* participants in certain retirement plans with at least 100 members (one-year
CDSC applies)
To utilize: if you think you may be eligible for a sales charge waiver, contact
Investor Services or consult the SAI.
- -------------------------------------------------------------------------------
OPENING AN ACCOUNT
1 Read this prospectus carefully.
2 Determine how much you want to invest. The minimum initial investments for
the John Hancock funds are as follows:
* non-retirement account: $1,000
* retirement account: $250
* group investments: $250
* Monthly Automatic Accumulation Plan (MAAP): $25 to open; you must invest
at least $25 a month
3 Complete the appropriate parts of the account application, carefully
following the instructions. If you have questions, please contact your
financial representative or call Investor Services at 1-800-225-5291.
4 Complete the appropriate parts of the account privileges section of the
application. By applying for privileges now, you can avoid the delay and
inconvenience of having to file an additional application if you want to add
privileges later.
5 Make your initial investment using the table on the next page. You can
initiate any purchase, exchange or sale of shares through your financial
representative.
YOUR ACCOUNT 17
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------------
BUYING SHARES
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
BY CHECK
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
[GRAPHIC: a check]
* Make out a check for the investment amount, payable * Make out a check for the investment amount payable
to "John Hancock Investor Services Corporation." to "John Hancock Investor Services Corporation."
* Deliver the check and your completed application to * Fill out the detachable investment slip from an account
your financial representative, or mail them to Investor statement. If no slip is available, include a note specifying
Services (address on next page). the fund name, your share class, your account number
and the name(s) in which the account is registered.
* Deliver the check and your investment slip or note to
your financial representative, or mail them to Investor
Services (address on next page).
- ---------------------------------------------------------------------------------------------------------------------------------
BY EXCHANGE
- ---------------------------------------------------------------------------------------------------------------------------------
[GRAPHIC: two arrows]
* Call your financial representative or Investor Services * Call Investor Services to request an exchange.
to request an exchange.
- ---------------------------------------------------------------------------------------------------------------------------------
BY WIRE
- ---------------------------------------------------------------------------------------------------------------------------------
[GRAPHIC: an arrow]
* Deliver your completed application to your financial * Instruct your bank to wire the amount of your
representative, or mail it to Investor Services. investment to:
First Signature Bank & Trust
* Obtain your account number by calling your financial Account # 900000260
representative or Investor Services. Routing # 211475000
Specify the fund name, your share class, your account
* Instruct your bank to wire the amount of your number and the name(s) in which the account is
investment to: registered. Your bank may charge a fee to wire funds.
First Signature Bank & Trust
Account # 900000260
Routing # 211475000
Specify the fund name, your choice of share class, the
new account number and the name(s) in which the account
is registered. Your bank may charge a fee to wire funds.
- ---------------------------------------------------------------------------------------------------------------------------------
BY PHONE
- ---------------------------------------------------------------------------------------------------------------------------------
[GRAPHIC: a telephone]
See "By wire" and "By exchange." * Verify that your bank or credit union is a member of
the Automated Clearing House (ACH) system.
* Complete the "Invest-By-Phone" and "Bank Information"
sections on your account application.
* Call Investor Services to verify that these features
are in place on your account.
* Tell the Investor Services representative the fund name,
your share class, your account number, the name(s) in
which the account is registered and the amount of your
investment.
</TABLE>
To open or add to an account using the Monthly Automatic Accumulation
Program, see "Additional investor services."
18 YOUR ACCOUNT
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------
SELLING SHARES
- ------------------------------------------------------------------------------------------------------
<CAPTION>
DESIGNED FOR TO SELL SOME OR ALL OF YOUR SHARES
- ------------------------------------------------------------------------------------------------------
BY LETTER
- ------------------------------------------------------------------------------------------------------
<S> <C>
[GRAPHIC: a business envelope]
* Accounts of any type. * Write a letter of instruction or complete a stock power
indicating the fund name, your share class, your account
* Sales of any amount. number, the name(s) in which the account is registered
and the dollar value or number of shares you wish to sell.
* Include all signatures and any additional documents
that may be required (see next page).
* Mail the materials to Investor Services.
* A check will be mailed to the name(s) and address in
which the account is registered, or otherwise according
to your letter of instruction.
- ------------------------------------------------------------------------------------------------------
BY PHONE
- ------------------------------------------------------------------------------------------------------
[GRAPHIC: a telephone]
* Most accounts. * For automated service 24 hours a day using
your touch-tone phone, call the EASI-Line at
* Sales of up to $100,000. 1-800-338-8080.
* To place your order with a representative at John Hancock
Funds, call Investor Services between 8 a.m. and 4 p.m. on
most business days.
- ------------------------------------------------------------------------------------------------------
BY WIRE OR ELECTRONIC FUNDS TRANSFER (EFT)
- ------------------------------------------------------------------------------------------------------
[GRAPHIC: an arrow]
* Requests by letter to sell any * Fill out the "Telephone Redemption" section of your
amount (accounts of any type). new account application.
* Requests by phone to sell up to * To verify that the telephone redemption privilege is in
$100,000 (accounts with telephone place on an account, or to request the forms to add it
redemption privileges). to an existing account, call Investor Services.
* Amounts of $1,000 or more will be wired on the next
business day. A $4 fee will be deducted from your
account.
* Amounts of less than $1,000 may be sent by EFT or by
check. Funds from EFT transactions are generally
available by the second business day. Your bank may
charge a fee for this service.
- ------------------------------------------------------------------------------------------------------
BY EXCHANGE
- ------------------------------------------------------------------------------------------------------
[GRAPHIC: two arrows]
* Accounts of any type. * Obtain a current prospectus for the fund into which
you are exchanging by calling your financial
* Sales of any amount. representative or Investor Services.
* Call Investor Services to request an exchange.
</TABLE>
- -------------------------------------------
ADDRESS
John Hancock Investor Services Corporation
P.O. Box 9116 Boston, MA 02205-9116
PHONE
1-800-225-5291
Or contact your financial representative
for instructions and assistance.
- -------------------------------------------
To sell shares through a systematic withdrawal plan,
see "Additional investor services."
YOUR ACCOUNT 19
<PAGE>
SELLING SHARES IN WRITING In certain circumstances, you will need to make
your request to sell shares in writing. You may need to include additional
items with your request, as shown in the table below. You may also need to
include a signature guarantee, which protects you against fraudulent orders.
You will need a signature guarantee if:
* your address of record has changed within the past 30 days
* you are selling more than $100,000 worth of shares
* you are requesting payment other than by a check mailed to the address of
record and payable to the registered owner(s)
You can generally obtain a signature guarantee from the following sources:
* a broker or securities dealer
* a federal savings, cooperative or other type of bank
* a savings and loan or other thrift institution
* a credit union
* a securities exchange or clearing agency
A notary public CANNOT provide a signature guarantee.
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------------
SELLER REQUIREMENTS FOR WRITTEN REQUESTS [GRAPHIC: Envelope]
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Owners of individual, joint, sole proprietorship, UGMA/UTMA * Letter of instruction.
(custodial accounts for minors) or general partner accounts.
* On the letter, the signatures and titles of all persons
authorized to sign for the account, exactly as the account
is registered.
* Signature guarantee if applicable (see above).
- ----------------------------------------------------------------------------------------------------------------------------------
Owners of corporate or association accounts. * Letter of instruction.
* Corporate resolution, certified within the past 90 days
* On the letter and the resolution, the signature of the
person(s) authorized to sign for the account.
* Signature guarantee if applicable (see above).
- ----------------------------------------------------------------------------------------------------------------------------------
Owners or trustees of trust accounts. * Letter of instruction.
* On the letter, the signature(s) of the trustee(s).
* If the names of all trustees are not registered on the account,
please also provide a copy of the trust document certified
within the past 60 days.
* Signature guarantee if applicable (see above).
- ----------------------------------------------------------------------------------------------------------------------------------
Joint tenancy shareholders whose co-tenants are deceased. * Letter of instruction signed by surviving tenant.
* Copy of death certificate.
* Signature guarantee if applicable (see above).
- ----------------------------------------------------------------------------------------------------------------------------------
Executors of shareholder estates. * Letter of instruction signed by executor.
* Copy of order appointing executor.
* Signature guarantee if applicable (see above).
- ----------------------------------------------------------------------------------------------------------------------------------
Administrators, conservators, guardians and other sellers or * Call 1-800-225-5291 for instructions.
account types not listed above.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
20 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
TRANSACTION POLICIES
VALUATION OF SHARES The net asset value per share (NAV) for each fund and
class is determined each business day at the close of regular trading on the
New York Stock Exchange (typically 4 p.m. Eastern Time) by dividing a class's
net assets by the number of its shares outstanding.
BUY AND SELL PRICES When you buy shares, you pay the NAV plus any applicable
sales charges, as described earlier. When you sell shares, you receive the NAV
minus any applicable deferred sales charges.
EXECUTION OF REQUESTS Each fund is open on those days when the New York Stock
Exchange is open, typically Monday through Friday. Buy and sell requests are
executed at the next NAV to be calculated after your request is accepted by
Investor Services.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider using EASI-Line or sending your request in writing.
In unusual circumstances, any fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to three business days
or longer, as allowed by federal securities laws.
TELEPHONE TRANSACTIONS For your protection, telephone requests may be recorded
in order to verify their accuracy. In addition, Investor Services will take
measures to verify the identity of the caller, such as asking for name, account
number, Social Security or other taxpayer ID number and other relevant
information. If appropriate measures are not taken, Investor Services is
responsible for any losses that may occur to any account due to an unauthorized
telephone call. Also for your protection, telephone transactions are not
permitted on accounts whose names or addresses have changed within the past 30
days. Proceeds from telephone transactions can only be mailed to the address of
record.
EXCHANGES You may exchange shares of your John Hancock fund for shares of the
same class of any other, generally without paying any additional sales charges.
Class B shares will continue to age from the original date and will retain the
same CDSC rate as they had before the exchange, except that the rate will change
to that of the new fund if the new fund's rate is higher. A CDSC rate that has
increased will drop again with a future exchange into a fund with a lower rate.
To protect the interests of other investors in the fund, a fund may cancel the
exchange privileges of any parties that, in the opinion of the fund, are using
market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. A fund may change or cancel its exchange
privilege at any time, upon 60 days' notice to its shareholders. A fund may also
refuse any exchange order.
CERTIFICATED SHARES Most shares are electronically recorded. If you wish to
have certificates for your shares, please write to Investor Services.
Certificated shares can only be sold by returning the certificates to Investor
Services, along with a letter of instruction or a stock power and a signature
guarantee.
SALES IN ADVANCE OF PURCHASE PAYMENTS When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but the fund will not release the proceeds to you
until your purchase payment clears. This may take up to ten calendar days after
the purchase.
ELIGIBILITY BY STATE You may only invest in, or exchange into, fund shares
legally available in your state.
- --------------------------------------------------------------------------------
DIVIDENDS AND ACCOUNT POLICIES
ACCOUNT STATEMENTS In general, you will receive account statements as follows:
* after every transaction (except a dividend reinvestment) that affects your
account balance
* after any changes of name or address of the registered owner(s)
* in all other circumstances, every quarter
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
DIVIDENDS The funds generally distribute most or all of their net earnings in
the form of dividends.Income dividends are typically paid quarterly, and capital
gains dividends, if any, are typically paid annually.
YOUR ACCOUNT 21
<PAGE>
DIVIDEND REINVESTMENTS Most investors have their dividends reinvested in
additional shares of the same fund and class. If you choose this option, or
if you do not indicate any choice, your dividends will be reinvested on the
dividend record date. Alternatively, you can choose to have a check for your
dividends mailed to you. However, if the check is not deliverable, your
dividends will be reinvested.
TAXABILITY OF DIVIDENDS As long as a fund meets the requirements for being a
tax-qualified regulated investment company, which each fund has in the past
and intends to in the future, it pays no federal income tax on the earnings
it distributes to shareholders.
Consequently, dividends you receive from a fund, whether reinvested or taken as
cash, are generally considered taxable. Dividends from a fund's long-term
capital gains are taxable as capital gains; dividends from other sources are
generally taxable as ordinary income.
Some dividends paid in January may be taxable as if they had been paid the
previous December. Corporations may be entitled to take a dividends-received
deduction for a portion of certain dividends they receive.
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
TAXABILITY OF TRANSACTIONS Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the
sale price of the shares you sell or exchange, you may have a gain or a loss
on the transaction. You are responsible for any tax liabilities generated by
your transactions.
SMALL ACCOUNTS (NON-RETIREMENT ONLY) If you draw down a non-retirement account
so that its total value is less than $1,000, you may be asked to purchase more
shares within 30 days. If you do not take action, your fund may close out your
account and mail you the proceeds. Alternatively, Investor Services may charge
you $10 a year to maintain your account. You will not be charged a CDSC if your
account is closed for this reason, and your account will not be closed if its
drop in value is due to fund performance or the effects of sales charges.
- --------------------------------------------------------------------------------
ADDITIONAL INVESTOR SERVICES
MONTHLY AUTOMATIC ACCUMULATION PROGRAM (MAAP) MAAP lets you set up regular
investments from your paycheck or bank account to the John Hancock fund(s) of
your choice. You determine the frequency and amount of your investments, and
you can terminate your program at any time. To establish:
* Complete the appropriate parts of your account application.
* If you are using MAAP to open an account, make out a check ($25 minimum)
for your first investment amount payable to "John Hancock Investor Services
Corporation." Deliver your check and application to your financial
representative or Investor Services.
SYSTEMATIC WITHDRAWAL PLAN This plan may be used for routine bill payment or
periodic withdrawals from your account. To establish:
* Make sure you have at least $5,000 worth of shares in your account.
* Make sure you are not planning to invest more money in this account (buying
shares during a period when you are also selling shares of the same fund is
not advantageous to you, because of sales charges).
* Specify the payee(s). The payee may be yourself or any other party, and
there is no limit to the number of payees you may have, as long as they are
all on the same payment schedule.
* Determine the schedule: monthly, quarterly, semi-annually, annually or in
certain selected months.
* Fill out the relevant part of the account application. To add a systematic
withdrawal plan to an existing account, contact your financial
representative or Investor Services.
RETIREMENT PLANS John Hancock Funds offers a range of qualified retirement
plans, including IRAs, SEPs, SARSEPs, 401(k) plans, 403(b) plans (including
TSAs) and other pension and profit-sharing plans. Using these plans, you can
invest in any John Hancock fund with a low minimum investment of $250 or, for
some group plans, no minimum investment at all. To find out more, call
Investor Services at 1-800-225-5291.
22 YOUR ACCOUNT
<PAGE>
FUND DETAILS
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
HOW THE FUNDS ARE ORGANIZED Each John Hancock growth and income fund is an
open-end management investment company or a series of such a company.
Each fund is supervised by a board of trustees or a board of directors, an
independent body that has ultimate responsibility for the fund's activities. The
board retains various companies to carry out the fund's operations, including
the investment adviser, custodian, transfer agent and others (see diagram). The
board has the right, and the obligation, to terminate the fund's relationship
with any of these companies and to retain a different company if the board
believes it is in the shareholders' best interests.
[A flow chart that contains 8 rectangular-shaped boxes and illustrates the
hierachy of how the funds are organized. Within the flowchart, there are 5
tiers. The tiers are connected by shaded lines.
Shareholders represent the first tier. There is a shaded vertical arrow on the
left-hand side of the page. The arrow has arrowheads on both ends and is
contained within two horizontal, shaded lines. This is meant to highlight tiers
two and three which focus on Distribution and Shareholder Services.
Financial Services Firms and their Representatives are shown on the second tier.
Principal Distributor and Transfer Agent are shown on the third tier.
A shaded vertical arrow on the right-hand side of the page denotes those
entities involved in the Asset Management. The arrow has arrowheads on both ends
and is contained within two horizontal, shaded lines. This fourth tier includes
the Subadvisor, Investment Advisor and the Custodian.
The fifth tier contains the Trustees/Directors.]
At a mutual fund's inception, the initial shareholder (typically the adviser)
appoints the fund's board. Thereafter, the board and the shareholders determine
the board's membership. The boards of the John Hancock growth and income funds
may include individuals who are affiliated with the investment adviser. However,
the majority of board members must be independent.
The funds do not hold annual shareholder meetings, but may hold special meetings
for such purposes as electing or removing board members, changing fundamental
policies, approving a management contract or approving a 12b-1 plan (12b-1 fees
are explained in "Sales compensation").
FUND DETAILS 23
<PAGE>
ACCOUNTING COMPENSATION The funds compensate the adviser for performing tax
and financial management services. Annual compensation for 1996 will not
exceed 0.02% of each fund's average net assets.
PORTFOLIO TRADES In placing portfolio trades, the adviser may use brokerage
firms that market the fund's shares or are affiliated with John Hancock
Mutual Life Insurance Company, but only when the adviser believes no other
firm offers a better combination of quality execution (i.e., timeliness and
completeness) and favorable price.
INVESTMENT GOALS Except for Growth and Income Fund, Sovereign Balanced Fund
and Utilities Fund, each fund's investment goal is fundamental and may only
be changed with shareholder approval.
DIVERSIFICATION All of the growth and income funds are diversified.
- --------------------------------------------------------------------------------
SALES COMPENSATION
As part of their business strategies, the funds, along with John Hancock
Funds, pay compensation to financial services firms that sell the funds'
shares. These firms typically pass along a portion of this compensation to
your financial representative.
Compensation payments originate from two sources: from sales charges and from
12b-1 fees that are paid out of the fund in assets ("12b-1" refers to the
federal securities regulation authorizing annual fees of this type). The 12b-1
fee rates vary by fund and by share class, according to Rule 12b-1 plans adopted
by the funds' respective boards. The sales charges and 12b-1 fees paid by
investors are detailed in the fund-by-fund information. The portions of these
expenses that are reallowed to financial services firms are shown on the next
page.
<TABLE>
Distribution fees may be used to pay for sales compensation to financial
services firms, marketing and overhead expenses and, for Class B shares,
interest expenses.
- --------------------------------------------------------------------------------
CLASS B UNREIMBURSED DISTRIBUTION EXPENSES(1)
- --------------------------------------------------------------------------------
<CAPTION>
UNREIMBURSED AS A % OF
FUND EXPENSES NET ASSETS
<S> <C> <C>
Growth and Income $3,463,988 3.15%
- --------------------------------------------------------------------------------
Independence Equity $ 227,836 4.18%
- --------------------------------------------------------------------------------
Sovereign Balanced $3,097,061 3.72%
- --------------------------------------------------------------------------------
Sovereign Investors $1,907,573 1.00%
- --------------------------------------------------------------------------------
Special Value $ 807,110 7.50%
- --------------------------------------------------------------------------------
Utilities $1,584,645 3.41%
- --------------------------------------------------------------------------------
(1) As of the most recent fiscal year end covered by each fund's financial
highlights. These expenses may be carried forward indefinitely.
</TABLE>
INITIAL COMPENSATION Whenever you make an investment in a fund or funds, the
financial services firm receives either a reallowance from the initial sales
charge or a commission, as described below. The firm also receives the first
year's service fee at this time.
ANNUAL COMPENSATION Beginning with the second year after an investment is made,
the financial services firm receives an annual service fee of 0.25% of its total
eligible net assets. This fee is paid quarterly in arrears. Firms affiliated
with John Hancock, which include Tucker Anthony, Sutro & Company and John
Hancock Distributors, may receive an additional fee of up to 0.05% a year of
their total eligible net assets.
To compensate for continuing services, John Hancock Funds will pay Merrill
Lynch, Pierce, Fenner & Smith, Inc. an annual fee equal to 0.15% of the value of
Class A shares held by its customers for more than four years.
24 FUND DETAILS
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS A INVESTMENTS
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
MAXIMUM
SALES CHARGE REALLOWANCE FIRST YEAR MAXIMUM
PAID BY INVESTORS OR COMMISSION SERVICE FEE TOTAL COMPENSATION(1)
(% of offering price) (% of offering price) (% of net investment) (% of offering price)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Up to $49,999 5.00% 4.01% 0.25% 4.25%
- ---------------------------------------------------------------------------------------------------------------------------------
$50,000 - $99,999 4.50% 3.51% 0.25% 3.75%
- ---------------------------------------------------------------------------------------------------------------------------------
$100,000 - $249,999 3.50% 2.61% 0.25% 2.85%
- ---------------------------------------------------------------------------------------------------------------------------------
$250,000 - $499,999 2.50% 1.86% 0.25% 2.10%
- ---------------------------------------------------------------------------------------------------------------------------------
$500,000 - $999,999 2.00% 1.36% 0.25% 1.60%
- ---------------------------------------------------------------------------------------------------------------------------------
REGULAR INVESTMENTS OF
$1 MILLION OR MORE
- ---------------------------------------------------------------------------------------------------------------------------------
First $1M - $4,999,999 - 0.75% 0.25% 1.00%
- ---------------------------------------------------------------------------------------------------------------------------------
Next $1 - $5M above that - 0.25% 0.25% 0.50%
- ---------------------------------------------------------------------------------------------------------------------------------
Next $1 and more above that - 0.00% 0.25% 0.25%
- ---------------------------------------------------------------------------------------------------------------------------------
WAIVER INVESTMENTS(2) - 0.00% 0.25% 0.25%
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS B INVESTMENTS
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
MAXIMUM
REALLOWANCE FIRST YEAR MAXIMUM
OR COMMISSION SERVICE FEE TOTAL COMPENSATION
(% of offering price) (% of net investment) (% of offering price)
- ---------------------------------------------------------------------------------------------------------------------------------
All amounts 3.75% 0.25% 4.00%
- ---------------------------------------------------------------------------------------------------------------------------------
(1) Reallowance/commission percentages and service fee percentages are
calculated from different amounts, and therefore may not equal total
compensation percenta ges if combined using simple addition.
(2) Refers to any investments made by municipalities, financial institutions,
trusts and affinity group members that take advantage of the sales charge
waivers described earlier in this prospectus.
</TABLE>
CDSC revenues collected by John Hancock Funds may be used to fund commission
payments when there is no initial sales charge.
FUND DETAILS 25
<PAGE>
- --------------------------------------------------------------------------------
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's primary securities and
investment practices. You may find the most concise description of each fund's
risk profile in the fund-by-fund information.
The funds are permitted to utilize -- within limits established by the trustees
- -- certain other securities and investment practices that have higher risks and
opportunities associated with them. On the following page are brief descriptions
of these securities and practices, along with the risks associated with them.
The funds follow certain policies that may reduce these risks.
As with any mutual fund, there is no guarantee that the performance of a John
Hancock growth and income fund will be positive over any period of time.
- --------------------------------------------------------------------------------
TYPES OF INVESTMENT RISK
CORRELATION RISK The risk that changes in the value of a hedging instrument
will not match those of the asset being hedged (hedging is the use of one
investment to offset the effects of another investment).
CREDIT RISK The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation.
CURRENCY RISK The risk that fluctuations in the exchange rates between the
U.S. dollar and foreign currencies may negatively affect an investment.
EXTENSION RISK The risk that an unexpected rise in interest rates will
extend the life of a mortgage-backed security beyond the expected prepayment
time, typically reducing the security's value.
INFORMATION RISK The risk that key information about a security or market is
inaccurate or unavailable.
INTEREST RATE RISK The risk of market losses attributable to changes in
interest rates. With fixed-rate securities, a rise in interest rates
typically causes a fall in values, while a fall in rates typically causes a
rise in values.
LEVERAGE RISK Associated with securities or practices (such as borrowing)
that multiply small index or market movements into large changes in value.
* HEDGED When a derivative (a security whose value is based on another
security or index) is used as a hedge against an opposite position that the
fund also holds, any loss generated by the derivative should be
substantially offset by gains on the hedged investment, and vice versa.
While hedging can reduce or eliminate losses, it can also reduce or
eliminate gains.
* SPECULATIVE To the extent that a derivative is not used as a hedge, the
fund is directly exposed to the risks of that derivative. Gains or losses
from speculative positions in a derivative may be substantially greater
than the derivative's original cost.
LIQUIDITY RISK The risk that certain securities may be difficult or
impossible to sell at the time and the price that the seller would like.
MANAGEMENT RISK The risk that a strategy used by a fund's management may
fail to produce the intended result. Common to all mutual funds.
MARKET RISK The risk that the market value of a security may move up and
down, sometimes rapidly and unpredictably. Common to all stocks and bonds and
the mutual funds that invest in them.
NATURAL EVENT RISK The risk of losses attributable to natural disasters,
crop failures and similar events.
OPPORTUNITY RISK The risk of missing out on an investment opportunity
because the assets necessary to take advantage of it are tied up in less
advantageous investments.
POLITICAL RISK The risk of losses directly attributable to government or
political actions of any sort.
PREPAYMENT RISK The risk that unanticipated prepayments may occur, reducing
the value of mortgage-backed securities.
VALUATION RISK The risk that a fund has valued certain of its securities at
a higher price than it can sell them for.
<TABLE>
- --------------------------------------------------------------------------------
ANALYSIS OF FUNDS WITH 5% OR MORE IN JUNK BONDS(1)
- --------------------------------------------------------------------------------
<CAPTION>
QUALITY RATING
(S&P/MOODY'S)(2) SOVEREIGN BALANCED FUND
<S> <C> <C>
AAA/Aaa 16.0%
INVESTMENT- AA/Aa 2.2%
GRADE BONDS A/A 6.8%
BBB/Baa 5.7%
- --------------------------------------------------------------------------------
BB/Ba 3.5%
B/B 5.3%
JUNK BONDS CCC/Caa 0.0%
CC/Ca 0.0%
C/C 0.0%
% OF PORTFOLIO IN BONDS 39.5%
- -- Rated by S&P or Moody's.
(1) Data as of fund's last fiscal year end.
(2) In cases where the S&P and Moody's ratings for a given bond issue do not
agree, the issue has been counted in the higher category.
</TABLE>
26 FUND DETAILS
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
HIGHER-RISK SECURITIES AND PRACTICES
- ------------------------------------------------------------------------------------------------------------------------------------
This table shows each fund's investment limitations as a percentage of portfolio assets.
In each case the principal types of risk are listed (see previous page for definitions).
Numbers in this table show allowable usage only; for actual usage, consult the fund's
annual/semi-annual reports.
<CAPTION>
10 Percent of total assets (italic type)
10 Percent of net assets (roman type)
* No policy limitation on usage; fund may be using currently
@ Permitted, but has not typically been used GROWTH INDEPENDENCE SOVEREIGN SOVEREIGN SPECIAL
- - Not permitted AND INCOME EQUITY BALANCED INVESTORS VALUE UTILITIES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT PRACTICES
BORROWING; REVERSE REPURCHASE AGREEMENTS The borrowing of money
from banks or through reverse repurchase agreements. Leverage,
credit risks. 33.3 33.3 33 - 33.3 33.3
REPURCHASE AGREEMENTS The purchase of a security that must later
be sold back to the issuer at the same price plus interest.
Credit risk. * * * * * *
SECURITIES LENDING The lending of securities to financial
institutions, which provide cash or government securities as
collateral. Credit risk. 33 33.3 33.3 33.3 33.3 33.3
SHORT SALES The selling of securities which have been borrowed
on the expectation that the market price will drop.
* Hedged. Hedged leverage, market, correlation, liquidity,
opportunity risks. - @ @ @ @ @
* Speculative. Speculative leverage, market, liquidity risks. - @ - - @ -
SHORT-TERM TRADING Selling a security soon after purchase. A
portfolio engaging in short-term trading will have higher
turnover and transaction expenses. Market risk. * * * * * *
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS The purchase
or sale of securities for delivery at a future date; market
value may change before delivery. Market, opportunity,
leverage risks. * * * * * *
- ------------------------------------------------------------------------------------------------------------------------------------
CONVENTIONAL SECURITIES
NON-INVESTMENT-GRADE DEBT SECURITIES Debt securities rated
below BBB/Baa are considered junk bonds. Credit, market,
interest rate, liquidity, valuation and information risks. 5 - 25 5 - -
FOREIGN SECURITIES Securities issued by foreign companies,
as well as American or European depository receipts, which
are dollar-denominated securities typically issued by American
or European banks and are based on ownership of securities issued
by foreign companies. Market, currency, information, natural
event, political risks. 35 * 35 - 50 25
RESTRICTED AND ILLIQUID SECURITIES Securities not traded on the
open market. May include illiquid Rule 144A securities. Liquidity,
valuation, market risks. 10 15 15 15 15 15
- ------------------------------------------------------------------------------------------------------------------------------------
LEVERAGED DERIVATIVE SECURITIES
FINANCIAL FUTURES AND OPTIONS; SECURITIES AND INDEX OPTIONS
Contracts involving the right or obligation to deliver or
receive assets or money depending on the performance of one
or more assets or an economic index.
* Futures and related options. Interest rate, currency, market,
hedged or speculative leverage, correlation, liquidity,
opportunity risks. * @ * - * @
* Options on securities and indices. Interest rate, currency,
market, hedged or speculative leverage, correlation, liquidity,
credit, opportunity risks. 10(1) @ 5(1) 5(1) 5(1) @
CURRENCY CONTRACTS Contracts involving the right or obligation to
buy or sell a given amount of foreign currency at a specified
price and future date.
* Hedged. Currency, hedged leverage, correlation, liquidity,
opportunity risks. * - * - * *
* Speculative. Currency, speculative leverage, liquidity risks. - - - - - -
(1)Applies to purchased options only.
</TABLE>
FUND DETAILS 27
<PAGE>
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
Two documents are available that offer further information on John Hancock
growth and income funds:
ANNUAL/SEMI-ANNUAL REPORT TO SHAREHOLDERS
Includes financial statements, detailed performance information, portfolio
holdings, a statement from portfolio management and the
auditor's report.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains more detailed information on all aspects of the funds. The
current annual/semi-annual report is included in the SAI.
A current SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference (is legally a part of this prospectus).
To request a free copy of the current annual/semi-annual report or the SAI,
please write or call:
John Hancock Investor Services
Corporation
P.O. Box 9116
Boston, MA 02205-9116
Telephone: 1-800-225-5291
EASI-Line: 1-800-338-8080
TDD: 1-800-544-6713
[LOGO] JOHN HANCOCK FUNDS
A GLOBAL INVESTMENT MANAGEMENT FIRM
101 Huntington Avenue
Boston, Massachusetts 02199-7603
[Copyright] 1996 John Hancock Funds, Inc.
GINPN 8/96
[LOGO]
JOHN HANCOCK
FINANCIAL SERVICES
<PAGE>
JOHN HANCOCK INDEPENDENCE
EQUITY FUND
Statement of Additional Information
August 30, 1996
This Statement of Additional Information provides information about John
Hancock Independence Diversified Core Equity Fund (the "Fund"), a diversified
series of John Hancock Capital Series (the "Trust"), in addition to the
information that is contained in the Fund's Prospectus dated August 30, 1996
(the "Prospectus").
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the Prospectus, a copy of which can be obtained free of
charge by writing or telephoning:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
1-(800)-225-5291
TABLE OF CONTENTS
Page
Organization of the Fund............................................... 2
Investment Objective and Policies...................................... 2
Investment Restrictions................................................ 6
Those Responsible for Management....................................... 10
Investment Advisory and Other Services................................. 18
Distribution Contract.................................................. 21
Net Asset Value........................................................ 23
Initial Sales Charge on Class A Shares................................. 24
Deferred Sales Charge on Class B Shares................................ 26
Special Redemptions.................................................... 29
Additional Services and Programs....................................... 29
Description of the Fund's Shares....................................... 31
Tax Status............................................................. 32
Calculation of Performance............................................. 37
Brokerage Allocation................................................... 38
Transfer Agent Services................................................ 41
Custody of Portfolio................................................... 41
Independent Auditors................................................... 41
Financial Statements
<PAGE>
ORGANIZATION OF THE FUND
John Hancock Independence Equity Fund (the "Fund") is organized as a
separate, diversified series of John Hancock Capital Series (the "Trust"), an
open-end investment management company organized in 1984 as a Massachusetts
business trust under the laws of The Commonwealth of Massachusetts. The Trust is
the successor to John Hancock Growth Fund, Inc., a Delaware corporation
organized in 1968.
The Fund was established in 1991 and is managed by John Hancock Advisers,
Inc. (the "Adviser") and Independence Investment Associates, Inc. ("IIA" or the
"Sub-Adviser"). The Adviser and the Sub-Adviser are indirect, wholly-owned
subsidiaries of John Hancock Mutual Life Insurance Company (the "Life Company"),
a Massachusetts life insurance company chartered in 1862 with national
headquarters at John Hancock Place, Boston, Massachusetts. On October 1, 1992,
the Fund changed its name from John Hancock Growth and Income Fund to John
Hancock Diversified Core Equity Fund, and on July 1, 1993, from John Hancock
Diversified Core Equity Fund to John Hancock Independence Diversified Core
Equity Fund. On June 3, 1996, the Fund changed its name from John Hancock
Independence Diversified Core Equity Fund to John Hancock Independence Equity
Fund, the Fund's current name.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek above-average total return,
consisting of capital appreciation and income. To achieve its objective the Fund
will select some securities for their current income potential. See "Investment
Objectives and Policies" in the Prospectus. There can be no assurance that the
objective of the Fund will be realized.
The Fund will diversify its investments to create a portfolio with a risk
profile and characteristics similar to the Standard & Poor's 500 Stock Index.
Consequently, the Fund will invest in a number of industry groups without
concentration in any particular industry. The Fund's investments will be subject
to the market fluctuation and risks inherent in all securities.
The Fund will focus on securities of companies which the Fund's management
believes offer outstanding capital growth and/or income potential over both the
intermediate and long term. The Fund's management considers stocks which combine
value and improving fundamentals to be attractive investments for the Fund. In
determining what constitutes "value," the Fund's management seeks stocks with
the following attributes: high growth relative to price/earnings ratio, rising
dividend stream, and high asset value. To determine whether a company's stock
exhibits improving fundamentals, the Fund's management looks for accelerating
earnings growth, positive earnings surprises when compared to the market's
expectations and favorable cyclical timing.
2
<PAGE>
The Sub-Adviser also uses a quantitative, multifactor proprietary
stock-ranking model called "Cybercode." "Cybercode" is fueled by estimates
generated by the Sub-Adviser's in-house team of professional securities
analysts. All of the firm's analysts are focused on tasks that are important for
the Cybercode ranking system: projecting current year and next year's earnings
and cash flows; developing five-year growth forecasts; and understanding the
strategic plan of the companies they follow, and how this plan might affect
capital expenditures and stock dividends. The Sub-Adviser's research analysts
concentrate on 500 stocks, a closely followed subset of the firm's unbiased
3,000 stock universe. The macroeconomic assumptions needed to forecast
individual company progress are determined by senior investment professionals
and worked into the approach by the research analysts. This distinguishes the
Sub-Adviser's process as a bottom-up, stock picking approach.
Using the analysts' inputs, the ranking model (Cybercode) evaluates each
stock in the stock selection universe on discrete criteria and scores each for
how cheap they are and how much their fundamentals are improving. The result is
a listing of the selection universe from most attractive to least attractive.
The top stock on the ranked list exhibits the most favorable combination of
cheapness and improving fundamentals; the bottom stock the least favorable.
Through this process, the Sub-Adviser seeks to avoid bad stocks when
constructing diversified core equity portfolios.
The Sub-Adviser uses an investment strategy it calls NIXDEX. To produce
NIXDEX portfolios, the Sub-Adviser generally excludes from consideration the
bottom two quintiles of its ranked selection universe and optimizes the
remaining stocks to market-like risk exposures. NIXDEX portfolios have a risk
profile like that of the S&P 500, but by "nixing" the bad stocks at the time of
the Fund's purchase, the Sub-Adviser seeks to produce consistent excess returns
in most types of market environments. The Sub-Adviser reserves the right to
purchase from the bottom two quintiles under unusual market conditions when
needed for diversification.
Fixed Income Securities. Under normal market conditions, the Fund may
invest up to 35% of its total assets in fixed income securities (including debt
securities and preferred stocks) that are rated Baa or better by Moody's
Investors Service, Inc. or BBB or better by Standard & Poor's Ratings Group or,
if unrated, determined to be of comparable quality by the Adviser and the
Sub-Adviser ("investment grade debt securities"). The value of fixed income
securities varies inversely with changes in the prevailing levels of interest
rates. In addition, debt securities rated BBB or Baa and unrated debt securities
of comparable quality are considered medium grade obligations and have
speculative characteristics. Adverse changes in economic conditions or other
circumstances are more likely to lead to weakened capacity to make principal and
interest payment than in the case of higher grade obligations.
For temporary defensive purposes, the Fund may invest up to 100% of its
assets in investment grade debt securities of any type or maturity.
3
<PAGE>
American Depository Receipts. The Fund may invest in securities of foreign
issuers in the form of American Depository Receipts ("ADRs"). ADRs (sponsored
and unsponsored) are receipts, typically issued by U.S. banks, which evidence
ownership of underlying securities issued by a foreign corporation. ADRs are
publicly traded on a U.S. stock exchange or in the over-the-counter market. An
investment in foreign securities including ADRs may be affected by changes in
currency rates and in exchange control regulations. Issuers of unsponsored ADRs
are not contractually obligated to disclose material information in the United
States and, therefore, there may not be a correlation between such information
and the market value of the unsponsored ADR. Foreign companies may not be
subject to accounting standards or government supervision comparable to U.S.
companies, and there is often less publicly available information about their
operations. Foreign companies may also be affected by political or financial
instability abroad. These risk considerations may be intensified in the case of
investments in ADRs of foreign companies that are located in emerging market
countries. ADRs of companies located in these countries may have limited
marketability and may be subject to more abrupt or erratic price movements.
Repurchase Agreements. The Fund may invest in repurchase agreements. A
repurchase agreement is a contract under which the Fund acquires a security for
a relatively short period (usually not more than 7 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 a
possible decline in the value of the underlying securities during the period in
which the Fund seeks to enforce its rights, possible subnormal levels of income,
lack of access to income during this period, and the expense of enforcing its
rights.
Reverse Repurchase Agreements. The Fund may also enter into reverse
repurchase agreements which involve the sale of government securities held in
its portfolio to a bank with an agreement that the Fund will buy back the
securities at a fixed future date at a fixed price plus an agreed amount of
"interest" which may be reflected in the repurchase price. Reverse repurchase
agreements are considered to be borrowings by the Fund. Reverse repurchase
agreements involve the risk that the market value of securities purchased by the
4
<PAGE>
Fund with proceeds of the transaction may decline below the repurchase price of
the securities sold by the Fund which it is obligated to repurchase. The Fund
will also continue to be subject to the risk of a decline in the market value of
the securities sold under the agreements because it will require those
securities upon effecting their repurchase. The Fund will not enter into reverse
repurchase agreements and other borrowings exceeding in the aggregate more than
33 1/3% of the market value of its total assets. The Fund will not make
additional investments while borrowings (including reverse repurchase
agreements) are in excess of 5% of the Fund's total assets. The Fund will enter
into reverse repurchase agreements only with federally insured banks or savings
and loan associations which are approved in advance as being creditworthy by the
Board of Trustees. Under procedures established by the Board of Trustees, the
Adviser will monitor the creditworthiness of the banks involved.
Short-Term Trading and Portfolio Turnover. Management does not expect that
in pursuing the Fund's objective, unusual portfolio turnover will be required
and intends to keep portfolio turnover to a minimum consistent with such
objective. Short-term trading means the purchase and subsequent sale of a
security after it has been held for a relatively brief period of time. Although
the Fund will not make a practice of short- term trading, the Fund may engage in
short-term trading in response to stock market conditions, changes in interest
rates or other economic trends and developments. Short- term trading may have
the effect of increasing portfolio turnover rate. A high rate of portfolio
turnover (100% or greater) involves correspondingly higher transaction expenses
and may make it more difficult for the Fund to qualify as a regulated investment
company for federal income tax purposes.
