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. 48 (X)
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 (X)
Amendment No. 27 (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
( ) on (DATE) pursuant to paragraph (b) of Rule 485
( ) 75 days after filing pursuant to paragraph (a) of Rule 485
(X) on May 1, 1997 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.
A Rule 24f-2 Notice for the Registrant's most recent fiscal year was filed on
February 26, 1997.
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<TABLE>
<CAPTION>
Item Number Form N-1A, Statement of Additional
Part A Prospectus Caption Information Caption
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<S> <C> <C>
1 Front Cover Page *
2 Overview; Investor Expenses; *
3 Financial Highlights *
4 Overview; Goal and Strategy; Portfolio *
Securities; Risk Factors; Business
Structure; More About Risk
5 Overview; Business Structure; *
Manager/Subadviser; Investor Expenses
6 Choosing a Share Class; Buying Shares; *
Selling Shares; Transaction Policies;
Dividends and Account Policies;
Additional Investor Services
7 Choosing a Share Class; How Sales Charges *
are Calculated; Sales Charge Deductions
and Waivers; Opening an Account; Buying
Shares; Transaction Policies; Additional
Investor Services
8 Selling Shares; Transaction Policies; *
Dividends and Account Policies
9 Not Applicable *
10 * Front Cover Page
11 * Table of Contents
12 * Organization of the Fund
13 * Investment Objectives and Policies;
Certain Investment Practices;
Investment Restrictions
14 * Those Responsible for Management
15 * Those Responsible for Management
16 * Investment Advisory; Subadvisory
and Other Services; Distribution
Contract; Transfer Agent Services;
Custody of Portfolio; Independent
Auditors
17 * Brokerage Allocation
18 * Description of Fund's Shares
19 * Net Asset Value; Additional
Services and Programs
20 * Tax Status
21 * Distribution Contract
22 * Calculation of Performance
23 * Financial Statements
</TABLE>
<PAGE>
JOHN HANCOCK
Growth and
Income Funds
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Prospectus Growth and Income Fund
May 1, 1997 Independence Equity Fund
This prospectus gives vital Sovereign Balanced Fund
information about these
funds. For your own benefit Sovereign Investors Fund
and protection, please read
it before you invest, and Special Value Fund
keep it on hand for future
reference. Utilities Fund
Please note that these funds:
o are not bank deposits
o are not federally insured
o are not endorsed by any bank
or government agency
o are not guaranteed to achieve
their goal(s)
Like all mutual fund shares,
these securities have not
been approved or disapproved
by the Securities and
Exchange Commission or any
state securities commission,
nor has the Securities and
Exchange Commission or any
state securities commission
passed upon the accuracy or
adequacy of this prospectus.
Any representation to the
contrary is a criminal
offense.
[Logo] JOHN HANCOCK FUNDS
A Global Investment Management Firm
101 Huntington Avenue, Boston, Massachusetts 02199-7603
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<PAGE>
Contents
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A fund-by-fund look at Growth and Income Fund 4
goals, strategies, risks, Independence Equity Fund 6
expenses and financial Sovereign Balanced Fund 8
history. Sovereign Investors Fund 10
Special Value Fund 12
Utilities Fund 14
Policies and instructions Your account
for opening, maintaining Choosing a share class 16
and closing an account in How sales charges are calculated 16
any growth and income Sales charge reductions and waivers 17
fund. 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 Fund details
growth and income funds Business structure 23
as a group. 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
These funds may be appropriate for investors who:
o are looking for a more conservative alternative to exclusively
growth-oriented funds
o need an investment to form the core of a portfolio
o seek above-average total return over the long term
o are retired or nearing retirement
Growth and income funds may NOT be appropriate if you:
o are investing for maximum return over a long time horizon
o require a high degree of stability of your principal
THE MANAGEMENT FIRM
All John Hancock growth and income funds are managed by John Hancock Advisers,
Inc. Founded in 1968, John Hancock Advisers is a wholly owned subsidiary of John
Hancock Mutual Life Insurance Company and manages more than $19 billion in
assets.
FUND INFORMATION KEY
Concise fund-by-fund descriptions begin on the next page. Each description
provides the following information:
[Clipart] Goal and strategy The fund's particular investment goals and the
strategies it intends to use in pursuing those goals.
[Clipart] Portfolio securities The primary types of securities in which the fund
invests. Secondary investments are described in "More about risk" at the end of
the prospectus.
[Clipart] Risk factors The major risk factors associated with the fund.
[Clipart] Portfolio management The individual or group (including subadvisers,
if any) designated by the investment adviser to handle the fund's day-to-day
management.
[Clipart] Expenses The overall costs borne by an investor in the fund, including
sales charges and annual expenses.
[Clipart] 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
[Clipart] 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
[Clipart] The fund may invest in most types of securities, including:
o common and preferred stocks,
warrants and convertible securities
o U.S. Government and agency debt securities, including
mortgage-backed securities
o corporate bonds, notes and other debt securities of any maturity
The fund may invest up to 15% of net assets in debt securities, including
convertible securities that may be rated as low as CC/Ca and their unrated
equivalents (junk bonds).
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
[Clipart] As with any growth and income fund, the value of your investment will
fluctuate in response to stock and bond market movements.
To the extent that it invests in certain securities, the fund may be affected by
additional risks:
o foreign securities: currency,
information, natural event and political risks
o 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
[Clipart] Timothy E. Keefe, CFA, has been the leader of the fund's portfolio
management team since joining John Hancock Funds in July 1996. He is a senior
vice president of the adviser and has been in the investment business since
1987.
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INVESTOR EXPENSES
[Clipart] 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.
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Shareholder transaction expenses Class A Class B
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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)
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Management fee 0.625% 0.625%
12b-1 fee(3) 0.250% 1.00%
Other expenses 0.315% 0.315%
Total fund operating expenses 1.190% 1.940%
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%.
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Share class Year 1 Year 3 Year 5 Year 10
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Class A shares $62 $86 $112 $187
Class B shares
Assuming redemption
at end of period $70 $91 $125 $207
Assuming no redemption $20 $61 $105 $207
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
4 GROWTH AND INCOME FUND
<PAGE>
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FINANCIAL HIGHLIGHTS
[Clipart] The figures below have been audited by the fund's independent
auditors, Ernst & Young LLP.
Volatility, as indicated by Class A year-by-year total investment return (%)
(scale varies from fund to fund)
[The table below was represented as a bar graph in the printed material.]
8/87 8/88 8/89 8/90 8/91 8/92 8/93 8/94 8/95 8/96 12/96
22.58 (9.86) 23.47 0.18 23.80 10.47 13.64 (2.39) 19.22 15.33
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Class A - period ended: 8/87 8/88 8/89 8/90
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Per share operating performance
Net asset value, beginning of period $11.11 $12.04 $ 8.83 $10.19
Net investment income (loss) 0.42 0.50 0.55 0.20
Net realized and unrealized gain (loss)
on investments 1.77 (1.73) 1.42 (0.18)
Total from investment operations 2.19 (1.23) 1.97 0.02
Less distributions
Dividends from net investment income (0.38) (0.49) (0.61) (0.27)
Distributions from net realized gain on
investments sold (0.88) (1.49) -- (0.07)
Total distributions (1.26) (1.98) (0.61) (0.34)
Net asset value, end of period $12.04 $ 8.83 $10.19 $ 9.87
Total investment return at
net asset value(2)(%) 22.58 (9.86) 23.47 0.18
Ratios and supplemental data
Net assets, end of period (000s omitted)($) 90,974 69,555 70,513 63,150
Ratio of expenses to average net assets (%) 1.21 1.29 1.12 1.29
Ratio of net investment income (loss)
to average net assets (%) 3.86 5.45 6.07 1.96
Portfolio turnover rate (%) 138 120 214 69
Average brokerage commission rate(3) ($) N/A N/A N/A N/A
<TABLE>
<CAPTION>
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Class A - period ended: 8/91 8/92 8/93 8/94 8/95 8/96 12/96
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<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 9.87 $11.77 $12.43 $12.08 $11.42 $13.38
Net investment income (loss) 0.20 0.32(1) 0.40(1) 0.32(1) 0.21(1) 0.19(1)
Net realized and unrealized gain (loss)
on investments 2.07 0.89 1.12 (0.61) 1.95 1.84
Total from investment operations 2.27 1.21 1.52 (0.29) 2.16 2.03
Less distributions
Dividends from net investment income (0.19) (0.25) (0.42) (0.37) (0.20) (0.19)
Distributions from net realized gain on
investments sold (0.18) (0.30) (1.45) -- -- (0.15)
Total distributions (0.37) (0.55) (1.87) (0.37) (0.20) (0.34)
Net asset value, end of period $11.77 $12.43 $12.08 $11.42 $13.38 $15.07
Total investment return at
net asset value(2)(%) 23.80 10.47 13.64 (2.39) 19.22 15.33
Ratios and supplemental data
Net assets, end of period (000s omitted)($) 77,461 89,682 115,780 121,160 130,183 139,548
Ratio of expenses to average net assets (%) 1.38 1.34 1.29 1.31 1.30 1.17
Ratio of net investment income (loss)
to average net assets (%) 1.90 2.75 3.43 2.82 1.82 1.28
Portfolio turnover rate (%) 70 119 107 195 99 74
Average brokerage commission rate(3) ($) N/A N/A N/A N/A N/A 0.0665
</TABLE>
<TABLE>
<CAPTION>
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Class B - period ended: 8/91(4) 8/92 8/93 8/94 8/95 8/96 12/96
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<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(1) 0.30(1) 0.24(1) 0.13(1) 0.08(1)
Net realized and unrealized gain (loss)
on investments 0.25 0.89 1.12 (0.61) 1.96 1.85
Total from investment operations 0.25 1.12 1.42 (0.37) 2.09 1.93
Less distributions:
Dividends from net investment income -- (0.15) (0.31) (0.29) (0.12) (0.09)
Distributions from net realized gain on
investments sold -- (0.30) (1.45) -- -- (0.15)
Total distributions -- (0.45) (1.76) (0.29) (0.12) (0.24)
Net asset value, end of period $11.77 $12.44 $12.10 $11.44 $13.41 $15.10
Total investment return at
net asset value(2)(%) 2.17(5) 9.67 12.64 (3.11) 18.41 14.49
Ratios and supplemental data
Net assets, end of period (000s omitted)($) 7,690 29,826 65,010 114,025 114,723 125,781
Ratio of expenses to average net assets (%) 2.19(6) 2.07 2.19 2.06 2.03 1.90
Ratio of net investment income (loss)
to average net assets (%) 1.46(6) 2.02 2.53 2.07 1.09 0.55
Portfolio turnover rate (%) 70 119 107 195 99 74
Average brokerage commission rate(3) ($) N/A N/A N/A N/A N/A 0.0665
</TABLE>
(1) Based on the average of the shares outstanding at the end of each month.
(2) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(3) Per portfolio share traded. Required for fiscal years that began
September 1, 1995 or later.
(4) Class B shares commenced operations on August 22, 1991.
(5) Not annualized.
(6) Annualized.
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
[Clipart] 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
[Clipart] 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
[Clipart] 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
[Clipart] 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
[Clipart] 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.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
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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)
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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%.
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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 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. The adviser may terminate this limitation in the future.
(4) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
6 INDEPENDENCE EQUITY FUND
<PAGE>
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FINANCIAL HIGHLIGHTS
[Clipart] The figures below have been audited by the fund's independent
auditors, Price Waterhouse LLP.
Volatility, as indicated by Class A year-by-year total investment return (%)
(scale varies from fund to fund)
[The table below was represented as a bar graph in the printed material.]
5/92(1) 5/93 5/94 5/95 5/96 12/96
10.95(4) 13.58 6.60 16.98 29.12
<TABLE>
<CAPTION>
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Class A - period ended: 5/92(1) 5/93 5/94 5/95 5/96 12/96
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<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
</TABLE>
<TABLE>
<CAPTION>
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Class B - period ended: 5/96(1) 12/96
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<S> <C>
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
</TABLE>
(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.
INDEPENDENCE EQUITY FUND 7
<PAGE>
Sovereign Balanced Fund
REGISTRANT NAME: JOHN HANCOCK INVESTMENT TRUST
TICKER SYMBOL CLASS A: SVBAX CLASS B: SVBBX
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GOAL AND STRATEGY
[Clipart] 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
[Clipart] The fund may invest in any type or class of security, including (but
not limited to) stocks, warrants, U.S. Government and agency securities,
corporate debt securities, investment-grade short-term securities, foreign
currencies and options and futures contracts.
The fund's stock investments are exclusively in companies that have increased
their dividend payout in each of the last ten years. Up to 25% of the fund's
bond investments may be rated from BB/Ba to C (junk bonds).
The fund may invest up to 35% of assets in foreign securities; however, these
typically have not exceeded 5% of assets. To a limited extent the fund also may
invest in certain higher-risk securities, and may engage in other investment
practices.
For temporary defensive purposes, the fund may invest some or all of its assets
in investment-grade short-term securities.
RISK FACTORS
[Clipart] As with any growth and income fund, the value of your investment will
fluctuate in response to stock and bond market movements. To the extent that it
invests in certain securities, the fund may be affected by additional risks:
o junk bonds: above-average credit, market and other risks
o foreign securities: currency,
information, natural event and political risks
o mortgage-backed securities: extension and prepayment risks
These risks are listed and defined in "More about risk" starting on page 26.
This section also details other higher-risk securities and practices that the
fund may utilize. Please read "More about risk" carefully before you invest.
MANAGEMENT/SUBADVISER
[Clipart] John F. Snyder III and Barry H. Evans, CFA, lead the fund's portfolio
management team. Mr. Snyder, an investment manager since 1971, is an executive
vice president of Sovereign Asset Management Corporation, the fund's subadviser
and a subsidiary of John Hancock Funds. Mr. Evans, a senior vice president of
the adviser, has been in the investment business since joining John Hancock
Funds in 1986.
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INVESTOR EXPENSES
[Clipart] 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.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
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%
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%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
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.
8 SOVEREIGN BALANCED FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clipart] The figures below have been audited by the fund's independent
auditors, Ernst & Young LLP.
Volatility, as indicated by Class A year-by-year total investment return (%)
(scale varies from fund to fund)
[The table below was represented as a bar graph in the printed material.]
12/92(1) 12/93 12/94 12/95 12/96
2.37(5) 11.38 (3.51) 24.23
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Class A - period ended: 12/92(1) 12/93 12/94 12/95 12/96
- --------------------------------------------------------------------------------------------------------------------
<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 $11.75
Total investment return at net asset value(3) (%) 2.37(4) 11.38 (3.51) 24.23
Total adjusted investment return at net asset value(4,6) (%) 2.22(4) -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 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 ($) 0.0016 -- -- --
Average brokerage commission rate(8) ($) N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Class B - period ended: 12/92(1) 12/93 12/94 12/95 12/96
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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(3)
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
</TABLE>
(1) Class A and Class B shares commenced operations on October 5, 1992. This
period is covered by the report of other independent auditors (not included
herein).
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
SOVEREIGN BALANCED FUND 9
<PAGE>
Sovereign Investors Fund
REGISTRANT NAME: JOHN HANCOCK INVESTMENT TRUST
TICKER SYMBOL CLASS A: SOVIX CLASS B: SOVBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clipart] The fund seeks long-term growth of capital and of income without
assuming undue market risks. Under normal circumstances, the fund invests most
of its assets in a diversified selection of stocks, although it may respond to
market conditions by investing in other types of securities such as bonds or
short-term securities. The fund may not invest more than 25% of assets in any
one industry.
Currently, the fund utilizes a "dividend performers" strategy in selecting
common stocks, investing exclusively in companies that have increased their
dividend payout in each of the last ten years.
PORTFOLIO SECURITIES
[Clipart] The fund may invest in most types of securities, including:
o common and preferred stocks, warrants and convertible securities
o U.S. Government and agency debt securities, including
mortgage-backed securities
o 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
[Clipart] 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
[Clipart] John F. Snyder III and Barry H. Evans, CFA, lead the fund's portfolio
management team. Mr. Snyder, an investment manager since 1971, is an executive
vice president of Sovereign Asset Management Corporation, the fund's subadviser
and a subsidiary of John Hancock Funds. Mr. Evans, a senior vice president of
the adviser, has been in the investment business since joining John Hancock
Funds in 1986.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[Clipart] 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.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
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%
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%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
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.
10 SOVEREIGN INVESTORS FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clipart] The figures below have been audited by the fund's independent
auditors, Ernst & Young LLP.
Volatility, as indicated by Class A year-by-year total investment return (%)
(scale varies from fund to fund)
[The table below was represented as a bar graph in the printed material.]
12/87(1) 12/88(1) 12/89(1) 12/90(1) 12/91(1,3) 12/92(1) 12/93 12/94 12/95 12/96
0.28 11.23 23.76 4.38 30.48 7.23 5.71 (1.85) 29.15
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 12/87(1) 12/88(1) 12/89(1) 12/90(1) 12/91(1,3) 12/92(1) 12/93
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $12.36 $10.96 $11.19 $12.60 $11.94 $14.31 $14.78
Net investment income (loss) 0.53 0.57 0.59 0.58 0.54 0.47 0.44
Net realized and unrealized gain (loss) on investments (0.45) 0.65 2.01 (0.05) 3.03 0.54 0.39
Total from investment operations 0.08 1.22 2.60 0.53 3.57 1.01 0.83
Less distributions:
Dividends from net investment income (0.58) (0.61) (0.61) (0.59) (0.53) (0.45) (0.42)
Distributions from net realized gain on investments sold (0.90) (0.38) (0.58) (0.60) (0.67) (0.09) (0.09)
Total distributions (1.48) (0.99) (1.19) (1.19) (1.20) (0.54) (0.51)
Net asset value, end of period $10.96 $11.19 $12.60 $11.94 $14.31 $14.78 $15.10
Total investment return at net asset value(4) (%) 0.28 11.23 23.76 4.38 30.48 7.23 5.71
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 40,564 45,861 66,466 83,470 194,055 872,932 1,258,575
Ratio of expenses to average net assets (%) 0.85 0.86 1.07 1.14 1.18 1.13 1.10
Ratio of net investment income (loss) to average net assets(%) 3.96 4.97 4.80 4.77 4.01 3.32 2.94
Portfolio turnover rate (%) 59 35 40 55 67 30 46
Average brokerage commission rate(7) ($) N/A N/A N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Class A - period ended: 12/94 12/95 12/96
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $15.10 $14.24
Net investment income (loss) 0.46 0.40
Net realized and unrealized gain (loss) on investments (0.75) 3.71
Total from investment operations (0.29) 4.11
Less distributions:
Dividends from net investment income (0.46) (0.40)
Distributions from net realized gain on investments sold (0.11) (0.08)
Total distributions (0.57) (0.48)
Net asset value, end of period $14.24 $17.87
Total investment return at net asset value(4) (%) (1.85) 29.15
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 1,090,231 1,280,321
Ratio of expenses to average net assets (%) 1.16 1.14
Ratio of net investment income (loss) to average net assets(%) 3.13 2.45
Portfolio turnover rate (%) 45 46
Average brokerage commission rate(7) ($) N/A N/A
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Class B - period ended: 12/94(9) 12/95 12/96(4)
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $15.02 $14.24
Net investment income (loss) 0.38(9) 0.27(9)
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 $17.86
Total investment return at net asset value(4) (%) (2.04)(5) 28.16
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 128,069 257,781
Ratio of expenses to average net assets (%) 1.86(6) 1.90
Ratio of net investment income (loss) to average net assets (%) 2.57(6) 1.65
Portfolio turnover rate (%) 45 46
Average brokerage commission rate(7) ($) N/A N/A
</TABLE>
(1) These periods are covered by the report of other independent auditors (not
included herein).
(2) Restated for 2-for-1 stock split effective April 29, 1987.
(3) On October 23, 1991, John Hancock Advisers, Inc. became the investment
adviser of the fund.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) Annualized.
(7) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(8) Class B shares commenced operations on January 3, 1994.
(9) Based on the average of the shares outstanding at the end of each month.
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
[Clipart] 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
[Clipart] 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
15% of net assets in debt securities, including convertible securities, that may
be rated as low as CC/Ca and their unrated equivalents (junk bonds). 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
[Clipart] 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
[Clipart] Timothy E. Keefe, CFA, has been the leader of the fund's portfolio
management team since August 1996. He is a senior vice president of the adviser.
He joined John Hancock Funds in July 1996 and has been in the investment
business since 1987.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[Clipart] 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.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee (after expense limitation)(3) 0.00% 0.00%
12b-1 fee(4) 0.30% 1.00%
Other expenses (after limitation)(3) 0.71% 0.71%
Total fund operating expenses (after limitation)(3) 1.01% 1.71%
(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).
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%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
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.
(3) Reflects the adviser's agreement to limit expenses (except for 12b-1 and
transfer agent expenses). Without this limitation, management fees would be
0.70% for each class, other expenses would be 0.90% for each class, and
total fund operating expenses would be 1.90% for Class A and 2.60% for
Class B. The adviser may terminate this limitation in the future.
(4) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
12 SPECIAL VALUE FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clipart] The figures below have been audited by the fund's independent
auditors, _____________________.
Volatility, as indicated by Class A year-by-year total investment return (%)
(scale varies from fund to fund)
[The table below was represented as a bar graph in the printed material.]
12/94(1) 12/95
7.81(4) 20.26
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Class A - period ended: 12/94(1) 12/95 12/96
- -------------------------------------------------------------------------------------------------------------
<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 - period ended: 12/94(1) 12/95 12/96
- -------------------------------------------------------------------------------------------------------------
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
</TABLE>
(1) Class A and Class B shares commenced operations on January 3, 1994.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
SPECIAL VALUE FUND 13
<PAGE>
Utilities Fund
REGISTRANT NAME: JOHN HANCOCK CAPITAL SERIES
TICKER SYMBOL CLASS A: JHUAX CLASS B: JHUBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clipart] 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
[Clipart] 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
[Clipart] 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
[Clipart] 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
[Clipart] 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.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
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%
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%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
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 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. The adviser may terminate this limitation in
the future.
(4) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
14 UTILITIES FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clipart] The figures below have been audited by the fund's independent
auditors, Price Waterhouse LLP.
Volatility, as indicated by Class A year-by-year total investment return (%)
(scale varies from fund to fund)
[The table below was represented as a bar graph in the printed material.]
5/94(1) 5/95 5/96 12/96
(2.82)(4) 7.10 14.44
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 5/94(1) 5/95 5/96 12/96
- -------------------------------------------------------------------------------------------------------------------------
<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
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 5/94(1) 5/95 5/96 12/96
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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(4) (%) (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(7) ($) N/A N/A N/A
</TABLE>
(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.
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
- --------------------------------------------------------------------------------
o Front-end sales charges, as o No front-end sales charge; all
described below. There are your money goes to work for you
several ways to reduce these right away.
charges, also described below.
o Higher annual expenses than
o Lower annual expenses than Class Class A shares.
B shares.
o A deferred sales charge on
shares you sell within six years
of purchase, as described below.
o 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 Signature
Services for more information (see the back cover of this prospectus).
- --------------------------------------------------------------------------------
HOW SALES CHARGES ARE CALCULATED
Class A Sales charges are as follows:
- --------------------------------------------------------------------------------
Class A sales charges
- --------------------------------------------------------------------------------
As a % of As a % of your
Your investment offering price investment
Up to $49,999 5.00% 5.26%
$50,000 - $99,999 4.50% 4.71%
$100,000 - $249,999 3.50% 3.63%
$250,000 - $499,999 2.50% 2.56%
$500,000 - $999,999 2.00% 2.04%
$1,000,000 and over See below
Investments of $1 million or more Class A shares are available with no front-end
sales charge. However, there is a contingent deferred sales charge (CDSC) on any
shares sold within one year of purchase, as follows:
- --------------------------------------------------------------------------------
CDSC on $1 million+ investments
- --------------------------------------------------------------------------------
Your investment CDSC on shares being sold
First $1M - $4,999,999 1.00%
Next $1 - $5M above that 0.50%
Next $1 or more above that 0.25%
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the LAST day of that month.
The CDSC is based on the lesser of the original purchase cost or the current
market value of the shares being sold, and is not charged on shares you acquired
by reinvesting your dividends. To keep your CDSC as low as possible, each time
you place a request to sell shares we will first sell any shares in your account
that are not subject to a CDSC.
Class B Shares are offered at their net asset value per share, without any
initial sales charge. However, there is a contingent deferred sales charge
(CDSC) on shares you sell within six years of buying them. There is no CDSC on
shares acquired through reinvestment of dividends. The CDSC is based on the
original purchase cost or the current market value of the shares being sold,
whichever is less. The longer the time between the purchase and the sale of
shares, the lower the rate of the CDSC:
- --------------------------------------------------------------------------------
Class B deferred charges
- --------------------------------------------------------------------------------
Years after purchase CDSC on shares being sold
1st year 5.00%
2nd year 4.00%
3rd or 4th year 3.00%
5th year 2.00%
6th year 1.00%
After 6 years None
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.
o Accumulation Privilege -- lets you add the value of any Class A shares you
already own to the amount of your next Class A investment for purposes of
calculating the sales charge.
o Letter of Intention -- lets you purchase Class A shares of a fund over a
13-month period and receive the same sales charge as if all shares had been
purchased at once.
o Combination Privilege -- lets you combine Class A shares of multiple funds
for purposes of calculating the sales charge.
To utilize: complete the appropriate section of your application, or contact
your financial representative or Signature Services 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 Signature Services to find
out how to qualify.
CDSC waivers As long as Signature Services is notified at the time you sell, the
CDSC for either share class will generally be waived in the following cases:
o to make payments through certain systematic withdrawal plans
o to make certain distributions from a retirement plan
o because of shareholder death or disability
To utilize: If you think you may be eligible for a CDSC waiver, contact your
financial representative or Signature Services, or consult the SAI (see the back
cover of this prospectus).
Reinstatement privilege If you sell shares of a John Hancock fund, you may
reinvest some or all of the proceeds in the same share class of any John Hancock
fund within 120 days without a sales charge, as long as Signature Services is
notified before you reinvest. If you paid a CDSC when you sold your shares, you
will be credited with the amount of the CDSC. All accounts involved must have
the same registration.
To utilize: contact your financial representative or Signature Services.
Waivers for certain investors Class A shares may be offered without front-end
sales charges or CDSCs to various individuals and institutions, including:
o government entities that are prohibited from paying mutual fund sales charges
o financial institutions or common trust funds investing $1 million or more for
non-discretionary accounts
o selling brokers and their employees and sales representatives
o financial representatives utilizing fund shares in fee-based investment
products under agreement with John Hancock Funds
o fund trustees and other individuals who are affiliated with these or other
John Hancock funds
o individuals transferring assets to a John Hancock fund from an employee
benefit plan that has John Hancock funds
o members of an approved affinity group financial services program
o certain insurance company contract holders (one-year CDSC usually applies)
o participants in certain retirement plans with at least 100 members (one-year
CDSC applies)
To utilize: if you think you may be eligible for a sales charge waiver, contact
your financial representative or Signature Services, or consult the SAI.
- --------------------------------------------------------------------------------
OPENING AN ACCOUNT
1 Read this prospectus carefully.
2 Determine how much you want to invest. The minimum initial investments for
the John Hancock funds are as follows:
o non-retirement account: $1,000
o retirement account: $250
o group investments: $250
o Monthly Automatic Accumulation Plan (MAAP): $25 to open; you must invest at
least $25 a month
3 Complete the appropriate parts of the account application, carefully
following the instructions. If you have questions, please contact your
financial representative or call Signature Services at 1-800-225-5291.
4 Complete the appropriate parts of the account privileges section of the
application. By applying for privileges now, you can avoid the delay and
inconvenience of having to file an additional application if you want to add
privileges later.
5 Make your initial investment using the table on the next page. You can
initiate any purchase, exchange or sale of shares through your financial
representative.
YOUR ACCOUNT 17
<PAGE>
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
Opening an account Adding to an account
By check
[Clipart] o Make out a check for the o Make out a check for the
investment amount, payable investment amount payable
to "John Hancock Signature to "John Hancock Signature
Services, Inc." Services, Inc."
o Deliver the check and your o Fill out the detachable
completed application to investment slip from an
your financial account statement. If no
representative, or mail slip is available, include
them to Signature Services a note specifying the fund
(address on next page). name, your share class,
your account number and the
name(s) in which the
account is registered.
o Deliver the check and your
investment slip or note to
your financial
representative, or mail
them to Signature Services
(address on next page).
By exchange
[Clipart] o Call your financial o Call Signature Services to
representative or Signature request an exchange.
Services to request an
exchange.
By wire
[Clipart] o Deliver your completed o Instruct your bank to wire
application to your the amount of your
financial representative, investment to:
or mail it to Signature First Signature Bank & Trust
Services. Account # 900000260
Routing # 211475000
o Obtain your account number Specify the fund name, your
by calling your financial share class, your account
representative or Signature number and the name(s) in
Services. which the account is
registered. Your bank may
o Instruct your bank to wire charge a fee to wire funds.
the amount of your
investment to:
First Signature Bank & Trust
Account # 900000260
Routing # 211475000
Specify the fund name,
your choice of share class,
the new account number and
the name(s) in which the
account is registered. Your
bank may charge a fee to
wire funds.
By phone
[Clipart] See "By wire" and o Verify that your bank or
"By exchange." credit union is a member of
the Automated Clearing
House (ACH) system.
o Complete the
"Invest-By-Phone" and "Bank
Information" sections on
your account application.
o Call Signature Services to
verify that these features
are in place on your
account.
o Tell the Signature Services
representative the fund
name, your share class,
your account number, the
name(s) in which the
account is registered and
the amount of your
investment.
To open or add to an account using the Monthly Automatic Accumulation Program,
see "Additional investor services."
18 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
Selling shares
Designed for To sell some or all of your shares
By letter
[Clipart] o Accounts of any type. o Write a letter of
instruction or complete a
o Sales of any amount. stock power indicating the
fund name, your share
class, your account number,
the name(s) in which the
account is registered and
the dollar value or number
of shares you wish to sell.
o Include all signatures and
any additional documents
that may be required (see
next page).
o Mail the materials to
Signature Services.
o A check will be mailed to
the name(s) and address in
which the account is
registered, or otherwise
according to your letter of
instruction.
By phone
[Clipart] o Most accounts. o For automated service 24
hours a day using your
o Sales of up to $100,000. touch-tone phone, call the
EASI-Line at
1-800-338-8080.
o To place your order with a
representative at John
Hancock Funds, call
Signature Services between
8 A.M. and 4 P.M. Eastern
Time on most business days.
By wire or electronic funds transfer (EFT)
[Clipart] o Requests by letter to sell o Fill out the "Telephone
any amount (accounts of any Redemption" section of your
type). new account application.
o Requests by phone to sell o To verify that the
up to $100,000 (accounts telephone redemption
with telephone redemption privilege is in place on an
privileges). account, or to request the
forms to add it to an
existing account, call
Signature Services.
o Amounts of $1,000 or more
will be wired on the next
business day. A $4 fee will
be deducted from your
account.
o Amounts of less than $1,000
may be sent by EFT or by
check. Funds from EFT
transactions are generally
available by the second
business day. Your bank may
charge a fee for this
service.
By exchange
[Clipart] o Accounts of any type. o Obtain a current prospectus
for the fund into which you
o Sales of any amount. are exchanging by calling
your financial
representative or Signature
Services.
o Call Signature Services to
request an exchange.
- ------------------------------------------
Address
John Hancock Signature Services, Inc.
1 John Hancock Way STE 1000
Boston, MA 02217-1000
Phone
1-800-225-5291
Or contact your financial representative
for instructions and assistance.
- ------------------------------------------
To sell shares through a systematic withdrawal plan, see
"Additional investor services."
YOUR ACCOUNT 19
<PAGE>
Selling shares in writing In certain circumstances, you will need to make your
request to sell shares in writing. You may need to include additional items with
your request, as shown in the table below. You may also need to include a
signature guarantee, which protects you against fraudulent orders. You will need
a signature guarantee if:
o your address of record has changed within the past 30 days
o you are selling more than $100,000 worth of shares
o you are requesting payment other than by a check mailed to the address of
record and payable to the registered owner(s)
You can generally obtain a signature guarantee from the following sources:
o a broker or securities dealer
o a federal savings, cooperative or other type of bank
o a savings and loan or other thrift institution o a credit union
o a securities exchange or clearing agency
A notary public CANNOT provide a signature guarantee.
[Clipart]
- --------------------------------------------------------------------------------
Seller Requirements for written requests
- --------------------------------------------------------------------------------
Owners of individual, joint, sole o Letter of instruction.
proprietorship, UGMA/UTMA
(custodial accounts for minors) or o On the letter, the signatures
general partner accounts. and titles of all persons
authorized to sign for the
account, exactly as the account
is registered.
o Signature guarantee if
applicable (see above).
Owners of corporate or association o Letter of instruction.
accounts.
o Corporate resolution, certified
within the past 90 days.
o On the letter and the
resolution, the signature of the
person(s) authorized to sign for
the account.
o Signature guarantee if
applicable (see above).
Owners or trustees of trust o Letter of instruction.
accounts.
o On the letter, the signature(s)
of the trustee(s).
o 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.
o Signature guarantee if
applicable (see above).
Joint tenancy shareholders whose o Letter of instruction signed by
co-tenants are deceased. surviving tenant.
o Copy of death certificate.
o Signature guarantee if
applicable (see above).
Executors of shareholder estates. o Letter of instruction signed by
executor.
o Copy of order appointing
executor.
o Signature guarantee if
applicable (see above).
Administrators, conservators, o Call 1-800-225-5291 for
guardians and other sellers or instructions.
account types not listed above.
20 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
TRANSACTION POLICIES
Valuation of shares The net asset value per share (NAV) for each fund and class
is determined each business day at the close of regular trading on the New York
Stock Exchange (typically 4 P.M. Eastern Time) by dividing a class's net assets
by the number of its shares outstanding.
Buy and sell prices When you buy shares, you pay
the NAV plus any applicable sales charges, as described earlier. When you sell
shares, you receive the NAV minus any applicable deferred sales charges.
Execution of requests Each fund is open on those days when the New York Stock
Exchange is open, typically Monday through Friday. Buy and sell requests are
executed at the next NAV to be calculated after your request is accepted by
Signature Services.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider using EASI-Line or sending your request in writing.
In unusual circumstances, any fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to three business days
or longer, as allowed by federal securities laws.
Telephone transactions For your protection, telephone requests may be recorded
in order to verify their accuracy. In addition, Signature Services will take
measures to verify the identity of the caller, such as asking for name, account
number, Social Security or other taxpayer ID number and other relevant
information. If appropriate measures are taken, Signature Services is not
responsible for any losses that may occur to any account due to an unauthorized
telephone call. Also for your protection, telephone transactions are not
permitted on accounts whose names or addresses have changed within the past 30
days. Proceeds from telephone transactions can only be mailed to the address of
record.
Exchanges You may exchange shares of one John Hancock fund for shares of the
same class of any other, generally without paying any additional sales charges.
The registration for both accounts involved must be identical. Class B shares
will continue to age from the original date and will retain the same CDSC rate
as they had before the exchange, except that the rate will change to the new
fund's rate if that rate is higher. A CDSC rate that has increased will drop
again with a future exchange into a fund with a lower rate.
To protect the interests of other investors in the fund, a fund may cancel the
exchange privileges of any parties that, in the opinion of the fund, are using
market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. A fund may also refuse any exchange order.
A fund may change or cancel its exchange policies at any time, upon 60 days'
notice to its shareholders.
Certificated shares Most shares are electronically recorded. If you wish to have
certificates for your shares, please write to Signature Services. Certificated
shares can only be sold by returning the certificates to Signature Services,
along with a letter of instruction or a stock power and a signature guarantee.
Sales in advance of purchase payments When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but the fund will not release the proceeds to you
until your purchase payment clears. This may take up to ten business days after
the purchase.
Eligibility by state You may only invest in, or exchange into, fund shares
legally available in your state.
- --------------------------------------------------------------------------------
DIVIDENDS AND ACCOUNT POLICIES
Account statements In general, you will receive account statements as follows:
o after every transaction (except a dividend reinvestment) that affects your
account balance
o after any changes of name or address of the registered owner(s)
o in all other circumstances, every quarter
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
Dividends The funds generally distribute most or all of their net earnings in
the form of dividends.Income dividends are typically paid quarterly, and capital
gains dividends, if any, are typically paid annually.
YOUR ACCOUNT 21
<PAGE>
Dividend reinvestments Most investors have their dividends reinvested in
additional shares of the same fund and class. If you choose this option, or if
you do not indicate any choice, your dividends will be reinvested on the
dividend record date. Alternatively, you can choose to have a check for your
dividends mailed to you. However, if the check is not deliverable, your
dividends will be reinvested.
Taxability of dividends As long as a fund meets the requirements for being a
tax-qualified regulated investment company, which each fund has in the past and
intends to in the future, it pays no federal income tax on the earnings it
distributes to shareholders.
Consequently, dividends you receive from a fund, whether reinvested or taken as
cash, are generally considered taxable. Dividends from a fund's long-term
capital gains are taxable as capital gains; dividends from other sources are
generally taxable as ordinary income.
Some dividends paid in January may be taxable as if they had been paid the
previous December. Corporations may be entitled to take a dividends-received
deduction for a portion of certain dividends they receive.
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
Taxability of transactions Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
Small accounts (non-retirement only) If you draw down a non-retirement account
so that its total value is less than $1,000, you may be asked to purchase more
shares within 30 days. If you do not take action, your fund may close out your
account and mail you the proceeds. Alternatively, signature services may charge
you $10 a year to maintain your account. You will not be charged a CDSC if your
account is closed for this reason, and your account will not be closed if its
drop in value is due to fund performance or the effects of sales charges.
- --------------------------------------------------------------------------------
ADDITIONAL INVESTOR SERVICES
Monthly Automatic Accumulation Program (MAAP) MAAP lets you set up regular
investments from your paycheck or bank account to the John Hancock fund(s) of
your choice. You determine the frequency and amount of your investments, and you
can terminate your program at any time. To establish:
o Complete the appropriate parts of your account application.
o If you are using MAAP to open an account, make out a check ($25 minimum) for
your first investment amount payable to "John Hancock Signature Services,
Inc." Deliver your check and application to your financial representative or
Signature Services.
Systematic withdrawal plan This plan may be used for routine bill payments or
periodic withdrawals from your account. To establish:
o Make sure you have at least $5,000 worth of shares in your account.
o Make sure you are not planning to invest more money in this account (buying
shares during a period when you are also selling shares of the same fund is
not advantageous to you, because of sales charges).
o Specify the payee(s). The payee may be yourself or any other party, and there
is no limit to the number of payees you may have, as long as they are all on
the same payment schedule.
o Determine the schedule: monthly, quarterly, semi-annually, annually or in
certain selected months.
o Fill out the relevant part of the account application. To add a systematic
withdrawal plan to an existing account, contact your financial representative
or Signature Services.
Retirement plans John Hancock Funds offers a range of qualified retirement
plans, including IRAs, SEPs, 401(k) plans, 403(b) plans (including TSAs) and
other pension and profit-sharing plans. Using these plans, you can invest in any
John Hancock fund (except tax-free income funds) with a low minimum investment
of $250 or, for some group plans, no minimum investment at all. To find out
more, call Signature Services at 1-800-225-5291.
22 YOUR ACCOUNT
<PAGE>
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, an independent body that has
ultimate responsibility for the fund's activities. The board retains various
companies to carry out the fund's operations, including the investment adviser,
custodian, transfer agent and others (see diagram). The board has the right, and
the obligation, to terminate the fund's relationship with any of these companies
and to retain a different company if the board believes it is in the
shareholders' best interests.