Restricted Securities. The Fund may purchase securities that are not
registered ("restricted securities") under the Securities Act of 1933 ("1933
Act"), including securities offered and sold to "qualified institutional buyers"
under Rule 144A under the 1933 Act. However, the Fund will not invest more than
15% of its net assets in illiquid investments, which include repurchase
agreements maturing in more than seven days, 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 Trustees may adopt guidelines and
delegate to the Adviser the daily function of determining the monitoring and
liquidity of restricted securities. The Trustees, however, will retain
sufficient oversight and be ultimately responsible for the determinations. The
Trustees will carefully monitor the Fund's investments in these securities,
focusing on such important factors, among others, as valuation, liquidity and
availability of information. This investment practice could have the effect of
increasing the level of illiquidity in the Fund if qualified institutional
buyers become for a time uninterested in purchasing these restricted securities.
The Fund may acquire other restricted securities including securities for
which market quotations are not readily available. These securities may be sold
5
<PAGE>
only in privately negotiated transactions or in public offerings with respect to
which a registration statement is in effect under the 1933 Act. Where
registration is required, the Fund may be obligated to pay all or part of the
registration expenses and a considerable period may elapse between the time of
the decision to sell and the time the Fund may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, the Fund might obtain a less favorable price
than prevailed when it decided to sell. Restricted securities will be priced at
fair market value as determined in good faith by the Fund's Trustees.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers and financial institutions if the loan is collateralized by cash or U.S.
Government securities according to applicable regulatory requirements. The Fund
may reinvest any cash collateral in short-term securities and money market
funds. When the Fund lends portfolio securities, there is a risk that the
borrower may fail to return the securities involved in the transaction. As a
result, the Fund may incur a loss or, in the event of the borrower's bankruptcy,
the Fund may be delayed in or prevented from liquidating the collateral. It is a
fundamental policy of the Fund not to lend portfolio securities having a total
value exceeding 33 1/3% of its total assets.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following fundamental investment
restrictions (as well as the Fund's investment objective) will not be changed
without approval of the holders of a majority of the Fund's outstanding voting
securities which, as used in the Prospectus and this Statement of Additional
Information, means approval of the lesser of (1) the holders of 67% or more of
the shares represented at a meeting if the holders of more than 50% of
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) Issue senior securities, except as permitted by paragraphs (2), (6) and (7)
below. For purposes of this restriction, the issuance of shares of
beneficial interest in multiple classes or series, the purchase or sale of
options, futures contracts, forward commitments and repurchase agreements
entered into in accordance with the Fund's investment policies, and the
pledge, mortgage or hypothecation of the Fund's assets within the meaning
of paragraph (3) below, are not deemed to be senior securities.
(2) Borrow money, except from banks as a temporary measure for extraordinary
emergency purposes in amounts not to exceed 33 1/3% of the value of the
Fund's total assets (including the amount borrowed) taken at market value.
6
<PAGE>
The Fund will not leverage to attempt to increase income. The Fund will not
purchase securities while outstanding borrowings exceed 5% of the Fund's
total assets.
(3) Pledge, mortgage or hypothecate its assets, except to secure indebtedness
permitted by paragraph (2) above and then only if such pledging, mortgaging
or hypothecating does not exceed 33 1/3% of the Fund's total assets taken
at market value.
(4) Act as an underwriter, except to the extent that in connection with the
disposition of portfolio securities, the Fund may be deemed to be an
underwriter for purposes of the 1933 Act.
(5) Purchase or sell real estate or any interest therein, except that the Fund
may invest in securities of corporate or governmental entities secured by
real estate or marketable interests therein or securities issued by
companies that invest in real estate or interests therein.
(6) Make loans, except that the Fund (1) may lend portfolio securities in
accordance with the Fund's investment policies up to 33 1/3% of the Fund's
total assets taken at market value, (2) enter into repurchase agreements,
and (3) purchase all or a portion of an issue of publicly distributed debt
securities, bank loan participation interests, bank certificates of
deposit, bankers' acceptances, debentures or other securities, whether or
not the purchase is made upon the original issuance of the securities.
(7) Invest in commodities or in commodity contracts or in puts, calls, or
combinations of both, except options on securities, securities indices and
currency, futures contracts on securities, securities indices and currency
and options on such futures, forward foreign currency exchange contracts,
forward commitments, securities index put or call warrants and repurchase
agreements entered into in accordance with the Fund's investment policies.
(8) Purchase the securities of issuers conducting their principal 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 such investment. This limitation does not apply
to investments in obligations of the U.S. Government or any of its agencies
or instrumentalities.
(9) Purchase securities of an issuer (other than the U.S. Government, its
agencies or instrumentalities), if
(a) 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
7
<PAGE>
(b) such purchase would at the time result in more than 10% of the
outstanding voting securities of such issuer being held by the Fund.
In connection with the lending of portfolio securities under paragraph (6)
above, such loans must at all times be fully collateralized and the Fund's
custodian must take possession of the collateral either physically or in book
entry form. Securities used as collateral must be marked to market daily.
Non-Fundamental Investment Restrictions. The following restrictions are
designated as non-fundamental and may be changed by the Board of Trustees
without shareholder approval.
The Fund may not:
(a) Participate on a joint or joint-and-several basis in any securities trading
account. The "bunching" of orders for the sale or purchase of marketable
portfolio securities with other accounts under the management of the
Adviser or Sub-Adviser to save commissions or to average prices among them
is not deemed to result in a joint securities trading account.
(b) Purchase securities on margin or make short sales, except in connection
with arbitrage transactions or unless, by virtue of its ownership of other
securities, the Fund has the right to obtain securities equivalent in kind
and amount to the securities sold and, if the right is conditional, the
sale is made upon the same conditions, except that the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of securities.
(c) 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,
Sub-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.
(d) Purchase a security if, as a result, (i) more than 10% of the Fund's total
assets would be invested in the securities of other investment companies,
(ii) the Fund would hold more than 3% of the total outstanding voting
securities of any one investment company, or (iii) more than 5% of the
Fund's total assets would be invested in the securities of any one
investment company. These limitations do not apply to (a) the investment of
cash collateral, received by the Fund in connection with lending the Fund's
portfolio securities, in the securities of open- end investment companies
or (b) the purchase of shares of any investment company in connection with
a merger, consolidation, reorganization or purchase of substantially all of
the assets of another investment company. Subject to the above percentage
limitations, the Fund may, in connection with the John Hancock Group of
8
<PAGE>
Funds Deferred Compensation Plan for Independent Trustees/ Directors,
purchase securities of other investment companies within the John Hancock
Group of Funds. In addition, as a nonfundamental restriction, the Fund may
not purchase the shares of any closed-end investment company except in the
open market where no commission or profit to a sponsor or dealer results
from the purchase, other than customary brokerage fees.
(e) Purchase securities of any issuer which, together with any predecessor, has
a record of less than three years' continuous operations prior to the
purchase if such purchase would cause investments of the Fund in all such
issuers to exceed 5% of the value of the total assets of the Fund.
(f) 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 considers
over-the-counter options to be illiquid securities subject to the 15%
limit.)
In order to permit the sale of shares of the Fund in certain states, the
Trustees may, in their sole discretion, adopt restrictions on investment policy
more restrictive than those described above. Should the Trustees determine that
any such more restrictive policy is no longer in the best interest 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,
in their sole discretion, revoke such policy. The Fund has agreed with a state
securities administrator that it will comply with the following investment
restrictions:
The Fund will not invest in real estate limited partnership interests.
The Fund will not purchase warrants of any issuer, if, as a result of such
purchase, more than 2% of the value of the Fund's total assets would be invested
in warrants which are not listed on the New York Stock Exchange or the American
Stock Exchange or more than 5% of the value of the total assets of the Fund
would be invested in warrants generally, whether or not so listed. For these
purposes, warrants are to be valued at the lesser of cost or market, but
warrants acquired by the Fund in units with or attached to debt securities shall
be deemed to be without value.
The Fund will not purchase interests in oil, gas, or other mineral
exploration programs or mineral leases; however, this policy will not prohibit
9
<PAGE>
the acquisition of securities of companies engaged in the production or
transmission of oil, gas, or other minerals.
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 or directors of the Adviser, or officers
or directors of the Fund's principal distributor, John Hancock Funds, Inc.
("John Hancock Funds").
The following table sets forth the principal occupation or employment of
the Trustees and principal officers of the Trust during the past five years.
10
<PAGE>
<TABLE>
<CAPTION>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Trust During Past 5 Years
- ----------------- ---------- -------------------
<S> <C> <C>
*Edward J. Boudreau, Jr. Chairman (3,4) Chairman and Chief Executive
101 Huntington Avenue Officer, the Adviser and The
Boston, MA 02199 Berkeley Financial Group ("The
October 1944 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"), Transamerica Fund
Management Company ("TFMC") and
Sovereign Asset Management
Corporation ("SAMCorp");
(hereinafter 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.
("Distributors") until April 1994.
11
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Trust During Past 5 Years
- ----------------- ---------- -------------------
Dennis S. Aronowitz Trustee (1,2) Professor of Law, Boston University
Boston University School of Law; Trustee, Brookline
Boston, Massachusetts Savings Bank.
June 1931
Richard P. Chapman, Jr. Trustee (1,2) President, Brookline Savings Bank.
160 Washington Street Director, Federal Home Loan Bank of
Brookline, Massachusetts Boston (lending); Director, Lumber
February 1935 Insurance Companies (fire and
casualty insurance); Trustee,
Northeastern University
(education); Director, Depositors
Insurance Fund, Inc. (insurance).
William J. Cosgrove Trustee (1,2) Vice President, Senior Banker and
20 Buttonwood Place Senior Credit Officer, Citibank,
Saddle River, New Jersey N.A. (retired September 1991);
January 1933 Executive Vice President, Citadel
Group Representatives, Inc.; EVP
Resource Evaluation Inc.
(consulting, October 1991 - October
1993); Trustee, the Hudson City
Savings Bank (until October 1995).
12
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Trust During Past 5 Years
- ----------------- ---------- -------------------
Douglas M. Costle Trustee (1,2,3) Director, Chairman of the Board and
RR2 Box 480 Distinguished Senior Fellow,
Woodstock, Vermont 05091 Institute for Sustainable
July 1939 Communities, Montpelier, Vermont
(since 1991). Dean, Vermont Law
School (until 1991). Director, Air
and Water Technologies Corporation
(environmental services and
equipment), Niagara Mohawk Power
Company (electric services) and
MITRE Corporation (governmental
consulting services).
Leland O. Erdahl Trustee (1,2) Director of Santa Fe Ingredients
9449 Navy Blue Court Company of California, Inc. and
Las Vegas, NV 89117 Santa Fe Ingredients Company, Inc.
December 1928 (private food processing
companies); Director of Uranium
Resources, Inc.; President of
Stolar, Inc. (from 1987-1991) and
President of Albuquerque Uranium
Corporation (from 1985-1992);
Director of Freeport-McMoRan Copper
& Cold Company Inc., Hecla Mining
Company, Canyon Resources
Corporation and Original Sixteen to
One Mine, Inc. (from 1984-1987 and
from 1991 to 1995) (management
consultant).
13
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Trust During Past 5 Years
- ----------------- ---------- -------------------
Richard A. Farrell Trustee (1,2) President of Farrell, Healer & Co.,
Farrell, Healer & Company, Inc. (venture capital management firm)
160 Federal Street -- 23rd Floor (since 1980); Prior to 1980, headed
Boston, MA 02110 the venture capital group at Bank
November 1932 of Boston Corporation.
Gail D. Fosler Trustee (1,2) Vice President and Chief Economist,
4104 Woodbine Street The Conference Board (non-profit
Chevy Chase, MD economic and business research).
December 1947
William F. Glavin Trustee (1,2) President, Babson College; Vice
Babson College Chairman, Xerox Corporation until
Horn Library June 1989; Director, Caldor Inc.,
Babson Park, MA 02157 Reebok, Ltd. (since 1994), and Inco
March 1931 Ltd.
Anne C. Hodsdon Trustee and President President and Chief Operating
101 Huntington Avenue (3)(4) Officer, the Adviser; Executive
Boston, MA 02199 Vice President, the Adviser (until
April 1953 December 1994); Senior Vice
President; the Adviser (until
December 1993); Vice President, the
Adviser, 1991.
Dr. John A. Moore Trustee (1,2) President and Chief Executive
Institute for Evaluating Officer, Institute for Evaluating
Health Risks Health Risks, (nonprofit
1101 Vermont Avenue N.W. institution) ( since September
Suite 608 1989).
Washington, DC 20005
February 1939
Patti McGill Peterson Trustee (1,2) President, St. Lawrence University;
Institute for Public Affairs Director, Niagara Mohawk Power
364 Upson Hall Corporation and Security Mutual
Cornell University Life.
Ithaca, NY 14853
May 1943
14
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Trust During Past 5 Years
- ----------------- ---------- -------------------
John W. Pratt Trustee (1,2) Professor of Business
2 Gray Gardens East Administration at Harvard
Cambridge, MA 02138 University Graduate School of
September 1931 Business Administration (since
1961).
*Richard S. Scipione Trustee (3) General Counsel, the Life Insurance
John Hancock Place Company; Director, the Adviser, the
P.O. Box 111 Affiliated Companies, John Hancock
Boston, Massachusetts Distributors, Inc., JH Networking
August 1937 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;
Edward J. Spellman, CPA Trustee (1,2,4) Partner, KPMG Peat Marwick LLP
259C Commercial Bld. (retired June 1990).
Lauderdale, FL
November 1932
The executive officers of the Trust and their principal occupations during the
past five years are set forth below. Unless otherwise indicated, the business
address of each is 101 Huntington Avenue, Boston, Massachusetts 02199.
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrants During Past 5 Years
- ----------------- ---------------- -------------------
Robert G. Freedman Vice Chairman and Chief Vice Chairman and Chief Investment
July 1938 Investment Officer (4) Officer, the Adviser; President
(until December 1994).
James B. Little Senior Vice President, Senior Vice President, the Adviser.
February 1935 Chief Financial Officer
15
<PAGE>
John A. Morin Vice President Vice President, the Adviser.
July 1950
Susan S. Newton Vice President and Vice President and Assistant
March 1950 Secretary Secretary, the Adviser.
James J. Stokowski Vice President and Vice President, the Adviser.
November 1946 Treasurer
</TABLE>
- -----------
* Trustee may be deemed to be an "interested person" of the Trust as defined
in the Investment Company Act of 1940.
(1) Member of the Audit Committee of the Trust.
(2) Member of the Committee on Administration of the Trust.
(3) Member of the Executive Committee of the Trust. The Executive Committee may
generally exercise most powers of the Trustees between regularly scheduled
meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
As of August 5, 1996, the officers and Trustees of the Trust as a group
owned less than 1% of the outstanding shares of the Fund. To the knowledge of
the Trust, only the following persons owned of record or beneficially 5% or more
of any class of the Fund's outstanding securities:
Percentage of
Outstanding
Name and Address Class Shares Shares of
of Shareholder of Shares Owned Class of Fund
-------------- --------- ----- -------------
Merrill Lynch Pierce Class A 144,390 13.64%
Fenner & Smith, Inc.
4800 Deerlake Dr. East
Jacksonville, FL 32246-6484
Merrill Lynch Pierce Class B 77,119 6.94%
Fenner & Smith, Inc.
4800 Deerlake Dr. East
Jacksonville, FL 32246-6484
16
<PAGE>
All of the officers listed are officers or employees of the Adviser or
affiliated companies. Some of the Trustees and officers may also be officers
and/or directors and/or trustees of one or more of the other funds for which the
Adviser serves as investment adviser.
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. Ms. Hodsdon and Messrs. Boudreau
and Scipione, each a non-Independent Trustee, 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. The compensation to
the Trustees from the Fund shown below is for the Fund's fiscal year ended May
31, 1996. Those Trustees listed below who received no compensation from the Fund
for such year first became Trustees of the Trust on June 26, 1996.
Total Compensation
Aggregate From All Funds in John
Compensation From Hancock Fund Complex
Independent Trustees the Fund to Trustees(*)
- -------------------- -------- --------------
Dennis S. Aronowitz $132 $ 61,050
Richard P. Chapman, Jr.+ 138 62,800
William J. Cosgrove+ 132 61,050
Gail D. Fosler 123 60,800
Bayard Henry** 113 58,850
Edward J. Spellman 132 61,050
Douglas M. Costle -- 41,750
Leland O. Erdahl -- 41,750
Richard A. Farrell -- 43,250
William F. Glavin+ -- 37,500
John A. Moore -- 41,750
Patti McGill Peterson -- 41,750
John W. Pratt -- 41,750
---- --------
$770 $655,100
* Total compensation paid by the John Hancock Fund Complex to the Independent
Trustees is for the calendar year ended December 31, 1995. On this date,
there were 61 funds in the John Hancock Fund Complex. Messrs. Aronwitz,
Chapman, Cosgrove, Henry and Spellman and Ms. Fosler served 16 and Messrs.
Costle, Erdahl, Farrell, Glavin, Moore and Pratt and Ms. Peterson served 12
of these funds.
17
<PAGE>
** Mr. Henry retired from his position as a Trustee effective April 26, 1996.
+ On December 31, 1995, the value of the aggregate deferred compensation from
all funds in the John Hancock Fund Complex for Mr. Chapman was $54,681, for
Mr. Cosgrove was $54,243 and for Mr. Glavin was $32,061.
INVESTMENT ADVISORY AND OTHER SERVICES
The Fund receives its investment advice from the Adviser and the
Sub-Adviser. Investors should refer to the Prospectus for information concerning
the investment management contract and the sub-investment management contract.
Each of the Trustees and principal officers with the Trust who is also an
affiliated person of the Adviser or Sub-Adviser is named above, together with
the capacity in which such person is affiliated with the Trust, the Adviser or
Sub-Adviser.
The Trust, on behalf of 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, and (ii) supervision of all
aspects of the Fund's operations except those that are delegated to a custodian,
transfer agent or other agent.
The Adviser has entered into a sub-investment management contract with the
Sub-Adviser under which the Sub-Adviser, subject to the review of the Trustees
and the overall supervision of the Adviser, is responsible for managing the
investment operations of the Fund and the composition of the Fund's portfolio
and furnishing the Fund with advice and recommendations with respect to
investments, investment policies and the purchase and sale of securities.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser, the Sub-Adviser or their respective
affiliates provide investment advice. Because of different investment objectives
or other factors, a particular security may be bought for one or more funds or
clients when one or more are selling the same security. If opportunities for
purchase or sale of securities by the Adviser or Sub-Adviser for the Fund or for
other funds or clients for which the Adviser or Sub-Adviser renders investment
advice arise for consideration at or about the same time, transactions in such
securities will be made, insofar as feasible, for the respective funds or
clients in a manner deemed equitable to all of them. To the extent that
transactions on behalf of more than one client of the Adviser, the Sub-Adviser
or their respective affiliates may increase the demand for securities being
purchased or the supply of securities being sold, there may be an adverse effect
on price.
18
<PAGE>
No person other than the Adviser and Sub-Adviser and their directors,
officers, 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 and Sub-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.
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 the expenses of 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 the Internal Revenue
Service imposes with respect to multiple-class structures.
As provided by the investment management contract, the Fund pays the
Adviser an investment management fee, which is accrued daily and paid monthly,
based on a stated percentage of the average daily net assets of the Fund as
follows:
Net Asset Value Annual Rate
--------------- -----------
First $750,000,000 0.75%
Amount over $750,000,000 0.70%
Effective September 1, 1995, the Adviser voluntarily limited the Fund's
total expenses to 1.30% for Class A shares and to 2.00% for Class B shares. The
Adviser reserves the right to terminate this limitation in the future. Prior to
September 1, 1995, a different expense limitation was in effect. For the fiscal
years ended May 31, 1994, 1995 and 1996, the Adviser received fees of $162,875,
$457,613 and $104,018, respectively. After expense reductions by the Adviser,
the Adviser's management fees for the fiscal years ended May 31, 1994, 1995 and
1996 were $14,683, $423,315 and $0. These management fee figures reflect the
different management fee that was in effect before September 1, 1995.
As provided in the sub-investment management contract, as of September 1,
1995, the Adviser (not the Fund) pays the Sub-Adviser a quarterly subadvisory
fee at the annual rate of 55% of the management fee paid by the Fund to the
Adviser for the preceding three months. Prior to September 1, 1995, the
Sub-Adviser provided services pursuant to a contract that provided for different
compensation. Effective July 1, 1995, the Sub-Adviser has agreed to reduce its
fee to zero until further notice. For the fiscal years ended May 31, 1994, 1995
and 1996, the Sub-Adviser received subadvisory fees from the Adviser of $88,486,
19
<PAGE>
$290,249 and $20,808, respectively. These subadvisory fee figures reflect the
different subadvisory fee that was in effect before September 1, 1995.
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 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 and sub-investment
management contract, the Adviser and Sub-Adviser are 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 their respective
contract relates, except a loss resulting from willful misfeasance, bad faith or
gross negligence on the part of the Adviser or Sub-Adviser in the performance of
their duties or from their reckless disregard of the obligations and duties
under the applicable contract.
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts
02199-7603, was organized in 1968 and currently more than $18 billion in assets
under management in its capacity as investment adviser to the Fund and the other
mutual funds and publicly traded investment companies in the John Hancock group
of funds having a combined total of over 1,080,000 shareholders. The Adviser is
an affiliate of the Life Company, one of the most recognized and respected
financial institutions in the nation. With total assets under management of $80
billion, the Life Company is one of the ten largest life insurance companies in
the United States, and carries high ratings from Standard & Poor's and A.M.
Best's. Founded in 1862, the Life Company has been serving clients for over 130
years.
The Sub-Adviser, located at 53 State Street, Boston, Massachusetts 02109,
was organized in 1982 and currently manages over $17 billion in assets for
primarily institutional clients. The Sub-Adviser is a wholly-owned indirect
subsidiary of the Life Company.
Under the investment management contract, the Fund may use the name "John
Hancock" or any name derived from or similar to it only for so long as the
investment management contract or any extension, renewal or amendment thereof
remains in effect. If the investment management contract is no longer in effect,
the Fund (to the extent that it lawfully can) will cease to use such name or any
other name indicating that it is advised by or otherwise connected with the
Adviser. In addition, the Adviser or the Life Company may grant the nonexclusive
right to use the name "John Hancock" or any similar name to any other
20
<PAGE>
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.
Under the subadvisory contract, the Fund may use the name "Independence" or
any name derived from or similar to it only for so long as the sub-investment
management contract or any extension, renewal or amendment thereof remains in
effect. If the sub-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
Sub-Adviser. In addition, the Sub-Adviser or the Life Company may grant the
nonexclusive right to use the name "Independence" or any similar name to any
other corporation or entity, including but not limited to any investment company
of which the Sub-Adviser 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 sub-investment management contract
continue in effect until September 1, 1997, and thereafter from year to year if
approved annually by a vote of a majority of the Trustees of the Trust 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 the
Trustees or the holders of a majority of the Fund's outstanding voting
securities. Each of these contracts 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 the holders of a
majority of the outstanding voting securities of the Fund. The sub-investment
management contract terminates automatically upon the termination of the
investment management contract.
Accounting and Legal Services Agreement. The Trust, on behalf of the Fund,
is a party to an Accounting and Legal Services Agreement with the Adviser.
Pursuant to this agreement, the Adviser provides the Fund with certain tax,
accounting and legal services. For the fiscal year ended May 31, 1996, the Fund
paid the Adviser $1,429 for services under this agreement.
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
21
<PAGE>
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. Upon notice to all Selling Brokers, John
Hancock Funds may allow them up to the full applicable sales charge during
periods specified in such notice. During these periods, Selling Brokers may be
deemed to be underwriters as that term is defined in the 1933 Act. The sales
charges are discussed further in the Fund's 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 amount of the service fee will not exceed 0.25% of the Fund's average daily
net assets attributable to each class of shares. In accordance with generally
accepted accounting principles, the Fund does not treat unreimbursed
distribution expenses 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 under the Class B Plan 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 John Hancock Funds 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 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. "Service
Expenses" under the Plans include payments made to, or on account of, account
executives of selected broker-dealers (including affiliates of John Hancock
Funds) and others who furnish personal and account maintenance services to
shareholders of the relevant class of the Fund. For the fiscal year ended May
31, 1996, an aggregate of $227,836 of distribution expenses or 4.181% 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.
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 May 31, 1996 the Fund paid John Hancock Funds
the following amounts of expenses with respect to the Class A shares and Class B
shares of the Fund:
22
<PAGE>
<TABLE>
<CAPTION>
Expense Items
Printing and
Mailing of Compensation Expense of Interest Carrying
Prospectus to to Selling John Hancock or Other Finance
Advertising New Shareholders Brokers Funds Charges Other
----------- ---------------- ------- ----- -------------
<S> <C> <C> <C> <C> <C>
Class A Shares $ 5,194 $214 $1,254 $ 7,931 $ 0
Class B Shares 12,459 701 1,255 22,719 2,022
</TABLE>
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, (b) by vote of a
majority of the Fund's outstanding shares of the applicable class upon 60 days'
written notice to John Hancock Funds, and (c) automatically in the event of
assignment. 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 shares and Class B
shares have exclusive voting rights with respect to the Plan applicable to their
respective class of shares. In adopting the Plans, the Trustees concluded that,
in their judgment, there is a reasonable likelihood that each of the Plans will
benefit the holders of the applicable class of shares of the Fund.
When the Trust 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 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 the Fund's
shares, the following procedures are utilized wherever applicable.
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.
23
<PAGE>
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.
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 any determination of the Fund's NAV.
The Fund will not price its securities on the following national holidays:
New Year's Day; President's Day; Good Friday; Memorial Day; Independence Day;
Labor Day; Thanksgiving Day; and Christmas Day.
INITIAL SALES CHARGE ON CLASS A SHARES
Shares of the Fund are offered at a price equal to their net asset value
plus a sales charge which, at the option of the purchaser, may be imposed either
at the time of purchase (the "initial sales charge alternative") or on a
contingent deferred basis (the "deferred sales charge alternative"). Share
certificates will not be issued unless requested by the shareholder in writing,
and then they will only be issued for full shares. The Trustees reserve the
right to change or waive a Fund's minimum investment requirements and to reject
any order to purchase shares (including purchase by exchange) when in the
judgment of the Adviser such rejection is in the Fund's best interest.
The sales charges applicable to purchases of Class A shares of the Fund are
described in the Prospectus. Methods of obtaining reduced sales charges referred
to generally in the Prospectus are described in detail below. In calculating the
sales charge applicable to current purchases of Class A shares of the Fund, the
investor is entitled to cumulate current purchases with the greater of the
current value (at offering price) of the Class A shares of the Fund, 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
24
<PAGE>
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. Class A shares may be offered without a front-end
sales charge or CDSCs to various individuals and institutions as follows:
o Any state, county or any instrumentality, department, authority, or agency
of these entities that is prohibited by applicable investment laws from
paying a sales charge or commission when it purchases shares of any
registered investment management company.
o A bank, trust company, credit union, savings institution or other
depository institution, its trust departments or common trust funds if it
is purchasing $1 million or more for non-discretionary customers or
accounts.
o A Trustee or officer of the Trust; a Director or officer of the Adviser and
its affiliates or Selling Brokers; employees or sales representatives of
any of the foregoing; retired officers, employees or Directors of any of
the foregoing; a member of the immediate family (spouse, children, mother,
father, sister, brother, mother-in-law, father-in-law) of any of the
foregoing; or any fund, pension, profit sharing or other benefit plan for
the individuals described above.
o A broker, dealer, financial planner, consultant or registered investment
advisor that has entered into an agreement with John Hancock Funds
providing specifically for the use of fund shares in fee-based investment
products or services made available to their clients.
o A former participant in an employee benefit plan with John Hancock funds,
when he or she withdraws from his or her plan and transfers any or all of
his or her plan distributions directly to the Fund.
o A member of an approved affinity group financial services plan.
o A member of a class action lawsuit against insurance companies who is
investing settlement proceeds.
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 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
25
<PAGE>
investments over a specified period of thirteen (13) months. Investors who are
using the Fund as a funding medium for a qualified retirement plan, however, may
opt to make the necessary investments called for by the LOI over a forty-eight
(48) month period. These qualified retirement plans include IRA, SEP, SARSEP,
401(k), 403(b) (including TSAs) and 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 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.
Class A shares may also be purchased without an initial sales charge in
connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per share
without the imposition of an initial sales charge so the Fund will receive the
full amount of the purchase payment.
Contingent Deferred Sales Charge. Class B shares which are redeemed within
six years of purchase will be subject to a contingent deferred sales charge
("CDSC") at the rates set forth in the Prospectus as a percentage of the dollar
amount subject to the CDSC. The charge will be assessed on an amount equal to
the lesser of the current market value or the original purchase cost of the
Class B shares being redeemed. No CDSC will be imposed on increases in account
26
<PAGE>
value above the initial purchase prices, including shares derived from
reinvestment of dividends or capital gains distributions.
Class B shares are not available to 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.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments
during a month will be aggregated and deemed to have been made on the first day
of the month.
In determining whether a CDSC applies to a redemption, the calculation will
be determined in a manner that results in the lowest possible rate being
charged. It will be assumed that your redemption comes first from shares you
have held beyond the six- year CDSC redemption period or those you acquired
through dividend and capital gain reinvestment, and next from the shares you
have held the longest during the six-year period. For this purpose, the amount
of any increase in a share's value above its initial purchase price is not
regarded as a share exempt from CDSC. Thus, when a share that has appreciated in
value is redeemed during the CDSC period, a CDSC is assessed only on its initial
purchase price. Upon redemption, appreciation is effective only on a per share
basis for those shares being redeemed. Appreciation of shares cannot be redeemed
CDSC free at the account level.
When requesting a redemption for a specific dollar amount please indicate
if you require the proceeds to equal the dollar amount requested. If not
indicated, only the specified dollar amount will be redeemed from your account
and the proceeds will be less any applicable CDSC.
Example:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment. If
you redeem 50 shares at this time your CDSC will be calculated as follows:
* Proceeds of 50 shares redeemed at $12 per share $600
* Minus proceeds of 10 shares not subject to CDSC (dividend
reinvestment) -120
* Minus appreciation on remaining shares (40 shares X $2) -80
----
* Amount subject to CDSC $400
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or
in part by John Hancock Funds to defray its expenses related to providing
distribution-related services to the Fund in connection with the sale of the
Class B shares, such as the payment of compensation to select Selling Brokers
for selling Class B shares. The combination of the CDSC and the distribution and
service fees facilitates the ability of the Fund to sell the Class B shares
27
<PAGE>
without a sales charge being deducted at the time of the purchase. See the
Prospectus for additional information regarding the CDSC.
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to a CDSC,
unless indicated otherwise, in the circumstances defined below:
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your account if
you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
* Redemptions due to death or disability.
* Redemptions made under the Reinstatement Privilege, as described in "Sales
Charge Reductions and Waivers" of the Prospectus.
* Redemptions of Class B shares made under a periodic withdrawal plan, as
long as your annual redemptions do not exceed 12% of your account value,
including reinvested dividends, at the time you established your periodic
withdrawal plan and 12% of the value of subsequent investments (less
redemptions) in that account at the time you notify Investor Services.
(Please note, this waiver does not apply to periodic withdrawal plan
redemptions of Class A shares that are subject to a CDSC.)
For Retirement Accounts (such as IRA, Rollover IRA, TSA, 457, 403(b), 401(k),
Money Purchase Pension Plan, Profit-Sharing Plan and other qualified plans as
described in the Internal Revenue Code) unless otherwise noted.
* Redemptions made to effect mandatory or life expectancy distributions under
the Internal Revenue Code.
* Returns of excess contributions made to these plans.
* Redemptions made to effect distributions to participants or beneficiaries
from employer sponsored retirement plans under section 401(a) of the Code
(such as 401k, Money Purchase Pension Plan, Profit-Sharing Plan).
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992.
Please see matrix for reference.
28
<PAGE>
CDSC Waiver Matrix for Class B Funds
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
401(a) Plan
Type of (401(k), MPP, IRA, IRA
Distribution PSP) 403(b) 457 Rollover Non-retirement
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Death or Waived Waived Waived Waived Waived
Disability
- ------------------------------------------------------------------------------------------------------------------------
Over 70 1/2 Waived Waived Waived Waived for 12% of account
mandatory value annually
distributions or in periodic
12% of account payments
value annually
in periodic
payments
- ------------------------------------------------------------------------------------------------------------------------
Between 59 1/2 Waived Waived Waived Waived for Life 12% of account
and 70 1/2 Expectancy or 12% value annually
of account value in periodic
annually in payments
periodic payments
- ------------------------------------------------------------------------------------------------------------------------
Under 59 1/2 Waived Waived for annuity Waived for annuity Waived for annuity 12% of account
payments (72t)or payments (72t)or payments (72t)or value annually
12% of account 12% of account 12% of account in periodic
value annually in value annually in value annually in payments
periodic payments periodic payments periodic payments
- ------------------------------------------------------------------------------------------------------------------------
Loans Waived Waived N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------
Termination of Not Waived Not Waived Not Waived Not Waived N/A
Plan
- ------------------------------------------------------------------------------------------------------------------------
Hardships Waived Waived Waived N/A N/A
- ------------------------------------------------------------------------------------------------------------------------
Return of
Excess Waived Waived Waived Waived N/A
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
If you qualify for a CDSC waiver under one of these situations, you must
notify Investor Services at the time you make your redemption. The waiver will
be granted once Investor Services has confirmed that you are entitled to the
waiver.
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. If the shareholder were to sell
portfolio securities received in this fashion, he will incur a brokerage charge.
29
<PAGE>
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 one 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 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 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 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 nonpayment 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.
30
<PAGE>
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 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
two other series: John Hancock Utilities Fund and John Hancock Special Value
Fund. Additional series may be added in the future. The Declaration of Trust
also authorizes the Trustees to classify and reclassify the shares of the Fund,
or any other series of the Fund, 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. 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
31
<PAGE>
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 the Internal Revenue Service
imposes with respect to multiple-class structures. 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 by the
Trust, 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 by reason of being or having been a shareholder. The Declaration of Trust
also provides that no series of the Trust shall be liable for the liabilities of
any other series. 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.
Notwithstanding the fact that the Prospectus is a combined prospectus for
the Fund and other John Hancock mutual funds, the Fund shall not be liable for
the liabilities of any other John Hancock mutual fund.
TAX STATUS
Each series of the Trust, including the Fund, is treated as a separate
entity for tax purposes. The Fund has qualified and elected to be treated as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
32
<PAGE>
of 1986, as amended (the "Code"), and intends to continue to so qualify for each
taxable year. As such and by complying with the applicable provisions of the
Code regarding the sources of its income, the timing of its distributions and
the diversification of its assets, the Fund will not be subject to Federal
income tax on its taxable income (including net short-term and long-term capital
gains) which is distributed to shareholders in accordance with the timing
requirements of the Code.
The Fund will be subject to a 4% nondeductible Federal excise tax on
certain amounts not distributed (and not treated as having been distributed) on
a timely basis in accordance with annual minimum distribution requirements. The
Fund intends under normal circumstances to seek to avoid or minimize liability
for this tax by satisfying such distribution requirements.
Distributions from the Fund's current or accumulated earnings and profits
("E&P") will be taxable under the Code for investors who are subject to tax. If
these distributions are paid from the Fund's "investment company taxable
income," they will be taxable as ordinary income; and if they are paid from the
Fund's "net capital gain," they will be taxable as long-term capital gain. (Net
capital gain is the excess (if any) of net long-term capital gain over net
short-term capital loss, and investment company taxable income is all taxable
income and capital gains, other than net capital gain, after reduction by
deductible expenses.) Some distributions from investment company taxable income
and/or net capital gain may be paid in January but may be taxable to
shareholders as if they had been received on December 31 of the previous year.
The tax treatment described above will apply without regard to whether
distributions are received in cash or reinvested in additional shares of the
Fund.
Distributions, if any, in excess of E&P will constitute a return of capital
under the Code, which will first reduce an investor's federal tax basis in Fund
shares and then, to the extent such basis is exceeded, will generally give rise
to capital gains. Shareholders who have chosen automatic reinvestment of their
distributions will have a federal tax basis in each share received pursuant to
such a reinvestment equal to the amount of cash they would have received had
they elected to receive the distribution in cash, divided by the number of
shares received in the reinvestment.
If the Fund invests in stock of certain foreign corporations that receive
at least 75% of their annual gross income from passive sources (such as
interest, dividends, rents, royalties or capital gain) or hold at least 50% of
their assets in investments producing such passive income ("passive foreign
investment companies"), the Fund could be subject to Federal income tax and
additional interest charges on "excess distributions" received from such
companies or gain from the sale of stock in such companies, even if all income
or gain actually received by the Fund is timely distributed to its shareholders.
The Fund would not be able to pass through to its shareholders any credit or
deduction for such a tax. Certain elections may, if available, ameliorate these
adverse tax consequences, but any such election would require the Fund to
recognize taxable income or gain without the concurrent receipt of cash. The
33
<PAGE>
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.
The Fund may be subject to withholding and other taxes imposed by foreign
countries with respect to its investments in foreign securities. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. The Fund does not expect to qualify to pass such taxes through to its
shareholders, who consequently will not take such taxes into account on their
own tax returns. However, the Fund will deduct such taxes in determining the
amount it has available for distribution to shareholders.
The amount of the Fund's net short-term and long-term capital gains, if
any, in any given year will vary depending upon the Adviser's current investment
strategy and whether the Adviser believes it to be in the best interest of the
Fund to dispose of portfolio securities that will generate capital gains. At the
time of an investor's purchase of shares of the Fund, a portion of the purchase
price is often attributed to realized or unrealized appreciation in the Fund's
portfolio or undistributed taxable income of the Fund. Consequently, subsequent
distributions from such appreciation or income may be taxable to such investor
even if the net asset value of the investor's shares is, as a result of the
distributions, reduced below the investor's cost for such shares, and the
distributions (or portions thereof) in reality represent a return of a portion
of the purchase price.
Upon a redemption of shares (including by exercise of the exchange
privilege) a shareholder will ordinarily realize a taxable gain or loss
depending upon the amount of the proceeds and the investor's basis in his
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and will be long-term or
short-term, depending upon the shareholder's tax holding period for the shares
and subject to the special rules described below. A sales charge paid in
purchasing Class A shares of the Fund cannot be taken into account for purposes
of determining gain or loss on the redemption or exchange of such shares within
90 days after their purchase to the extent Class A shares of the Fund or another
John Hancock fund are subsequently acquired without payment of a sales charge
pursuant to the reinvestment or exchange privilege. This disregarded charge will
result in an increase in the shareholder's tax basis in the Class A shares
subsequently acquired. Also, any loss realized on a redemption or exchange may
be disallowed to the extent the shares disposed of are replaced with other
shares of the Fund within a period of 61 days beginning 30 days before and
ending 30 days after the shares are disposed of, such as pursuant to an election
to reinvest dividends in additional shares. In such a case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized upon the redemption of shares with a tax holding period of six months
or less will be treated as a long-term capital loss to the extent of any amounts
treated as distributions of long-term capital gain with respect to such shares.
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Although its present intention is to distribute, at least annually, all net
capital gain, if any, the Fund reserves the right to retain and reinvest all or
any portion of the excess, as computed for Federal income tax purposes, of net
long-term capital gain over net short-term capital loss in any year. The Fund
will not in any event distribute net long-term capital gains realized in any
year to the extent that a capital loss is carried forward from prior years
against such gain. To the extent such excess was retained and not exhausted by
the carryforward of prior years' capital losses, it would be subject to Federal
income tax in the hands of the Fund. Upon proper designation of this amount by
the Fund, each shareholder would be treated for Federal income tax purposes as
if the Fund had distributed to him on the last day of its taxable year his pro
rata share of such excess, and he had paid his pro rata share of the taxes paid
by the Fund and reinvested the remainder in the Fund. Accordingly, each
shareholder would (a) include his pro rata share of such excess as long-term
capital gain income in his tax return for his taxable year in which the last day
of the Fund's taxable year falls, (b) be entitled either to a tax credit on his
return for, or to a refund of, his pro rata share of the taxes paid by the Fund,
and (c) be entitled to increase the adjusted tax basis for his shares in the
Fund by the difference between his pro rata share of such excess and his pro
rata share of such taxes.
For Federal income tax purposes, the Fund is permitted to carry forward a
net capital loss in any year to offset net capital gains, if any, during the
eight years following the year of the loss. To the extent subsequent net capital
gains are offset by such losses, they would not result in Federal income tax
liability to the Fund and, as noted above, would not be distributed as such to
shareholders. Presently, there are no realized capital loss carryforwards to
offset future net realized capital gains.
For purposes of the dividends-received deduction available to corporations,
dividends received by the Fund, if any, from U.S. domestic corporations in
respect of the stock of such corporations held by the Fund, for U.S. Federal
income tax purposes, for at least 46 days (91 days in the case of certain
preferred stock) and distributed and properly designated by the Fund may be
treated as qualifying dividends. Corporate shareholders must meet the minimum
holding period requirement stated above (46 or 91 days) with respect to their
shares of the Fund in order to qualify for the deduction and, if they have any
debt that is deemed under the Code directly attributable to such shares, may be
denied a portion of the dividends-received deduction. The entire qualifying
dividend, including the otherwise deductible amount, will be included in
determining the excess (if any) of a corporate shareholder's adjusted current
earnings over its alternative minimum taxable income, which may increase its
alternative minimum tax liability, if any. Additionally, any corporate
shareholder should consult its tax adviser regarding the possibility that its
tax basis in its shares may be reduced, for Federal income tax purposes, by
reason of "extraordinary dividends" received with respect to the shares, for the
purpose of computing its gain or loss on redemption or other disposition of the
shares.
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The Fund is required to accrue income on any debt securities that have more
than a de minimis amount of original issue discount (or debt securities acquired
at a market discount, if the Fund elects to include market discount in income
currently) prior to the receipt of the corresponding cash payments. The mark to
market rules applicable to certain options and forward contracts may also
require the Fund to recognize income or gain without a concurrent receipt of
cash. However, the Fund must distribute to shareholders for each taxable year
substantially all of its net income and net capital gains, including such income
or gain, to qualify as a regulated investment company and avoid liability for
any federal income or excise tax. Therefore, the Fund may have to dispose of its
portfolio securities under disadvantageous circumstances to generate cash, or
may have to leverage itself by borrowing the cash, to satisfy these distribution
requirements.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent (if any) the Fund's distributions
are derived from interest on (or, in the case of intangibles taxes, the value of
its assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. The Fund will not seek to satisfy any
threshold or reporting requirements that may apply in particular taxing
jurisdictions, although the Fund may in its sole discretion provide relevant
information to shareholders.
The Fund will be required to report to the Internal Revenue Service (the
"IRS") all taxable distributions to shareholders, as well as gross proceeds from
the redemption or exchange of Fund shares, except in the case of certain exempt
recipients, i.e., corporations and certain other investors distributions to
which are exempt from the information reporting provisions of the Code. Under
the backup withholding provisions of Code Section 3406 and applicable Treasury
regulations, all such reportable distributions and proceeds may be subject to
backup withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the Fund with their correct taxpayer
identification number and certain certifications required by the IRS or if the
IRS or a broker notifies the Fund that the number furnished by the shareholder
is incorrect or that the shareholder is subject to backup withholding as a
result of failure to report interest or dividend income. A Fund may refuse to
accept an application that does not contain any required taxpayer identification
number or certification that the number provided is correct. If the backup
withholding provisions are applicable, any such distributions and proceeds,
whether taken in cash or reinvested in shares, will be reduced by the amounts
required to be withheld. Any amounts withheld may be credited against a
shareholder's U.S. federal income tax liability. Investors should consult their
tax advisers about the applicability of the backup withholding provisions.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
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distributions and certain prohibited transactions, is accorded to accounts
maintained as qualified retirement plans. Shareholders should consult their tax
advisers for more information.
Limitations imposed by the Code on regulated investment companies like the
Fund may restrict the Fund's ability to enter into foreign currency positions
and foreign currency forward contracts.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies and financial
institutions. Dividends, capital gain distributions and ownership of or gains
realized on the redemption (including an exchange) of shares of the Fund may
also be subject to state and local taxes. Shareholders should consult their own
tax advisers as to the Federal, state or local tax consequences of ownership of
shares of, and receipt of distributions from, the Fund in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their
Fund investment is effectively connected will be subject to U.S. Federal income
tax treatment that is different from that described above. These investors may
be subject to non- resident alien withholding tax at the rate of 30% (or a lower
rate under an applicable tax treaty) on amounts treated as ordinary dividends
from the Fund and, unless an effective IRS Form W-8 or authorized substitute for
Form W-8 is on file, to 31% backup withholding on certain other payments from
the Fund. Non-U.S. investors should consult their tax advisers regarding such
treatment and the application of foreign taxes to an investment in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise
taxes. Provided that the Fund qualifies as a regulated investment company under
the Code, it will also not be required to pay any Massachusetts income tax.
CALCULATION OF PERFORMANCE
The average annual total return on Class A shares of the Fund for the 1
year and life-of-fund period ended May 31, 1996 was 22.65% and 14.11%,
respectively, and reflect the payment of the maximum sales charge of 5%. The
cumulative total return on Class B shares of the Fund for the period from
commencement of operations on September 7, 1995 to May 31, 1996 was 13.46% and
reflects the maximum contingent deferred sales charge of 5%. Each of the returns
is calculated with all distributions reinvested in shares.
The Fund's total return is computed by finding the average annual
compounded rate of return over the one-year and life-of-fund periods that would
equate the initial amount invested to the ending redeemable value according to
the following formula:
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Where:
n _____
T = \ /ERV/P - 1
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 1st year and life-of-fund periods.
In the case of Class A shares and Class B shares, this calculation assumes
the maximum sales charge of 5.00%, is included in the initial investment, and
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 change in value of an investment over
a stated period. Cumulative total returns may be quoted as a percentage or as a
dollar amount, and may be calculated for a single investment, a series of
investments, and/or a series of redemptions, over any time period. Total returns
may be quoted with or without taking the Fund's sales charge on Class A shares
or the CDSC on Class B shares into account. 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.
The performance of the Fund is not fixed or guaranteed. Performance
quotations should not be considered to be representations of performance of the
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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 Sub-Adviser, or the Adviser
pursuant to recommendations made by an investment committee, which consists of
officers and directors of the Adviser and officers and Trustees of the Trust who
are interested persons of the Fund. Orders for purchases and sales of securities
are placed in a manner, which, in the opinion of the officers of the Fund, will
offer the best price and market for the execution of each such transaction.
Purchases from underwriters of portfolio securities may include a commission or
commissions paid by the issuer and transactions with dealers serving as market
maker reflect a "spread." Debt securities are generally traded on a net basis
through dealers acting for their own account as principals and not as brokers;
no brokerage commissions are payable on 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. The 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
and Sub-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 and
Sub-Adviser 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 and Sub-Adviser. The
receipt of research information is not expected to reduce significantly the
expenses of the Adviser and Sub-Adviser. The research information and
statistical assistance furnished by brokers and dealers may benefit the Life
Company or other advisory clients of the Adviser, and, conversely, brokerage
commissions and spreads paid by other advisory clients of the Adviser may result
39
<PAGE>
in research information and statistical assistance beneficial to the Fund.
Similarly, research information and assistance provided to the Sub-Adviser by
brokers and dealers may benefit other advisory clients or affiliates of the
Sub-Adviser, and, conversely, brokerage commissions and spreads paid by other
advisory clients of the Sub-Adviser may result in research information and
statistical assistance beneficial to the Fund. The Fund will make no commitment
to allocate portfolio transactions upon any prescribed basis. While the Adviser,
in conjunction with the Sub-Adviser, will be primarily responsible for the
allocation of the Fund's brokerage business, the policies and practices of the
Adviser in this regard must be consistent with the foregoing and will at all
times be subject to review by the Trustees. For the years ended in May 31, 1996,
1995, and 1994, the Fund paid negotiated brokerage commissions in the amount of
$15,976, $130,973, and $58,663, respectively.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the
Fund may pay to a broker which provides brokerage and research services to the
Fund an amount of disclosed commission in excess of the commission which another
broker would have charged for effecting that transaction. This practice is
subject to a good faith determination by the Trustees that such price is
reasonable in light of the services provided and to such policies as the
Trustees may adopt from time to time. During the fiscal year ended May 31, 1996,
the Fund directed no commissions to compensate brokers for research services
such as industry, economic and company reviews and evaluations of securities.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of Tucker Anthony Incorporated, John Hancock Distributors, Inc., and
Sutro & Company, Inc. all of which are broker-dealers ("Affiliated Brokers").
Pursuant to procedures adopted by the Trustees consistent with the above policy
of obtaining best net results, the Fund may execute portfolio transactions with
or through Affiliated Brokers. During the year ended May 31, 1995, 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, the Sub-Adviser
or the Affiliated Broker. Because the Adviser, which is affiliated with the
Affiliated Brokers, and the Sub-Adviser have, as investment advisers to the
Fund, the obligation to provide investment management services, which includes
elements of research and related investment skills, such research and related
skills will not be used by the Affiliated Broker as a basis for negotiating
commissions at a rate higher than that determined in accordance with the above
criteria. The Fund will not effect principal transactions with Affiliated
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Brokers. The Fund may, however, purchase securities from other members of
underwriting syndicates of which Tucker Anthony and Sutro are members, but only
in accordance with the policy set forth above and procedures adopted and
reviewed periodically by the Trustees.
Brokerage or other transactions costs of the Fund are generally
commensurate with the rate of portfolio activity. The portfolio turnover rates
for the Fund for the fiscal years ended May 31, 1996 and 1995 were 157% and 71%,
respectively. Portfolio turnover for the year ended May 31, 1996 was
significantly higher than for the preceding year because of economic changes and
greater stock market volatility during the year ended May 31, 1996.
In order to avoid conflicts with portfolio trades for the Fund, the
Adviser, the Sub-Adviser and the Fund have adopted extensive restrictions on
personal securities trading by personnel of the Adviser and its affiliates. In
the case of the Adviser, some of these restrictions are: pre-clearance for all
personal trades and a ban on the purchase of initial public offerings, as well
as contributions to specified charities of profits on securities held for less
than 91 days. The Sub-Adviser has adopted similar restrictions which may differ
where appropriate, as long as they have the same intent. These restrictions are
a continuation of the basic principle that the interests of the Fund and its
shareholders come before those of management.
TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation, P.O. Box 9116, Boston,
Massachusetts 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 an annual fee of $16.00 per shareholder account for Class A
shares and $18.50 per shareholder account for Class B shares, plus certain
out-of-pocket expenses.
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Fund and Investors Bank & Trust Company, 89 South Street, Boston,
Massachusetts 02111. Under the custodian agreement, Investors Bank & Trust
Company performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
The independent accountants of the Fund are Price Waterhouse LLP. Price
Waterhouse LLP audits and renders an opinion on the Fund's annual financial
statements and reviews the Fund's annual Federal income tax return.
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JOHN HANCOCK SPECIAL VALUE FUND
Class A and B Shares
Statement of Additional Information
August 30, 1996
This Statement of Additional Information provides information about John
Hancock Special Value Fund (the "Fund") in addition to the information that is
contained in the combined Growth and Income Funds' Prospectus (the
"Prospectus"), dated August 30, 1996.
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the Prospectus, a copy of which can be obtained free of
charge by writing or telephoning:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
1-800-225-5291
TABLE OF CONTENTS
Page
ORGANIZATION OF THE FUND 2
INVESTMENT OBJECTIVE AND POLICIES 2
CERTAIN INVESTMENT PRACTICES 3
INVESTMENT RESTRICTIONS 16
THOSE RESPONSIBLE FOR MANAGEMENT 20
INVESTMENT ADVISORY, SUB-ADVISORY AND OTHER SERVICES 29
DISTRIBUTION CONTRACT 32
NET ASSET VALUE 34
INITIAL SALES CHARGE ON CLASS A SHARES 35
DEFERRED SALES CHARGE ON CLASS B SHARES 37
SPECIAL REDEMPTIONS 41
ADDITIONAL SERVICES AND PROGRAMS 41
DESCRIPTION OF THE FUND'S SHARES 42
TAX STATUS 44
CALCULATION OF PERFORMANCE 50
BROKERAGE ALLOCATION 51
TRANSFER AGENT SERVICES 53
CUSTODY OF PORTFOLIO 54
INDEPENDENT AUDITORS 54
FINANCIAL STATEMENTS F-1
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ORGANIZATION OF THE FUND
John Hancock Special Value Fund (the "Fund") is organized as a separate,
diversified series of John Hancock Capital Series (the "Trust"), an open-end
management investment company which is 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 Company"), a
Massachusetts life insurance company chartered in 1862 with national
headquarters at John Hancock Place, Boston, Massachusetts. 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 seek capital appreciation with
income a secondary consideration. The Fund will seek to achieve its objective by
investing primarily in equity securities that are undervalued when compared to
alternative equity investments. There can be no assurance that the objective of
the Fund will be realized. See the discussion of the Fund's goals, strategies
and risks in the Prospectus.
The equity securities in which the Fund will invest include common stocks,
preferred stocks, convertible debt securities and warrants of U.S. and foreign
issuers. In selecting equity securities for the Fund, the Adviser and NM Capital
Management, Inc. (the "Sub-Adviser" and together with the Adviser, the
"Advisers") emphasize issuers whose equity securities trade at market to book
value ratios lower than comparable issuers or the Standard & Poor's Composite
Index. The Fund's portfolio securities will also include equity securities
considered by the Advisers to have the potential for capital appreciation due to
potential recognition of earnings power or asset value which is not fully
reflected in such securities' current market value. The Advisers attempt to
identify investments which possess characteristics, such as high relative value,
intrinsic value, going concern value, net asset value and replacement book
value, which will tend to limit sustained downside price risk, generally
referred to as the "margin of safety" concept. The Advisers also consider an
issuer's financial strength, competitive position, projected future earnings and
dividends and other investment criteria.
The Fund's investment policy reflects the Advisers' belief that while the
securities markets tend to be efficient, sufficiently persistent price anomalies
exist which the strategically disciplined active equity manager can attempt to
exploit in seeking to achieve an above average rate of return. Based on this
premise, the Advisers have adopted a strategy of investing in low market to book
value, out of favor, stocks.
The Fund's investments may include securities of both large, widely traded
companies and smaller, less well known issuers. Higher risks are often
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<PAGE>
associated with investments in companies with smaller market capitalizations.
These companies may have limited product lines, markets and financial resources,
or they may be dependent upon smaller or inexperienced management groups. In
addition, trading volume of such securities may be limited, and historically the
market price for such securities has been more volatile than securities of
companies with greater capitalization. However, securities of companies with
smaller capitalization may offer greater potential for capital appreciation
since they may be overlooked and thus undervalued by investors.
The Fund may also invest in fixed income securities, consisting of U.S.
Government securities and convertible and non-convertible corporate preferred
stocks and debt securities. The market value of fixed income securities varies
inversely with changes in the prevailing levels of interest rates. The market
value of convertible securities, while influenced by the prevailing level of
interest rates, is also affected by the changing value of the equity securities
into which they are convertible. The Fund may purchase fixed income debt
securities with stated maturities of up to thirty years. The corporate fixed
income securities in which the Fund may invest, including convertible debt
securities and preferred stock, will be rated at least BBB by Standard & Poors'
Ratings Group ("S&P") or Moody's Investors Service, Inc. ("Moody's") or, if
unrated, determined to be of comparable quality by the Advisers. Under normal
market conditions, the Fund's investments in fixed income securities are not
expected to exceed 10% of the Fund's assets. Debt securities rated Baa or BBB
are considered medium grade obligations with speculative characteristics, and
adverse economic conditions or changing circumstances may weaken capacity to pay
interest and repay principal. If the rating of a debt security is reduced below
Baa or BBB, the Advisers will sell it when it is appropriate consistent with the
Fund's investment objective and policies.
When the Advisers believe unfavorable investment conditions exist requiring
the Fund to assume a temporary defensive investment posture, the Fund may hold
cash or invest all or a portion of its assets in short-term instruments which
are rated A-1 by S&P or P-1 by Moody's.
CERTAIN INVESTMENT PRACTICES
Forward Commitment and When-Issued Securities. The Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. The Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, the Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time.
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When the Fund engages in forward commitment and when-issued transactions,
it relies on the seller to consummate the transaction. The failure of the issuer
or seller to consummate the transaction may result in the Fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid securities equal in value to the Fund's commitment. These
assets will be valued daily at market, and additional cash or securities will be
segregated in a separate account to the extent that the total value of the
assets in the account declines below the amount of the when-issued commitments.
Alternatively, the Fund may enter into offsetting contracts for the forward sale
of other securities that it owns.
Repurchase Agreements. The Fund may invest in repurchase agreements. A
repurchase agreement is a contract under which the Fund acquires a security for
a relatively short period (usually not more than 7 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 Advisers
will continuously monitor the creditworthiness of the parties with whom the Fund
enters into repurchase agreements.
The Fund has established a procedure providing that the securities serving
as collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, the Fund could experience delays in
liquidating the underlying securities during the period in which the Fund seeks
to enforce its rights thereto, possible subnormal levels of income and lack of
access to income during this period and the expense of enforcing its rights.
Reverse Repurchase Agreements. The Fund may also enter into reverse repurchase
agreements which involve the sale of U.S. Government securities held in its
portfolio to a bank with an agreement that the Fund will buy back the securities
at a fixed future date at a fixed price plus an agreed amount of "interest"
which may be reflected in the repurchase price. Reverse repurchase agreements
are considered to be borrowings by the Fund. Reverse repurchase agreements
involve the risk that the market value of securities purchased by the Fund with
proceeds of the transaction may decline below the repurchase price of the
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<PAGE>
securities sold by the Fund which it is obligated to repurchase. The Fund will
also continue to be subject to the risk of a decline in the market value of the
securities sold under the agreements because it will reacquire those securities
upon effecting their repurchase. The Fund will not enter into reverse repurchase
agreements and other borrowings exceeding in the aggregate 33_% of the market
value of its total assets. The Fund will enter into reverse repurchase
agreements only with federally insured banks or savings and loan associations
which are approved in advance as being creditworthy by the Board of Trustees.
Under procedures established by the Board of Trustees, the Advisers will monitor
the creditworthiness of the banks involved.
Restricted Securities. The Fund may purchase securities that are not registered
("restricted securities") under the Securities Act of 1933 ("1933 Act"),
including securities offered and sold to "qualified institutional buyers" under
Rule 144A under the 1933 Act. However, the Fund will not invest more than 15% of
its net assets in illiquid investments, which include repurchase agreements
maturing in more than seven days, 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 Trustees may adopt guidelines and delegate to the Advisers
the daily function of determining the monitoring and liquidity of restricted
securities. The Trustees, however, will retain sufficient oversight and be
ultimately responsible for the determinations. The Trustees will carefully
monitor the Fund's investments in these securities, focusing on such important
factors, among others, as valuation, liquidity and availability of information.
This investment practice could have the effect of increasing the level of
illiquidity in the Fund if qualified institutional buyers become for a time
uninterested in purchasing these restricted securities.
The Fund may acquire other restricted securities including securities for
which market quotations are not readily available. These securities may be sold
only in privately negotiated transactions or in public offerings with respect to
which a registration statement is in effect under the 1933 Act. Where
registration is required, the Fund may be obligated to pay all or part of the
registration expenses and a considerable period may elapse between the time of
the decision to sell and the time the Fund may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, the Fund might obtain a less favorable price
than prevailed when it decided to sell. Restricted securities will be priced at
fair market value as determined in good faith by the Fund's Trustees.
Financial Futures Contracts. The Fund may buy and sell stock index and other
financial futures contracts and options on futures contracts to hedge against
changes in securities prices, interest rates and currency exchange rates and
5
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other market conditions or for speculative purposes. The Fund may hedge its
portfolio by selling or purchasing financial futures contracts as an offset
against the effects of changes in interest rates or in security or foreign
currency values or in other market conditions. Although other techniques could
be used to reduce the Fund's exposure to market fluctuations, the Fund may be
able to hedge its exposure more effectively and perhaps at a lower cost by using
financial futures contracts. The Fund may enter into financial futures contracts
for hedging purposes and for speculative purposes to the extent permitted by
regulations of the Commodity Futures Trading Commission ("CFTC").
Financial futures contracts have been designed by boards of trade which
have been designated "contract markets" by the CFTC. Futures contracts are
traded on these markets in a manner that is similar to the way a stock is traded
on a stock exchange. The boards of trade, through their clearing corporations,
guarantee that the contracts will be performed. Currently, financial futures
contracts are based on interest rate instruments such as long-term U.S. Treasury
bonds, U.S. Treasury notes, Government National Mortgage Association ("GNMA")
modified pass-through mortgage-backed securities, three-month U.S. Treasury
bills, 90-day commercial paper, bank certificates of deposit and Eurodollar
certificates of deposit. It is expected that if other financial futures
contracts are developed and traded the Fund may engage in transactions in such
contracts.
Although some financial futures contracts by their terms call for actual
delivery or acceptance of financial instruments, in most cases the contracts are
closed out prior to delivery by offsetting purchases or sales of matching
financial futures contracts (same exchange, underlying security or currency and
delivery month). Other financial futures contracts, such as futures contracts on
securities indices, by their terms call for cash settlements. If the offsetting
purchase price is less than the Fund's original sale price, the Fund realizes a
gain, or if it is more, the Fund realizes a loss. Conversely, if the offsetting
sale price is more than the Fund's original purchase price, the Fund realizes a
gain, or if it is less, the Fund realizes a loss. The Fund's transaction costs
must also be included in these calculations. The Fund will pay a commission in
connection with each purchase or sale of financial futures contracts, including
a closing transaction. For a discussion of the Federal income tax considerations
of transactions in financial futures contracts, see the information under the
caption "Tax Status" below.
At the time the Fund enters into a financial futures contract, it is
required to deposit with its custodian a specified amount of cash or U.S.
Government securities, known as "initial margin," ranging upward from 1.1% of
the value of the financial futures contract being traded. The margin required
for a financial futures contract is set by the board of trade or exchange on
which the contract is traded and may be modified during the term of the
contract. The initial margin is in the nature of a performance bond or good
faith deposit on the financial futures contract which is returned to the Fund
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upon termination of the contract, assuming all contractual obligations have been
satisfied. The Fund expects to earn interest income on its initial margin
deposits. Each day, the futures contract is valued at the official settlement
price of the board of trade or exchange on which it is traded. Subsequent
payments, known as "variation margin," to and from the broker are made on a
daily basis as the market price of the financial futures contract fluctuates.
This process is known as "mark to market." Variation margin does not represent a
borrowing or lending by the Fund but is instead a settlement between the Fund
and the broker of the amount one would owe the other if the financial futures
contract expired. In computing net asset value, the Fund will mark to market its
open financial futures positions.
Successful hedging depends on a strong correlation between the market for
the underlying securities and the futures contract market for those securities.
There are several factors that will probably prevent this correlation from being
perfect, and even a correct forecast of general interest rate trends may not
result in a successful hedging transaction. There are significant differences
between the securities or currency markets and the futures markets which could
create an imperfect correlation between the markets and which could affect the
success of a given hedge. The degree of imperfection of correlation depends on
circumstances such as variations in speculative market demand for financial
futures and debt securities, including technical influences in futures trading
and differences between the financial instruments being hedged and the
instruments underlying the standard financial futures contracts available for
trading in such respects as interest rate levels, maturities and
creditworthiness of issuers. The degree of imperfection may be increased where
the underlying debt securities are lower-rated, and, thus, subject to greater
fluctuation in price than higher-rated securities.
A decision as to whether, when and how to hedge involves the exercise of
skill and judgment, and even a well-conceived hedge may be unsuccessful to some
degree because of unexpected market, interest rate or currency trends. The Fund
will bear the risk that the price of the securities being hedged will not move
in complete correlation with the price of the futures contracts used as a
hedging instrument. Although the Advisers believe that the use of financial
futures contracts will benefit the Fund, an incorrect prediction could result in
a loss on both the hedged securities or currency in the Fund's portfolio and the
hedging vehicle so that the Fund's return might have been better had hedging not
been attempted. However, in the absence of the ability to hedge, the Advisers
might have taken portfolio actions in anticipation of the same market movements
with similar investment results but, presumably, at greater transaction costs.
The low margin deposits required for futures transactions permit an extremely
high degree of leverage. A relatively small movement in a futures contract may
result in losses or gains in excess of the amount invested.
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Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount the price of a futures contract may vary either up or down
from the previous day's settlement price, at the end of the current trading
session. Once the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day
and, therefore, does not limit potential losses because the limit may work to
prevent the liquidation of unfavorable positions. For example, futures prices
have occasionally moved to the daily limit for several consecutive trading days
with little or no trading, thereby preventing prompt liquidation of positions
and subjecting some holders of futures contracts to substantial losses.
Finally, although the Fund engages in financial futures transactions only
on boards of trade or exchanges where there appears to be an adequate secondary
market, there is no assurance that a liquid market will exist for a particular
futures contract at any given time. The liquidity of the market depends on
participants closing out contracts rather than making or taking delivery. In the
event participants decide to make or take delivery, liquidity in the market
could be reduced. In addition, the Fund could be prevented from executing a buy
or sell order at a specified price or closing out a position due to limits on
open positions or daily price fluctuation limits imposed by the exchanges or
boards of trade. If the Fund cannot close out a position, it will be required to
continue to meet margin requirements until the position is closed.
Options on Financial Futures Contracts. The Fund may buy and sell call and put
options on futures contracts to hedge against changes in securities prices,
interest rates and currency exchange rates and other market conditions or for
speculative purposes. An option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract at a specified exercise price at any time during the period of the
option. Upon exercise, the writer of the option delivers the futures contract to
the holder at the exercise price. The Fund would be required to deposit with its
custodian initial and variation margin with respect to put and call options on
futures contracts written by it. The Fund's options on futures will be traded on
a U.S. or foreign commodity exchange or board of trade. Options on futures
contracts involve risks similar to the risks of transactions in financial
futures contracts. Also, an option purchased by the Fund may expire worthless,
in which case the Fund would lose the premium it paid for the option.
Other Considerations. The Fund will engage in futures and options
transactions for bona fide hedging or speculative purposes to the extent
permitted by CFTC regulations. The Fund will determine that the price
fluctuations in the futures contracts and options on futures used for hedging
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purposes are substantially related to price fluctuations in securities held by
the Fund or which it expects to purchase. Except as stated below, the Fund's
futures transactions will be entered into for traditional hedging purposes
- --i.e., futures contracts will be sold to protect against a decline in the price
of securities that the Fund owns, or futures contracts will be purchased to
protect the Fund against an increase in the price of securities, or the currency
in which they are denominated, the Fund intends to purchase. As evidence of this
hedging intent, the Fund expects that on 75% or more of the occasions on which
it takes a long futures or option position (involving the purchase of futures
contracts), the Fund will have purchased, or will be in the process of
purchasing, equivalent amounts of related securities or assets denominated in
the related currency in the cash market at the time when the futures or option
position is closed out. However, in particular cases, when it is economically
advantageous for a Fund to do so, a long futures position may be terminated or
an option may expire without the corresponding purchase of securities or other
assets.
As an alternative to literal compliance with the bona fide hedging
definition, a CFTC regulation permits the Fund to elect to comply with a
different test, under which the aggregate initial margin and premiums required
to establish speculative positions in futures contracts and options on futures
will not exceed 5% of the net asset value of the Fund's portfolio, after taking
into account unrealized profits and losses on any such positions and excluding
the amount by which such options were in-the-money at the time of purchase. The
Fund will engage in transactions in futures contracts only to the extent such
transactions are consistent with the requirements of the Internal Revenue Code
of 1986, as amended (the "Code") for maintaining its qualification as a
regulated investment company for Federal income tax purposes.
When the Fund purchases financial futures contracts, writes put options
thereon or purchases call options thereon, cash or liquid securities will be
deposited in a segregated account with the Fund's custodian in an amount that,
together with the amount of initial and variation margin held in the account of
its broker, equals the market value of the futures contracts.
Options Transactions. The Fund may write listed and over-the-counter covered
call options and covered put options on securities in which it may invest and on
indices composed of securities in which it may invest on up to 100% of its net
assets in order to earn additional income from the premiums received. In
addition, the Fund may purchase listed and over-the-counter call and put options
on these securities and indices. The extent to which covered options will be
used by the Fund will depend upon market conditions and the availability of
alternative strategies.
The Fund will write listed and over-the-counter call options only if they
are "covered", which means that the Fund owns or has the immediate right to
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acquire the securities underlying the options without additional cash
consideration upon conversion or exchange of other securities held in its
portfolio. A call option written by the Fund may also be "covered" if the Fund
holds on a share-for-share basis a covering call on the same securities where
(i) the exercise price of the covering call held is equal to or less than the
exercise price of the call written or the exercise price of the covering call is
greater than the exercise price of the call written, in the latter case only if
the difference is maintained by the Fund in cash or liquid securities in a
segregated account with the Fund's custodian, and (ii) the covering call expires
at the same time as the call written. If a covered call option is not exercised,
the Fund would keep both the option premium and the underlying security. If the
covered call option written by the Fund is exercised and the exercise price,
less the transaction costs, exceeds the cost of the underlying security, the
Fund would realize a gain in addition to the amount of the option premium it
received. If the exercise price, less transaction costs, is less than the cost
of the underlying security, the Fund's loss would be reduced by the amount of
the option premium.
As the writer of a covered put option, the Fund will write a put option
only with respect to securities it intends to acquire for its portfolio and will
maintain in a segregated account with its custodian bank cash or liquid
securities with a value equal to the price at which the underlying security may
be sold to the Fund in the event the put option is exercised by the purchaser.
The Fund may also write a "covered" put option by purchasing on a
share-for-share basis a put on the same security as the put written by the Fund
if the exercise price of the covering put held is equal to or greater than the
exercise price of the put written and the covering put expires at the same time
as or later than the put written.
When writing listed and over-the-counter covered put options on securities,
the Fund would earn income from the premiums received. If a covered put option
is not exercised, the Fund would keep the option premium and the assets
maintained to cover the option. If the option is exercised and the exercise
price, including transaction costs, exceeds the market price of the underlying
security, the Fund would realize a loss, but the amount of the loss would be
reduced by the amount of the option premium.
If the writer of an exchange-traded option wishes to terminate its
obligation prior to its exercise, it may effect a "closing purchase
transaction". This is accomplished by buying an option of the same series as the
option previously written. The effect of the purchase is that the Fund's
position will be offset by the Options Clearing Corporation. The Fund may not
effect a closing purchase transaction after it has been notified of the exercise
of an option. There is no guarantee that a closing purchase transaction can be
effected. Although the Fund will generally 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 or board of trade will exist for any
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particular option or at any particular time, and for some options no secondary
market on an exchange may exist.
In the case of a written call option, effecting a closing transaction will
permit the Fund to write another call option on the underlying security with
either a different exercise price, expiration date or both. In the case of a
written put option, it will permit the Fund to write another put option to the
extent that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction will permit the
cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other investments. If the Fund desires to sell a
particular security from its portfolio on which it has written a call option, it
will effect a closing transaction prior to or concurrent with the sale of the
security.
The Fund will realize a gain from a closing transaction if the cost of the
closing transaction is less than the premium received from writing the option.
The Fund will realize a loss from a closing transaction if the cost of the
closing transaction is more than the premium received for writing the option.
However, because increases in the market price of a call option will generally
reflect increases in the market price of the underlying security, any loss
resulting from the repurchase of a call option is likely to be offset in whole
or in part by appreciation in the value of the underlying security owned by the
Fund.
Over-the-Counter Options. The Fund may engage in options transactions on
exchanges and in the over-the-counter markets. In general, exchange-traded
options are third-party contracts (i.e. performance of the parties' obligations
is guaranteed by an exchange or clearing corporation) with standardized strike
prices and expiration dates. Over-the-counter ("OTC") transactions are two-party
contracts with price and terms negotiated by the buyer and seller. The Fund will
acquire only those OTC options for which management believes the Fund can
receive on each business day at least two separate bids or offers (one of which
will be from an entity other than a party to the option) or those OTC options
valued by an independent pricing service. The Fund will write and purchase OTC
options only with member banks of the Federal Reserve System and primary dealers
in U.S. Government securities or their affiliates which have capital of at least
$50 million or whose obligations are guaranteed by an entity having capital of
at least $50 million. The Securities and Exchange Commission (the "SEC") has
taken the position that OTC options are subject to the Fund's 15% restriction on
illiquid investments. The SEC, however, allows the Fund to exclude from the 15%
limitation on illiquid securities a portion of the value of the OTC options
written by the Fund, provided that certain conditions are met. First, the other
party to the OTC options has to be a primary U.S. Government securities dealer
designated as such by the Federal Reserve Bank. Second, the Fund would have an
absolute contractual right to repurchase the OTC options at a formula price. If
the above conditions are met, a Fund may treat as illiquid only that portion of
the OTC option's value (and the value of its underlying securities) which is
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equal to the formula price for repurchasing the OTC option, less the OTC
option's intrinsic value.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers and financial institutions if the loan is collateralized by cash or U.S.
Government securities according to applicable regulatory requirements. The Fund
may reinvest any cash collateral in short-term securities and money market
funds. When the Fund lends portfolio securities, there is a risk that the
borrower may fail to return the loaned securities. As a result, the Fund may
incur a loss or, in the event of the borrower's bankruptcy, 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 in excess of 33 _% of
its total assets.
Government Securities. Certain U.S. Government securities, including U.S.
Treasury bills, notes and bonds, and Government National Mortgage Association
certificates ("Ginnie Maes"), are supported by the full faith and credit of the
United States. Certain other U.S. Government securities, issued or guaranteed by
Federal agencies or government sponsored enterprises, are not supported by the
full faith and credit of the United States, but may be supported by the right of
the issuer to borrow from the U.S. Treasury. These securities include
obligations of the Federal Home Loan Mortgage Corporation ("Freddie Macs"), and
obligations supported by the credit of the instrumentality, such as Federal
National Mortgage Association Bonds ("Fannie Maes"). No assurance can be given
that the U.S. Government will provide financial support to such Federal
agencies, authorities, instrumentalities and government sponsored enterprises in
the future.
Ginnie Maes, Freddie Macs and Fannie Maes are mortgage-backed securities
which provide monthly payments which are, in effect, a "pass-through" of the
monthly interest and principal payments (including any prepayments) made the by
individual borrowers on the pooled mortgage loans. Collateralized mortgage
obligations ("CMOs") in which the Fund may invest are securities issued by a
U.S. Government instrumentality that are collateralized by a portfolio of
mortgages or mortgage-backed securities. Mortgage-backed securities may be less
effective than traditional debt obligations of similar maturity at maintaining
yields during periods of declining interest rates.
Foreign Currency Transactions. The Fund's foreign currency exchange transactions
may be conducted on a spot (i.e., cash) basis at the spot rate for purchasing or
selling currency prevailing in the foreign exchange market. The Fund may also
enter into forward foreign currency contracts involving currencies of the
different countries in which it will invest as a hedge against possible
variations in the foreign exchange rate between these currencies. This is
accomplished through contractual agreements to purchase or sell a specified
currency at a specified future date and price set at the time of the contract.
Transaction hedging is the purchase or sale of forward foreign currency
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contracts with respect to specific receivables or payables of the Fund accruing
in connection with the purchase and sale of its portfolio securities denominated
in foreign currencies. Portfolio hedging is the use of forward foreign currency
contracts to offset portfolio security positions denominated or quoted in such
foreign currencies. The Fund will not attempt to hedge all of its foreign
portfolio positions and will enter into such transactions only to the extent, if
any, deemed appropriate by the Advisers. The Fund will not engage in speculative
forward currency transactions.
If the Fund enters into a forward contract requiring it to purchase foreign
currency, its custodian bank will segregate cash or liquid 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. Those assets will
be valued at market daily and if the value of the assets in the separate account
declines, additional cash or liquid assets will be placed in the account so that
the value of the account will be equal to the amount of the Fund's commitment
with respect to such contracts.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency rises. Moreover, it may
not be possible for the Fund to hedge against a devaluation that is so generally
anticipated that the Fund is not able to contract to sell the currency at a
price above the devaluation level it anticipates.
The cost to the Fund of engaging in foreign currency transactions varies
with such factors as the currency involved, the length of the contract period
and the market conditions then prevailing. Since transactions in foreign
currency are usually conducted on a principal basis, no fees or commissions are
involved.
Investment in Foreign Securities. The Fund may invest up to 50% of its assets in
securities of foreign issuers, including 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, and are designed 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 that information and the
market value of the unsponsored ADR.
Investments in foreign securities may involve risks and considerations not
present in domestic investments. Since foreign securities generally may be
quoted and pay interest or dividends in foreign currencies, the value of the
assets of the Fund as measured in U.S. dollars will be affected favorably or
unfavorably by changes in the relationship of the U.S. dollar and other currency
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rates. The Fund may incur costs in connection with the conversion of foreign
currencies into U.S. dollars and may be adversely affected by restrictions on
the conversion or transfer of foreign currencies. In addition, there may be less
publicly available information about foreign companies than U.S. companies.
Foreign companies may not be subject to accounting, auditing, and financial
reporting standards, practices and requirements comparable to those applicable
to U.S. companies. There may also be difficulty in enforcing legal rights
outside the United States. Security trading practices abroad may offer less
protection to investors such as the Fund. In addition, the expense ratios of
international funds generally are higher than those of domestic funds. This is
because there are greater costs associated with maintaining custody of foreign
securities, and the increased research necessary for international investing.
Foreign securities markets, while growing in volume, have for the most part
substantially less volume than U.S. securities markets and securities of foreign
companies are generally less liquid and at times their prices may be more
volatile than securities of comparable U.S. companies. Foreign stock exchanges,
brokers and listed companies are generally subject to less government
supervision and regulation than those in the U.S. The customary settlement time
for foreign securities is less frequent than in the U.S., which could affect the
liquidity of the Fund's investments.
In some countries, there is the possibility of expropriation or
confiscatory taxation, seizure or nationalization of foreign bank deposits or
other assets, establishment of exchange controls, the adoption of foreign
government restrictions or other adverse political, social or diplomatic
developments that could affect investments in these nations.
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. Local securities markets may trade a
small number of securities and may be unable to respond effectively to increases
in trading volume, potentially making prompt liquidation of substantial holdings
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difficult or impossible at times. The Fund may be required to establish special
custodial or other arrangements before making certain investments in those
countries. Securities of issuers located in these countries may have limited
marketability and may be subject to more abrupt or erratic price movements.