At a mutual fund's inception, the initial shareholder (typically the adviser)
appoints the fund's board. Thereafter, the board and the shareholders determine
the board's membership. The boards of the John Hancock growth and income funds
may include individuals who are affiliated with the investment adviser. However,
the majority of board members must be independent.
The funds do not hold annual shareholder meetings, but may hold special meetings
for such purposes as electing or removing board members, changing fundamental
policies, approving a management contract or approving a 12b-1 plan (12b-1 fees
are explained in "Sales compensation").
[Diagram outlining the business structure of John Hancock Funds.]
FUND DETAILS 23
<PAGE>
Accounting compensation The funds compensate the adviser for performing tax and
financial management services. Annual compensation is not expected to exceed
0.02% of each fund's average net assets.
Portfolio trades In placing portfolio trades, the adviser may use brokerage
firms that market the fund's shares or are affiliated with John Hancock Mutual
Life Insurance Company, but only when the adviser believes no other firm offers
a better combination of quality execution (i.e., timeliness and completeness)
and favorable price.
Investment goals Except for Growth and Income Fund, Sovereign Balanced Fund and
Utilities Fund, each fund's investment goal is fundamental and may only be
changed with shareholder approval.
Diversification All of the growth and income funds are diversified.
- --------------------------------------------------------------------------------
SALES COMPENSATION
As part of their business strategies, the funds, along with John Hancock Funds,
pay compensation to financial services firms that sell the funds' shares. These
firms typically pass along a portion of this compensation to your financial
representative.
Compensation payments originate from two sources: from sales charges and from
12b-1 fees that are paid out of the funds' assets ("12b-1" refers to the federal
securities regulation authorizing annual fees of this type). The 12b-1 fee rates
vary by fund and by share class, according to Rule 12b-1 plans adopted by the
funds. The sales charges and 12b-1 fees paid by investors are detailed in the
fund-by-fund information. The portions of these expenses that are reallowed to
financial services firms are shown on the next page.
Distribution fees may be used to pay for sales compensation to financial
services firms, marketing and overhead expenses and, for Class B shares,
interest expenses.
- --------------------------------------------------------------------------------
Class B unreimbursed distribution expenses(1)
- --------------------------------------------------------------------------------
Unreimbursed As a % of
Fund expenses net assets
Growth and Income $ 3,997,564 3.24%
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.
Initial compensation Whenever you make an investment in a fund or funds, the
financial services firm receives either a reallowance from the initial sales
charge or a commission, as described below. The firm also receives the first
year's service fee at this time.
Annual compensation Beginning with the second year after an investment is made,
the financial services firm receives an annual service fee of 0.25% of its total
eligible net assets. This fee is paid quarterly in arrears.
Financial services firms selling large amounts of fund shares may receive extra
compensation. This compensation, which John Hancock funds pays out of its own
resources, may include asset retention fees as well as reimbursement for
marketing expenses.
24 FUND DETAILS
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A investments
- ------------------------------------------------------------------------------------------------------------------------------------
Maximum
Sales charge reallowance First year Maximum
paid by investors or commission service fee total compensation(1)
(% of offering price) (% of offering price) (% of net investment) (% of offering price)
<S> <C> <C> <C> <C>
Up to $49,999 5.00% 4.01% 0.25% 4.25%
$50,000 - $99,999 4.50% 3.51% 0.25% 3.75%
$100,000 - $249,999 3.50% 2.61% 0.25% 2.85%
$250,000 - $499,999 2.50% 1.86% 0.25% 2.10%
$500,000 - $999,999 2.00% 1.36% 0.25% 1.60%
Regular investments of
$1 million or more
First $1M - $4,999,999 -- 0.75% 0.25% 1.00%
Next $1 - $5M above that -- 0.25% 0.25% 0.50%
Next $1 or more above that -- 0.00% 0.25% 0.25%
Waiver investments(2) -- 0.00% 0.25% 0.25%
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B investments
- ------------------------------------------------------------------------------------------------------------------------------------
Maximum
reallowance First year Maximum
or commission service fee total compensation
(% of offering price) (% of net investment) (% of offering price)
<S> <C> <C> <C>
All amounts 3.75% 0.25% 4.00%
</TABLE>
(1) Reallowance/commission percentages and service fee percentages are
calculated from different amounts, and therefore may not equal total
compensation percentages if combined using simple addition.
(2) Refers to any investments made by municipalities, financial institutions,
trusts and affinity group members that take advantage of the sales charge
waivers described earlier in this prospectus.
CDSC revenues collected by John Hancock Funds may be used to pay commissions
when there is no initial sales charge.
FUND DETAILS 25
<PAGE>
- --------------------------------------------------------------------------------
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's primary securities and
investment practices. You may find the most concise description of each fund's
risk profile in the fund-by-fund information.
The funds are permitted to utilize -- within limits established by the trustees
- -- certain other securities and investment practices that have higher risks and
opportunities associated with them. On the following page are brief descriptions
of these securities and practices, along with the risks associated with them.
The funds follow certain policies that may reduce these risks.
As with any mutual fund, there is no guarantee that the performance of a John
Hancock growth and income fund will be positive over any period of time.
- --------------------------------------------------------------------------------
TYPES OF INVESTMENT RISK
Correlation risk The risk that changes in the value of a hedging instrument will
not match those of the asset being hedged (hedging is the use of one investment
to offset the effects of another investment).
Credit risk The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation.
Currency risk The risk that fluctuations in the exchange rates between the U.S.
dollar and foreign currencies may negatively affect an investment.
Extension risk The risk that an unexpected rise in interest rates will extend
the life of a mortgage-backed security beyond the expected prepayment time,
typically reducing the security's value.
Information risk The risk that key information about a security or market is
inaccurate or unavailable.
Interest rate risk The risk of market losses attributable to changes in interest
rates. With fixed-rate securities, a rise in interest rates typically causes a
fall in values, while a fall in rates typically causes a rise in values.
Leverage risk Associated with securities or practices (such as borrowing) that
multiply small index or market movements into large changes in value.
o Hedged When a derivative (a security whose value is based on another security
or index) is used as a hedge against an opposite position that the fund also
holds, any loss generated by the derivative should be substantially offset by
gains on the hedged investment, and vice versa. While hedging can reduce or
eliminate losses, it can also reduce or eliminate gains.
o Speculative To the extent that a derivative is not used as a hedge, the fund
is directly exposed to the risks of that derivative. Gains or losses from
speculative positions in a derivative may be substantially greater than the
derivative's original cost.
Liquidity risk The risk that certain securities may be difficult or impossible
to sell at the time and the price that the seller would like.
Management risk The risk that a strategy used by a fund's management may fail to
produce the intended result. Common to all mutual funds.
Market risk The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. Common to all stocks and bonds and the
mutual funds that invest in them.
Natural event risk The risk of losses attributable to natural disasters, crop
failures and similar events.
Opportunity risk The risk of missing out on an investment opportunity because
the assets necessary to take advantage of it are tied up in less advantageous
investments.
Political risk The risk of losses directly attributable to government or
political actions of any sort.
Prepayment risk The risk that unanticipated prepayments may occur, reducing the
value of mortgage-backed securities.
Valuation risk The risk that a fund has valued certain of its securities at a
higher price than it can sell them for.
- --------------------------------------------------------------------------------
Analysis of funds with 5% or more in junk bonds(1)
- --------------------------------------------------------------------------------
Quality rating
(S&P/Moody's)(2) Sovereign Balanced Fund
Investment-Grade Bonds
AAA/Aaa 17.7%
AA/Aa 2.0%
A/A 5.1%
BBB/Baa 4.2%
BB/Ba 2.6%
B/B 2.1%
- --------------------------------------------------------------------------------
Junk Bonds
CCC/Caa 0.0%
CC/Ca 0.0%
C/C 0.0%
% of portfolio in bonds 33.7%
|_| Rated by Standard & Poor's or Moody's
(1) Average weighted quality distribution for the most recent fiscal year.
(2) In cases where the S&P and Moody's ratings for a given bond issue do not
agree, the issue has been counted in the higher category.
26 FUND DETAILS
<PAGE>
- --------------------------------------------------------------------------------
Higher-risk securities and practices
- --------------------------------------------------------------------------------
This table shows each fund's investment limitations as a percentage of portfolio
assets. In each case the principal types of risk are listed (see previous page
for definitions). Numbers in this table show allowable usage only; for actual
usage, consult the fund's annual/semi-annual reports.
10 Percent of total assets (italic type)
10 Percent of net assets (roman type)
(_) No policy limitation on usage; fund may be using currently
(_) Permitted, but has not typically been used
- -- Not permitted
<TABLE>
<CAPTION>
Growth
and Independence Sovereign Sovereign Special
Income Equity Balanced Investors Value Utilities
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment practices
Borrowing; reverse repurchase agreements The borrowing of money
from banks or through reverse repurchase agreements. Leverage,
credit risks. 33.3 33.3 33 -- 33.3 33.3
Repurchase agreements The purchase of a security that must later
be sold back to the issuer at the same price plus interest.
Credit risk. (_) (_) (_) (_) (_) (_)
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.
o Hedged. Hedged leverage, market, correlation, liquidity,
opportunity risks. -- (_) (_) (_) (_) (_)
o Speculative. Speculative leverage, market, liquidity risks. -- (_) -- -- (_) --
Short-term trading Selling a security soon after purchase. A
portfolio engag ing 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. 15 -- 25 5 15 --
Foreign securities Securities issued by foreign companies, as
well as American or European depository receipts, which are
dollar-denominated securities typically issued by American or
European banks and are based on ownership of securities issued by
foreign companies. Market, currency, information, natural event,
political risks. 35 (_) 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.
o Futures and related options. Interest rate, currency, market,
hedged or speculative leverage, correlation, liquidity,
opportunity risks. (_) (_) (_) -- (_) (_)
o 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.
o Hedged. Currency, hedged leverage, correlation, liquidity,
opportunity risks. (_) -- (_) -- (_) (_)
o Speculative. Currency, speculative leverage, liquidity risks. -- -- -- -- -- --
</TABLE>
(1) Applies to purchased options only.
FUND DETAILS 27
<PAGE>
For more information
- -----------------------------------------------------------------
Two documents are available that offer further information on John Hancock
growth and income funds:
ANNUAL/SEMI-ANNUAL REPORT TO SHAREHOLDERS
Includes financial statements, detailed performance information, portfolio
holdings, a statement from portfolio management and the auditor's report.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains more detailed information on all aspects of the funds. The
current annual/ semi-annual report is included in the SAI.
A current SAI has been filed with the Securities and Exchange
Commission and is incorporated by reference (is legally a part of
this prospectus).
To request a free copy of the current
annual/semi-annual report or SAI,
please write or call:
John Hancock Signature Services, Inc.
1 John Hancock Way STE 1000
Boston, MA 02217-1000
Telephone: 1-800-225-5291
EASI-Line: 1-800-338-8080
TDD: 1-800-544-6713
Internet: www.jhancock.com/funds
[Logo] JOHN HANCOCK FUNDS
A Global Management Firm
101 Huntington Avenue
Boston, Massachusetts 02199-7603
(C) 1996 John Hancock Funds, Inc.
GINPN 5/97
John Hancock Funds
Financial Services
<PAGE>
JOHN HANCOCK SPECIAL VALUE FUND
Class A and B Shares
Statement of Additional Information
May 1, 1997
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
May 1, 1997. The Fund is a diversified series of John Hancock Capital Series
(the "Trust").
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus, a copy of which can be obtained free of
charge by writing or telephoning:
John Hancock Signature Services, Inc.
1 John Hancock Way STE 1000
Boston, Massachusetts 02217-1000
1-800-225-5291
TABLE OF CONTENTS
Page
Organization of the Fund .............................................. 2
Investment Objective and Policies ..................................... 2
Investment Restrictions ............................................... 13
Those Responsible for Management ...................................... 16
Investment Advisory, Sub-Advisory and Other Services .................. 25
Distribution Contract ................................................. 27
Net Asset Value ....................................................... 28
Initial Sales Charge on Class A Shares ................................ 29
Deferred Sales Charge on Class B Shares ............................... 31
Special Redemptions ................................................... 34
Additional Services and Programs ...................................... 34
Description of the Fund's Shares ...................................... 35
Tax Status ............................................................ 36
Calculation of Performance ............................................ 41
Brokerage Allocation .................................................. 42
Transfer Agent Services ............................................... 43
Custody of Portfolio .................................................. 44
Independent Auditors .................................................. 44
Appendix- Description of Bond Ratings ................................. A-1
Financial Statements .................................................. F-1
1
<PAGE>
ORGANIZATION OF THE FUND
John Hancock Special Value Fund (the "Fund") is an open-end management
investment company organized as a Massachusetts business trust. Prior to October
1, 1993 the Trust was known as "John Hancock Growth Fund."
John Hancock Advisers, Inc. (the "Adviser") is the Fund's investment adviser.
The Adviser is an indirect wholly-owned subsidiary of John Hancock Mutual Life
Insurance Company (the "Life Company"), a Massachusetts life insurance company
chartered in 1862, with national headquarters at John Hancock Place, Boston,
Massachusetts.
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the discussion of the Fund's investment
objective and policies discussed in the prospectus.
The investment 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 emphasizes
issuers whose equity securities trade at valuation ratios lower than comparable
issuers or the Standard and Poor's Composite Index. Some of the valuation tools
used include price to earnings, price to cash flow and price to sales ratios and
earnings discount models. The Fund's portfolio will also include securities that
the Adviser considers to have the potential for capital appreciation, due to
potential recognition of earnings power or asset value which is not fully
reflected in the securities' current market value. The Adviser attempts to
identify investments which possess characteristics, such as high relative value,
intrinsic value, going concern value, net asset value and replacement book
value, which are as high relative value, intrinsic value, going concern value,
net asset value and replacement book value, which are believed to limit
sustained downside price risk, generally referred to as the "margin of safety"
concept. The Adviser also considers an issuer's financial strength, competitive
position, projected future earnings and dividends and other investment criteria.
These securities are collectively referred to as "special value" securities.
The Fund's investment policy reflects the Adviser's belief that while the
securities markets tend to be efficient, sufficiently persistent price anomalies
exist which the strategically disciplined active equity manager can exploit in
seeking to achieve an above-average rate of return.
The Fund's investments may include securities of both large, widely traded
companies and smaller, less well known issuers. Higher risks are often
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.
2
<PAGE>
The Fund's investments in fixed-income securities may include U.S. Government
securities and convertible and non-convertible corporate preferred stocks and
debt securities of U.S. and foreign issuers. Under normal market conditions, the
Fund's investments in fixed-income securities are not expected to exceed 15% of
the Fund's net assets. 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.
Ratings as Investment Criteria. In general, the ratings of Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's Ratings Group ("S&P") represent
the opinions of these agencies as to the quality of the securities which they
rate. It should be emphasized, however, that such ratings are relative and
subjective and are not absolute standards of quality. These ratings will be used
by the Fund as initial criteria for the selection of portfolio securities. Among
the factors which will be considered are the long-term ability of the issuer to
pay principal and interest and general economic trends.
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither of these events will require the sale of the securities by the
Fund, but the Adviser will consider the event in its determination of whether
the Fund should continue to hold the securities.
Lower Rated High Yield "High Risk" Debt Obligations. The fixed-income securities
in which the Fund may invest, may be rated as low as CC by S&P or CA by Moody's
and unrated securities of comparable credit quality as determined by the
Adviser. Fixed-income securities that are rated below BBB by S&P or Baa by
Moody's indicate obligations that are speculative to a high degree and are often
in default.
Securities rated lower than Baa by Moody's or BBB by S&P are sometimes referred
to as junk bonds. See the Appendix attached to this Statement of Additional
Information which describes the characteristics of the securities in the various
ratings categories. The Fund is not obligated to dispose of securities whose
issuers subsequently are in default or which are downgraded below the
above-stated ratings. The credit ratings of Moody's and S&P, such as those
ratings described here, may not be changed by Moody's and S&P in a timely
fashion to reflect subsequent economic events. The credit ratings or securities
do not reflect an evaluation of market risk. Debt obligations rated in the lower
ratings categories, or which are unrated, involve greater volatility of price
and risk of loss of principal and income. In addition, lower ratings reflect a
greater possibility of an adverse change in financial condition affecting the
issuer's ability to make payments of interest and principal. The market price
and liquidity of lower rated fixed income securities generally respond more to
short-term corporate and market developments than do those of higher rated
securities, because these developments are perceived to have a more direct
relationship to the ability of an issuer of lower rated securities to meet its
on going debt obligations. The Adviser seeks to minimize these risks through
diversification, investment analysis and attention to current developments in
interest rates and economic conditions.
Reduced volume and liquidity in the high yield high risk bond market, or the
reduced availability of market quotations, will make it more difficult to
dispose of the bonds and to value accurately the Fund's assets. The reduced
availability of reliable, objective data may increase the Fund's reliance on
management's judgment in valuing high yield high risk bonds. In addition, the
Fund's investment in high yield high risk securities may be susceptible to
adverse publicity and investor perceptions, whether or not justified by
fundamental factors. The Fund's investments, and consequently its net asset
value, will be subject to the market fluctuations and risk inherent in all
securities. Increasing rate note securities are typically refinanced by the
issuers within a short period of time. The Fund may invest in pay-in-kind (PIK)
3
<PAGE>
securities, which pay interest in either cash or additional securities, at the
issuer's option, for a specified period. The Fund also may invest in zero coupon
bonds, which have a determined interest rate, but payment of the interest is
deferred until maturity of the bonds. Both types of bonds may be more
speculative and subject to greater fluctuations in value than securities which
pay interest periodically and in cash, due to changes in interest rates.
The market value of debt securities which carry no equity participation usually
reflects yields generally available on securities of similar quality and type.
When such yields decline, the market value of a portfolio already invested at
higher yields can be expected to rise if such securities are protected against
early call. In general, in selecting securities for its portfolio, the Fund
intends to seek protection against early call. Similarly, when such yields
increase, the market value of a portfolio already invested at lower yields can
be expected to decline. The Fund's portfolio may include debt securities which
sell at substantial discounts from par. These securities are low coupon bonds
which, during periods of high interest rates, because of their lower acquisition
cost tend to sell on a yield basis approximating current interest rates.
Investments in Foreign Securities. The Fund may invest up to 25% of its total
assets in the securities of foreign issuers, including securities in the form of
sponsored or unsponsored American Depository Receipts (ADRs), European
Depository Receipts (EDRs) or other securities convertible into securities of
foreign issuers. ADRs are receipts typically issued by an American bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. EDRs are receipts issued in Europe which evidence a similar
ownership arrangement. Issuers of unsponsored ADRs are not contractually
obligated to disclose material information, including financial information, in
the United States. Generally, ADRs are designed for use in the United States
securities markets and EDRs are designed for use in European securities markets.
Foreign Currency Transactions. The Fund's foreign currency exchange transactions
may be conducted on a spot (i.e., cash) basis at the spot rate for purchasing or
selling currency prevailing in the foreign exchange market. The Fund may also
enter into forward foreign currency exchange contracts to enhance return, to
hedge against fluctuations in currency exchange rates affecting a particular
transaction or portfolio position, or as a substitute for the purchase or sale
of a currency or assets denominated in that currency. Forward contracts are
agreements to purchase or sell a specified currency at a specified future date
and price set at the time of the contract. Transaction hedging is the purchase
or sale of forward foreign currency contracts with respect to specific
receivables or payables of the Fund accruing in connection with the purchase and
sale of its portfolio securities quoted or denominated in the same or related
foreign currencies. Portfolio hedging is the use of forward foreign currency
contracts to offset portfolio security positions denominated or quoted in the
same or related foreign currencies. The Fund may elect to hedge less than all of
its foreign portfolio positions deemed appropriate by the Adviser and
Sub-Advisers.
If the Fund purchases a forward contract or sells a forward contract for
non-hedging purposes, its custodian will segregate cash or liquid securities, of
any type or maturity, in a separate account of the Fund in an amount equal to
the value of the Fund's total assets committed to the consummation of such
forward contract. The assets in the segregated account will be valued at market
daily and if the value of the securities in the separate account declines,
additional cash or securities will be placed in the account so that the value of
the account will be equal to the amount of the Fund's commitment with respect to
such contracts.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency rises. Moreover, it may
not be possible for the Fund to hedge against a devaluation that is so generally
4
<PAGE>
anticipated that the Fund is not able to contract to sell the currency at a
price above the devaluation level it anticipates.
The cost to the Fund of engaging in foreign currency transactions varies with
such factors as the currency involved, the length of the contract period and the
market conditions then prevailing. Since transactions in foreign currency are
usually conducted on a principal basis, no fees or commissions are involved.
Risks of Foreign Securities. Investments in foreign securities may involve a
greater degree of risk than those in domestic securities. There is generally
less publicly available information about foreign companies in the form of
reports and ratings similar to those that are published about issuers in the
United States. Also, foreign issuers are generally not subject to uniform
accounting, auditing and financial reporting requirements comparable to those
applicable to United States issuers.
Because foreign securities may be denominated in currencies other than the U.S.
dollar, changes in foreign currency exchange rates will affect the Fund's net
asset value, the value of dividends and interest earned, gains and losses
realized on the sale of securities, and any net investment income and gains that
the Fund distributes to shareholders. Securities transactions undertaken in some
foreign markets may not be settled promptly so that the Fund's investments on
foreign exchanges may be less liquid and subject to the risk of fluctuating
currency exchange rates pending settlement.
Foreign securities will be purchased in the best available market, whether
through over-the-counter markets or exchanges located in the countries where
principal offices of the issuers are located. Foreign securities markets are
generally not as developed or efficient as those in the United States. While
growing in volume, they usually have substantially less volume than the New York
Stock Exchange, and securities of some foreign issuers are less liquid and more
volatile than securities of comparable United States issuers. Fixed commissions
on foreign exchanges are generally higher than negotiated commissions on United
States exchanges, although the Fund will endeavor to achieve the most favorable
net results on its portfolio transactions. There is generally less government
supervision and regulation of securities exchanges, brokers and listed issuers
than in the United States.
With respect to certain foreign countries, there is the possibility of adverse
changes in investment or exchange control regulations, expropriation,
nationalization or confiscatory taxation limitations on the removal of funds or
other assets of the Fund, political or social instability, or diplomatic
developments which could affect United States investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the United States' economy in terms of growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
The dividends, in some cases capital gains and interest payable on certain of
the Fund's foreign portfolio securities, may be subject to foreign withholding
or other foreign taxes, thus reducing the net amount of income or gains
available for distribution to the Fund's shareholders.
Repurchase Agreements. In a repurchase agreement is a contract buys a security
for a relatively short period (usually not more than 7 days) subject to the
obligation to sell it back to the issuer at a fixed time and price plus accrued
interest. The Fund will enter into repurchase agreements only with member banks
of the Federal Reserve System and with "primary dealers" in U.S. Government
securities. The Advisers will continuously monitor the creditworthiness of the
parties with whom the Fund enters into repurchase agreements.
5
<PAGE>
The Fund has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, the Fund could experience delays in
liquidating the underlying securities during the period in which the Fund seeks
to enforce its rights thereto, possible subnormal levels of income decline in
value of the underlying securities or lack of access to income during this
period and the expense of enforcing its rights.
Reverse Repurchase Agreements. The Fund may also enter into reverse repurchase
agreements which involve the sale of U.S. Government securities held in its
portfolio to a bank with an agreement that the Fund will buy back the securities
at a fixed future date at a fixed price plus an agreed amount of "interest"
which may be reflected in the repurchase price. Reverse repurchase agreements
are considered to be borrowings by the Fund. Reverse repurchase agreements
involve the risk that the market value of securities purchased by the Fund with
proceeds of the transaction may decline below the repurchase price of the
securities sold by the Fund which it is obligated to repurchase. The Fund will
also continue to be subject to the risk of a decline in the market value of the
securities sold under the agreements because it will reacquire those securities
upon effecting their repurchase. To minimize various risks associated with
reverse repurchase agreements, the Fund will establish and maintain with the
Fund's custodian a separate account consisting of liquid securities, of any type
or maturity, in an amount at least equal to the repurchase prices of the
securities (plus any accrued interest thereon) under such agreements. The Fund
will not enter into reverse repurchase agreements and other borrowings except
from banks as a temporary measure for extraordinary emergency purposes in
amounts not to exceed 33 1/3% of the Fund's total assets (including the amount
borrowed) taken at market value. The Fund will not use leverage to attempt to
increase income. The Fund will not purchase securities while outstanding
borrowings exceed 5% of the Fund's total assets. The Fund will enter into
reverse repurchase agreements only with federally insured banks which are
approved in advance as being creditworthy by the Trustees. Under procedures
established by the Trustees, the 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 commercial paper issued in reliance on Section 4(2) of the 1933 act
and securities offered and sold to "qualified institutional buyers" under Rule
144A under the 1933 Act. The Fund will not invest more than 15% of its net
assets in illiquid investments. If the Trustees determines, based upon a
continuing review of the trading markets for specific Section 4(2) paper or Rule
144A securities, that they are liquid, they will not be subject to the 15% limit
on illiquid investments. The Trustees may adopt guidelines and delegate to the
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.
Options on Securities, Securities Indices and Currency. The Fund may purchase
and write (sell) call and put options on any securities in which it may invest,
on any securities index based on securities in which it may invest or on any
currency in which Fund investments may be denominated. These options may be
listed on national domestic securities exchanges or foreign securities exchanges
or traded in the over-the-counter market. The Fund may write covered put and
call options and purchase put and call options to enhance total return, as a
substitute for the purchase or sale of securities or currency, or to protect
against declines in the value of portfolio securities and against increases in
the cost of securities to be acquired.
6
<PAGE>
Writing Covered Options. A call option on securities or currency written by the
Fund obligates the Fund to sell specified securities or currency to the holder
of the option at a specified price if the option is exercised at any time before
the expiration date. A put option on securities or currency written by the Fund
obligates the Fund to purchase specified securities or currency from the option
holder at a specified price if the option is exercised at any time before the
expiration date. Options on securities indices are similar to options on
securities, except that the exercise of securities index options requires cash
settlement payments and does not involve the actual purchase or sale of
securities. In addition, securities index options are designed to reflect price
fluctuations in a group of securities or segment of the securities market rather
than price fluctuations in a single security. Writing covered call options may
deprive the Fund of the opportunity to profit from an increase in the market
price of the securities or foreign currency assets in its portfolio. Writing
covered put options may deprive the Fund of the opportunity to profit from a
decrease in the market price of the securities or foreign currency assets to be
acquired for its portfolio.
All call and put options written by the Fund are covered. A written call option
or put option may be covered by (i) maintaining cash or liquid securities,
either of which may be quoted or denominated in any currency, in a segregated
account maintained by the Fund's custodian with a value at least equal to the
Fund's obligation under the option, (ii) entering into an offsetting forward
commitment and/or (iii) purchasing an offsetting option or any other option
which, by virtue of its exercise price or otherwise, reduces the Fund's net
exposure on its written option position. A written call option on securities is
typically covered by maintaining the securities that are subject to the option
in a segregated account. The Fund may cover call options on a securities index
by owning securities whose price changes are expected to be similar to those of
the underlying index.
The Fund may terminate its obligations under an exchange traded call or put
option by purchasing an option identical to the one it has written. Obligations
under over-the-counter options may be terminated only by entering into an
offsetting transaction with the counterparty to such option. Such purchases are
referred to as "closing purchase transactions."
Purchasing Options. The Fund would normally purchase call options in
anticipation of an increase, or put options in anticipation of a decrease
("protective puts"), in the market value of securities or currencies of the type
in which it may invest. The Fund may also sell call and put options to close out
its purchased options.
The purchase of a call option would entitle the Fund, in return for the premium
paid, to purchase specified securities or currency at a specified price during
the option period. The Fund would ordinarily realize a gain on the purchase of a
call option if, during the option period, the value of such securities or
currency exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise the Fund would realize either no gain or a loss on
the purchase of the call option.
The purchase of a put option would entitle the Fund, in exchange for the premium
paid, to sell specified securities or currency at a specified price during the
option period. The purchase of protective puts is designed to offset or hedge
against a decline in the market value of the Fund's portfolio securities or the
currencies in which they are denominated. Put options may also be purchased by
the Fund for the purpose of affirmatively benefiting from a decline in the price
of securities or currencies which it does not own. The Fund would ordinarily
realize a gain if, during the option period, the value of the underlying
securities or currency decreased below the exercise price sufficiently to cover
the premium and transaction costs; otherwise the Fund would realize either no
gain or a loss on the purchase of the put option. Gains and losses on the
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purchase of put options may be offset by countervailing changes in the value of
the Fund's portfolio securities.
The Fund's options transactions will be subject to limitations established by
each of the exchanges, boards of trade or other trading facilities on which such
options are traded. These limitations govern the maximum number of options in
each class which may be written or purchased by a single investor or group of
investors acting in concert, regardless of whether the options are written or
purchased on the same or different exchanges, boards of trade or other trading
facilities or are held or written in one or more accounts or through one or more
brokers. Thus, the number of options which the Fund may write or purchase may be
affected by options written or purchased by other investment advisory clients of
the Adviser. An exchange, board of trade or other trading facility may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.
Risks Associated with Options Transactions. There is no assurance that a liquid
secondary market on a domestic or foreign options exchange will exist for any
particular exchange-traded option or at any particular time. If the Fund is
unable to effect a closing purchase transaction with respect to covered options
it has written, the Fund will not be able to sell the underlying securities or
currencies or dispose of assets held in a segregated account until the options
expire or are exercised. Similarly, if the Fund is unable to effect a closing
sale transaction with respect to options it has purchased, it would have to
exercise the options in order to realize any profit and will incur transaction
costs upon the purchase or sale of underlying securities or currencies.
Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options). If trading were discontinued, the
secondary market on that exchange (or in that class or series of options) would
cease to exist. However, outstanding options on that exchange that had been
issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
The Fund's ability to terminate over-the-counter options is more limited than
with exchange-traded options and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. The
Adviser will determine the liquidity of each over-the-counter option in
accordance with guidelines adopted by the Trustees.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of options
depends in part on the Adviser's ability to predict future price fluctuations
and, for hedging transactions, the degree of correlation between the options and
securities or currency markets.
Futures Contracts and Options on Futures Contracts. To seek to increase total
return or hedge against changes in interest rates, securities prices or currency
exchange rates, the Fund may purchase and sell various kinds of futures
contracts, and purchase and write call and put options on these futures
contracts. The Fund may also enter into closing purchase and sale transactions
with respect to any of these contracts and options. The futures contracts may be
8
<PAGE>
based on various securities (such as U.S. Government securities), securities
indices, foreign currencies and any other financial instruments and indices. All
futures contracts entered into by the Fund are traded on U.S. or foreign
exchanges or boards of trade that are licensed, regulated or approved by the
Commodity Futures Trading Commission ("CFTC").
Futures Contracts. A futures contract may generally be described as an agreement
between two parties to buy and sell particular financial instruments or
currencies for an agreed price during a designated month (or to deliver the
final cash settlement price, in the case of a contract relating to an index or
otherwise not calling for physical delivery at the end of trading in the
contract).
Positions taken in the futures markets are not normally held to maturity but are
instead liquidated through offsetting transactions which may result in a profit
or a loss. While futures contracts on securities or currency will usually be
liquidated in this manner, the Fund may instead make, or take, delivery of the
underlying securities or currency whenever it appears economically advantageous
to do so. A clearing corporation associated with the exchange on which futures
contracts are traded guarantees that, if still open, the sale or purchase will
be performed on the settlement date.
Hedging and Other Strategies. Hedging is an attempt to establish with more
certainty than would otherwise be possible the effective price or rate of return
on portfolio securities or securities that the Fund proposes to acquire or the
exchange rate of currencies in which portfolio securities are quoted or
denominated. When interest rates are rising or securities prices are falling,
the Fund can seek to offset a decline in the value of its current portfolio
securities through the sale of futures contracts. When interest rates are
falling or securities prices are rising, the Fund, through the purchase of
futures contracts, can attempt to secure better rates or prices than might later
be available in the market when it effects anticipated purchases. The Fund may
seek to offset anticipated changes in the value of a currency in which its
portfolio securities, or securities that it intends to purchase, are quoted or
denominated by purchasing and selling futures contracts on such currencies.
The Fund may, for example, take a "short" position in the futures market by
selling futures contracts in an attempt to hedge against an anticipated rise in
interest rates or a decline in market prices or foreign currency rates that
would adversely affect the dollar value of the Fund's portfolio securities. Such
futures contracts may include contracts for the future delivery of securities
held by the Fund or securities with characteristics similar to those of the
Fund's portfolio securities. Similarly, the Fund may sell futures contracts on
any currencies in which its portfolio securities are quoted or denominated or in
one currency to hedge against fluctuations in the value of securities
denominated in a different currency if there is an established historical
pattern of correlation between the two currencies.
If, in the opinion of the Adviser, there is a sufficient degree of correlation
between price trends for the Fund's portfolio securities and futures contracts
based on other financial instruments, securities indices or other indices, the
Fund may also enter into such futures contracts as part of its hedging strategy.
Although under some circumstances prices of securities in the Fund's portfolio
may be more or less volatile than prices of such futures contracts, the Adviser
will attempt to estimate the extent of this volatility difference based on
historical patterns and compensate for any differential by having the Fund enter
into a greater or lesser number of futures contracts or by attempting to achieve
only a partial hedge against price changes affecting the Fund's portfolio
securities.
When a short hedging position is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the value
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<PAGE>
of the futures position. On the other hand, any unanticipated appreciation in
the value of the Fund's portfolio securities would be substantially offset by a
decline in the value of the futures position.
On other occasions, the Fund may take a "long" position by purchasing futures
contracts. This would be done, for example, when the Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates then available in the applicable
market to be less favorable than prices that are currently available. The Fund
may also purchase futures contracts as a substitute for transactions in
securities or foreign currency, to alter the investment characteristics of or
currency exposure associated with portfolio securities or to gain or increase
its exposure to a particular securities market or currency.
Options on Futures Contracts. The Fund may purchase and write options on futures
for the same purposes as its transactions in futures contracts. The purchase of
put and call options on futures contracts will give the Fund the right (but not
the obligation) for a specified price to sell or to purchase, respectively, the
underlying futures contract at any time during the option period. As the
purchaser of an option on a futures contract, the Fund obtains the benefit of
the futures position if prices move in a favorable direction but limits its risk
of loss in the event of an unfavorable price movement to the loss of the premium
and transaction costs.
The writing of a call option on a futures contract generates a premium which may
partially offset a decline in the value of the Fund's assets. By writing a call
option, the Fund becomes obligated, in exchange for the premium (upon exercise
of the option) to sell a futures contract if the option is exercised, which may
have a value higher than the exercise price. Conversely, the writing of a put
option on a futures contract generates a premium which may partially offset an
increase in the price of securities that the Fund intends to purchase. However,
the Fund becomes obligated (upon exercise of the option) to purchase a futures
contract if the option is exercised, which may have a value lower than the
exercise price. The loss incurred by the Fund in writing options on futures is
potentially unlimited and may exceed the amount of the premium received.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option of the same series. There
is no guarantee that such closing transactions can be effected. The Fund's
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.
Other Considerations. The Fund will engage in futures and related options
transactions either for bona fide hedging purposes or to seek to increase total
return as permitted by the CFTC. To the extent that the Fund is using futures
and related options for hedging purposes, futures contracts will be sold to
protect against a decline in the price of securities (or the currency in which
they are quoted or denominated) that the Fund owns or futures contracts will be
purchased to protect the Fund against an increase in the price of securities (or
the currency in which they are quoted or denominated) it intends to purchase.
The Fund will determine that the price fluctuations in the futures contracts and
options on futures used for hedging purposes are substantially related to price
fluctuations in securities held by the Fund or securities or instruments which
it expects to purchase. As evidence of its hedging intent, the Fund expects that
on 75% or more of the occasions on which it takes a long futures or option
position (involving the purchase of futures contracts), the Fund will have
purchased, or will be in the process of purchasing, equivalent amounts of
related securities (or assets denominated in the related currency) in the cash
market at the time when the futures or option position is closed out. However,
in particular cases, when it is economically advantageous for the Fund to do so,
a long futures position may be terminated or an option may expire without the
corresponding purchase of securities or other assets.
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To the extent that the Fund engages in nonhedging transactions in futures
contracts and options on futures, the aggregate initial margin and premiums
required to establish these nonhedging positions will not exceed 5% of the net
asset value of the Fund's portfolio, after taking into account unrealized
profits and losses on any such positions and excluding the amount by which such
options were in-the-money at the time of purchase. The Fund will engage in
transactions in futures contracts and related options only to the extent such
transactions are consistent with the requirements of the Internal Revenue Code
of 1986, as amended (the "Code"), for maintaining its qualification as a
regulated investment company for federal income tax purposes.
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating the Fund to purchase securities or currencies, require the Fund to
establish with the custodian a segregated account consisting of cash or liquid
securities in an amount equal to the underlying value of such contracts and
options.
While transactions in futures contracts and options on futures may reduce
certain risks, these transactions themselves entail certain other risks. For
example, unanticipated changes in interest rates, securities prices or currency
exchange rates may result in a poorer overall performance for the Fund than if
it had not entered into any futures contracts or options transactions.
Perfect correlation between the Fund's futures positions and portfolio positions
will be impossible to achieve. There are no futures contracts based upon
individual securities, except certain U.S. Government securities. The only
futures contracts available to hedge the Fund's portfolio are various futures on
U.S. Government securities, securities indices and foreign currencies. In the
event of an imperfect correlation between a futures position and a portfolio
position which is intended to be protected, the desired protection may not be
obtained and the Fund may be exposed to risk of loss. In addition, it is not
possible to hedge fully or protect against currency fluctuations affecting the
value of securities denominated in foreign currencies because the value of such
securities is likely to fluctuate as a result of independent factors not related
to currency fluctuations.
Some futures contracts or options on futures may become illiquid under adverse
market conditions. In addition, during periods of market volatility, a commodity
exchange may suspend or limit trading in a futures contract or related option,
which may make the instrument temporarily illiquid and difficult to price.
Commodity exchanges may also establish daily limits on the amount that the price
of a futures contract or related option can vary from the previous day's
settlement price. Once the daily limit is reached, no trades may be made that
day at a price beyond the limit. This may prevent the Fund from closing out
positions and limiting its losses.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers and financial institutions if the loan is collateralized by cash or U.S.
Government securities according to applicable regulatory requirements. The Fund
may reinvest any cash collateral in short-term securities and money market
funds. When the Fund lends portfolio securities, there is a risk that the
borrower may fail to return the 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 1/3%
of its total assets.
Rights and Warrants. The Fund may purchase warrants and rights which are
securities permitting, but not obligating, their holder to purchase the
underlying securities at a predetermined price subject to the Fund's Investment
Restriction. Generally, warrants and stock purchase rights do not carry with
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<PAGE>
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 warrant and rights does not necessarily change with the
value of the underlying securities, and they cease to have value if they are not
exercised on or prior to their expiration date. Investment in warrants and
rights increases the potential profit or loss to be realized from the investment
of a given amount of the Fund's assets as compared with investing the same
amount in the underlying stock.
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.
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 securities, of any type or maturity 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
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proceeds from the short sale). In addition, until the Fund replaces the borrowed
security, it must daily maintain the segregated account at such a level that the
amount deposited in it plus the amount deposited with the broker as collateral
will equal the current market value of the securities sold short.