Short Sales. The Fund may engage in short sales in order to profit from an
anticipated decline in the value of a security. The Fund may also engage in
short sales to attempt to limit its exposure to a possible market decline in the
value of its portfolio securities through short sales of securities which the
Adviser believes possess volatility characteristics similar to those being
hedged. To effect such a transaction, the Fund must borrow the security sold
short to make delivery to the buyer. The Fund then is obligated to replace the
security borrowed by purchasing it at the market price at the time of
replacement. Until the security is replaced, the Fund is required to pay to the
lender any accrued interest or dividends and may be required to pay a premium.
The Fund may only make short sales "against the box," meaning that the Fund, by
virtue of its ownership of other securities, has the right to obtain securities
equivalent in kind and amount to the securities sold and, if the right is
conditional, the sale is made upon the same conditions.
The Fund will realize a gain if the security declines in price between the
date of the short sale and the date on which the Fund replaces the borrowed
security. On the other hand, the Fund will incur a loss as a result of the short
sale if the price of the security increases between those dates. The amount of
any gain will be decreased, and the amount of any loss increased, by the amount
of any premium or interest or dividends the Fund may be required to pay in
connection with a short sale. The successful use of short selling as a hedging
device may be adversely affected by imperfect correlation between movements in
the price of the security sold short and the securities being hedged.
Under applicable guidelines of the staff of the SEC, if the Fund engages in
short sales, it must put in a segregated account (not with the broker) an amount
of cash or U.S. Government securities equal to the difference between (a) the
market value of the securities sold short at the time they were sold short and
(b) any cash or U.S. Government Securities required to be deposited as
collateral with the broker in connection with the short sale (not including the
proceeds from the short sale). In addition, until the Fund replaces the borrowed
security, it must daily maintain the segregated account at such a level that the
amount deposited in it plus the amount deposited with the broker as collateral
will equal the current market value of the securities sold short.
Short selling may produce higher than normal portfolio turnover which may
result in increased transaction costs to the Fund and may result in gains from
the sale of securities deemed to have been held for less than three months,
which gains must be less than 30% of the Fund's gross income for a taxable year
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in order for the Fund to qualify as a regulated investment company under the
Code for that year.
Short-Term Trading and Portfolio Turnover. Although the Fund does not intend to
invest for the purpose of seeking short-term profits, the Fund's particular
portfolio securities may be changed without regard to their holding period
(subject to certain tax restrictions) when the Advisers deem that this action is
appropriate in view of a change in the issuer's financial or business operations
or changes in general market conditions. Short-term trading may have the effect
of increasing portfolio turnover rate. A high rate of portfolio turnover (100%
or greater) involves corresponding higher transaction expenses and may make it
more difficult for the Fund to qualify as a regulated investment company for
Federal income tax purposes. It is anticipated that, under normal market
conditions, the Fund's annual portfolio turnover rate will be less than 100%.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions will
not be changed without approval of the Fund's outstanding voting securities
which, as used in the Prospectus, means approval by the lesser of (1) the
holders of 67% or more of the Fund's shares represented at a meeting if at least
50% of the Fund's outstanding shares are present in person or by proxy at the
meeting or (2) the holders of more than 50% of the Fund's 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 and may hold and sell real estate acquired by
the Fund as the result of ownership of securities.
(2) Make loans, except that the Fund may lend portfolio securities in
accordance with the Fund's investment policies. The Fund does not, for this
purpose, consider repurchase agreements, the purchase of all or a portion
of an issue of publicly distributed bonds, bank loan participation
agreements, bank certificates of deposit, bankers' acceptances, debentures
or other securities, whether or not the purchase is made upon the original
issuance of the securities, to be the making of a loan.
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(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.
(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,
17
<PAGE>
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 and the Fund's
custodian must take possession of the collateral either physically or in book
entry form. Securities used as collateral must be marked to market daily.
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 margin deposits
in connection with transactions in options, futures contracts, options on
futures contracts and other arbitrage transactions, or unless by virtue of
its ownership of other securities, the Fund has the right to obtain without
payment of additional consideration, securities equivalent in kind and
amount to the securities sold and, if the right is conditional, the sale is
made upon the same conditions, except that a Fund may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of securities.
(b) purchase securities of any issuer which, together with any predecessor, has
a record of less than three years' continuous operation prior to the
purchase if such purchase would cause the Fund's investment in all such
issuers to exceed 5% of the value of the Fund's total assets.
(c) invest for the purpose of exercising control over 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 the securities of other investment companies,
(ii) the Fund would hold more than 3% of the total outstanding voting
securities of any one investment company, or (iii) more than 5% of the
Fund's total assets would be invested in the securities of any one
investment company. These limitations do not apply to (a) the investment of
cash collateral, received by the Fund in connection with lending the Fund's
portfolio securities, in the securities of open-end investment companies or
(b) the purchase of shares of any investment company in connection with a
merger, consolidation, reorganization or purchase of substantially all of
the assets of another investment company. Subject to the above percentage
limitations, the Fund may, in connection with the John Hancock Group of
18
<PAGE>
Funds Deferred Compensation Plan for Independent Trustees/Directors,
purchase securities of other investment companies within the John Hancock
Group of Funds. The Fund may not purchase the shares of any closed-end
investment company except in the open market where no commission or profit
to a sponsor or dealer results from the purchase, other than customary
brokerage fees.
(e) knowingly purchase or retain securities of an issuer if one or more of the
Trustees or officers of the Trust or directors or officers of the Adviser
or any investment management subsidiary of the Adviser individually owns
beneficially more than 0.5%, and together own beneficially more than 5%, of
the securities of such issuer.
(f) invest in interests in oil, gas or other mineral exploration or development
programs; provided, however, that this restriction shall not prohibit the
acquisition of securities of companies engaged in the production or
transmission of oil, gas or other minerals.
(g) purchase warrants if as a result (i) more than 5% of the Fund's net assets,
valued at the lower of cost or market value, would be invested in warrants
or (ii) more than 2% of its net assets would be invested in warrants,
valued as aforesaid, which are not traded on the New York Stock Exchange or
American Stock Exchange; provided that for these purposes, warrants are to
be valued at the lesser of cost or market, but warrants acquired in units
or attached to securities will be deemed to be without value.
(h) Purchase any security, including any repurchase agreement maturing in more
than seven days, which is not readily marketable, if more than 15% of the
net assets of the Fund, taken at market value, would be invested in such
securities.
(i) Participate on a joint or joint-and-several basis in any securities trading
account. The "bunching" of orders for the sale or purchase of marketable
portfolio securities with other accounts under the management of the
Adviser to save commissions or to average prices among them is not deemed
to result in a joint securities trading account.
(j) Invest more than 15% of its net assets in restricted securities, excluding
restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933.
(k) Purchase interests in real estate limited partnerships.
19
<PAGE>
(l) Purchase puts, calls, straddles, spreads or any combination thereof if by
reason of a purchase the Fund's aggregate investment in these instruments
would exceed 5% of its total assets.
In order to permit the sale of shares of the Fund in certain states, the
Trustees may, in their sole discretion, adopt restrictions or investment
policies more restrictive than those described above. Should the Trustees
determine that any such more restrictive policy is no longer in the best
interests of the Fund and its shareholders, the Fund may cease offering shares
in the state involved and the Trustees may revoke such restrictive policy.
Moreover, if the states involved shall no longer require any such restrictive
policy, the Trustees may, at their sole discretion, revoke such policy.
If a percentage restriction on investment or utilization of assets as set
forth above is adhered to at the time an investment is made, a later change in
percentage resulting from changes in the values of the Fund's assets will not be
considered a violation of the restriction.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by its Trustees who elect officers who
are responsible for the day-to-day operations of the Fund and who execute
policies formulated by the Trustees. Several of the officers and Trustees of the
Fund are also officers and directors of the Adviser or officers and directors of
the Fund's principal distributor, John Hancock Funds, Inc. ("John Hancock
Funds").
The following table sets forth the principal occupations of the Trustees
and principal officers of the Trust during the past five years. Unless otherwise
indicated, the business address of each is 101 Huntington Avenue, Boston,
Massachusetts 02199.
20
<PAGE>
<TABLE>
<CAPTION>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrant During Past Five Years
- ----------------- --------------- ----------------------
<S> <C> <C>
*Edward J. Boudreau, Jr. Chairman (1,2) Chairman and Chief Executive
October 1944 Officer, the Adviser and The
Berkeley Financial Group ("The
Berkeley Group"); Chairman, the
Sub-Adviser; John Hancock Advisers
International Limited ("Advisers
International"); John Hancock
Funds; John Hancock Investor
Services Corporation ("Investor
Services") and Sovereign Asset
Management Corporation ("SAMCorp");
(hereinafter the Adviser, the
Berkeley Group, the Sub-Adviser,
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.
and New England/Canada Business
Council; Member, Investment Company
Institute Board of Governors;
Director, Asia Strategic Growth
Fund, Inc.; Trustee, Museum of
Science; Vice Chairman and
President, the Adviser (until July
1992); Chairman John Hancock
Distributors, Inc. (until April,
1994).
- --------------
* An "interested person" of the Trust, as such term is defined in the
Investment Company Act of 1940.
(1) A Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A Member of the Investment Committee of the Adviser.
(3) A Member of the Audit Committee and the Administration Committee.
21
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrant During Past Five Years
- ----------------- --------------- ----------------------
Dennis S. Aronowitz Trustee (3) Professor of Law, Boston University
Boston University School of Law; Trustee, Brookline
Boston, Massachusetts Savings Bank.
June 1931
Richard P. Chapman, Jr. Trustee (1,3) President, Brookline Savings Bank;
160 Washington Street Director, Federal Home Loan Bank of
Brookline, Massachusetts Boston (lending); Director, Lumber
February 1935 Insurance Companies (fire and
casualty insurance); Trustee,
Northeastern University
(education); Director, Depositors
Insurance Fund, Inc. (insurance).
William J. Cosgrove Trustee (3) Vice President, Senior Banker and
20 Buttonwood Place Senior Credit Officer, Citibank,
Saddle River, New Jersey N.A. (retired September 1991);
January 1933 Executive Vice President, Citadel
Group Representatives, Inc., EVP
Resource Evaluation, Inc.
(consulting) (until October 1993);
Trustee, the Hudson City Savings
Bank (since 1995).
- --------------
* An "interested person" of the Trust, as such term is defined in the
Investment Company Act of 1940.
(1) A Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A Member of the Investment Committee of the Adviser.
(3) A Member of the Audit Committee and the Administration Committee.
22
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrant During Past Five Years
- ----------------- --------------- ----------------------
Douglas M. Costle Trustee (1,3) Director, Chairman of the Board and
RR2 Box 480 Distinguished Senior Fellow,
Woodstock, Vermont 05091 Institute for Sustainable
July 1939 Communities, Montpelier, Vermont
(since 1991); Dean, Vermont Law
School (until 1991); Director, Air
and Water Technologies Corporation
(environmental services and
equipment), Niagara Mohawk Power
Company (electric services) and
Mitretek Systems (governmental
consulting services).
Leland O. Erdahl Trustee (3) Director of Santa Fe Ingredients
9449 Navy Blue Court Company of California, Inc. and
Las Vegas, NV 89117 Santa Fe Ingredients Company, Inc.
December 1928 (private food processing
companies); Director of Uranium
Resources, Inc.; President of
Stolar, Inc. (from 1987-1991) and
President of Albuquerque Uranium
Corporation (from 1985- 1992);
Director of Freeport- McMoRan
Copper & Gold Company Inc., Hecla
Mining Company, Canyon Resources
Corporation and Original Sixteen to
One Mine, Inc. (from 1984-1987 and
from 1991 to 1995) (management
consultant).
- --------------
* An "interested person" of the Trust, as such term is defined in the
Investment Company Act of 1940.
(1) A Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A Member of the Investment Committee of the Adviser.
(3) A Member of the Audit Committee and the Administration Committee.
23
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrant During Past Five Years
- ----------------- --------------- ----------------------
Richard A. Farrell Trustee (3) President of Farrell, Healer & Co.
Farrell, Healer & (venture capital management firm)
Company, Inc. (since 1980); Prior to 1980, headed
160 Federal Street the venture capital group at Bank
23rd Floor of Boston Corporation.
Boston, MA 02110
November 1932
Gail D. Fosler Trustee (3) Vice President and Chief Economist,
4104 Woodbine Street The Conference Board (non-profit
Chevy Chase, MD economic and business research).
December 1947
William F. Glavin Trustee (3) President, Babson College; Vice
Babson College Chairman, Xerox Corporation (until
Horn Library June 1989); Director, Caldor Inc.,
Babson Park, MA 02157 Reebok, Ltd. (since 1994), and Inco
March 1931 Ltd.
*Anne C. Hodsdon Trustee and President President and Chief Operating
April 1953 (1, 2) Officer, the Adviser; Executive
Vice President, the Adviser (until
December 1994); Senior Vice
President, the Adviser (until
December 1993); Vice President, the
Adviser (until 1991).
- --------------
* An "interested person" of the Trust, as such term is defined in the
Investment Company Act of 1940.
(1) A Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A Member of the Investment Committee of the Adviser.
(3) A Member of the Audit Committee and the Administration Committee.
24
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrant During Past Five Years
- ----------------- --------------- ----------------------
Dr. John A. Moore Trustee (3) President and Chief Executive
Institute for Evaluating Officer, Institute for Evaluating
Health Risks Health Risks (nonprofit
1101 Vermont Avenue N.W. institution) (since September
Suite 608 1989).
Washington, DC 20005
February 1939
Patti McGill Peterson Trustee (3) President, St. Lawrence University;
Institute for Public Affairs Director, Niagara Mohawk Power
364 Upson Hall Corporation (electric utility) and
Cornell University Security Mutual Life (insurance).
Ithica, NY 14853
May 1943
John W. Pratt Trustee (3) Professor of Business
2 Gray Gardens East Administration at Harvard
Cambridge, MA 02138 University Graduate School of
September 1931 Business Administration (since
1961).
*Richard S. Scipione Trustee (1) General Counsel, the Life Company;
John Hancock Place Director, the Adviser, the
P.O. Box 111 Affiliated Companies, John Hancock
Boston, Massachusetts Distributors, Inc., JH Networking
August 1937 Insurance Agency, Inc., John
Hancock Subsidiaries, Inc. and John
Hancock Property and Casualty
Insurance and its affiliates (until
November, 1993).
- --------------
* An "interested person" of the Trust, as such term is defined in the
Investment Company Act of 1940.
(1) A Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A Member of the Investment Committee of the Adviser.
(3) A Member of the Audit Committee and the Administration Committee.
25
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrant During Past Five Years
- ----------------- --------------- ----------------------
Edward J. Spellman, CPA Trustee (3) Partner, KPMG Peat Marwick LLP
259C Commercial Bld. (retired June 1990).
Fort Lauderdale, FL
November 1932
*Robert G. Freedman Vice Chairman and Chief Vice Chairman and Chief Investment
July 1938 Investment Officer (2) Officer, the Adviser; President,
the Adviser (until December 1994);
Director, the Adviser, Advisers
International, John Hancock Funds,
Investor Services, SAMCorp. and the
Sub- Adviser; Senior Vice
President, The Berkeley Group.
*James B. Little Senior Vice President and Senior Vice President, the Adviser,
February 1935 Chief Financial Officer The Berkeley Group, John Hancock
Funds and Investor Services; Senior
Vice President and Chief Financial
Officer, each of the John Hancock
funds.
*John A. Morin Vice President Vice President, the Adviser; Vice
July 1950 President, Investor Services, John
Hancock Funds and each of the John
Hancock funds; Compliance Officer,
certain John Hancock funds;
Counsel, the Life Company; Vice
President and Assistant Secretary,
The Berkeley Group.
- --------------
* An "interested person" of the Trust, as such term is defined in the
Investment Company Act of 1940.
(1) A Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A Member of the Investment Committee of the Adviser.
(3) A Member of the Audit Committee and the Administration Committee.
26
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrant During Past Five Years
- ----------------- --------------- ----------------------
*Susan S. Newton Vice President and Vice President and Assistant
March 1950 Secretary Secretary, the Adviser; Vice
President and Secretary, certain
John Hancock funds; Vice President
and Secretary, John Hancock Funds,
Investor Services and John Hancock
Distributors, Inc. (until 1994);
Secretary, SAMCorp; Vice President,
The Berkeley Group.
*James J. Stokowski Vice President and Vice President, the Adviser; Vice
November 1946 Treasurer President and Treasurer, each of
the John Hancock funds.
</TABLE>
All of the officers listed are officers or employees of the Adviser or the
Affiliated Companies. Some of the Trustees and officers may also be officers
and/or directors and/or Trustees of one or more other funds for which the
Adviser serves as investment adviser.
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. The Trustees not listed below were
not Trustees of the Trust as of the end of the Fund's last completed fiscal
year. The three non-Independent Trustees, Messrs. Boudreau and Scipione and Ms.
Hodsdon, and each of the officers of the Trust are interested persons of the
Adviser, are compensated by the Adviser and receive no compensation from the
Fund for their services.
- --------------
* An "interested person" of the Trust, as such term is defined in the
Investment Company Act of 1940.
(1) A Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A Member of the Investment Committee of the Adviser.
(3) A Member of the Audit Committee and the Administration Committee.
27
<PAGE>
Aggregate Total Compensation From the
Compensation Fund and John Hancock Fund
Independent Trustees From the Fund 1 Complex to Trustees 2
- -------------------- --------------- ---------------------
Dennis S. Aronowitz $154 $ 61,050
Richard P. Chapman, Jr.+ 158 62,800
William J. Cosgrove+ 154 61,050
Gail D. Fosler 154 60,800
Bayard Henry* 144 58,850
Edward J. Spellman 154 61,050
---- --------
$918 $365,600
1 Compensation is for the fiscal year ended December 31, 1995.
2 The total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is as of the calendar year ended December 31, 1995. As
of such date there were 61 funds in the John Hancock Fund Complex, of which
each of these Independent Trustees served 16.
* Mr. Henry retired from his position as a Trustee of the Fund effective
April 26, 1996.
+ As of December 31, 1995 the value of the aggregate accrued deferred
compensation from each Fund in the John Hancock Fund Complex for Mr.
Chapman was $54,681 and for Mr. Cosgrove was $54,243 under the John Hancock
Deferred Compensation Plan for Independent Trustees (the "Plan").
The Trustees and officers of the Fund may at times be the record holders of
in excess of 5% of the shares of the Fund by virtue of holding shares in "street
name." As of August 5, 1996 the officers and trustees of the Trust as a group
owned less than 1% of the outstanding shares of each class of the Fund.
28
<PAGE>
As of August 5, 1996 the following shareholders beneficially owned 5% or
more of the outstanding shares of the Fund listed below:
<TABLE>
<CAPTION>
Percentage of
Number of shares total outstanding
of beneficial shares of the
Name and Address of Shareholder Class of Shares interest owned class of the Fund
- ------------------------------- --------------- -------------- -----------------
<S> <C> <C> <C>
Merrill Lynch Pierce Fenner & Class B shares 152,433 7.98%
Smith Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
</TABLE>
INVESTMENT ADVISORY,
SUB-ADVISORY AND OTHER SERVICES
The Fund receives its investment advice from the Advisers. Each of the
Trustees and principal officers of the Fund who is also an affiliated person of
the Advisers is named above, together with the capacity in which such person is
affiliated with the Fund and the Advisers.
The Fund has entered into an investment management contract with the
Adviser and an investment sub-advisory contract with the Sub-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, and (ii) supervision of all aspects of the Fund's
operations except those that are delegated to a custodian, transfer agent or
other agent. The Adviser is responsible for the management of the Fund's
portfolio assets.
The Adviser has entered into a sub-investment management contract with the
Sub-Adviser under which the Sub-Adviser, subject to the review of the Trustees
and the over-all supervision of the Adviser, is responsible for managing the
investment operations of the Fund and the composition of the Fund's portfolio
and furnishing the Fund with advice and recommendations with respect to
investments, investment policies and the purchase and sale of securities.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Advisers or their 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 Advisers for the Fund or for other funds
or clients for which one of the Advisers 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
29
<PAGE>
deemed equitable to all of them. To the extent that transactions on behalf of
more than one client of one of the Advisers or their 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 Advisers and their 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 Advisers 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.
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 of 1940, 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.
As provided by the investment management contract, the Fund pays the
Adviser monthly an investment management fee, which is accrued daily, of 0.70%
of the average of the daily net assets of the Fund. For its sub-advisory
services, the Adviser pays the Sub-Adviser monthly a sub-advisory fee of 40% of
the fee received by the Adviser for managing the Fund. The Fund is not
responsible for payment of the Sub-Adviser's fee.
The Adviser has voluntarily agreed to limit Fund expenses, including the
management fee (but not including the transfer agent fee and the 12b-1 fee (as
described below under "Distribution contract")), to 0.40% of the Fund's average
daily net assets. The Adviser reserves the right to terminate this voluntary
limitation in the future.
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.
30
<PAGE>
On December 31, 1995, the net assets of the Fund were $29,838,736. For the
year ended December 31, 1995 and the period ended December 31, 1994, the
Adviser's management fee was $140,122 and $18,489 respectively, prior to expense
reduction. After expense reduction by the Adviser, the Adviser's management fees
for the periods ended December 31, 1994 and December 31, 1995 were zero.
Pursuant to the investment management contract and sub-advisory contract,
the Adviser and Sub-Adviser are not liable to the Fund for any error of judgment
or mistake of law or for any loss suffered by the Fund in connection with the
matters to which their respective contract relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of the Adviser or
the Sub-Adviser in the performance of their duties or from their reckless
disregard of their obligations and duties under the applicable contract.
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts
02199-7603, was organized in 1968 and presently has more than $18 billion in
assets under management in its capacity as investment adviser to the Fund and
the other mutual funds and publicly traded investment companies in the John
Hancock group of funds having a combined total of over 1,080,000 shareholders.
The Adviser is an affiliate of the Life Company, one of the most recognized and
respected financial institutions in the nation. The Sub-Adviser was organized in
1977 and is also an indirect subsidiary of the Life Company and provides
investment management advisory services for institutional and individual
investors. The Sub-Adviser manages approximately $1.3 billion in assets. With
total assets under management of approximately $80 billion, the Life Company is
one of the ten largest life insurance companies in the United States, and
carries the highest ratings from S&P's and A.M. Best's. 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 Company may grant the non-exclusive right to use the name "John
Hancock" or any similar name to any other corporation or entity, including but
not limited to any investment company of which the Life Company or any
subsidiary or affiliate thereof or any successor to the business of any
subsidiary or affiliate thereof shall be the investment adviser.
The investment management contract, the investment sub-advisory contract
and the distribution contract discussed below continue in effect from year to
year if approved annually by vote of a majority of the Trust's Trustees who are
not interested persons of one of the parties to the contract, cast in person at
31
<PAGE>
a meeting called for the purpose of voting on such approval, and by either the
Trust's Trustees or the holders of a majority of the Trust's outstanding voting
securities. Each of these contracts 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.
The Trust, on behalf of the Fund, is a party to an Accounting and Legal
Services Agreement with the Adviser. Pursuant to this agreement, the Adviser
provides the Fund with certain tax, accounting and legal services.
DISTRIBUTION CONTRACT
The Fund has a distribution contract with John Hancock Funds. Under the
contract, John Hancock Funds is obligated to use its best efforts to sell shares
of the Fund. Shares of the Fund are 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 discussed further in the Fund's Prospectus.
The Trust's Trustees adopted Distribution Plans on behalf of the Fund with
respect to the Fund's Class A and Class B shares (the "Plans"), pursuant to Rule
12b-1 under the Investment Company Act of 1940. Under the Plans, the Fund will
pay distribution and service fees for Class A and Class B shares, at an
aggregate annual rate of up to 0.30% and 1.00%, respectively, of the Fund's
daily net assets attributable to the respective class of shares. However, the
amount of the service fee will not exceed 0.25% of the Fund's average daily net
assets attributable to each class of shares. The distribution fees will be used
to reimburse John Hancock Funds for 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 that 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 these
expenses were incurred. In the event that John Hancock Funds is not fully
32
<PAGE>
reimbursed for expenses it incurs under the Class B Plan in any fiscal year,
John Hancock Funds may carry these expenses forward, provided, however, that the
Trustees may terminate the Class B Plan and thus the Fund's obligation to make
further payments at any time. Accordingly, the Fund does not treat unreimbursed
expenses relating to the Class B shares as a liability. For the period ended
December 31, 1995 an aggregate of $807,110 of distribution expenses or 7.5% of
the average net assets of the Class B shares of the Fund was not reimbursed or
recovered by John Hancock Funds through the receipt of deferred sales charges or
12b-1 fees in prior periods.
The Plans were approved by a majority of the voting securities of the
applicable class of the Fund. The Plans have also been 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 Plan (the "Independent Trustees"), by votes cast in person at
meetings called for the purpose of voting on such Plans.
Pursuant to the Plans, at least quarterly, John Hancock Funds provides the
Fund with a written report of the amounts expended under the Plans and the
purpose for which these expenditures were made. The Trustees review these
reports on a quarterly basis.
During the fiscal year ended December 31, 1995, the Fund paid John Hancock
Funds the following amounts of expenses with respect to the Class A shares and
Class B shares of the Fund:
<TABLE>
<CAPTION>
Expense Items
Interest
Printing and Expenses Carrying
Mailing of of John or Other
Prospectus to Compensation to Hancock Finance
Advertising New Shareholders Selling Brokers Funds Charges
----------- ---------------- --------------- ----- -------
<S> <C> <C> <C> <C> <C>
Class A shares $12,428 $1,300 $ 1,605 $12,438 $ 0
Class B shares $40,449 $2,812 $ 14,029 $41,007 $9,306
</TABLE>
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 without penalty (a) by vote of a majority of the Independent
Trustees, (b) by a vote of a majority of the Fund's outstanding shares of the
applicable class in each case 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
33
<PAGE>
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. And finally, 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 both the Trustees and the Independent Trustees of the Trust. The holders
of Class A shares and Class B shares have exclusive voting rights with respect
to the Plan applicable to their respective class of shares. In adopting the
Plans, the Trustees concluded that, in their judgment, there is a reasonable
likelihood that each Plan will benefit the holders of the applicable class of
shares of the Fund.
When the Trust 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 the Fund's
shares, the following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished
by a principal market maker or a pricing service, both of which generally
utilize electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices.
Equity securities traded on a principal exchange or NASDAQ National Market
Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned category for which no sales are reported and
other securities traded over-the-counter are generally valued at the last
available bid price.
Short-term debt investments which have a remaining maturity of 60 days or
less are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
Foreign securities are valued on the basis of quotations from the primary
market in which they are traded.
Any assets or liabilities expressed in terms of foreign currencies are
translated into U.S. dollars by the custodian bank based on London currency
34
<PAGE>
exchange quotations as of 5:00 p.m., London time (12:00 noon, New York time) on
the date of any determination of the Fund's NAV. If accurate 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 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, the Fund's
portfolio securities may trade and the NAV of the Fund's redeemable securities
may be significantly affected on days when a shareholder has no access to the
Fund.
INITIAL SALES CHARGE ON CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the Fund are
described in the Prospectus. Methods of obtaining reduced sales charges referred
to generally in the Prospectus are described in detail below. In calculating the
sales charge applicable to current purchases of Class A shares of the Fund, the
investor is entitled to cumulate current purchases with the greater of the
current value (at offering price) of the Class A shares of the Fund, 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. Class A shares may be offered without a front-end sales
charge or contingent deferred sales charge ("CDSC") to various individuals and
institutions as follows:
o Any state, county or any instrumentality, department, authority, or agency
of these entities that is prohibited by applicable investment laws from
paying a sales charge or commission when it purchases shares of any
registered investment management company.
35
<PAGE>
o A bank, trust company, credit union, savings institution or other
depository institution, its trust department or common trust funds if it is
purchasing $1 million or more for non-discretionary customers or accounts.
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
(spouse, children, mother, father, sister, brother, mother-in-law,
father-in-law) of any of the foregoing; or any fund, pension, profit
sharing or other benefit plan for the individuals described above.
o A broker, dealer, financial planner, consultant or registered investment
advisor that has entered into an agreement with John Hancock Funds
providing specifically for the use of Fund shares in fee-based investment
products or services made available to their clients.
o A former participant in an employee benefit plan with John Hancock Funds,
when he or she withdraws from his or her plan and transfers any or all of
his or her plan distributions directly to the Fund.
o A member of an approved affinity group financial services plan.
o A member of a class action lawsuit against insurance companies who is
investing settlement proceeds.
o Existing full service clients of the Life Company who were group annuity
contract holders as of September 1, 1994, and participant directed defined
contribution plans with at least 100 eligible employees at the inception of
the Fund account, may purchase Class A shares with no initial sales charge.
However, if the shares are redeemed within 12 months after the end of the
calendar year in which the purchase was made, a CDSC will be imposed at the
following rate:
Amount Invested CDSC Rate
--------------- ---------
$1 million to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
Accumulation Privilege. Investors (including investors combining purchases) who
are already Class A shareholders may also obtain the benefit of the reduced
sales charge by taking into account not only the amount then being invested but
also the purchase price or current value of the Class A shares already held by
such person.
Combination Privilege. Reduced sales charges (according to the schedule set
forth in the 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.
36
<PAGE>
Letter of Intention. The reduced sales charges are also applicable to
investments made over a thirteen-month 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 IRA, SEP, SARSEP,
and 401(k), 403(b) (including TSAs) and 457 plans. Such an investment (including
accumulations and combinations) must aggregate $50,000 or more invested during
the specified period from the date of the LOI or from a date within ninety (90)
days prior thereto, upon written request to 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 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 shares and adjust the sales charge, if necessary. A LOI does
not constitute a binding commitment by an investor to purchase, or by the Fund
to sell, any additional shares and may be terminated at any time.
Class A shares may be purchased without a sales charge by clients of the
Sub-Adviser if funds are transferred directly to the Fund from accounts managed
by the Sub-Adviser.
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.
37
<PAGE>
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per share
without the imposition of an initial sales charge so the Fund will receive the
full amount of the purchase payment.
Contingent Deferred Sales Charge. Class B shares which are redeemed within
six years of purchase will be subject to a contingent deferred sales charge
("CDSC") at the rates set forth in the Prospectus as a percentage of the dollar
amount subject to the CDSC. The charge will be assessed on an amount equal to
the lesser of the current market value or the original purchase cost of the
Class B shares being redeemed. No CDSC will be imposed on increases in account
value above the initial purchase prices, including shares derived from
reinvestment of dividends or capital gains distributions.
Class B shares are not available to 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.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments
during a month will be aggregated and deemed to have been made on the first day
of the month.
In determining whether a CDSC applies to a redemption, the calculation will
be determined in a manner that results in the lowest possible rate being
charged. It will be assumed that your redemption comes first from shares you
have held beyond the six- year CDSC redemption period or those you acquired
through dividend and capital gain reinvestment, and next from the shares you
have held the longest during the six-year period. For this purpose, the amount
of any increase in a share's value above its initial purchase price is not
regarded as a share exempt from CDSC. Thus, when a share that has appreciated in
value is redeemed during the CDSC period, a CDSC is assessed only on its initial
purchase price. Upon redemption, appreciation is effective only on a per share
basis for those shares being redeemed. Appreciation of shares cannot be redeemed
CDSC free at the account level.
When requesting a redemption for a specific dollar amount please indicate
if you require the proceeds to equal the dollar amount requested. If not
indicated, only the specified dollar amount will be redeemed from your account
and the proceeds will be less any applicable CDSC.
Example:
38
<PAGE>
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment. If
you redeem 50 shares at this time your CDSC will be calculated as follows:
* Proceeds of 50 shares redeemed at $12 per share $600
* Minus proceeds of 10 shares not subject to CDSC (dividend
reinvestment) -120
* Minus appreciation on remaining shares (40 shares X $2) -80
----
* Amount subject to CDSC $400
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or
in part by John Hancock Funds to defray its expenses related to providing
distribution-related services to the Fund in connection with the sale of the
Class B shares, such as the payment of compensation to select Selling Brokers
for selling Class B shares. The combination of the CDSC and the distribution and
service fees facilitates the ability of the Fund to sell the Class B shares
without a sales charge being deducted at the time of the purchase. See the
Prospectus for additional information regarding the CDSC.
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to a CDSC,
unless indicated otherwise, in the circumstances defined below:
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your account if
you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
* Redemptions due to death or disability.
* Redemptions made under the Reinstatement Privilege, as described in "Sales
Charge Reductions and Waivers" of the Prospectus.
* Redemptions of Class B shares made under a periodic withdrawal plan, as
long as your annual redemptions do not exceed 12% of your account value,
including reinvested dividends, at the time you established your periodic
withdrawal plan and 12% of the value of subsequent investments (less
redemptions) in that account at the time you notify Investor Services.
(Please note, this waiver does not apply to periodic withdrawal plan
redemptions of Class A shares that are subject to a CDSC.)
For Retirement Accounts (such as IRA, Rollover IRA, TSA, 457, 403(b), 401(k),
Money Purchase Pension Plan, Profit-Sharing Plan and other qualified plans as
described in the Internal Revenue Code) unless otherwise noted.
* Redemptions made to effect mandatory or life expectancy distributions under
the Internal Revenue Code.
* Returns of excess contributions made to these plans.
39
<PAGE>
* Redemptions made to effect distributions to participants or beneficiaries
from employer sponsored retirement plans under section 401(a) of the Code
(such as 401k, Money Purchase Pension Plan, Profit-Sharing Plan).
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992.
Please see matrix for reference.
CDSC Waiver Matrix for Class B Funds
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
401(a) Plan
Type of (401(k), MPP, IRA, IRA
Distribution PSP) 403(b) 457 Rollover Non-retirement
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Death or Waived Waived Waived Waived Waived
Disability
- ------------------------------------------------------------------------------------------------------------------------
Over 70 1/2 Waived Waived Waived Waived for 12% of account
mandatory value annually
distributions or in periodic
12% of account payments
value annually
in periodic
payments
- ------------------------------------------------------------------------------------------------------------------------
Between 59 1/2 Waived Waived Waived Waived for Life 12% of account
and 70 1/2 Expectancy or 12% value annually
of account value in periodic
annually in payments
periodic payments
- ------------------------------------------------------------------------------------------------------------------------
Under 59 1/2 Waived Waived for annuity Waived for annuity Waived for annuity 12% of account
payments (72t)or payments (72t)or payments (72t)or value annually
12% of account 12% of account 12% of account in periodic
value annually in value annually in value annually in payments
periodic payments periodic payments periodic payments
- ------------------------------------------------------------------------------------------------------------------------
Loans Waived Waived N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------
Termination of Not Waived Not Waived Not Waived Not Waived N/A
Plan
- ------------------------------------------------------------------------------------------------------------------------
Hardships Waived Waived Waived N/A N/A
- ------------------------------------------------------------------------------------------------------------------------
Return of
Excess Waived Waived Waived Waived N/A
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE>
If you qualify for a CDSC waiver under one of these situations, you must
notify Investor Services at the time you make your redemption. The waiver will
be granted once Investor Services has confirmed that you are entitled to the
waiver.
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder 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 of 1940.
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 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 Prospectus, the Fund
permits the establishment of a Systematic Withdrawal Plan. Payments under this
plan represent proceeds from the redemption of Fund shares. Since the redemption
price of the Fund shares may be more or less than the shareholder's cost,
depending upon the market value of the securities owned by the Fund at the time
of redemption, the distribution of cash pursuant to this plan may result in
realization of gain or loss for purposes of Federal, state and local income
taxes. The maintenance of a Systematic Withdrawal Plan concurrently with
purchases of additional Class A or Class B shares of the Fund could be
disadvantageous to a shareholder because of the initial sales charge payable on
purchases of Class A shares and the CDSC imposed on redemptions of Class B
shares and because redemptions are taxable events. Therefore, a shareholder
should not purchase Class A or Class B shares at the same time that a Systematic
Withdrawal Plan is in effect. The Fund reserves the right to modify or
discontinue the Systematic Withdrawal Plan of any shareholder on 30 days' prior
written notice to such shareholder, or to discontinue the availability of such
plan in the future. The shareholder may terminate the plan at any time by giving
proper notice to Investor Services.
41
<PAGE>
Monthly Automatic Accumulation Program ("MAAP"). This program applies solely to
Class A shares of the Fund and is explained more fully in the Prospectus and the
Account Privilege 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 checks.
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 fund, subject to the minimum investment limit of
that fund. The proceeds from the redemption of Class A shares may be reinvested
at net asset value without paying a sales charge in Class A shares of the Fund
or in Class A shares of another John Hancock mutual fund. If a CDSC was paid
upon a redemption, a shareholder may reinvest the proceeds from this redemption
at net asset value in additional shares of the class from which the redemption
was made. The shareholder's account will be credited with the amount of any CDSC
charge 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
Trust 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
43
<PAGE>
of Additional Information, the Trustees have authorized shares of the Fund and
two 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.
Holders of Class A shares and Class B shares have certain exclusive voting
rights on matters relating to their respective distribution plans. The different
classes of the Fund may bear different expenses relating to the cost of holding
shareholder meetings necessitated by the exclusive voting rights of any class of
shares.
Dividends paid by the Fund, if any, with respect to each class of shares
will be calculated in the same manner, at the same time and on the same day and
will be in the same amount, except for differences resulting from the facts that
(i) the distribution and service fees relating to Class A and Class B shares
will be borne exclusively by that class (ii) Class B shares will pay higher
distribution and service fees than Class A shares and (iii) each of Class A
shares and Class B shares will bear any other class expenses properly allocable
to such class of shares, subject to the requirements imposed by the Internal
Revenue Service on funds having a 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 of 1940 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
44
<PAGE>
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 by reason of being or having been a shareholder. The Declaration of Trust
also provides that no series of the Trust shall be liable for the liabilities of
any other series. 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.
Pursuant to an order granted by the SEC, 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.
In order to avoid conflicts with portfolio trades for the Fund, the Adviser
and the Fund have adopted extensive restrictions on personal securities trading
by personnel of the Adviser and its affiliates. Some of these restrictions are:
pre-clearance for all personal trades and a ban on the purchase of initial
public offerings, as well as contributions to specified charities of profits on
securities held for less than 91 days. These restrictions are a continuation of
the basic principle that the interests of the Fund and its shareholders come
first.
Notwithstanding the fact that the Prospectus is a combined prospectus for
the Fund and other John Hancock mutual funds, the Fund shall not be liable for
the liabilities of any other John Hancock mutual fund.
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 intends to
continue to qualify as a "regulated investment company" under Subchapter M of
the Code. 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 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 seek to avoid or minimize
liability for this tax by satisfying such distribution requirements.
Distributions from the Fund's current or accumulated earnings and profits
("E&P") will be taxable under the Code for investors who are subject to tax. If
45
<PAGE>
these distributions are paid from the Fund's "investment company taxable
income," they will be taxable as ordinary income; and if they are paid from the
Fund's "net capital gain," they will be taxable as long-term capital gain. (Net
capital gain is the excess (if any) of net long-term capital gain over net
short-term capital loss, and investment company taxable income is all taxable
income and capital gains, other than net capital gain, after reduction by
deductible expenses.) Some distributions from investment company taxable income
and/or net capital gain may be paid in January but may be taxable to
shareholders as if they had been received on December 31 of the previous year.
The tax treatment described above will apply without regard to whether
distributions are received in cash or reinvested in additional shares of the
Fund.
Distributions, if any, in excess of E&P will constitute a return of capital
under the Code, which will first reduce an investor's Federal tax basis in Fund
shares and then, to the extent such basis is exceeded, will generally give rise
to capital gains. Shareholders who have chosen automatic reinvestment of their
distributions will have a Federal tax basis in each share received pursuant to
such a reinvestment equal to the amount of cash they would have received had
they elected to receive the distribution in cash, divided by the number of
shares received in the reinvestment.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
certain foreign currency options and futures contracts, foreign currency forward
contracts, foreign currencies, or payables or receivables denominated in a
foreign currency are subject to Section 988 of the Code, which generally causes
such gains and losses to be treated as ordinary income and losses and may affect
the amount, timing and character of distributions to shareholders. Any such
transactions that are not directly-related to the Fund's investment in stock or
securities, possibly including certain currency positions or derivatives not
used for hedging purposes, may increase the amount of gain it is deemed to
recognize from the sale of certain investments or derivatives held for less than
three months, which gain is limited under the Code to less than 30% of its gross
income for each taxable year, and may under future Treasury regulations produce
income not among the types of "qualifying income" from which the Fund must
derive at least 90% of its gross income for each taxable year. If the net
foreign exchange loss for a year treated as ordinary loss under Section 988 were
to exceed the Fund's investment company taxable income (computed without regard
to such a loss but after considering the post-October loss regulations) the
resulting overall ordinary loss for such a year would not be deductible by the
Fund or its shareholders in future years.
The Fund may be subject to withholding and other taxes imposed by foreign
countries with respect to its investments in foreign securities. Tax conventions
between certain countries and the U.S. may reduce or eliminate such taxes.
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 corporations, the Fund will be
unable to pass such taxes through to shareholders who consequently will not take
such taxes into account on their own tax returns. However, the Fund will deduct
46
<PAGE>
such taxes in determining the amount it has available for distribution to
shareholders.
If the Fund acquires stock in certain foreign corporations that receive at
least 75% of their annual gross income from passive sources (such as interest,
dividends, rents, royalties or capital gain) or hold at least 50% of their
assets in investments producing such passive income ("passive foreign investment
companies"), the Fund could be subject to Federal income tax and additional
interest charges on "excess distributions" received from such companies or gain
from the sale of stock in such companies, even if all income or gain actually
received by the Fund is timely distributed to its shareholders. The Fund would
not be able to pass through to its shareholders any credit or deduction for such
a tax. Certain elections may, if available, ameliorate these adverse tax
consequences, but any such election would required 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.
The amount of net realized capital gains, if any, in any given year will
vary depending upon the Advisers' current investment strategy and whether the
Advisers believe it to be in the best interest of the Fund to dispose of
portfolio securities or engage in certain other transactions or derivatives that
will generate capital gains . At the time of an investor's purchase of shares of
the Fund, a portion of the purchase price is often attributable to realized or
unrealized appreciation in the Fund's portfolio or undistributed taxable income
of the Fund. Consequently, subsequent distributions on these shares from such
appreciation or income may be taxable to such investor even if the net asset
value of the investor's shares is, as a result of the distributions, reduced
below the investor's cost for those shares and the distributions in reality
represent a return of a portion of the purchase price.
Upon a redemption of shares of the Fund (including by exercise of the
exchange privilege) a shareholder will ordinarily realize a taxable gain or loss
depending upon the amount of the proceeds and the investor's basis in his
shares. This gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and will be long-term or
short-term, depending upon the shareholder's tax holding period for the shares
and subject to the special rules described below. A sales charge paid in
purchasing Class A shares of the Fund cannot be taken into account for purposes
of determining gain or loss on the redemption or exchange of such shares within
90 days after their purchase to the extent Class A shares of the Fund or another
John Hancock fund are subsequently acquired without payment of a sales charge
pursuant to the reinvestment or exchange privilege. This disregarded charge will
result in an increase in the shareholder's tax basis in the Class A shares
subsequently acquired. Also, any loss realized on a redemption or exchange may
be disallowed for tax purposes 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
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automatic dividend reinvestments. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized upon
the redemption of shares with a tax holding period of six months or less will be
treated as a long-term capital loss to the extent of any amounts treated as
distributions of long-term capital gain with respect to such shares.
Although its present intention is to distribute, at least annually, all net
capital gain annually, if any, the Fund reserves the right to retain and
reinvest all or any portion of the excess, as computed for Federal income tax
purposes, of net long-term capital gain over net short-term capital loss in any
year. The Fund will not in any event distribute net capital gain realized in any
year to the extent that a capital loss is carried forward from prior years
against such gain. To the extent such excess was retained and not exhausted by
the carry forward of prior years' capital losses, it would be subject to Federal
income tax in the hands of the Fund. Upon proper designation of this amount by
the Fund, each shareholder would be treated for Federal income tax purposes as
if the Fund had distributed to him on the last day of its taxable year his pro
rata share of such excess, and he had paid his pro rata share of the taxes paid
by the Fund and reinvested the remainder in the Fund. Accordingly, each
shareholder would (a) include his pro rata share of such excess as long-term
capital gain in his tax return for his taxable year in which the last day of the
Fund's taxable year falls, (b) be entitled either to a tax credit on his return
for, or to a refund of, his pro rata share of the taxes paid by the Fund, and
(c) be entitled to increase the adjusted tax basis for his shares in the Fund by
the difference between his pro rata share of such excess and his pro rata share
of such taxes.
For Federal income tax purposes, the Fund is permitted to carry forward a
net capital loss in any year to offset net capital gains, if any, during the
eight years following the year of the loss. To the extent subsequent net capital
gains are offset by such losses, they would not result in Federal income tax
liability to the Fund and, as noted above, would not be distributed to
shareholders. Presently, there are no capital loss carryforwards to offset
future net realized capital gains.
Limitations imposed by the Code on regulated investment companies like the
Fund may restrict the Fund's ability to enter into futures and options
transactions, foreign currency positions, and foreign currency forward
contracts. Certain of these transactions undertaken by the Fund may cause the
Fund to recognize gains or losses from marking to market even though its
positions have not been sold or terminated and affect the character as long-term
or short-term (or, in the case of certain foreign currency forwards, options and
futures, as ordinary income or loss) and timing of some gains and losses
realized by the Fund. Also, certain of the Fund's losses on its transactions
involving options, futures or forward contracts and/or offsetting or successor
portfolio positions may be deferred rather than being taken into account
currently in calculating the Fund's taxable income or gain. Certain of these
transactions may also cause the Fund to dispose of investments sooner than would
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otherwise have occurred. These transactions may therefore affect the amount,
timing and character of the Fund's distributions to shareholders. Some 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 applicable to options, futures or forward
contracts (including consideration of any available elections) in order to
minimize any potential adverse tax consequences.
For purposes of the dividends-received deduction available to corporations,
dividends received by the Fund, if any, from U.S. domestic corporations in
respect of the stock of such corporations held by the Fund, for U.S. Federal
income tax purposes, for at least 46 days (91 days in the case of certain
preferred stock) and distributed and properly designated by the Fund may be
treated as qualifying dividends. Corporate shareholders must meet the minimum
holding period requirement stated above (46 or 91 days) with respect to their
shares of the Fund in order to qualify for the deduction and, if they have any
debt that is deemed under the Code directly attributable to such shares, may be
denied a portion of the dividends received deduction. The entire qualifying
dividend, including the otherwise-deductible amount, will be included in
determining the excess (if any) of a corporate shareholder's adjusted current
earnings over its alternative minimum taxable income, which may increase its
alternative minimum tax liability, if any. Additionally, any corporate
shareholder should consult its tax adviser regarding the possibility that its
tax basis in its Fund shares may also be reduced, for Federal income tax
purposes, by reason of "extraordinary dividends" received with respect to the
shares, for the purpose of computing its gain or loss on redemption or other
disposition of the shares.
The Fund is required to accrue income on any debt securities that have more
than a de minimis amount of original issue discount (or debt securities acquired
at a market discount, if the Fund elects to include market discount in income
currently) prior to the receipt of the corresponding cash payments. The mark to
market rules applicable to certain options, futures contracts, and forward
contracts may also require the Fund to recognize income or gain without a
concurrent receipt of cash. However, the Fund must distribute to shareholders
for each taxable year substantially all of its net income and net capital gains,
including such income or gain, to qualify as a regulated investment company and
avoid liability for any Federal income or excise tax. Therefore, the Fund may
have to dispose of its portfolio securities under disadvantageous circumstances
to generate cash, or may have to leverage itself by borrowing the cash, to
satisfy these distribution requirements.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent (if any) the Fund's distributions
are derived from interest on (or, in the case of intangibles taxes, the value of
its assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. The Fund will not seek to satisfy any
threshold or reporting requirements that may apply in particular taxing
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jurisdictions, although the Fund may in its sole discretion provide relevant
information to shareholders.
The Fund will be required to report to the Internal Revenue Service (the
"IRS") all taxable distributions to shareholders, as well as gross proceeds from
the redemption or exchange of Fund shares, except in the case of certain exempt
recipients, i.e., corporations and certain other investors distributions to
which are exempt from the information reporting provisions of the Code. Under
the backup withholding provisions of Code Section 3406 and applicable Treasury
regulations, all such reportable distributions and proceeds may be subject to
backup withholding of Federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the Fund with their correct taxpayer
identification number and certain certifications required by the IRS or if the
IRS or a broker notifies the Fund that the number furnished by the shareholder
is incorrect or that the shareholder is subject to backup withholding as a
result of failure to report interest or dividend income. The Fund may refuse to
accept an application that does not contain any required taxpayer identification
number or certification that the number provided is correct. If the backup
withholding provisions are applicable, any such distributions and proceeds,
whether taken in cash or reinvested in shares, will be reduced by the amounts
required to be withheld. Any amounts withheld may be credited against a
shareholder's U.S. Federal income tax liability. Investors should consult their
tax advisers about the applicability of the backup withholding provisions.
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 U.S. Federal income tax laws 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 the laws.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies and financial
institutions. Dividends, capital gain distributions and ownership of or gains
realized on the redemption (including an exchange) of shares of the Fund may
also be subject to state and local taxes. Shareholders should consult their own
tax advisers as to the Federal, state or local tax consequences of ownership of
shares of and receipt of distributions from the Fund in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their
Fund investment is effectively connected will be subject to U.S. Federal income
tax treatment that is different from that described above. These investors may
be subject to non- resident alien withholding tax at the rate of 30% (or a lower
rate under an applicable tax treaty) on amounts treated as ordinary dividends
from the Fund and, unless an effective IRS Form W-8 or authorized substitute for
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Form W-8 is on file, to 31% backup withholding on certain other payments from
the Fund. Non-U.S. investors should consult their tax advisers regarding such
treatment and the application of foreign taxes to an investment in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise
taxes. Provided that the Fund qualifies as a regulated investment company under
the Code, it will also not be required to pay any Massachusetts income tax.
CALCULATION OF PERFORMANCE
The average annual total return of the Class A shares of the Fund, for the
one year period ended December 31, 1995 and since commencement of operations,
January 3, 1994 was 14.28% and 11.01%, respectively.
The average annual total return of the Class B shares of the fund for the
one year period ended December 31, 1995 and since commencement of operations,
January 3, 1994 was 14.11% and 10.78%, respectively.
The Fund's total return is computed by finding the average annual
compounded rate of return over the 1 year, 5 year and 10 year periods that would
equate the initial amount invested to the ending redeemable value according to
the following formula:
n _____
T = \ /ERV/P - 1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment made at
the beginning of the 1 year, 5 year and 10 year periods.
Because each share has its own sales charge and fee structure, the classes
have different performance results. 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.
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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.
The result of the above calculation is an average and is not the same as
the actual year-to-year results.
In addition to average annual total returns, the Fund may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Cumulative total returns may be quoted as a
percentage or as a dollar amount, and may be calculated for a single investment,
a series of investments and/or a series of redemptions over any time period.
Total returns may be quoted with or without taking the Fund's sales charge on
Class A shares or the CDSC on Class B shares into account. Excluding the Fund's
sales charge on Class A shares and the CDSC on Class B shares from a total
return calculation produces a higher total return figure.
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 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.
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 Advisers pursuant to
recommendations made by an investment committee, which consists of officers and
directors of the Advisers and affiliates and officers and Trustees who are
interested persons of the Fund. Orders for purchases and sales of securities are
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placed in a manner which, in the opinion of the Advisers, 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 commission 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 other policies that the Trustees may determine, the Advisers
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 or 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 year ended on December 31, 1995 and 1994, the Fund paid
negotiated brokerage commissions of $78,514 and $24,810, respectively.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the
Fund may pay a broker which provides brokerage and research services to the Fund
an amount of disclosed commission in excess of the commission which another
broker would have charged for effecting that transaction. This practice is
subject to a good faith determination by the Trustees that the price is
reasonable in light of the services provided and to policies the Trustees may
adopt from time to time. During the period ended December 31, 1995, the Fund
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paid no commissions to compensate brokers for research services such as industry
and company reviews and evaluations of the 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, John Hancock
Distributors, and Sutro & Company, Inc., are broker-dealers ("Affiliated
Brokers"). Pursuant to procedures established by the Trustees and consistent
with the above policy of obtaining best net results, the Fund may execute
portfolio transactions with or through affiliated Brokers. During the period
ended December 31, 1995, 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 Investors Services, Inc., 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 shares of $16.00 per shareholder account and
for Class B shares of $18.50 per shareholder account plus certain out-of-pocket
expenses. These expenses are aggregated and charged to the Fund allocated to
each class on the basis of their relative net asset values.
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CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Fund and Investors Bank & Trust Company, 89 South Street, Boston,
Massachusetts 02111. Under the custodian agreement, Investors Bank & Trust
Company performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Fund are Ernst & Young LLP, 200 Clarendon
Street, Boston, Massachusetts 02116. Ernst & Young audits and renders an opinion
on the Fund's annual financial statements and prepares the Fund's annual Federal
income tax return.
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FINANCIAL STATEMENTS
F-1
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JOHN HANCOCK UTILITIES FUND
Class A and Class B Shares
Statement of Additional Information
August 30, 1996
This Statement of Additional Information provides information about John
Hancock Utilities Fund (the "Fund"), a diversified series of John Hancock
Capital Series (the "Trust"), in addition to the information that is contained
in the Fund's Prospectus dated August 30, 1996 (the "Prospectus").
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the Prospectus, a copy of which can be obtained free of
charge by writing or telephoning:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
1-800-225-5291
TABLE OF CONTENTS
Page
Organization of the Fund.............................................. 2
Investment Objectives And Policies.................................... 2
Certain Investment Practices.......................................... 3
Investment Restrictions............................................... 10
Those Responsible for Management...................................... 14
Investment Advisory And Other Services................................ 22
Distribution Contract................................................. 25
Net Asset Value....................................................... 27
Initial Sales Charge on Class A Shares................................ 28
Deferred Sales Charge on Class B Shares............................... 30
Special Redemptions................................................... 31
Additional Services and Programs...................................... 32
Description Of The Fund's Shares...................................... 33
Tax Status............................................................ 35
Calculation Of Performance ........................................... 41
Brokerage Allocation.................................................. 43
Transfer Agent Services............................................... 45
Custody Of Portfolio.................................................. 45
Independent Auditors.................................................. 45
<PAGE>
ORGANIZATION OF THE FUND
John Hancock Utilities Fund (the "Fund") is organized as a separate,
diversified portfolio of John Hancock Capital Series (the "Trust"), an open-end
management investment company organized in 1984 as a Massachusetts business
trust under the laws of The Commonwealth of Massachusetts. The Trust is the
successor to John Hancock Growth Fund, Inc., a Delaware corporation organized in
1968.
The Fund is managed by John Hancock Advisers, Inc. (the "Adviser") and was
established in 1994. The Adviser is an indirect wholly-owned subsidiary of 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.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the Fund are to seek current income, and to
the extent consistent with that objective, growth of income and long-term
capital growth. The Fund will seek to achieve its objectives by investing
primarily in equity securities of companies in the public utilities industries.
There can be no assurance that the objectives of the Fund will be realized.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in equity securities of companies in the public utilities
industries. These companies include those engaged in the generation,
transmission, sale or distribution of electric energy; the distribution,
purification and treatment of water; the provision of waste management and the
treatment of other sanitary services; the production, transmission or
distribution of natural gas and other types of energy; the provision of
pollution control or abatement services; and telephone, telegraph, satellite,
microwave and other communication services (but not including companies in the
public broadcasting or cable television industries). A particular company is in
one or more public utilities industries if, at the time of investment, the
Adviser determines that at least 50% of the company's assets, revenues or
profits are derived from these industries. The Fund may invest in debt and
equity securities of issuers in other industries if the Adviser believes that
those investments will help the Fund achieve its investment objectives.
The Fund's emphasis on securities of public utilities makes the Fund more
susceptible to adverse conditions affecting those industries than a fund that
does not have its assets concentrated similarly. Public utilities are subject to
a variety of factors that may adversely affect their business or operations,
2
<PAGE>
including high interest costs in connection with capital construction programs;
governmental regulation of rates charged to customers; costs associated with
environmental, nuclear safety and other regulations; service interruption due to
environmental, operational or other mishaps; the effects of economic slowdowns;
surplus capacity; increased competition from other providers of utility
services; uncertainties concerning the availability of fuel at reasonable
prices; the effects of energy conservation policies and other factors. Public
utilities may also be subject to regulation by various governmental authorities
and may be affected by the imposition of special tariffs and changes in tax
laws, regulatory policies and accounting standards. Prices charged by public
utilities are generally regulated in the U.S. with the intention of protecting
the public while ensuring that public utilities' rate of return allows them to
attract enough capital to grow and provide appropriate services. There can be no
assurance that these pricing policies or rates of return will continue in the
future. The nature of the regulation of public utilities is evolving. Changes in
regulation increasingly allow public utilities to provide services and products
outside their traditional geographic areas and lines of business, offering new
sources of revenue but also creating new areas of competition within their
industries. The emergence of competition may result in certain companies being
forced to defend their core businesses, which may cause them to be less
profitable. Generally, the dividend yield of public utilities' equity securities
has been above the stock market average. Consequently, their market price tends
to be more influenced by changes in prevailing interest rates than does the
price of other issuers' securities.
CERTAIN INVESTMENT PRACTICES
Fixed Income Securities. The Fund may invest up to 25% of its total assets in
fixed income securities, consisting of U.S. Government securities and corporate
debt securities, including convertible securities, rated at least BBB by
Standard & Poor's Rating Group ("S&P") or at least Baa by Moody's Investors
Service, Inc. ("Moody's"), or, if unrated, determined to be of comparable
quality by the Adviser. The market value of fixed income securities varies
inversely with changes in the prevailing levels of interest rates. The market
value of convertible securities, while influenced by the prevailing level of
interest rates, is also affected by the changing value of the equity securities
into which they are convertible. The Fund may purchase debt securities with
stated maturities of up to thirty years. Debt securities rated BBB or Baa are
considered medium-grade obligations with speculative characteristics, and
adverse economic conditions or changing circumstances may weaken the issuer's
capacity to pay interest and repay principal. If the rating of a fixed income
security is reduced below Baa or BBB, the Adviser will sell it when it is
appropriate, consistent with the Fund's investment objectives and policies.
Rights and Warrants. The Fund may purchase warrants and rights which are
securities permitting, but not obligating, their holder to purchase the
underlying securities at a predetermined price. Generally, warrants and stock
3
<PAGE>
purchase rights do not carry with them the right to receive dividends or
exercise voting rights with respect to the underlying securities, and they do
not represent any rights in the assets of the issuer. As a result, an investment
in warrants and rights may be considered to entail greater investment risk than
certain other types of investments. In addition, the value of warrants and
rights does not necessarily change with the value of the underlying securities,
and they cease to have value if they are not exercised on or prior to their
expiration date. Investment in warrants and rights increases the potential
profit of loss to be realized from the investment of a given amount of the
Fund's assets as compared with investing the same amount in the underlying
stock.
Purchases of Rights and Warrants. The Fund may invest up to 5% of its net assets
(calculated at the time of purchase) in rights and warrants. No more than 2% of
the Fund's net assets (calculated at the time of purchase) may be invested in
warrants which are not traded on the New York Stock Exchange or American Stock
Exchange. For purposes of both of these limitations, the following types of
rights and warrants are deemed to have no value: (1) rights and warrants
acquired as part of a unit or attached to other securities purchased by the Fund
and (2) rights and warrants acquired as part of a distribution from the issuer.
Rights and warrants represent rights to purchase the common stock of companies
at designated prices.
Forward Commitments and When-Issued Securities. The Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not yet
been issued. In a forward commitment transaction, the Fund contracts to purchase
securities for a fixed price at a future date beyond customary settlement time.
No payment is made with respect to a when-issued or forward commitment
transaction until delivery is due, often a month or more after the purchase.
The Fund may engage in when-issued and forward commitment transactions with
respect to securities purchased for its portfolio in order to obtain an
advantageous price and yield at the time of the transactions. When the Fund
engages in a when-issued or forward commitment transaction, it relies on the
seller (or the buyer, if the Fund has not yet taken delivery) of when-issued
securities to consummate the transaction. The failure of the issuer or seller to
consummate the transaction may result in the Fund losing the opportunity to
obtain a price and yield considered to be advantageous. The purchase of
securities on a when-issued and forward commitment basis also involves a risk of
loss if the value of the security to be purchased declines prior to the
settlement date.
On the date the Fund enters into an agreement to purchase securities on a
when- issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid securities equal in value to the Fund's commitments.
These assets will be valued daily at market, and additional cash or liquid
4
<PAGE>
securities will be segregated in a separate account to the extent that the total
value of the assets in the account declines below the amount of the Fund's
commitments for when-issued or forward commitment transactions. Alternatively,
the Fund may enter into offsetting contracts for the forward sale of other
securities that it owns.
Repurchase Agreements. The Fund may invest in repurchase agreements. A
repurchase agreement is a contract under which the Fund acquires a security for
a relatively short period (usually not more than 7 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.
Reverse Repurchase Agreements. The Fund may also enter into reverse repurchase
agreements which involve the sale of government securities held in its portfolio
to a bank with an agreement that the Fund will buy back the securities at a
fixed future date at a fixed price plus an agreed amount of "interest" which may
be reflected in the repurchase price. Reverse repurchase agreements are
considered to be borrowings by the Fund. Reverse repurchase agreements involve
the risk that the market value of securities purchased by the Fund with proceeds
of the transaction may decline below the repurchase price of the securities sold
by the Fund which it is obligated to repurchase. The Fund will also continue to
be subject to the risk of a decline in the market value of the securities sold
under the agreements because it will reacquire those securities upon effecting
their repurchase. The Fund will not enter into reverse repurchase agreements and
other borrowings exceeding in the aggregate more than 33 1/3% of the market
value of its total assets. The Fund will enter into reverse repurchase
agreements only with federally insured banks or savings and loan associations
which are approved in advance as being creditworthy by the Board of Trustees.
Under procedures established by the Board of Trustees, the Adviser will monitor
the creditworthiness of the banks involved.
5
<PAGE>
Restricted Securities. The Fund may invest in restricted securities 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 include repurchase
agreements maturing in more than seven days, 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 these securities may be
purchased without regard to the 15% limit. The Trustees may adopt guidelines and
delegate to the Adviser the daily function of determining and monitoring the
liquidity of restricted securities. The Trustees, however, will retain
sufficient oversight and be ultimately responsible for the determinations. The
Trustees will carefully monitor the Fund's investments in these securities,
focusing on such important factors, among others, as valuation, liquidity and
availability of information. This investment practice could have the effect of
increasing the level of illiquidity in the Fund if qualified institutional
buyers become for a time uninterested in purchasing these restricted securities.
The Fund may acquire other restricted securities including securities for
which market quotations are not readily available. These securities may be sold
only in privately negotiated transactions or in public offerings with respect to
which a registration statement is in effect under the Securities Act of 1933.
Where registration is required, the Fund may be obligated to pay all or part of
the registration expenses and a considerable period may elapse between the time
of the decision to sell and the time the Fund may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell. Restricted securities
will be priced at fair market value as determined in good faith by the Fund's
Trustees.
Government Securities. Certain U.S. Government securities, including U.S.
Treasury bills, notes and bonds, and Government National Mortgage Association
certificates ("Ginnie Maes"), are supported by the full faith and credit of the
United States. Certain other U.S. Government securities, issued or guaranteed by
Federal agencies or government sponsored enterprises, are not supported by the
full faith and credit of the United States, but may be supported by the right of
the issuer to borrow from the U.S. Treasury. These securities include
obligations of the Federal Home Loan Mortgage Corporation ("Freddie Macs"), and
obligations supported by the credit of the instrumentality, such as Federal
National Mortgage Association Bonds ("Fannie Maes"). No assurance can be given
that the U.S. Government will provide financial support to such Federal
agencies, authorities, instrumentalities and government sponsored enterprises in
the future.
6
<PAGE>
Ginnie Maes, Freddie Macs and Fannie Maes are mortgage-backed securities
which provide monthly payments which are, in effect, a "pass-through" of the
monthly interest and principal payments (including any prepayments) made the by
individual borrowers on the pooled mortgage loans. Collateralized mortgage
obligations ("CMOs") in which the Fund may invest are securities issued by a
U.S. Government instrumentality that are collateralized by a portfolio of
mortgages or mortgage-backed securities. Mortgage-backed securities may be less
effective than traditional debt obligations of similar maturity at maintaining
yields during periods of declining interest rates.
Foreign Currency Transactions. The Fund's foreign currency exchange transactions
may be conducted on a spot (i.e., cash) basis at the spot rate for purchasing or
selling currency prevailing in the foreign exchange market. The Fund may also
enter into forward foreign currency exchange contracts involving currencies of
the different countries in which it invests as a hedge against possible
variations in the foreign exchange rate between these currencies. This is
accomplished through contractual agreements to purchase or sell a specified
currency at a specified future date and price set at the time of the contract.
Transaction hedging is the purchase or sale of forward foreign currency
contracts with respect to specific receivables or payables of the Fund accruing
in connection with the purchase and sale of its portfolio securities quoted or
denominated in foreign currencies. Portfolio hedging is the use of forward
foreign currency contracts to offset portfolio security positions denominated or
quoted in such foreign currencies. The Fund may not attempt to hedge all of its
foreign portfolio positions and will enter into such transactions only to the
extent, if any, deemed appropriate by the Adviser.
If the Fund enters into a forward contract requiring it to purchase foreign
currency, its custodian bank will segregate cash or liquid 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. The assets in the
segregated account will be valued at market daily and if the value of the
securities in the separate account declines, additional cash or securities will
be placed in the account so that the value of the account will be equal to the
amount of the Fund's commitment with respect to such contracts.
Hedging against a decline in the value of currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency rises. Moreover, it may
not be possible for the Fund to hedge against a devaluation that is so generally
anticipated that the Fund is not able to contract to sell the currency at a
price above the devaluation level it anticipates.
7
<PAGE>
The cost to the Fund of engaging in foreign currency exchange transactions
varies with such factors as the currency involved, the length of the contract
period and the market conditions then prevailing. Since transactions in foreign
currency are usually conducted on a principal basis, no fees or commissions are
involved.
Characteristics and Risks of Foreign Securities Markets. The securities markets
of many countries have in the past moved relatively independently of one
another, due to differing economic, financial, political and social factors.
When markets in fact move in different directions and offset each other, there
may be a corresponding reduction in risk for the Fund's portfolio as a whole.
This lack of correlation among the movements of the world's securities markets
may also affect unrealized gains the Fund has derived from movements in any one
market.
If the securities of markets moving in different directions are combined
into a single portfolio, such as that of the Fund, total portfolio volatility is
reduced. Since the Fund may invest in securities denominated in currencies other
than U.S. dollars, changes in foreign currency exchange rates may affect the
value of portfolio securities. Exchange rates may not move in the same direction
as the securities markets in a particular country. As a result, market gains may
be offset by unfavorable exchange rate fluctuations.
Investments in foreign securities may involve risks and considerations not
present in domestic investments. Since foreign securities generally will be
quoted and pay interest or dividends in foreign currencies, the value of the
assets of the Fund attributable to such investment as measured in U.S. dollars
will be affected favorably or unfavorably by changes in the relationship of the
U.S. dollar and other currency rates. The Fund may incur costs in connection
with the conversion of foreign currencies into U.S. dollars and may be adversely
affected by restrictions on the conversion or transfer of foreign currencies. In
addition, there may be less publicly available information about foreign
companies than U.S. companies. Foreign companies may not be subject to
accounting, auditing, and financial reporting standards, practices and
requirements comparable to those applicable to U.S. companies.
Foreign securities markets, while growing in volume, have for the most part
substantially less volume than U.S. securities markets and securities of foreign
companies are generally less liquid and at times their prices may be more
volatile than securities of comparable U.S. companies. Foreign stock exchanges,
brokers and listed companies are generally subject to less government
supervision and regulation than those in the U.S. The customary settlement time
for foreign securities may be longer than the current three (3) day customary
settlement time for U.S. securities, or less frequent than in the U.S., which
could affect the liquidity of the Fund's investments. The Adviser monitors the
8
<PAGE>
settlement time for foreign securities and takes undue settlement delays into
account in considering the desirability of an investment.
The Fund may invest in companies located in developing countries which,
compared to the U.S. and other developed countries, may have relatively unstable
governments, economies based on only a few industries and securities markets
which trade only a small number of securities. Prices on exchanges located in
developing countries tend to be volatile and, in the past, securities traded on
those exchanges have offered a greater potential for gain (and loss) than
securities traded on exchanges in the U.S. and more developed countries.
In some countries, there is the possibility of expropriation or
confiscatory taxation, seizure or nationalization of foreign bank deposits or
other assets, establishment of exchange controls, the adoption of foreign
government restrictions or other adverse political, social or diplomatic
developments that could affect investments in these nations.
American Depository Receipts (ADRs). The Fund's investments in foreign
securities may include sponsored and unsponsored ADRs. ADRs are receipts
typically issued by an American bank or trust company which evidence ownership
of the underlying securities issued by a foreign corporation, and are designed
for trading in the United States securities markets. Issuers of unsponsored ADRs
are not contractually obligated to disclose material information in the United
States and, therefore, there may not be a correlation between that information
and the market value of an unsponsored ADR.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements. The
Fund may reinvest any cash collateral in short-term securities and money market
funds. When the Fund lends portfolio securities, there is a risk that the
borrower may fail to return the securities involved in the transaction. As a
result, the Fund may incur a loss or, in the event of the borrower's bankruptcy,
the Fund may be delayed in or prevented from liquidating the collateral. It is a
fundamental policy of the Fund not to lend portfolio securities having a total
value exceeding 33 1/3% of its total assets.
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. Although the Fund's portfolio turnover rate is not expected to
exceed 100%, the Fund may engage in short-term trading in response to stock
market conditions, changes in interest rates or other economic trends and
developments, or to take advantage of yield disparities between various fixed
income securities in order to realize capital gains or improve income. Short
term trading may have the effect of increasing portfolio turnover rate. A high
9
<PAGE>
rate of portfolio turnover (100% or greater) involves corresponding higher
transaction expenses and may make it more difficult for the Fund to qualify as a
regulated investment company for federal income tax purposes.
Temporary Defensive Investments. If the Adviser believes that the Fund should
temporarily assume a defensive investment posture due to unfavorable investment
conditions, the Fund may hold cash or invest all or part of its assets in
short-term investment grade instruments. These short-term instruments consist
of: corporate commercial paper and other short-term commercial obligations;
obligations (including certificates of deposit, time deposits, demand deposits
and bankers' acceptances) of banks; obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; and repurchase agreements.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions
The following fundamental investment restrictions will not be changed
without approval of a majority of the Fund's outstanding voting securities
which, as used in the Prospectus, means approval of the lesser of (1) the
holders of 67% or more of the shares represented at a meeting if the holders of
more than 50% of the Fund's outstanding shares are present in person or by proxy
or (2) the holders of more than 50% of the Fund's 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 and may hold and sell real estate acquired by
the Fund as the result of ownership of securities.
(2) Make loans, except that the Fund (1) may lend portfolio securities in
accordance with the Fund's investment policies up to 33 1/3% of the Fund's
total assets taken at market value, (2) enter into repurchase agreements,
and (3) purchase all or a portion of an issue of publicly distributed debt
securities, bank loan participation interests, bank certificates of
deposit, bankers' acceptances, debentures or other securities, whether or
not the purchase is made upon the original issuance of the securities.
10
<PAGE>
(3) Invest in commodities or in commodity contracts or in puts, calls, or
combinations of both except options on securities, securities indices,
currency and other financial instruments, futures contracts on securities,
securities indices, currency and other financial instruments, options on
such futures contracts, forward commitments, forward foreign currency
exchange contracts, interest rate or currency swaps, securities index put
or call warrants and repurchase agreements entered into in accordance with
the Fund's investment policies.
(4) With respect to 75% of the Fund's total assets, purchase securities of an
issuer (other than the U.S. Government, its agencies or instrumentalities),
if (i) such purchase would cause more than 5% of the Fund's total assets
taken at market value to be invested in the securities of such issuer, or
(ii) such purchase would at the time result in more than 10% of the
outstanding voting securities of such issuer being held by the Fund.
(5) Act as an underwriter, except to the extent that, in connection with the
disposition of portfolio securities, the Fund may be deemed to be an
underwriter for purposes of the Securities Act of 1933.
(6) Borrow money, except from banks as a temporary measure for extraordinary or
emergency purposes in amounts not to exceed 33-1/3% of the Fund's total
assets (including the amount borrowed) taken at market value.
(7) Pledge, mortgage or hypothecate its assets, except to secure indebtedness
permitted by paragraph (6) above and then only if such pledging, mortgaging
or hypothecating does not exceed 33 1/3% of the Fund's total assets taken
at market value.
(8) Issue senior securities, except as permitted by paragraph (6) above. For
purposes of this restriction, the issuance of shares of beneficial interest
in multiple classes or series, the purchase or sale of options, futures
contracts and options on futures contracts, forward commitments, forward
foreign currency exchange contracts, interest rate or currency swaps,
securities index warrants and repurchase agreements entered into in
accordance with the Fund's investment policy, and the pledge, mortgage or
hypothecation of the Fund's assets within the meaning of paragraph (7)
above are not deemed to be senior securities.
(9) Purchase any securities which would cause more than 25% of the market value
of the Fund's total assets at the time of such purchase to be invested in
the securities of one or more issuers having their principal business
11
<PAGE>
activities in the same industry, provided that there is no limitation with
respect to investments in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; provided that,
notwithstanding the foregoing, the Fund will invest more than 25% of its
total assets in securities of companies that are engaged in one or more of
the public utilities industries, as more fully set forth in the Prospectus.
In connection with the lending of portfolio securities under item (2)
above, such loans must at all times be fully collateralized and the Fund's
custodian must take possession of the collateral either physically or in book
entry form. Securities used as collateral must be marked to market daily.
Nonfundamental Investment Restrictions
The following restrictions are designated as nonfundamental and may be
changed by the Board of Trustees without shareholder approval.
The Fund may not:
(a) purchase securities on margin or make short sales, except margin deposits
in connection with options, futures and other arbitrage transactions, or
unless by virtue of its ownership of other securities, the Fund has the
right to obtain securities equivalent in kind and amount to the securities
sold and, if the right is conditional, the sale is made upon the same
conditions, except that a Fund may obtain such short-term credits as may be
necessary for the clearance of purchases and sales of securities and in
connection with transactions involving forward foreign currency exchange
contracts.
(b) purchase securities of any issuer which, together with any predecessor, has
a record of less than three years' continuous operation prior to the
purchase if such purchase would cause the Fund's investment in all such
issuers to exceed 5% of the value of the Fund's total assets.
(c) invest for the purpose of exercising control over the management of any
company.
(d) purchase a security if, as a result, (i) more than 10% of the Fund's total
assets would be invested in the securities of other investment companies,
(ii) the Fund would hold more than 3% of the total outstanding voting
securities of any one investment company, or (iii) more than 5% of the
Fund's total assets would be invested in the securities of any one
investment company. These limitations do not apply to (a) the investment of
12
<PAGE>
cash collateral, received by the Fund in connection with lending the Fund's
portfolio securities, in the securities of open-end investment companies or
(b) the purchase of shares of any investment company in connection with a
merger, consolidation, reorganization or purchase of substantially all of
the assets of another investment company. Subject to the above percentage
limitations, the Fund may, in connection with the John Hancock Group of
Funds Deferred Compensation Plan for Independent Trustees/Directors,
purchase securities of other investment companies within the John Hancock
Group of Funds. In addition, as a nonfundamental restriction, the Fund may
not purchase the shares of any closed-end investment company except in the
open market where no commission or profit to a sponsor or dealer results
from the purchase, other than customary brokerage fees.
(e) knowingly purchase or retain securities of an issuer if one or more of the
Trustees or officers of the Trust or directors or officers of the Adviser
or any investment management subsidiary of the Adviser individually owns
beneficially more than 0.5%, and together own beneficially more than 5%, of
the securities of such issuer.
(f) invest in interests in oil, gas or other mineral exploration or development
programs; provided, however, that this restriction shall not prohibit the
acquisition of securities of companies engaged in the production or
transmission of oil, gas or other minerals.
(g) purchase warrants if as a result (i) more than 5% of the Fund's net assets,
valued at the lower of cost or market value, would be invested in warrants
or (ii) more than 2% of its net assets would be invested in warrants,
valued as aforesaid, which are not traded on the New York Stock Exchange or
American Stock Exchange; provided that for these purposes, warrants are to
be valued at the lesser of cost or market, but warrants acquired in units
or attached to securities will be deemed to be without value.
(h) purchase any security, including any repurchase agreement maturing in more
than seven days, which is not readily marketable, if more than 15% of the
net assets of the Fund, taken at market value, would be invested in such
securities.
(i) participate on a joint or joint-and-several basis in any securities trading
account. The "bunching" of orders for the sale or purchase of marketable
portfolio securities with other accounts under the management of the
Adviser to save commissions or to average prices among them is not deemed
to result in a joint securities trading account.
13
<PAGE>
(j) invest more than 15% of its net assets in restricted securities, excluding
restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933.
(k) purchase interests in real estate limited partnerships.
(l) purchase securities while outstanding borrowings exceed 5% of the Fund's
total assets.
In order to permit the sale of shares of the Fund in certain states, the
Trustees may, in their sole discretion, adopt restrictions or investment
policies more restrictive than those described above. Should the Trustees
determine that any such more restrictive policy is no longer in the best
interests of the Fund and its shareholders, the Fund may cease offering shares
in the state involved and the Trustees may revoke such restrictive policy.
Moreover, if the states involved shall no longer require any such restrictive
policy, the Trustees may, at their sole discretion, revoke such policy.
If a percentage restriction on investment or utilization of assets as set
forth above is adhered to at the time an investment is made, a later change in
percentage resulting from changes in the values of the Fund's assets will not be
considered a violation of the restriction.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by the Trustees of the Trust, who elect
officers who are responsible for the day-to-day operations of the Fund and who
execute policies formulated by the Trustees. Several of the officers and
Trustees of the Trust are also officers and directors of the Adviser or officers
and directors of the Fund's principal distributor, John Hancock Funds, Inc.
("John Hancock Funds").
The following table sets forth the principal occupation or employment of
the Trustees and principal officers of the Trust during the past five years:
14
<PAGE>
<TABLE>
<CAPTION>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Trust During Past 5 Years
- ----------------- ---------- -------------------
<S> <C> <C>
*Edward J. Boudreau, Jr. Chairman (3,4) Chairman and Chief Executive
101 Huntington Avenue Officer, the Adviser and The
Boston, MA 02199 Berkeley Financial Group ("The
October 1944 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"), Transamerica Fund
Management Company ("TFMC") and
Sovereign Asset Management
Corporation ("SAMCorp");
(hereinafter 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.