Short selling may produce higher than normal portfolio turnover which may result
in increased transaction costs to the Fund and may result in gains from the sale
of securities deemed to have been held for less than three months, which gains
must be less than 30% of the Fund's gross income for a taxable year in order for
the Fund to qualify as a regulated investment company under the Code for that
year.
Forward Commitment and When-Issued Securities. The Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. The Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, the Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time.
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, of any type or maturity, in value to
the Fund's commitment. These assets will be valued daily at market, and
additional cash or securities will be segregated in a separate account to the
extent that the total value of the assets in the account declines below the
amount of the when-issued commitments. Alternatively, the Fund may enter into
offsetting contracts for the forward sale of other securities that it owns.
Short-Term Trading and Portfolio Turnover. 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%.
The Fund's portfolio turnover rate is set forth in the table under the caption
"Financial Highlights" in the prospectus.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions will
not be changed without approval of 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.
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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.
(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
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agreements entered into in accordance with the Fund's investment
policy, and the pledge, mortgage or hypothecation of the Fund's assets
within the meaning of paragraph (7) above are not deemed to be senior
securities.
In connection with the lending of portfolio securities under item (2) above,
such loans must at all times be fully collateralized 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
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.
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(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 10% 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 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").
16
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Edward J. Boudreau, Jr. * Trustee, Chairman and Chief Chairman and Chief Executive
101 Huntington Avenue Executive Officer (1, 2) Officer, the Adviser and The
Boston, MA 02199 Berkeley Financial Group ("Berkeley
October 1944 Group"); Chairman, NM Capital
Management, Inc. ("NM Capital") and
John Hancock Advisers International
Limited ("Advisers International");
Chairman, Chief Executive Officer
and President, John Hancock Funds,
Inc. ("John Hancock Funds"), First
Signature Bank and Trust Company
and Sovereign Asset Management
Corporation ("SAMCorp."); Director,
John Hancock Insurance Agency, Inc.
("Insurance Agency, Inc."), John
Hancock Capital Corporation and New
England/Canada Business Council;
Member, Investment Company
Institute Board of Governors;
Director, Asia Strategic Growth
Fund, Inc.; Trustee, Museum of
Science; Vice Chairman and
President, the Adviser (until July
1992); Chairman, John Hancock
Distributors, Inc. (until April
1994); Director, John Hancock
Freedom Securities Corporation
(until September 1996); Director,
John Hancock Signature Services,
Inc. ("Signature Services") (until
January 1997).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
17
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Dennis S. Aronowitz Trustee (3) Professor of Law, Emeritus, Boston
Boston University University School of Law; Trustee,
Boston, Massachusetts Brookline Savings Bank.
June 1931
Richard P. Chapman, Jr. Trustee (1, 3) President, Brookline Savings Bank;
160 Washington Street Director, Federal Home Loan Bank of
Brookline, MA 02147 Boston (lending); Director, Lumber
February 1935 Insurance Companies (fire and
casualty insurance); Trustee,
Northeastern University (education);
Director, Depositors Insurance Fund,
Inc. (insurance).
William J. Cosgrove Trustee (3) Vice President, Senior Banker and
20 Buttonwood Place Senior Credit Officer, Citibank,
Saddle River, NJ 07458 N.A. (retired September 1991);
January 1933 Executive Vice President, Citadel
Group Representatives, Inc.; EVP
Resource Evaluation, Inc.
(consulting) (until October 1993);
Trustee, the Hudson City Savings
Bank (since 1995).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
18
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Douglas M. Costle Trustee (1, 3) Director, Chairman of the Board and
RR2 Box 480 Distinguished Senior Fellow,
Woodstock, VT 05091 Institute for Sustainable
July 1939 Communities, Montpelier, Vermont
(since 1991); Dean Vermont Law
School (until 1991); Director, Air
and Water Technologies Corporation
(environmental services and
equipment), Niagara Mohawk Power
Company (electric services) and
Mitretek Systems (governmental
consulting services).
Leland O. Erdahl Trustee (3) Director, Santa Fe Ingredients
8046 Mackenzie Court Company of California, Inc. and
Las Vegas, NV 89129 Santa Fe Ingredients Company, Inc.
December 1928 (private food processing companies),
Uranium Resources, Inc.; President,
Stolar, Inc. (1987-1991); President,
Albuquerque Uranium Corporation
(1985-1992); Director,
Freeport-McMoRan Copper & Gold
Company, Inc., Hecla Mining Company,
Canyon Resources Corporation and
Original Sixteen to One Mines, Inc.
(1984-1987 and 1991-1995)
(management consultant).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
19
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Richard A. Farrell Trustee(3) President of Farrell, Healer & Co.,
Venture Capital Partners (venture capital management firm)
160 Federal Street (since 1980); Prior to 1980, headed
23rd Floor the venture capital group at Bank of
Boston, MA 02110 Boston Corporation.
November 1932
Gail D. Fosler Trustee (3) Vice President and Chief Economist,
4104 Woodbine Street The Conference Board (non-profit
Chevy Chase, MD 20815 economic and business research);
December 1947 Director, Unisys Corp.; and H.B.
Fuller Company.
William F. Glavin Trustee (3) President, Babson College; Vice
Babson College Chairman, Xerox Corporation (until
Horn Library June 1989); Director, Caldor Inc.,
Babson Park, MA 02157 Reebok, Ltd. (since 1994) and Inco
March 1931 Ltd.
Anne C. Hodsdon * Trustee and President (1,2) President, Chief Operating Officer
101 Huntington Avenue and Director, the Adviser; Director,
Boston, MA 02199 The Berkeley Group, John Hancock
April 1953 Funds; Director, Advisers
International; Executive Vice
President, the Adviser (until
December 1994); Senior Vice
President, the Adviser (until
December 1993); Director, Signature
Services (until January 1997).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
20
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Dr. John A. Moore Trustee (3) President and Chief Executive
Institute for Evaluating Health Risks Officer, Institute for Evaluating
1629 K Street NW Health Risks, (nonprofit
Suite 402 institution) (since September 1989).
Washington, DC 20006-1602
February 1939
Patti McGill Peterson Trustee (3) Cornell Institute of Public Affairs,
Cornell University Cornell University (since August
Institute of Public Affairs 1996); President Emeritus of Wells
364 Upson Hall College and St. Lawrence University;
Ithica, NY 14853 Director, Niagara Mohawk Power
May 1943 Corporation (electric utility) and
Security Mutual Life (insurance).
John W. Pratt Trustee (3) Professor of Business Administration
2 Gray Gardens East at Harvard University Graduate
Cambridge, MA 02138 School of Business Administration
September 1931 (since 1961).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
21
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Richard S. Scipione * Trustee (1) General Counsel, John Hancock Life
John Hancock Place Company; Director, the Adviser,
P.O. Box 111 Advisers International, John Hancock
Boston, MA 02117 Funds, John Hancock Distributors,
August 1937 Inc., Insurance Agency, Inc., John
Hancock Subsidiaries, Inc.,
SAMCorp. and NM Capital; Trustee,
The Berkeley Group; Director, JH
Networking Insurance Agency, Inc.;
Director, John Hancock Property and
Casualty Insurance and its
affiliates (until November 1993);
Director, Signature Services (until
January 1997).
Edward J. Spellman, CPA Trustee (3) Partner, KPMG Peat Marwick LLP
259C Commercial Bld. (retired June 1990).
Lauderdale, FL 33308
November 1932
Robert G. Freedman Vice Chairman and Chief Investment Vice Chairman and Chief Investment
101 Huntington Avenue Officer (2) Officer, the Adviser; Director, the
Boston, MA 02199 Adviser, Advisers International,
July 1938 John Hancock Funds, SAMCorp.,
Insurance Agency, Inc.,
Southeastern Thrift & Bank Fund and
NM Capital; Senior Vice President,
The Berkeley Group; President, the
Adviser (until December 1994);
Director, Signature Services (until
January 1997).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
22
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
James B. Little Senior Vice President and Chief Senior Vice President, the Adviser,
101 Huntington Avenue Financial Officer The Berkeley Group, John Hancock
Boston, MA 02199 Funds.
February 1935
John A. Morin Vice President Vice President and Secretary, the
101 Huntington Avenue Adviser, The Berkeley Group,
Boston, MA 02199 Signature Services and John Hancock
July 1950 Funds; Secretary, SAMCorp.,
Insurance Agency, Inc. and NM
Capital; Counsel, John Hancock
Mutual Life Insurance Company (until
January 1996).
Susan S. Newton Vice President and Secretary Vice President, the Adviser, John
101 Huntington Avenue Hancock Funds, Signature Services
Boston, MA 02199 and The Berkeley Group; Vice
March 1950 President, John Hancock
Distributors, Inc. (until 1994).
James J. Stokowski Vice President and Treasurer Vice President, the Adviser.
101 Huntington Avenue
Boston, MA 02199
November 1946
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
</TABLE>
23
<PAGE>
All of the officers listed are officers or employees of the Adviser or the
Affiliated Companies. Some of the Trustees and officers may also be officers
and/or directors and/or Trustees of one or more other funds for which the
Adviser serves as investment adviser.
As of March ___, 1997 the following shareholders beneficially owned 5% or more
of the outstanding shares of the Fund listed below:
<TABLE>
<CAPTION>
Number of shares Percentage of total
of beneficial outstanding shares of
Name and Address of Shareholder Class of Shares Interest Owned the Class of the Fund
- ------------------------------- --------------- -------------- ---------------------
<S> <C> <C> <C>
Merrill Lynch Pierce Fenner & Smith, Class B Shares 152,433 7.98%
Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
</TABLE>
The following table provides information regarding the compensation paid by the
Fund and the other investment companies in the John Hancock Fund Complex to the
Independent Trustees for their services. 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.
<TABLE>
<CAPTION>
Total Compensation From
Aggregate Compensation All Funds in John Hancock
Independent Trustees From the Fund Fund Complex to Trustees(1)
- -------------------- ------------- ---------------------------
<S> <C> <C>
Dennis S. Aronowitz $ 415 $ 72,450
Richard P. Chapman, Jr.* 429 75,200
William J. Cosgrove* 415 72,450
Douglas M. Costle++ 35 75,350
Leland O. Erdahl++ 30 72,350
Richard A. Farrell++ 35 75,350
Gail D. Fosler 392 68,450
Bayard Henry** 141 23,700
William F. Glavin* ++ 29 72,250
John A. Moore++ 30 68,350
Pattie McGill Peterson++ 30 72,100
John W. Pratt++ 30 72,350
Edward J. Spellman 421 73,950
------ --------
TOTALS $2,432 $894,300
</TABLE>
(1) Total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is for the calendar year ended December 31, 1996.
As of this date, there were sixty-seven funds in the John Hancock Fund
Complex of which each of these independent trustees served on
thirty-five funds.
24
<PAGE>
* On December 31, 1996, the value of the aggregate deferred compensation
from all funds in the John Hancock Fund Complex for Mr. Chapman was $
63,164 and for Mr. Cosgrove was $131,317 and for Mr. Glavin was $
109,059.
** Mr. Henry retired from his position as a Trustee of the Fund effective
April 26, 1996.
++ Became Trustees of the Trust on June 26, 1996.
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603
was organized in 1968 and presently has more than $19 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 10 largest life insurance companies in
the United States, and carries a high rating from Standard & Poor's and A.M.
Best's. Founded in 1862, the Life Company has been serving clients for over 130
years.
The Fund has entered into an investment management contract (the "Advisory
Agreement") with the Adviser. Pursuant to the Advisory Agreement, the Adviser
agreed to act as investment adviser and manager to the Fund. As manager and
investment adviser, the Adviser will: (a) furnish continuously an investment
program for the Fund and determine, subject to the overall supervision and
review of the Trustees, which investments should be purchased, held, sold or
exchanged, and (b) provide supervision over all aspects of the Fund's operations
except those which are delegated to a custodian, transfer agent or other agent.
The Fund bears all costs of its organization and operation, including expenses
of preparing, printing and mailing all shareholders' reports, notices,
prospectuses, proxy statements and reports to regulatory agencies, expenses
relating to the issuance, registration and qualification of shares; government
fees; interest charges; expenses of furnishing to shareholders their account
statements; taxes; expenses of redeeming shares; brokerage and other expenses
connected with the execution of portfolio securities transactions; expenses
pursuant to the Fund's plan of distribution; fees and expenses of custodians
including those for keeping books and accounts and calculating the net asset
value of shares; fees and expenses of transfer agents and dividend disbursing
agents; legal, accounting, financial, management, tax and auditing fees and
expenses of the Fund (including an allocable portion of the cost of the
Adviser's employees rendering such services to the Fund; the compensation and
expenses of Trustees who are not otherwise affiliated with the Trust, the
Adviser or any of their affiliates; expenses of Trustees' and shareholders'
meetings; trade association membership; insurance premiums; and any
extraordinary expenses.
As compensation for its services under the Advisory Agreement, the Fund pays a
monthly an fee, which is accrued daily, of 0.70% of the average of the daily net
assets of the Fund.
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.
For the year ended December 31, 1996, 1995 and the period ended December 31,
1994, the Adviser's management fee was $_________, $140,122 and $18,489
25
<PAGE>
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.
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
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.
Pursuant to the investment management contract and sub-advisory contract, the
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 in the
performance of their duties or from their reckless disregard of their
obligations and duties under the applicable contract.
Under the investment management contract, the Fund may use the name "John
Hancock" or any name derived from or similar to it only for so long as the
contract or any extension, renewal or amendment thereof remains in effect. If
the contract is no longer in effect, the Fund (to the extent that it lawfully
can) will cease to use such a name or any other name indicating that it is
advised by or otherwise connected with the Adviser. In addition, the Adviser or
the Life Company may grant the 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 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 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 continuation of the Advisory Agreement was approved by all of the Trustees.
The Advisory Agreement and the Distribution Agreement discussed below, will
continue in effect from year to year, provided that its continuance is approved
annually both (i) by the holders of a majority of the outstanding voting
securities of the Trust or by the Trustees, and (ii) by a majority of the
Trustees who are not parties to the Agreement or "interested persons" of any
such parties. Both Agreements may be terminated on 60 days written notice by
either party or by vote of a majority of the outstanding voting securities of
the Fund and will terminate automatically if assigned.
Accounting and Legal Services Agreement. The Trust, on behalf of the Fund, is a
party to an Accounting and Legal Services Agreement with the Adviser. Pursuant
to this agreement, the Adviser provides the Fund with certain tax, accounting
and legal services. For the fiscal year ended December 31, 1996, the Fund paid
the Adviser $______ for the services under this agreement.
26
<PAGE>
In order to avoid conflicts with portfolio trades for the Fund, the Adviser and
the Fund have adopted extensive restrictions on personal securities trading by
personnel of the Adviser and its affiliates. Some of these restrictions are:
pre-clearance for all personal trades and a ban on the purchase of initial
public offerings, as well as contributions to specified charities of profits on
securities held for less than 91 days. These restrictions are a continuation of
the basic principle that the interests of the Fund and its shareholders come
first.
DISTRIBUTION CONTRACTS
The Fund has a Distribution Agreement with John Hancock Funds. Under the
Agreement, John Hancock Funds is obligated to use its best efforts to sell
shares of 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 from a sales charge imposed, in the case of Class A shares, at the
time of sale or, in the case of Class B shares, on a deferred basis. The sales
charges are discussed further in the Fund's Prospectus.
The Fund's Trustees adopted Distribution Plans 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 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 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 and others 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 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, 1996 an aggregate of $ of distribution expenses or %
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 to determine their continued appropriateness.
27
<PAGE>
The Plans provide that it they 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 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.
Amounts paid to John Hancock Funds by any class of shares of the Fund will not
be used to pay the expenses incurred with respect to any other class of shares
of the Fund; provided, however, that expenses attributable to the Fund as a
whole will be allocated, to the extent permitted by law, according to a formula
based upon gross sales dollars and/or average daily net assets of each such
class, as may be approved from time to time, the Fund may participate in joint
distribution activities with other Funds and the costs of those activities will
be borne by each Fund in proportion to the relative net asset value of the
participating Funds.
During the fiscal year ended December 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 Interest
Mailing of Expenses of Carrying or
Prospectus to Compensation to John Hancock Other Finance
Advertising New Shareholders Selling Brokers Funds Charges
----------- ---------------- --------------- ----- -------
<S> <C> <C> <C> <C> <C>
Class A Shares $0
Class B Shares
</TABLE>
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of the Fund's shares,
the following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished by a
principal market maker or a pricing service, both of which generally utilize
electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices.
Equity securities traded on a principal exchange or NASDAQ National Market
Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned category for which no sales are reported and
other securities traded over-the-counter are generally valued at the last
available bid price.
28
<PAGE>
Short-term debt investments which have a remaining maturity of 60 days or less
are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
Foreign securities are valued on the basis of quotations from the primary market
in which they are traded. Any assets or liabilities expressed in terms of
foreign currencies are translated into U.S. dollars by the custodian bank based
on London currency exchange quotations as of 5:00 p.m., London time (12:00 noon,
New York time) on the date of any determination of the Fund's NAV. If quotations
are not readily available, or the value has been materially affected by events
occurring after the closing of a foreign market, assets are valued by a method
that the Trustees believe accurately reflects fair value.
The NAV for each fund and class is determined each business day at the close of
regular trading on the New York Stock Exchange (typically 4:00 p.m. Eastern
Time) by dividing a class's net asset by the number of its shares outstanding.
On any day an international market is closed and the New York Stock Exchange is
open, any foreign securities will be valued at the prior day's close with the
current day's exchange rate. Trading of foreign securities may take place on
Saturdays and U.S. business holidays on which 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
Shares of the Fund are offered at a price equal to their net asset value plus a
sales charge which, at the option of the purchaser, may be imposed either at the
time of purchase (the "initial sales charge alternative") or on a contingent
deferred basis (the "deferred sales charge alternative"). Share certificates
will not be issued unless requested by the shareholder in writing, and then they
will only be issued for full shares. The Trustees reserve the right to change or
waive the Fund's minimum investment requirements and to reject any order to
purchase shares (including purchase by exchange) when in the judgment of the
Adviser such rejection is in the Fund's best interest.
The sales charges applicable to purchases of Class A shares of the Fund are
described in the 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
Signature Services is notified by the investor's dealer or the investor at the
time of the purchase, the cost of the Class A shares owned.
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 Signature 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:
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<PAGE>
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 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, grandchildren, mother, father, sister, brother,
mother-in-law, father-in-law) of any of the foregoing; or any fund,
pension, profit sharing or other benefit plan 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 to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
Class A shares 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.
* For investments made under these provisions, John Hancock Funds may make a
payment out of its own resources to the Selling Broker in an amount not to
exceed 0.25% of the amount invested.
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.
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<PAGE>
Combination Privilege. Reduced sales charges 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 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 Signature Services. The sales charge applicable to all
amounts invested under the LOI is computed as if the aggregate amount intended
to be invested had been invested immediately. If such aggregate amount is not
actually invested, the difference in the sales charge actually paid and the
sales charge payable had the LOI not been in effect is due from the investor.
However, for the purchases actually made within the specified period (either 13
or 48 months) the sales charge applicable will not be higher than that which
would have applied (including accumulations and combinations) had the LOI been
for the amount actually invested.
The LOI authorizes Signature Services to hold in escrow sufficient Class A
shares (approximately 5% of the aggregate) to make up any difference in sales
charges on the amount intended to be invested and the amount actually invested,
until such investment is completed within the specified period, at which time
the 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 Signature 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.
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. 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 Signature Services or the Life Company that had more than 100
eligible employees at the inception of the Fund account.
The amount of the CDSC, if any, will vary depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchases of shares, all payments
during a month will be aggregated and deemed to have been made on the first day
of the month.
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<PAGE>
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 -120
(dividend reinvestment)
* Minus appreciation on remaining shares (40 shares X $2) -80
---
* Amount subject to CDSC $400
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or
in part by John Hancock Funds to defray its expenses related to providing
distribution-related services to the Fund in connection with the sale of the
Class B shares, such as the payment of compensation to select Selling Brokers
for selling Class B shares. The combination of the CDSC and the distribution and
service fees facilitates the ability of the Fund to sell the Class B shares
without a sales charge being deducted at the time of the purchase. See the
Prospectus for additional information regarding the CDSC.