("Distributors") until April 1994.
15
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Trust During Past 5 Years
- ----------------- ---------- -------------------
Dennis S. Aronowitz Trustee (1,2) Professor of Law, Boston University
Boston University School of Law; Trustee, Brookline
Boston, Massachusetts Savings Bank.
June 1931
Richard P. Chapman, Jr. Trustee (1,2) President, Brookline Savings Bank.
160 Washington Street Director, Federal Home Loan Bank of
Brookline, Massachusetts Boston (lending); Director, Lumber
February 1935 Insurance Companies (fire and
casualty insurance); Trustee,
Northeastern University
(education); Director, Depositors
Insurance Fund, Inc. (insurance).
William J. Cosgrove Trustee (1,2) Vice President, Senior Banker and
20 Buttonwood Place Senior Credit Officer, Citibank,
Saddle River, New Jersey N.A. (retired September 1991);
January 1933 Executive Vice President, Citadel
Group Representatives, Inc.; EVP
Resource Evaluation Inc.
(consulting, October 1991 - October
1993); Trustee, the Hudson City
Savings Bank (until October 1995).
16
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Trust During Past 5 Years
- ----------------- ---------- -------------------
Douglas M. Costle Trustee (1,2,3) Director, Chairman of the Board and
RR2 Box 480 Distinguished Senior Fellow,
Woodstock, Vermont 05091 Institute for Sustainable
July 1939 Communities, Montpelier, Vermont
(since 1991). Dean, Vermont Law
School (until 1991). Director, Air
and Water Technologies Corporation
(environmental services and
equipment), Niagara Mohawk Power
Company (electric services) and
MITRE Corporation (governmental
consulting services).
Leland O. Erdahl Trustee (1,2) Director of Santa Fe Ingredients
9449 Navy Blue Court Company of California, Inc. and
Las Vegas, NV 89117 Santa Fe Ingredients Company, Inc.
December 1928 (private food processing
companies); Director of Uranium
Resources, Inc.; President of
Stolar, Inc. (from 1987-1991) and
President of Albuquerque Uranium
Corporation (from 1985-1992);
Director of Freeport-McMoRan Copper
& Cold Company Inc., Hecla Mining
Company, Canyon Resources
Corporation and Original Sixteen to
One Mine, Inc. (from 1984-1987 and
from 1991 to 1995) (management
consultant).
17
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Trust During Past 5 Years
- ----------------- ---------- -------------------
Richard A. Farrell Trustee (1,2) President of Farrell, Healer & Co.,
Farrell, Healer & Company, Inc. (venture capital management firm)
160 Federal Street -- 23rd Floor (since 1980); Prior to 1980, headed
Boston, MA 02110 the venture capital group at Bank
November 1932 of Boston Corporation.
Gail D. Fosler Trustee (1,2) Vice President and Chief Economist,
4104 Woodbine Street The Conference Board (non-profit
Chevy Chase, MD economic and business research).
December 1947
William F. Glavin Trustee (1,2) President, Babson College; Vice
Babson College Chairman, Xerox Corporation until
Horn Library June 1989; Director, Caldor Inc.,
Babson Park, MA 02157 Reebok, Ltd. (since 1994), and Inco
March 1931 Ltd.
Anne C. Hodsdon Trustee and President President and Chief Operating
101 Huntington Avenue (3)(4) Officer, the Adviser; Executive
Boston, MA 02199 Vice President, the Adviser (until
April 1953 December 1994); Senior Vice
President; the Adviser (until
December 1993); Vice President, the
Adviser, 1991.
Dr. John A. Moore Trustee (1,2) President and Chief Executive
Institute for Evaluating Officer, Institute for Evaluating
Health Risks Health Risks, (nonprofit
1101 Vermont Avenue N.W. institution) ( since September
Suite 608 1989).
Washington, DC 20005
February 1939
18
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Trust During Past 5 Years
- ----------------- ---------- -------------------
Patti McGill Peterson Trustee (1,2) President, St. Lawrence University;
Institute for Public Affairs Director, Niagara Mohawk Power
364 Upson Hall Corporation and Security Mutual
Cornell University Life.
Ithaca, NY 14853
May 1943
John W. Pratt Trustee (1,2) Professor of Business
2 Gray Gardens East Administration at Harvard
Cambridge, MA 02138 University Graduate School of
September 1931 Business Administration (since
1961).
*Richard S. Scipione Trustee (3) General Counsel, the Life Insurance
John Hancock Place Company; Director, the Adviser, the
P.O. Box 111 Affiliated Companies, John Hancock
Boston, Massachusetts Distributors, Inc., JH Networking
August 1937 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;
Edward J. Spellman, CPA Trustee (1,2,4) Partner, KPMG Peat Marwick LLP
259C Commercial Bld. (retired June 1990).
Lauderdale, FL
November 1932
</TABLE>
The executive officers of the Trust and their principal occupations during the
past five years are set forth below. Unless otherwise indicated, the business
address of each is 101 Huntington Avenue, Boston, Massachusetts 02199.
19
<PAGE>
<TABLE>
<CAPTION>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrants During Past 5 Years
- ----------------- ---------------- -------------------
<S> <C> <C>
Robert G. Freedman Vice Chairman and Chief Vice Chairman and Chief Investment
July 1938 Investment Officer (4) Officer, the Adviser; President
(until December 1994).
James B. Little Senior Vice President, Senior Vice President, the Adviser.
February 1935 Chief Financial Officer
John A. Morin Vice President Vice President, the Adviser.
July 1950
Susan S. Newton Vice President and Vice President and Assistant
March 1950 Secretary Secretary, the Adviser.
James J. Stokowski Vice President and Vice President, the Adviser.
November 1946 Treasurer
</TABLE>
- -----------
* Trustee may be deemed to be an "interested person" of the Trust as defined
in the Investment Company Act of 1940.
(1) Member of the Audit Committee of the Trust.
(2) Member of the Committee on Administration of the Trust.
(3) Member of the Executive Committee of the Trust. The Executive Committee may
generally exercise most powers of the Trustees between regularly scheduled
meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
As of August 5, 1996, the officers and Trustees of the Trust as a group
owned less than 1% of the outstanding shares of the Fund and to the knowledge of
the Trust, no persons owned of record or beneficially 5% or more of any class of
the Fund's outstanding securities.
All of the officers listed are officers or employees of the Adviser or
affiliated companies. Some of the Trustees and officers may also be officers
20
<PAGE>
and/or directors and/or trustees of one or more of the other funds for which the
Adviser serves as investment adviser.
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. Ms. Hodsdon and Messrs. Boudreau
and Scipione, each a non-Independent Trustee, 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. The compensation to
the Trustees from the Fund shown below is for the Fund's fiscal year ended May
31, 1996. Those Trustees listed below who received no compensation from the Fund
for such year first became Trustees of the Trust on June 26, 1996.
Total Compensation From
Aggregate All Funds in John Hancock
Compensation From Fund Complex to
Independent Trustees the Fund Trustees(*)
- -------------------- -------- -----------
Dennis S. Aronowitz $1,080 $ 61,050
Richard P. Chapman, Jr.+ 1,098 62,800
William J. Cosgrove+ 1,080 61,050
Gail D. Fosler 1,018 60,800
Bayard Henry** 984 58,850
Edward J. Spellman 1,080 61,050
Douglas M. Costle --- 41,750
Leland O. Erdahl --- 41,750
Richard A. Farrell --- 43,250
William F. Glavin7 --- 37,500
John A. Moore --- 41,750
Patti McGill Peterson --- 41,750
John W. Pratt --- 41,750
------ --------
$6,340 $655,100
* Total compensation paid by the John Hancock Fund Complex to the Independent
Trustees is for the calendar year ended December 31, 1995. On this date,
there were 61 funds in the John Hancock Fund Complex. Messrs. Aronwitz,
Chapman, Cosgrove, Henry and Spellman and Ms. Fosler served 16 and Messrs.
Costle, Erdahl, Farrell, Glavin, Moore and Pratt and Ms. Peterson served 12
of these funds.
21
<PAGE>
** Mr. Henry retired from his position as a Trustee effective April 26, 1996.
+ On December 31, 1995, the value of the aggregate deferred compensation from
all funds in the John Hancock Fund Complex for Mr. Chapman was $54,681, for
Mr. Cosgrove was $54,243 and for Mr. Glavin was $32,061.
INVESTMENT ADVISORY AND OTHER SERVICES
The Fund receives investment advice from the Adviser. Investors should
refer to the Prospectus and below for a description of certain information
concerning the investment management contract. Each of the Trustees and
principal officers affiliated with the Fund who is also an affiliated person of
the Adviser is named above, together with the capacity in which such person is
affiliated with the Fund and the Adviser.
The Trust on behalf of the Fund has entered into an investment management
contract with the Adviser. Under the investment management contract, the Adviser
provides the Fund (i) with a continuous investment program, consistent with the
Fund's stated investment objectives and policies, and (ii) supervision of all
aspects of the Fund's operations except those that are delegated to a custodian,
transfer agent or other agent. 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 Company and its
affiliates.
22
<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 for by the Adviser or John Hancock Funds) and the continuous public
offering of the Class A and Class B shares of the Fund are borne by the Fund.
Class expenses properly allocable to either Class A shares or Class B shares
will be borne exclusively by such class of shares, subject to conditions the
Internal Revenue Service imposes with respect to multiple-class structures.
As provided by the investment management contract, the Fund pays the
Adviser monthly an investment management fee which is based on a stated
percentage of the Fund's average daily net assets as follows:
Net Asset Value Annual Rate
--------------- -----------
First $250,000,000 0.70%
Amount over $250,000,000 0.65%
From time to time, the Adviser may reduce its fee or make other
arrangements to limit the Fund's expenses to a specified percentage of average
daily net assets. The Adviser retains the right to 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.
For the fiscal years ended May 31, 1996 and May 31, 1995 and for the fiscal
period ended May 31, 1994, the Adviser's investment management fees, before the
Adviser's voluntary fee reduction, amounted to $492,174, $233,229 and $1,439,
respectively. After expense reductions by the Adviser, the Adviser's management
fee for the fiscal years ended May 31, 1996 and 1995 and for the fiscal period
ended May 31, 1994 amounted to $189,523, $13,482 and $0, respectively.
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
23
<PAGE>
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.
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-
7603, was organized in 1968 and presently has more than $18 billion in assets
under management in its capacity as investment adviser to the Fund and the other
mutual funds and publicly traded investment companies in the John Hancock group
of funds having a combined total of over 1,080,000 shareholders. The Adviser is
an affiliate of the Life Insurance Company, one of the most recognized and
respected financial institutions in the nation. With total assets under
management of $80 billion, the Life Company is one of the ten largest life
insurance companies in the United States, and carries high ratings from Standard
& Poor's and A.M. Best. Founded in 1862, the Life 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 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 Trustees of the Trust 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 the Trustees or the holders of a
majority of the Fund's outstanding voting securities. Each of these contracts
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.
Accounting and Legal Services Agreement. The Trust, on behalf of the Fund, is a
party to an Accounting and Legal Services Agreement with the Adviser. Pursuant
to this agreement, the Adviser provides the Fund with certain tax, accounting
and legal services. For the fiscal year ended May 31, 1996, the Fund paid the
Adviser $5,780 for services under this agreement.
24
<PAGE>
DISTRIBUTION CONTRACT
The Fund has entered into a distribution contract with John Hancock Funds.
Under the contract John Hancock Funds is obligated to use its best efforts to
sell shares of each class of the Fund. Shares of the Fund are also sold by
selected broker-dealers (the "Selling Brokers") which have entered into selling
agency agreements with John Hancock Funds. John Hancock Funds accepts orders for
the purchase of the shares of the Fund which are continually offered at net
asset value next determined, plus any applicable sales charge. In connection
with the sale of Class A and Class B shares, John Hancock Funds and Selling
Brokers receive compensation in the form of a sales charge imposed, in the case
of Class A shares, at the time of sale or, in the case of Class B shares, on a
deferred basis. Upon notice to all Selling Brokers, John Hancock Funds may allow
them up to the full applicable sales charge during periods specified in such
notice. During these periods, Selling Brokers may be deemed to be underwriters
as that term is defined in the 1933 Act. The sales charges are discussed further
in the Prospectus.
The Trustees have adopted Distribution Plans with respect to Class A and
Class B shares of the Fund pursuant to Rule 12b-1 under the Investment Company
Act (the "Class A and Class B Plans"). Under the Class A and Class B Plans, the
Fund will pay distribution and service fees at an aggregate annual rate of up to
0.30% and 1.00%, respectively, of each respective class' average daily net
assets. However, the amount of the service fee will not exceed 0.25% of the
Fund's average daily net assets attributable to each class of shares. In
accordance with generally accepted accounting principles, the Fund does not
treat unreimbursed distribution expenses 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 under the Class B Plan 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 John Hancock Funds 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 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. "Service
Expenses" under the Plans include payments made to, or on account of, account
executives of selected broker-dealers (including affiliates of John Hancock
Funds) and others who furnish personal and account maintenance services to
shareholders of the relevant class of the Fund. For the fiscal year ended May
31, 1996, an aggregate of $1,584,645 of distribution expenses or 3.41% of the
25
<PAGE>
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.
Pursuant to the Plans, at least quarterly, John Hancock Funds provides the
Fund with a written report of the amounts expended under the Plans and the
purpose for which these expenditures were made. The Trustees review these
reports on a quarterly basis.
During the fiscal year ended May 31, 1996 the Fund paid John Hancock Funds
the following amounts of expenses with respect to the Class A shares and Class B
shares of the Fund:
<TABLE>
<CAPTION>
Expense Items
Printing and
Mailing of Compensation Expense of Interest Carrying
Prospectus to to Selling John Hancock or Other Finance
Advertising New Shareholders Brokers Funds Charges
----------- ---------------- ------- ----- -------
<S> <C> <C> <C> <C> <C>
Class A Shares $17,842 $1,923 $ 16,852 $ 34,995 $ 0
Class B Shares 52,368 6,646 166,426 107,425 131,541
</TABLE>
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 without penalty (a) by vote of a majority of the Independent
Trustees, (b) by vote of a majority of the Fund's outstanding shares of the
applicable class upon 60 days' written notice to John Hancock Funds and (c)
automatically in the event of assignment. 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. And finally, 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 both the Trustees and the Independent Trustees of the Trust. The holders of
Class A shares and Class B shares have exclusive voting rights with respect to
the Plan applicable to their respective class of shares. In adopting the Plans,
the Trustees concluded that, in their judgment, there is a reasonable likelihood
that each Plan will benefit the holders of the applicable class of shares of the
Fund.
When the Trust 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
26
<PAGE>
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 the Fund's
shares, the following procedures are utilized wherever applicable.
Debt securities are valued on the basis of valuations furnished by a
principal market maker or a pricing service, both of which generally utilize
electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices.
Equity securities traded on a principal exchange or NASDAQ National Market
Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned category for which no sales are reported and
other securities traded over-the-counter are generally valued at the last
available bid price.
Short-term debt investments which have a remaining maturity of 60 days or
less are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
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.
The 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 the Fund's NAV is not
calculated. Consequently, the Fund's portfolio securities may trade and the NAV
of the Fund's redeemable securities may be significantly affected on days when a
shareholder has no access to the Fund.
27
<PAGE>
INITIAL SALES CHARGE ON CLASS A SHARES
Shares of the Fund are offered at a price equal to their net asset value
plus a sales charge which, at the option of the purchaser, may be imposed either
at the time of purchase (the "initial sales charge alternative") or on a
contingent deferred basis (the "deferred sales charge alternative"). Share
certificates will not be issued unless requested by the shareholder in writing,
and then they will only be issued for full shares. The Trustees reserve the
right to change or waive a Fund's minimum investment requirements and to reject
any order to purchase shares (including purchase by exchange) when in the
judgment of the Adviser such rejection is in the Fund's best interest.
The sales charges applicable to purchases of Class A shares of the Fund are
described in the Prospectus. Methods of obtaining reduced sales charges referred
to generally in the Prospectus are described in detail below. In calculating the
sales charge applicable to current purchases of Class A shares of the Fund, the
investor is entitled to cumulate current purchases with the greater of the
current value (at offering price) of the Class A shares of the Fund owned by the
investor, or if 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 Prospectus, Class A shares of the
Fund may be sold without a sales charge to certain persons.
Accumulation Privilege. Investors (including investors combining purchases) who
are already Class A shareholders may also obtain the benefit of the reduced
sales charge by taking into account not only the amount then being invested but
also the purchase price or current account value of the Class A shares already
held by such person.
Combination Privilege. Reduced sales charges (according to the schedule set
forth in the Prospectus) also are available to an investor based on the
28
<PAGE>
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 IRA, SEP, SARSEP,
401(k), 403(b) (including TSAs) and 457 plans. Such an investment (including
accumulations and combinations) must aggregate $50,000 or more invested during
the specified period from the date of the LOI or from a date within ninety (90)
days prior thereto, upon written request to 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
the sales charge applicable will not be higher than that which would have
applied (including accumulations and combinations) had the LOI been for the
amount actually invested.
The LOI authorizes Investor Services to hold in escrow sufficient shares
(approximately 5% of the aggregate) to make up any difference in sales charges
on the amount intended to be invested and the amount actually invested, until
such investment is completed within the specified period, at which time the
Class A escrow shares will be released. If the total investment specified in the
LOI is not completed, the shares held in escrow may be redeemed and the proceeds
used as required to pay such sales charge as may be due. By signing the LOI, the
investor authorizes Investor Services to act as his attorney-in-fact to redeem
any escrowed Class A shares and adjust the sales charge, if necessary. A LOI
does not constitute a binding commitment by an investor to purchase, or by the
Fund to sell, any additional Class A shares and may be terminated at any time.
Class A shares may also be purchased without an initial sales charge in
connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
29
<PAGE>
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per share
without the imposition of an initial sales charge so that the Fund will receive
the full amount of the purchase payment.
Contingent Deferred Sales Charge. Class B shares which are redeemed within six
years of purchase will be subject to a contingent deferred sales charge ("CDSC")
at the rates set forth in the Prospectus as a percentage of the dollar amount
subject to the CDSC. The charge will be assessed on an amount equal to the
lesser of the current market value or the original purchase cost of the Class B
shares being redeemed. 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.
Class B shares are not available to 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.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments
during a month will be aggregated and deemed to have been made on the first day
of the month.
In determining whether a CDSC applies to a redemption, the calculation will
be determined in a manner that results in the lowest possible rate being
charged. It will be assumed that your redemption comes first from shares you
have held beyond the six- year CDSC redemption period or those you acquired
through dividend and capital gain reinvestment, and next from the shares you
have held the longest during the six-year period. For this purpose, the amount
of any increase in a share's value above its initial purchase price is not
regarded as a share exempt from CDSC. Thus, when a share that has appreciated in
value is redeemed during the CDSC period, a CDSC is assessed only on its initial
purchase price. Upon redemption, appreciation is effective only on a per share
basis for those shares being redeemed. Appreciation of shares cannot be redeemed
CDSC free at the account level.
When requesting a redemption for a specific dollar amount please indicate
if you require the proceeds to equal the dollar amount requested. If not
indicated, only the specified dollar amount will be redeemed from your account
and the proceeds will be less any applicable CDSC.
Example:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment. If
you redeem 50 shares at this time your CDSC will be calculated as follows:
* Proceeds of 50 shares redeemed at $12 per share $600
* Minus proceeds of 10 shares not subject to CDSC (dividend
reinvestment) -120
* Minus appreciation on remaining shares (40 shares X $2) -80
----
* Amount subject to CDSC $400
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or
in part by John Hancock Funds to defray its expenses related to providing
distribution-related services to the Fund in connection with the sale of the
Class B shares, such as the payment of compensation to select Selling Brokers
for selling Class B shares. The combination of the CDSC and the distribution and
service fees facilitates the ability of the Fund to sell the Class B shares
30
<PAGE>
without a sales charge being deducted at the time of the purchase. See the
Prospectus for additional information regarding the CDSC.
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to a CDSC,
unless indicated otherwise, in the circumstances defined below:
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your account if
you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
* Redemptions due to death or disability.
* Redemptions made under the Reinstatement Privilege, as described in "Sales
Charge Reductions and Waivers" of the Prospectus.
* Redemptions of Class B shares made under a periodic withdrawal plan, as
long as your annual redemptions do not exceed 12% of your account value,
including reinvested dividends, at the time you established your periodic
withdrawal plan and 12% of the value of subsequent investments (less
redemptions) in that account at the time you notify Investor Services.
(Please note, this waiver does not apply to periodic withdrawal plan
redemptions of Class A shares that are subject to a CDSC.)
For Retirement Accounts (such as IRA, Rollover IRA, TSA, 457, 403(b), 401(k),
Money Purchase Pension Plan, Profit-Sharing Plan and other qualified plans as
described in the Internal Revenue Code) unless otherwise noted.
* Redemptions made to effect mandatory or life expectancy distributions under
the Internal Revenue Code.
* Returns of excess contributions made to these plans.
* Redemptions made to effect distributions to participants or beneficiaries
from employer sponsored retirement plans under section 401(a) of the Code
(such as 401k, Money Purchase Pension Plan, Profit-Sharing Plan).
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992.
Please see matrix for reference.
31
<PAGE>
CDSC Waiver Matrix for Class B Funds
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
401(a) Plan
Type of (401(k), MPP, IRA, IRA
Distribution PSP) 403(b) 457 Rollover Non-retirement
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Death or Waived Waived Waived Waived Waived
Disability
- ------------------------------------------------------------------------------------------------------------------------
Over 70 1/2 Waived Waived Waived Waived for 12% of account
mandatory value annually
distributions or in periodic
12% of account payments
value annually
in periodic
payments
- ------------------------------------------------------------------------------------------------------------------------
Between 59 1/2 Waived Waived Waived Waived for Life 12% of account
and 70 1/2 Expectancy or 12% value annually
of account value in periodic
annually in payments
periodic payments
- ------------------------------------------------------------------------------------------------------------------------
Under 59 1/2 Waived Waived for annuity Waived for annuity Waived for annuity 12% of account
payments (72t)or payments (72t)or payments (72t)or value annually
12% of account 12% of account 12% of account in periodic
value annually in value annually in value annually in payments
periodic payments periodic payments periodic payments
- ------------------------------------------------------------------------------------------------------------------------
Loans Waived Waived N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------
Termination of Not Waived Not Waived Not Waived Not Waived N/A
Plan
- ------------------------------------------------------------------------------------------------------------------------
Hardships Waived Waived Waived N/A N/A
- ------------------------------------------------------------------------------------------------------------------------
Return of
Excess Waived Waived Waived Waived N/A
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
32
<PAGE>
securities received in this fashion he will incur a brokerage charge. Any such
securities would be valued for the purposes of making such payment at the same
value as used in determining net asset value. The Fund has, however, elected to
be governed by Rule 18f-1 under the Investment Company Act. Under that rule, the
Fund must redeem its shares for cash except to the extent that the redemption
payments to any shareholder during any 90-day period would exceed the lesser of
$250,000 or 1% of the Fund's net asset value at the beginning of such period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. 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 Prospectus, the Fund
permits the establishment of a Systematic Withdrawal Plan. Payments under this
plan represent proceeds arising from the redemption of Fund shares. Since the
redemption price of the Fund shares may be more or less than the shareholder's
cost, depending upon the market value of the securities owned by the Fund at the
time of redemption, the distribution of cash pursuant to this plan may result in
realization of gain or loss for purposes of Federal, state and local income
taxes. The maintenance of a Systematic Withdrawal Plan concurrently with
purchases of additional Class A or Class B shares of the Fund could be
disadvantageous to a shareholder because of the initial sales charge payable on
purchases of Class A shares and the CDSC imposed on redemptions of Class B
shares and because redemptions are taxable events. Therefore, a shareholder
should not purchase Class A or Class B shares at the same time that a Systematic
Withdrawal Plan is in effect. The Fund reserves the right to modify or
discontinue the Systematic Withdrawal Plan of any shareholder on 30 days' prior
written notice to such shareholder, or to discontinue the availability of such
plan in the future. The shareholder may terminate the plan at any time by giving
proper notice to Investor Services.
Monthly Automatic Accumulation Program ("MAAP"). This program is explained fully
in the Prospectus. The program, as it relates to automatic investment checks, is
subject to the following conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the 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 drafts.
33
<PAGE>
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 shares of the Fund may,
within 120 days after the date of redemption, reinvest without payment of a
sales charge any part of the redemption proceeds in shares of the same class of
the Fund or in any other John Hancock mutual fund, subject to the minimum
investment limit of that fund. The proceeds from the redemption of Class A
shares may be reinvested at net asset value without paying a sales charge in
Class A shares of the Fund or in Class A shares of another John Hancock mutual
fund. If a CDSC was paid upon a redemption, a shareholder may reinvest the
proceeds from this redemption at net asset value in additional shares of the
class from which the redemption was made. The shareholder's account will be
credited with the amount of any CDSC charged upon the prior redemption and the
new shares will continue to be subject to the CDSC. The holding period of the
shares acquired through reinvestment will, for purposes of computing the CDSC
payable upon a subsequent redemption, include the holding period of the redeemed
shares. The Fund may modify or terminate the reinvestment privilege at any time.
A redemption or exchange of shares of the Fund is a taxable transaction for
Federal income tax purposes even if the reinvestment privilege is exercised, and
any gain or loss realized by a shareholder on the redemption or other
disposition of shares of the Fund will be treated for tax purposes as described
under the caption "Tax Status."
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Trust are responsible for the management and
supervision of the Fund. The Declaration of Trust permits the Trustees to issue
an unlimited number of full and fractional shares of beneficial interest of the
Fund without par value. Under the Declaration of Trust, the Trustees have the
authority to create and classify shares of beneficial interest in separate
series, without further action by shareholders. As of the date of this Statement
of Additional Information, the Trustees have authorized shares of the Fund and
two other series: John Hancock Independence Equity Fund and John Hancock Special
Value Fund. Additional series may be added in the future. The Declaration of
Trust also authorizes the Trustees to classify and reclassify the shares of the
Fund, or any 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.
Class A and Class B shares of each class of the Fund represent an equal
proportionate interest in the aggregate net assets attributed to that class of
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the Fund. The holders of Class A and Class B shares each 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 on the same day and
will be in the same amount, except 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 the Internal Revenue Service
imposes with respect to multiple-class structures. Similarly, the net asset
value per share may vary depending on the class of shares purchased. In the
event of liquidation, shareholders are entitled to share pro rata in proportion
to the net asset value of the shares in the net assets of the Fund available for
distribution to these shareholders. Shares entitle their holders to one vote per
share, are freely transferable and have no preemptive, subscription or
conversion rights. When issued, shares are fully paid and non-assessable by the
Trust, 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 Trust'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 by reason of being or having been a shareholder. The Declaration of Trust
also provides that no series of the Trust shall be liable for the liabilities of
any other series. Liability is therefore limited to circumstances in which the
Fund itself would be unable to meet its obligations, and the possibility of this
occurrence is remote.
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Notwithstanding the fact that the Prospectus is a combined prospectus for
the Fund and other John Hancock mutual funds, the Fund shall not be liable for
the liabilities of any other John Hancock mutual fund.
TAX STATUS
Each series of the Trust, including the Fund, is treated as a separate
entity for tax purposes. The Fund has qualified and elected to be treated as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), and intends to continue to so qualify for each
taxable year. As such and by complying with the applicable provisions of the
Code regarding the sources of its income, the timing of its distributions and
the diversification of its assets, the Fund will not be subject to Federal
income tax on its taxable income (including net short-term and long-term capital
gains) which is distributed to shareholders in accordance with the timing
requirements of the Code.
The Fund will be subject to a 4% nondeductible Federal excise tax on
certain amounts not distributed (and not treated as having been distributed) on
a timely basis in accordance with annual minimum distribution requirements. The
Fund intends under normal circumstances to seek to avoid or minimize liability
for this tax by satisfying such distribution requirements.
Distributions from the Fund's current or accumulated earnings and profits
("E&P") will be taxable under the Code for investors who are subject to tax. If
these distributions are paid from the Fund's "investment company taxable
income," they will be taxable as ordinary income; and if they are paid from the
Fund's "net capital gain," they will be taxable as long-term capital gain. (Net
capital gain is the excess (if any) of net long-term capital gain over net
short-term capital loss, and investment company taxable income is all taxable
income and capital gains, other than net capital gain, after reduction by
deductible expenses.) Some distributions from investment company taxable income
and/or net capital gain may be paid in January but may be taxable to
shareholders as if they had been received on December 31 of the previous year.
The tax treatment described above will apply without regard to whether
distributions are received in cash or reinvested in additional shares of the
Fund.
Distributions, if any, in excess of E&P will constitute a return of capital
under the Code, which will first reduce an investor's federal tax basis in Fund
shares and then, to the extent such basis is exceeded, will generally give rise
to capital gains. Shareholders who have chosen automatic reinvestment of their
distributions will have a federal tax basis in each share received pursuant to
such a reinvestment equal to the amount of cash they would have received had
they elected to receive the distribution in cash, divided by the number of
shares received in the reinvestment.
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If the Fund invests in stock of certain foreign corporations that receive
at least 75% of their annual gross income from passive sources (such as
interest, dividends, rents, royalties or capital gain) or hold at least 50% of
their assets in investments producing such passive income ("passive foreign
investment companies"), the Fund could be subject to Federal income tax and
additional interest charges on "excess distributions" received from such
companies or gain from the sale of stock in such companies, even if all income
or gain actually received by the Fund is timely distributed to its shareholders.
The Fund would not be able to pass through to its shareholders any credit or
deduction for such a tax. Certain elections may, if available, ameliorate these
adverse tax consequences, but any such election would require the Fund to
recognize taxable income or gain without the concurrent receipt of cash. The
Fund may limit and/or manage its holdings in passive foreign investment
companies to minimize its tax liability or maximize its return from these
investments.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
forward foreign currency contracts, foreign currencies, or payables or
receivables denominated in a foreign currency are subject to Section 988 of the
Code, which generally causes such gains and losses to be treated as ordinary
income and losses and may affect the amount, timing and character of
distributions to shareholders. Any such transactions that are not directly
related to the Fund's investment in stock or securities may increase the amount
of gain it is deemed to recognize from the sale of certain investments or
derivatives held for less than three months, which gain is limited under the
Code to less than 30% of its gross income for each taxable year, and may under
future Treasury regulations produce income not among the types of "qualifying
income" from which the Fund must derive at least 90% of its gross income for
each taxable year. If the net foreign exchange loss for a year treated as
ordinary loss under Section 988 were to exceed the Fund's investment company
taxable income computed without regard to such loss after consideration of
certain regulations on the treatment of "post-October losses" the resulting
overall ordinary loss for such year would not be deductible by the Fund or its
shareholders in future years.
The Fund may be subject to withholding and other taxes imposed by foreign
countries with respect to its investments in foreign securities. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. The Fund does not expect to qualify to pass such taxes through to its
shareholders, who consequently will not take such taxes into account on their
own tax returns. However, the Fund will deduct such taxes in determining the
amount it has available for distribution to shareholders.
The amount of the Fund's net short-term and long-term capital gains, if
any, in any given year will vary depending upon the Adviser's current investment
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strategy and whether the Adviser believes it to be in the best interest of the
Fund to dispose of portfolio securities that will generate capital gains. At the
time of an investor's purchase of shares of the Fund, a portion of the purchase
price is often attributed to realized or unrealized appreciation in the Fund's
portfolio or undistributed taxable income of the Fund. Consequently, subsequent
distributions from such appreciation or income may be taxable to such investor
even if the net asset value of the investor's shares is, as a result of the
distributions, reduced below the investor's cost for such shares, and the
distributions (or portions thereof) in reality represent a return of a portion
of the purchase price.
Upon a redemption of shares (including by exercise of the exchange
privilege) a shareholder will ordinarily realize a taxable gain or loss
depending upon the amount of the proceeds and the investor's basis in his
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and will be long-term or
short-term, depending upon the shareholder's tax holding period for the shares
and subject to the special rules described below. A sales charge paid in
purchasing Class A shares of the Fund cannot be taken into account for purposes
of determining gain or loss on the redemption or exchange of such shares within
90 days after their purchase to the extent Class A shares of the Fund or another
John Hancock fund are subsequently acquired without payment of a sales charge
pursuant to the reinvestment or exchange privilege. This disregarded charge will
result in an increase in the shareholder's tax basis in the Class A shares
subsequently acquired. Also, any loss realized on a redemption or exchange may
be disallowed to the extent the shares disposed of are replaced with other
shares of the Fund within a period of 61 days beginning 30 days before and
ending 30 days after the shares are disposed of, such as pursuant to an election
to reinvest dividends in additional shares. In such a case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized upon the redemption of shares with a tax holding period of six months
or less will be treated as a long-term capital loss to the extent of any amounts
treated as distributions of long-term capital gain with respect to such shares.
Although its present intention is to distribute, at least annually, all net
capital gain, if any, the Fund reserves the right to retain and reinvest all or
any portion of the excess, as computed for Federal income tax purposes, of net
long-term capital gain over net short-term capital loss in any year. The Fund
will not in any event distribute net long-term capital gains realized in any
year to the extent that a capital loss is carried forward from prior years
against such gain. To the extent such excess was retained and not exhausted by
the carryforward of prior years' capital losses, it would be subject to Federal
income tax in the hands of the Fund. Upon proper designation of this amount by
the Fund, each shareholder would be treated for Federal income tax purposes as
if the Fund had distributed to him on the last day of its taxable year his pro
rata share of such excess, and he had paid his pro rata share of the taxes paid
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by the Fund and reinvested the remainder in the Fund. Accordingly, each
shareholder would (a) include his pro rata share of such excess as long-term
capital gain income in his tax return for his taxable year in which the last day
of the Fund's taxable year falls, (b) be entitled either to a tax credit on his
return for, or to a refund of, his pro rata share of the taxes paid by the Fund,
and (c) be entitled to increase the adjusted tax basis for his shares in the
Fund by the difference between his pro rata share of such excess and his pro
rata share of such taxes.
For Federal income tax purposes, the Fund is permitted to carry forward a
net capital loss in any year to offset net capital gains, if any, during the
eight years following the year of the loss. To the extent subsequent net capital
gains are offset by such losses, they would not result in Federal income tax
liability to the Fund and, as noted above, would not be distributed as such to
shareholders. Presently, there are no realized capital loss carryforwards to
offset future net realized capital gains.
For purposes of the dividends-received deduction available to corporations,
dividends received by the Fund, if any, from U.S. domestic corporations in
respect of the stock of such corporations held by the Fund, for U.S. Federal
income tax purposes, for at least 46 days (91 days in the case of certain
preferred stock) and distributed and properly designated by the Fund may be
treated as qualifying dividends. Corporate shareholders must meet the minimum
holding period requirement stated above (46 or 91 days) with respect to their
shares of the Fund in order to qualify for the deduction and, if they have any
debt that is deemed under the Code directly attributable to such shares, may be
denied a portion of the dividends-received deduction. The entire qualifying
dividend, including the otherwise deductible amount, will be included in
determining the excess (if any) of a corporate shareholder's adjusted current
earnings over its alternative minimum taxable income, which may increase its
alternative minimum tax liability, if any. Additionally, any corporate
shareholder should consult its tax adviser regarding the possibility that its
tax basis in its shares may be reduced, for Federal income tax purposes, by
reason of "extraordinary dividends" received with respect to the shares, for the
purpose of computing its gain or loss on redemption or other disposition of the
shares.
The Fund is required to accrue income on any debt securities that have more
than a de minimis amount of original issue discount (or debt securities acquired
at a market discount, if the Fund elects to include market discount in income
currently) prior to the receipt of the corresponding cash payments. The mark to
market rules applicable to certain options and forward contracts may also
require the Fund to recognize income or gain without a concurrent receipt of
cash. However, the Fund must distribute to shareholders for each taxable year
substantially all of its net income and net capital gains, including such income
or gain, to qualify as a regulated investment company and avoid liability for
any federal income or excise tax. Therefore, the Fund may have to dispose of its
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portfolio securities under disadvantageous circumstances to generate cash, or
may have to leverage itself by borrowing the cash, to satisfy these distribution
requirements.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent (if any) the Fund's distributions
are derived from interest on (or, in the case of intangibles taxes, the value of
its assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. The Fund will not seek to satisfy any
threshold or reporting requirements that may apply in particular taxing
jurisdictions, although the Fund may in its sole discretion provide relevant
information to shareholders.
The Fund will be required to report to the Internal Revenue Service (the
"IRS") all taxable distributions to shareholders, as well as gross proceeds from
the redemption or exchange of Fund shares, except in the case of certain exempt
recipients, i.e., corporations and certain other investors distributions to
which are exempt from the information reporting provisions of the Code. Under
the backup withholding provisions of Code Section 3406 and applicable Treasury
regulations, all such reportable distributions and proceeds may be subject to
backup withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the Fund with their correct taxpayer
identification number and certain certifications required by the IRS or if the
IRS or a broker notifies the Fund that the number furnished by the shareholder
is incorrect or that the shareholder is subject to backup withholding as a
result of failure to report interest or dividend income. A Fund may refuse to
accept an application that does not contain any required taxpayer identification
number or certification that the number provided is correct. If the backup
withholding provisions are applicable, any such distributions and proceeds,
whether taken in cash or reinvested in shares, will be reduced by the amounts
required to be withheld. Any amounts withheld may be credited against a
shareholder's U.S. federal income tax liability. Investors should consult their
tax advisers about the applicability of the backup withholding provisions.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions and certain prohibited transactions, is accorded to accounts
maintained as qualified retirement plans. Shareholders should consult their tax
advisers for more information.
Limitations imposed by the Code on regulated investment companies like the
Fund may restrict the Fund's ability to enter into foreign currency positions
and foreign currency forward contracts.
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Certain forward foreign currency transactions undertaken by the Fund may
cause the Fund to recognize gains or losses from marking to market even though
its positions have not been sold or terminated and affect the character as
long-term or short-term (or, in the case of certain foreign currency-related
forward contracts, as ordinary income or loss) and timing of some capital gains
and losses realized by the Fund. Also, certain of the Fund's losses on its
transactions involving forward contracts and/or offsetting or successor
portfolio positions may be deferred rather than being taken into account
currently in calculating the Fund's taxable income or gains. Certain of such
transactions may also cause the Fund to dispose of investments sooner than would
otherwise have occurred. These transactions may therefore affect the amount,
timing and character of the Fund's distributions to shareholders. Certain of the
applicable tax rules may be modified if the Fund is eligible and chooses to make
one or more of certain tax elections that may be available. The Fund will take
into account the special tax rules (including consideration of available
elections) applicable to forward contracts in order to seek to minimize any
potential adverse tax consequences.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies and financial
institutions. Dividends, capital gain distributions and ownership of or gains
realized on the redemption (including an exchange) of shares of the Fund may
also be subject to state and local taxes. Shareholders should consult their own
tax advisers as to the Federal, state or local tax consequences of ownership of
shares of, and receipt of distributions from, the Fund in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their
Fund investment is effectively connected will be subject to U.S. Federal income
tax treatment that is different from that described above. These investors may
be subject to non- resident alien withholding tax at the rate of 30% (or a lower
rate under an applicable tax treaty) on amounts treated as ordinary dividends
from the Fund and, unless an effective IRS Form W-8 or authorized substitute for
Form W-8 is on file, to 31% backup withholding on certain other payments from
the Fund. Non-U.S. investors should consult their tax advisers regarding such
treatment and the application of foreign taxes to an investment in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise
taxes. Provided that the Fund qualifies as a regulated investment company under
the Code, it will also not be required to pay any Massachusetts income tax.
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CALCULATION OF PERFORMANCE
The Fund's yield is computed by dividing net investment income per share
determined for a 30-day period by the maximum offering price per share (which
includes the full sales charge, if applicable) on the last day of the period,
according to the following standard formula:
Yield = 2 ( [ (a - b) + 1] 6 - 1
-----
cd
Where:
a = dividends and interest earned during the period.
b = net expenses accrued during the period.
c = the average daily number of fund shares outstanding during the period
that would be entitled to receive dividends.
d = the maximum offering price per share on the last day of the period (NAV
where applicable).
The annualized yield for the 30-day period ended May 31, 1996 for the Class
A and Class B shares was 4.17% and 3.69%, respectively. The average annual total
return is determined separately for each class of shares at May 31, 1996, with
all distributions reinvested in shares. The average annual total return for
Class A shares for the one-year period ended May 31, 1996 and from commencement
of operations on February 1, 1994 was 8.67% and 5.43%, respectively, and
reflects the payment of the maximum sales charge of 5%. The average annual total
return for Class B shares for the one-year period ended May 31, 1996 and from
commencement of operations on February 1, 1994 was 8.68% and 5.90%,
respectively, and reflects the applicable contingent deferred sales charge
(maximum contingent deferred sales charge of 5% declines to 0% over six years).
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:
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n _____
T = \ /ERV/P - 1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment made at the
beginning of the 1-year, 5-year and life of fund periods.
This calculation assumes that all dividends and distributions are
reinvested at net asset value on the reinvestment dates during the period. The
"distribution rate" is determined by annualizing the result of dividing the
declared dividends of the Fund during the period stated by the maximum offering
price or net asset value at the end of the period. Excluding the Fund's sales
load from the distribution rate produces a higher rate.
In addition to average annual total returns, the Fund may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Cumulative total returns may be quoted as a
percentage or as a dollar amount, and may be calculated for a single investment,
a series of investments and/or a series of redemptions over any time period.
Total returns may be quoted with or without taking the Fund's sales charge on
Class A shares or the CDSC on Class B shares into account. Excluding the Fund's
sales charge on Class A shares and the CDSC on Class B shares from a total
return calculation produces a higher total return figure.
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
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STREET JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRON'S may 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.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by the officers of the Trust
pursuant to recommendations made by an investment committee of the Adviser,
which consists of officers and directors of the Adviser and affiliates and
officers and Trustees of the Trust placed in a manner which, in the opinion of
the officers of the Trust, 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." Debt
securities are generally traded on a net basis through dealers acting for their
own account as principals and not as brokers; no brokerage commissions are
payable on such transactions.
The Fund's primary policy is to execute all purchases and sales of
portfolio instruments at the most favorable prices consistent with best
execution, considering all of the costs of the transaction including brokerage
commissions. This policy governs the selection of brokers and dealers and the
market in which a transaction is executed. Consistent with the foregoing primary
policy, the Rules of Fair Practice of the National Association of Securities
Dealers, Inc. and other policies that the Trustees may determine, the Adviser
may consider sales of shares of the Fund as a factor in the selection of
broker-dealers to execute the Fund's portfolio transactions.
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
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expected to reduce significantly the expenses of the Adviser. The research
information and statistical assistance furnished by brokers and dealers may
benefit the Life Company or other advisory clients of the Adviser, and,
conversely, brokerage commissions and spreads paid by other advisory clients of
the Adviser may result in research information and statistical assistance
beneficial to the Fund. The Fund will not make commitments to allocate portfolio
transactions upon any prescribed basis. While the Trust'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 period ended
February 1, 1994 to May 31, 1994, the year ended May 31, 1995 and the year ended
May 31 1996, the Fund paid negotiated brokerage commissions of $2,492, $189,605
and $210,530, respectively.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the
Fund may pay a broker which provides brokerage and research services to the Fund
an amount of disclosed commission in excess of the commission which another
broker would have charged for effecting that transaction. This practice is
subject to a good faith determination by the Trustees that the commission 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 May 31, 1996, the Fund
did not pay commissions as compensation to any brokers for research services
such as industry, economic and company reviews and evaluations of securities.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of John Hancock Distributors, Inc. ("Distributors"), a
broker-dealer, and John Hancock Freedom Securities Corporation and its two
broker-dealer subsidiaries, Tucker Anthony Incorporated ("Tucker Anthony") and
Sutro & Company, Inc. ("Sutro") (each is an "Affiliated Broker"). 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, Sutro or Distributors. During the period ending May 31,
1996, 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,
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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. The Fund may, however, purchase
securities from other members of underwriting syndicates of which Tucker Anthony
and Sutro are members, but only in accordance with the policy set forth above
and procedures adopted and reviewed periodically by the Trustees.
In order to avoid conflicts with portfolio trades for the Fund, the Adviser
and the Fund have adopted extensive restrictions on personal securities trading
by personnel of the Adviser and its affiliates. Some of these restrictions are:
pre-clearance for all personal trades and a ban on the purchase of initial
public offerings, as well as contributions to specified charities of profits on
securities held for less than 91 days. These restrictions are a continuation of
the basic principle that the interests of the Fund and its shareholders come
first.
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 shares of $20.00 per shareholder account and
for Class B shares of $22.50 per shareholder account, plus certain out of pocket
expenses.
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Trust and Investors Bank & Trust Company, 89 South Street, Boston,
Massachusetts 02111. Under the custodian agreement, Investors Bank & Trust
Company performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Fund are Price Waterhouse LLP, 160 Federal
Street, Boston, Massachusetts 02110. Price Waterhouse audits and renders an
opinion of the Fund's annual financial statements and reviews the Fund's annual
Federal income tax return.
46
<PAGE>
PART C.
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) The financial statements listed below are included in and incorporated
by reference into Part B of the Registration Statement from the Special Value
Fund 1996 Annual Report to Shareholders for the year ended December 31, 1995
(filed electronically on February 26, 1996; file nos. 811-1677 and 2-29502;
accession number 0000950135-96-001146): Independence Equity Fund and Utilities
1996 Annual Report to Shareholders for the year ended May 31, 1996 (filed
electronically on July 24, 1996; file nos. 811-4651 and 33-5286; accession
number 0000928816-96-000200).
John Hancock Independence Equity Fund
Statement of Assets and Liabilities as of May 31, 1996.
Statement of Operations of the year ended May 31, 1996.
Statement of Changes in Net Asset for each of the two years in the period
ended May 31, 1996.
Notes to Financial Statements.
Financial Highlights for each of the years in the period ended May 31,
1996.
Schedule of Investments as of May 31, 1996.
Report of Independent Auditors.
John Hancock Utilities Fund
Statement of Assets and Liabilities as of May 31, 1996.
Statement of Operations of the year ended May 31, 1996.
Statement of Changes in Net Asset for each of the two years in the period
ended May 31, 1996.
Notes to Financial Statements.
Financial Highlights for each of the years in the period ended May 31,
1996.
Schedule of Investments as of May 31, 1996.
Report of Independent Auditors.
John Hancock Special Value Fund
Statement of Assets and Liabilities as of December 31, 1995.
Statement of Operations of the year ended December 31, 1995.
Statement of Changes in Net Asset for each of the two years in the period
ended December 31, 1995.
Notes to Financial Statements.
Financial Highlights for each of the years in the period ended December
31, 1995.
Schedule of Investments as of December 31, 1995.
Report of Independent Auditors.
C-1
<PAGE>
(b) Exhibits:
The exhibits to this Registration Statement are listed in the Exhibit Index
hereto and are incorporated herein by reference.
Item 25. Persons Controlled by or under Common Control with Registrant
No person is directly or indirectly controlled by or under common
control with Registrant.
Item 26. Number of Holders of Securities
As of August 5, 1996, the number of record holders of shares of Registrant
was as follows:
Title of Class Number of Record Holders
SPECIAL VALUE FUND
Class A Shares - 2,228
Class B Shares - 2,691
DIVERSIFIED EQUITY FUND
Class A Shares - 2,107
Class B Shares - 1,982
UTILITIES FUND
Class A Shares - 3,410
Class B Shares - 6,231
Item 27. Indemnification
Section 4.3 of Registrant's Declaration of Trust provides that (i)
every person who is, or has been, a Trustee, officer, employee or
agent of the Trust (including any individual who serves at its request
as director, officer, partner, trustee or the like of another
organization in which it has any interest as a shareholder, creditor
or otherwise) shall be indemnified by the Trust, or by one or more
Series thereof if the claim arises from his or her conduct with
respect to only such Series, to the fullest extent permitted by law
against all liability and against all expenses reasonably incurred or
paid by him in connection with any claim, action, suit or proceeding
in which he becomes involved as a party or otherwise by virtue of his
being or having been a Trustee or officer and against amounts paid or
incurred by him in the settlement thereof; and that (ii) the words
"claim," "action," "suit," or "proceeding" shall apply to all claims,
actions, suits or proceedings (civil, criminal, or other, including
appeals), actual or threatened; and the words "liability" and
"expenses" shall include, without limitation, attorneys' fees, costs,
judgments, amounts paid in settlement, fines, penalties and other
liabilities.
C-2
<PAGE>
However, no indemnification shall be provided to a Trustee or officer
(i) against any liability to the Trust, a Series thereof or the
Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of his office; (ii) with respect to any matter as to which he shall
have been finally adjudicated not to have acted in good faith in the
reasonable belief that his action was in the best interest of the
Trust or a Series thereof; (iii) in the event of a settlement or other
disposition not involving a final adjudication resulting in a payment
by a Trustee or officer, unless there has been a determination that
such Trustee or officer did not engage in willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved
in the conduct of his office by (A) a court by (B) a majority of the
Non- interested trustees or independent legal counsel, or (C) a vote
of the majority of the Fund's outstanding shares.
The rights of indemnification may be insured against by policies
maintained by the Trust, shall be severable, shall not affect any
other rights to which any Trustee or officer may now or hereafter be
entitled, shall continue as to a person who has ceased to be such
Trustee or officer and shall inure to the benefit of the heirs,
executors, administrators and assigns of such a person. Nothing
contained herein shall affect any rights to indemnification to which
personnel of the Trust or any Series thereof other than Trustees and
officers may be entitled by contract or otherwise under law.
Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding may be advanced by the Trust or a Series
thereof before final disposition, if the recipient undertakes to repay
the amount if it is ultimately determined that he is not entitled to
indemnification, provided that either:
(i) such undertaking is secured by a surety bond or some other
appropriate security provided by the recipient, or the Trust or
Series thereof shall be insured against losses arising out of any
such advances; or (ii) a majority of the Non-interested Trustees
acting on the matter (provided that a majority of the
Non-interested Trustees act on the matter) or an independent
legal counsel in a written opinion shall determine, based upon a
review of readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the
recipient ultimately will be found entitled to indemnification.
For purposes of indemnification Non-interested Trustee" is one
who (i) is not an "Interested Person" of the Trust (including
anyone who has been exempted from being an "Interested Person" by
any rule, regulation or order of the Commission), and (ii) is not
involved in the claim, action, suit or proceeding.
C-3
<PAGE>
(b) Under the Distribution Agreement. Under Section 12 of the Distribution
Agreement, John Hancock Funds, Inc. ("John Hancock Funds" ) has agreed to
indemnify the Registrant and its Trustees, officers and controlling persons
against claims arising out of certain acts and statements of John Hancock Funds.
Section 9(a) of the By-Laws of the Insurance Company provides, in effect,
that the Insurance Company will, subject to limitations of law, indemnify each
present and former director, officer and employee of the of the Insurance
Company who serves as a Trustee or officer of the Registrant at the direction or
request of the Insurance Company against litigation expenses and liabilities
incurred while acting as such, except that such indemnification does not cover
any expense or liability incurred or imposed in connection with any matter as to
which such person shall be finally adjudicated not to have acted in good faith
in the reasonable belief that his action was in the best interests of the
Insurance Company. In addition, no such person will be indemnified by the
Insurance Company in respect of any liability or expense incurred in connection
with any matter settled without final adjudication unless such settlement shall
have been approved as in the best interests of the Insurance Company either by
vote of the Board of Directors at a meeting composed of directors who have no
interest in the outcome of such vote, or by vote of the policyholders. The
Insurance Company may pay expenses incurred in defending an action or claim in
advance of its final disposition, but only upon receipt of an undertaking by the
person indemnified to repay such payment if he should be determined to be
entitled to indemnification.
Article IX of the respective By-Laws of John Hancock Funds and the Adviser
provide as follows:
"Section 9.01. Indemnity: Any person made or threatened to be made a party to
any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was at any time since the
inception of the Corporation a serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall be indemnified by the Corporation
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and the liability was not
incurred by reason of gross negligence or reckless disregard of the duties
involved in the conduct of his office, and expenses in connection therewith may
be advanced by the Corporation, all to the full extent authorized by the law."
"Section 9.02. Not Exclusive; Survival of Rights: The indemnification provided
by Section 9.01 shall not be deemed exclusive of any other right to which those
indemnified may be entitled, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such as person."
Insofar as indemnification for liabilities under the Securities Act of 1933 (the
"Act") may be permitted to Trustees, officers and controlling persons of
Registrant pursuant to the Registrant's Amended and Restated Articles of
Incorporation, Article 10.1 of the Registrant's By-Laws, The Underwriting
Agreement, the By-Laws of John Hancock Funds, the Adviser, or the Insurance
Company or otherwise, Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such Trustee, officer or controlling person in connection with the
securities being registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
C-4
<PAGE>
Item 28. Business and Other Connections of Investment Advisers
For information as to the business, profession, vocation or employment of a
substantial nature of each of the officers and Directors of the Investment
Adviser, reference is made to Forms ADV (801-8124) filed under the Investment
Advisers Act of 1940, herein incorporated by reference.
Item 29. Principal Underwriters
(a) John Hancock Funds acts as principal underwriter for the Registrant and also
serves as principal underwriter or distributor of shares for John Hancock Cash
Reserve, Inc., John Hancock Bond Trust, John Hancock Current Interest, John
Hancock Series, Inc., John Hancock Tax-Free Bond Fund, John Hancock California
Tax-Free Income Fund, John Hancock Capital Series, John Hancock Limited-Term
Government Fund, John Hancock Sovereign Investors Fund, Inc., John Hancock
Special Equities Fund, John Hancock Sovereign Bond Fund, John Hancock Tax-Exempt
Series, John Hancock Strategic Series, John Hancock Technology Series, Inc. and
John Hancock World Fund, John Hancock Investment Trust, John Hancock
Institutional Series Trust, Freedom Investment Trust, Freedom Investment Trust
II and Freedom Investment Trust III.
(b) The following table lists, for each director and officer of John Hancock
Funds, the information indicated.
C-5
<PAGE>
<TABLE>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
<S> <C> <C>
Edward J. Boudreau, Jr. Chairman, President and Chairman
101 Huntington Avenue Chief Executive Officer
Boston, Massachusetts
Robert H. Watts Director, Executive Vice None
John Hancock Place President and Chief
P.O. Box 111 Compliance Officer
Boston, Massachusetts
Robert G. Freedman Director Vice President, Chief
101 Huntington Avenue Investment Officer
Boston, Massachusetts
Stephen M. Blair Executive Vice President None
101 Huntington Avenue
Boston, Massachusetts
James W. McLaughlin Senior Vice President and None
101 Huntington Avenue Chief Financial Officer
Boston, Massachusetts
David A. King Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
William S. Nichols Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
James B. Little Senior Vice President Senior Vice President and
101 Huntington Avenue Chief Financial Officer
Boston, Massachusetts
Anthony P. Petrucci Senior vice President None
101 Huntington Avenue
Boston, Massachusetts
Charles H. Womack Senior Vice President None
6501 Americas Parkway
Suite 950
Albuquerque, New Mexico
C-6
<PAGE>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
John A. Morin Vice President and Secretary Vice President
101 Huntington Avenue
Boston, Massachusetts
Susan S. Newton Vice President Vice President and
101 Huntington Avenue Assistant Secretary
Boston, Massachusetts
Keith Harstein Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
Griselda Lyman Vice President None
101 Huntington Avenue
Boston, Massachusetts
Karen Walsh Vice President None
101 Huntington Avenue
Boston, Massachusetts
Christopher M. Meyer Treasurer None
101 Huntington Avenue
Boston, Massachusetts
Stephen L. Brown Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Thomas E. Moloney Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Jeanne M. Livermore Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Richard S. Scipione Director Trustee
John Hancock Place
P.O. Box 111
Boston, Massachusetts
C-7
<PAGE>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
John Goldsmith Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Richard O. Hansen Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
John M. DeCiccio Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Foster Aborn Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
William C. Fletcher Director None
53 State Street
Boston, Massachusetts
David F. D'Alessandro Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
James V. Bowhers Executive Vice President None
101 Huntington Avenue
Boston, Massachusetts
</TABLE>
(c) None.
C-8
<PAGE>
Item 30. Location of Accounts and Records
Registrant maintains the records required to be maintained by it under
Rules 31a-1 (a), 31a-a(b), and 31a-2(a) under the Investment Company
Act of 1940 as its principal executive offices at 101 Huntington
Avenue, Boston Massachusetts 02199-7603. Certain records, including
records relating to Registrant's shareholders and the physical
possession of its securities, may be maintained pursuant to Rule 31a-3
at the main office of Registrant's Transfer Agent and Custodian.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Registrant undertakes to comply with Section 16(c) of the Investment
Company Act of 1940, as amended which relates to the assistance to be rendered
to shareholders by the Trustees of the Trust in calling a meeting of
shareholders for the purpose of voting upon the question of the removal of a
trustee.
(b) Not applicable.
(c) Registrant hereby undertakes to furnish each person to whom a
prospectus with respect to a series of the Registrant is delivered with a copy
of the latest annual report to shareholders with respect to that series upon
request and without charge.
C-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the registrant certifies that it meets all of
the requirements for effectiveness of this registration statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Boston, and the Commonwealth of Massachusetts on
the 26th day of August, 1996.
JOHN HANCOCK CAPITAL SERIES FUND
By: /s/ Edward J. Boudreau, Jr.
---------------------------
Edward J. Boudreau, Jr.*
Chairman
Pursuant to the requirements of the Securities Act of 1933, the
Registration has been signed below by the following persons in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
- ------------------------ Chairman
Edward J. Boudreau, Jr.* (Principal Executive Officer)
/s/James B. Little
- ------------------------ Senior Vice President and Chief
James B. Little Financial Officer (Principal August 26, 1996
Financial and Accounting Officer)
- ------------------------ Trustee
Dennis S. Aronowitz*
- ------------------------ Trustee
Richard P. Chapman, Jr.*
- ------------------------ Trustee
William J. Cosgrove*
- ------------------------ Trustee
Douglas M. Costle*
- ------------------------ Trustee
Leland O. Erdahl*
- ------------------------ Trustee
Richard A. Farrell*
- ------------------------ Trustee
Gail D. Fosler*
- ------------------------ Trustee
William F. Glavin*
- ------------------------ Trustee
Anne C. Hodsdon*
C-10
<PAGE>
Signature Title Date
--------- ----- ----
- ------------------------ Trustee
John A. Moore
- ------------------------ Trustee
Patti McGill Peterson*
- ------------------------ Trustee
John W. Pratt*
- ------------------------ Trustee
Richard S. Scipione*
- ------------------------ Trustee
Edward J. Spellman*
*By: /s/Susan S. Newton August 26, 1996
------------------
Susan S. Newton
Attorney-in-Fact under
Powers of Attorney dated
May 21, 1996, filed herewith
</TABLE>
C-11
<PAGE>
POWER OF ATTORNEY
The undersigned Trustee of each of the above listed Trusts, each a
Massachusetts business trust, does hereby severally constitute and appoint
EDWARD J. BOUDREAU, JR., SUSAN S. NEWTON, AND JAMES B. LITTLE, and each acting
singly, to be my true, sufficient and lawful attorneys, with full power to each
of them, and each acting singly, to sign for me, in my name and in the capacity
indicated below, any Registration Statement on Form N-1A and any Registration
Statement on Form N-14 to be filed by the Trust under the Investment Company Act
of 1940, as amended (the "1940 Act"), and under the Securities Act of 1933, as
amended (the "1933 Act"), and any and all amendments to said Registration
Statements, with respect to the offering of shares and any and all other
documents and papers relating thereto, and generally to do all such things in my
name and on my behalf in the capacity indicated to enable the Trust to comply
with the 1940 Act and the 1933 Act, and all requirements of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by said attorneys or each of them to any such Registration
Statements and any and all amendments thereto.
IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument as of
the 21st day of May, 1996.
/s/Dennis S. Aronowitz /s/William F. Glavin
- ----------------------------- ------------------------------
Dennis S. Aronowitz William F. Glavin
/s/Edward J. Boudreau, Jr. /s/ Anne C. Hodsdon
- ----------------------------- ------------------------------
Edward J. Boudreau, Jr. Anne C. Hodsdon
/s/Richard P. Champman, Jr. /s/Patti McGill Peterson
- ----------------------------- ------------------------------
Richard P. Chapman, Jr. Patti McGill Peterson
/s/William J. Cosgrove
- ----------------------------- ------------------------------
William J. Cosgrove John A. Moore
/s/Douglas M. Costle /s/John W. Pratt
- ----------------------------- ------------------------------
Douglas M. Costle John W. Pratt
/s/Leland O. Erdahl /s/Richard S. Scipione
- ----------------------------- ------------------------------
Leland O. Erdahl Richard S. Scipione
/s/Richard A. Farrell /s/Edward J. Spellman
- ----------------------------- ------------------------------
Richard A. Farrell Edward J. Spellman
/s/Gail D. Fosler
- -----------------------------
Gail D. Fosler
C-12
<PAGE>
John Hancock Capital Series
EXHIBIT INDEX
Exhibit No. Exhibit Description Page Number
99.B1 Amended and Restated Declaration of Trust of
Registrant dated February 28, 1992.*
99.B1.1 Amendment to Declaration of Trust dated September 14,
1993.*
99.B1.2 Amendment to the Declaration Trust Agreement Abolition
of Class C Shares of Beneficial Interest of John Hancock
Growth Fund dated May 1, 1995.**
99.B1.3 Amendment to the Declaration of Trust Amending Number
of Trustees and Appointing Individual to Fill a Vacancy
dated March 5, 1996.**
99.B2 Amended and Restated By-Laws of Registrant as adopted on
December 8, 1993.*
99.B2.1 Amendment to By -Laws dated December 13, 1994.*
99.B2.2 Amendment to By-Laws dated March 6, 1996.**
99.B4 Specimen share certificate for the Registrant.*
99.B5 Investment Management Contract between Registrant and
John Hancock Advisers, Inc. dated January 1, 1994.*
99.B5.1 Sub-Investment Management Contract between Registrant
and NM Capital Management Inc.*
99.B5.2 Investment Management Contract between Independence Diversified
Core Equity Fund and John Hancock Advisers, Inc. dated August 31,
1995.+
99.B5.3 Sub-Investment Management Contract between Independence Diversified
Core Equity Fund and John Hancock Advisers, Inc. dated August 31,
1995.+
99.B6 Distribution Agreement with Registrant and John Hancock
Broker Distribution Services, Inc. dated August 1, 1991.*
99.B6.1 Amendment No. 1 to Distribution Agreement with Registrant
and John Hancock Broker Distribution Services, Inc.*
99.B6.2 Form of Soliciting Dealer Agreement between John Hancock
Broker Distribution Services, Inc. and Selected Dealers.*
99.B6.3 Form of Financial Institution Sales and Service
Agreement.*
99.B7 None
99.B8 Master Custodian Agreement between John Hancock Mutual
Funds and Investors Bank and Trust Company dated December
15, 1992.*
99.B9 Transfer Agency Agreement between Registrant and John
Hancock Fund Services, Inc. dated January 1, 1991. *
99.B9.1 Amendment No.1 to Transfer Agency and Service Agreement
between Registrant and John Hancock Fund Services, Inc.
dated October 1, 1993.*
99.B9.2 Accounting & Legal Services Agreement between John Hancock
Advisers, Inc. and Registrant as of January 1, 1996.***
C-13
<PAGE>
99.B.10 None
99.B11 Consent of Auditor+
99.B12 Not Applicable
99.B13 None
99.B14 None
99.B15 Class A Distribution Plan between John Hancock Growth Fund
and John Hancock Broker Services, Inc.*
99.B15.1 Class B Distribution Plan between John Hancock Growth Fund
and John Hancock Broker Services, Inc.*
99.B15.2 Class A Distribution Plan between John Hancock Special
Value Fund and John Hancock Broker Services, Inc.*
99.B15.3 Class B Distribution Plan between John Hancock Special
Value Fund and John Hancock Broker Services, Inc.*
99.B15.4 Class A Distribution Plan between John Hancock Independence
Diversified Core Equity Fund and John Hancock Funds, Inc.+
99.B15.5 Class B Distribution Plan between John Hancock Independence
Diversified Core Equity Fund and John Hancock Funds, Inc.+
99.B16 Schedule for Computation of Yield and Total Return.*
27.1A Special Value
27.1B Special Value
27.2A Independence Equity
27.2B Independence Equity
27.3A Utilities
27.3B Utilities
- ----------
* Previously filed with post-effective amendment number 44 (file nos.
811-1677; 2-29502) on April 26, 1995, accession number
0000950146-95-000180.
** Previously filed electronically with post-effective amendment number 45
(file nos. 811-1677 and 2-29502) on March 28, 1996, accession number
0001010521-96-000007.
*** Previously filed with post-effective amendment number 47 (file nos.
811-1677; 2-29502) on June 14, 1996 accession number 0001010521-96-000095.
+ Filed herewith.
Exhibit A
JOHN HANCOCK STRATEGIC SERIES
John Hancock Independence Diversified Core Equity Fund
Investment Management Contract
Dated August 31, 1995
<PAGE>
JOHN HANCOCK STRATEGIC SERIES
John Hancock Independence Diversified Core Equity Fund
Boston, Massachusetts
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199
Investment Management Contract
Ladies and Gentlemen:
John Hancock Strategic Series (the "Trust") has been organized as a
business trust under the laws of the Commonwealth of Massachusetts to engage in
the business of an investment company. The Trust's shares of beneficial interest
may be classified into series, each series representing the entire undivided
interest in a separate portfolio of assets. Series may be established or
terminated from time to time by action of the Board of Trustees of the Trust. As
of the date hereof, the Trust has two series of shares, representing interests
in John Hancock Strategic Income Fund and John Hancock Independence Diversified
Core Equity Fund.
The Board of Trustees of the Trust (the "Trustees") has selected John
Hancock Advisers, Inc. (the "Adviser") to provide overall investment advice and
management for the John Hancock Independence Diversified Core Equity Fund (the
"Fund"), and to provide certain other services, as more fully set forth below,
and the Adviser is willing to provide such advice, management and services under
the terms and conditions hereinafter set forth. Accordingly, the Trust and the
Adviser agree as follows:
1. Delivery of Documents. The Trust has furnished the Adviser with copies,
properly certified or otherwise authenticated, of each of the following:
2
<PAGE>
(a) Declaration of Trust of the Trust dated April 16, 1986 as amended and
restated (the "Declaration of Trust");
(b) By-Laws of the Trust as in effect on the date hereof;
(c) Resolutions of the Trustees selecting the Adviser as investment adviser
for the Fund and approving the form of this Agreement;
(d) Resolutions of the Trustees approving the form of the Sub-Adviser's
contract by and among the Adviser, Independence Investment Associates, Inc.
("IIA") and the Trust on behalf of the Fund (the "Sub-Investment Management
Contract");
(e) the Sub-Investment Management Contract; and
(f) commitments, limitations and undertakings made by the Fund to state
securities or "blue sky" authorities for the purpose of qualifying shares of the
Fund for sale in such states.
The Trust will furnish to the Adviser from time to time copies, properly
certified or otherwise authenticated, of all amendments of or supplements to the
foregoing, if any.
2. Investment and Management Services. The Adviser will use its best efforts
to provide to the Fund continuing and suitable investment programs with
respect to investments, consistent with the investment policies, objectives
and restrictions of the Fund. In the performance of the Adviser's duties
hereunder, subject always (x) to the provisions contained in the documents
delivered to the Adviser pursuant to Section 1, as each of the same may
from time to time be amended or supplemented, and (y) to the limitations
set forth in the registration statement of the Trust, on behalf of the
Fund, as in effect from time to time under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended (the "1940
Act"), the Adviser will, at its own expense:
(a) furnish the Fund with advice and recommendations, consistent with the
investment policies, objectives and restrictions of the Fund, with respect to
the purchase, holding and disposition of portfolio securities including, the
purchase and sale of options, alone or in consultation with any sub-adviser or
sub-advisers appointed pursuant to this Agreement and subject to the provisions
of any sub-investment management contract respecting the responsibilities of
such sub-adviser or sub-advisers;
(b) advise the Fund in connection with policy decisions to be made by the
Trustees or any committee thereof with respect to the Fund's investments and, as
requested, furnish the Fund with research, economic and statistical data in
connection with the Fund's investments and investment policies;
3
<PAGE>
(c) provide administration of the day-to-day investment operations of the
Fund;
(d) submit such reports relating to the valuation of the Fund's securities
as the Trustees may reasonably request;
(e) assist the Fund in any negotiations relating to the Fund's investments
with issuers, investment banking firms, securities brokers or dealers and other
institutions or investors;
(f) consistent with the provisions of Section 7 of this Agreement, place
orders for the purchase, sale or exchange of portfolio securities with brokers
or dealers selected by the Adviser, provided that in connection with the placing
of such orders and the selection of such brokers or dealers the Adviser shall
seek to obtain execution and pricing within the policy guidelines determined by
the Trustees and set forth in the Prospectus and Statement of Additional
Information of the Fund as in effect from time to time;
(g) provide office space and office equipment and supplies, the use of
accounting equipment when required, and necessary executive, clerical and
secretarial personnel for the administration of the affairs of the Fund;
(h) from time to time or at any time requested by the Trustees, make
reports to the Trust of the Adviser's performance of the foregoing services and
furnish advice and recommendations with respect to other aspects of the business
and affairs of the Fund;
(i) maintain all books and records with respect to the Fund's securities
transactions required by the 1940 Act, including sub-paragraphs (b)(5), (6), (9)
and (10) and paragraph (f) of Rule 31a-1 thereunder (other than those records
being maintained by the Fund's custodian or transfer agent) and preserve such
records for the periods prescribed therefor by Rule 31a-2 of the 1940 Act (the
Adviser agrees that such records are the property of the Trust and will be
surrendered to the Trust promptly upon request therefor);
(j) obtain and evaluate such information relating to economies, industries,
businesses, securities markets and securities as the Adviser may deem necessary
or useful in the discharge of the Adviser's duties hereunder;
(k) oversee, and use the Adviser's best efforts to assure the performance
of the activities and services of the custodian, transfer agent or other similar
agents retained by the Trust;
(l) give instructions to the Fund's custodian as to deliveries of
securities to and from such custodian and transfer of payment of cash for the
account of the Fund; and
4
<PAGE>
(m) appoint and employ one or more sub-advisers satisfactory to the Fund
under sub-investment management agreements.
3. Expenses paid by the Adviser. The Adviser will pay:
(a) the compensation and expenses of all officers and employees of the
Fund;
(b) the expenses of office rent, telephone and other utilities, office
furniture, equipment, supplies and other expenses of the Fund;
(c) any other expenses incurred by the Adviser in connection with the
performance of its duties hereunder; and
(d) premiums for such insurance as may be agreed upon by the Adviser and
the Trustees.
4. Expenses of the Fund Not Paid by the Adviser. The Adviser will not be
required to pay any expenses which this Agreement does not expressly make
payable by it. In particular, and without limiting the generality of the
foregoing but subject to the provisions of Section 3, the Adviser will not
be required to pay under this Agreement:
(a) The expenses of organizing the Fund (including without limitation,
legal, accounting and auditing fees and expenses incurred in connection with the
matters referred to in this clause (a)), of initially registering shares of the
Fund under the Securities Act of 1933, as amended, and of qualifying the shares
for sale under state securities laws for the initial offering and sale of
shares;
(b) the compensation and expenses of Trustees who are not interested
persons (as used in this Agreement, such term shall have the meaning specified
in the 1940 Act) of the Adviser and of independent advisers, independent
contractors, consultants, managers and other unaffiliated agents employed by the
Fund other than through the Adviser;
(c) legal, accounting and auditing fees and expenses of the Trust or the
Fund;
(d) the fees and disbursements of custodians and depositories of the Fund's
assets, transfer agents, disbursing agents, plan agents and registrars;
(e) taxes and governmental fees assessed against the Trust's or the Fund's
assets and payable by the Trust;
(f) the cost of preparing and mailing dividends, distributions, reports,
notices and proxy materials to shareholders of the Fund;
5
<PAGE>
(g) brokers' commissions and underwriting fees; and
(h) the expense of periodic calculations of the net asset value of the
shares of the Fund.
5. Compensation of the Adviser. For all services to be rendered, facilities
furnished and expenses paid or assumed by the Adviser as herein provided,
the Fund will pay to the Adviser monthly in arrears a fee based on a stated
percentage of the Fund's average daily net assets during the preceding
month as follows:
Net Asset Value Annual Rate
First $750,000,000..................... 0.75%
Amount over $750,000,000............... 0.70%
The "average daily net assets" of the Fund shall be determined on the basis set
forth in the Fund's Prospectus or otherwise consistent with the 1940 Act and the
regulations promulgated thereunder. The Adviser will receive a pro rata portion
of such monthly fee for any periods in which the Adviser serves as investment
adviser to the Fund for less than a full month.
In the event that normal operating expenses of the Fund, exclusive of
certain expenses prescribed by state law, are in excess of any limitation
imposed by the law of a state where the Fund is registered to sell shares of
beneficial interest, the fee payable to the Adviser will be reduced to the
extent required by law, and the Adviser will make any additional arrangements
that the Adviser is required by law to make.
In addition to the foregoing, the Adviser may from time to time agree not
to impose all or a portion of its fee otherwise payable hereunder (in advance of
the time such fee or portion thereof would otherwise accrue) and/or undertake to
pay or reimburse the Fund for all or a portion of its expenses not otherwise
required to be borne or reimbursed by the Adviser. Any such fee reduction or
undertaking may be discontinued or modified by the Adviser at any time.
6. Other Activities of the Adviser and Its Affiliates. Nothing herein
contained shall prevent the Adviser or any affiliate or associate of the
Adviser from engaging in any other business or from acting as investment
adviser or investment manager for any other person or entity, whether or
not having investment policies or portfolios similar to the Fund's; and it
is specifically understood that officers, directors and employees of the
Adviser and those of its parent company, John Hancock Mutual Life Insurance
Company, or other affiliates may continue to engage in providing portfolio
management services and advice to other investment companies, whether or
not registered, to other investment advisory clients of the Adviser or of
its affiliates and to said affiliates themselves.
6
<PAGE>
7. Avoidance of Inconsistent Position. In connection with purchases or sales
of portfolio securities for the account of the Fund, neither the Adviser
nor any of its investment management subsidiaries, nor any of the Adviser's
or such investment management subsidiaries' directors, officers or
employees will act as principal or agent or receive any commission, except
as may be permitted by the 1940 Act and rules and regulations promulgated
thereunder. If any occasions shall arise in which the Adviser advises
persons concerning the shares of the Trust, the Adviser will act solely on
its own behalf and not in any way on behalf of the Trust or the Fund.
Nothing herein contained shall limit or restrict the Adviser or any of its
officers, affiliates or employees from buying, selling or trading in any
securities for its or their own account or accounts. The Trust and Fund
acknowledge the Adviser and its officers, affiliates, and employees, and its
other clients may at any time have, acquire, increase, decrease or dispose of
positions in investments which are at the same time being acquired or disposed
of hereunder. The Adviser shall have no obligation to acquire with respect to
the Fund, a position in any investment which the Adviser, its officers,
affiliates or employees may acquire for its or their own accounts or for the
account of another client, if in the sole discretion of the Adviser, it is not
feasible or desirable to acquire a position in such investment on behalf of the
Fund. Nothing herein contained shall prevent the Adviser from purchasing or
recommending the purchase of a particular security for one or more funds or
clients while other funds or clients may be selling the same security.
8. No Partnership or Joint Venture. The Trust, the Fund and the Adviser are
not partners of or joint venturers with each other and nothing herein shall
be construed so as to make them such partners or joint venturers or impose
any liability as such on any of them.
9. Name of the Trust and the Fund. The Trust and the Fund may use the name
"John Hancock" or any name derived from or similar to the name "John
Hancock Advisers, Inc." or "John Hancock Mutual Life Insurance Company"
only for so long as this Agreement remains in effect. At such time as this
Agreement shall no longer be in effect, the Trust and the Fund will (to the
extent that they lawfully can) cease to use such names or any other names
indicating that the Fund is advised by or otherwise connected with the
Adviser. The Trust acknowledges that it has adopted the name "John Hancock
Strategic Series" and the Fund has adopted the name "John Hancock
Independence Diversified Core Equity Fund" through permission of John
Hancock Mutual Life Insurance Company and agrees that John Hancock Mutual
Life Insurance Company reserves to itself and any successor to its business
the right to 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 John Hancock Mutual Life
Insurance Company or any subsidiary or affiliate thereof shall be the
investment adviser.
10. Limitation of Liability of the Adviser. The Adviser shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the
Trust or the Fund in connection with the matters to which this Agreement
relates, except a loss resulting from willful misfeasance, bad faith or
7
<PAGE>
gross negligence on the part of the Adviser in the performance of its
duties or from reckless disregard by it of its obligations and duties under
this Agreement. Any person, even though also employed by the Adviser, who
may be or become an employee of and paid by the Trust or the Fund shall be
deemed, when acting within the scope of his employment by the Trust or the
Fund, to be acting in such employment solely for the Trust or the Fund and
not as the Adviser's employee or agent.
11. Duration and Termination of this Agreement. This Agreement shall remain in
force until the second anniversary of the date upon which this Agreement
was executed by the parties hereto, and from year to year thereafter, but
only so long as such continuance is specifically approved at least annually
by (a) a majority of the Trustees who are not interested persons of the
Adviser or (other than as Board members) of the Trust or the Fund, cast in
person at a meeting called for the purpose of voting on such approval, and
(b) either (i) the Trustees or (ii) a majority of the outstanding voting
securities of the Fund. This Agreement may, on 60 days' written notice, be
terminated at any time without the payment of any penalty by the Trust or
the Fund by vote of a majority of the outstanding voting securities of the
Fund, by the Trustees or by the Adviser. Termination of this Agreement with
respect to the Fund shall not be deemed to terminate or otherwise
invalidate any provisions of any contract between the Adviser and any other
series of the Trust. This Agreement shall automatically terminate in the
event of its assignment. In interpreting the provisions of this Section 11,
the definitions contained in Section 2(a) of the 1940 Act (particularly the
definitions of "assignment," "interested person" or "voting security"),
shall be applied.
12. Amendment of this Agreement. No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change,
waiver, discharge or termination is sought, and no amendment, transfer,
assignment, sale, hypothecation or pledge of this Agreement shall be
effective until approved by (a) the Trustees, including a majority of the
Trustees who are not interested persons of the Adviser or (other than as
Board members) of the Trust or the Fund, cast in person at a meeting called
for the purpose of voting on such approval, and (b) a majority of the
outstanding voting securities of the Fund, as defined in the 1940 Act.