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to CDSC,
unless indicated otherwise, in these circumstances:
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your account
if you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
* Redemptions due to death or disability.
* Redemptions made under the Reinstatement Privilege, as described in
"Sales Charge Reductions and Waivers" of the Prospectus.
* Redemptions of Class B shares made under a periodic withdrawal plan, as
long as your annual redemptions do not exceed 12% of your account
value, including reinvested dividends, at the time you established your
periodic withdrawal plan and 12% of the value of subsequent investments
(less redemptions) in that account at the time you notify Signature
32
<PAGE>
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 under section 401(a)
of the Code (such as 401(k), Money Purchase Pension Plan and
Profit-Sharing Plan).
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain IRA plans that purchased shares
prior to May 15, 1995.
Please see matrix for reference.
CDSC Waiver Matrix for Class B Funds
<TABLE>
<CAPTION>
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Type of 401(a) Plan 403(b) 457 IRA, IRA Non-
Distribution (401(k), MPP, Rollover Retirement
PSP)
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Death or Waived Waived Waived Waived Waived
Disability
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Over 70 1/2 Waived Waived Waived Waived for 12% of
mandatory account value
distributions annually in
or 12% of periodic
account value payments
annually in
periodic
payments.
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Between 59 1/2 and Waived Waived Waived Waived for Life 12% of
and 70 1/2 Expectancy or account value
12% of account annually in
value annually periodic
in periodic payments
payments.
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Under 59 1/2 Waived Waived for Waived for Waived for 12% of
annuity annuity annuity account value
payments (72t) payments (72t) payments (72t) annually in
or 12% of or 12% of or 12% of periodic
account value account value account value payments
annually in annually in annually in
periodic periodic periodic
payments. payments. payments.
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Loans Waived Waived N/A N/A N/A
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Termination of Not Waived Not Waived Not Waived Not Waived N/A
Plan
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Hardships Waived Waived Waived N/A N/A
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Return of Excess Waived Waived Waived Waived N/A
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
</TABLE>
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<PAGE>
If you qualify for a CDSC waiver under one of these situations, you must notify
Signature Services at the time you make your redemption. The waiver will be
granted once Signature Services has confirmed that you are entitled to the
waiver.
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. The Fund permits exchanges of shares of any class of the
Fund for shares of the same class in any other John Hancock fund offering that
class.
Exchanges between funds with shares that are not subject to a CDSC are based on
their respective net asset values. No sales charge or transactions charge is
imposed. Shares of the Fund which are subject to a CDSC may be exchanged into
shares of any of the other John Hancock funds that are subject to a CDSC without
incurring the CDSC; however, the shares acquired in an exchange will be subject
to the CDSC schedule of the shares acquired if and when such shares are redeemed
(except that shares exchanged into John Hancock Short-Term Strategic Income
Fund, John Hancock Intermediate Maturity Government Fund and John Hancock
Limited-Term Government Fund will retain the exchanged fund's CDSC schedule).
For purposes of computing the CDSC payable upon redemption of shares acquired in
an exchange, the holding period of the original shares is added to the holding
period of the shares acquired in an exchange.
If a shareholder exchanges Class B shares purchased prior to January 1, 1994
(except John Hancock Short-Term Strategic Income Fund) for Class B shares of any
other John Hancock fund, the acquired shares will continue to be subject to the
CDSC schedule that was in effect when the exchanged shares were purchased.
The Fund reserves the right to require that previously exchanged shares (and
reinvested dividends) be in the Fund for 90 days before a shareholder is
permitted a new exchange.
The Fund may refuse any exchange order. The Fund may changed or cancel its
exchange policies at any time, upon 60 days' notice to its shareholders.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares of another for Federal Income Tax purposes. An exchange may
result in a taxable gain or loss. See "TAX STATUS".
Systematic Withdrawal Plan. The Fund permits the establishment of a Systematic
Withdrawal Plan. Payments under this plan represent proceeds arising from the
redemption of Fund shares. The maintenance of a Systematic Withdrawal Plan
concurrently with purchases of additional Class B shares of the Fund could be
disadvantageous to a shareholder because of the CDSC imposed on redemptions of
Class B shares. Therefore, a shareholder should not purchase Class B shares of
the Fund at the same time as a Systematic Withdrawal Plan is in effect. The Fund
34
<PAGE>
reserves the right to modify or discontinue the Systematic Withdrawal Plan of
any shareholder on 30 days' prior written notice to such shareholder, or to
discontinue the availability of such plan in the future. The shareholder may
terminate the plan at any time by giving proper notice to Signature Services.
Monthly Automatic Accumulation Program ("MAAP"). This program is explained in
the Prospectus and the Account Privileges Application. The program, as it
relates to automatic investment checks, is subject to the following conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the Monthly Automatic Accumulation
Program may be revoked by Signature Services without prior notice if any
investment is not honored by the shareholder's bank. The bank shall be under no
obligation to notify the shareholder as to the non-payment of any checks.
The program may be discontinued by the shareholder either by calling Signature
Services or upon written notice to Signature Services which is received at least
five (5) business days prior to the due date of any investment.
Reinstatement and Reinvestment Privilege. Upon notification of Signature
Services, a shareholder who has redeemed Class B shares of the Fund and paid a
CDSC thereon, may, within 120 days after the date of redemption, reinvest any
part of the redemption proceeds in shares of the same class of the Fund or
another John Hancock fund, subject to the minimum investment limit in that fund
and, upon such reinvestment, the shareholder's account will be credited with the
amount of any CDSC charged upon the redemption and the new shares will continue
to be subject to the CDSC. The holding period of the shares acquired through
reinvestment will, for purposes of computing the CDSC payable upon a subsequent
redemption, include the holding period of the redeemed shares.
To protect the interests of other investors in the Fund, the Fund may cancel the
reinvestment privilege of any parties that, in the opinion of the Fund, are
using market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. Also, the Fund may refuse any reinvestment
request.
The Fund may change or cancel its reinvestment policies at any time.
A redemption or exchange of Fund shares is a taxable transaction for Federal
income tax purposes even if the reinvestment privilege is exercised, and any
gain or loss realized by a shareholder on the redemption or other disposition of
Fund shares will be treated for tax purposes as described under the caption "TAX
STATUS".
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Trust are responsible for the management and supervision of
the Fund. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest of the 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 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.
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<PAGE>
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 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.
A shareholder's account is governed by the laws of The Commonwealth of
Massachusetts.
TAX STATUS
Each series of the Trust, including the Fund, is treated as a separate entity
for 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
36
<PAGE>
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
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
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
37
<PAGE>
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
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
38
<PAGE>
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 available 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 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
39
<PAGE>
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. 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
Form W-8 is on file, to 31% backup withholding on certain other payments from
the Fund. Non-U.S. investors should consult their tax advisers regarding such
treatment and the application of foreign taxes to an investment in the Fund.
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The Fund is not subject to Massachusetts corporate excise or franchise taxes.
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, 1996 and since commencement of operations,
January 3, 1994 was 7.23% and 11.64%, respectively.
The average annual total return of the Class B shares of the fund for the one
year period ended December 31, 1996 and since commencement of operations,
January 3, 1994 was 7.14% and 11.94%, 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. Excluding the Fund's sales
charge from the distribution rate produces a higher rate
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.
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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 Fund's promotional and sales literature may make reference to the
Fund's "beta". Beta is a reflection of the market related risks of the Fund by
showing how responsive the Fund is to the market.
The performance of the Fund is not fixed or guaranteed. Performance quotations
should not be considered to be representations of performance of the Fund for
any period in the future. The performance of the Fund is a function of many
factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performance.
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
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.
In the U.S. and in some other countries, debt securities are traded principally
in the over-the-counter market on a net basis through dealers acting for their
own account and not as brokers. In other countries, both debt and equity
securities are traded on exchanges at fixed commission rates. Commissions on
foreign transactions are generally higher than the negotiated commission rates
available in the U.S. There is generally less government supervision and
regulation of foreign stock exchanges and broker-dealers than in the U.S.
To the extent consistent with the foregoing, the Fund will be governed in the
selection of brokers and dealers, and the negotiation of brokerage commission
rates and dealer spreads, by the reliability and quality of the services,
including primarily the availability and value of research information and to a
lesser extent statistical assistance furnished to the Adviser 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
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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,
1996, 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, 1996, the Fund 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 Company, is the indirect sole
shareholder of John Hancock Distributors, Inc., a broker-dealer ("Distributors"
or "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 Affiliated Brokers. For the
fiscal year ended December 31, 1994, 1995 and 1996, the Fund paid no brokerage
commissions to any Affiliated Broker.
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.
Other investment advisory clients advised by the Adviser may also invest in the
same securities as the Fund. When these clients buy or sell the same securities
at substantially the same time, the Adviser may average the transactions as to
price and allocate the amount of available investments in a manner which the
Adviser believes to be equitable to each client, including the Fund. In some
instances, this investment procedure may adversely affect the price paid or
received by the Fund or the size of the position obtainable for it. On the other
hand, to the extent permitted by law, the Adviser may aggregate securities to be
sold or purchased for the Fund with those to be sold or purchased for other
clients managed by it in order to obtain best execution.
TRANSFER AGENT SERVICES
John Hancock Signature Services, Inc., 1 John Hancock Way STE 1000, Boston, MA
02217-1000, 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 $19.00 per shareholder account and
for Class B shares of $21.50 per shareholder account plus certain out-of-pocket
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expenses. These expenses are aggregated and charged to the Fund allocated to
each class on the basis of their relative net asset values.
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Fund and Investors Bank & Trust Company, 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 ___________________, ______________
______, Boston, Massachusetts 02116. _____________ 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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APPENDIX A
Description of Bond Ratings
The ratings of Moody's Investors Service, Inc. and Standard & Poor's Ratings
Group represent their opinions as to the quality of various debt instruments
they undertake to rate. It should be emphasized that ratings are not absolute
standards of quality. Consequently, debt instruments with the same maturity,
coupon and rating may have different yields while debt instruments of the same
maturity and coupon with different ratings may have the same yield.
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuations of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment at some time in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack the characteristics of desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represented obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
A-1
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STANDARD & POOR'S RATINGS GROUP
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B: Debt rated BB, and B is regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
CCC Debt rated 'CCC' has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The 'CCC' rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
'B' or 'B-' rating.
CC The rating 'CC' is typically applied to debt subordinated to senior debt that
is assigned an actual or implied 'CCC' rating.
A-2
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FINANCIAL STATEMENTS
F-1
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PART C.
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Not applicable.
(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 January 31, 1997, 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 - 2,237
Class B Shares - 2,804
DIVERSIFIED EQUITY FUND
Class A Shares - 3,857
Class B Shares - 4,528
UTILITIES FUND
Class A Shares - 2,963
Class B Shares - 5,930
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-1
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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-2
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(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.
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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 Special Equities Fund, John Hancock Sovereign Bond
Fund, John Hancock Tax-Exempt Series, John Hancock Strategic Series, John
Hancock Series Trust and John Hancock World Fund, John Hancock Investment Trust,
John Hancock Institutional Series Trust, John Hancock Investment Trust II, John
Hancock Investment Trust III and John Hancock Investment Trust IV.
(b) The following table lists, for each director and officer of John Hancock
Funds, the information indicated.
C-4
<PAGE>
<TABLE>
<CAPTION>
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 Chairman, 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 Director 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-5
<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 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 Second Vice President None
101 Huntington Avenue and Treasurer
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-6
<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
Anne C. Hodsdon Director President
101 Huntington Avenue
Boston, Massachusetts
James V. Bowhers Executive Vice President None
101 Huntington Avenue
Boston, Massachusetts
</TABLE>
(c) None.
C-7
<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-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the registrant 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
27th day of February, 1997.
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 February 27, 1997
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-9
<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 February 27, 1997
------------------
Susan S. Newton
Attorney-in-Fact under
Powers of Attorney dated
May 21, 1996.
</TABLE>
C-10
<PAGE>
John Hancock Capital Series
EXHIBIT INDEX
Exhibit No. Exhibit Description
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.B1.4 Establishment and Designation of Class A Shares and Class B Shares
of Beneficial Interest of John Hancock Independence Equity and John
Hancock Utilities Fund dated August 27, 1996.+
99.B2 Amended and Restated By-Laws of Registrant dated December 3, 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 Equity Fund and
John Hancock Advisers, Inc. dated August 30, 1996.+
99.B5.3 Sub-Investment Management Contract between Independence Equity Fund
and John Hancock Advisers, Inc. dated August 30, 1996.+
99.B5.4 Investment Management Contract between John Hancock Utilities Fund
and John Hancock Advisers, Inc. dated August 30, 1996.+
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.B6.4 Amendment to Distribution Agreement between Registrant and John
Hancock Funds, Inc. dated August 30, 1996.+
99.B7 None
C-11
<PAGE>
Exhibit No. Exhibit Description
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.***
99.B9.3 Amendment to Transfer Agency and Service Agreement between Utilities
and Independence Equity Funds and John Hancock Investors Services
Corporation dated August 30, 1996.+
99.B.10 None
99.B11 Not Applicable
99.B12 Not Applicable
99.B13 None
99.B14 None
99.B15 Class A Distribution Plan between John Hancock Utilities Fund and
John Hancock Broker Services, Inc. dated August 30, 1996.+
99.B15.1 Class B Distribution Plan between John Hancock Utilities Fund and
John Hancock Funds, Inc. dated August 30, 1996.+
99.B15.2 Class A Distribution Plan between John Hancock Special Value Fund
and John 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 Equity
Fund and John Hancock Funds, Inc. dated August 30, 1996.+
99.B15.5 Class B Distribution Plan between John Hancock Independence Equity
Fund and John Hancock Funds, Inc. dated August 30, 1996.+
99.B16 Schedule for Computation of Yield and Total Return.*
99.27 Not Applicable
- ----------
* 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.
C-12
JOHN HANCOCK CAPITAL SERIES
John Hancock Independence Equity Fund
John Hancock Utilities Fund
Establishment and Designation of
Class A Shares and Class B Shares
of Beneficial Interest of
John Hancock Independence Equity Fund
and John Hancock Utilities Fund,
each a Series of John Hancock Capital Series
On March 5, 1996 the Trustees of John Hancock Capital Series, a
Massachusetts business trust (the "Trust"), acting pursuant to Section 5.1 of
the Amended and Restated Declaration of Trust dated February 28, 1992 of the
Trust, as amended from time to time (the "Declaration of Trust"), voted
unanimously to establish two additional series of shares of the Trust (the
"Shares"), having rights and preferences set forth in the Declaration of Trust
and in the Trust's Registration Statement on Form N-1A, which Shares shall
represent undivided beneficial interests in separate portfolios of assets of the
Trust (each the "Fund") designated "John Hancock Independence Equity Fund" and
"John Hancock Utilities Fund". The Shares are divided to create two classes of
Shares of the Fund as follows:
1. The two classes of Shares of the Fund established and designated
hereby are "Class A Shares" and "Class B Shares," respectively.
2. Class A Shares and Class B Shares shall each be entitled to all of the
rights and preferences accorded to Shares under the Declaration of
Trust.
3. The purchase price of Class A Shares and of Class B Shares, the method
of determining the net asset value of Class A Shares and of Class B
Shares, and the relative dividend rights of holders of Class A Shares
and of holders of Class B Shares shall be established by the Trustees
of the Trust in accordance with the provisions of the Declaration of
Trust and shall be as set forth in the Prospectus and Statement of
Additional Information of the Fund included in the Trust's
Registration Statement, as amended from time to time, under the
Securities Act of 1933, as amended and/or the Investment Company Act
of 1940, as amended.
The Declaration of Trust is hereby amended to the extent necessary to
reflect the establishment of such additional series and classes of Shares,
effective August 30, 1996.
Capitalized terms not otherwise defined herein shall have the meanings set
forth in the Declaration of Trust.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this instrument on the
27th day of August 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. Chapman, Jr. /s/John A. Moore
- -------------------------- -------------------------
Richard P. Chapman, Jr. John A. Moore
/s/William J. Cosgrove /s/Patti McGill Peterson
- -------------------------- -------------------------
William J. Cosgrove Patti McGill Peterson
/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
The Declaration of Trust, a copy of which, together with all amendments
thereto, is on file in the office of the Secretary of State of The Commonwealth
of Massachusetts, provides that no Trustee, officer, employee or agent of the
Trust or any Series thereof shall be subject to any personal liability
whatsoever to any Person, other than to the Trust or its shareholders, in
connection with Trust Property or the affairs of the Trust, save only that
arising from bad faith, willful misfeasance, gross negligence or reckless
disregard of his duties with respect to such Person; and all such Persons shall
look solely to the Trust Property, or to the Trust Property of one or more
specific Series of the Trust if the claim arises from the conduct of such
Trustee, officer, employee or agent with respect to only such Series, for
satisfaction of claims of any nature arising in connection with the affairs of
the Trust.
<PAGE>
COMMONWEALTH OF MASSACHUSETTS )
)ss
COUNTY OF SUFFOLK )
Then personally appeared the above-named Dennis S. Aronowitz, Edward J.
Boudreau, Jr., Richard P. Chapman, Jr., William J. Cosgrove, Douglas M. Costle,
Leland O. Erdahl, Richard A. Farrell, Gail D. Fosler, William F. Glavin, Anne C.
Hodsdon, John A. Moore, Patti McGill Peterson, John W. Pratt, Richard S.
Scipione, and Edward J. Spellman, who acknowledged the foregoing instrument to
be his or her free act and deed, before me, this 27th day of August, 1996.
/s/ Ann Marie White
---------------------------------
Notary Public
My commission expires: 10/20/00
AMENDED AND RESTATED
BY-LAWS
OF
JOHN HANCOCK CAPITAL SERIES
DECEMBER 3, 1996
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
Page
<S> <C> <C>
ARTICLE I -- Definitions .........................................................................1
ARTICLE II -- Offices .........................................................................1
Section 2.1 Principal Office.........................................................1
Section 2.2 Other Offices............................................................1
ARTICLE III -- Shareholders ...............................................................................1
Section 3.1 Meetings.................................................................1
Section 3.2 Notice of Meetings.......................................................1
Section 3.3 Record Date for Meetings and Other Purposes..............................1
Section 3.4 Proxies..................................................................2
Section 3.5 Abstentions and Broker Non-Votes.........................................2
Section 3.6 Inspection of Records....................................................2
Section 3.7 Action without Meeting...................................................3
ARTICLE IV -- Trustees ....................................................................................3
Section 4.1 Meetings of the Trustees.................................................3
Section 4.2 Quorum and Manner of Acting..............................................3
ARTICLE V -- Committees ...................................................................................4
Section 5.1 Executive and Other Committees...........................................4
Section 5.2 Meetings, Quorum and Manner of Acting....................................4
ARTICLE VI -- Officers ....................................................................................4
Section 6.1 General Provisions.......................................................4
Section 6.2 Election, Term of Office and Qualifications..............................5
Section 6.3 Removal..................................................................5
Section 6.4 Powers and Duties of the Chairman........................................5
Section 6.5 Powers and Duties of the Vice Chairman...................................5
Section 6.6 Powers and Duties of the President.......................................5
Section 6.7 Powers and Duties of Vice Presidents.....................................5
Section 6.8 Powers and Duties of the Treasurer.......................................6
Section 6.9 Powers and Duties of the Secretary.......................................6
i
<PAGE>
Section 6.10 Powers and Duties of Assistant Officers..................................6
Section 6.11 Powers and Duties of Assistant Secretaries...............................6
Section 6.12 Compensation of Officers and Trustees and
Members of the Advisory Board............................................6
ARTICLE VII -- Fiscal Year ................................................................................7
ARTICLE VIII -- Seal ......................................................................................7
ARTICLE IX -- Sufficiency and Waivers of Notice ...........................................................7
ARTICLE X -- Amendments ...................................................................................7
</TABLE>
ii
<PAGE>
ARTICLE I
DEFINITIONS
All capitalized terms have the respective meanings given them in the Amended and
Restated Declaration of Trust of John Hancock Capital Series dated February 28,
1992, as amended or restated from time to time.
ARTICLE II
OFFICES
Section 2.1. Principal Office. Until changed by the Trustees, the principal
office of the Trust shall be in Boston, Massachusetts.
Section 2.2. Other Offices. The Trust may have offices in such other places
without as well as within The Commonwealth of Massachusetts as the Trustees may
from time to time determine.
ARTICLE III
SHAREHOLDERS
Section 3.1. Meetings. Meetings of the Shareholders of the Trust or a Series or
Class thereof shall be held as provided in the Declaration of Trust at such
place within or without The Commonwealth of Massachusetts as the Trustees shall
designate. The holders of a majority the Outstanding Shares of the Trust or a
Series or Class thereof present in person or by proxy and entitled to vote shall
constitute a quorum at any meeting of the Shareholders of the Trust or a Series
or Class thereof.
Section 3.2. Notice of Meetings. Notice of all meetings of the Shareholders,
stating the time, place and purposes of the meeting, shall be given by the
Trustees by mail or telegraphic means to each Shareholder at his address as
recorded on the register of the Trust mailed at least seven (7) days before the
meeting, provided, however, that notice of a meeting need not be given to a
Shareholder to whom such notice need not be given under the proxy rules of the
Commission under the 1940 Act and the Securities Exchange Act of 1934, as
amended. Any adjourned meeting may be held as adjourned without further notice.
No notice need be given to any Shareholder who shall have failed to inform the
Trust of his current address or if a written waiver of notice, executed before
or after the meeting by the Shareholder or his attorney thereunto authorized, is
filed with the records of the meeting.
Section 3.3. Record Date for Meetings and Other Purposes. For the purpose of
determining the Shareholders who are entitled to notice of and to vote at any
meeting, or to participate in any distribution, or for the purpose of any other
action, the Trustees may from time to time close the transfer books for such
period, not exceeding sixty (60) days, as the Trustees may determine; or without
1
<PAGE>
closing the transfer books the Trustees may fix a date not more than ninety (90)
days prior to the date of any meeting of Shareholders or distribution or other
action as a record date for the determination of the persons to be treated as
Shareholders of record for such purposes, except for dividend payments which
shall be governed by the Declaration of Trust.
Section 3.4. Proxies. At any meeting of Shareholders, any holder of Shares
entitled to vote thereat may vote by proxy, provided that no proxy shall be
voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote shall be taken. A
proxy shall be deemed signed if the shareholder's name is placed on the proxy
(whether by manual signature, typewriting or telegraphic transmission) by the
shareholder or the shareholder's attorney-in-fact. Proxies may be solicited in
the name of one or more Trustees or one or more of the officers of the Trust.
Only Shareholders of record shall be entitled to vote. Each whole share shall be
entitled to one vote as to any matter on which it is entitled by the Declaration
of Trust to vote and fractional shares shall be entitled to a proportionate
fractional vote. When any Share is held jointly by several persons, any one of
them may vote at any meeting in person or by proxy in respect of such Share, but
if more than one of them shall be present at such meeting in person or by proxy,
and such joint owners or their proxies so present disagree as to any vote to be
cast, such vote shall not be received in respect of such Share. A proxy,
including a photographic or similar reproduction thereof and a telegram,
cablegram, wireless or similar transmission thereof, purporting to be executed
by or on behalf of a Shareholder shall be deemed valid unless challenged at or
prior to its exercise, and the burden of proving invalidity shall rest on the
challenger. If the holder of any such Share is a minor or a person of unsound
mind, and subject to guardianship or the legal control of any other person as
regards the charge or management of such Share, he may vote by his guardian or
such other person appointed or having such control, and such vote may be given
in person or by proxy. The placing of a Shareholder's name on a proxy pursuant
to telephonic or electronically transmitted instructions obtained pursuant to
procedures reasonably designed to verify that such instructions have been
authorized by such Shareholder shall constitute execution of such proxy by or on
behalf of such Shareholder.
Section 3.5. Abstentions and Broker Non-Votes. Outstanding Shares represented in
person or by proxy (including Shares which abstain or do not vote with respect
to one or more of any proposals presented for Shareholder approval) will be
counted for purposes of determining whether a quorum is present at a meeting.
Abstentions will be treated as Shares that are present and entitled to vote for
purposes of determining the number of Shares that are present and entitled to
vote with respect to any particular proposal, but will not be counted as a vote
in favor of such proposal. If a broker or nominee holding Shares in "street
name" indicates on the proxy that it does not have discretionary authority to
vote as to a particular proposal, those Shares will not be considered as present
and entitled to vote with respect to such proposal.
Section 3.6. Inspection of Records. The records of the Trust shall be open to
inspection by Shareholders to the same extent as is permitted shareholders of a
Massachusetts business corporation.
2
<PAGE>
Section 3.7. Action without Meeting. For as long as there are under one hundred
fifty (150) shareholders, any action which may be taken by Shareholders may be
taken without a meeting if a majority of Outstanding Shares entitled to vote on
the matter (or such larger proportion thereof as shall be required by law, the
Declaration of Trust, or the By-laws) consent to the action in writing and the
written consents are filed with the records of the meetings of Shareholders.
Such consents shall be treated for all purposes as a vote taken at a meeting of
Shareholders.
ARTICLE IV
TRUSTEES
Section 4.1. Meetings of the Trustees. The Trustees may in their discretion
provide for regular or stated meetings of the Trustees. Notice of regular or
stated meetings need not be given. Meetings of the Trustees other than regular
or stated meetings shall be held whenever called by the President, the Chairman
or by any one of the Trustees, at the time being in office. Notice of the time
and place of each meeting other than regular or stated meetings shall be given
by the Secretary or an Assistant Secretary or by the officer or Trustee calling
the meeting and shall be mailed to each Trustee at least two days before the
meeting, or shall be given by telephone, cable, wireless, facsimilie or
electronic means to each Trustee at his business address, or personally
delivered to him at least one day before the meeting. Such notice may, however,
be waived by any Trustee. Notice of a meeting need not be given to any Trustee
if a written waiver of notice, executed by him before or after the meeting, is
filed with the records of the meeting, or to any Trustee who attends the meeting
without protesting prior thereto or at its commencement the lack of notice to
him. A notice or waiver of notice need not specify the purpose of any meeting.
The Trustees may meet by means of a telephone conference circuit or similar
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time and participation by such means
shall be deemed to have been held at a place designated by the Trustees at the
meeting. Participation in a telephone conference meeting shall constitute
presence in person at such meeting. Any action required or permitted to be taken
at any meeting of the Trustees may be taken by the Trustees without a meeting if
a majority of the Trustees consent to the action in writing and the written
consents are filed with the records of the Trustees' meetings. Such consents
shall be treated as a vote for all purposes.
Section 4.2. Quorum and Manner of Acting. A majority of the Trustees shall be
present in person at any regular or special meeting of the Trustees in order to
constitute a quorum for the transaction of business at such meeting and (except
as otherwise required by law, the Declaration of Trust or these By-laws) the act
of a majority of the Trustees present at any such meeting, at which a quorum is
present, shall be the act of the Trustees. In the absence of a quorum, a
majority of the Trustees present may adjourn the meeting from time to time until
a quorum shall be present. Notice of an adjourned meeting need not be given.
3
<PAGE>
ARTICLE V
COMMITTEES
Section 5.1. Executive and Other Committees. The Trustees by vote of a majority
of all the Trustees may elect from their own number an Executive Committee to
consist of not less than two (2) members to hold office at the pleasure of the
Trustees, which shall have the power to conduct the current and ordinary
business of the Trust while the Trustees are not in session, including the
purchase and sale of securities and the designation of securities to be
delivered upon redemption of Shares of the Trust or a Series thereof, and such
other powers of the Trustees as the Trustees may, from time to time, delegate to
them except those powers which by law, the Declaration of Trust or these By-laws
they are prohibited from delegating. The Trustees may also elect from their own
number other Committees from time to time; the number composing such Committees,
the powers conferred upon the same (subject to the same limitations as with
respect to the Executive Committee) and the term of membership on such
Committees to be determined by the Trustees. The Trustees may designate a
chairman of any such Committee. In the absence of such designation the Committee
may elect its own Chairman.
Section 5.2. Meetings, Quorum and Manner of Acting. The Trustees may (1) provide
for stated meetings of any Committee, (2) specify the manner of calling and
notice required for special meetings of any Committee, (3) specify the number of
members of a Committee required to constitute a quorum and the number of members
of a Committee required to exercise specified powers delegated to such
Committee, (4) authorize the making of decisions to exercise specified powers by
written assent of the requisite number of members of a Committee without a
meeting, and (5) authorize the members of a Committee to meet by means of a
telephone conference circuit.
The Executive Committee shall keep regular minutes of its meetings and records
of decisions taken without a meeting and cause them to be recorded in a book
designated for that purpose and kept in the office of the Trust.
ARTICLE VI
OFFICERS
Section 6.1. General Provisions. The officers of the Trust shall be a Chairman,
a President, a Treasurer and a Secretary, who shall be elected by the Trustees.
The Trustees may elect or appoint such other officers or agents as the business
of the Trust may require, including one or more Vice Presidents, one or more
Assistant Secretaries, and one or more Assistant Treasurers. The Trustees may
delegate to any officer or committee the power to appoint any subordinate
officers or agents.
4
<PAGE>
Section 6.2. Election, Term of Office and Qualifications. The officers of the
Trust and any Series thereof (except those appointed pursuant to Section 6.10)
shall be elected by the Trustees. Except as provided in Sections 6.3 and 6.4 of
this Article VI, each officer elected by the Trustees shall hold office at the
pleasure of the Trustees. Any two or more offices may be held by the same
person. The Chairman of the Board shall be selected from among the Trustees and
may hold such office only so long as he/she continue to be a Trustee. Any
Trustee or officer may be but need not be a Shareholder of the Trust.
Section 6.3. Removal. The Trustees, at any regular or special meeting of the
Trustees, may remove any officer with or without cause, by a vote of a majority
of the Trustees then in office. Any officer or agent appointed by an officer or
committee may be removed with or without cause by such appointing officer or
committee.
Section 6.4. Powers and Duties of the Chairman. The Chairman shall preside at
the meetings of the Shareholders and of the Trustees. He may call meetings of
the Trustees and of any committee thereof whenever he deems it necessary. He
shall be the Chief Executive Officer of the Trust and shall have, with the
President, general supervision over the business and policies of the Trust.
Section 6.5. Powers and Duties of the Vice Chairman. The Trustees may, but need
not, appoint one or more Vice Chairman of the Trust. A Vice Chairman shall be an
executive officer of the Trust and shall have the powers and duties of a Vice
President of the Trust as provided in Section 7 of this Article VI. The Vice
Chairman shall perform such duties as may be assigned to him or her from time to
time by the Trustees or the Chairman.
Section 6.6. Powers and Duties of the President. The President shall preside at
all meetings of the Shareholders in the absence of the Chairman. Subject to the
control of the Trustees and to the control of any Committees of the Trustees,
within their respective spheres as provided by the Trustees, he shall at all
times exercise general supervision over the business and policies of the Trust.
He shall have the power to employ attorneys and counsel for the Trust or any
Series or Class thereof and to employ such subordinate officers, agents, clerks
and employees as he may find necessary to transact the business of the Trust or
any Series or Class thereof. He shall also have the power to grant, issue,
execute or sign such powers of attorney, proxies or other documents as may be
deemed advisable or necessary in furtherance of the interests of the Trust or
any Series thereof. The President shall have such other powers and duties, as
from time to time may be conferred upon or assigned to him by the Trustees.
Section 6.7. Powers and Duties of Vice Presidents. In the absence or disability
of the President, the Vice President or, if there be more than one Vice
President, any Vice President designated by the Trustees, shall perform all the
duties and may exercise any of the powers of the President, subject to the
control of the Trustees. Each Vice President shall perform such other duties as
may be assigned to him from time to time by the Trustees and the President.
5
<PAGE>
Section 6.8. Powers and Duties of the Treasurer. The Treasurer shall be the
principal financial and accounting officer of the Trust. He shall deliver all
funds of the Trust or any Series or Class thereof which may come into his hands
to such Custodian as the Trustees may employ. He shall render a statement of
condition of the finances of the Trust or any Series or Class thereof to the
Trustees as often as they shall require the same and he shall in general perform
all the duties incident to the office of a Treasurer and such other duties as
from time to time may be assigned to him by the Trustees. The Treasurer shall
give a bond for the faithful discharge of his duties, if required so to do by
the Trustees, in such sum and with such surety or sureties as the Trustees shall
require.
Section 6.9. Powers and Duties of the Secretary. The Secretary shall keep the
minutes of all meetings of the Trustees and of the Shareholders in proper books
provided for that purpose; he shall have custody of the seal of the Trust; he
shall have charge of the Share transfer books, lists and records unless the same
are in the charge of a transfer agent. He shall attend to the giving and serving
of all notices by the Trust in accordance with the provisions of these By-laws
and as required by law; and subject to these By-laws, he shall in general
perform all duties incident to the office of Secretary and such other duties as
from time to time may be assigned to him by the Trustees.
Section 6.10. Powers and Duties of Assistant Officers. In the absence or
disability of the Treasurer, any officer designated by the Trustees shall
perform all the duties, and may exercise any of the powers, of the Treasurer.
Each officer shall perform such other duties as from time to time may be
assigned to him by the Trustees. Each officer performing the duties and
exercising the powers of the Treasurer, if any, and any Assistant Treasurer,
shall give a bond for the faithful discharge of his duties, if required so to do
by the Trustees, in such sum and with such surety or sureties as the Trustees
shall require.
Section 6.11. Powers and Duties of Assistant Secretaries. In the absence or
disability of the Secretary, any Assistant Secretary designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Secretary. Each Assistant Secretary shall perform such other duties as from time
to time may be assigned to him by the Trustees.
Section 6.12. Compensation of Officers and Trustees and Members of the Advisory
Board. Subject to any applicable provisions of the Declaration of Trust, the
compensation of the officers and Trustees and members of an advisory board shall
be fixed from time to time by the Trustees or, in the case of officers, by any
Committee or officer upon whom such power may be conferred by the Trustees. No
officer shall be prevented from receiving such compensation as such officer by
reason of the fact that he is also a Trustee.
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ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust and any Series thereof shall be established by
resolution of the Trustees.
ARTICLE VIII
SEAL
The Trustees may adopt a seal which shall be in such form and shall have such
inscription thereon as the Trustees may from time to time prescribe but the
absence of a seal shall not impair the validity or execution of any document.
ARTICLE IX
SUFFICIENCY AND WAIVERS OF NOTICE
Whenever any notice whatever is required to be given by law, the Declaration of
Trust or these By-laws, a waiver thereof in writing, signed by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto. A notice shall be deemed to have
been sent by mail, telegraph, cable, wireless, facsimilie or electronic means
for the purposes of these By-laws when it has been delivered to a representative
of any entity holding itself out as capable of sending notice by such means with
instructions that it be so sent.
ARTICLE X
AMENDMENTS
These By-laws, or any of them, may be altered, amended or repealed, or new
By-laws may be adopted by a vote of a majority of the Trustees, provided,
however, that no By-law may be amended, adopted or repealed by the Trustees if
such amendment, adoption or repeal requires, pursuant to federal or state law,
the Declaration of Trust or these By-laws, a vote of the Shareholders.
END OF BY-LAWS
JOHN HANCOCK INDEPENDENCE EQUITY FUND
(a series of John Hancock Capital Series)
101 Huntington Avenue
Boston, Massachusetts 02199
August 30, 1996
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199
Investment Management Contract
------------------------------
Ladies and Gentlemen:
John Hancock Capital Series (the "Trust"), of which John Hancock
Independence Equity Fund (the "Fund") is a series, 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, no par value, may be divided into series, each series representing the
entire undivided interest in a separate portfolio of assets. This Agreement
relates solely to the 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 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 Adviser and the Trust, on behalf of the Fund, 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:
(a) Amended and Restated Declaration of Trust dated February 28, 1992, as
amended from time to time (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) 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; and
(e) The Trust's Code of Ethics.
<PAGE>
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 objectives, policies 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 Fund's
then-current Prospectus and Statement of Additional Information included in the
registration statement of the Trust 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 objectives, policies and restrictions of the Fund, with
respect to the purchase, holding and disposition of portfolio
securities, alone or in consultation with any subadviser or
subadvisers appointed pursuant to this Agreement and subject to the
provisions of any sub-investment management contract respecting the
responsibilities of such subadviser or subadvisers;
(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;
(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;
2
<PAGE>
(h) from time to time or at any time requested by the Trustees, make
reports to the Fund 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 subparagraphs (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 Fund and will be surrendered to the
Fund 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 Fund;
(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
(m) appoint and employ one or more sub-advisors 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
Trust;
(b) the expenses of office rent, telephone and other utilities, office
furniture, equipment, supplies and other expenses of the Fund; and
(c) any other expenses incurred by the Adviser in connection with the
performance of its duties hereunder.
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) any and all expenses, taxes and governmental fees incurred by the
Trust or the Fund prior to the effective date of this Agreement;
3
<PAGE>
(b) without limiting the generality of the foregoing clause (a), the
expenses of organizing the Trust and the Fund (including without
limitation, legal, accounting and auditing fees and expenses incurred
in connection with the matters referred to in this clause (b)), of
initially registering shares of the Trust 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;
(c) 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;
(d) legal, accounting, financial management, tax and auditing fees and
expenses of the Fund (including an allocable portion of the cost of
its employees rendering such services to the Fund);
(e) the fees and disbursements of custodians and depositories of the
Fund's assets, transfer agents, disbursing agents, plan agents and
registrars;
(f) taxes and governmental fees assessed against the Fund's assets and
payable by the Fund;
(g) the cost of preparing and mailing dividends, distributions, reports,
notices and proxy materials to shareholders of the Fund;
(h) brokers' commissions and underwriting fees;
(i) the expense of periodic calculations of the net asset value of the
shares of the Fund; and
(j) insurance premiums on fidelity, errors and omissions and other
coverages.
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
Adviser shall be entitled to a fee, paid monthly in arrears, at an annual rate
equal to (i) 0.75% of the average daily net asset value of the Fund up to
$750,000,000 of average daily net assets and (ii) 0.70% of the average daily net
asset value of the Fund in excess of $750,000,000.
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. On any day that the
net asset value calculation is suspended as specified in the Fund's Prospectus,
the net asset value for purposes of calculating the advisory fee shall be
calculated as of the date last determined.
4
<PAGE>
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 has registered its 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, the Adviser may agree not to impose all or a portion of its
fee (in advance of the time its fee would otherwise accrue) and/or undertake to
make any other payments or arrangements necessary to limit the Fund's expenses
to any level the Adviser may specify. Any fee reduction or undertaking shall
constitute a binding modification of this Agreement while it is in effect but
may be discontinued or modified prospectively 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.
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.
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 Fund, the Adviser will act solely on its own behalf and not in any way on
behalf of 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.
8. NO PARTNERSHIP OR JOINT VENTURE. Neither the Trust, the Fund nor the
Adviser are 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 or names derived from or similar to the names "John
5
<PAGE>
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 a name or any other name indicating that
the Fund is advised by or otherwise connected with the Adviser. The Fund
acknowledges that it has adopted the name John Hancock Independence Equity Fund
through permission of John Hancock Mutual Life Insurance Company, a
Massachusetts 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 nonexclusive right to use the name "John Hancock" or any similar
name or names 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 in connection with the matters to which this Agreement relates, except a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of the Adviser in the performance of its duties or from reckless disregard
by 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 shall be deemed, when acting within the scope of his
employment by the Fund, to be acting in such employment solely for the Trust and
not as the Adviser's employee or agent.