13. Governing Law. This Agreement shall be governed and construed in accordance
with the laws of the Commonwealth of Massachusetts.
14. Severability. The provisions of this Agreement are independent of and
separable from each other, and no provision shall be affected or rendered
invalid or unenforceable by virtue of the fact that for any reason any
other or others of them may be deemed invalid or unenforceable in whole or
in part.
15. Miscellaneous. The captions in this Agreement are included for convenience
of reference only and in no way define or limit any of the provisions
8
<PAGE>
hereof or otherwise affect their construction or effect. This Agreement may
be executed simultaneously in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and
the same instrument. The name John Hancock Strategic Series is the
designation of the Trustees under the Declaration of Trust dated April 16,
1986, as amended and restated from time to time. The Declaration of Trust
has been filed with the Secretary of the Commonwealth of Massachusetts. The
obligations of the Trust and the Fund are not personally binding upon, nor
shall resort be had to the private property of, any of the Trustees,
shareholders, officers, employees or agents of the Fund, but only the
Fund's property shall be bound. The Trust or the Fund shall not be liable
for the obligations of any other series of the Trust.
Yours very truly,
JOHN HANCOCK STRATEGIC SERIES on behalf
of John Hancock Independence Diversified
Core Equity Fund
By: /s/ Thomas H. Drohan
------------------------------------------
Title: Senior Vice President and Secretary
The foregoing contract
is hereby agreed to as
of the date hereof.
JOHN HANCOCK ADVISERS, INC.
By: /s/ Anne C. Hodsdon
- ----------------------------
Title: President
9
JOHN HANCOCK STRATEGIC SERIES
John Hancock Independence Diversified Core Equity Fund
Sub-Investment Management Contract
Dated August 31, 1995
<PAGE>
JOHN HANCOCK ADVISERS, INC.
Boston, Massachusetts
JOHN HANCOCK STRATEGIC SERIES
-- John Hancock Independence Diversified
Core Equity Fund
101 Huntington Avenue
Boston, Massachusetts 02199
INDEPENDENCE INVESTMENT
ASSOCIATES, INC.
53 State Street
Boston, Massachusetts 02109
Sub-Investment Management Contract
Ladies and Gentlemen:
John Hancock Strategic Series (the "Trust") has been organized as a
business trust under the laws of The Commonwealth of Massachusetts to engage in
the business of an investment company. The Trust's shares of beneficial interest
may be classified into series, each series representing the entire undivided
interest in a separate portfolio of assets. Series may be established or
terminated from time to time by action of the Board of Trustees of the Trust. As
of the date hereof, the Trust has three series of shares, representing interests
in John Hancock Strategic Income Fund, John Hancock Utilities Fund and John
Hancock Independence Diversified Core Equity Fund.
The Board of Trustees of the Trust (the "Trustees") has selected John
Hancock Advisers, Inc. (the "Adviser") to provide overall investment advice and
management for the John Hancock Independence Diversified Core Equity Fund (the
"Fund"), and to provide certain other services, under the terms and conditions
provided in the Investment Management Contract, dated as of the date hereof,
between the Trust, the Fund and the Adviser (the "Investment Management
Contract").
The Adviser and the Trustees have selected Independence Investment
Associates, Inc. (the "Sub-Adviser") to provide the Adviser and the Fund with
the advice and services set forth below, and the Sub-Adviser is willing to
provide such advice and services, subject to the review of the Trustees and
overall supervision of the Adviser, under the terms and conditions hereinafter
set forth. The Sub-Adviser hereby represents and warrants that it is registered
as an investment adviser under the Investment Advisers Act of 1940, as amended.
Accordingly, the Trust, on behalf of the Fund, and the Adviser agree with the
Sub-Adviser as follows:
<PAGE>
1. Delivery of Documents. The Trust has furnished the Sub-Adviser with copies,
properly certified or otherwise authenticated, of each of the following:
(a) Declaration of Trust of the Trust, dated April 16, 1986, as amended
(the "Declaration of Trust");
(b) By-Laws of the Trust as in effect on the date hereof;
(c) Resolutions of the Trustees approving the form of this Agreement by and
among the Adviser, the Sub-Adviser and the Trust, on behalf of the Fund;
(d) Resolutions of the Trustees selecting the Adviser as investment adviser
for the Fund and approving the form of the Investment Management Contract;
(e) the Investment Management Contract;
(f) commitments, limitations and undertakings made by the Fund to state
securities or "blue sky" authorities for the purpose of qualifying shares of the
Fund for sale in such states;
(g) the Fund's portfolio compliance checklists; and
(h) the Fund's current Registration Statement, including the Fund's
Prospectus and Statement of Additional Information.
The Trust will furnish to the Sub-Adviser from time to time copies,
properly certified or otherwise authenticated, of all amendments of or
supplements to the foregoing, if any.
2. Investment Services. The Sub-Adviser will use its best efforts to provide
to the Fund continuing and suitable investment advice with respect to
investments, consistent with the investment policies, objectives and
restrictions of the Fund as set forth in the Fund's Prospectus and
Statement of Additional Information. In the performance of the
Sub-Adviser's duties hereunder, subject always (x) to the provisions
contained in the documents delivered to the Sub-Adviser pursuant to Section
1, as each of the same may from time to time be amended or supplemented,
and (y) to the limitations set forth in the Registration Statement of the
Trust, on behalf of the Fund, as in effect from time to time under the
Securities Act of 1933, as amended, and the Investment Company Act of 1940,
as amended (the "1940 Act"), the Sub-Adviser will, have investment
discretion with respect to the Fund and will, at its own expense:
(a) furnish the Adviser and the Fund with advice and recommendations,
consistent with the investment policies, objectives and restrictions of the Fund
as set forth in the Fund's Prospectus and Statement of Additional Information,
with respect to the purchase, holding and disposition of portfolio securities
including, the purchase and sale of options;
(b) furnish the Adviser and the Fund with advice as to the manner in which
voting rights, subscription rights, rights to consent to corporate action and
any other rights pertaining to the Fund's assets shall be exercised, the Fund
having the responsibility to exercise such voting and other rights;
2
<PAGE>
(c) furnish the Adviser and the Fund with research, economic and
statistical data in connection with the Fund's investments and investment
policies;
(d) submit such reports relating to the valuation of the Fund's securities
as the Trustees may reasonably request;
(e) subject to prior consultation with the Adviser, engage in negotiations
relating to the Fund's investments with issuers, investment banking firms,
securities brokers or dealers and other institutions or investors;
(f) consistent with provisions of Section 7 of this Agreement, place orders
for the purchase, sale or exchange of portfolio securities with brokers or
dealers selected by the Adviser or the Sub-Adviser, provided that in connection
with the placing of such orders and the selection of such brokers or dealers the
Sub-Adviser shall seek to obtain execution and pricing within the policy
guidelines determined by the Trustees and set forth in the Prospectus and
Statement of Additional Information of the Fund as in effect and furnished to
the Sub-Adviser from time to time;
(g) from time to time or at any time requested by the Adviser or the
Trustees, make reports to the Adviser or the Trust of the Sub-Adviser's
performance of the foregoing services;
(h) subject to the supervision of the Adviser, maintain all books and
records with respect to the Fund's securities transactions required by the 1940
Act, and preserve such records for the periods prescribed therefor by the 1940
Act (the Sub-Adviser agrees that such records are the property of the Trust and
copies will be surrendered to the Trust promptly upon request therefor);
(i) give instructions to the Fund's custodian as to deliveries of
securities to and from such custodian and transfer of payment of cash for the
account of the Fund, and advise the Adviser on the same day such instructions
are given; and
(j) cooperate generally with the Fund and the Adviser to provide
information necessary for the preparation of registration statements and
periodic reports to be filed with the Securities and Exchange Commission,
including Form N-1A, periodic statements, shareholder communications and proxy
materials furnished to holders of shares of the Fund, filings with state "blue
sky" authorities and with United States agencies responsible for tax matters,
and other reports and filings of like nature.
3. Expenses Paid by the Sub-Adviser. The Sub-Adviser will pay the cost of
maintaining the staff and personnel necessary for it to perform its
obligations under this Agreement, the expenses of office rent, telephone,
telecommunications and other facilities it is obligated to provide in order
to perform the services specified in Section 2, and any other expenses
incurred by it in connection with the performance of its duties hereunder.
3
<PAGE>
4. Expenses of the Fund Not Paid by the Sub-Adviser. The Sub-Adviser will not
be required to pay any expenses which this Agreement does not expressly
make payable by the Sub-Adviser. In particular, and without limiting the
generality of the foregoing but subject to the provisions of Section 3, the
Sub-Adviser will not be required to pay under this Agreement:
(a) the compensation and expenses of Trustees and of independent advisers,
independent contractors, consultants, managers and other agents employed by the
Trust or the Fund other than through the Sub-Adviser;
(b) legal, accounting and auditing fees and expenses of the Trust or the
Fund;
(c) the fees and disbursements of custodians and depositories of the Trust
or the Fund's assets, transfer agents, disbursing agents, plan agents and
registrars;
(d) taxes and governmental fees assessed against the Trust or the Fund's
assets and payable by the Trust or the Fund;
(e) the cost of preparing and mailing dividends, distributions, reports,
notices and proxy materials to shareholders of the Trust or the Fund except that
the Sub-Adviser shall bear the costs of providing the information referred to in
Section 2(j) to the Adviser;
(f) brokers' commissions and underwriting fees; and
(g) the expense of periodic calculations of the net asset value of the
shares of the Fund.
5. Compensation of the Sub-Adviser. For all services to be rendered,
facilities furnished and expenses paid or assumed by the Sub-Adviser as
herein provided for the Fund, the Adviser will pay the Sub-Adviser
quarterly, in arrears, a fee at the annual rate of 55% of the investment
advisory fee payable to the Adviser.
The fee payable to the Adviser is caluclated on the basis of the "average
daily net assets" of the Fund and shall be determined on the basis set forth in
the Fund's Prospectus or otherwise consistent with the 1940 Act and the
regulations promulgated thereunder. The Sub-Adviser will receive a pro rata
portion of such fee for any periods in which the Sub-Adviser advises the Fund
less than a full quarter. Fund shall not be liable to the Sub-Adviser for the
Sub-Adviser's compensation hereunder. Calculations of the Sub-Adviser's fee will
be based on average net asset values as provided by the Adviser.
4
<PAGE>
In addition to the foregoing, the Sub-Adviser may from time to time agree
not to impose all or a portion of its fee otherwise payable hereunder (in
advance of the time such fee or portion thereof would otherwise accrue) and/or
undertake to pay or reimburse the Fund for all or a portion of its expenses not
otherwise required to be borne or reimbursed by it. Any such fee reduction or
undertaking may be discontinued or modified by the Sub-Adviser at any time.
6. Other Activities of the Sub-Adviser and Its Affiliates. Nothing herein
contained shall prevent the Sub-Adviser or any associate of the Sub-Adviser
from engaging in any other business or from acting as investment adviser or
investment manager for any other person or entity, whether or not having
investment policies or portfolios similar to the Fund's; and it is
specifically understood that officers, directors and employees of the
Sub-Adviser and those of its parent company, John Hancock Mutual Life
Insurance Company, or other affiliates may continue to engage in providing
portfolio management services and advice to other investment companies,
whether or not registered, to other investment advisory clients of the
Sub-Adviser or its affiliates and to said affiliates themselves.
7. Avoidance of Inconsistent Position. In connection with purchases or sales
of portfolio securities for the account of the Fund, neither the
Sub-Adviser nor any of its investment management subsidiaries nor any of
such investment management subsidiaries' directors, officers or employees
will act as principal or agent or receive any commission, except as may be
permitted by the 1940 Act and rules and regulations promulgated thereunder.
The Sub-Adviser shall not knowingly recommend that the Fund purchase, sell
or retain securities of any issuer in which the Sub-Adviser has a financial
interest without obtaining prior approval of the Adviser prior to the
execution of any such transaction.
Nothing herein contained shall limit or restrict the Sub-Adviser or any of
its officers, affiliates or employees from buying, selling or trading in any
securities for its or their own account or accounts. The Trust and Fund
acknowledge the Sub-Adviser and its officers, affiliates, and employees, and its
other clients may at any time have, acquire, increase, decrease or dispose of
positions in investments which are at the same time being acquired or disposed
of hereunder. The Sub-Adviser shall have no obligation to acquire with respect
to the Fund, a position in any investment which the Sub-Adviser, its officers,
affiliates or employees may acquire for its or their own accounts or for the
account of another client, if in the sole discretion of the Sub-Adviser, it is
not feasible or desirable to acquire a position in such investment on behalf of
the Fund. Nothing herein contained shall prevent the Sub-Adviser from purchasing
or recommending the purchase of a particular security for one or more funds or
clients while other funds or clients may be selling the same security.
5
<PAGE>
8. No Partnership or Joint Venture. The Trust, the Fund, the Adviser and the
Sub-Adviser are not partners of or joint venturers with each other and
nothing herein shall be construed so as to make them such partners or joint
venturers or impose any liability as such on any of them.
9. Name of Fund. The Trust and the Fund may use the name "Independence" or any
name similar to "Independence Investment Associates, Inc." only for so long
as this Agreement remains in effect. At such time as this Agreement shall
no longer be in effect, the Fund will (to the extent that it lawfully can)
cease to use such names or any other names indicating that the Fund is
advised by or otherwise connected with the Sub-Adviser. The Fund
acknowledges that it has adopted a name that includes the name
"Independence" through permission of the Sub-Adviser and agrees that the
Sub-Adviser reserves to itself and any successor to its business the right
to grant the non-exclusive right to use the name "Independence" or any
similar name to any other corporation or entity, including but not limited
to any investment company of which it or any of its subsidiaries or
affiliates shall be the investment adviser.
10. Limitation of Liability of Sub-Adviser. The Sub-Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Trust or the Fund or the Adviser in connection with the matters to which
this Agreement relates, except a loss resulting from willful misfeasance,
bad faith or gross negligence on the Sub-Adviser's part in the performance
of its duties or from reckless disregard by it of its obligations and
duties under this Agreement. Any person, even though also employed by the
Sub-Adviser, who may be or become an employee of and paid by the Trust or
the Fund shall be deemed, when acting within the scope of his employment by
the Trust or the Fund, to be acting in such employment solely for the Trust
or the Fund and not as the Sub-Adviser's employee or agent.
11. Duration and Termination of this Agreement. This Agreement shall remain in
force until the second anniversary of the date upon which this Agreement
was executed by the parties hereto, and from year to year thereafter, but
only so long as such continuance is specifically approved at least annually
by (a) a majority of the Trustees who are not interested persons of the
Adviser, the Sub-Adviser, or (other than as Board members) of the Trust or
the Fund, cast in person at a meeting called for the purpose of voting on
such approval, and (b) either (i) the Trustees or (ii) a majority of the
outstanding voting securities of the Fund. This Agreement may, on 60 days'
written notice, be terminated at any time without the payment of any
penalty by the Trust or the Fund by vote of a majority of the outstanding
voting securities of the Fund, by the Trustees, the Adviser or the
Sub-Adviser. Termination of this Agreement with respect to the Fund shall
not be deemed to terminate or otherwise
6
<PAGE>
invalidate any provisions of any contract between the Sub-Adviser and any
other series of the Trust. This Agreement shall automatically terminate in
the event of its assignment or upon termination of the Investment
Management Contract. In interpreting the provisions of this Section 11, the
definitions contained in Section 2(a) of the 1940 Act (particularly the
definitions of "assignment," "interested person" or "voting security"),
shall be applied.
12. Amendment of this Agreement. No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change,
waiver, discharge or termination is sought, and no amendment, transfer,
assignment, sale, hypothecation or pledge of this Agreement shall be
effective until approved by (a) the Trustees, including a majority of the
Trustees who are not interested persons of the Adviser, the Sub-Adviser, or
(other than as Board members) of the Trust or the Fund, cast in person at a
meeting called for the purpose of voting on such approval, and (b) a
majority of the outstanding voting securities of the Fund, as defined in
the 1940 Act.
13. Governing Law. This Agreement shall be governed and construed in accordance
with the laws of the Commonwealth of Massachusetts.
14. Severability. The provisions of this Agreement are independent of and
separable from each other, and no provision shall be affected or rendered
invalid or unenforceable by virtue of the fact that for any reason any
other or others of them may be deemed invalid or unenforceable in whole or
in part.
15. Miscellaneous. (a) The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. The name John Hancock Strategic
Series is the designation of the Trustees under the Declaration of Trust
dated April 16, 1986, as amended from time to time. The Declaration of
Trust has been filed with the Secretary of The Commonwealth of
Massachusetts. The obligations of the Trust and the Fund are not personally
binding upon, nor shall resort be had to the private property of, any of
the Trustees, shareholders, officers, employees or agents of the Fund, but
only the Fund's property shall be
7
<PAGE>
bound. The Trust or the Fund shall not be liable for the obligations of any
other series of the Trust. (b) Any information supplied by the Sub-Adviser,
which is not otherwise in the public domain, in connection with the
performance of its duties hereunder is to be regarded as confidential and
for use only by the Fund and/or its agents, and only in connection with the
Fund and its investments.
Yours very truly,
JOHN HANCOCK ADVISERS, INC.
By: /s/ Edward J. Boudreau, Jr.
----------------------------
Title: Chairman & CEO
The foregoing contract
is hereby agreed to as
of the date hereof.
JOHN HANCOCK STRATEGIC SERIES
on behalf of John Hancock
Independence Diversified
Core Equity Fund
By: /s/ Thomas H. Drohan
---------------------
Title: Senior Vice President & Secretary
INDEPENDENCE INVESTMENT
ASSOCIATES, INC.
By: /s/ W.C. Fletcher
---------------------
Title: President
8
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" for Special Value Fund in the John Hancock Growth and Income Funds
Prospectus and "Independent Auditors" in the John Hancock Special Value Fund
Class A and Class B Shares Statement of Additional Information in Post-Effective
Amendment No. 47 to the Registration Statement (Form N-1A, No. 2-29502) dated
August 30, 1996.
We also consent to the incorporation by reference therein of our report dated
February 9, 1996, with respect to the financial statements and financial
highlights of the John Hancock Special Value Fund (one of the portfolios
constituting John Hancock Capital Series) in this Form N1-A.
/s/ERNST & YOUNG LLP
ERNST & YOUNG LLP
Boston, Massachusetts
August 21, 1996
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statements of Additional Information constituting parts of this Post Effective
Amendment No. 47 to the Registration Statement on Form N-1A (the "Registration
Statement") of our reports dated July 15, 1996, relating to the financial
statements and financial highlights appearing in the May 31, 1996 Annual Reports
to Shareholders of the John Hancock Independence Equity Fund and the John
Hancock Utilities Fund (the "Funds"), each a series of John Hancock Capital
Series, which financial statements and financial highlights are also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the headings "Independent Auditors" in such
Statements of Additional Information and under the headings "Financial
Highlights" in such Prospectus.
/s/Price Waterhouse LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
August 26, 1996
JOHN HANCOCK STRATEGIC SERIES --
JOHN HANCOCK INDEPENDENCE DIVERSIFIED CORE EQUITY FUND
Amended and Restated Distribution Plan
Class A Shares
September 1, 1995
Article I. This Plan
This amended and restated Distribution Plan (the "Plan") sets forth the
terms and conditions on which John Hancock Strategic Series (the "Trust"), on
behalf of John Hancock Independence Diversified Core Equity Fund (the "Fund"), a
series portfolio of the Trust, on behalf of its Class A shares, will, after the
effective date hereof, pay certain amounts to John Hancock Funds, Inc. ("JH
Funds") in connection with the provision by JH Funds of certain services to the
Fund and its Class A shareholders, as set forth herein. Certain of such payments
by the Fund may, under Rule 12b-1 of the Securities and Exchange Commission, as
from time to time amended (the "Rule"), under the Investment Company Act of
1940, as amended (the "Act"), be deemed to constitute the financing of
distribution by the Fund of its shares. This Plan describes all material aspects
of such financing as contemplated by the Rule and shall be administered and
interpreted, and implemented and continued, in a manner consistent with the
Rule. The Trust and JH Funds heretofore entered into a Distribution Agreement,
dated August 1, 1991 (the "Agreement"), the terms of which, as heretofore and
from time to time continued, are incorporated herein by reference.
Article II. Distribution and Service Expenses
The Fund shall pay to JH Funds a fee in the amount specified in Article III
hereof. Such fee may be spent by JH Funds on any activities or expenses
primarily intended to result in the sale of Class A shares of the Fund,
including, but not limited to the payment of Distribution Expenses (as defined
below) and Service Expenses (as defined below). Distribution Expenses include
but are not limited to, (a) initial and ongoing sales compensation out of such
fee as it is received by Broker Services of the Fund or other broker-dealers
("Selling Brokers") that have entered into an agreement with JH Funds for the
sale of Class A shares of the Fund, (b) direct out-of-pocket expenses incurred
in connection with the distribution of Class A shares of the Fund, including
expenses related to printing of prospectuses and reports to other than existing
Class A shareholders of the Fund, and preparation, printing and distribution of
sales literature and advertising materials, and (c) an allocation of overhead
and other branch office expenses of JH Funds related to the distribution of
Class A shares of the Fund.
<PAGE>
Service Expenses include payments made to, or on account of, account
executives of selected broker-dealers (including affiliates of JH Funds) and
others who furnish personal and shareholder account maintenance services to
Class A shareholders of the Fund.
Article III. Maximum Expenditures
The expenditures to be made by the Fund pursuant to this Plan, and the
basis upon which such expenditures will be made, shall be determined by the
Fund, and in no event shall such expenditures exceed 0.30% of the average daily
net asset value of the Class A shares of the Fund (determined in accordance with
the Fund's prospectus as from time to time in effect) on an annual basis to
cover Distribution Expenses and Service Expenses, provided that the portion of
such fee used to cover service expenses shall not exceed an annual rate of up to
0.25% of the average daily net asset value of the Class A shares of the Fund.
Such expenditures shall be calculated and accrued daily and paid monthly or at
such other intervals as the Trustees shall determine. In the event JH Funds is
not fully reimbursed for payments made or other expenses incurred by it under
this Plan, such expenses will not be carried beyond one year from the date such
expenses were incurred. Any fees paid to JH Funds under this Plan during any
fiscal year of the Fund and not expended or allocated by JH Funds for actual or
budgeted Distribution Expenses and Service Expenses during such fiscal year will
be promptly returned to the Fund.
Article IV. Expenses Borne by the Fund
Notwithstanding any other provision of this Plan, the Trust, the Fund and
its investment adviser, John Hancock Advisers, Inc. (the "Adviser"), shall bear
the respective expenses to be borne by them under the Investment Management
Contract, as amended, dated June 5, 1991, as from time to time continued and
amended (the "Management Contract"), and under the Fund's current prospectus as
it is from time to time in effect. Except as otherwise contemplated by this
Plan, the Trust and the Fund shall not, directly or indirectly, engage in
financing any activity which is primarily intended to or should reasonably
result in the sale of shares of the Fund.
Article V. Approval by Trustees, etc.
This Plan shall not take effect until it has been approved, together with
any related agreements, by votes, cast in person at a meeting called for the
purpose of voting on this Plan or such agreements, of a majority (or whatever
greater percentage may, from time to time, be required by Section 12(b) of the
Act or the rules and regulations thereunder) of (a) all of the Trustees of the
Fund and (b) those Trustees of the Fund who are not "interested persons" of the
Fund, as such term may be from time to time defined under the Act, and have no
direct or indirect financial interest in the operation of this Plan or any
agreements related to it (the "Independent Trustees").
2
<PAGE>
Article VI. Continuance
This Plan and any related agreements shall continue in effect for so long
as such continuance is specifically approved at least annually in advance in the
manner provided for the approval of this Plan in Article V.
Article VII. Information
JH Funds shall furnish the Fund and its Trustees quarterly, or at such
other intervals as the Fund shall specify, a written report of amounts expended
or incurred for Distribution Expenses and Service Expenses pursuant to this Plan
and the purposes for which such expenditures were made and such other
information as the Trustees may request.
Article VIII. Termination
This Plan 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 Fund's
outstanding voting Class A shares, or (b) by JH Funds on 60 days' notice in
writing to the Fund.
Article IX. Agreements
Each agreement with any person relating to implementation of this Plan
shall be in writing, and each agreement related to this Plan shall provide:
(a) That, with respect to the Fund, such agreement may be terminated at any
time, without payment of any penalty, by vote of a majority of the Independent
Trustees or by vote of a majority of the Fund's then outstanding voting Class A
shares.
(b) That such agreement shall terminate automatically in the event of its
assignment.
Article X. Amendments
This Plan may not be amended to increase the maximum amount of the fees
payable by the Fund hereunder without the approval of a majority of the
outstanding voting Class A shares of the Fund. No material amendment to the Plan
shall, in any event, be effective unless it is approved in the same manner as is
provided for approval of this Plan in Article V.
3
<PAGE>
Article XI. Limitation of Liability
The names "John Hancock Strategic Series" and "John Hancock Independence
Diversified Core Equity Fund" are the designations of the Trustees under the
Declaration of Trust, dated September 21, 1993, as amended from time to time.
The Declaration of Trust has been filed with the Secretary of State of the
Commonwealth of Massachusetts. The obligations of the Trust and the Fund are not
personally binding upon, nor shall resort be had to the private property of, any
of the Trustees, shareholders, officers, employees or agents of the Fund, but
only the Fund's property shall be bound. No series of the Trust shall be
responsible for the obligations of any other series of the Trust.
IN WITNESS WHEREOF, the Fund has executed this amended and restated
Distribution Plan effective as of the 1st day of September, 1995 in Boston,
Massachusetts.
JOHN HANCOCK STRATEGIC SERIES --
JOHN HANCOCK INDEPENDENCE DIVERSIFIED CORE EQUITY FUND
By /s/ Anne C. Hodsdon
------------------------
President
JOHN HANCOCK FUNDS, INC.
By /s/ C. Troy Shaver, Jr.
------------------------
President
4
JOHN HANCOCK STRATEGIC SERIES --
JOHN HANCOCK INDEPENDENCE DIVERSIFIED CORE EQUITY FUND
Distribution Plan
Class B Shares
September 1, 1995
Article I. This Plan
This amended and restated Distribution Plan (the "Plan") sets forth the
terms and conditions under which John Hancock Strategic Series (the "Trust"), on
behalf of John Hancock Independence Diversified Core Equity Fund (the "Fund"), a
series portfolio of the Trust, on behalf of its Class B shareholders, will,
after the effective date hereof, pay certain amounts to John Hancock Funds, Inc.
("JH Funds") in connection with the provision by Broker Services of certain
services to the Fund and its Class B shareholders, as set forth herein. Certain
of such payments by the Fund may, under Rule 12b-1 of the Securities and
Exchange Commission, as from time to time amended (the "Rule"), under the
Investment Company Act of 1940, as amended (the "Act"), be deemed to constitute
the financing of distribution by the Fund of its shares. This Plan describes all
material aspects of such financing as contemplated by the Rule and shall be
administered and interpreted, and implemented and continued, in a manner
consistent with the Rule. The Trust and JH Funds heretofore entered into a
Distribution Agreement, dated August 1, 1991 (the "Agreement"), the terms of
which, as heretofore and from time to time continued, are incorporated herein by
reference.
Article II. Distribution and Service Expenses
The Fund shall pay to JH Funds a fee in the amount specified in Article III
hereof. Such fee may be spent by JH Funds on any activities or expenses
primarily intended to result in the sale of Class B shares of the Fund,
including, but not limited to the payment of Distribution Expenses (as defined
below) and Service Expenses (as defined below). Distribution Expenses include
but are not limited to, (a) initial and ongoing sales compensation out of such
fee as it is received by JH Funds or other broker-dealers ("Selling Brokers")
that have entered into an agreement with JH Funds for the sale of Class B shares
of the Fund, (b) direct out-of pocket expenses incurred in connection with the
distribution of Class B shares of the Fund, including expenses related to
printing of prospectuses and reports to other than existing Class B shareholders
of the Fund, and preparation, printing and distribution of sales literature and
advertising materials, (c) an allocation of overhead and other branch office
expenses of JH Funds related to the distribution of Class B shares of the Fund,
and (d) interest expenses on unreimbursed distribution expenses related to Class
B shares, as described in Article IV.
<PAGE>
Service Expenses include payments made to, or on account of account
executives of selected broker-dealers (including affiliates of JH Funds) and
others who furnish personal and shareholder account maintenance services to
Class B shareholders of the Fund.
Article III. Maximum Expenditures
The expenditures to be made by the Fund pursuant to this Plan, and the
basis upon which such expenditures will be made, shall be determined by the
Fund, and in no event shall such expenditures exceed 1.00% of the average daily
net asset value of the Class B shares of the Fund (determined in accordance with
the Fund's prospectus as from time to time in effect) on an annual basis to
cover Distribution Expenses and Service Expenses, provided that the portion of
such fee used to cover Service Expenses, shall not exceed an annual rate of up
to 0.25% of the average daily net asset value of the Class B shares of the Fund.
Such expenditures shall be calculated and accrued daily and paid monthly or at
such other intervals as the Trustees shall determine.
Article IV. Unreimbursed Distribution Expenses
In the event that JH Funds is not fully reimbursed for payments made or
expenses incurred by it as contemplated hereunder, in any fiscal year, JH Funds
shall be entitled to carry forward such expenses to subsequent fiscal years for
submission to the Class B shares of the Fund for payment, subject always to the
annual maximum expenditures set forth in Article III hereof; provided, however,
that nothing herein shall prohibit or limit the Trustees from terminating this
Plan and all payments hereunder at any time pursuant to Article IX hereof.
Article V. Expenses Borne by the Fund
Notwithstanding any other provision of this Plan, the Trust, the Fund and
its investment adviser, John Hancock Advisers, Inc. (the "Adviser"), shall bear
the respective expenses to be borne by them under the Investment Management
Contract between them, dated February 1, 1994 as from time to time continued and
amended (the "Management Contract"), and under the Fund's current prospectus as
it is from time to time in effect. Except as otherwise contemplated by this
Plan, the Trust and the Fund shall not, directly or indirectly, engage in
financing any activity which is primarily intended to or should reasonably
result in the sale of shares of the Fund.
Article VI. Approval by Trustees, etc.
This Plan shall not take effect until it has been approved, together with
any related agreements, by votes, cast in person at a meeting called for the
purpose of voting on this Plan or such agreements, of a majority (or whatever
greater percentage may, from time to time, be required by Section 12(b) of the
Act or the rules and regulations thereunder) of (a) all of the Trustees of the
Fund and (b) those Trustees of the Fund who are not "interested persons" of the
Fund, as such term may be from time to time defined under the Act, and have no
direct or indirect financial interest in the operation of this Plan or any
agreements related to it (the "Independent Trustees").
Article VII. Continuance
This Plan and any related agreements shall continue in effect for so long
as such continuance is specifically approved at least annually in advance in the
manner provided for the approval of this Plan in Article VI.
Article VIII. Information
JH Funds shall furnish the Fund and its Trustees quarterly, or at such
other intervals as the Fund shall specify, a written report of amounts expended
or incurred for Distribution Expenses and Services Expenses pursuant to this
Plan and the purposes for which such expenditures were made and such other
information as the Trustees may request.
Article IX. Termination
This Plan 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 Fund's
outstanding voting Class B shares, or (b) by JH Funds on 60 days' notice in
writing to the Fund.
2
<PAGE>
Article X. Agreements
Each Agreement with any person relating to implementation of this Plan
shall be in writing, and each agreement related to this Plan shall provide:
(a) That, with respect to the Fund, such agreement may be terminated at
any time, without payment of any penalty, by vote of a majority of the
Independent Trustees or by vote of a majority of the Fund's then
outstanding Class B shares.
(b) That such agreement shall terminate automatically in the event of its
assignment.
Article XI. Amendments
This Plan may not be amended to increase the maximum amount of the fees
payable by the Fund hereunder without the approval of a majority of the
outstanding voting Class B shares of the Fund. No material amendment to the Plan
shall, in any event, be effective unless it is approved in the same manner as is
provided for approval of this Plan in Article VII.
Article XII. Limitation of Liability
The names "John Hancock Strategic Series" and "John Hancock Independence
Diversified Core Equity Fund" are the designations of the Trustees under the
Amended and Restated Declaration of Trust, dated September 21, 1993, amended
from time to time. The Declaration of Trust has been filed with the Secretary of
State of the Commonwealth of Massachusetts. The obligations of the Trust and the
Fund are not personally binding upon, nor shall resort be had to the private
property of, any of the Trustees, shareholders, officers, employees or agents of
the Fund, but only the Fund's property shall be bound. No series of the Trust
shall be responsible for the obligations of any other series of the Trust.
IN WITNESS WHEREOF, the Fund has executed this Distribution Plan effective
as of the 1st day of September, 1995 in Boston, Massachusetts.
JOHN HANCOCK STRATEGIC SERIES--
JOHN HANCOCK INDEPENDENCE DIVERSIFIED CORE EQUITY FUND
By /s/ Anne C. Hodsdon
-------------------------
President
JOHN HANCOCK FUNDS, INC.
By /s/ C. Troy Shaver, Jr.
-------------------------
President
3
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> JOHN HANCOCK SPECIAL VALUE FUND - CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 27,413,477
<INVESTMENTS-AT-VALUE> 29,723,901
<RECEIVABLES> 172,555
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<SENIOR-LONG-TERM-DEBT> 0
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<OVERDISTRIBUTION-GAINS> 0
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<DIVIDEND-INCOME> 475,099
<INTEREST-INCOME> 121,481
<OTHER-INCOME> 0
<EXPENSES-NET> 277,292
<NET-INVESTMENT-INCOME> 319,288
<REALIZED-GAINS-CURRENT> 591,659
<APPREC-INCREASE-CURRENT> 2,253,318
<NET-CHANGE-FROM-OPS> 3,164,265
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 194,536
<DISTRIBUTIONS-OF-GAINS> 255,578
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,025,002
<NUMBER-OF-SHARES-REDEEMED> 319,719
<SHARES-REINVESTED> 39,907
<NET-CHANGE-IN-ASSETS> 22,122,669
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 140,122
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 452,217
<AVERAGE-NET-ASSETS> 9,257,046
<PER-SHARE-NAV-BEGIN> 8.99
<PER-SHARE-NII> 0.21
<PER-SHARE-GAIN-APPREC> 1.60
<PER-SHARE-DIVIDEND> 0.20
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<PER-SHARE-NAV-END> 10.39
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 022
<NAME> JOHN HANCOCK SPECIAL VALUE FUND - CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 27,413,477
<INVESTMENTS-AT-VALUE> 29,723,901
<RECEIVABLES> 172,555
<ASSETS-OTHER> 70,368
<OTHER-ITEMS-ASSETS> 2,310,424
<TOTAL-ASSETS> 29,966,824
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 128,088
<TOTAL-LIABILITIES> 128,088
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 27,528,025
<SHARES-COMMON-STOCK> 1,636,520
<SHARES-COMMON-PRIOR> 366,436
<ACCUMULATED-NII-CURRENT> 96
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 191
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,310,424
<NET-ASSETS> 29,838,736
<DIVIDEND-INCOME> 475,099
<INTEREST-INCOME> 121,481
<OTHER-INCOME> 0
<EXPENSES-NET> 277,292
<NET-INVESTMENT-INCOME> 319,288
<REALIZED-GAINS-CURRENT> 591,659
<APPREC-INCREASE-CURRENT> 2,253,318
<NET-CHANGE-FROM-OPS> 3,164,265
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 141,070
<DISTRIBUTIONS-OF-GAINS> 335,890
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,444,369
<NUMBER-OF-SHARES-REDEEMED> 213,668
<SHARES-REINVESTED> 39,838
<NET-CHANGE-IN-ASSETS> 22,122,669
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 140,122
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 452,217
<AVERAGE-NET-ASSETS> 10,760,345
<PER-SHARE-NAV-BEGIN> 9.00
<PER-SHARE-NII> 0.12
<PER-SHARE-GAIN-APPREC> 1.59
<PER-SHARE-DIVIDEND> 0.12
<PER-SHARE-DISTRIBUTIONS> 0.21
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.38
<EXPENSE-RATIO> 1.73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
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<NUMBER> 031
<NAME> JOHN HANCOCK INDEPENDENCE DIVERSIFIED CORE EQUITY - CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> MAY-31-1996
<INVESTMENTS-AT-COST> 28,963,037
<INVESTMENTS-AT-VALUE> 30,840,972
<RECEIVABLES> 214,907
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<OTHER-ITEMS-ASSETS> 1,888,283
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 63,538
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 27,575,804
<SHARES-COMMON-STOCK> 827,523
<SHARES-COMMON-PRIOR> 7,037,190
<ACCUMULATED-NII-CURRENT> 6,442
<OVERDISTRIBUTION-NII> 0
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<OVERDISTRIBUTION-GAINS> 0
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<DIVIDEND-INCOME> 368,769
<INTEREST-INCOME> 50,869
<OTHER-INCOME> 0
<EXPENSES-NET> 195,357
<NET-INVESTMENT-INCOME> 224,281
<REALIZED-GAINS-CURRENT> 13,818,303
<APPREC-INCREASE-CURRENT> (9,915,169)
<NET-CHANGE-FROM-OPS> 4,127,415
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 468,668
<DISTRIBUTIONS-OF-GAINS> 2,049,001
<DISTRIBUTIONS-OTHER> 0
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<NUMBER-OF-SHARES-REDEEMED> 7,336,631
<SHARES-REINVESTED> 176,962
<NET-CHANGE-IN-ASSETS> (71,415,256)
<ACCUMULATED-NII-PRIOR> 422,416
<ACCUMULATED-GAINS-PRIOR> 2,036,220
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 104,018
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 323,495
<AVERAGE-NET-ASSETS> 12,497,544
<PER-SHARE-NAV-BEGIN> 14.41
<PER-SHARE-NII> 0.20
<PER-SHARE-GAIN-APPREC> 3.88
<PER-SHARE-DIVIDEND> 0.22
<PER-SHARE-DISTRIBUTIONS> 0.29
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.98
<EXPENSE-RATIO> 0.94
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 032
<NAME> JOHN HANCOCK INDEPENDENCE DIVERSIFIED CORE EQUITY - CLASS B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> MAY-31-1996
<INVESTMENTS-AT-COST> 28,963,037
<INVESTMENTS-AT-VALUE> 30,840,972
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 27,575,804
<SHARES-COMMON-STOCK> 842,134
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 6,442
<OVERDISTRIBUTION-NII> 0
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<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 30,003,035
<DIVIDEND-INCOME> 368,769
<INTEREST-INCOME> 50,869
<OTHER-INCOME> 0
<EXPENSES-NET> 195,357
<NET-INVESTMENT-INCOME> 224,281
<REALIZED-GAINS-CURRENT> 13,818,303
<APPREC-INCREASE-CURRENT> (9,915,169)
<NET-CHANGE-FROM-OPS> 4,127,415
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 13,068
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 904,689
<NUMBER-OF-SHARES-REDEEMED> 63,879
<SHARES-REINVESTED> 1,324
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<TABLE> <S> <C>
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<NUMBER> 051
<NAME> JOHN HANCOCK UTILITIES FUND - CLASS A
<S> <C>
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<TABLE> <S> <C>
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<SERIES>
<NUMBER> 052
<NAME> JOHN HANCOCK UTILITIES FUND - CLASS B
<S> <C>
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