11. DURATION AND TERMINATION OF THIS AGREEMENT. This Agreement shall remain
in force until August 29, 1998, 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 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 vote of a majority of the outstanding voting securities of the
Fund, by the Trustees or by the Adviser. Termination of this Agreement 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" and
"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 Trustees) of 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.
6
<PAGE>
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 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 Independence Equity Fund is a
series designation of the Trustees under the Trust's Declaration of Trust. The
Declaration of Trust has been filed with the Secretary of State of The
Commonwealth of Massachusetts. The obligations of 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 Trust, but only
upon the Fund and its property. The Fund shall not be liable for the obligations
of any other series of the Trust and no other series shall be liable for the
Fund's obligations hereunder.
Yours very truly,
JOHN HANCOCK CAPITAL SERIES
on behalf of John Hancock Independence Equity Fund
By: /s/ Anne C. Hodsdon
--------------------------------
Title: President
The foregoing contract is hereby agreed to as of the date hereof.
JOHN HANCOCK ADVISERS, INC.
By: /s/ Robert G. Freedman
-----------------------------
Title: Vice Chairman and Chief Investment Officer
7
JOHN HANCOCK CAPITAL SERIES
John Hancock Independence Equity Fund
Sub-Investment Management Contract
Dated August 30, 1996
<PAGE>
JOHN HANCOCK ADVISERS, INC.
101 Huntington Avenue
Boston, Massachusetts 02199
JOHN HANCOCK CAPITAL SERIES
John Hancock Independence 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 Capital 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 Independence Equity Fund, John Hancock Special Value Fund, and
John Hancock Utilities 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 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:
1. Delivery of Documents. The Trust has furnished the Sub-Adviser with copies,
properly certified or otherwise authenticated, of each of the following:
(a) Amended and Restated Declaration of Trust dated February 28, 1992, as
amended from time to time (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;
<PAGE>
(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.
The Sub-Adviser has furnished the Adviser with a copy of the Sub-Adviser's
Code of Ethics, and will furnish the Adviser from time to time with copies of
any amendments to the code. The restrictions of the Sub-Adviser may differ from
those of the Trust where appropriate as long as they maintain the same intent
consistent with the sub-adviser's own procedures for recommending and purchasing
securities.
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;
(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;
2
<PAGE>
(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.
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;
3
<PAGE>
(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.
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
4
<PAGE>
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, 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 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.
5
<PAGE>
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 Capital Series is the
designation of the Trustees under the Amended and Restated Declaration of Trust
dated February 28, 1992, 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
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/Robert G. Freedman
-------------------------------
Title: Vice Chairman & Chief Investment Officer
The foregoing contract is hereby agreed to as of the date hereof.
JOHN HANCOCK CAPITAL SERIES
on behalf of John Hancock Independence Equity Fund
By: /s/ Anne C. Hodsdon
--------------------------------
Title: President
INDEPENDENCE INVESTMENT ASSOCIATES, INC.
By: /s/ Mark Lapman
--------------------------------
Title: Executive Vice President
JOHN HANCOCK UTILITIES FUND
(a series of John Hancock Capital Series)
101 Huntington Avenue
Boston, Massachusetts 02199
August 30, 1996
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199
Investment Management Contract
------------------------------
Ladies and Gentlemen:
John Hancock Capital Series (the "Trust"), of which John Hancock Utilities
Fund (the "Fund") is a series, 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, no par value, may
be divided into series, each series representing the entire undivided interest
in a separate portfolio of assets. This Agreement relates solely to the 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 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 Adviser and the Trust, on behalf of the Fund, 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:
(a) Amended and Restated Declaration of Trust dated February 28, 1992, as
amended from time to time (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) 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; and
(e) The Trust's Code of Ethics.
<PAGE>
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 objectives, policies 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 Fund's
then-current Prospectus and Statement of Additional Information included in the
registration statement of the Trust 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 objectives, policies and restrictions of the Fund, with
respect to the purchase, holding and disposition of portfolio
securities, alone or in consultation with any subadviser or
subadvisers appointed pursuant to this Agreement and subject to the
provisions of any sub-investment management contract respecting the
responsibilities of such subadviser or subadvisers;
(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;
(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;
2
<PAGE>
(h) from time to time or at any time requested by the Trustees, make
reports to the Fund 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 subparagraphs (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 Fund and will be surrendered to the
Fund 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 Fund;
(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
(m) appoint and employ one or more sub-advisors 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
Trust;
(b) the expenses of office rent, telephone and other utilities, office
furniture, equipment, supplies and other expenses of the Fund; and
(c) any other expenses incurred by the Adviser in connection with the
performance of its duties hereunder.
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) any and all expenses, taxes and governmental fees incurred by the
Trust or the Fund prior to the effective date of this Agreement;
3
<PAGE>
(b) without limiting the generality of the foregoing clause (a), the
expenses of organizing the Trust and the Fund (including without
limitation, legal, accounting and auditing fees and expenses incurred
in connection with the matters referred to in this clause (b)), of
initially registering shares of the Trust 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;
(c) 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;
(d) legal, accounting, financial management, tax and auditing fees and
expenses of the Fund (including an allocable portion of the cost of
its employees rendering such services to the Fund);
(e) the fees and disbursements of custodians and depositories of the
Fund's assets, transfer agents, disbursing agents, plan agents and
registrars;
(f) taxes and governmental fees assessed against the Fund's assets and
payable by the Fund;
(g) the cost of preparing and mailing dividends, distributions, reports,
notices and proxy materials to shareholders of the Fund;
(h) brokers' commissions and underwriting fees;
(i) the expense of periodic calculations of the net asset value of the
shares of the Fund; and
(j) insurance premiums on fidelity, errors and omissions and other
coverages.
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
Adviser shall be entitled to a fee, paid monthly in arrears, at an annual rate
equal to (i) 0.70% of the average daily net asset value of the Fund up to
$250,000,000 of average daily net assets and (ii) 0.65% of the average daily net
asset value of the Fund in excess of $250,000,000.
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. On any day that the
net asset value calculation is suspended as specified in the Fund's Prospectus,
the net asset value for purposes of calculating the advisory fee shall be
calculated as of the date last determined.
4
<PAGE>
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 has registered its 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, the Adviser may agree not to impose all or a portion of its
fee (in advance of the time its fee would otherwise accrue) and/or undertake to
make any other payments or arrangements necessary to limit the Fund's expenses
to any level the Adviser may specify. Any fee reduction or undertaking shall
constitute a binding modification of this Agreement while it is in effect but
may be discontinued or modified prospectively 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.
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.
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 Fund, the Adviser will act solely on its own behalf and not in any way on
behalf of 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.
8. NO PARTNERSHIP OR JOINT VENTURE. Neither the Trust, the Fund nor the
Adviser are 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 or names derived from or similar to the names "John
5
<PAGE>
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 a name or any other name indicating that
the Fund is advised by or otherwise connected with the Adviser. The Fund
acknowledges that it has adopted the name John Hancock Utilities Fund through
permission of John Hancock Mutual Life Insurance Company, a Massachusetts
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
nonexclusive right to use the name "John Hancock" or any similar name or names
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 in connection with the matters to which this Agreement relates, except a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of the Adviser in the performance of its duties or from reckless disregard
by 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 shall be deemed, when acting within the scope of his
employment by the Fund, to be acting in such employment solely for the Trust and
not as the Adviser's employee or agent.
11. DURATION AND TERMINATION OF THIS AGREEMENT. This Agreement shall remain
in force until August 29, 1998, 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 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 vote of a majority of the outstanding voting securities of the
Fund, by the Trustees or by the Adviser. Termination of this Agreement 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" and
"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 Trustees) of 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.
6
<PAGE>
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 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 Utilities Fund is a series
designation of the Trustees under the Trust's Declaration of Trust. The
Declaration of Trust has been filed with the Secretary of State of The
Commonwealth of Massachusetts. The obligations of 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 Trust, but only
upon the Fund and its property. The Fund shall not be liable for the obligations
of any other series of the Trust and no other series shall be liable for the
Fund's obligations hereunder.
Yours very truly,
JOHN HANCOCK CAPITAL SERIES
on behalf of John Hancock Utilities Fund
By: /s/ Anne C. Hodsdon
----------------------------
Title: President
The foregoing contract
is hereby agreed to as
of the date hereof.
JOHN HANCOCK ADVISERS, INC.
By: /s/ Robert G. Freedman
-----------------------------------
Title: Vice Chairman and Chief Investment Officer
7
JOHN HANCOCK CAPITAL SERIES
101 Huntington Avenue
Boston, MA 02199
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, MA 02199
Ladies and Gentlemen:
Pursuant to Section 14 of the Distribution Agreement dated as of August 1,
1991 between John Hancock Capital Series (the "Trust") and John Hancock Broker
Distribution Services, Inc. (now known as John Hancock Funds, Inc.), please be
advised that the Trust has established two new series of its shares, namely,
John Hancock Independence Equity Fund and John Hancock Utilities Fund (the
"Funds"), and please be further advised that the Trust desires to retain John
Hancock Funds, Inc. to serve as distributor and principal underwriter under the
Distribution Agreement for the Funds.
Please indicate your acceptance of this responsibility by signing this
letter as indicated below.
JOHN HANCOCK FUNDS, INC. JOHN HANCOCK CAPITAL SERIES
By: /s/Edward J. Boudreau, Jr. By: /s/Anne C. Hodsdon
---------------------------- -----------------------
Chairman, President & CEO President
Dated: August 30, 1996
JOHN HANCOCK CAPITAL SERIES
101 Huntington Avenue
Boston, MA 02199
John Hancock Investor Services Corporation
101 Huntington Avenue
Boston, MA 02199
Re: Transfer Agency and Service Agreement
Ladies and Gentlemen:
Pursuant to Section 9.01 of the Transfer Agency and Service Agreement dated
as of January 1, 1991 between John Hancock Capital Series (the "Trust") and John
Hancock Investor Services Corporation (the "Transfer Agent"), please be advised
that the Trust has established a new series of its shares, namely, John Hancock
Independence Equity Fund (the "Fund"), and please be further advised that the
Trust desires to retain the Transfer Agent to render transfer agency services
under the Transfer Agency and Service Agreement to the Fund in accordance with
the fee schedule attached as Exhibit A.
Please state below whether you are willing to render such services in
accordance with the fee schedule attached as Exhibit A.
JOHN HANCOCK CAPITAL SERIES
ATTEST: /s/ Susan S. Newton By: /s/ Anne C. Hodsdon
------------------------- ----------------------
Secretary President
Dated: August 30, 1996
We are willing to render transfer agency services to John Hancock
Independence Equity Fund in accordance with the fee schedule attached hereto as
Exhibit A.
JOHN HANCOCK INVESTOR SERVICES
CORPORATION
ATTEST: /s/ Susan S. Newton By: /s/Charles McKenney, Jr.
------------------------- -------------------------
Title:
Dated: August 30, 1996
<PAGE>
TRANSFER AGENT FEE SCHEDULE, EFFECTIVE AUGUST 30, 1996
Effective August 30, 1996, the transfer agent fees payable monthly under
the transfer agent agreement between each fund and John Hancock Investor
Services Corporation shall be the following rates plus certain out-of-pocket
expenses as described to the Board:
Annual Rate Per Account
Equity Fund Class A Shares Class B Shares
Capital Series $19.00 $21.50
- Special Value
- Independence Equity
- Utilities
Special Equities
World
- Pacific Basin
- Global Rx
- Global Marketplace
Freedom Investment Trust
- Gold and Government
- Regional Bank
- John Hancock Disciplined Growth
- John Hancock Financial Industries
Freedom Investment Trust II
- Global
- International
- Special Opportunities
- Growth
Freedom Investment Trust III
- Discovery
John Hancock Investment Trust
- Growth & Income
John Hancock Series, Inc.
- Emerging Growth
- Global Resources
John Hancock Sovereign Investors Fund, Inc.
- Sovereign Investors
- Sovereign Balanced
John Hancock Technology Series, Inc.
-Global Technology Fund
Annual Rate Per Account
Class A Shares Class B Shares
$20.00 $22.50
John Hancock Series, Inc.
- Money Market
John Hancock Cash Reserve
John Hancock Current Interest
- US Government Cash Reserve
<PAGE>
Annual Rate Per Account
Class A Shares Class B Shares
$20.00 $22.50
John Hancock Tax-Exempt Series, Inc.
- Massachusetts Tax-Free Income
- New York Tax-Free Income
Freedom Investment Trust
- Managed Tax-Exempt
John Hancock Tax-Free Bond Trust
- - Tax-Free Bond Fund
John Hancock California Tax-Free Income
John Hancock Series, Inc.
- - High Yield Tax-Free
Annual Rate Per Account
Class A Shares Class B Shares
Limited Term Government $20.00 $22.50
Sovereign Bond
Strategic Series
- Strategic Income
- Sovereign U.S. Government Income
Freedom Investment Trust II
- John Hancock World Bond Fund
- Short-Term Strategic Income
John Hancock Bond Trust
- Intermediate Maturity Gov't Fund
- Government Income Fund
- High Yield Bond Fund
The following funds are at a % of daily net assets of the Fund. Out-of-pocket
expenses are paid by John Hancock Investor Services Corporation.
Class C Funds
Special Equities .10% of daily net assets of the Fund
Sovereign Investors
<PAGE>
John Hancock Institutional Series Trust .5% of daily net assets of the Fund
- John Hancock Global Bond Fund
- John Hancock Independence Medium Capitalization Fund
- John Hancock Independence Growth Fund
- John Hancock Active Bond Fund
- John Hancock Independence Diversified Core Equity Fund II - John
Hancock Independence Balanced Fund - John Hancock Fundamental Value Fund
- John Hancock Dividend Performers Fund - John Hancock Independence Value
Fund - John Hancock International Equity Fund - John Hancock Multi-Sector
Growth Fund - John Hancock Small Capitalization Equity Fund
These fees are agreed to by the undersigned as of August 30, 1996.
/s/Anne C. Hodsdon
---------------------
Anne C. Hodsdon
President of each Fund
/s/ Charles McKenney, Jr.
---------------------------
Charles McKenney, Jr.
Vice President of John Hancock Investor
Services Corporation
JOHN HANCOCK CAPITAL SERIES
- JOHN HANCOCK UTILITIES FUND
Class A Shares
August 30, 1996
Article I. This Plan
This Distribution Plan (the "Plan") sets forth the terms and conditions on
which John Hancock Capital Series (the "Trust") on behalf of John Hancock
Utilities 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 Fund and JH Funds heretofore entered into a
Distribution Agreement, dated February 1, 1994, as amended, (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 JH Funds 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, (c) an allocation of overhead and
other branch office expenses of JH Funds related to the distribution of Class A
shares of the Fund and (d) distribution expenses incurred in connection with the
distribution of a corresponding class of any open-end, registered investment
company which sells all or substantially all of its assets to the Fund or which
merges or otherwise combines with the Fund.
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.
<PAGE>
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 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, dated August 30, 1996, 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 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").
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.
2
<PAGE>
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.
Article XI. Limitation of Liability
The names "John Hancock Capital Series" and "John Hancock Utilities Fund"
are the designations of the Trustees under the Amended and Restated Declaration
of Trust, dated February 28, 1992, as amended and restated from time to time.
The Amended and Restated 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 30th day of August, 1996 in Boston,
Massachusetts.
JOHN HANCOCK CAPITAL SERIES --
JOHN HANCOCK UTILITIES FUND
By: /s/ Anne C. Hodsdon
---------------------------
President
JOHN HANCOCK FUNDS, INC.
By: /s/ Edward J. Boudreau, Jr.
---------------------------
Chairman, President & CEO
JOHN HANCOCK CAPITAL SERIES
- JOHN HANCOCK UTILITIES FUND
Class B Shares
August 30, 1996
Article I. This Plan
This Distribution Plan (the "Plan") sets forth the terms and conditions on
which John Hancock Capital Series (the "Trust") on behalf of John Hancock
Utilities Fund (the "Fund"), a series portfolio of the Trust, on behalf of its
Class B 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 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 Fund and JH Funds heretofore entered into a
Distribution Agreement, dated February 1, 1994 (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,
(d) interest expenses on unreimbursed distribution expenses related to Class B
shares, as described in Article IV and (e) distribution expenses incurred in
connection with the distribution of a corresponding class of any open-end,
registered investment company which sells all or substantially all its assets to
the Fund or which merges or otherwise combines with the Fund.
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.
<PAGE>
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 August 30, 1996 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.
2
<PAGE>
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.
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 Capital Series" and "John Hancock Utilities Fund"
are the designations of the Trustees under the Amended and Restated Declaration
of Trust, dated February 28, 1992, as amended and restated from time to time.
The Amended and Restated 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 30th day of August, 1996 in Boston,
Massachusetts.
JOHN HANCOCK CAPITAL SERIES --
JOHN HANCOCK UTILITIES FUND
By: /s/ Anne C. Hodsdon
----------------------------
President
JOHN HANCOCK FUNDS, INC.
By: /s/ Edward J. Boudreau, Jr.
----------------------------
Chairman, President & CEO
JOHN HANCOCK CAPITAL SERIES
- JOHN HANCOCK INDEPENDENCE EQUITY FUND
Class A Shares
August 30, 1996
Article I. This Plan
This Distribution Plan (the "Plan") sets forth the terms and conditions on
which John Hancock Capital Series (the "Trust") on behalf of John Hancock
Independence 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 Fund and JH
Funds heretofore entered into a Distribution Agreement, dated August 1, 1991, as
amended, (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 JH Funds 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, (c) an allocation of overhead and
other branch office expenses of JH Funds related to the distribution of Class A
shares of the Fund and (d) distribution expenses incurred in connection with the
distribution of a corresponding class of any open-end, registered investment
company which sells all or substantially all of its assets to the Fund or which
merges or otherwise combines with the Fund.
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.
<PAGE>
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 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, dated August 30, 1996, 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 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").
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.
2
<PAGE>
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.
Article XI. Limitation of Liability
The names "John Hancock Capital Series" and "John Hancock Independence
Equity Fund" are the designations of the Trustees under the Amended and Restated
Declaration of Trust, dated February 28, 1992, as amended and restated from time
to time. The Amended and Restated 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 30th day of August, 1996 in Boston,
Massachusetts.
JOHN HANCOCK CAPITAL SERIES --
JOHN HANCOCK INDEPENDENCE EQUITY FUND
By: /s/ Anne C. Hodsdon
----------------------------
President
JOHN HANCOCK FUNDS, INC.
By: /s/ Edward J. Boudreau, Jr.
----------------------------
Chairman, President & CEO
JOHN HANCOCK CAPITAL SERIES
- JOHN HANCOCK INDEPENDENCE EQUITY FUND
Class B Shares
August 30, 1996
Article I. This Plan
This Distribution Plan (the "Plan") sets forth the terms and conditions
on which John Hancock Capital Series (the "Trust") on behalf of John Hancock
Independence Equity Fund (the "Fund"), a series portfolio of the Trust, on
behalf of its Class B 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 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 Fund 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,
(d) interest expenses on unreimbursed distribution expenses related to Class B
shares, as described in Article IV and (e) distribution expenses incurred in
connection with the distribution of a corresponding class of any open-end,
registered investment company which sells all or substantially all its assets to
the Fund or which merges or otherwise combines with the Fund.
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.
<PAGE>
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 August 30, 1996 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.
2
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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.
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 Capital Series" and "John Hancock Independence
Equity Fund" are the designations of the Trustees under the Amended and Restated
Declaration of Trust, dated February 28, 1992, as amended and restated from time
to time. The Amended and Restated 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 30th day of August, 1996 in Boston,
Massachusetts.
JOHN HANCOCK CAPITAL SERIES --
JOHN HANCOCK INDEPENDENCE EQUITY FUND
By: /s/ Anne C. Hodsdon
----------------------------
President
JOHN HANCOCK FUNDS, INC.
By: /s/ Edward J. Boudreau, Jr.
----------------------------
Chairman, President & CEO
